<PAGE>
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, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-27250
AML COMMUNICATIONS, INC.
(Exact name of registrant's specified in its charter)
Delaware 77-0130894
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1000 Avenida Acaso
Camarillo, California 93012
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(805) 388-1345
--------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock Outstanding as of November 1, 1996: 5,886,113
Number of pages in this Form 10-Q 27
--
1
<PAGE>
AML COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Statements of Operations for the three and six month periods ended
September 30, 1996 and September 30, 1995 3
Balance Sheets at September 30, 1996 and March 31, 1996 4
Statements of Cash Flows for the six month periods ended
September 30, 1996 and September 30, 1995 5
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION 10
SIGNATURES 11
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AML COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
September 31, September 31,
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $3,882,000 $1,444,000 $7,558,000 $2,577,000
Cost of goods sold 1,799,000 620,000 3,507,000 1,121,000
---------- ---------- ---------- ----------
Gross profit 2,083,000 824,000 4,051,000 1,456,000
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative 613,000 214,000 1,319,000 366,000
Research and development 391,000 165,000 699,000 327,000
---------- ---------- ---------- ----------
1,004,000 379,000 2,018,000 693,000
---------- ---------- ---------- ----------
Operating income 1,079,000 445,000 2,033,000 763,000
Interest expense (income), net (60,000) 25,000 (102,000) 32,000
---------- ---------- ---------- ----------
Income before provision for
income taxes 1,139,000 420,000 2,135,000 731,000
Provisions for income taxes 421,000 168,000 789,000 292,000
---------- ---------- ---------- ----------
Net income $ 718,000 $ 252,000 $1,346,000 $ 439,000
========== ========== ========== ==========
Earnings per common share $.11 $.05 $.21 $.09
========== ========== ========== ==========
Weighted average number of shares of
common stock outstanding 6,499,000 4,631,000 6,499,000 4,631,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AML COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
- ------
Current Assets:
Cash $ 6,197,000 $ 6,312,000
Marketable Securities 1,009,000 --
Accounts receivable, net of allowance
for doubtful accounts of $102,000,
as of June 30, and March 31, 1996 1,703,000 1,549,000
Inventories 2,056,000 1,304,000
Facilities held for resale --- 1,300,000
Other current assets 27,000 41,000
----------- -----------
Total current assets 10,992,000 10,506,000
----------- -----------
Property and Equipment, at cost:
Machinery and equipment 1,988,000 1,141,000
Furniture and fixtures 133,000 1,000
Leasehold improvements 513,000 220,000
----------- -----------
2,634,000 1,362,000
Less-Accumulated depreciation and
amortization (639,000) (413,000)
----------- -----------
1,995,000 949,000
----------- -----------
Deferred Taxes 62,000 107,000
----------- -----------
Other Assets 133,000 83,000
----------- -----------
$13,182,000 $11,645,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of capital lease $ 38,000 $ 118,000
obligations
Accounts payable 654,000 600,000
Accrued expenses:
Payroll and payroll related 195,000 103,000
Bonus 120,000 142,000
401(k) contribution 18,000 30,000
Warranty and customer support 25,000 35,000
Other 66,000 138,000
Income taxes payable 1,068,000 710,000
----------- -----------
Total current liabilities 2,184,000 1,876,000
----------- -----------
Capital Lease Obligations, net of
current portion 82,000 360,000
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value:
Authorized--1,000,000 shares, no
shares issued or outstanding __ __
Common stock, $.01 par value:
Authorized--15,000,000 shares
authorized--5,886,113 and 5,641,450
shares issued and outstanding as
of September 30, and March 31,
1996, respectively 59,000 57,000
Capital in excess of par value 8,009,000 7,850,000
Retained earnings 2,848,000 1,502,000
----------- -----------
10,916,000 9,409,000
----------- -----------
$13,182,000 $11,645,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE INTEGRAL PART OF THESE BALANCE SHEETS
4
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,346,000 $ 439,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 226,000 49,000
Provision for losses on accounts
receivable 20,000 10,000
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable (174,000) (484,000)
Inventories (752,000) (206,000)
Deferred tax asset 45,000 16,000
Other assets (36,000) __
Increase (decrease) in:
Accounts payable 54,000 59,000
Accrued expenses (24,000) (22,000)
Income taxes payable 358,000 222,000
----------- ---------
Net cash provided by (used
in) operating activities 1,063,000 83,000
----------- ---------
Cash Flows from Investing Activities:
Purchase of marketable securities (1,009,000) __
Facilities held for resale 1,300,000 __
Purchases of property and equipment (1,272,000) (24,000)
----------- ---------
Net cash provided by in
investing activities (981,000) (24,000)
----------- ---------
Cash Flows from Financing Activities:
Exercise of stock options 161,000 __
Principal payments on capital lease
obligations (358,000) (36,000)
----------- ---------
Net cash used in financing
activities (197,000) (36,000)
----------- ---------
Net increase (Decrease) in Cash (115,000) 23,000
Cash, beginning of period 6,312,000 257,000
----------- ---------
Cash, end of period $ 6,197,000 $ 280,000
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION -
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted or condensed pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). In the opinion of management all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
have been included. The results of operations and cash flows for the three and
six month periods presented are not necessarily indicative of the results of
operations for a full year. These financial statements should be read in
conjunction with the Company's March 31, 1996 audited financial statements and
notes thereto included in the Company's Form 10-KSB.
The Company declared a three-for-two stock split, effected by means of
a 50% share dividend, paid to owners of record as of the close of trading June
5, 1996, payable on June 28, 1996. All share and per share information in the
accompanying financial statements have been adjusted to give retroactive effect
to the stock split.
2. EARNINGS PER SHARE -
Earnings per share is based upon the weighted average number of common
shares outstanding plus the dilutive effect of common stock equivalents. For
the periods ended September 30, 1996 and 1995, per share information was
computed pursuant to the rules of the SEC, which require that common stock
issued by the Company during the twelve months immediately preceding the
Company's initial public offering plus the number of common shares issuable
pursuant to the grant of options issued during the same period, be included in
the calculation of shares outstanding using the treasury stock method from the
beginning of the period presented.
Primary and fully diluted earning per share were the same for all periods
presented.
6
<PAGE>
3. INVENTORIES -
Inventories include costs of material, labor and manufacturing overhead
and are stated at the lower of cost (first-in, first-out) or market and consist
of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ----------
<S> <C> <C>
Raw materials $1,667,000 $ 792,000
Work - in - process 251,000 512,000
Finished Goods 138,000 --
---------- ----------
$2,056,000 $1,304,000
========== ==========
</TABLE>
4. FACILITY HELD FOR RESALE -
The $1.3 million facility held for resale relates to the purchase of
the Company's new manufacturing and administrative facility on February 25,
1996. The second phase of the transaction, which was consummated on May 1,
1996, after the Company completed the renovations required to accommodate the
intended use of the facility, involved the sale and leaseback of the building.
The terms of sale included payment by the purchaser of the full $1.3 million
original purchase price and the Company agreeing to a seven year lease with a
five year option to extend.
5. MARKETABLE SECURITIES -
Marketable securities are interest bearing investments with maturities
of less than one year but greater than three months when purchased. These
securities are readily convertible to cash and are stated at cost, which
approximates market value.
6. LINE OF CREDIT -
In August 1996, the Company renegotiated its revolving bank line of
credit. The new agreement is comprised of two separate credit facilities. The
initial facility is a $1,250,000 revolving line of credit, which bears interest
at the bank's reference rate plus .75%. The second facility is a $500,000 non-
revolving line of credit with term repayment options which may be used to
finance up to 80% of the purchase price of equipment used in the Company's
business. Repayment of borrowings under this facility are in 47 equal monthly
installments starting on October 1, 1997, with interest at the bank's reference
rate plus 1 percent. Both facilities are secured by the Company's assets and
expire on September 1, 1997. As of September 30, 1996, there were no borrowings
outstanding under either facility.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales for the three months ended September 30, 1996, increased
$2.438 million, or 168.8% from the three months ended September 30, 1995. This
increase was due largely to Microcell product line sales of approximately $3.004
million, or 77.4% of net sales for the quarter ended September 30, 1996,
compared to approximately $515,000, or 35.7% of net sales for the quarter ended
September 30, 1995. Sales of the Company's cellular products and products being
developed for the paging and PCS markets will represent an increasing percentage
of net sales in the future if the Company's ongoing strategy is successful.
GROSS PROFIT. Gross profit for the three months ended September 30, 1996,
increased approximately $1.259 million or 152.8% from the three months ended
September 30, 1995. Gross profit as a percentage of net sales decreased to 53.7%
from 57.1% for the comparable period. The higher gross margin for the quarter
ended September 30, 1995 is primarily due to the much lower than anticipated
costs incurred in connection with a contract which generated approximately 27%
of the quarter's net sales.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and administrative
costs for the three months ended September 30, 1996, increased $399,000 or
186.5% from the three months ended September 30, 1995. This increase was caused
primarily by increased personnel and advertising costs incurred to promote sales
in the cellular, PCS and paging communications markets, increased commissions
caused by substantially more sales, and incremental costs associated with the
Company's public ownership status such as accounting, legal, and investor
relations expenses not required in the quarter ended September 30, 1995.
furthermore, due to increasing sales volume, additional administrative personnel
and costs were necessary to support a rapidly growing company.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs for the three
months ended September 30, 1996, increased $226,000 or 137.0% from the three
months ended September 30, 1995. This increase was due primarily to the
employment of additional technical staff required to develop new products for
the cellular, PCS and paging communications markets. Research and development
costs expressed as a percentage of net sales decreased to 10.1% from 11.4% for
the comparable period due to the substantial increase in net sales.
PROVISION FOR INCOME TAXES. For the three months ended September 30, 1996, the
Company's effective tax rate was approximately 37%. The difference between the
rate used and the statutory rate of approximately 40% was due to research and
development tax credits available to the Company which reduce taxes payable, and
tax free income generated from certain investments. For the quarter ended
September 30, 1995, the statutory 40% rate was used.
8
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales for the six months ended September 30, 1996, increased
$4.981 million, or 193.3% from the six months ended September 30, 1995. This was
due primarily to Microcell product line sales of approximately $6.042 million,
or 79.9% of net sales for the six months ended September 30, 1996, compared to
approximately $629,000, or 24.4% of net sales for the six months ended
September 30, 1995
GROSS PROFIT. Gross profit for the six months ended September 30, 1996
increased approximately $2.595 million or 178.2% from the six months ended
September 30, 1995. Gross profit as a percentage of sales decreased to 53.6%
from 56.5% from the comparable period. The higher gross margin for the six
months ended September 30, 1995 is primarily due to the much lower than
anticipated costs incurred in connection with a contract which generated
approximately 28% of the six months' net sales.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and administrative
costs for the six months ended September 30, 1996, increased $953,000, or 260.4%
from the six months ended September 30, 1995. this increase was caused primarily
by increased personnel and advertising costs incurred to promote sales in the
cellular, PCS and paging communications markets, increased commissions caused
by substantially more sales, and incremental costs associated with the Company's
public ownership status such as accounting, legal, and investor relations
expenses not required in the six months ended September 30, 1995.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs for the six
months ended September 30, 1996, increased $372,000 or 113.8%, from the six
months September 30, 1995. This increase was due primarily to the employment of
additional technical personnel required to support the development of new
products for the cellular, PCS and paging communications markets. However,
research and development costs expressed as a percentage of net sales decreased
to 9.3% from 12.7% in the comparable period due to the substantial increase in
net sales.
PROVISION FOR INCOME TAXES. For the six months ended September 30, 1996, the
Company's effective tax rate was approximately 37%. The difference between the
rate used and the statutory rate of approximately 40% was due to research and
development tax credits available to the Company which reduce taxes payable and
tax free income generated from certain investments. For the six months ended
September 30, 1995, the statutory 40% rate was used.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Historically, the Company financed its operations primarily from internally
generated funds and, to a lesser extent loans from stockholders and capital
lease obligations. In December 1995, the Company completed its initial public
offering of 1,725,000 shares of common stock (including the exercise of the
underwriters' over allotment option). Of the net proceeds of approximately $7.7
million at December 31, 1995, $425,000 was used to repay loans from certain
stockholders and the remainder is being used to expand manufacturing capability
through the leasing and outfitting of substantially larger facilities, the
acquisition of sufficient equipment to produce higher product quantities, and
the employment and training of additional employees capable of expanding
production and sales. The net proceeds of the offering are also being used to
increase inventory levels and expand working capital sufficiently to support
higher operating levels.
In August, 1996, the Company renegotiated its revolving bank line of credit.
The new agreement is comprised of two separate credit facilities. The initial
facility is a $1,250,000 revolving line of credit, which bears interest at the
bank's reference rate plus 0.75%. The second facility is a $500,000 non-
revolving line of credit with term repayment options which may be used to
finance up to 80% of the purchase price of equipment used in the Company's
business. Repayment of borrowings under this facility are in 47 equal monthly
installments starting on October 1, 1997, with interest at the bank's reference
rate plus 1.00%. Both facilities are secured by the Company's assets and expire
on September 1, 1997. As if September 30, 1996, there were no borrowings
outstanding under either facility.
The Company believes that the net proceeds from the public offering, together
with cash provided by operations and available under the bank line of credit,
will be sufficient to finance the Company for at least the next 12 months.
Inflation has not had a significant effect to date on the Company's results of
operations.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Stockholders' Meeting (the "Annual Meeting") was held on
August 27, 1996.
At the Annual Meeting the following persons were re-elected to the Company's
Board of Directors to serve for a three-year term until the fiscal 1999 Annual
Meeting of Stockholders or until their respective successors have been duly
elected and qualified. There were 5,885,656 shares eligible to vote at the
meeting, of which, approximately 87% of the shares were voted by proxy. The
voting for the director nominees was as follows
<TABLE>
<CAPTION>
VOTES VOTES
FOR WITHHELD TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Edwin J. McAvoy 5,112,597 8,952 5,121,549
Richard W. Flatow 5,113,197 8,352 5,121,549
</TABLE>
The proposed election of directors is more fully described in the Company's
notice and proxy statement dated July 25, 1996, concerning the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.26 Business Loan Agreement dated August 2, 1996, between the Company
and Bank of America National Trust and Savings.
10.27 Security Agreement dated August 2, 1996, between the Company and
Bank of America National Trust and Savings.
27 Financial Data Schedule
(b) There were no Reports on Form 8-k filed by the Company during the quarter
ended September 30, 1996
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AML COMMUNICATIONS, INC.
Date: November 12, 1996 /s/ William E. Sheridan, III
----------------------------
William E. Sheridan, III
Vice President, Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
12
<PAGE>
EXHIBIT 10.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Logo of Bank of America] BUSINESS LOAN AGREEMENT
BANK OF AMERICA
National Trust and Savings Association
- --------------------------------------------------------------------------------
This Agreement dated as of August 2, 1996, is between Bank of America National
--------
Trust and Savings Association (the "Bank") and AML COMMUNICATIONS, INC. (the
"Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility No. 1 Commitment") is One Million Two Hundred Fifty Thousand
Dollars ($1,250,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit, to exceed the Facility No. 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and September 1, 1997 (the "Expiration Date") unless the Borrower
is in default.
1.3 INTEREST RATE.
(a) The interest rate is the Bank's Reference Rate plus .75 percentage
points.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by the Bank in San Francisco, California, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors, including
the Bank's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans.
The Bank may price loans to its customers at, above, or below the
Reference Rate. Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of a
change in the Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on September 1, 1996, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
2. FACILITY NO. 2: LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility No. 2 Commitment") is Five Hundred Thousand Dollars ($500,000).
(b) This is a non-revolving line of credit with a term repayment option. Any
amount borrowed, even if repaid before the end of the availability
period, permanently reduces the remaining available line of credit.
(c) Each advance shall be used to purchase equipment for use in the
Borrower's business. All equipment acquired with the proceeds of such
advances shall be free and clear of any security interests, liens,
encumbrances or rights of others except the security interests of the
Bank under any security agreements required under this Agreement. Each
request for an advance shall be accompanied by a
-1-
<PAGE>
copy of the purchase order or invoice for the equipment to be purchased
with the proceeds of the advance. The amount of each advance shall not
exceed 80% of the purchase price of such equipment, plus tax and delivery.
2.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and September 1, 1997 (the "Expiration Date") unless the Borrower
is in default.
2.3 INTEREST RATE.
(a) The interest rate is the Bank's Reference Rate plus 1.00 percentage point.
2.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on September 1, 1996, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay the principal amount outstanding on the Expiration
Date in 47 successive equal monthly installments starting October 1, 1997.
On September 1, 2001, the Borrower will repay the remaining principal
balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under this Agreement.
3. FEES, EXPENSES
3.1 FEES.
(a) LOAN FEE (FACILITY NO. 1). The Borrower agrees to pay a Three Thousand One
Hundred Twenty Five Dollar ($3,125) fee due on the date of this Agreement.
(b) LOAN FEE (FACILITY NO. 2). The Borrower agrees to pay a One Thousand Two
Hundred Fifty Dollar ($1,250) fee due on the date of this Agreement.
3.2 EXPENSES.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument required
by this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
(c) The Borrower agrees to reimburse the Bank for the cost of periodic audits
and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require. The
audits and appraisals may be performed by employees of the Bank or by
independent appraisers.
4. COLLATERAL
4.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrower. In addition, all personal property
collateral securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any consumer credit
covered by the federal Truth in Lending law, unless the Borrower has otherwise
agreed in writing). All personal property collateral securing any other present
or future obligations of the Borrower to the Bank shall also secure this
Agreement.
(a) Machinery, equipment, and fixtures.
(b) Inventory.
-2-
<PAGE>
(c) Receivables.
(d) Patents, trademarks and other general intangibles.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
5.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from time
to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected by
the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
5.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments given
by any one of the individuals authorized to sign loan agreements on behalf
of the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14472-00850, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) Bank will provide written confirmation to the Borrower of transactions
made based on telephone instructions. The Borrower agrees to notify the Bank
promptly of any discrepancy between the confirmation and the telephone
instructions.
(d) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably believes
are made by any individual authorized by the Borrower to give such
instructions. This indemnity and excuse will survive this Agreement.
5.4 DIRECT DEBIT (PRE-BILLING).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit account
number 14472-00850, or such other of the Borrower's accounts with the Bank
as designated in writing by the Borrower (the "Designated Account") on the
date each payment of principal and interest and any fees from the Borrower
becomes due (the "Due Date"). If the Due Date is not a banking day, the
Designated Account will be debited on the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date (the
"Billed Amount"). The calculation will be made on the assumption that no new
extensions of credit or payments will be made between the date of the
billing statement and the Due Date, and that there will be no changes in the
applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount, regardless
of the actual amount due on that date (the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed Amount
for the following Due Date will be increased by the amount of the
discrepancy. The Borrower will not be in default by reason of any such
discrepancy.
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(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount of
the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank
will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated Account
on the date the Bank enters any debit authorized by this Agreement, the
debit will be reversed.
5.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
5.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to
the Bank. If any government authority imposes any taxes on any payments made by
the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at
the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.
5.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
5.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
5.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Bank's Reference Rate plus 2.00 percentage
points. This may result in compounding of interest.
5.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.00 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement.
6.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
6.2 SECURITY AGREEMENTS. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), and deeds of trust which the Bank
requires.
6.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing. The Bank
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must receive acceptable beneficiary's statements from the holders of any prior
liens on the real property collateral. All title documents for motor vehicles
must show the Bank's interest.
6.4 CONSENT TO REMOVAL. For any personal property collateral located on real
property which is subject to a mortgage or deed of trust or which is not owned
by the Borrower, grantor of the security interest, a Consent to Removal from the
owner of the real property and the holder of any mortgage or deed of trust.
6.5 INSURANCE. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
6.6 OTHER ITEMS. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
7.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance
with its terms, and any instrument or agreement required hereunder, when
executed and delivered, will be similarly legal, valid, binding and enforceable.
7.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
7.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
7.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
7.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
7.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
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7.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
8.1 USE OF PROCEEDS (FACILITY NO. 1). To use the proceeds of the credit only
for working capital.
8.2 USE OF PROCEEDS (FACILITY NO. 2). To use the proceeds of the credit only
for capital expenditures.
8.3 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant ("CPA") acceptable
to the Bank.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared.
(c) A statement showing an aging of the Borrower's receivables within 45 days
after the end of each quarter.
8.4 QUICK RATIO. To maintain on a consolidated basis a ratio of quick assets
to current liabilities of at least 2.0:1.0.
"Quick assets" means cash, short-term cash investments, net trade receivables
and marketable securities not classified as long-term investments.
8.5 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net
worth equal to at least Nine Million Dollars ($9,000,000).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock , unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles, and
monies due from affiliates, officers, directors or shareholders of the Borrower)
less total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
8.6 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a
consolidated basis a ratio of total liabilities to tangible net worth not
exceeding 0.75:1.0.
"Total liabilities" means the sum of current liabilities, excluding debt
subordinated to the Borrower's obligations to the Bank in a manner acceptable to
the Bank, using the Bank's standard form.
8.7 PROFITABILITY. To maintain on a consolidated basis a positive net income
before taxes and extraordinary items for each annual accounting period.
8.8 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional debts and lease obligations for business purposes which do not
exceed a total principal amount of Seven Hundred Fifty Thousand Dollars
($750,000) outstanding at any one time.
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8.9 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Additional liens which secure obligations in a total principal amount not
exceeding Seven Hundred Fifty Thousand Dollars ($750,000).
8.10 LOANS TO OFFICERS. Not to make any loans, advances or other extensions
of credit to any of the Borrower's executives, officers, or directors or
shareholders (or any relatives of any of the foregoing).
8.11 CHANGE OF OWNERSHIP. Not to cause, permit, or suffer any change, direct
or indirect, in the Borrower's capital ownership in excess of 55%.
8.12 OUT OF DEBT PERIOD (FACILITY NO. 1). To repay any advances in full, and
not to draw any additional advances on its revolving line of credit, for a
period of at least 30 consecutive days in each line-year. "Line-year" means the
period between the date of this Agreement and September 1, 1997, and each
subsequent one-year period (if any).
8.13 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Fifty Thousand Dollars ($50,000) against the Borrower
(or any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of
business.
8.14 BOOKS AND RECORDS. To maintain adequate books and records.
8.15 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
8.16 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
8.17 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
8.18 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
8.19 PROTECTION OR LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.20 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
8.21 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank for the full replacement cost of the collateral and include a
replacement cost endorsement.
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The insurance must be issued by an insurance company acceptable to the Bank
and must include a lender's loss payable endorsement in favor of the Bank
in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss
of use and occupancy) to any of the Borrower's properties, public
liability insurance including coverage for contractual liability, product
liability and workers' compensation, and any other insurance which is usual
for the Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the Bank
a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
8.22 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market value, or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets.
9. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrower's obligations to the Bank.
10. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
10.2 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
10.3 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
10.4 DEATH. If the Borrower is a corporation, any principal officer or majority
stockholder dies.
10.5 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor), or the
Borrower (or any guarantor) makes general assignment for the benefit of
creditors.
10.6 RECEIVERS. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
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10.7 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower in an aggregate amount of Fifty Thousand
Dollars ($50,000) or more in excess of any insurance coverage.
10.8 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Fifty Thousand Dollars ($50,000) or more in excess of
any insurance coverage.
10.9 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
10.10 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects, or
ability to repay the loan.
10.11 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed.
10.12 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
10.13 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.
10.14 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 CALIFORNIA LAW. This Agreement is governed by California law.
11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
11.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from:
(i) This Agreement (including any renewals, extensions or modifications
of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.
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(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings.
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed
the referee, in accordance with the provisions of California Code
of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if the
other party contests the lawsuit. However, if the controversy or claim
arises from or relates to an obligation to the Bank which is secured by
real property located in California at the time of the proposed
submission to arbitration, this right is limited according to the
provision above requiring the consent of both the Borrower and the Bank
to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights,
even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement
must be in writing.
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11.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement.
11.7 ATTORNEY'S FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorney's fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this paragraph, "attorneys' fees" includes the allocated costs of in-
house counsel.
11.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.9 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
11.10 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
11.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business Loan
Agreement entered into as of October 26, 1995, between the Bank and the
Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
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This Agreement is executed as of the date stated at the top of the first page.
[LOGO OF BANK OF AMERICA]
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION AML COMMUNICATIONS, INC.
/s/ Derek C. Hansen /s/ William E. Sheridan
- -------------------------------------- -------------------------------
By: Derek C. Hansen By: William E. Sheridan
Title: Assistant Vice President Title: Chief Financial Officer
/s/ Edward W. Summers
- --------------------------------------
By: Edward W. Summers
Title: Vice President
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE
ARE TO BE SENT: BORROWER ARE TO BE SENT:
Ventura Regional Commercial Banking Office
Office #1447
1130 S. Victoria Avenue 1000 Avenida Acaso
Ventura, CA 93003 Camarillo, CA 93012
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EXHIBIT 10.27
[LOGO OF BANK OF AMERICA] SECURITY AGREEMENT
(RECEIVABLES, INVENTORY AND EQUIPMENT)
1. THE SECURITY. The undersigned AML Communications, Inc. ("Borrower") hereby
assigns and grants to Bank of America National Trust and Savings Association
("Bank") a security interest in the following described property ("Collateral"):
A. All of the following, whether now owned or hereafter acquired by
Borrower: accounts, contract rights, chattel paper, instruments,
deposit accounts and general intangibles.
B. All inventory now owned or hereafter acquired by Borrower.
C. All machinery, furniture, fixtures and other equipment of every type
now owned or hereafter acquired by Borrower (including, but not limited
to, the equipment described in the attached Equipment Description, if
any).
D. All negotiable and nonnegotiable documents of title now owned or
hereafter acquired by Borrower covering any of the above-described
property.
E. All rights under contracts of insurance now owned or hereafter acquired
by Borrower covering any of the above-described property.
F. All proceeds, product, rents and profits now owned or hereafter
acquired by Borrower of any of the above-described property.
G. All books and records now owned or hereafter acquired by Borrower
pertaining to any of the above-described property, including but not
limited to any computer-readable memory and any computer hardware or
software necessary to process such memory ("Books and Records").
2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness
of Borrower to Bank. For the purposes of this Agreement, "Indebtedness" means
all loans and advances made by Bank to Borrower and all other obligations and
liabilities of Borrower to Bank, whether now existing or hereafter incurred or
created, whether voluntary or involuntary, whether due or not due, whether
absolute or contingent, or whether incurred directly or acquired by Bank by
assignment or otherwise. Unless Borrower shall have otherwise agreed in
writing, Indebtedness, for the purposes of this Agreement, shall not include
"consumer credit" subject to the disclosure requirements of the Federal Truth in
Lending Act or any regulations promulgated thereunder.
3. BORROWER'S COVENANTS. Borrower covenants and warrants that unless
compliance is waived by Bank in writing:
A. Borrower will properly preserve the Collateral; defend the Collateral
against any adverse claims and demands; and keep accurate Books and
Records.
B. Borrower has notified Bank in writing of, and will notify Bank in
writing prior to any change in, the locations of (i) Borrower's place
of business or Borrower's chief executive office if Borrower has more
than one place of business, and (ii) any Collateral, including the
Books and Records.
C. Borrower will notify Bank in writing prior to any change in Borrower's
name, identity or business structure.
D. Borrower will maintain and keep in force insurance covering Collateral
designated by Bank against fire and extended coverages. Such insurance
shall require losses to be paid on a replacement cost basis, be issued
by insurance companies acceptable to Bank and include a loss payable
endorsement in favor of Bank in a form acceptable to Bank.
E. Borrower has not granted and will not grant any security interest in
any of the Collateral except to Bank, and will keep the Collateral free
of all liens, claims, security interests and encumbrances of any kind
or nature except the security interest of Bank.
F. Borrower will not sell, lease, agree to sell or lease, or otherwise
dispose of, or remove from Borrower's place of business (i) any
inventory except in the ordinary course of business as heretofore
conducted by borrower, or (ii) any other Collateral except with the
prior written consent of Bank.
G. Borrower will promptly notify Bank in writing of any event which
affects the value of the Collateral, the ability of Borrower or Bank to
dispose of the Collateral, or the rights and remedies of Bank in
relation thereto, including, but not limited to, the levy of any legal
process against any Collateral and the adoption of any marketing order,
arrangement or procedure affecting the Collateral, whether governmental
or otherwise.
H. If any collateral is or becomes the subject of any registraton
certificate or negotiable document of title, including any warehouse
receipt or bill of lading, Borrower shall immediately deliver such
document to Bank.
I. Borrower will not attach any Collateral to any real property or fixture
in a manner which might cause such Collateral to become a part thereof
unless Borrower first obtains the written consent of any owner, holder
of any lien on the real property or fixture, or other person having an
interest in such property to the removal by Bank of the Collateral from
such real property or fixture. Such written consent shall be in form
and substance acceptable to Bank and shall provide that Bank has no
liability to such owner, holder of any lien, or any other person.
J. Until Bank exercises its rights to make collection, Borrower will
diligently collect all Collateral.
-1-
<PAGE>
4. ADDITIONAL OPTIONAL REQUIREMENTS. Borrower agrees that Bank may at its
option at any time, whether or not Borrower is in default:
A. Require Borrower to segregate all collections and proceeds of the
Collateral so that they are capable of identification and deliver
daily such collections and proceeds to Bank in kind.
B. Require Borrower to deliver to Bank (i) copies of or extracts from the
Books and Records, and (ii) information on any contracts or other
matters affecting the Collateral.
C. Examine the Collateral, including the Books and Records, and make
copies of or extracts from the Books and Records, and for such
purposes enter at any reasonable time upon the property where any
Collateral or any Books and Records are located.
D. Require Borrower to deliver to Bank any instruments or chattel paper.
E. Require Borrower to obtain Bank's prior written consent to any sale,
lease, agreement to sell or lease, or other disposition of any
inventory.
F. Notify any account debtors, any buyers of the Collateral, or any other
persons of Bank's interest in the Collateral.
G. Require Borrower to direct all account debtors to forward all payments
and proceeds of the Collateral to a post office box under Bank's
exclusive control.
H. Demand and collect any payments and proceeds of the Collateral. In
connection therewith Borrower irrevocably authorizes Bank to endorse
or sign Borrower's name on all checks, drafts, collections, receipts
and other documents, and to take possession of and open the mail
addressed to Borrower and remove therefrom any payments and proceeds
of the Collateral.
5. DEFAULTS. Any one or more of the following shall be a default hereunder:
A. Borrower fails to pay any Indebtedness when due.
B. Borrower breaches any term, provision, warranty or representation
under this Agreement, or under any other obligation of Borrower to
Bank.
C. Any custodian, receiver or trustee is appointed to take possession,
custody or control of all or a substantial portion of the property of
Borrower or of any guarantor of any Indebtedness.
D. Borrower or any guarantor of any Indebtedness becomes insolvent, or is
generally not paying or admits in writing its inability to pay its
debts as they become due, fails in business, makes a general
assignment for the benefit of creditors, dies or commences any case,
proceeding or other action under any bankruptcy or other law for the
relief of, or relating to, debtors.
E. Any case, proceeding or other action is commenced against Borrower or
any guarantor of any Indebtedness under any bankruptcy or other law
for the relief of, or relating to, debtors.
F. Any involuntary lien of any kind or character attaches to any
Collateral.
G. Any financial statements, certificates, schedules or other information
now or hereafter furnished by Borrower to Bank proves false or
incorrect in any material respect.
6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default Bank may do any
one or more of the following:
A. Declare any Indebtedness immediately due and payable, without notice
or demand.
B. Enforce the security interest given hereunder pursuant to the Uniform
Commercial Code and any other applicable law.
C. Enforce the security interest of Bank in any deposit account of
Borrower maintained with Bank by applying such account to the
Indebtedness.
D. Require Borrower to assemble the Collateral, including the Books and
Records, and make them available to Bank at a place designated by
Bank.
E. Enter upon the property where any Collateral, including any Books and
Records, are located and take possession of such Collateral and such
Books and Records, and use such property (including any buildings and
facilities) and any of Borrower's equipment, if Bank deems such
use necessary or advisable in order to take possession of, hold,
preserve, process, assemble, prepare for sale or lease, market for
sale or lease, sell or lease, or otherwise dispose of, any Collateral.
F. Grant extensions and compromise or settle claims with respect to the
Collateral for less than face value, all without prior notice to
Borrower.
G. Use or transfer any of Borrower's rights and interests in any
Intellectual Property now owned or hereafter acquired by Borrower, if
Bank deems such use or transfer necessary or advisable in order to
take possession of, hold, preserve, process, assemble, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral. Borrower agrees that any such use or
transfer shall be without any additional consideration to Borrower. As
used in this paragraph, "Intellectual Property" includes, but is not
limited to, all trade secrets, computer software, service marks,
trademarks, trade names, trade styles, copyrights, patents,
applications for any of the foregoing, customer lists, working
drawings, instructional manuals, and rights in processes for technical
manufacturing, packaging and labelling, in which Borrower has any
right or interest, whether by ownership, license, contract or
otherwise.
H. Have a receiver appointed by any court or competent jurisdiction to
take possession of the Collateral.
I. Take such measures as Bank may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, and Borrower hereby irrevocably
constitutes and appoints Bank as Borrower's attorney-in-fact to
perform all acts and execute all documents in connection therewith.
-2-
<PAGE>
7. MISCELLANEOUS.
A. Any waiver, express or implied, of any provision hereunder and any
delay or failure by Bank to enforce any provision shall not preclude
Bank from enforcing any such provision thereafter.
B. Borrower shall, at the request of Bank, execute such other agreements,
documents, instruments, or financing statements in connection with
this Agreement as Bank may reasonably deem necessary.
C. All notes, security agreements, subordination agreements and other
documents executed by Borrower or furnished to Bank in connection with
this Agreement must be in form and substance satisfactory to Bank.
D. This Agreement shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which the
parties hereto submit.
E. All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Any
single or partial exercise of any right or remedy shall not preclude
the further exercise thereof or the exercise of any other right or
remedy.
F. All terms not defined herein are used as set forth in the Uniform
Commercial Code.
G. In the event of any action by Bank to enforce this Agreement or to
protect the security interest of Bank in the Collateral, or to take
possession of, hold, preserve, process, assemble, insure, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, Borrower agrees to pay immediately the
costs and expenses thereof, together with reasonable attorney's fees
and allocated costs for in-house legal services.
H. Any Borrower who is married agrees that such Borrower's separate
property shall be liable for payment of the Indebtedness if such
Borrower is personally liable for the Indebtedness.
Date: August 2, 1996
------------------
BANK OF AMERICA BORROWER
National Trust and Savings Association AML Communications, Inc.
/s/ Derek C. Hansen /s/ William E. Sheridan
- -------------------------------------- -----------------------------------
By: Derek C. Hansen, Assistant Vice By: William E. Sheridan, Chief
President Financial Officer
/s/ Edward W. Summers
- --------------------------------------
By: Edward W. Summers, Vice President/
Comm'l Banking Manager
-3-
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,197,000
<SECURITIES> 1,009,000
<RECEIVABLES> 1,805,000
<ALLOWANCES> 102,000
<INVENTORY> 2,056,000
<CURRENT-ASSETS> 10,992,000
<PP&E> 2,634,000
<DEPRECIATION> 639,000
<TOTAL-ASSETS> 13,182,000
<CURRENT-LIABILITIES> 2,184,000
<BONDS> 82,000
0
0
<COMMON> 8,068,000
<OTHER-SE> 2,848,000
<TOTAL-LIABILITY-AND-EQUITY> 13,182,000
<SALES> 3,882,000
<TOTAL-REVENUES> 3,882,000
<CGS> 1,799,000
<TOTAL-COSTS> 1,799,000
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<INCOME-PRETAX> 1,139,000
<INCOME-TAX> 421,000
<INCOME-CONTINUING> 718,000
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