SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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 0-27266
WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3154957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
750 N. COMMONS DRIVE, AURORA, IL 60504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 898-2500
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check or mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $0.01 Par Value - 16,434,714 shares at October 31, 1998
Class B Common Stock, $0.01 Par Value - 19,996,857 shares at October 31, 1998
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
- As of March 31, 1998 and September 30, 1998 (unaudited)
Condensed Consolidated Statements of Operations (unaudited) 4
- Three months ended September 30, 1997 and 199
- Six months ended September 30, 1997 and 1998
Condensed Consolidated Statements of Cash Flows (unaudited) 5
- Six months ended September 30, 1997 and 1998
Notes to the Condensed Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 5. Other events 13
Item 6. Exhibits and Reports on Form 8-K 13
SAFE HARBOR STATEMENT
Certain statements contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this form 10-Q, which are not
historical facts (including, without limitation, statements about future ADSL
pricing and sales volume levels, the decrease in ADSL manufacturing costs, the
impact of year 2000 on the Company and its customers and vendors, our confidence
and strategies and our expectations about new and existing products,
technologies, opportunities, the emerging DSL market, demand and acceptance of
new and existing products and future commercial deployment of the Company's
products such as its DSL systems) are forward looking statements that involve
risks and uncertainties. These risks include, but are not limited to, product
demand and market acceptance risks (including the future commercial acceptance
of the Company's ADSL systems by telephone companies and other customers), the
impact of competitive products and technologies (such as cable modems and fiber
optic cable), competitive pricing pressures, forward pricing of ADSL systems,
product development, excess and obsolete inventory due to new product
development, commercialization and technological delays or difficulties
(including delays or difficulties in developing, producing, testing and selling
new products and technologies, such as ADSL systems), the effect of the
Company's accounting policies, the effect of economic conditions and trade,
legal, social, and economic risks (such as import, licensing and trade
restrictions) and other risks more fully described in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1998 under the section
"Risk Factors". The Company undertakes no obligation to release publicly the
result of any revisions to these forward looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, September 30,
1998 1998
---------- ----------
(unaudited)
(in thousands)
Current assets:
Cash and cash equivalents..................... $ 43,515 $ 21,303
Short term investments........................ 684 4,050
Accounts receivable (net of allowance of
$730,000 and $786,000, respectively).......... 12,399 13,329
Inventories................................... 9,428 8,427
Prepaid expenses and other current assets..... 100 485
Refundable income taxes....................... 110 101
Deferred income tax asset..................... 2,498 1,900
---------- ----------
Total current assets...................... 68,734 49,595
---------- ----------
Property and equipment:
Machinery and equipment....................... 15,630 17,567
Office, computer and research equipment....... 17,090 16,723
Leasehold improvements........................ 1,584 2,262
---------- ----------
34,304 36,552
Less accumulated depreciation and amortization 20,816 22,390
---------- ---------
Property and equipment, net.................. 13,488 14,162
---------- ----------
Deferred income tax asset and other assets...... 16,183 16,794
--------- ----------
Total assets.............................. $ 98,405 $ 80,551
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 7,472 $ 8,196
Accrued expenses.............................. 6,296 6,566
Accrued compensation.......................... 5,664 4,432
Current portion of long-term debt............. 1,407 1,407
Deferred revenue.............................. 414 413
---------- ----------
Total current liabilities.................... 21,253 21,014
---------- ----------
Long-term debt.................................. 3,013 2,177
---------- ----------
Other long-term liabilities..................... 998 1,083
---------- ----------
Commitments and contingencies Stockholders' equity:
Class A common stock, par $0.01................. 154 163
Authorized - 43,500,000 shares
Issued and outstanding - 15,371,900 shares at
March 31, 1998 and
16,317,214 shares at September 30, 1998
Class B common stock, par $0.01................. 210 201
Authorized - 25,000,000 shares
Issued and outstanding - 21,030,857 shares at
March 31, 1998 and
20,114,357 shares at September 30, 1998
Preferred stock, par $0.01...................... - -
Authorized - 1,000,000 shares
Issued and outstanding - none
Additional paid-in capital...................... 97,254 97,468
Cumulative translation adjustment............... (213) (418)
Accumulated deficit............................. (24,264) (41,137)
---------- ----------
Total stockholders' equity................ 73,141 56,277
========== ==========
Total liabilities and stockholders' $ 98,405 $ 80,551
equity.......................................... ========== ==========
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
September 30, September 30,
------------------- ------------------
1997 1998 1997 1998
-------- -------- ------- --------
(unaudited)
(in thousands, except per share data)
Equipment sales................. $18,439 $17,942 $34,774 $ 36,328
Services........................ 3,251 4,718 6,253 9,345
-------- -------- ------- --------
Total revenues................ 21,690 22,660 41,027 45,673
Cost of equipment sales......... 13,418 15,210 24,786 28,818
Cost of services................ 1,436 2,852 2,994 5,343
-------- -------- ------- --------
Total cost of goods sold...... 14,854 18,062 27,780 34,161
-------- -------- ------- --------
Gross margin................. 6,836 4,598 13,247 11,512
Operating expenses:
Sales and marketing........... 4,703 5,261 10,122 10,030
Research and development...... 6,680 6,578 12,766 12,708
General and administrative.... 3,099 3,282 6,046 6,273
-------- -------- ------- --------
Total operating expenses..... 14,482 15,121 28,934 29,011
-------- -------- ------- --------
Operating loss from continuing
operations...................... (7,646) (10,523) (15,687) (17,499)
Other income, net............... 362 348 855 783
Interest expense................ 62 66 125 156
-------- -------- ------- --------
Loss from continuing operations (7,346) (10,241) (14,957) (16,872)
before taxes....................
Benefit for income taxes........ (2,830) -- (5,920) --
-------- -------- ------- --------
======== ======== ======= ========
Net loss........................ $(4,516) $(10,241) $(9,037) $(16,872)
======== ======== ======= ========
Net loss per basic and diluted
common share.................... $ (0.12) $ (0.28) $ 0.25) $ (0.46)
======== ======== ======= ========
Average number of basic and
diluted 36,337 36,422 36,329 36,417
common shares outstanding.....
======== ======== ======= ========
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
----------------------------
1997 1998
------------ ------------
(unaudited)
(in thousands)
Cash flows from operating activities:
Net loss...................................... $ (9,037) $ (16,872)
Reconciliation of net income to net cash
provided by
(used in) operating activities:
Depreciation and amortization............... 3,477 3,670
Stock awards................................ 24 --
Deferred taxes.............................. (5,920) --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.. 184 (1,082)
Decrease in inventory....................... 2,738 936
Increase in prepaid expenses and deposits... (15) (385)
Decrease in refundable income taxes......... - 9
Increase in accounts payable and accrued 787 1,079
expenses....................................
Increase (decrease) in accrued compensation. 295 (1,232)
Decrease in deferred revenues............... - (1)
------------ ------------
Net cash used in operating activities...... (7,467) (13,878)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment......... (2,678) (4,344)
Increase in other assets.................... (24) (13)
Decrease (increase) in short term investments 5,445 (3,366)
Land and building construction held for resale 16,203 -
------------ ------------
Net cash provided by (used in) investing 18,946 (7,723)
activities.................................
------------ ------------
Cash flows from financing activities:
Net borrowing under revolving promissory notes 550 -
Repayment of long-term debt and leases payable (1,087) (837)
Cash distributed to Meridian LLC partner.... (500) -
Proceeds from the issuance of common stock.. 430 215
------------ ------------
Net cash used in financing activities...... (607) (622)
------------ ------------
Effect of exchange rate changes on cash....... (3) 11
Net increase (decrease) in cash............ 10,869 (22,212)
Cash and cash equivalents, beginning of period 28,436 43,515
============ ============
Cash and cash equivalents, end of period...... $ 39,305 $ 21,303
============ ============
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended March 31, 1998.
In the opinion of management, the unaudited interim financial statements
included herein reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company's consolidated financial
position and the results of operations and cash flows at September 30, 1998, and
for all periods presented. The results of operations for the three and six month
periods ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 1999.
NOTE 2. COMPUTATION OF NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 which requires companies to present basic and diluted earnings per
share effective for financial statements issued for periods ending after
December 15, 1997. The computation of basic earnings per share is computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share includes the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The effect of this computation on the number of outstanding shares is
antidilutive for the periods ended September 30, 1997, and 1998, and therefore
the net loss per basic and diluted earnings per share are the same.
NOTE 3. COMMITMENTS AND CONTINGENCIES:
During the quarter ended September 30, 1998, the Company received ADSL
orders from customers priced below current production costs, which caused the
Company to recognize a loss of $1.7 million for orders received. The Company
could continue to record losses on ADSL product sales if management enters into
similar sales arrangements prior to achieving manufacturing cost reductions of
ADSL products through (i) obtaining more cost effective DSL chipsets, (ii)
product design efficiencies and (iii) economies related to volume production.
WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. INTERIM SEGMENT INFORMATION:
Westell's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and market strategy. They consist of:
1) A telecommunications equipment manufacturer of local loop access
products, and
2) A multi-point telecommunications service bureau specializing in
audio teleconferencing, multi-point video conferencing, broadcast
fax and multimedia teleconference services.
Performance of these segments is evaluated utilizing, revenue, operating
income and total asset measurements. The accounting policies of the segments are
the same as those for Westell Technologies, Inc. Segment information for the
three and six month periods ended September 30, 1997 and 1998, are as follows:
Telecom Telecom
Equipment Services Total
--------- -------- -----
Three months ended September 30, 1997
Revenues ............................... $ 18,439 $ 3,251 $ 21,690
Operating income (loss) ................ (8,674) 1,028 (7,646)
Depreciation and amortization .......... 1,438 242 1,680
Total assets ........................... 93,069 6,656 99,725
Three months ended September 30, 1998
Revenues ............................... $ 17,942 $ 4,718 $ 22,660
Operating income (loss) ................ (11,177) 654 (10,523)
Depreciation and amortization .......... 1,483 431 1,914
Total assets ........................... 70,735 9,816 80,551
Six months ended September 30, 1997
Revenues ............................... $ 34,774 $ 6,253 $ 41,027
Operating income (loss) ................ (17,434) 1,747 (15,687)
Depreciation and amortization .......... 2,892 585 3,477
Total assets ........................... 93,069 6,656 99,725
Six months ended September 30, 1998
Revenues ............................... 36,328 9,345 45,673
Operating income (loss) ................ (19,174) 1,675 (17,499)
Depreciation and amortization .......... 2,784 886 3,670
Total assets ........................... 70,735 9,816 80,551
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
Westell Technologies, Inc. ("Westell" or the "Company") derives most of
its revenues from the sale of telecommunications equipment that enable
telecommunications services over copper telephone wires. The Company's
telecommunications equipment revenues can be categorized in three product
groups: (i) products based on digital subscriber line technologies ("DSL
products"), including Asymmetric Digital Subscriber Line ("ADSL"), Rate adaptive
Digital Subscriber Line ("RADSL") and High bit-rate Digital Subscriber Line
("HDSL") systems, which enable telephone companies to provide interactive
multimedia services over copper telephone wires, such as high speed Internet
access, video on demand, medical imaging and video conferencing and
telecommuting, while simultaneously carrying traditional telephone services,
(ii) Digital Signal Hierarchy Level 1 based products ("DS1 products"), which are
used by telephone companies to enable high speed digital T-1 transmission at
approximately 1.5 mega bits per second and (iii) Digital Signal Hierarchy Level
0 based products ("DS0 products"), which are used by telephone companies to
deliver digital services at speeds ranging from approximately 2.4 to 64 kilo
bits per second and analog services over a 4 kilohertz bandwidth. The Company's
service revenues are derived from audio, multi port video and multi media
teleconferencing services. Westell's net revenues increased 4.5% and 11.3% in
the three month and six month periods ended September 30, 1998, respectively,
when compared to the same periods last year. The increased revenue was driven by
higher service revenue as a result of increased teleconference call minutes.
Equipment revenue increased for the six month period primarily as a result of
increased DSL and DS1 unit shipments. For the three months ended September 30,
1998 equipment revenue decreased due to lower DSL shipments attributable to
uneven demand for DSL products. Equipment revenue was also affected by an
anticipated decrease in DS0 sales as network providers continue to transition to
higher speed digital based products. Historically, revenue from DS1 and DS0
products provided most of the Company's revenue.
The Company expects to continue to evaluate new product opportunities and
engage in extensive research and development activities. This will require the
Company to continue to invest heavily in research and development and sales and
marketing, which could adversely affect short-term results of operations. Due to
the Company's significant ongoing investment in DSL technology, the Company
anticipates losses in each of the remaining two fiscal 1999 quarters and losses
may extend into fiscal 2000. The Company believes that its future revenue growth
and profitability will principally depend on its success in increasing sales of
ADSL products and developing new and enhanced DS1 and other DSL products. The
market for DSL products continues to be increasingly competitive causing the
Company to offer its ADSL products at prices below current production costs
(i.e., forward pricing of DSL products). For instance, in the September 1998
quarter, the Company received ADSL orders from customers priced below current
production costs, which caused the Company to recognize a loss of $1.7 million.
Management believes that manufacturing costs will decrease when (i) more cost
effective chipsets are available, (ii) product design efficiencies are obtained
, and (iii) economies of scale are obtained related to increased volume. The
Company could continue to record losses on ADSL product sales prior to achieving
cost-effective chipsets, product design efficiencies and economies related to
volume production, which could have a material adverse effect on the Company's
business and results of operations.
In the current fiscal year, the majority of the DSL revenue has been
generated by shipments of ADSL systems at varying levels for data applications
(i.e., Internet access and work at home) due to the growth in users accessing
the World Wide Web through the Internet and the need to increase transmission
speed when accessing local area networks and downloading large text graphics and
video files. In view of the Company's reliance on the emerging DSL market for
growth and the unpredictability of orders and subsequent revenues, the Company
believes that period to period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. Revenues from DS0 products have declined in recent years as telcos
continue to move from analog to digital transmission services. The Company also
expects that revenues from Network Interface Unit ("NIU") products in its DS1
product group may decline as telcos increase the use of alternative technologies
such as HDSL. Failure to increase revenues from new products, whether due to
lack of market acceptance, competition, pricing pressures, technological change
or otherwise, would have a material adverse effect on the Company's business and
results of operations.
RESULTS OF OPERATIONS - Periods ended September 30, 1998 compared to periods
ended September 30, 1997
Revenues. The Company's revenues increased 4.5% from $21.7 million in the three
months ended September 30, 1997 to $22.7 million in the three months ended
September 30, 1998. The revenue increase in the three month period was primarily
due to increased DS1 revenue of $1.0 million and increased teleconference
service revenue from the Company's Conference Plus, Inc. subsidiary of $1.5
million when compared with the same period of the prior year. The increased DS1
revenue was due to overall unit volume increases offset in part by lower average
system sale prices resulting primarily from changes in product mix. Increased
teleconference service revenue reflects an increase in call minutes at the
Company's Conference Plus, Inc. subsidiary. These increases were partially
offset by a $988,000 decrease in DSL revenue and a $705,000 decrease in DS0
revenue in the three months ended September 30, 1998 when compared with the same
period of the prior year. The decrease in DSL revenue was due to lower unit
shipments of ADSL products. The Company expects continued order variations to
cause shipment levels to fluctuate from quarter to quarter. The decrease in DS0
revenue was due primarily to lower unit shipments as local service providers
transition to digital based products for providing service.
The Company's revenues increased 11.3% from $41.0 million in the six months
ended September 30, 1997 to $45.7 million in the six months ended September 30,
1998. The revenue increase in the six month period was primarily due to
increased teleconference service revenue from the Company's Conference Plus,
Inc. subsidiary of $3.1 million, increased DS1 revenue of $1.4 million and
increased DSL revenue of $908,000 when compared with the same period last year.
Increased teleconference service revenue reflects an increase in call minutes.
Increased DS1 revenue was due to overall unit volume increases offset in part by
lower average system sale prices resulting primarily from changes in product
mix. The increased DSL revenue was due to overall unit volume. These increases
were partially offset by a $1.1 million decrease in DS0 revenue in the six
months ended September 30, 1998 when compared with the same period of last year.
Gross Margin. Gross margin as a percentage of revenue decreased from 31.5% in
the three months ended September 30, 1997 to 20.3% in the three months ended
September 30, 1998 and decreased from 32.3% in the six months ended September
30, 1997 to 25.2% in the six months ended September 30, 1998. The decrease in
gross profit margin was primarily due to recording $1.7 million loss due to
forward pricing on DSL orders received during the September 1998 quarter. To a
lesser extent continued pricing pressures and product mix changes for the DS0
and DS1 products also attributed to the lower gross profit margin. During the
quarter the Company's Conference Plus, Inc. subsidiary opened a second facility
to handle increased call minutes and invested in additional infrastructure
enhancements which also impacted gross margins.
Sales and Marketing. Sales and marketing expenses increased 11.9%, from $4.7
million in the three months ended September 30, 1997 to $5.3 million in the
three months ended September 30, 1998 and decreased 1%, from $10.1 million in
the six months ended September 30, 1997 to $10.0 million in the six months ended
September 30, 1998. Sales and marketing expenses increased as a percentage of
revenues from 21.7% in the three months ended September 30, 1997 to 23.2% in the
three months ended September 30, 1998 and decreased as a percentage of revenue
from 24.7% in the six month period ended September 30, 1997 to 22.0% in the six
months ended September 30, 1998. The increase in sales and marketing expenses
during the three month period was primarily due to increased costs related to
DSL and Telco Access marketing program costs incurred during the quarter. The
decrease in sales and marketing expenses for the six month period was primarily
due to cost reductions resulting from management's initiatives undertaken late
last fiscal year to streamline DSL sales and marketing efforts. The Company
believes that continued investment in sales and marketing will be required to
expand its product lines, bring new products to market and service customers
globally.
RESULTS OF OPERATIONS - continued
Research and Development. Research and development expenses decreased 1.5%, or
$103,000, to $6.6 million in the three months ended September 30, 1998 and
decreased 0.5%, or $57,000, to $12.7 million in the six months ended September
30, 1998. Research and development expenses decreased as a percentage of
revenues from 30.8% in the three months ended September 30, 1997 to 29.0% in the
three months ended September 30, 1998 and decreased as a percentage of revenues
from 31.1% in the six months ended September 30, 1997 to 27.8% in the six months
ended September 30, 1998. Research and development expenses are relatively flat
from the same quarter last year as a result of the Company focusing development
spending on key customer and product developments such as the Access
Multiplexer, RADSL and ADSL functionality for the DSC Lite-Span and the Lucent
SLC-5 and SLC-2000 Digital Loop Carrier systems. The Company believes that a
continued commitment to research and development will be required for the
Company to remain competitive.
General and Administrative. General and administrative expenses increased 5.9%,
from $3.1 million in the three months ended September 30, 1997 to $3.3 million
in the three months ended September 30, 1998 and increased 3.8%, from $6.0
million in the six months ended September 30, 1997 to $6.3 million in the six
months ended September 30, 1998. General and administrative expenses increased
as a percentage of revenues from 14.3% in the three months ended September 30,
1997 to 14.5% in the three months ended September 30, 1998 and decreased as a
percentage of revenues from 14.7% in the six months ended September 30, 1997 to
13.7% in the six months ended September 30, 1998. The general and administrative
expense increase was primarily due to information systems enhancements during
the period partially offset by the results from management initiatives and
restructuring that took place in the March 1998 quarter to streamline
administrative functions both domestically and internationally.
Other income, net. Other income, net decreased from $362,000 in the three months
ended September 30, 1997 to $348,000 in the three months ended September 30,
1998 and decreased from $855,000 in the six months ended September 30, 1997 to
$783,000 in the six months ended September 30, 1998. The income for the period
was due to interest income earned on temporary cash investments made as a result
of investing available funds.
Interest expense. Interest expense increased from $62,000 in the three months
ended September 30, 1997 to $67,000 in the three months ended September 30, 1998
and increased from $125,000 in the six months ended September 30, 1997 to
$156,000 in the six months ended September 30, 1998. Interest expense during the
current period is a result of interest incurred on net obligations outstanding
during the period under equipment facility borrowings and capital leases.
Benefit for income taxes. Benefit for income taxes decreased from $2.8 million
and $5.9 million in the three and six month periods months ended September 30,
1997 to $0 for the three and six month periods ended September 30, 1998. As in
the quarter ended June 30, 1998, the Company provided a valuation reserve for
the entire benefit generated during the current quarter of $4.1 million since
the resulting gross deferred tax asset would have exceeded the value of tax
planning strategies available to the Company. The Company will evaluate on a
quarterly basis its ability to record a benefit for income taxes in relation to
the value of tax planning strategies available in relation to the resulting
gross deferred asset.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $25.4 million in cash and short term
investments which is being invested in short term investments consisting of
federal government agency instruments and the highest rated grade corporate
commercial paper.
The Company's operating activities used cash of approximately $13.9 million in
the six months ended September 30, 1998, which resulted primarily from a loss
from continuing operations before income taxes of $13.2 million (net of
depreciation), increases in accounts receivable and prepaid expenses and a
decrease in accrued compensation offset partially by a decrease in inventory and
increases in accounts payable and accrued expenses.
Capital expenditures for the six month period ended September 30, 1998 were $4.3
million, all of which was funded by available cash. The Company expects to spend
approximately $2.2 million for the remainder of fiscal year 1999 related to
capital equipment expenditures.
At September 30, 1998, the Company's principle sources of liquidity were $25.4
million of cash and short term investments. In October 1998, the Company entered
into a credit facility that replaced the revolving promissory note and equipment
facilities that expired on May 15, 1998 and December 15, 1997, respectively.
Under this credit facility, the Company may borrow up to $16.0 million under a
secured revolving line of credit based upon receivables and inventory levels and
up to an additional $5.0 million under a secured equipment line of credit.
Additionally, a $4.0 million term loan was provided under the credit facility to
refinance existing long term indebtedness with the prior lending institution.
Cash and cash equivalents, anticipated funds from operations, along with
available credit lines and other resources, are expected to be sufficient to
meet cash requirements for the next twelve months. Cash in excess of operating
requirements will continue to be invested on a short term basis in federal
government agency instruments and the highest rated grade commercial paper.
The Company has approximately $3.7 million in income tax credit carryforwards
and a tax benefit of $22.2 million related to a net operating loss carryforward
that is available to offset taxable income in the future. The tax credit
carryforwards begin to expire in 2008 and the net operating loss carryforward
begins to expire in 2012.
Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax asset is not
assured and the Company has incurred operating losses for the 1996, 1997, and
1998 fiscal years, management believes that it is more likely than not that it
will generate taxable income sufficient to realize the recorded tax benefit
associated with future temporary differences, NOL carryforwards and tax credit
carryforwards prior to their expiration through a tax planning strategy
available to the Company. Management has determined that the strategy was no
longer sufficient to realize all of the deferred tax assets available to the
Company and as such, has recorded a valuation allowance of $9.7 million. On a
quarterly basis, management will assess whether it remains more likely than not
that the recorded deferred tax asset will be realized. If the tax planning
strategy is not sufficient to generate taxable income to recover the deferred
tax benefit recorded, an increase in the valuation allowance will be required
through a charge to the income tax provision. However, if the Company achieves
sufficient profitability or has available additional tax planning strategies to
utilize a greater portion of the deferred tax asset, an income tax benefit would
be recorded to decrease the valuation allowance.
YEAR 2000 COMPLIANCE ISSUE
The Company has determined that it is required to modify and/or replace
portions of its software systems so that they will properly utilize dates beyond
December 31, 1999 (the "year 2000 compliance"). The Company believes that, with
software upgrades and modifications and with the conversion to new software, the
impact of the year 2000 on its computer systems can be mitigated. However, if
the upgrades, modifications and conversions are not made, or are not made in a
timely manner, the year 2000 could have a material adverse impact on the
Company's operations. A plan to remediate the Company's Information Technology
("IT") systems, which will include efforts to mitigate the impact that the year
2000 will have on the Company, has begun and is projected to be implemented by
March 31, 1999 (the "Project").
The Project includes upgrading system software, hardware and processes
that are not exclusively related to year 2000 compliance. The Project will
utilize both internal and external resources. The Company has a full-time
manager dedicated to the Project as well as addressing the Company's year 2000
compliance issues. The Project cost for the Company is estimated to be $1.8
million. These costs are expected to be expensed as incurred, except for
approximately $600,000 that will be capitalized unrelated to year 2000
compliance. The Company has expensed approximately $300,000 related this Project
and has incurred approximately $200,000 in capital expenditures, as of September
30, 1998. The Project team is currently meeting its objectives and believes that
this Project will be completed as planned and within cost estimates. The Project
costs and the date on which the Company plans to complete this Project are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from these estimates and plans.
The Company has begun assessing how the year 2000 will impact both
internal and external non-IT systems, including product compliance, machinery
and equipment, engineering support systems and tools, human resource data bases,
payroll processing, banking systems, benefit plan third party administrators,
and customer systems and vendor compliance. The Company has made an initial
assessment that products produced by the Company, and systems used by the
Company to manufacture products, are year 2000 compliant; however, the Company
will have to undertake a more detailed analysis of its products and
manufacturing systems to assure that year 2000 issues have been entirely
addressed. The Company is in the initial stages of questioning customers and
vendors to determine whether their systems and products are year 2000 compliant.
The Company has not received sufficient information to assess whether the lack
of year 2000 compliance of customers or vendors will materially impact the
Company's operations. The Company expects that it will be able to more fully
assess the impact of vendor and/or customer year 2000 compliance deficiency by
March 31, 1999. The Company is in the process of assessing the year 2000
compliance of its engineering support systems and automated engineering tools.
The Company is in the initial stages of questioning the vendors of these systems
and tools to determine whether they are year 2000 compliant. Many of these
systems and tools are upgraded annually through license renewals. If the current
upgrades of any of these engineering support systems and automated engineering
tools are not year 2000 compliant, then the Company will have to seek a
replacement for the system or tool prior to such year 2000 noncompliance
affecting the Company's product development schedules. The Company expects that
this evaluation will be completed by December 31, 1998, and believes that it
will have sufficient time to mitigate any significant impact that the year 2000
compliance will have on the Company's development schedules. However, any
replacement of an engineering support system or automated engineering tools
could result in the Company incurring significant initial capital costs which
could materially and adversely affect the Company's operating results. The
Company's human resource database and the payroll processing systems have been
evaluated for year 2000 compliance and must be upgraded in order to be year 2000
compliant. The cost of this upgrade will not be significant and the Company
anticipates that this upgrade will be completed by March 31, 1999. The Company
has received confirmation that its primary banks and its benefit plan third
party administrators systems are or will be year 2000 compliant.
The Company believes that it is proactive in assessing the impact that the
year 2000 will have on both its internal and external IT and non-IT systems.
Where material and where feasible, the cost of year 2000 compliance has been
quantified. The Company is at varying stages of evaluating the impacts of the
year 2000 on its business and its results of operations. The Company believes
that its actions, evaluations and processes currently undertaken are sufficient
to assess and mitigate the impacts that the year 2000 will have on the Company.
However, since the evaluations described above are, at this time, not complete,
the Company may discover ways in which the lack of year 2000 compliance, whether
by the Company or by third parties, could materially affect the Company's
operations.
The Company has not developed a contingency plan to address all possible
effects that the year 2000 may have on its operations. Management believes,
however, that its actions, evaluations and processes should provide sufficient
time to address the year 2000 risks as they are revealed. The Company will be
prepared to develop a contingency plan that should mitigate year 2000
noncompliance that is within its control. Risks related to customer year 2000
noncompliance are not within the Company's control, however, and therefore, the
noncompliance of customer systems may materially adversely impact the Company's
operations. Year 2000 compliance of the Company's vendors is also not within the
control of the Company. The Company believes that it will have sufficient time
to mitigate vendor year 2000 noncompliance, however, and replace such vendors
with vendors that are year 2000 compliant due to the general availability of
electrical component material in the Company's products.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On September 9, 1998 the Company held its annual shareholders meeting. The only
matter put before vote of the security holders was the election of directors.
The results of the election of directors was as follows based upon total votes
cast of 91,750,198:
For Withheld
--- --------
Robert H. Gaynor 91,537,003 213,195
Melvin J. Simon 91,398,622 200,025
Stefan D. Abrams 91,540,898 209,300
Michael A. Brunner 91,549,273 200,925
Paul A. Dwyer 91,548,893 201,305
Robert C. Penny 91,546,224 203,974
John W. Seazholtz 91,550,173 200,025
Ormand J. Wade 91,550,153 200,045
ITEM 5. OTHER EVENTS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of regulation S-K:
Exhibit 10.1 Loan and Security Agreement dated as of October 13, 1998
among LaSalle National Bank, Westell Technologies, Inc., Westell,
Inc., Westell International, Inc., and Conference Plus, Inc.
Exhibit 10.2 Revolving Note dated as of October 13, 1998 payable to
LaSalle National Bank and made by Westell Technologies, Inc.,
Westell, Inc., Westell International, Inc., and Conference Plus,
Inc.
Exhibit 10.3 Equipment Loan Note dated as of October 13, 1998 payable to
LaSalle National Bank and made by Westell Technologies, Inc.,
Westell, Inc., Westell International, Inc., and Conference Plus,
Inc.
Exhibit 10.4 Term Note dated as of October 13, 1998 payable to LaSalle
National Bank and made by Westell Technologies, Inc., Westell,
Inc., Westell International, Inc., and Conference Plus, Inc.
Exhibit 27: Financial Data Schedule
b) The registrant was not required to file any reports on Form 8-K for the
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WESTELL TECHNOLOGIES, INC.
(Registrant)
DATE: November 13, 1998
By: ROBERT H. GAYNOR
ROBERT H. GAYNOR
Chairman of the Board of Directors
and Chief Executive Officer
By: STEPHEN J. HAWRYSZ
STEPHEN J. HAWRYSZ
Chief Financial Officer, Vice
President, Secretary and Treasurer
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS............................................................... 1
1.1 Certain Definitions..................................... 1
1.2 Accounting Terms........................................ 10
ARTICLE II
THE ...................................................................... 11
2.1 Revolving Loan.......................................... 11
2.1 (a) Funding of the Revolving Loan........................... 11
(b) The Note; Repayment of Principal........................ 11
2.1 (c) Revolving Loan Borrowing Request...... 11
2.2 Term Loan............................................... 12
(a) Funding of the Term Loan....................... 12
2.2 (b) Term Note; Repayment of Principal. ........... 12
2.3 The Borrower's Loan Account............................. 13
2.4 Interest Rate; Payments................................. 13
2.4 (a) The Revolving Loans............................ 13
2.4 (b) The Term Loan.................................. 14
2.5 Fees and Expenses....................................... 14
(a) Commitment Fee................................. 14
(b) Expenses....................................... 14
2.7 Optional Prepayment..................................... 14
2.8 Application of Payments and Prepayments................. 14
2.9 Default Interest........................................ 15
2.10 Free Balances........................................... 15
2.11 Payment to the Bank..................................... 15
ARTICLE III
CONDITIONS PRECEDENT....... 15
3.1 Delivery of Documents as Conditions Precedent........... 15
ARTICLE IV
COLLATERAL SECURITY....... 18
4.1 Grant of Security Interest.............................. 18
4.2 Perfection of Security Interests........................ 19
4.3 Notice to Account Debtors and Instrument Obligors....... 19
4.4 Appointment as Attorney-in-Fact......................... 20
ARTICLE V
REPRESENTATIONS AND WARRANTIES.. 21
5.1 Organization of Borrower................................ 21
5.2 Authority and Consents.................................. 21
5.3 Organization of General Partner......................... 22
5.4 Corporate Authority and Consents........................ 22
5.5 Binding Effect and Enforceability....................... 23
5.6 Default of Indebtedness................................. 23
5.7 Financial Condition and Litigation...................... 23
5.8 Title and Liens......................................... 24
5.9 Account Warranties...................................... 24
5.10 Inventory Warranties.................................... 25
5.11 Employee Plans.......................................... 25
5.12 Taxes................................................... 26
5.13 Compliance with Laws.................................... 26
5.14 Subsidiaries and Affiliates............................. 26
5.15 Assumed Names........................................... 26
5.16 Solvency................................................ 26
5.17 Regulation U............................................ 27
........................................................ 27
5.18 Occupational Safety and Health.......................... 27
5.19 Environmental Protection................................ 27
5.20 Compliance with Zoning and Other Regulations;
Assessments .......................................... 28
5.21 Disclosure.............................................. 28
5.22 Labor Relations......................................... 28
ARTICLE VI
COVENANTS............ 29
6.1 Affirmative Covenants................................... 29
6.1 (a) Payments....................................... 29
6.1 (b) Financial Covenants............................ 29
(c) Financial Information and Reporting............ 29
(d) Account Covenants.............................. 32
(e) Inventory and Equipment Covenants.............. 32
(f) Insurance...................................... 33
(g) Existence...................................... 34
(h) Taxes and Laws................................. 34
(i) Repair and Maintenance......................... 34
(j) Inspection..................................... 35
(k) Bank Costs..................................... 35
(l) Indemnity and Release.......................... 36
(m) Instruments and Chattel Paper.................. 36
(n) Employee Plans................................. 36
(o) Leases......................................... 37
(p) Bank Deposits.................................. 37
(q) Landlord Waivers............................... 38
6.2 Negative Covenants...................................... 38
(a) Liens.......................................... 38
(b) Debt........................................... 38
(c) Name Changes, Mergers and Acquisitions......... 39
(d) Payments under Subordinated Debt............... 39
(e) Transfer of Assets............................. 39
(f) Investments and Loans.......................... 39
(g) Prepayment or Modification of Indebtedness..... 39
(h) False Statements............................... 40
(i) Transactions with Affiliates................... 40
(j) Guarantees..................................... 40
(k) Capital Structure.............................. 40
(l) Locations...................................... 40
(m) Leases......................................... 40
ARTICLE VII
EVENTS OF DEFAULT........ 41
7.1 Payment Obligations..................................... 41
7.2 Performance Obligations................................. 41
7.3 Representation and Warranties........................... 41
7.4 Judgments............................................... 41
7.5 Insolvency and Related Proceedings...................... 41
7.6 Material Agreements..................................... 42
7.7 State Action............................................ 42
7.8 Material Adverse Change................................. 42
7.9 Tax Liens............................................... 43
ARTICLE VIII
RIGHTS AND REMEDIES OF THE BANK. 43
8.1 Termination of Commitment and Acceleration.............. 43
8.2 Rights of Secured Creditor.............................. 43
8.3 Sale of Collateral...................................... 44
8.4 Entry on Premises....................................... 45
8.5 Access to Records....................................... 45
ARTICLE IX
MISCELLANEOUS.......... 45
9.1 Waiver.................................................. 45
9.2 Applicable Law.......................................... 46
9.3 Severability............................................ 46
9.4 Counterparts............................................ 46
9.5 Section Headings........................................ 46
9.6 Binding Effect.......................................... 46
9.7 Merger Clause........................................... 46
9.8 Notices................................................. 46
9.9 Consent to Service...................................... 47
9.10 Waiver of Jury Trial.................................... 47
9.10 Participations.......................................... 48
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement") is made as of
October 13, 1998 by and among LaSalle National Bank, a national banking
association (the "Bank"), Westell Technologies, Inc., ("WTI"), a Delaware
corporation, Westell, Inc. ("Westell"), an Illinois corporation, Westell
International, Inc. ("International"), a Delaware corporation, and Conference
Plus, Incorporated ("CPI"), a Delaware corporation (each individually, a
"Borrower" and collectively, "Borrowers").
WITNESSETH:
WHEREAS, WTI is the holding company for Westell,
International, and CPI. Westell designs, manufactures, markets and services a
broad range of digital and analog products used by telephone companies to
deliver services primarily over existing copper wires, and International markets
and distributes Westell's product line to international markets. CPI is a
multi-point telecommunications service bureau specializing in audio
teleconferencing, multi-point video conferencing, broadcast fax, and multimedia
teleconference services.
WHEREAS, in order to repay the existing indebtedness of
Borrowers, to provide for Borrowers' working capital needs, and to provide for
the purchase of machinery and equipment, Borrowers desire to borrow from the
Bank and have requested that the Bank make available and lend to the Borrowers a
revolving credit line in an aggregate amount not to exceed Sixteen Million
Dollars ($16,000,000.00), a term credit facility in the aggregate amount of Four
Million Dollars ($4,000,000.00), and an equipment line of credit in an aggregate
amount not to exceed Five Million Dollars ($5,000,000.00), upon the satisfaction
of certain terms and conditions, all as more fully set forth below; and
WHEREAS, in order to induce the Bank to make such credit
extensions to the Borrowers, the Borrowers propose to secure the indebtedness
and obligations of the Borrowers to the Bank hereunder by granting to the Bank a
security interest in the Borrowers' personal property, including, without
limitation, all accounts receivable, general intangibles, inventory, machinery
and equipment, chattel paper, instruments, and documents; and
WHEREAS, the Bank is willing to make such credit extensions to
the Borrowers only on such a secured basis.
NOW, THEREFORE, for and in consideration of the foregoing
premises, which are hereby incorporated herein as true, and the terms,
conditions, representations, warranties, covenants, promises and agreements
herein contained, the parties hereto agree as follows:
I. DEFINITIONS.
1.1 Certain Definitions.
"Accounts" shall have the same meaning assigned to that term
in the version of the Uniform Commercial Code currently in effect in the State
of Illinois, wheresoever located and whether now or hereafter owned, acquired,
arising or existing, including without limitation, contract rights, any and all
manner of accounts receivable and all security agreements, guaranties, letters
of credit and any other collateral security for any or all of the foregoing.
"Account Debtor" shall have the same meaning assigned to that
term in the version of the Uniform Commercial Code currently in effect in the
State of Illinois.
"Accounts Receivable Aging Reports" means those reports
prepared by Borrowers listing Borrowers' Account balances (and the number of
days each such Account balance is outstanding) as of the last day of each month,
which balances Borrowers shall represent and warrant as being calculated in
accordance with GAAP (including a reasonable provision for uncollectibility) and
which shall be presented in an aging format acceptable to the Bank and shall
include the status of all disputes, lawsuits, and delinquent Accounts over
$100,000.
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in (i) the
acquisition of all or substantially all of the assets of Person, (ii) the
acquisition of in excess of 50% of the capital stock, partnership interest,
membership interest or equity of any Person, or otherwise causing any Person to
become a Subsidiary, or (iii) a merger or consolidation or any other combination
with any other Person, provided that the applicable Borrower is the surviving
entity.
"Affiliate" means (i) any shareholder of any Borrower, (ii)
any corporation or any other Person that directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common control
with any Borrower or (iii) any officer, director, trustee, partner or
shareholder of any corporation or any other Person that directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with any Borrower.
"Agreement" means, collectively, this Loan and Security
Agreement, together with any and all exhibits, attachments and amendments
thereto and modifications, renewals, extensions, restatements and substitutions
thereof and therefor.
"Applicable Environmental Property" has the meaning set forth
in Section 5.19(a).
"Bank" means the LaSalle National Bank, a national banking
association.
"Banking Day" means any day other than a Saturday, Sunday or
legal holiday in the State of Illinois.
"Borrowers" means collectively, Westell, WTI, International
and CPI.
"Borrowing Base Certificate" means those reports prepared by
Borrowers calculating the Revolving Loan Borrowing Base in the form of Exhibit A
hereto.
"Capital Expenditures" means expenditures for the purchase,
creation, improvement, renovation or lease of a capital asset classified as such
in accordance with GAAP.
"Chattel Paper" shall have the same meaning assigned to that
term in the version of the Uniform Commercial Code currently in effect in the
State of Illinois, wheresoever located and whether now or hereafter existing,
arising or acquired, including, without limitation, all installment contracts
and leases.
"Collateral" means all of Borrowers' Accounts, Chattel Paper,
Documents, Equipment, Fixtures, Goods, General Intangibles, Inventory, monies,
and Instruments, wheresoever located and whether now or hereafter owned,
acquired, arising or existing, all proceeds of any of the foregoing (including,
without limitation, all proceeds of insurance policies or letters of credit
covering or related to any of the foregoing), and all writings, correspondence,
books, files, invoices, bills of lading, purchase orders, computer files and
programs, computer tapes, discs and cards, accounting records, data, information
and other records relating to any of the foregoing, together with all monies,
deposits, accounts, credits or other property now or hereafter in the possession
of the Bank for the account of the Borrowers.
"Current Assets" means at any date the amount of all of the
current assets of Borrowers which would be classified as current assets shown on
a balance sheet at such date in accordance with GAAP, less any prepaid expenses
and any deferred income tax assets included in current assets.
"Current Liabilities" means at any date the amount of all of
the current liabilities of Borrowers which would be classified as current
liabilities on a balance sheet at such date in accordance with GAAP, and shall
include the current portion of long-term debt (including the Term Loan,
Revolving Loans and Equipment Loan) and the current portion of capital lease
obligations.
"Current Ratio" means at any date, Borrowers' Current Assets
divided by Current Liabilities, expressed as a ratio.
"Default Interest Rate" means an interest rate equal to 2%
over the Prime Rate at the time of determination.
"Documents" shall have the same meaning assigned to that term
in the version of the Uniform Commercial Code currently in effect in the State
of Illinois, wheresoever located and whether now owned, acquired, arising or
existing.
"Eligible Accounts" means such Accounts arising in the
ordinary course of Borrowers' business which are subject to the Bank's perfected
security interest and no other Lien, encumbrance or security interest other than
Permitted Liens and which are evidenced by an invoice. In addition, no Account
shall be an Eligible Account, if:
(i) it arises out of a sale made by any Borrower to
an Affiliate of such Borrower or to a Person controlled by an Affiliate
of such Borrower or a sale by one division of Borrower to another one
of its divisions; or
(ii) it is due or unpaid more than ninety (90) days after the
original invoice date; or
(iii) twenty-five percent (25%) or more at any one
time of the Accounts from a particular Account Debtor are not deemed
Eligible Accounts hereunder; or
(iv) any covenant, representation or warranty
contained in this Agreement with respect to such Account has been
materially breached; or
(v) the Account Debtor is also any Borrower's
creditor or supplier, or the Account Debtor has disputed its liability
with respect to such Account, or the Account Debtor has made any claim
with respect to any other Account due from such Account Debtor to any
Borrower, or the Account otherwise is subject to any right of setoff by
the Account Debtor, or the Account Debtor has filed a lawsuit against
any Borrower; or
(vi) the Account Debtor has commenced a voluntary
case under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the
Account Debtor, or if the Account Debtor has failed, suspended
business, ceased to be solvent, or consented to or suffered a receiver,
trustee, liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs; or
(vii) the sale is to an Account Debtor outside the
continental United States, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case (other than with respect to
a L/C issued by Bank at Borrower's request) acceptable to the Bank in
its sole, but reasonable discretion, except with respect to those
Account Debtors set forth on Schedule 1 attached hereto; or
(viii) the sale to the Account Debtor is on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval, or
any other repurchase or return basis or is evidenced by Chattel Paper;
or
(ix) the Account Debtor is the United States of
America or any department, agency or instrumentality thereof, unless
the applicable Borrower assigns its right to payment of such Account to
the Bank pursuant to the Assignment of Claims Act of 1940, as amended
(31 U.S.C. Sub-Section 203 et seq.); or
(x) the goods giving rise to such Account have not
been shipped and delivered to the Account Debtor or the Account
otherwise does not represent a final sale; or
(xi) to the knowledge of Borrowers, the Account is
subject to any offset, deduction, defense, dispute, or counterclaim, or
if the Account is contingent in any respect or for any reason; or
(xii) any Borrower has made any agreement with any
Account Debtor for any deduction therefrom, except for discounts or
allowances made in the ordinary course of business for prompt payment,
all of which discounts or allowances are reflected in the calculation
of the face value of each respective invoice related thereto;
(xiii)the Accounts of the Account Debtor exceed a
reasonable credit limit determined by the Bank in its sole discretion
after consideration of the history of the applicable Account Debtor, to
the extent such Accounts exceed such limit.
The foregoing notwithstanding, Bank reserves the right to
modify the criteria for "Eligible Accounts" after the
occurrence of an Event of Default.
"Eligible Inventory" means that portion of Borrowers'
inventory located in the United States consisting of raw materials and finished
goods, but shall not include work-in-process and accounting reserves. The
foregoing notwithstanding, Bank reserves the right to modify the criteria for
"Eligible Inventory" after the occurrence of an Event of Default.
"Employee Plan" includes any pension, retirement, disability,
medical, dental or other health plan, life insurance or other death benefit
plan, profit sharing, deferred compensation, stock option, bonus or other
incentive plan, vacation benefit plan, severance plan, or other employee benefit
plan or arrangement, including, without limitation, those pension,
profit-sharing and retirement plans of the Borrowers described from time to time
in the Financial Statements and any pension plan, welfare plan, Defined Benefit
Pension Plans (as defined in ERISA) or any multi-employer plan, maintained or
administered by the Borrowers to which any Borrower is a party or may have any
liability or by which any Borrower is bound.
"Environmental Laws" means all federal, state and local Laws
(including, without limitation, the common law), statutes, ordinances, rules,
regulations and other requirements (including, without limitation,
administrative orders, consent agreements and conditions contained in the
applicable permits), relating to health, safety and the protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss. 9601 et seq.,
the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss. 6901 et seq.,
and the Clean Air Act 42. U.S.C. ss. 7401 et seq., as amended or hereafter
amended.
"Equipment" has the same meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, including, without limitation, all machinery, apparatus, equipment,
furniture, fixtures and motor vehicles and all accessions, parts and
appurtenances thereto and all substitutions or replacements thereof, wheresoever
located, whether now or hereafter owned, acquired, arising or existing.
"Equipment Loan" means the equipment loan of the Borrowers as
set forth in Section 2.3(a) hereof.
"Equipment Loan Advance" has the meaning set forth in Section
2.3(a) hereof.
"Equipment Loan Advance Termination Date" has the meaning set
forth in Section 2.3(a) hereof.
"Equipment Loan Termination Date" has the meaning set forth
in Section 2.3(b) hereof.
"Equipment Note" means the Equipment Note executed by the
Borrowers as defined in Section 2.3(b), which is in the form attached hereto as
Exhibit D.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" means an event or occurrence described in
Article VII of this Agreement.
"Financial Statements" means the balance sheets, statements of
income and retained earnings and statements of changes in cash flow of Borrowers
for each of the Fiscal Years ended March 31, 1995, March 31, 1996, March 31,
1997, and March 31, 1998, which were delivered to Bank prior to the date hereof,
and the balance sheets, statements of income and retained earnings and
statements of changes in cash flow of the Borrowers for each Fiscal Year or each
month thereof to be delivered to the Bank pursuant to Section 6.1.(c). and
3.1.(m). of this Agreement.
"Fiscal Year" means the fiscal year of the Borrowers ending
March 31 of each year.
"Fixtures" has the same meaning assigned to that term in the
version of the Uniform Commercial Code currently in effect in the State of
Illinois, including all accessions, parts and appurtenances thereto and all
substitutions or replacements thereof, wheresoever located and whether now or
hereafter owned, acquired, arising or existing.
"Funds" has the meaning set forth in Section 6.1(p)(i).
"GAAP" means generally accepted accounting principles
consistently applied by Borrowers.
"General Intangibles" shall have the same meaning assigned to
that term in the version of the Uniform Commercial Code currently in effect in
the State of Illinois, including, without limitation, all choses in action,
causes of action, corporate or other business records, computer programs, source
codes, use codes, software, customer lists, tax refund claims, trademarks,
service marks, trade names, trade secrets, patents, patent applications,
designs, inventions, licenses, franchise rights, copyrights, registrations,
goodwill and all rights under any real or personal property leases, permits, all
claims under guaranties, security interests or other security held by or granted
to any Borrower to secure payment of any of the Accounts by an Account Debtor,
all rights to indemnification and all other intangible personal property of any
kind or nature (other than Accounts), wheresoever located or arising and whether
now or hereafter owned, acquired, arising or existing.
"Goods" shall have the same meaning assigned to that term in
the version of the Uniform Commercial Code currently in effect in the State of
Illinois, all accessions, parts and appurtenances thereto and all substitutions
or replacements thereof, wheresoever located and whether now or hereafter owned,
acquired, arising or existing.
"Hazardous Materials" means (i) hazardous substances, as that
term is defined by CERCLA, and the Illinois Environmental Protection Act, Ill.
Rev. Stat. 415 ILCS 5/1 et seq.; (ii) hazardous or toxic chemicals, materials,
or substances within the meaning of any other applicable Environmental Law, all
as amended or hereafter amended.
"Indebtedness" means, without duplication, all items which, in
accordance with GAAP, would be included as liabilities and shall include,
without limitation, capitalized leases, letters of credit, secured and unsecured
debt and contingent but accrued liabilities as reflected in the Financial
Statements.
"Instruments" shall have the same meaning assigned to that
term in the version of the Uniform Commercial Code currently in effect in the
State of Illinois, wheresoever located and whether now or hereafter owned,
acquired, arising or existing.
"Intercompany Notes" shall mean the promissory notes now or
hereafter existing evidencing the intercompany indebtedness of the Borrowers,
Westell Canada, Ltd., Westell Worldwide Services, Inc., or Westell Europe, Ltd.,
which are set forth on Schedule 2 attached hereto.
"Interest Period" shall mean: (i) as to any LIBOR Loan, the
period commencing on the borrowing date or on the conversion or continuation
date of such LIBOR Loan and ending on the earlier of (A) the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the
Borrower may elect and (B) ninety (90) days from the beginning of the applicable
Interest Period, and (ii) as to any Prime Rate Loan, the period commencing on
the borrowing date or on the conversion or continuation date of such Prime Rate
Loan and ending on the earlier of (A) the last Banking Day of each November,
February, May, and August, (B) the day prior to the conversion to a LIBOR Loan,
and (C) the expiration or earlier termination of this Agreement; provided,
however, that (i) if any Interest Period would end on a day that shall not be a
Banking Day, such Interest Period shall be extended to the next succeeding
Banking Day unless, with respect to LIBOR Loans only, such next succeeding
Banking Day would fall in the next calendar month, in which case such Interest
Period shall end on the immediately preceding Banking Day, (ii) no Interest
Period with respect to any Loan shall end later than the expiration of the term
of this Agreement, and (iii) interest shall accrue from and including the first
day of an Interest Period to and including the last day of such Interest Period.
"Inventory" shall have the same meaning assigned to that term
in the version of the Uniform Commercial Code currently in effect in the State
of Illinois, all accessions, parts and appurtenances thereto and all
substitutions or replacements thereof, wheresoever located and whether now or
hereafter owned, acquired, arising or existing, including without limitation,
goods, raw materials, supplies, work in process, finished goods, or inventory
which has been returned to or repossessed or stopped in transit.
"L/C" has the meaning set forth in Section 2.4 hereof.
"Laws" means all ordinances, statutes, rules, regulations,
codes, orders, injunctions, writs or decrees of any government, whether federal,
state, municipal or local, of any political subdivision or agency thereof, or of
any court, board or similar entity established by any of the foregoing having
jurisdiction over the Property, assets, business or operations of any Borrower.
"Leverage Ratio" means the total Unsubordinated Debt of
Borrowers divided by the sum of the Tangible Net Worth of Borrowers, expressed
as a ratio.
"LIBOR-Based Rate" means that rate of interest per year equal
to (i) the LIBOR Rate plus (ii) two percent (2%).
"LIBOR Rate Option" has the meaning set forth in Section 2.6
hereof.
"LIBOR Loan" shall mean any Loan with respect to which the
Borrower shall have selected an interest rate based on the Libor Rate in
accordance with the provisions of Sections 2.1(c) and 2.2(a), and 2.3(c) of this
Agreement; provided, however, that there shall not be in excess of one (1) LIBOR
Loan outstanding at any one time with respect to the Term Loan, five (5) LIBOR
Loans outstanding at any one time with respect to the Revolving Loans, and five
(5) LIBOR Loans outstanding at any one time with respect to the Equipment Loans.
The Revolving Loans, the Term Loan and the Equipment Loan may be LIBOR Loans;
provided, however, Borrower shall not be permitted to request LIBOR Loans if any
Event of Default or default shall have occurred and be continuing, and any then
outstanding LIBOR Loans shall be converted into Prime Rate Loans at the end of
the applicable Interest Period.
"LIBOR Rate" means during any LIBOR Rate Borrowing Period for
each LIBOR-Based Rate Loan, that rate of interest per year equal to the quotient
obtained by dividing (x) the rate of interest determined by the Bank to be the
average of the rate per annum at which deposits in U.S. dollars are generally
offered in the London Interbank Market at 11:00 A.M. London time, two (2)
Banking Days before the first day of such LIBOR Rate Borrowing Period as
published in the "Wall Street Journal" or any other national publication which
publishes such rate, for a period equal to such LIBOR Rate Borrowing Period, in
the amount of the applicable Loan, by (y) the difference between one hundred
percent (100%) and any applicable reserve requirements (rounded upward to the
nearest whole multiple of one hundredth (1/100) of one percent (1%) per annum),
including without limitation, any statutory maximum requirement for the Bank to
hold reserves for "Eurocurrency Liabilities" under Regulation D of the Board of
Governors of the Federal Reserve System (or any similar reserves under any
successor regulation or regulations).
"LIBOR Rate Option" has the meaning set forth in Section
2.6(b)(ii).
"Liens" means any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and including but
not limited to the security interest or lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include, without
limitation, reservations, exceptions, covenants, conditions, restrictions,
leases and other encumbrances affecting Property. For the purpose of this
Agreement, each Borrower shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other person for security purposes.
"Loans" means the Revolving Loans, the Term Loan, and the
Equipment Loan of the Borrowers as described in Sections 2.1, 2.2 and 2.3
hereof.
"Loan Documents" shall have the meaning set forth in Section
3.1.
"Lockbox Account" has the meaning set forth in Section
6.1(p)(i) hereof.
"Maximum Rate" has the meaning set forth in Section 2.6(e)
hereof.
"Net Worth" means the sum of the total of all assets which,
under GAAP, would appear as assets on the balance sheet of Borrowers, less the
total of all liabilities, which, under GAAP, would appear as liabilities on the
balance sheet of Borrowers.
"Notes" means the Revolving Note, the Term Note, and the
Equipment Note executed by the Borrowers, as defined in Sections 2.1(b), 2.2(b)
and 2.3(b) hereof.
"Obligations" means each and every promise, agreement,
covenant, debt and all other obligations and indebtedness of the Borrowers to
the Bank, its successors or assigns, whether primary, secondary, contingent,
direct, or indirect, howsoever incurred, created, arising or evidenced, whether
presently or hereafter existing, evidenced, arising or becoming due, including,
without limitation, such obligations and indebtedness of the Borrowers to the
Bank arising from or in connection with the Loans or under this Agreement, the
Notes or any Loan Documents or any refinancings, substitutions, extensions,
renewals, replacements and modifications for or of the foregoing.
"Permitted Liens" means Liens, security interests, charges,
mortgages, pledges or any other encumbrances (i) provided for under this
Agreement, the Notes or the Loan Documents in favor of the Bank; (ii) arising
out of judgments or awards in respect of which any Borrower shall in good faith
be prosecuting an appeal or proceedings for review and in respect of which such
Borrower shall have secured a subsisting stay of execution pending such appeal
or proceedings for review, provided such Borrower shall have set aside reserves
which the Bank reasonably deems adequate with respect to such judgment or award;
(iii) for taxes, assessments or governmental charges or levies, provided payment
thereof shall not be past due or for taxes being contested in good faith and by
appropriate proceedings and with respect to which adequate reserves are being
maintained and which Liens do not have priority over the Lien of the Bank; (iv)
deposits, Liens or pledges to secure payments of worker's compensation,
unemployment insurance or other forms of governmental insurance or benefits or
to secure performance of tenders, statutory obligations, leases and contracts
(other than for borrowed money) arising in the ordinary course of business; (v)
mechanics', workmen's, repairmen's, warehousemen's, vendors' or carriers' Liens,
or other similar statutory Liens, or any easements with respect thereto, not to
exceed an aggregate amount of $250,000 at any time outstanding, arising in the
ordinary course of business and securing sums which are not past due, or
deposits or pledges to obtain the release of any such Liens; (vi) statutory
landlords' liens under leases to which any Borrower is a party; (vii) such
capital leases as are listed on Schedule 6.2(b) hereto; and (viii) subject to
Section 6.2(o) and the other provisions of this Agreement, purchase money Liens
on Property acquired in the ordinary course of business, to finance or secure a
portion of the purchase price thereof, provided that in each case such lien
shall be limited to the Property so acquired and the liability secured by such
lien does not exceed either the purchase price or the fair market value of the
asset acquired and, provided further, the aggregate principal amount of the
indebtedness secured by such liens and the aggregate principal amount of the
indebtedness incurred in connection with the capital leases set forth in
subsection (vii) hereof, does not exceed $1,000,000 in the aggregate.
"Person" means any individual, sole proprietorship, joint
venture, partnership, limited partnership, association, unincorporated
organization, joint-stock company or association, trust, corporation, entity,
institution or government body.
"Prime Rate" means the rate of interest announced or
published publicly from time to time by the Bank as its prime or equivalent rate
of interest, which rate does not purport to be the most favorable rate of
interest offered by Bank to its commercial borrowers.
"Prime Rate Option" has the meaning set forth in Section
2.6(b)(i).
"Prime Rate Loan" shall mean any Loan with respect to which
Borrowers shall have selected an interest rate based upon the Prime Rate in
accordance with the provisions of Sections 2.1(c), 2.3(a) or 2.3(c).
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Revolving Loan" means the revolving loans to the Borrowers as
defined in Section 2.1(a) hereof.
"Revolving Loan Borrowing Base" means, at any time, the sum
of: (a) 80% of the face amount of the Eligible Accounts, less unapplied cash;
and (b) the lesser of (i) 40% of the value of the Eligible Inventory and (ii)
$9,000,000, less the face amount of any L/C's outstanding.
"Revolving Loan Termination Date" has the meaning set forth
in Section 2.1(a) hereof.
"Revolving Note" means the Revolving Note executed by the
Borrowers as defined in Section 2.1(b), which is in the form attached hereto as
Exhibit B.
"Subordinated Debt" means any indebtedness of the Borrowers
which is expressly subordinated to the Obligations and to the rights of the Bank
hereunder, and which has been approved by the Bank in writing.
"Subsidiary" means any corporation of which twenty-five
percent (25%) or more of the outstanding shares of capital stock having ordinary
voting power for the election of directors is owned, directly or indirectly by
any Borrower and any Affiliates or Subsidiaries of any Borrower.
"Tangible Net Worth" means the Net Worth of Borrowers plus
Subordinated Debt, less all of the following: (i) all prepaid expenses and
deposits (ii) the book value of all such assets which would be treated as
general intangibles under GAAP, including, without limitation, goodwill,
trademarks, tradenames, copyrights, patents, licenses, deferred charges,
unamortized debt discount and expenses and covenants not to compete, (iii)
accounts, notes and other receivables due from employees, Affiliates, and/or
shareholders of the Borrowers, and (iv) product development costs.
"Term Loan" means the term loan of the Borrowers as set forth
in Section 2.2(a) hereof.
"Term Loan Termination Date" has the meaning set forth in
Section 2.2(b) hereof.
"Term Note" means the Term Note executed by the Borrowers as
defined in Section 2.2(b), which is in the form attached hereto as Exhibit C.
"Unsubordinated Debt" means the Indebtedness of Borrowers, as
shown on the Borrowers' Financial Statements for any period, less the aggregate
Subordinated Debt outstanding for such period.
"Voting Trust" means the Westell Technologies, Inc., f/k/a
Electronic Information Technologies, Inc., Voting Trust Agreement dated February
23, 1994, as amended.
1.2 Accounting Terms.
Any accounting terms used but not otherwise defined herein
shall have their customary meanings as defined in, pursuant to, or in accordance
with GAAP. All other terms used but not otherwise defined herein shall have the
meanings provided by the version of the Uniform Commercial Code enacted in
Illinois to the extent such terms are used or defined therein.
ARTICLE II
THE CREDIT
2.1 Revolving Loan
2.1 (a) Funding of the Revolving Loan. Subject to the terms and
conditions of this Agreement, the Bank agrees to lend to the
Borrowers, jointly and severally, from time to time until
August 30, 1999 (the "Revolving Loan Termination Date") such
sums, in a minimum amount of $100,000 and integral multiples
of $100,000 thereafter, as Borrowers may request, pursuant to
Section 2.1(c) hereof; provided, however, that the aggregate
principal amount of all loans outstanding under this Section
2.1 (the "Revolving Loan" or "Revolving Loans") at any one
time shall not exceed the lesser of (i) the Revolving Loan
Borrowing Base or (ii) Sixteen Million Dollars
($16,000,000.00) (the "Revolving Loan Commitment").
The Borrowers may borrow, repay and reborrow hereunder, from
the date hereof until the Revolving Loan Termination Date,
either the full amount of the Revolving Loan Commitment or any
lesser sum in the minimum amounts referred to above. If, at
any time, the Revolving Loans exceed the Revolving Loan
Commitment, the Borrowers shall immediately notify the Bank of
the existence of and pay to the Bank the amount of such
excess.
2.1 (b) The Note; Repayment of Principal. In order to evidence the
Revolving Loans, on the date hereof, the Borrowers will
execute and deliver a promissory note, in the form of Exhibit
B hereto (together with any and all amendments, modifications,
supplements, substitutions, renewals, extensions, and
restatements, thereof and therefor, the "Revolving Note", or
together with the Term Note and the Equipment Note, the "Note"
or "Notes"), repayable and maturing in accordance with and
bearing interest as set forth therein.
2.1 (c) Revolving Loan Borrowing Request. The request of the
Borrowers for a Revolving Loan, except with respect to the
initial draw of Revolving Loans as of the date hereof, shall
be by the delivery of a written, telephonic or telecopied
notice addressed to the Bank designating the amount of the
requested Revolving Loan, the date on which the Loans are to
be made available to Borrowers, and for a LIBOR Loan, the
Interest Period; provided, however, that such notice is
received by the Bank not later than 2:00 p.m. on the Banking
Day on which any Borrower is requesting a Prime Rate Loan to
be made, and not later than two (2) Banking Days prior to the
date on which any Borrower is requesting a LIBOR Loan. Each
and every request for a Revolving Loan shall constitute
Borrowers' representation and warranty that (i) as of the date
of said request, no Event of Default (or event which, with the
giving of notice or lapse of time or both, would constitute an
Event of Default) has occurred and is continuing, (ii) no
material adverse change has occurred in the operations or
financial condition of the Borrowers since the date of the
most recent Fiscal Year for which the Borrowers' Financial
Statements have been delivered to the Bank and received
thereby, (iii) the representations and warranties of the
Borrowers set forth within Article V are true and correct as
of the date of the request for a Revolving Loan (except to the
extent a representation or warranty is specifically made as of
a particular date), (iv) the affirmative and negative
covenants set forth in Article VI are not currently being
breached as of the date of such request for a Revolving Loan,
and (v) the aggregate Revolving Loans, including the Revolving
Loan requested, do not exceed the Revolving Loan Commitment.
2.2 Term Loan.
2.2 (a) Funding of the Term Loan. Subject to the terms and
conditions of this Agreement, the Bank shall make a term loan
(the "Term Loan"; the Term Loan, the Equipment Loan, and the
Revolving Loans are collectively referred to as the "Loans")
on the date hereof to the Borrowers in the principal amount of
Four Million Dollars ($4,000,000) (the "Term Loan
Commitment"). Borrowers shall notify Bank whether the Term
Loan or any portion thereof is to be a LIBOR Loan and the
Interest Period with respect thereto. Borrowers shall be
permitted to renew any portion of the Term Loan bearing
interest at the LIBOR Rate Option or convert any portion of
the Term Loan into a LIBOR Loan in accordance with the
provisions of Section 2.6(i) and (j) hereof.
2.2 (b) Term Note; Repayment of Principal. In order to evidence
the Term Loan on the date hereof, the Borrowers will execute
and deliver a promissory note, in the form of Exhibit C hereto
(together with any and all amendments, modifications,
supplements, substitutions, renewals, extensions, and
restatements, thereof and therefor, the "Term Note", or
together with the Revolving Note and the Equipment Note, the
"Note" or Notes"), repayable and maturing in accordance with
and bearing interest as set forth therein. Payments of
principal amounts due under the Term Note shall be made in
twelve (12) equal quarterly installments of Three Hundred
Thirty-Three Thousand Three Hundred Thirty-Three and 33/100
Dollars ($333,333.33) each, commencing on November 30, 1998
and continuing on the last Banking Day of each February, May,
August and November thereafter, with a final installment on
August 30, 2001 (the "Term Loan Termination Date").
2.3 Equipment Loan
2.3 (a) Funding of the Equipment Loans. Subject to the terms and
conditions of this Agreement, Bank agrees to make equipment
advances to Borrowers (the "Equipment Loan Advances"), as
Borrowers may request from time to time pursuant to Section
2.3(c) hereof for the purchase of equipment, each, in a
minimum amount of $100,000 and integral multiples thereof;
provided, however, that the aggregate principal amount of all
loans outstanding under this Section 2.3 (the "Equipment Loan
Advance" or "Equipment Loan Advances"), at any one time shall
not exceed Five Million Dollars ($5,000,000) (the "Equipment
Loan Advance Commitment"). Each Equipment Loan Advance shall
be in a minimum amount of $100,000 (or in the remaining amount
available to be borrowed under the Equipment Loan Advance
Commitment on the date of the requested Equipment Loan
Advance, if such amount is less then $100,000), in an amount
not to exceed seventy-five percent (75%) of the actual invoice
cost of Equipment to be purchased with the proceeds of such
Equipment Loan Advance, less any taxes, installation charges,
or delivery charges. Amounts borrowed in the form of Equipment
Loan Advances may not be reborrowed following repayment and
shall be advanced in such manner as to afford Bank a purchase
money security interest in the Equipment to be acquired with
the proceeds of such Equipment Loan Advance. All Equipment
Loan Advances must be made before August 30, 1999. (the
"Equipment Loan Advance Termination Date").
2.3 (b) Equipment Note; Repayment of Principal. In order to
evidence the Equipment Loan Advances on the date hereof, the
Borrowers will execute and deliver to Bank a promissory note,
in the form of Exhibit D hereto (together with any and all
amendments, modifications, supplements, substitutions,
renewals, extensions, and restatements, thereof and therefor,
the "Equipment Loan Note"), repayable and maturing in
accordance with and bearing interest as set forth therein. On
the Equipment Loan Advance Termination Date, the aggregate
outstanding Equipment Loan Advances shall be repayable in
twelve (12) equal consecutive quarterly installments, each in
that amount necessary to fully amortize the outstanding
principal balance of the Equipment Loan Advances within twelve
(12) quarters, commencing November 30, 1999 and continuing on
the last day of each February, May, August and November
thereafter, with a final payment of the then outstanding
principal balance of the Equipment Loan Advances on August 30,
2002 (the "Equipment Loan Termination Date").
2.3 (c) Equipment Loan Borrowing Request. The request of the
Borrowers for an Equipment Loan Advance shall be by the
delivery of a written, telephonic or telecopied notice
addressed to the Bank designating the amount of the requested
Equipment Loan Advance to be made by the Bank designating the
date on which the Equipment Loan Advance is to be made
available to Borrowers, and the applicable Interest Period;
provided, however, that such notice is received by the Bank
not later than 2:00 p.m. on the Banking Day on which any
Borrower is requesting the Equipment Loan Advance to be made
as a Prime Rate Loan, and not later than two (2) Banking Days
prior to the Banking Day on which any Borrower is requesting
an Equipment Loan Advance to be made as LIBOR Loan . Each and
every request for an Equipment Loan Advance shall constitute
Borrowers' representation and warranty that (i) as of the date
of said request, no Event of Default (or event which, with the
giving of notice or lapse of time or both, would constitute an
Event of Default) has occurred and is continuing, (ii) no
material adverse change has occurred in the operations or
financial condition of the Borrowers since the date of the
most recent Fiscal Year for which the Borrowers' Financial
Statements have been delivered to the Bank and received
thereby, subject to Bank's reasonable discretion to determine
whether such a material adverse change has occurred, (iii) the
representations and warranties of the Borrowers set forth
within Article V are true and correct as of the date of the
request for an Equipment Loan Advance, (iv) the affirmative
and negative covenants set forth in Article VI are not
currently being breached and are inviolate as of the date of
such request for an Equipment Loan Advance, and (v) the
aggregate Equipment Loan Advances, including the Equipment
Loan Advance requested, do not exceed the Equipment Loan
Advance Commitment. Each request for an Equipment Loan Advance
shall also be accompanied by evidence of a vendor invoice
showing the Equipment purchased or to be purchased with the
proceeds of such Equipment Loan Advance.
2.4 Letters of Credit.
2.4 (a) Subject to the limitation set forth in Section 2.1 hereof
and provided that an Event of Default does not then exist or
would not then be created thereby or any event which with
notice or lapse of time or both would constitute an Event of
Default does not then exist, Bank shall from time to time,
upon any Borrower's request, issue or cause to be issued
standby or trade letters of credit ("L/Cs") for or on behalf
of Borrowers having face amounts not to exceed Three Million
Dollars ($3,000,000) in the aggregate outstanding; provided,
however, that no L/C shall have an expiration date occurring
more than 180 days after the Revolving Loan Termination Date.
Borrowers shall pay to Bank (i) for issuing any trade L/Cs,
all reasonable and customary charges, fees and expenses
charged by Bank in connection with the issuance of trade L/Cs,
and (ii) for issuing any standby L/C's, a fee in the amount of
1% per annum of the face amount of any L/C issued by Bank for
the account of the Borrowers, payable quarterly in advance,
while any such standby L/C is outstanding.
2.4 (b) Each of the Borrowers' requests for an L/C must be
received by Bank at least three (3) Banking Days prior to the
requested issue date of such L/C, and shall be accompanied by
a duly completed application therefor and such other documents
in support thereof as Bank may reasonably require.
2.4(c) At such time as the Bank honors a demand for payment on
account of an L/C made by the beneficiary thereunder, the Bank
shall immediately make a Revolving Loan to the Borrowers in
the amount of such payment or disbursement, as long as there
shall be sufficient availability to support the making of such
Loan. If there does not exist sufficient availability, the
Borrowers hereby agree to reimburse Bank, immediately upon
demand, for each payment or disbursement made by Bank under or
on account of any L/C, honoring any demand for payment made by
the beneficiary thereunder, with interest on the amount so
paid or disbursed by Bank or any issuing bank, from the date a
demand for payment is made by Bank to, but not including the
date Bank is reimbursed therefor, at a rate per annum equal to
the Prime Rate Option.
2.4(d) The obligation of the Borrowers to reimburse Bank for payments
and disbursements made by Bank under or on account of any L/C
honoring a demand for payment made by the beneficiary
thereunder shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim
or defense to payment which Borrowers may have or have had
against Bank or such beneficiary, including, without
limitation, any defense based on the failure of such demand
for payment to conform to the terms of such L/C or any
nonapplication or misapplication by such beneficiary of the
proceeds of such demand for payment or the legality, validity,
regularity or enforceability of such L/C or any document or
contract related to or required to be presented under the
terms of such L/C; provided, however, that the Borrowers shall
not be obligated to reimburse Bank for any wrongful payment or
disbursement made by Bank under or on account of such L/C as a
result of acts or omissions constituting gross negligence or
willful misconduct on the part of Bank or any of its officers,
employees or agents.
2.4(e) The Borrowers agree that, upon the earlier of (i) the
occurrence of an Event of Default or (ii) the Revolving Loan
Termination Date, they will immediately, upon written demand
by Bank, pay to Bank an amount equal to the amount of the then
aggregate stated amount of all L/C's issued and outstanding
hereunder. Any amounts so received by Bank pursuant to the
provisions of the foregoing sentence shall be retained by Bank
as collateral security for Borrowers' Obligations including,
without limitation, all Obligations of Borrowers to Bank under
or in connection with this Agreement, any L/C or any of the
Loans.
2.4(f) Bank shall, promptly following its receipt thereof, examine
all documents purporting to represent a demand for payment by
the beneficiary under any L/C issued by Bank to ascertain that
the same appear on their face to be in conformity with the
terms and conditions of such L/C. If, after examination, Bank
shall have determined that a demand for payment under such L/C
does not conform to the terms and conditions of such L/C, the
Bank shall, as soon as reasonably practicable, give notice to
the beneficiary to the effect that negotiation was not in
accordance with the terms and conditions of such L/C, stating
the reasons therefor and that the relevant document is being
held at the disposal of such beneficiary or is being returned
to such beneficiary, as Bank may elect. The beneficiary may
attempt to correct any such nonconforming demand for payment
under such L/C if, and to the extent that, such beneficiary is
entitled (without regard to the provisions of this sentence)
and able to do so. If Bank determines that a demand for
payment under such L/C conforms to the terms and conditions of
such L/C, then Bank shall make payment to the beneficiary in
accordance with the terms of such L/C. Bank shall have the
right, provided it is not then in default under such L/C by
reason of its having wrongfully failed to honor a demand for
payment previously made by the beneficiary under such L/C, to
require the beneficiary to surrender such L/C to Bank on the
stated expiration date of such L/C. Borrowers agree, if
necessary, and to the extent reasonably feasible, to cause the
beneficiary to so surrender such L/C.
2.4 (g) If reserve requirements, capital adequacy requirements or
any similar requirements or restrictions, or any other
requirements of law not presently applicable to Bank or any
issuing bank are hereafter imposed upon or determined or held
to be applicable to Bank at any time and from time to time,
which would materially increase the costs to Bank of
continuing letter of credit financing hereunder or materially
affect the profitability (on an after-tax basis) to such Bank
hereby, then Bank will give written notice to Borrowers of
such requirement or restriction and of the additional costs,
or loss of prospective loss or profitability, resulting from
the imposition or application of such requirement or
restriction to Bank, and the Borrowers shall, promptly after
request therefor by Bank, compensate Bank for additional
costs, or for any loss of profitability, accruing to Bank from
the date such restriction or requirement is imposed upon or
determined or held to be applicable to Bank to the expiration
or final surrender of all L/C's issued hereunder.
2.5 The Borrowers' Loan Account. The Bank shall maintain a loan
account ("Loan Account") on its books in which shall be
recorded (i) the Loans made by the Bank to the Borrowers
pursuant to this Agreement, (ii) all payments made by the
Borrowers on the Loans, and (iii) all other appropriate debits
and credits as provided in this Agreement, the Loan Documents
or the Notes, including, without limitation, all fees,
charges, expenses and interest provided for hereunder or
thereunder. All advances to the Borrowers and all other debits
and credits provided for in this Agreement or the Notes, shall
be evidenced by entries made by the Bank in its internal data
control systems, in accordance with the Bank's customary
accounting practices as in effect from time to time, showing
the date, amount and reason for each such debit or credit. The
Bank may send the Borrowers statements of all amounts due
hereunder as reflected in the Loan Account, which statements
shall be considered presumptively correct as to the
indebtedness due and owing by the Borrowers to the Bank unless
the Borrowers notify the Bank within sixty (60) days of
receipt of any such statement that the Borrowers consider such
statement to be incorrect and the Borrowers specifically
identify the items on such statement which they consider to be
incorrect and attach any evidence in their possession
supporting their position.
2.6 Interest Rates; Borrowing Periods.
2.6(a) Interest on the Loans. Accrued interest on the Loans shall be
due and payable on the last day of each Interest Period. In
addition, all accrued and unpaid interest on the Loans shall
be paid upon the payment in full of the entire outstanding
principal amount of the Loans and, if payment in full is not
made when due, thereafter on demand. Borrowers shall pay
interest calculated on the outstanding unpaid principal amount
of the Revolving Loans on the basis of the Prime Rate Option
or the LIBOR Rate Option, as the case may be.
2.6(b) Rate Options. If the LIBOR Rate Option is offered by
the Bank, Borrowers may, subject to this Section 2.6, select
the subject options to apply simultaneously to different
portions of the Loans; provided that any LIBOR Loan shall be
in an aggregate principal amount of $100,000 or any integral
multiple thereof. For purposes of this Agreement, the "Prime
Rate Option" and "LIBOR Rate Option" shall be defined as
follows:
(i) "Prime Rate Option" shall mean a fluctuating interest
rate per annum (computed for the actual number of
days elapsed on the basis of a 365-day year) which
shall be equal to the Prime Rate. Such interest rate
shall be adjusted automatically from time to time to
reflect in full any changes in the Prime Rate,
effective as of the date of each such change.
(ii) "LIBOR Rate Option" shall mean an interest rate per annum
(computed for the actual number of days elapsed on the basis
of a 360-day year) which shall be equal to the LIBOR-Based
Rate in effect on the date the Bank quotes such rate to
Borrowers. Borrowers' acceptance of any LIBOR-Based Rate shall
be final and conclusive as to all matters with respect to the
determination thereof. Except as otherwise provided herein,
Borrowers may select the LIBOR Rate Option with respect to all
or any portion of the Loans then outstanding; provided, that
Borrowers shall not have the right to select any LIBOR Rate
Option at any time that an Event of Default, or an event or
occurrence which, with the giving of notice or the passage of
time, or both, could mature into an Event of Default, exists.
2.6(c) Borrowing Periods. At any time when Borrowers shall select or
renew the LIBOR Rate Option to apply to any portion of the
Loans, they shall fix the Interest Period for such LIBOR Loan.
2.6(d) Default Rate. All Obligations shall bear interest from and
after the occurrence of an Event of Default and for so long as
an Event of Default shall be continuing, and without
constituting a waiver of any such Event of Default, on the
unpaid principal balance thereof at the Default Rate.
2.6(e) Maximum Rate. In no event shall any rate of interest charged
hereunder exceed the highest applicable rate permitted by law
("Maximum Rate"). If, in any month, the applicable rate absent
such limitation, would have exceeded the Maximum Rate, then
the rate for that month shall be the Maximum Rate, and if in
future months, the rate would otherwise be less than the
Maximum Rate, then to the extent permitted by applicable law,
the rate shall remain at the Maximum Rate until such time as
the amount of interest paid hereunder equals the amount of
interest which would have been paid if the same had not been
limited by the Maximum Rate. The Bank may, at its option,
charge any interest payable by Borrowers to Borrowers' Loan
Account, which amounts shall thereupon constitute Obligations
hereunder and shall thereafter accrue interest as provided for
in this Agreement.
2.6(f) LIBOR Rate Unascertainable; Impracticability. The Bank shall
promptly notify Borrowers in the event that: (i) on any date
on which a LIBOR Rate Option selected by Borrowers by notice
to the Bank would otherwise be set (including any conversion
to or renewal thereof), the Bank shall have determined in good
faith (which determination shall be final and conclusive) that
adequate and reasonable means do not exist for determining the
LIBOR Rate; or (ii) at any time the Bank shall have determined
in good faith (which determination shall be final and
conclusive) that the selection of a LIBOR Rate Option or the
continuation of or the conversion or renewal of a LIBOR Rate
Option has been made impossible or impracticable or unlawful
by compliance by the Bank with any applicable law or
governmental regulation, guideline or order or interpretation
thereof by any governmental authority charged with the
interpretation or administration thereof or with any request
or directive of any such governmental authority (whether or
not having the force of law).
2.6(g) Effect of Unascertainability or Impractibility. Once the Bank
has given notice of its determination under Section 2.6(f)
above, the obligation of the Bank to allow conversion to or
selection or renewal of the LIBOR Rate Option by Borrowers
with respect to any portion of the Loans shall be suspended
until the Bank gives further notice to Borrowers that the
circumstances specified in such original notice no longer
apply. If the Bank has determined in accordance with (f)(ii)
above that it may no longer continue any LIBOR Loan, then upon
the date specified in any notice of determination under
(f)(ii) above (which shall not be earlier than the date such
notice is given), (x) the LIBOR Rate Option shall cease to
apply and any LIBOR Loan shall automatically be converted to
the Prime Rate Option and (y) Borrowers shall jointly and
severally pay to Lender the accrued and unpaid interest on any
LIBOR Loans (to but not including) such specified date and any
premium pursuant to Sec tion 2.6(h) hereof as if the LIBOR
Loans were being prepaid at such time. If, at the time notice
of a determination is given pursuant to this Section 2.6(g),
Borrowers have previously been offered the LIBOR Rate Option
by the Bank and has previously notified the Bank that they
wish to convert to or select or renew the LIBOR Rate Option,
but such Option has not yet been set, such notification shall
be of no force and effect, and Borrower shall, with respect to
any of the Loans subject to such notice, either (i) convert
all of such Loans to the Prime Rate Option either pursuant to
Section 2.6(i) or by failing to give notice of conversion or
renewal as provided in Section 2.6(j) or (ii) if such Loan is
a Prime Rate Loan, retain the Prime Rate Option as to such
Loan.
2.6(h) Indemnity. Without prejudice to any other provision of this
Agreement, Borrowers shall jointly and severally compensate
the Bank upon written request for all losses and expenses in
respect of any interest paid by the Bank to lenders of funds
borrowed by the Bank or deposited with the Bank to make or
maintain any of the Loans which accrue interest at the LIBOR
Rate Option, which the Bank may sustain (i) if for any reason
a borrowing to which the LIBOR Rate Option is to apply does
not occur on a date specified therefor in a Loan Borrowing
Notice under Section 2.1 or 2.3 hereof; (ii) if any prepayment
or repayment of any of the Loans occurs on a date which is not
the last date of the relevant Interest Period; (iii) as a
consequence of any Event of Default or any acceleration or
mandatory prepayment or principal reduction. Such compensation
shall include lost profits of the Bank in all instances of a
LIBOR Loan. Without limiting the generality of the foregoing,
Borrowers shall jointly and severally indemnify the Bank
against any loss or expense which the Bank may sustain or
incur as a consequence of the default by any Borrower in
payment of principal of or interest on any LIBOR Loan,
including, but not limited to, any premium or penalty incurred
by the Bank in respect of funds borrowed by it or deposited
with it for the purpose of making or maintaining any of the
LIBOR Loans, as reasonably determined by the Bank.
2.6(i) Conversion of Interest Rate Options. Subject to the other
provisions of this Agreement, Borrowers may select, at any
time with respect to conversions from all or any part of the
Prime Rate Loans or at the expiration of the Interest Period
relating to any LIBOR Loan, a new option pursuant to Section
2.1, 2.2 or 2.3 hereof and (in the case of the selection of
the LIBOR Rate Option) one or more new Interest Periods;
provided that any conversion, whether to the LIBOR Rate Option
or to the Prime Rate Option, shall be in an aggregate
principal amount which is equal to $100,000 or an integral
multiple thereof. Unless the Bank shall have consented to a
shorter period of notice, Borrowers shall give the Bank, in
the case of any conversion whether to the LIBOR Rate Option or
to the Prime Rate Option, notice of each such conversion in
accordance with the provisions of Section 2.1, 2.2, or 2.3
hereof.
2.6(j) Renewal of Interest Rate Option. Upon the expiration of any
Interest Period with respect to a LIBOR Loan, Borrowers may
renew the LIBOR Rate Option for one or more additional
Interest Periods; provided that (i) any renewal of any LIBOR
Rate Portion for each Interest Period selected by Borrowers
shall be in an aggregate principal amount which is equal to
$100,000 or an integral multiple thereof and (ii) if with
respect to a Revolving Loan, the outstanding principal balance
of the Revolving Loans on the renewal date, after giving
effect to the renewal, shall not exceed the Revolving Loan
Commitment. Borrowers shall give to the Bank notice of the
renewal date in accordance with the provisions of Section 2.1,
2.2, or 2.3 hereof. In the absence of the receipt of a notice
from Borrowers of renewal in accordance with this Section
2.6(j) or of conversion in accordance with Section 2.6(i), the
option with respect to any such LIBOR Rate Portion of the
Loans as to which such notice is not properly received shall
automatically be converted to the Prime Rate Option on the
last day of the expiring Interest Period.
2.7 Fees and Expenses.
2.7 (a) Unused Line Fee. The Borrowers shall pay to the Bank an
unused line fee as provided hereunder of 1/4% (computed on the
basis of a year of three hundred sixty (360) days for the
actual number of days elapsed) of the amount by which the
Revolving Loan Commitment exceeds the average quarterly
balance of the Revolving Loans plus the average quarterly face
amount of outstanding Letters of Credit, payable monthly in
arrears, on the last day of each quarter commencing on
November 30, 1998 and continuing on the last day of each
February, May, August, and November thereafter. Prior to the
Equipment Loan Advance Termination Date, the Borrowers shall
pay to the Bank an unused line fee of 1/4% (computed on the
basis of a year of 360 days for the actual number of days
elapsed) of the amount by which the Equipment Loan Advance
Commitment exceeds the quarterly monthly balance of the
Equipment Loan Advances, payable quarterly in arrears, on the
last day of each quarter commencing on November 30, 1998 and
continuing on the last day of each February, May, August, and
November thereafter.
2.7 (b) Expenses. The Borrowers shall reimburse the Bank for all
its reasonable expenses incurred in connection with the
preparation (including due diligence), negotiation,
documentation, amendment, modification, administration or
enforcement of this Agreement, the Notes or any Loan
Documents, including reasonable attorney, paralegal and other
professional fees.
2.8 Optional Prepayment. Subject to the provisions of Section
2.6(h) hereof, the Borrowers may prepay in whole or in part,
at any time and from time to time without premium or penalty,
the principal, accrued interest and any other amounts of the
Loans; provided that all such prepayments shall be in the
minimum amount of Ten Thousand Dollars ($10,000) (or less if
less is due).
2.9 Application of Payments and Prepayments. Any payments made by
the Borrowers under this Agreement, the Notes or any of the
other Loan Documents shall be applied to Obligations owing as
of the date of payment in the following order: (i) to any
amounts owing to the Bank pursuant to Sections 2.10 and 6.1(k)
of this Agreement; (ii) to interest accrued pursuant to the
terms of the Notes; (iii) to any principal payment then due
under the Term Loan; (iv) to any principal amount then due
under the Equipment Loan; and (v) to the principal balance of
the Revolving Loans; provided that any prepayment of the Term
Loan or the Equipment Loan shall be applied to installments of
principal due thereunder in the inverse order of their
maturity.
2.10 Default Interest. In the event any amount of principal or
interest due hereunder or any other payment due under this
Agreement or any of the other Loan Documents becomes overdue,
such overdue amount shall accrue interest at the Default
Interest Rate from the due date through the date of payment.
2.11 Loans Constitute One Financing Transaction. Notwithstanding
anything to the contrary contained in this Agreement or in any
of the Loan Documents, the Revolving Loans, the Equipment Loan
and the Term Loan shall be deemed to constitute one loan
transaction. In addition, the Collateral supporting each of
the Revolving Loans and the Term Loan shall be deemed
Collateral for all Loans made under this Agreement or any Loan
Documents and any Event of Default or event which with the
passage of time or giving of notice or both would constitute
an Event of Default with respect to any of the Revolving
Loans, the Equipment Loan, or the Term Loan shall be deemed a
default or Event of Default, as applicable, with respect to
all Loans and shall give rise to all remedies therefor.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Delivery of Documents as Conditions Precedent. The delivery of
each of the following documents (the "Loan Documents") by the
Borrowers to the Bank shall constitute separate and distinct
conditions precedent to the making of the initial Loans by the
Bank to the Borrowers:
3.1 (a) A duly executed copy of this Agreement;
3.1 (b) The duly issued and executed Revolving Note, dated as of the
date hereof;
3.1 (c) The duly issued and executed Term Note, dated as of the date
hereof;
3.1 (d) The duly issued and executed Equipment Note, dated as of the
date hereof;
3.1 (e) UCC-1 financing statements executed by each Borrower
recorded in the Office of the Illinois Secretary of State,
Florida Secretary of State, and such other financing
statements or fixture filings as the Bank in its sole and
complete discretion may request from the Borrowers, in form
and substance satisfactory to the Bank in its sole and
complete discretion;
3.1 (f) Assignments, Security Agreements and Mortgages -
Trademarks and Patents, executed by Westell and WTI,
satisfactory to Bank in form and substance;
3.1 (g) Uniform Commercial Code financing statement, judgment and
tax lien search results for Borrowers from the Secretary of
State of Illinois, Secretary of State of Florida, and Cook
County, Illinois, and from such other offices or governmental
agencies or bodies as the Bank, in its sole discretion, may
request from the Borrowers, indicating that there are no other
licensors or creditors claiming any interest in the Collateral
of the Borrowers except holders of Permitted Liens;
3.1 (h) A certificate of the President of each Borrower, in the
form of Exhibit E hereto and dated as of the date hereof;
3.1 (i) Copies, certified no earlier than ten days before the
Closing, by the Secretary of State of Delaware, as to WTI,
International, and CPI, and the Secretary of State of
Illinois, as to Westell, of the Articles of Incorporation, and
any amendments thereto, for Borrowers;
3.1 (j) Certificate of the Secretary of State of Illinois, dated
no earlier than ten days before the Closing, as to the good
standing of Westell in the State of Illinois and certificate
of the Secretary of State of Delaware, dated no earlier than
ten days before the Closing, as to the good standing of WTI,
CPI, and International in the State of Delaware, and
certificates of qualification as a foreign corporation for
each Borrower in each jurisdiction where any Borrower is
qualified to transact business as a foreign corporation;
3.1 (k) The written opinion of McDermott, Will, & Emery, as
counsel for the Borrowers, dated as of the date hereof and
addressed to the Bank, in the substance and form set forth on
Exhibit F hereto;
3.1 (l) Certificates or other evidence from an insurance company
or companies acceptable to the Bank as to the policies of
insurance, binders and endorsements thereto and such other
insurance coverage to be maintained by the Borrowers pursuant
to Section 6.1(f) hereof;
3.1(m) All information, Financial Statements, or notices to be
delivered to the Bank pursuant to Section 6.1(c) hereof;
3.1(n) Certified copies of the unanimous written consents, or
resolutions duly adopted at meetings, of the Boards of
Directors of the Borrowers in the form attached hereto as
Exhibit G hereto authorizing the execution, delivery and
performance by the Borrowers of this Agreement, the Notes and
the other Loan Documents;
3.1 (o) Copies of a letter of direction with wire transfers or
other appropriate instructions directing the Bank to disburse
funds in appropriate amounts to specific accounts;
3.1 (p) An initial Borrowing Base Certificate in the form of Exhibit A
hereto;
3.1 (q) A written agreement in form acceptable to Bank, whereby
Bank One, Illinois, NA ("Bank One") agrees (i) to release its
lien on the Collateral upon payment of Borrowers' obligations
to Bank One out of the proceeds of the Loans, and (ii) to
deliver UCC termination statements and release deeds, which
statements terminate any and all Liens, security interests or
encumbrances held by Bank One with respect to Borrowers;
3.1 (r) In form and substance satisfactory to the Bank, each and
every agreement, document, note, release, guaranty,
certificate, notice, affidavit, exhibit, schedule, resolution,
legal opinion, assignment, security agreement, or financing
statement, which the Bank may reasonably request from the
Borrowers to effect the intent of this Agreement.
3.2 Conditions Precedent to Each Loan. Each of the following,
which shall be true as of the date of each disbursement of the
Revolving Loans and Equipment Loan Advances are conditions
precedent to the making of each of the Revolving Loans and
Equipment Loan Advances. Each request for a Revolving Loan or
Equipment Loan Advance shall constitute Borrowers'
representation and warranty that each of the following is true
and correct as of such date.
3.2 (a) Material Adverse Change. No material adverse change in the
financial condition or operation of the Borrowers shall have
occurred, as determined by the Bank in its sole, but
reasonable discretion, since the date of the most recent
Fiscal Year end for which the Borrowers' Financial Statements
have been delivered to the Bank, pursuant to Section
6.1(c)(iv) hereof, and received thereby.
3.2 (b) Representations and Warranties. The representations and
warranties set forth in Article V hereof shall be true and
correct in all material respects as of the date on which the
Borrowers have requested the Revolving Loans or Equipment Loan
Advance to be made available thereto.
3.2 (c) Covenants. The affirmative and negative covenants set
forth in Article VI are not being breached as of the date of
the request.
3.2 (d) Events of Default. No Event of Default hereunder, or any
event which, with the passage of time or the giving of notice
or both, would constitute an Event of Default hereunder, shall
have occurred and be continuing.
3.2 (e) Loan Commitment. After giving effect to the requested
borrowing, the Revolving Loans shall not exceed the Revolving
Loan Commitment on such date.
ARTICLE IV
COLLATERAL SECURITY
4.1 Grant of Security Interest. As continuing security for the
prompt payment and performance of the Obligations and
indebtedness of the Borrowers to the Bank, including all
refinancings, renewals, extensions, modifications and
substitutions thereof or therefor, to be retained by the Bank,
until the Obligations and indebtedness of the Borrowers are
fully satisfied, the Borrowers hereby pledge, assign,
transfer, deliver and set over to the Bank all of the
Borrowers' right, title and interest in and to, and grant the
Bank a Lien on and security interest in, all of the Collateral
and any and all amounts which may be owing from time to time
by the Bank or any other financial institution to the
Borrowers in any capacity, including without limitation, any
balance or share belonging to the Borrowers, or any monies,
deposits, credits, accounts (including, without limitation,
the Lockbox Account) or other Property in the possession of
the Bank. Except for the Permitted Liens, the Liens and
security interests under this subsection shall be first and
prior to any other Liens and security interests in and on the
Collateral, and the Borrowers shall permit no Liens, except
for Permitted Liens, to attach to the Collateral; provided,
however, the Bank acknowldges that it shall not have
possession of the Intercompany Notes.
4.2 Perfection of Security Interests. The Borrowers hereby agree
to, and shall, complete, execute and deliver to the Bank, in
form and substance satisfactory to the Bank, all financing
statements, including, without limitation, the financing
statements described in Section 3.1(e) hereof, all amendments
to and continuation statements for the foregoing, any
schedules to be attached to the foregoing and forms or other
documents to be completed in connection with the foregoing,
and hereby agree to and shall take all such other action,
including noting the Bank's security interest and lien
directly onto the Collateral, which the Bank may request from
time to time and which the Bank, in its sole and complete
discretion, deems necessary for the perfection or continued
perfection of the security interests granted under Section 4.1
above; provided, however, Bank acknowledges that it shall not
have possession of the Intercompany Notes. The Borrowers
hereby agree with the Bank that a carbon, photographic or
other reproduction of this Agreement may be filed in lieu of,
and shall be sufficient as, a financing statement. The
Borrowers hereby authorize, without requiring, the Bank to
execute and file any such financing statements, amendments,
continuation statements, schedules, forms or other documents
on behalf of and as the attorneys-in-fact for the Borrowers in
order to perfect the security interests granted under Section
4.1 above. The Borrowers hereby agree to, and shall, pay upon
demand, all costs, taxes and expenses of filing or recording
the same in all public offices, including those offices
described in Section 3.1(e) hereof, which the Bank, in its
reasonable discretion, deems necessary in order to perfect the
security interests granted under Section 4.1 above.
4.3 Notice to Account Debtors and Instrument Obligors. At any time
and from time to time, after the occurrence of and during the
continuance of an Event of Default, the Bank shall have the
right to and may, in its sole and complete discretion, (i)
contact any Account Debtor of the Borrowers or obligor under
any of the Borrowers' Instruments in order to verify the
validity or amount or any other matter relating to any Account
or any Instrument; and (ii) notify all Account Debtors of the
Borrowers and all obligors under any of the Borrowers'
Instruments that all Accounts and all Instruments of the
Borrowers have been assigned to the Bank and the Bank has a
security interest therein.
4.4 Appointment as Attorney-in-Fact. The Borrowers hereby
irrevocably designate, make, constitute and appoint the Bank
as the Borrowers' true and lawful attorney-in-fact, which
appointment is coupled with an interest, and authorize and
empower the Bank, in either the Borrowers' or the Bank's name,
except as hereinafter provided, upon the happening or
occurrence and during the continuation of an Event of Default
hereunder, upon simultaneous written notice to the Borrowers,
(i) to demand payment of the Accounts and overdue Instruments
of any Borrower and direct all applicable Account Debtors and
Instrument obligors to make payment thereon directly to the
Bank; (ii) to enforce payment and collection of the Borrowers'
Accounts and overdue Instruments by legal proceedings or
otherwise; (iii) to exercise all of the Borrowers' rights and
remedies with respect to the collection or any proceedings to
collect the Accounts and overdue Instruments of the Borrowers
in accordance with the applicable provisions of the Uniform
Commercial Code then currently in effect in the State of
Illinois; (iv) to sell or assign any Account or Instrument of
the Borrowers upon such terms, for such amount, and at such
time or times as the Bank deems advisable in its sole and
complete discretion, reasonably exercised; (v) to settle,
adjust or compromise any Account or Instrument of the
Borrowers or any legal proceedings brought to collect such an
Account or Instrument; (vi) to discharge or release any
Account or Instrument of the Borrowers; (vii) to prepare, file
and sign the Borrowers' names on and to any bankruptcy proof
of claim form or other similar document against an Account
Debtor or Instrument obligor of the Borrowers; (viii) to
prepare, file and sign the Borrowers' names on any notice of
lien, claim or mechanic's lien, assignment or satisfaction or
lien, or mechanic's lien or similar document in connection
with an Account or any Instrument of the Borrowers; and (ix)
to take control in any manner of any cash or non-cash item of
payment or proceeds of any Account or Instrument of the
Borrowers, including without limitation any rejected,
returned, stopped-in-transit or repossessed goods relating to
such Accounts or Instruments, and endorse any Borrower's name
upon any of such Borrower's Chattel Paper, Documents,
Instruments, invoice or similar document or agreement relating
to any such Account or Instrument or any goods pertaining
thereto; and (x) to notify the Post Office authorities to
change the address for delivery of Borrowers' mail to an
address designated by the Bank, access any lockbox or postal
box into which any of the Borrowers' mail is deposited, and
open and dispose of all mail addressed to Borrowers.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
As further inducement to the Bank to enter into this Agreement
and make the Loans hereunder, the Borrowers represent and warrant, as of the
date hereof and as of the date of each disbursement of the Revolving Loans and
Equipment Loan Advances (except as such representation or warranty relates
solely to another date), the following, which shall survive the execution and
delivery of this Agreement, the Notes and the Loan Documents and continue until
all of the Obligations and indebtedness of the Borrowers have been paid,
satisfied or discharged in full, regardless of any investigation by the Bank of
the Borrowers' financial condition or assets:
5.1 Organization of Borrowers. WTI, International and CPI are each
corporations duly organized, validly existing and in good
standing under the Laws of the State of Delaware and are duly
qualified to do and transact business and in good standing as
foreign corporations in each and every jurisdiction where its
failure to do so would have a material adverse effect on their
business. Westell is a corporation duly organized, validly
existing and in good standing under the Laws of the State of
Illinois and is duly qualified to do and transact business and
in good standing as a foreign corporation in each and every
jurisdiction where its failure to do so would have a material
adverse effect on its business.
5.2 Authority and Consents. Each Borrower has all corporate power
and authority to own its property and assets and to carry on
and engage in its business as it is now conducted and as is
presently proposed to be conducted, and each Borrower has all
material licenses, permits, franchises, consents, approvals
and authorizations (collectively, "Licenses") required in
connection with the foregoing, all of which Licenses are in
full force and effect and no action or claim is pending, nor,
to Borrowers' knowledge, is threatened, to revoke or terminate
any of the Licenses or declare any License invalid. No
consent, approval or authorization of, or filing, registration
or qualification with, any Person, governmental, regulatory,
or otherwise, is required to be obtained or effected by any
Borrower or any Affiliates in connection with the execution,
issuance, delivery and performance of this Agreement, the
Notes and the Loan Documents to which the Borrowers or any
Affiliates are a party or signatory or the incurrence or
performance of the Obligations of the Borrowers or any
Affiliates or, if so required, it has been duly obtained or
effected before the date hereof. The execution, issuance,
delivery and performance of this Agreement, the Notes and the
Loan Documents to which any Borrower is a party or is a
signatory and the incurrence or performance of the Obligations
and indebtedness of the Borrowers hereunder (a) has been duly
and properly authorized by all necessary corporate, director,
shareholder and other action of each Borrower and (b) has not
resulted in and will not result in:
(i) the creation or imposition of any Lien,
security interest, mortgage, charge or any
encumbrance of any nature whatsoever (except
in favor of the Bank) upon any of any
Borrower's property or assets, or
(ii) the violation or contravention of, the
occurrence of a default, Event of Default or
event, which with the passage of time or
giving of notice or both, would constitute a
default or event of default under, any term
or provision of its articles or certificate
of incorporation, any certificates of
authority to do or transact business, any
order of any court, or any contract,
agreement, mortgage, indenture, material
instrument, judgment or Laws to which any
Borrower or any Affiliates are parties or
signatories or by which any Borrower or any
Affiliates are bound.
5.3 Binding Effect and Enforceability. Upon execution and delivery
hereof and thereof, this Agreement, the Notes and the Loan
Documents to which any Borrower is a party or is a signatory
will be the legal, valid and binding obligations of the
Borrowers enforceable in accordance with their terms and
provisions, except as the same may be limited by bankruptcy
and moratorium laws and all other similar laws affecting the
rights of creditors generally and the application of general
principles of equity and to the extent that specific
performance may be granted or denied in a court's discretion
and, on the date of delivery, the Borrowers will not be in
violation or contravention of, and no Event of Default will
exist under, any of the foregoing.
5.4 Default of Indebtedness. None of the Borrowers is in default
and no event of default or event, which after the expiration
of any applicable grace or cure periods or the giving of
notice or both, would constitute a default or event of
default, has occurred and is continuing with respect to any
indebtedness in excess of $50,000 singly or in the aggregate
of any kind or nature including, without limitation, any
mortgage, deed, loan agreement or other agreement relating to
the borrowing of monies.
5.5 Financial Condition and Litigation. The Financial Statements
of the Borrowers heretofore delivered to the Bank for the
Fiscal Years ended March 31, 1995, March 31, 1996, March 31,
1997, and March 31, 1998 have been prepared in accordance with
GAAP and fairly present the financial condition of the
Borrowers as at the dates thereof and the results of
operations for the periods covered thereby. Since the most
recent Fiscal Year-end for which the Borrowers' Financial
Statements have been delivered to the Bank and received
thereby, no material adverse change in the Borrowers'
financial condition or affairs has occurred and no dividends
on or redemptions of the Borrowers' common stock have been
made. Except as set forth on the most recent Financial
Statements delivered to the Bank pursuant to Section
6.1(c)(iv) hereof and received thereby: (a) none of the
Borrowers has Indebtedness, except as permitted hereunder; and
(b) except as set forth on Schedule 5.5(b) hereto, no
proceedings, suits, orders, claims, investigations, or other
actions are pending before any court or governmental authority
or, to the best knowledge of Borrowers or any of their
Affiliates, after diligent inquiry, threatened against any
Borrower or any Affiliates, which could materially adversely
affect the assets, properties, business or condition,
financial or otherwise, of the Borrowers or materially
adversely affect the ability of the Borrowers to perform any
Obligations.
5.6 Title and Liens. Except for the Permitted Liens, each Borrower
has good and transferable title to all of its respective
Property, assets and the Collateral, and the Collateral is not
subject to any Liens, claims, security interests, mortgages,
pledges, charges or other encumbrance of any Person, except,
with respect to the Collateral, the Bank and holders of the
Permitted Liens. Borrowers, as lessees of any real or other
Property have the right under valid leases to occupy, use,
possess and control all such Property as now occupied, used,
possessed or controlled by Borrowers.
5.7 Account Warranties. With respect to the Accounts of the
Borrowers scheduled, listed or referred to from time to time
on any Accounts Receivable Aging Reports or Financial
Statement, each Borrower warrants and represents to the Bank
that: (a) such Accounts are genuine, are in all respects what
they purport to be, and are not evidenced by a judgment; (b)
such Accounts are assignable and a security interest may be
granted therein and such Accounts are subject to the first and
prior perfected Lien and security interest of the Bank; (c)
such Accounts represent undisputed, bona fide transactions
completed in material compliance with the terms and provisions
of the documents related thereto as delivered to the Bank if
so requested; (d) the Equipment, Goods or Inventory sold or
leased, or the services rendered, which resulted in the
creation of such Accounts have been delivered or rendered to
the applicable Account Debtor; (e) the amounts shown on the
Borrowers' books and records and all invoices and statements
delivered to the Bank, when and if so requested, with respect
to such Accounts are actually and absolutely owing to the
applicable Borrower and are not in any way contingent; (f) no
payments have been made upon such Accounts; (g) there are no
set-offs, counterclaims or disputes existing or, to Borrowers'
knowledge, asserted with respect to such Accounts and the
Borrowers have not made any agreement with any applicable
Account Debtor for any deduction or discount from any such
Account, except discounts allowed by the Borrowers in the
ordinary course of their business for prompt payment; (h) to
the knowledge of the Borrowers, there are no facts, events or
occurrences which in any way impair the validity or the
enforceability of such Accounts or tend to reduce the amounts
payable under such Accounts as shown on the books and records
of the Borrowers and the invoices and statements delivered to
the Bank, when and if so requested, with respect thereto; (i)
to the best knowledge of the Borrowers without independent
inquiry, all of the applicable Account Debtors with respect to
such Accounts have the capacity to contract and are solvent;
(j) such Accounts and the Equipment, Goods, Inventory sold or
leased or the services rendered giving rise to said Accounts
are not subject to any lien, security interest, claim, charge
or any other encumbrance, except for the first and prior
perfected security interest of the Bank and except those of
holders of the Permitted Liens; and (k) to the knowledge of
the Borrowers, there are no proceedings or actions which are
threatened or pending against any of the applicable Account
Debtors which might result in any material adverse change in
such Account Debtor's financial condition.
5.8 Inventory Warranties. (a) The current address for the chief
executive offices of each Borrower is set forth on Schedule
5.8 hereof ("Chief Executive Office Location") and the
Inventory of each Borrower used in such Borrower's business is
located at its Chief Executive Office Location and at the
locations set forth on Schedule 5.8 hereof (the "Additional
Inventory Locations"); (b) no Inventory will ever be located
in any locations other than the Chief Executive Office
Locations or the Additional Inventory Locations, without at
least five (5) Banking Days' prior written notice to the Bank;
(c) all Inventory is presently owned and will continue to be
owned by the Borrowers, except as otherwise permitted pursuant
to the terms of this Agreement, free and clear of all liens
and encumbrances, other than the Bank's security interest
hereunder and any Permitted Liens; (d) no Inventory has been
consigned to any Person, except with respect to that Inventory
as to which Borrowers have notified Bank; and (e) no Inventory
is presently or at any time or times hereafter, will be stored
with a bailee, warehouseman or similar party without the
Bank's prior written consent, and, if the Bank gives such
consent, the applicable Borrower will concurrently therewith
cause any such bailee or warehouseman to issue and deliver to
the Bank, warehouse receipts therefor in the Bank's name, in
form acceptable to the Bank.
5.9 Employee Plans. All of the Borrowers' Employee Plans meet the
minimum funding standards of Section 302 of ERISA where
applicable. No withdrawal liability has been incurred under
any such Employee Plans and no notice of any Prohibited
Transaction or Reportable Event as defined in ERISA, has been
received by Borrowers with respect to any such Employee Plans,
unless approved by the appropriate governmental agencies. No
Employee Plan is a multi-employer plan within the meaning of
Section 3(37) of ERISA. All payments and/or contributions
required to have been made under the provisions of any
Employee Plan or by law have been timely made.
5.10 Taxes. To the best of its knowledge, each Borrower has filed
all federal, state, county, municipal, and other tax returns,
reports and declarations required to be filed by all Laws, has
paid all taxes, including excise taxes, assessments,
penalties, interest and any other governmental charges which
are or were due and payable, unless such Borrower is
contesting in good faith, by an appropriate proceeding, the
validity, amount or imposition of the above while maintaining
adequate reserves to cover the above, and such contest does
not have or cause a material adverse change in such Borrower's
financial condition or operations and does not impair such
Borrower's ability to perform its Obligations, has made
adequate provision for the payment of all taxes, assessments,
penalties, interest and other governmental charges which are
accruing but are not yet due and payable, and has no knowledge
and is not aware of any deficiency or additional assessment
which may have or has arisen in connection with the foregoing.
5.11 Compliance with Laws. Each Borrower has complied in all
material respects with all applicable Laws with respect to:
(a) any restrictions, specifications or other requirements
pertaining to products that such Borrower leases, sells or
distributes or to the services it performs; (b) the conduct of
its business; and (c) the use, maintenance and operation of
the real and personal properties owned or leased by it in the
conduct of its business.
5.12 Subsidiaries and Affiliates. WTI has no Subsidiaries except
Westell, International, and CPI. CPI has no Subsidiaries
except Conference Plus Global Services, organized under the
laws of the Republic of Ireland. Westell has no Subsidiaries
except Westell Worldwide Services, Inc., and International has
no Subsidiaries except Westell Europe, Ltd. and Westell
Canada, Ltd. WTI owns all of the capital stock of CPI, except
for 11.8% owned by CPI's management personnel. None of the
Borrowers has any Affiliates except the officers, directors
and shareholders of such Borrower.
5.13 Assumed Names. None of the Borrowers has any assumed names or
is doing business under any name other than Westell
Technologies, Inc. Westell, Inc., Westell, International,
Inc., and Conference Plus, Incorporated.
5.14 Solvency. Each Borrower (i) is currently and, after giving
effect to the transactions contemplated by this Agreement, the
Notes, and any Loan Documents to which such Borrower is a
party or signatory, will be able to pay its debts as they come
due and will not incur debts beyond its ability to pay such
debts as they mature or come due, (ii) has capital sufficient
to carry on its business and any business in which it intends
or is about to engage, and (iii) owns property and assets
having a value (as a going concern) in excess of its
liabilities and debts. No transfer of property is being made
and no Obligation is being incurred in connection with the
transactions contemplated by this Agreement with the intent to
hinder, delay or defraud creditors of the Borrowers or any
Affiliate.
5.15 Regulation U. None of the Borrowers is engaged in the business
of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System), and no part of
the proceeds of any of the Loans made hereunder will be used
to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any such
margin stock.
5.16 Capital Stock. The authorized capital stock of Borrowers is
set forth on Schedule 5.16 hereof. There are no shares of
common stock held as treasury shares. The designations,
powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized
capital stock of each Borrower is as set forth in its
respective Articles of Incorporation, and all such
designations, powers, preferences, rights, qualifications,
limitations, and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. All
outstanding shares of capital stock of the Borrowers have been
duly authorized and validly issued and are fully paid and
non-assessable. All of the outstanding securities of Borrowers
were issued in compliance with all applicable federal and
state securities laws. None of the outstanding securities of
Borrowers have been issued in violation of any preemptive
rights, rights of first refusal or similar rights. Except as
set forth on Schedule 5.16, there are no outstanding options,
warrants, convertible securities, calls, rights, commitments,
preemptive rights or agreements or instruments or
understandings of any character, to which any Borrower is a
party or by which any Borrower is bound, obligating any
Borrower to issue, deliver or sell, or cause to be issued,
delivered or sold, contingently or otherwise, additional
shares of capital stock of such Borrower or any securities or
obligations convertible into or exchangeable for such shares
or to grant, extend or enter into any such preemptive right or
agreement. There are no outstanding obligations, contingent or
otherwise, of any Borrower to purchase, redeem or otherwise
acquire any capital stock of such Borrower. Except as set
forth on Schedule 5.16, there are no voting trust agreements
or other contract, agreements, arrangements, commitments,
plans or understandings restricting or otherwise relating to
voting, dividend or other rights with respect to any
Borrower's capital stock.
5.17 Occupational Safety and Health. None of the Borrowers has,
nor, to the Borrowers' knowledge, has any Affiliate received
any notice, citation, claim, assessment or proposed assessment
as to or alleging any material violation by any Borrower or
any such Affiliate from any division of any Federal or state
occupational safety and health administrations or agencies and
no such violation presently exists. None of the Borrowers is,
nor, to the best of the Borrowers' knowledge, no Affiliate is
a party to any pending dispute with respect to the Borrowers'
or any Affiliate's compliance with any Federal or state
occupational safety and health laws.
5.18 No Options. No Person has any option to acquire ownership of
the Collateral or any portion thereof.
5.19 Environmental Protection.
5.19 (a) Borrowers are in compliance in all material respects with
all applicable Environmental Laws and regulations. Neither the
Collateral nor any real property owned or leased by the
Borrowers in connection with the conduct of their business
(the "Applicable Environmental Property") has been used for
the handling, treatment, storage or disposal of any Hazardous
Materials in violation of applicable Environmental Laws;
5.19 (b) None of the Borrowers nor to the knowledge of Borrowers,
any of their Affiliates has received any order, letter or
other written communication, from any governmental unit or
agency, concerning the violation of any Environmental Laws or
concerning any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging or dumping of any Hazardous
Materials, or with respect to any air or water discharges or
emissions, on the Applicable Environmental Property; and
5.19 (c) To the knowledge of Borrowers, (i) no underground storage
tanks are present on the Applicable Environmental Property and
(ii) no such tanks were previously removed; and
5.20 Compliance with Zoning and Other Regulations; Assessments. To
the knowledge of Borrowers, neither the Collateral nor any
other real property owned, leased or otherwise used by the
Borrowers in connection with the conduct of their businesses
(the "Real Property") is in violation of any material law or
any zoning, or other ordinance, code, rule or regulation of
any governmental body or other authority having jurisdiction
thereof, including provisions relating to permissible
non-conforming uses, if any. No notice from any governmental
body or other party has been served upon any Borrower or, to
the knowledge of the Borrowers, upon any of their Affiliates,
claiming any violation of any such law, ordinance, code, rule
or regulation or requiring, or calling attention to the need
for any work, repairs, construction, alteration or
installation on or in connection with the Real Property. None
of the Borrowers has received notice of any special tax
assessment affecting the Real Property or any of the
Collateral.
5.21 Disclosure. No representation or warranty by the Borrowers or
any of their Affiliates in this Agreement or any of the other
Loan Documents, nor any statement furnished to the Bank by the
Borrowers or any of their Affiliates or agents pursuant hereto
or thereto, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact,
necessary when made or while the representation or warranty is
continuing, to make the statements contained herein or therein
not misleading.
5.22 Labor Relations. Each Borrower has withheld all amounts
required by law or agreement to be withheld by it from the
wages, salaries and other payments to its employees, and is
not liable for any arrears or wages or any taxes or penalties
for failure to comply with the foregoing. Except as set forth
on Schedule 5.22 hereto, none of the Borrowers is a party to
any collective bargaining agreements. There are no pending,
threatened or anticipated (i) employment discrimination or
unfair labor practice charges or complaints against or
involving any Borrower before any federal, state or local
board, department, commission or agency, (ii) material
grievances, disputes or controversies with any union or any
other organization of any Borrower's employees, (iii) pending
or threatened strikes, slowdowns, work stoppages or lockouts
or (iv) any asserted pending demands for collective bargaining
by any union or organization or efforts to organize any of the
employees of any Borrower.
5.23 Patents and Trademarks. The Borrowers possess, those patents
and trademarks listed on Schedule 5.23 hereto, which, to its
best knowledge, are all of the necessary patents, patent
rights, trademarks, trademark rights, trade names, trade name
rights and copyrights to conduct the business of the Borrowers
as now operated. Except as listed on Schedule 5.23A hereto,
the Borrowers' patents, patent rights, trademarks, trademark
rights, trade names, trade name rights and copyrights do not,
to the best of Borrowers' knowledge, infringe on the property
rights of any other Person.
5.24 Year 2000 Compliance The Borrower and its Subsidiaries have
reviewed the areas within their business and operations which
could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer applications
used by the Borrower and its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December
31, 1999), and have made related appropriate inquiry of
material suppliers and vendors. Based on such review and
program, the Borrower believes that the "Year 2000 Problem"
will not have a material adverse effect on the Borrower, its
financial condition, business and operations, and its ability
to pay and perform the Obligations. From time to time, at the
request of the Bank, the Borrower and its Subsidiaries shall
provide to the Bank such updated information or documentation
as is requested regarding the status of their efforts to
address the "Year 2000 Problem".
ARTICLE VI
COVENANTS
The Borrowers hereby covenant and agree with the Bank that,
until the Obligations and indebtedness of the Borrowers to the Bank have been
satisfied and discharged in full, the Borrowers will comply with the following
covenants, unless the Bank shall give its prior written consent to the contrary:
6.1 Affirmative Covenants.
6.1 (a) Payments. The Borrowers shall pay, or cause to be paid,
when due all principal and interest under the Notes and all
other Obligations in respect of this Agreement, the Notes and
the Loan Documents.
6.1 (b) Financial Covenants. The Borrowers shall maintain:
(i) a maximum aggregate year-to-date (net loss)/ minimum net
income (exclusive of extraordinary income and losses) for the
interim periods ending on the dates set forth below in the
amounts set forth below;
End of Period (Net Loss)/Net Income
6/30/98 ($10,000,000)
9/30/98 ($18,000,000)
12/31/98 ($24,000,000)
3/31/99 ($28,000,000)
6/30/99 ($5,000,000)
9/30/99 ($5,000,000)
12/31/99 ($3,000,000)
3/31/00 $1,000,000
6/30/00 $1,000,000
9/30/00 $2,000,000
12/31/00 $3,000,000
3/31/01 $4,000,000
6/30/01 $1,000,000
9/30/01 $2,000,000
12/31/01 $3,000,000
3/31/02 $4,000,000
6/30/02 $1,000,000
(ii) at all times, a Leverage Ratio of not more than 1.2:1.0,
measured on a monthly basis; and (iii) at all times, a Current
Ratio of not less than 1.8:1, measured on a monthly basis.
6.1 (c) Financial Information and Reporting. The Borrowers shall
prepare the Accounts Receivable Aging Reports as of the last
day of each calendar month (collectively, the "Effective
Dates" and each an "Effective Date") and shall keep proper
books and records with respect to their Accounts and Inventory
in which full and true entries will be made of all dealings or
transactions relating to the business and affairs of the
Borrowers, in accordance with GAAP, and the Borrowers shall
cause to be furnished to the Bank:
i) As soon as practicable and in any event
within thirty (30) days after each Effective
Date, beginning with the calendar month
ending October 31, 1998, or at such times as
the Bank shall reasonably request, the
Accounts Receivable Aging Reports, the
Inventory Reports and a Borrowing Base
Certificate;
(ii) Beginning with the month ending October 31,
1998, as soon as practicable, and in any
event within forty-five (45) days after the
end of each month, the Borrowers'
consolidated statement of income and
retained earnings and a statement of cash
flow for the month then ended and the
portion of Borrowers' fiscal year then
elapsed and a balance sheet of the Borrowers
as of the end of such month and the
portion of Borrowers' fiscal year then
elapsed, all in reasonable detail, and
certified by an authorized officer of WTI as
being accurate in all material respects and
having been prepared in accordance with
GAAP, other than normal year-end adjustments
and footnotes, and on a basis consistent
with that applied in the preparation of the
Borrowers' previous monthly Financial
Statements, and a certificate in the form of
Exhibit I hereto showing compliance by
Borrowers with the financial covenants set
forth in Section 6.1 (b) hereof;
(iii) As soon as practicable and, in any event,
within forty-five (45) days after the end of
each calendar quarter, beginning with the
quarter ended June 30, 1998, a copy of
Borrowers' 10-Q, as filed with the
Securities and Exchange Commission;
(iv) As soon as practicable and, in any event,
within ninety (90) days after the end of
each Fiscal Year, beginning with the Fiscal
Year ended March 31, 1999, the Borrowers'
consolidated statements of income and
retained earnings and a statement of cash
flow for the Fiscal Year then ended and a
balance sheet of the Borrowers as of the end
of such Fiscal Year, setting forth in
comparative form, the corresponding figures
for the corresponding period of the prior
Fiscal Year, all in reasonable detail,
audited by an independent certified public
accountant selected by the Borrowers and
acceptable to the Bank and prepared in
accordance with GAAP, together with the
written statement of such accountant (i)
that in performing the audit such accountant
has not obtained knowledge of any Event of
Default, or disclosing all Events of Default
of which it has obtained knowledge and (ii)
that he is aware that Bank is relying on
such Financial Statements, together with a
copy of Borrowers' 10-K, as filed with the
Securities and Exchange Commission;
(v) Promptly upon receipt and, in any event,
within fifteen (15) days after receipt
thereof, copies of all interim and
supplemental financial reports submitted to
the Borrowers by independent certified
public accountants in connection with any
interim review of the books and records of
the Borrowers made by such accountants, if
any;
(vi) Together with the Financial Statements for
each Fiscal Year, a certificate of Borrowers
executed by an authorized officer of
Borrowers stating whether any Event of
Default, or event which, with the passage of
time or giving of notice or both, would
constitute such an Event of Default,
currently exists and is continuing and what
action, if any, the Borrowers are taking or
propose to take with respect thereto;
(vii) As soon as practicable and, in any event,
prior to Borrowers' Fiscal Year-end, a
budget for the following Fiscal Year;
(viii) Promptly after notice to any Borrower or any
Affiliate of the Borrowers of the
commencement thereof, notice, in writing, of
any actions, suits, arbitration or other
proceedings in excess of $100,000,
instituted, commenced or to the Borrowers'
knowledge, threatened against or affecting
the Borrowers of the type described in
Section 5.5 of this Agreement;
(ix) Promptly after the occurrence thereof,
notice, in writing, of any Event of Default,
or any event which, with the passage of time
or giving of notice or both, would
constitute such an Event of Default and what
action, if any, the Borrowers are taking or
propose to take with respect thereto;
(x) Notice of any change in location of any
places of business or the Chief Executive
Office Location of the Borrowers or of the
Additional Inventory Locations of the
Borrowers at least five (5) Banking Days
days prior to such change;
(xi) Promptly after the occurrence thereof,
notice, in writing, of any other matter
which has resulted in, or might result in, a
materially adverse change in the financial
or other condition or operations of any
Borrower or its ability to fully perform its
Obligations under the terms and conditions
of this Agreement and the Loan Documents or
its ability to repay the Notes;
(xii) With reasonable promptness, such other
information respecting the business,
properties or the condition or operations,
financial or otherwise, of the Borrowers, as
the Bank may from time to time reasonably
request in writing;
(xiii) Promptly after the occurrence thereof,
notice, in writing, of any material default
under any obligation of any Borrower secured
by a Permitted Lien and what action, if any,
the Borrowers are taking or propose to take
with respect thereto;
(xiv) Promptly after the occurrence thereof,
notice, in writing, of any material labor
dispute to which any Borrower might become a
party, any material strikes or walkouts
relating to the Borrowers' facilities, or
the expiration of any labor contract to
which any Borrower is a party or by which
any Borrower is bound; and
6.1 (d) Account Covenants. Each Borrower agrees to promptly: (i)
inform the Bank in writing, of any material delay in such
Borrower's performance of any of its Obligations to its
Account Debtors or any assertion of any material claims,
offsets or counterclaims by any of its Account Debtors; (ii)
furnish to or inform the Bank of all material adverse
information relating to the financial condition of any of its
Account Debtors upon obtaining actual or constructive
knowledge of such information; and (iii) provide the Bank,
upon the reasonable request of the Bank, with any invoices,
statements or other documents or records with respect to its
Accounts.
6.1 (e) Inventory and Equipment Covenants. Each Borrower shall
maintain its Inventory and Equipment on the premises at the
locations described in Section 5.8 hereof or at such other
addresses as the Bank shall be informed pursuant to Section
9.8 hereof. The Borrowers shall at all times hereafter
maintain a perpetual inventory, keeping correct and accurate
records itemizing and describing the cost, kind, type,
quality, and quantity of the Inventory and Equipment which
records shall be available during Borrowers' usual business
hours for the review of the Bank or its officers, employees or
agents at their request.
6.1 (f) Insurance. The Borrowers shall, at their own expense,
maintain and provide satisfactory evidence to the Bank as to,
insurance on the Collateral and other business Properties, all
in such form, substance and amounts and with such insurance
companies or associations acceptable to the Bank in its
discretion, reasonably exercised, and any insurance policies
issued in connection with the above shall contain endorsements
which name the Bank as additional insured and lender loss
payee, as its interest may appear, with respect to all of the
Collateral and which provide that said policies shall not be
cancelled, terminated, amended or modified without thirty (30)
days' prior written notice to the Bank and that no act or
default of the Borrowers or any Person shall affect the right
of the Bank to recover under such policies in case of loss or
damage. Bank hereby approves of Borrowers' current insurance
coverage. The Borrowers shall deliver to the Bank a copy of
the insurance policies and certificates for each such policy
of insurance. The Borrowers shall notify the Bank within
thirty (30) days of obtaining any new policy or increase of
coverage under any existing policy. The Borrowers hereby
irrevocably appoint, designate and constitute the Bank and its
officers, employees and agents, as the Borrowers'
attorney-in-fact for the purpose of making, settling and
adjusting, in good faith, claims in excess of $100,000 under
any and all such insurance policies and of endorsing the
Borrowers' names on any checks, drafts, instruments or other
items of payment received by any Borrower or the Bank pursuant
to such insurance policies. If the Borrowers fail to maintain
any insurance or policies of insurance as required above, or
fail to pay any premium related thereto, the Bank may obtain
or pay the same, but shall be under no obligation to do so. In
the event the Bank obtains such insurance, all sums so paid
and any expenses incurred in connection therewith shall be
part of the Obligations payable by the Borrowers to the Bank
on demand pursuant to Section 6.1(k) hereof. The Borrowers
shall also maintain in effect, in addition to the above
mentioned insurance covering the Collateral, such other
insurance in such amounts with such insurers and covering such
risks as now maintained by the Borrowers and shall, upon
request by the Bank, provide the Bank with certificates or
policies evidencing such insurance. In the event that any
insurance proceeds received by the Bank pursuant to this
Section 6.1(f) exceed the amounts necessary to repay all
Indebtedness of the Bank with respect to the Collateral to
which such insurance proceeds relate, the Bank shall reimburse
the Borrowers in the amount of such excess.
6.1 (g) Corporate Existence. Borrowers shall maintain and preserve
their corporate existence, good standing, certificates of
authority, licenses, permits, franchises, patents, trademarks,
trade names, service marks, copyrights, leases and all other
contracts and rights necessary or desirable to continue their
operations and business as now conducted and will generally
continue the substantially same lines of business as those
being presently conducted and related businesses in the
telecommunications area.
6.1 (h) Taxes and Laws. Borrowers will pay when due all taxes,
including excise taxes and duty, assessments, charges and
levies imposed on any Borrower or any of their income,
profits, Property or assets, or which they are required to
withhold and pay out, and will comply with all applicable
present and future Laws unless any Borrower is contesting in
good faith, by an appropriate proceeding, the validity, amount
or imposition of the above, while maintaining reserves, deemed
adequate by the Bank in its sole, but reasonable discretion to
cover the above, and such contest does not have or cause a
material adverse change in any Borrower's financial condition
or operations and does not impair any Borrower's ability to
perform the Obligations. In the event any Borrower fails to
pay any such taxes, assessments, charges or levies, the Bank
may, without waiving or releasing the Borrowers' Obligations
or any Event of Default hereunder, pay the same, but shall be
under no obligation to do so. All sums so expended shall be
part of the Obligations payable by the Borrowers to the Bank
on demand pursuant to Section 6.1(k) hereof.
6.1 (i) Repair and Maintenance. The Borrowers will maintain all of
the Collateral and assets, including, without limitation,
their Equipment, Inventory, Property, and the Collateral, in
good condition and repair and in proper working order, normal
wear and tear excepted, and will pay and discharge, or cause
to be paid and discharged, when due, the cost of repairs,
replacement or maintenance to the foregoing and all rentals or
mortgage payments on the foregoing, and in the event the
Borrowers fail in the foregoing, the Borrowers hereby
authorize, without requiring the Bank, to perform the same and
to incur such reasonable costs, fees and expenses in
connection therewith which shall be payable on demand by the
Borrowers pursuant to Section 6.1(k) hereof.
6.1 (j) Inspection. The Borrowers will maintain complete and
accurate books and records. Upon three (3) days prior notice,
the Borrowers, during normal business hours, will allow the
Bank, and any of its officers, employees or agents, to visit,
for inspection and review, any and all premises where the
Borrowers' Collateral is located, and to make available and
furnish to the Bank the Borrowers' books and records and such
financial information concerning the Borrowers' Collateral,
other Property or assets, business, affairs, operations or
financial condition as reasonably requested by the Bank. Prior
to the occurrence of any Event of Default, Bank shall treat
such information as confidential and shall not disclose such
information unless required by law, banking regulation, or
court order, or to any potential participant. No notice shall
be required hereunder if an Event of Default has occurred and
is continuing. The Bank shall be permitted to perform annual
field audits of any of the Borrowers' premises where any of
the Collateral is located at the Borrowers' cost and expense.
6.1 (k) Bank Costs. The Borrowers shall pay to the Bank upon
demand, all reasonable out- of-pocket fees, costs and expenses
incurred or paid by the Bank (i) in connection with the
insurance to be maintained under Section 6.1(f) hereof; (ii)
in connection with the enforcement of its rights and remedies
hereunder including, without limitation, the reasonable costs
of attorney and paralegal fees and costs of field audits as
provided in Section 6.1(j) hereof; (iii) in connection with
the inspection, sale, disposition or collection of or
execution upon the Collateral; (iv) in the repair or
maintenance of the Collateral of the Borrowers; (v) in
notifying Account Debtors of the Borrowers or verifying the
Accounts of the Borrowers; (vi) in perfecting or protecting
the Collateral security or security interest granted
hereunder; and (vii) in connection with any litigation,
contest, suit or proceeding (whether instituted by the Bank,
the Borrowers or where payment of the Obligations or the
Collateral might be materially adversely affected, by any
other Person) in any way relating to the Collateral, this
Agreement and the Loan Documents, except where it is
determined that Bank's action or failure to act constituted
gross negligence or willful misconduct.
6.1 (l) Indemnity and Release. The Borrowers agree that they shall
bear the risks of loss with respect to the Collateral and they
will indemnify the Bank and hold the Bank harmless from any
and all claims, demands, liabilities, losses, damages,
diminutions of value, costs and expenses relating to or in any
way arising out of or from any possession, use, operation,
control, sale, disposition, or collection of any of the
Borrowers' Collateral, except as the foregoing relate to the
Bank's gross negligence or willful misconduct. The Borrowers
hereby release the Bank from any and all claims or causes of
action which any Borrower may have, now or hereafter, relating
to the foregoing, except those arising from the Bank's gross
negligence or willful misconduct.
6.1(m) Instruments and Chattel Paper. Upon the written request of
Bank, the Borrowers will stamp or otherwise mark all Chattel
Paper and Instruments now owned or hereafter acquired by
either of them, in which the Bank has a first and prior
perfected security interest, to reflect that the same are
subject to the Bank's security interest and will immediately
thereafter deliver or cause such Chattel Paper and Instruments
(other than the Intercompany Notes) to be delivered to the
Bank, with appropriate endorsement, assignment or stock power
transfer or assignment, with full recourse to the Borrowers,
to vest title and possession in the Bank.
6.1 (n) Employee Plans. The Borrowers shall (i) keep in full force
and effect any and all Employee Plans which are presently in
existence or may, from time to time, come into existence under
ERISA, and not withdraw from any such Employee Plans, unless
such withdrawal can be effected or such Employee Plans can be
terminated without material liability to the Borrowers; (ii)
make contributions to all of such Employee Plans in a timely
manner and in a sufficient amount to comply with the
requirements of ERISA, including the minimum funding standards
of Section 302 of ERISA; (iii) comply with all material
requirements of ERISA which relate to such Employee Plans;
(iv) notify the Bank immediately upon receipt by any Borrower
of any notice concerning the imposition of any withdrawal
liability or of the institution of any proceeding or other
action which may result in the termination of any such
Employee Plans or the appointment of a trustee to administer
such Employee Plans; and (v) promptly advise the Bank of the
occurrence of any Reportable Event or Prohibited Transaction
that is not exempt by statute, as defined in ERISA, with
respect to any such Employee Plans.
6.1 (o) Leases. Each Borrower shall maintain and comply in all
material respects with all leases covering the Property used
by such Borrower in accordance with their terms so as to
prevent any default thereunder which may result in the
exercise or enforcement of any landlord's or other lien
against such Borrower unless such Borrower is contesting in
good faith, by an appropriate proceeding, the validity, amount
or imposition of any lease charges or expenses while
maintaining reserves, deemed adequate by the Bank in its sole
and complete discretion to cover the above, and such contest
does not have or cause material adverse changes in any
Borrower's financial condition or operations and does not
impair any Borrower's ability to perform the Obligations.
6.1 (p) Bank Deposits.
(i) The Borrowers shall maintain a lockbox account in the
Borrowers' name with the Bank, into which all monies,
checks, notes, drafts and all other payments for
and/or proceeds of the Collateral (the "Funds") shall
be deposited (the "Lockbox Account"). Borrowers agree
to cooperate fully with Bank in taking all steps
which the Bank deems appropriate to ensure that
substantially all of
Borrowers' Account Debtors properly direct payments
on the Accounts to the Lockbox Account. The Borrowers
agree to pay all fees, costs and expenses which the
Bank incurs in connection with opening and
maintaining the Lockbox Account and depositing for
collection by the Bank any check or other item of
payment received by the Bank on account of the
Borrowers' Obligations. All of such fees, costs and
expenses shall be payable to the Bank by the
Borrowers monthly.
(ii) The Borrowers will also transfer and establish all
their primary operating accounts, including
depository and disbursement banking accounts, at the
Bank and shall be responsible for all costs
associated with such accounts as are customarily
charged by the Bank and as previously outlined by
Bank to Borrower. The Borrowers agree that its bank
accounts at the Bank shall contain sufficient funds
to make each payment under the Loan Documents when
due after applying any applicable cure periods.
6.1 (q) Defense of Collateral. The Borrowers shall pay, or cause
to be paid, when due, all material Indebtedness, lawful claims
or demands with respect to the Collateral which, if unpaid,
might result in, or permit the creation of, any Lien or
encumbrance on the Collateral, including, without limitation,
all lawful claims for labor, materials and supplies, and, in
general, do and cause to be done, everything reasonably
necessary to fully preserve the rights and interests of Bank
under this Agreement and the other Loan Documents. In
addition, the Borrowers shall at all times defend Bank's
rights and interests in and to the Collateral, and the
priority position of said rights and interests against any and
all claims of any person adverse to Bank and take all
necessary or appropriate actions to give effect to Bank's
priority of rights and interests contemplated by this
Agreement and the other Loan Documents.
6.1 (r) Environmental Matters - Indemnification. Borrowers shall
take or cause to be taken all actions which are reasonably
necessary, in the judgment of the Bank, to comply in all
material respects with the requirements of all Environmental
Laws including, without limitation, all filing and reporting
requirements thereof. Borrowers hereby agree to indemnify,
hold harmless and reimburse Bank for any and all loss, damage,
expenses or costs of any kind or nature arising out of or
incurred in connection with any prior, existing or future
violations by Borrowers of any Environmental Laws.
6.2 Negative Covenants.
6.2 (a) Liens. The Borrowers shall not create, incur, grant,
pledge, permit or suffer to exist, any Lien upon any of their
Property, including the Collateral, except the Permitted
Liens.
6.2 (b) Debt. The Borrowers shall not, directly or indirectly,
create, assume, incur, become or be liable for or with respect
to any manner of obligations, liabilities or Indebtedness
whatsoever to any Person, or by way of any guaranties, except
with respect to (i) the Obligations of the Borrowers
hereunder; (ii) additional Indebtedness shown on Schedule
6.2(b) hereto; (iii) Indebtedness arising or accruing in the
ordinary course of business which indebtedness does not give
rise to a Lien or other security interest, other than a
Permitted Lien; and (iv) the Subordinated Debt, if any.
6.2 (c) Name Changes, Mergers and Acquisitions. Except as set
forth in Section 6.2(g) hereof, none of the Borrowers shall,
without the Bank's prior written consent (i) change its
corporate name or adopt an assumed corporate name without the
prior written consent of the Bank which consent shall not be
unreasonably withheld, (ii) consolidate or merge with any
Person, or (iii) acquire all or substantially all of the
assets or properties of, any Person.
6.2 (d) Payments under Subordinated Debt. Borrowers shall not make
any payments on any Subordinated Debt, except in accordance
with the terms of any subordination agreements with respect to
such Subordinated Debt.
6.2 (e) Redemption and Dividends. The Borrowers shall not
purchase, redeem, retire, or otherwise acquire any shares of
their capital stock, or declare or pay any dividends thereon,
make any distribution or payment to their stockholders (in
their capacity as such) or set aside any funds for such
purpose, except for redemptions which are legally permissible
and to which the Bank shall have given its prior written
approval.
6.2 (f) Transfer of Assets. The Borrowers shall not sell, lease,
transfer or otherwise dispose of any of their Collateral,
Property, assets or rights without the prior written consent
of the Bank, except for sales or rentals of their Inventory to
customers in the ordinary course of business and with respect
to obsolete, damaged or worn out property, Goods or Equipment
no longer useful or being replaced in the Borrowers'
businesses, and the proceeds of any permitted sale shall be
applied to the Obligations or to the replacement of the
Equipment being disposed of with substantially similar
Equipment having a comparable value.
6.2 (g) Investments and Loans. The Borrowers shall not (i) make
any investments in any Person, except in accordance with
Borrowers' investment guidelines which have been previously
reviewed and approved by Bank; (ii) hereafter make any loans
or advances to any Affiliate, director, shareholder, officer
or employee of the Borrowers, or any Person except for loans
or advances in the ordinary course of business; or (iii) make
Acquisitions in an amount in excess that: (a) the Person whose
stock or assets is being acquired shall be in substantially
the same line of business as Borrowers, and (b) after giving
effect to the acquisition, there shall exist no default or
Event of Default. Any Acquisitions in an amount in excess of
$4,000,000 shall require the prior written approval of the
Bank.
6.2 (h) Prepayment or Modification of Indebtedness. The Borrowers
will not (i) prepay any Indebtedness for money borrowed by any
Borrower or any Indebtedness secured by any of their assets
(except for the Obligations), (ii) enter into or modify any
agreement as a result of which the terms of payment of any of
the foregoing Indebtedness are amended or modified in a manner
which would accelerate its payment.
6.2 (i) False Statements. The Borrowers will not furnish the Bank
any certificate or other document that will contain any untrue
statement of material fact or that will omit to state a
material fact necessary to make it not misleading in light of
the circumstances under which it was furnished.
6.2 (j) Transactions with Affiliates. The Borrowers will not enter
into any agreement or arrangement, written or oral, directly
or indirectly, with an Affiliate, or provide services or sell
goods to, or for the benefit of, or pay or otherwise
distribute monies, goods or other valuable consideration to,
an Affiliate, except upon fair and reasonable terms no less
favorable to the Borrowers than terms in a comparable arm's
length transaction with an unaffiliated Person and except for
existing intercompany debt.
6.2 (k) Guarantees. The Borrowers shall not guarantee, assume,
endorse or otherwise, in any way, become directly or
contingently liable in any manner with respect to the
obligations or liabilities of any Person, except by
endorsement of instruments or items for payment or deposit or
collection.
6.2 (l) Capital Structure. Without the prior written consent of
the Bank, the Borrowers shall not make any material change in
their capital structures, enter into any new business or make
any material change in their business objectives, purposes and
operations, any of which would materially adversely affect
their business, profits, prospects, any of their Property, or
their ability to repay the Obligations.
6.2 (m) Locations. The Borrowers shall not transfer the Chief
Executive Office Location or Additional Inventory Locations or
transfer existing locations, or maintain warehouses or records
with respect to the Accounts, at any locations other than
those at which the same are presently kept or maintained
without providing the Bank at least 30 days' advance written
notice.
6.2 (n) Leases. The Borrowers shall not incur or permit to exist
(i) any obligations under any operating leases other than
leases having an aggregate rent not in excess of $3,500,000
per Fiscal Year, and (ii) any indebtedness with respect to
permitted purchase money indebtedness and obligations with
respect to leases which have been, or, in accordance with
GAAP, should be, recorded as capitalized leases, for which
Borrowers are obligated to pay in excess of $1,000,000 in the
aggregate at any time.
6.2 (o) Capital Expenditures. The Borrowers shall not make or
incur any Capital Expenditures in excess of $7,000,000 in any
Fiscal Year.
ARTICLE VII
EVENTS OF DEFAULT
The following shall constitute and be deemed Events of Default
hereunder:
7.1 Payment Obligations. Failure by the Borrowers to make any
payment of the Obligations within five (5) days of when due or
payable.
7.2 Performance Obligations. Failure by Borrowers to perform, keep
or observe any covenant, condition, agreement or provision
hereunder or under the Notes or any other Loan Documents and
such failure shall continue for a period of thirty (30) days
after the occurrence thereof; provided, however, that the
thirty (30) day cure period provided by this Section 7.2 shall
not apply to the specific Events of Default set forth in the
remainder of this Section 7.
7.3 Representation and Warranties. Any warranty or representation
now or hereafter made by any Borrower hereunder or by any
other party to the Loan Documents under the Loan Documents, is
untrue or incorrect in any material respect or fails to state
a material fact necessary to make such warranty or
representation not misleading in light of the circumstances in
which it was made, or any schedule, certificate, statement,
report, financial data, notice or writing furnished to the
Bank at any time by the Borrowers or by a party or signatory
to the Loan Documents is untrue or incorrect in any material
respect or fails to state a material fact needed to make the
foregoing not misleading in light of the circumstances in
which the foregoing were furnished, on the date as of which
the facts set forth therein are stated or certified.
7.4 Judgments. Any judgment or order requiring payment of monies
in excess of $250,000 which is not covered by insurance, shall
be rendered against any Borrower, and such judgment or order
shall remain unsatisfied or undischarged and in effect for
thirty (30) consecutive days without a stay of enforcement or
execution thereof or posting of a bond pending appeal.
7.5 Insolvency and Related Proceedings. If any Borrower (i)
authorizes or makes an assignment for the benefit of
creditors; (ii) generally shall not pay its debts as they
become due; (iii) shall admit in writing its inability to pay
its debts generally as they come due; or (iv) shall authorize
or commence (whether by the entry of an order for relief or
the appointment of a receiver, trustee, examiner, custodian or
other similar official therefor or for any part of its
property) any proceeding or voluntary case under any
bankruptcy, reorganization, insolvency, dissolution,
liquidation, adjustment or arrangement of debt, receivership
or similar Laws or if such proceedings are commenced or
instituted, or an order for relief or approving any petition
commencing such proceedings is entered against such Borrower,
and such Borrower, by any action or failure to act,
authorizes, approves, acquiesces, or consents to the
commencement or institution of such proceedings, and such
proceedings are not dismissed within forty-five (45) days
after the date of filing, commencement or institution.
7.6 Material Agreements. If any Borrower defaults, or a default or
an event of default occurs, under or in the performance of any
material agreement, document or instruments, whether for
borrowed money or otherwise, and such default, breach, or
event of default continues beyond any applicable grace period
thereunder and the effect of which shall be to cause the
holder of such obligation, agreement, document or instrument,
or the person to whom such obligation is owed to cause such
obligation to become due prior to its stated maturity or
otherwise accelerated.
7.7 State Action. If any proceeding is instituted or commenced by
any state or officer thereof, including the States of Illinois
or Delaware, the Secretary of State of Illinois or the State
of Delaware, or the Secretary of State of or any commission or
other instrumentality of the State of Illinois or Delaware,
seeking a forfeiture of any Borrower's Articles of
Incorporation or certificate of authority to transact business
as a foreign corporation or of a license or permit held by any
Borrower necessary to the conduct of its business, and such
Borrower shall fail to vacate any order entered in such
proceeding within thirty (30) days; or if any Borrower ceases
to conduct its business as now conducted or is enjoined,
restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part
of its business affairs.
7.8 Tax Liens. If a notice of lien, levy or assessment other than
a Permitted Lien, is filed or recorded with respect to all or
a substantial part of the Collateral owned by any Borrower by
the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipality
or other governmental agency, or any taxes or debts owing at
any time or times hereafter to any one or more of the
foregoing become a lien other than a Permitted Lien, upon all
or a substantial part of the Collateral owned by any Borrower
unless such notice or lien is removed within thirty (30) days
after filing or recording of such notice or becoming such
lien.
7.9 Insurance. If any insurer of any policy of insurance
respecting a material portion of the Collateral issues any
notice of cancellation of such a policy, or any such policy is
allowed to lapse, and in either case, is not replaced by a
substitute policy having an effective date prior to or
contemporaneous with such cancellation or lapse.
7.10 Change of Control. If (a) during any period of 24 consecutive
months individuals who at the beginning of such period
constituted the Boards of Directors of Borrowers (together
with any new directors whose election to such Boards or whose
nomination for election by the stockholders of the Borrowers
was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of
such period or whose election or nomination for election was
previously so approved) cease to constitute a majority of the
Boards of Directors of Borrowers then in office or (b) if the
Voting Trust ceases to own, both legally and beneficially, at
least fifty-one percent (51%) of the issued and outstanding
voting stock of WTI.
ARTICLE VIII
RIGHTS AND REMEDIES OF THE BANK
8.1 Termination of Commitment and Acceleration. Upon the Revolving
Loan Termination Date, Equipment Loan Termination Date, or the
Term Loan Termination Date or upon the happening or occurrence
of an Event of Default described in Section 7.5 above, the
Bank's commitment to make the Loans, if such commitments have
not yet terminated, shall immediately terminate and the
applicable Obligations shall be automatically due and payable
without any action, presentment, demand , protest or notice of
any kind. Upon the happening or occurrence of any other Event
of Default set forth in Article VII, such Event of Default not
having been previously cured or waived in writing by the Bank,
the Bank, may, at its sole and complete discretion and option,
declare the Notes due and payable without any presentment,
demand, protest, notice of any of the foregoing or other
notice of any kind, all of which are hereby expressly waived
notwithstanding anything contained herein or in the Notes to
the contrary, and the Bank shall have all rights and remedies
now or hereafter provided by applicable Laws and without
limiting the generality of the foregoing, may, at its option,
also appropriate and apply toward the payment of the Notes,
any indebtedness of the Bank to the Borrowers, howsoever,
created or arising, and may also exercise any and all rights
and remedies hereunder, under the Loan Documents or in and to
the collateral security referred to in Article IV hereof,
including, without limitation, the Collateral of the
Borrowers.
8.2 Rights of Secured Creditor. The Bank shall have, in addition
to the rights and remedies given to it under this Agreement,
the Notes and the Loan Documents, all of the rights and
remedies of a secured party under the Uniform Commercial Code
as enacted in any jurisdiction in which any of the Collateral
of the Borrowers may be located, and all rights and remedies
allowed by all applicable Laws, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent
permitted by said Laws. All risk of loss, damage or diminution
of value with respect to any Borrower's Collateral shall be
borne by the Borrowers at all times and the Bank shall have no
responsibility, liability or obligation to the Borrowers
therefor except as a result of the Bank's gross negligence or
willful misconduct.
8.3 Sale of Collateral. Upon an Event of Default and the
declaration that the Notes are due and payable under Section
8.1., the Bank may immediately, with only such demand or
notice to the Borrowers as may be required by the version of
the Uniform Commercial Code currently enacted in Illinois, all
of such other or further demand or notice hereby expressly
waived by the Borrowers to the extent permitted by law, and
without advertisement except as may be required by the version
of the Uniform Commercial Code currently enacted in Illinois
(or other applicable jurisdiction), lease, sell or otherwise
dispose of or realize upon, at public or private auction or
sale in Chicago, Illinois or elsewhere, the whole or, from
time to time, any part of the Collateral of the Borrowers or
any interest which any Borrower may have therein. Each
Borrower agrees to assemble, or cause to be assembled, at its
own expense, its Collateral at such place or places as the
Bank shall reasonably designate and the Bank may, in its sole
and complete discretion, reasonably exercised, cause the
Collateral of any Borrower to remain on such Borrower's
premises at the Borrowers' expense, pending sale, lease or
other disposition of said Collateral. The Bank shall have the
right to conduct such sales on the Borrowers' premises at the
Borrowers' expense or elsewhere. Any sale, lease or other
disposition of the Collateral of the Borrowers may be for
cash, credit or any combination thereof and the Bank may
purchase all or any part of the Collateral and in lieu of
actual payment of such purchase price, may set off the amount
of such purchase price against the Obligations of the
Borrowers, free from any right of redemption on the part of
the Borrowers, which right is hereby waived and released.
After deducting from the proceeds of the sale, lease or other
disposition of said Collateral all expenses incurred by the
Bank in connection therewith (including reasonable attorneys
fees), the Bank shall apply such proceeds towards the
satisfaction of the Obligations of the Borrowers, and shall
account to the Borrowers for any surplus of such proceeds. The
Borrowers shall remain liable for any deficiencies. Any notice
required to be given by the Bank of a sale, lease or other
disposition or other intended action by the Bank with respect
to any of the Collateral of the Borrowers shall be mailed by
the Bank, ten (10) days prior to such sale, lease or other
disposition or other intended action by depositing such notice
in the United States mail, postage prepaid and duly addressed
to the Borrowers at the address specified in Section 9.8
hereof and such notice shall constitute, and the Borrowers
agree that such notice constitutes reasonable and seasonable
notice of such sale, lease or other disposition or other
intended action.
8.4 Entry on Premises. Upon the occurrence of an Event of Default,
the Bank shall have the right to enter upon the premises of
the Borrowers where the Collateral of any Borrower is located
or believed to be located in accordance with any applicable
laws, without any obligation to pay rent to the Borrowers or
any responsibility or liability to the Borrowers for
safeguarding said Collateral from loss or damage or diminution
in value, except if caused by the Bank's gross negligence or
willful misconduct, and render said Collateral unusable or
remove said Collateral therefrom to the premises of the Bank
or any agent of the Bank, for such time as the Bank may desire
in order to effectively collect or liquidate said Collateral.
8.5 Access to Records. Upon the occurrence of an Event of Default
or under the conditions set forth herein, the Bank shall have
the right to attain access to the Borrowers' books, records,
files, journals or invoices relating to any Borrower's
Collateral or business affairs during the Borrowers' normal
business hours in order to copy, extract, verify, audit or
review the same.
ARTICLE IX
MISCELLANEOUS
9.1 Waiver. The Bank's failure, at any time or times hereafter,
either to require strict performance by the Borrowers of any
provisions of this Agreement, the Notes or any Loan Documents,
or to enforce the Bank's rights under such terms or
provisions, shall not waive, effect or diminish or modify such
terms or provisions, notwithstanding any conduct or custom,
actual or implied, of the Bank to the contrary or in
refraining from so doing at any time or times. Any suspension
or waiver by the Bank of an Event of Default hereunder or
under any Loan Documents or right or remedy hereunder or under
any Loan Document shall not suspend, waive, release or affect
any other Event of Default or right or remedy hereunder or
under any Loan Documents. No Obligations of the Borrowers,
Events of Default or right or remedy hereunder or under any
Loan Documents shall be deemed suspended or waived by the Bank
unless such suspension or waiver is in writing signed by a
duly authorized officer of the Bank and directed to the
Borrowers detailing such suspension or waiver.
9.2 Applicable Law. This Agreement, the Notes and the Loan
Documents have been issued, delivered and accepted in and
shall be deemed to have been made under and shall be governed
by and construed in accordance with the internal law and not
the conflict of law rules of the State of Illinois.
9.3 Severability. This Agreement, the Notes and Loan Documents
shall be construed and interpreted in such manner as to be
effective, enforceable and valid under all applicable Laws. If
any provision of this Agreement, the Notes or the Loan
Documents shall be held invalid, prohibited or unenforceable
under any applicable Laws of any applicable jurisdiction, such
invalidity, prohibition or unenforceability shall be limited
to such provision and shall not affect or invalidate the other
provisions hereof or thereof or affect the validity or
enforceability of such provision in any other jurisdiction,
and to the extent the provisions hereof and thereof are
severable.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
9.5 Section Headings. Section headings used in this Agreement are
for convenience only and shall not effect the construction or
interpretation of this Agreement.
9.6 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Bank and the Borrowers, and their
respective successors and assigns; provided, however, that the
Borrowers have no right to assign any of their rights or
Obligations hereunder without the prior written consent of the
Bank.
9.7 Merger Clause. This Agreement, the Notes and the Loan
Documents constitute the entire agreement between the parties
hereto and thereto with respect to the Loans and may be
amended only by a writing signed on behalf of each such party.
If any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in the Notes or the
Loan Documents, the provision contained in this Agreement
shall govern and control.
9.8 Notices. Any notices or consents required or permitted by this
Agreement shall be (i) in writing and (ii) delivered in
person, telecopied or sent by certified or registered mail,
postage prepaid, return receipt requested, to the address set
forth below, unless such address is changed by written notice
hereunder, and (iii) deemed duly given upon compliance with
the above.
(i) If to the Borrowers:
Westell Technologies, Inc.
750 North Commons Drive
Aurora, Illinois 60504
Attn: Steve Hawrysz
Telephone: 630-375-4113
Telecopy: 630-375-4940
With a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: Neal J. White and Lauretta Moran
Telephone: 312-984-7579 (White)
Telephone: 312-984-6933 (Moran)
Telecopy: 312-984-3651
(ii) If to the Bank:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Jason Williams
Telephone: 312-904-4623
Telecopy: 312-904-6546
With a copy to:
Rochelle P. Slater
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Telephone: 312-923-2722
Telecopy: 312-840-7722
9.9 Consent to Service. The Borrowers expressly submit and consent
to the jurisdiction of any state or federal court located
within Cook County, Illinois in any action, suit or proceeding
commenced therein in connection with or with respect to the
Obligations, this Agreement, the Notes or any Loan Documents
and waive any right to jury trial and objection to venue in
connection therewith. The Borrowers hereby waive personal
service of any and all process or papers issued or served in
connection with the foregoing and agree that service of such
process or papers may be made by registered or certified mail,
postage prepaid, return receipt requested, directed to the
Borrowers as set forth in Section 9.8 above.
9.10 Waiver of Jury Trial. THE BANK AND THE BORROWERS HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, IN
CONNECTION WITH, OR RELATING TO THIS AGREEMENT, THE NOTES,
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
OR ACTIONS OF SUCH BANK OR SUCH BORROWERS. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE BANK TO ENTER INTO THIS
AGREEMENT.
9.11 Participations. The Borrowers hereby consent to the Bank's
participation, sale, assignment or transfer, at any time or
times hereafter of this Agreement or the Loan Documents, or
any portion hereof or thereof, without affecting the liability
of the Borrowers hereunder; provided, however, the Bank shall
at all times act as sole agent on behalf of itself and any
participant that acquires any interest in this Agreement or
the Loan Documents and shall at all times service the Loans on
behalf of itself and any participant.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WESTELL TECHNOLOGIES, INC.
By______________________________
Title:____________________________
WESTELL, INC.
By______________________________
Title:____________________________
WESTELL INTERNATIONAL, INC.
By______________________________
Title:____________________________
CONFERENCE PLUS, INCORPORATED
By______________________________
Title:____________________________
LASALLE NATIONAL BANK
By______________________________
Title:____________________________
EXHIBITS
Exhibit A Borrowing Base Certificate
Exhibit B Revolving Note
Exhibit C Term Note
Exhibit D Equipment Note
Exhibit E President's Certificate
Exhibit F Opinion of McDermott, Will & Emery
Exhibit G Secretary's Certificate
Exhibit I Compliance Certificate
SCHEDULES
Schedule 1 Foreign Eligible Accounts Receivable
Schedule 2 Intercompany Notes
Schedule 5.8 Chief Executive Offices and Inventory Locations
Schedule 5.16 Capitalization
Schedule 5.22 Labor Relations
Schedule 5.23 Patents and Trademarks
Schedule 6.2(b) Debt; Leases
REVOLVING NOTE
$16,000,000 October 13, 1998
WESTELL TECHNOLOGIES, INC., WESTELL, INC., WESTELL
INTERNATIONAL, INC., AND CONFERENCE PLUS, INCORPORATED (collectively,
"Borrowers"), hereby jointly and severally promise to pay to the order of
LaSalle National Bank (the "Bank"), on August 30, 1999 the principal sum of
Sixteen Million and No/100 ($16,000,000), or such lesser amount of all of the
then outstanding advances made by the Bank to Borrowers pursuant to Section 2.1
of the "Loan Agreement" (as hereinafter defined), together with interest on any
and all principal amounts remaining unpaid hereunder from time to time from the
date hereof until paid, at the rate(s) set forth in Section 2.6 of the Loan
Agreement, payable on the last day of each "Interest Period" (as such term is
defined in the Loan Agreement) and continuing until the Revolving Loans (as such
term is defined in the Loan Agreement) are paid in full.
Any amount of interest or principal hereof which is not paid
when due, whether on the last day of an Interest Period, at stated maturity, by
acceleration or otherwise, shall bear interest payable on demand at the "Default
Rate" (as such term is defined in the Loan Agreement).
All payments of principal and interest on this Note shall be
payable in lawful money of the United States of America. In no event shall the
interest payable exceed the highest rate permitted by law. Principal and
interest shall be paid to Bank at its office at 135 South LaSalle Street,
Chicago, Illinois 60603, or at such other place as the holder of this Note may
designate in writing to Borrowers. All payments hereunder shall be applied as
provided in the Loan Agreement. In determining Borrowers' liability to the Bank
hereunder, the books and records of the Bank shall be controlling absent
arithmetic or manifest error.
This Note evidences certain indebtedness incurred under the
Loan and Security Agreement, dated as of the date hereof, among Borrowers and
Bank (as heretofore or hereafter amended, the "Loan Agreement"), to which
reference is hereby made for a statement of the terms and conditions under which
the due date of this Note or any payment thereon may be accelerated or is
automatically accelerated, or under which this Note may be prepaid or is
required to be prepaid. All capitalized terms used herein shall, unless
otherwise defined herein, have the meanings set forth in the Loan Agreement. The
holder of this Note is entitled to all of the benefits provided in said Loan
Agreement and the Loan Documents referred to herein. Borrowers agree to pay all
costs of collection and all reasonable attorneys' fees paid or incurred in
enforcing any of the Bank's rights hereunder promptly on demand of the Bank and
as more fully set forth in the Loan Agreement.
This Note may be prepaid in whole or in part in accordance
with the terms of the Loan Agreement.
Except as set forth in the Loan Agreement, the Borrowers,
endorsers and all other parties to this Note waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Loan
Agreement. In any action on this Note, the Bank or its assignee need not file
the original of this Note, but need only file a photocopy of this Note certified
by the Bank or such assignee to be a true and correct copy of this Note.
This is the Revolving Note referred to in the Loan Agreement.
This Note is secured by, among other things, a security interest in the
Collateral granted to the Bank pursuant to Section 4 of the Loan Agreement.
No delay on the part of the Bank in exercising any right under
this Note, any security agreement, guaranty or other undertaking affecting this
Note, shall operate as a waiver of such right or any other right under this
Note, nor shall any omission in exercising any right on the part of the Bank
under this Note operate as a waiver of any other rights.
Upon the occurrence of an Event of Default under the Loan
Agreement, the outstanding indebtedness evidenced by this Note, together with
all accrued interest, shall be due and payable in accordance with the terms of
the Loan Agreement, without notice to or demand upon the Borrowers except as
otherwise provided in the Loan Agreement, and the Bank may exercise all of its
rights and remedies reserved to it under the Loan Agreement or applicable law.
If any provision of this Note or the application thereof to
any party of circumstance is held invalid or unenforceable, the remainder of
this Note and the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of this Note shall
be severable in any such instance.
BORROWERS HEREBY WAIVE ANY RIGHT BORROWERS MAY NOW OR
HEREAFTER HAVE TO SUBMIT ANY CLAIM, ISSUE OR DEFENSE ARISING HEREUNDER OR UNDER
THE OTHER DOCUMENTS RELATING TO THIS NOTE TO A TRIAL BY JURY.
This Note shall be deemed to have been made under and shall be
governed in accordance with the internal laws and not the conflict of law rules
of the State of Illinois.
WESTELL TECHNOLOGIES, INC.
By:
Title:
WESTELL, INC.
By:_______________________________________
Title:_____________________________________
WESTELL INTERNATIONAL, INC.
By:______________________________________
Title:_____________________________________
CONFERENCE PLUS, INCORPORATED
By:______________________________________
Title:_____________________________________
EQUIPMENT LOAN NOTE
$5,000,000.00 October 13, 1998
WESTELL TECHNOLOGIES, INC., WESTELL, INC., WESTELL
INTERNATIONAL, INC., AND CONFERENCE PLUS, INCORPORATED (collectively, the
"Borrowers"), for value received, hereby jointly and severally promise to pay to
the order of LaSalle National Bank, a national banking association, and its
successors and assigns (the "Bank"), the principal sum of Five Million and
No/100 Dollars ($5,000,000) or such lesser amount of all of the then outstanding
"Equipment Loan Advances" made by the Bank to the Borrowers pursuant to
Paragraph 2.3 of the "Loan Agreement" (as hereinafter defined) on the
"Conversion Date" (as defined in the Loan Agreement"), in twelve (12)
consecutive equal quarterly installments, as set forth in the Loan Agreement,
commencing November 30, 1999 and on the last day of each February, May, August,
and November thereafter and with a final installment of the then outstanding
principal balance together with all accrued interest on August 30, 2002.
Any and all principal amounts remaining unpaid hereunder from
time to time shall bear interest at the rate(s) set forth in Section 2.6 of the
Loan Agreement and shall be payable on the last day of each Interest Period.
Any amount of interest or principal hereof which is not paid
when due, whether at stated maturity, by acceleration or otherwise, shall bear
interest payable on demand at the "Default Interest Rate" (as such term is
defined in the Loan Agreement).
All payments of principal and interest on this Note shall be
payable in lawful money of the United States of America. In no event shall the
interest payable exceed the highest rate permitted by law. Principal and
interest shall be paid to the Bank at its office at 135 South LaSalle Street,
Chicago, Illinois 60603, or at such other place as the holder of this Note may
designate in writing to the undersigned. Borrowers authorize Bank to charge
Borrowers' account maintained with Bank in amounts equal to all payments of
principal, accrued interest, and fees from time to time as they come due and
payable hereunder or under any agreement pursuant to which this Note was issued.
All payments hereunder shall be applied as provided in the Loan Agreement. In
determining the Borrowers' liability to the Bank hereunder, the books and
records of the Bank shall be deemed controlling absent manifest error.
This Note evidences certain indebtedness incurred under that
certain Loan and Security Agreement between Borrowers and Bank dated as of the
date hereof, as the same may be amended and supplemented from time to time ("the
Loan Agreement"), to which reference is hereby made for a statement of the terms
and conditions under which the due date of this Note or any payment thereon may
be accelerated or is automatically accelerated, or under which this Note may be
prepaid or is required to be prepaid. The holder of this Note is entitled to all
of the benefits provided in said Loan Agreement and the various documents
referred to therein.
The Borrowers agree to pay all costs of collection and all
reasonable attorneys' fees paid or incurred in enforcing any of the Bank's
rights hereunder promptly on demand of the Bank and as more fully set forth in
the Loan Agreement.
This is the Equipment Loan Note referred to in the Loan
Agreement. This Note is secured by, among other things, a security interest in
the Collateral granted to the Bank pursuant to Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default under the Loan
Agreement, the outstanding indebtedness evidenced by this Note, together with
all accrued interest, shall be due and payable in accordance with the terms of
the Loan Agreement, without notice to or demand upon the Borrower, and the Bank
may exercise all of its rights and remedies reserved to it under the Loan
Agreement or applicable law.
To the extent permitted by law, Borrowers, endorsers and all
other parties to this Note waive presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Loan Agreement. In any
action on this Note, the Bank or its assignee need not file the original of this
Note, but need only file a photocopy of this Note certified by Bank or such
assignee to be a true and correct copy of this Note.
No delay on the part of Bank in exercising any right under
this Note, any security agreement, guaranty or other undertaking affecting this
Note, shall operate as a waiver of such right or any other right under this
Note, nor shall any omission in exercising any right on the part of Bank under
this Note operate as a waiver of any other rights.
If any provision of this Note or the application thereof to
any party or circumstance is held invalid or unenforceable, the remainder of
this Note and the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of this Note shall
be severable in any such instance.
BORROWERS HEREBY WAIVE ANY RIGHT BORROWERS MAY NOW OR
HEREAFTER HAVE TO SUBMIT ANY CLAIM, ISSUE OR DEFENSE ARISING HEREUNDER OR UNDER
THE OTHER DOCUMENTS RELATING TO THIS NOTE TO A TRIAL BY JURY.
This Note shall be deemed to have been made under and shall be
governed in accordance with the internal laws and not the conflict of law rules
of the State of Illinois.
IN WITNESS WHEREOF, Borrowers have caused this Note to be
executed by their duly authorized officers as of the date first above written.
WESTELL TECHNOLOGIES, INC.
By:________________________________
Title:_______________________________
WESTELL, INC.
By:__________________________________
Title:_________________________________
WESTELL INTERNATIONAL, INC.
By:___________________________________
Title:__________________________________
CONFERENCE PLUS, INCORPORATED
By:______________________________________
Title:____________________________________
TERM NOTE
$4,000,000 October 13, 1998
WESTELL TECHNOLOGIES, INC., WESTELL, INC., WESTELL
INTERNATIONAL, INC., AND CONFERENCE PLUS, INCORPORATED (collectively,
"Borrowers"), hereby jointly and severally promise to pay to the order of
LaSalle National Bank (the "Bank") the principal sum of Four Million and No/100
Dollars ($4,000,000), in twelve (12) consecutive quarterly installments of
principal, each in the amount of Three Hundred Thirty-Three Thousand Three
Hundred Thirty-Three and 33/100 Dollars ($333,333.33), payable commencing
November 30, 1998 and continuing on the last day of each February, May, August,
and November thereafter, with a final payment on August 30, 2001 (each, a
"Quarterly Payment Date").
Any and all principal amounts remaining unpaid hereunder from
time to time shall bear interest from the date hereof until paid, payable on the
last day of each Interest Period (as such term is defined in the "Loan
Agreement" (as hereinafter defined)) until payment in full, at the rate(s) set
forth in Section 2.6 of the Loan Agreement.
Borrowers may prepay in whole or in part, at any time and from
time to time, the principal, accrued interest and other amounts due under this
Note without premium or penalty, except as set forth in the Loan Agreement.
Any amount of interest or principal hereof which is not paid
when due, whether on a Quarterly Payment Date, the last day of an Interest
Period, at stated maturity, by acceleration or otherwise, shall bear interest
payable on demand at the "Default Rate" (as such term is defined in the Loan
Agreement).
All payments of principal and interest on this Note shall be
payable in lawful money of the United States of America. In no event shall the
interest payable exceed the highest rate permitted by law. Principal and
interest shall be paid to Bank at 135 South LaSalle Street, Chicago, Illinois
60603, or at such other place as the holder of this Note may designate in
writing to Borrowers. All payments hereunder shall be applied as provided in the
Loan Agreement. In determining Borrowers' liability to the Bank hereunder, the
books and records of the Bank shall be controlling absent arithmetic or manifest
error.
This Note evidences certain indebtedness incurred under that
certain Loan and Security Agreement dated as of the date hereof among Borrowers
and Bank (as heretofore or hereafter amended, the "Loan Agreement), to which
reference is hereby made for a statement of the terms and conditions under which
the due date of this Note or any payment thereon may be accelerated or is
automatically accelerated, or under which this Note may be prepaid or is
required to be prepaid. All capitalized terms used herein shall, unless
otherwise defined herein, have the meanings set forth in the Loan Agreement. The
holder of this Note is entitled to all of the benefits provided in said Loan
Agreement and the Loan Documents referred to herein. Borrowers agree to pay all
costs of collection and all reasonable attorneys' fees paid or incurred in
enforcing any of the Bank's rights hereunder promptly on demand of the Bank and
as more fully set forth in the Loan Agreement.
Except as set forth in the Loan Agreement, the Borrowers,
endorsers and all other parties to this Note waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Loan
Agreement. In any action on this Note, the Bank or its assignee need not file
the original of this Note, but need only file a photocopy of this Note certified
by the Bank or such assignee to be a true and correct copy of this Note.
This is the Term Note referred to in the Loan Agreement. This
Note is secured by, among other things, a security interest in the Collateral
granted to the Bank pursuant to Section 4 of the Loan Agreement.
No delay on the part of the Bank in exercising any right under
this Note, any security agreement, guaranty or other undertaking affecting this
Note, shall operate as a waiver of such right or any other right under this
Note, nor shall any omission in exercising any right on the part of the Bank
under this Note operate as a waiver of any other rights.
Upon the occurrence of an Event of Default under the Loan
Agreement, the outstanding indebtedness evidenced by this Note, together with
all accrued interest, shall be due and payable in accordance with the terms of
the Loan Agreement, without notice to or demand upon the Borrowers except as
otherwise set forth in the Loan Agreement, and the Bank may exercise all of its
rights and remedies reserved to it under the Loan Agreement or applicable law.
If any provision of this Note or the application thereof to
any party of circumstance is held invalid or unenforceable, the remainder of
this Note and the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of this Note shall
be severable in any such instance.
BORROWERS HEREBY WAIVE ANY RIGHT BORROWERS MAY NOW OR
HEREAFTER HAVE TO SUBMIT ANY CLAIM, ISSUE OR DEFENSE ARISING HEREUNDER OR UNDER
THE OTHER DOCUMENTS RELATING TO THIS NOTE TO A TRIAL BY JURY.
This Note shall be deemed to have been made under and shall be
governed in accordance with the internal laws and not the conflict of law rules
of the State of Illinois.
WESTELL TECHNOLOGIES, INC.
By:
Title:
WESTELL, INC.
By:_______________________________________
Title:_____________________________________
WESTELL INTERNATIONAL, INC.
By:______________________________________
Title:_____________________________________
CONFERENCE PLUS, INCORPORATED
By:______________________________________
Title:_____________________________________
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<S> <C>
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 25,353<F1>
<SECURITIES> 0
<RECEIVABLES> 13,329
<ALLOWANCES> (786)
<INVENTORY> 8,427
<CURRENT-ASSETS> 49,595
<PP&E> 36,552
<DEPRECIATION> (22,390)
<TOTAL-ASSETS> 80,551
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0
0
<COMMON> 364
<OTHER-SE> 55,913
<TOTAL-LIABILITY-AND-EQUITY> 80,551
<SALES> 0
<TOTAL-REVENUES> 45,673
<CGS> 34,161
<TOTAL-COSTS> 29,011
<OTHER-EXPENSES> (783)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> (16,872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,872)
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<F1> Includes 4,050 Short term investments
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