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 0-21059
ACE*COMM CORPORATION
- - ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1283030
- - ------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
704 Quince Orchard Road, Gaithersburg, MD 20878
- - ------------------------------ ------------------------
(Address of principal executive offices) (Zip Code)
301-721-3000
- - ---------------------------------------------------------------
(Registrant's telephone number, including area code)
- - ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No
Number of shares of Common Stock outstanding as of November 3, 1998
8,869,025
<PAGE>
ACE*COMM CORPORATION
INDEX
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets as of September 30, 1998
(Unaudited) and June 30, 1998 3
Statements of Operations (Unaudited) for the
Three Months Ended September 30, 1998 and 1997 4
Statements of Cash Flows (Unaudited) for the
Three Months Ended September 30, 1998 and 1997 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Factors Affecting Future Operating Results 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ACE*COMM CORPORATION
BALANCE SHEETS
(in thousands except share and per share amounts)
<TABLE>
Selected Financial Data
September 30, June 30,
1998 1998
-------------- ------------
<S> Assets (Unaudited)
Current assets: <C> <C>
Cash and cash equivalents $ 2,746 $ 2,956
Accounts and note receivable, net 10,070 10,810
Inventories, net 2,250 3,232
Prepaid expenses and other 627 666
-------------- ------------
Total current assets 15,693 17,664
Property and equipment, net 3,949 4,069
Capitalized software development
costs, net 2,473 2,461
Note receivable - 310
Other assets 85 89
-------------- ------------
Total assets $ 22,200 $ 24,593
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings $ 808 $ 1,030
Accounts payable 1,283 2,010
Accrued expenses 656 739
Accrued compensation 1,977 2,161
Accrued contract costs 3,257 3,577
Deferred revenue 1,196 2,169
-------------- ------------
Total current liabilities 9,177 11,686
Noncurrent borrowings 111 122
-------------- ------------
Total liabilities $ 9,288 $ 11,808
-------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, 0 shares
issued and outstanding - -
Common stock, $.01 par value,
45,000,000
shares authorized, 8,868,085 and
8,807,049
shares issued and outstanding 89 88
Additional paid-in capital 19,859 19,822
(Accumulated deficit) retained
earnings (7,036) (7,125)
-------------- ------------
Total stockholders' equity 12,912 12,785
-------------- ------------
Total liabilities and
stockholders' equity $22,200 $ 24,593
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACE*COMM CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
Selected Financial Data For the three months ended
September 30,
1998 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
Revenue $ 6,723 $ 8,735
Cost of revenue 3,083 3,684
-------------- ------------
Gross profit 3,640 5,051
Selling, general and administrative
expense 3,230 3,343
Research and development expense 360 449
-------------- ------------
Income from operations 50 1,259
Interest income 64 86
Interest expense (25) (34)
-------------- ------------
Income before income taxes 89 1,311
Income tax provision - 512
-------------- ------------
Net income $ 89 $ 799
============= ============
Basic net income per share $ 0.01 $ 0.09
============= ============
Diluted net income per share $ 0.01 $ 0.09
============= ============
Shares used in computing net
income per share:
Basic 8,836 8,592
============= ============
Diluted 8,893 9,219
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACE*COMM CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Selected Financial Data
For the three months ended
September 30,
1998 1997
-------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 89 $ 799
Adjustments to reconcile net
income to net cash provided by
(used for)operating activities:
Depreciation and amortization 476 388
Changes in operating assets and
liabilities:
Accounts and note receivable, net 1,050 (264)
Inventories, net 982 167
Other assets 43 (467)
Accounts payable (727) (1,645)
Accrued expenses (403) (985)
Accrued compensation (184) (213)
Deferred income taxes - 512
Deferred revenue (973) 180
-------------- ------------
Net cash provided by (used for)
operating activities 353 (1,528)
-------------- ------------
Cash flows from investing activities:
Purchases of property and equipment (90) (641)
Additions to capitalized software
Development costs (278) (393)
-------------- ------------
Net cash used for investing
activities (368) (1,034)
-------------- ------------
Cash flows from financing activities:
Payments on debt (223) (141)
Principal payments under capital lease
obligation (10) (9)
Exercise of common stock options 38 106
Repurchase and retirement of
common stock - (21)
-------------- ------------
Net cash used for
financing activities (195) (65)
-------------- ------------
Net decrease in cash and
Cash equivalents (210) (2,627)
Cash and cash equivalents at
beginning of period 2,956 7,920
-------------- ------------
Cash and cash equivalents at end
of period $ 2,746 $ 5,293
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 31 $ 34
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
ACE*COMM CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared by
ACE*COMM in accordance with generally accepted accounting principles for
interim financial statements and pursuant to the rules of the Securities
and Exchange Commission for Form 10-Q. Accordingly, certain information
and footnotes required by generally accepted accounting principles for
complete financial statements have been omitted. It is the opinion of
management that all adjustments considered necessary for a fair
presentation have been included, and that all such adjustments are of a
normal and recurring nature. Operating results for the periods presented
are not necessarily indicative of the results that may be expected for any
future periods. For further information, refer to the audited financial
statements and footnotes included in the Company's Annual Report on Form 10-
K for the year ended June 30, 1998.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
Reclassifications
Certain prior year information has been reclassified to conform with
current year presentation.
NOTE 2 - ACCOUNTS AND NOTE RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
Selected Financial Data September 30, June 30,
1998 1998
-------------- ------------
<S> <C> <C>
Billed $ 7,257 $ 8,829
Unbilled 2,718 3,621
Allowance for doubtful accounts (840) (2,465)
-------------- ------------
$ 9,135 $ 9,985
</TABLE> ============= ============
Unbilled receivables include costs and estimated profit on contracts in
progress which have been recognized as revenue but not yet billed to
customers under the provisions of specific contracts. Substantially all
unbilled receivables are expected to be billed and collected within one
year. The Company wrote-off $1.6 million of its accounts receivable
against its allowance for doubtful accounts for the three months ended
September 30, 1998. The Company did not write-off off any its accounts
receivable for the comparable period in fiscal 1997. The Company believes
these reserves are adequate.
Note Receivable
<TABLE>
Selected Financial Data September 30, June 30,
1998 1998
-------------- ------------
<S> <C> <C>
Note receivable $ 935 $ 1,135
Less: current portion (935) (825)
-------------- ------------
Noncurrent portion $ - $ 310
============= ============
</TABLE>
NOTE 3 - EARNINGS PER SHARE
(in thousands, except per share amounts)
The following is a reconciliation of the numerators and denominators of
basic net (loss) income per common share ("basic EPS") and diluted net
(loss) income per common share ("diluted EPS"):
<TABLE>
For the three months ended
September 30,
Selected Financial Data
<S> 1998 1997
-------------- ------------
Basic EPS: <C> <C>
Net income available to
Common Stockholders (numerator): $ 89 $ 799
-------------- ------------
Shares (denominator):
Weighted average common shares 8,836 8,592
============= ============
Basic EPS $ 0.01 $ 0.09
============= ============
Diluted EPS:
Net income available to common
Stockholders (numerator): $ 89 $ 799
-------------- ------------
Shares (denominator):
Weighted average common shares 8,836 8,592
Stock options 57 627
-------------- ------------
Total weighted shares and
equivalents 8,893 9,219
============= ============
Diluted EPS $0.01 $0.09
============= ============
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The Company sells products to carriers and enterprises, both through direct
channels and through strategic alliance partners, for delivery to end users
in the United States and internationally. Since June 1994, the Company
consistent with its strategic emphasis, has derived significant revenue
from sales of its data collection, surveillance, alarm, and traffic
reporting products to traditional carriers. The balance of the Company's
revenue is derived from the sales of products and software licenses to new
and emerging carriers and to enterprise customers, including agencies of
the U.S. Government.
This report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the
Company. Investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating
such statements, investors should specifically consider the various factors
identified in this Report which could cause actual results to differ
materially from those indicated by such forward-looking statements,
including the matters set forth in "Additional Factors Affecting Future
Operating Results," and in "Selected Financial Data-Selected Quarterly
Information" contained in the Company's Annual Report on Form 10-K for this
fiscal year ended June 30, 1998.
Results of Operations
Revenues for the three-month period ended September 30, 1998 ("first
quarter") were $6.7 million compared to $8.7 million for the comparable
three-month period in fiscal 1998. Revenues were lower in the current
quarter compared to the first quarter in fiscal 1998, primarily as a result
of the economic crisis in Korea and the Asia Pacific region which reduced
the amount of orders for the Company's traditional carrier network products
compared to the same period in the prior year.
As a result of the decline in orders from Korea and the Asia Pacific
region, revenues from traditional carrier network products decreased from
56% of total revenue in the first quarter of fiscal 1998 to 26% of total
revenue in the first quarter of fiscal 1999. Revenues from enterprise
network products increased from 18% of total revenue in the first quarter
of fiscal 1998 to 38% of revenue in the first quarter of fiscal 1999. This
increase was primarily the result of revenue from a single contract which
was over 90% completed by the end of the first quarter. Revenue from new
and emerging carrier products was 36% of revenue in the first quarter of
fiscal 1999 compared to 26% of revenue for the comparable three-month
period in fiscal 1998 but remained constant in dollars from period to
period.
Gross margins for the first quarter of fiscal 1999 were 54% compared to 58%
for the comparable three-month period in fiscal 1998. The decrease in
gross profit margins was due primarily to the effect of charging the
Company's fixed costs of manufacturing facilities for its DCMS product line
against lower revenues in the first quarter of fiscal 1999 compared to the
same period in fiscal 1998. Gross profit margins for the first quarter of
fiscal 1999 also reflected the lower margins associated with significant
hardware inventory costs of the enterprise network products contract which
was nearly completed in the quarter.
Selling, general and administrative expenses for the first quarter were
$3.2 million compared to $3.3 million for the same period in the prior year
(which represents 48% and 38% of revenue respectively). The Company is not
currently planning any significant decrease in selling, general and
administrative expenses.
Research and development expenses for the first quarter were $360,000
compared to $449,000 for the comparable three-month period in 1998. This
represents approximately 5% of revenue for both comparable quarters.
Liquidity and Capital Resources
At September 30, 1998 the Company had $2.7 million in cash compared with
$3.0 million in cash at June 30, 1998. Operating activities provided the
Company with $353,000 for the three months ended September 30, 1998.
During the same period the Company used $368,000 for investments in
capitalized software and purchases of property and equipment, and $233,000
for payments on debt and capital lease obligations.
Accounts receivable, net of allowances for doubtful accounts, declined to
$9.1 million at September 30, 1998 from $10.0 million at June 30, 1998.
Accounts receivable includes billed accounts receivable, unbilled accounts
receivable and an allowance for doubtful accounts. Billed accounts
receivable declined to $7.3 million at September 30, 1998 from $8.8 million
at June 30, 1998 reflecting a $1.6 million charge against the allowance for
doubtful accounts for specific accounts where management deems collection
is not probable. Billed accounts receivables, at September 30, 1998
included $3.6 million over 90 days compared with $5.2 million over 90 days
at June 30, 1998. Unbilled accounts receivable decreased to $2.7 million
at September 30, 1998 from $3.6 million at June 30, 1998. These
receivables primarily represent contractual payment terms which may not be
billed for up to twelve months. As a result of the specific charges taken
in the first quarter of 1998, the Company's allowance for doubtful accounts
decreased from $2.5 million at June 30, 1998 to $840,000 at September 30,
1998. The Company believes these reserves are adequate.
The Company has paid all debt outstanding under its loan agreements with
Crestar Bank, the agreements have been terminated and all collateral
securing the Company's obligations, released.
The Company has entered into an Accounts Receivable Purchase Agreement (the
"Agreement") with Silicon Valley Bank (the "Bank"), enabling the Company to
borrow up to $4 million through the Bank's discretionary purchases of
accounts receivable. The Bank will pay up to 80% of the face amount of
each receivable, with the balance of such face amount (less a finance
charge equal to the Bank's prime rate from time to time plus 4% per annum,
a fee of 0.625% of the face amount and certain costs and expenses of the
Bank in administering the facility) payable to the Company following
collection of the receivable. The receivables purchased by the bank must
be collected within 90 days unless otherwise agreed by the Bank and the
Company, must not be in dispute, and must conform to other eligibility
requirements. The purchases are with full recourse against the Company,
which has agreed to repurchase any non-conforming receivable subject to the
Bank's ability to allow the substitution of conforming for non-conforming
receivables. The Company's obligations under the Agreement are secured by
a security interest in all of the Company's assets, subject to the Bank's
agreement to subordinate its interest with respect to a note with a
remaining unpaid balance, as of November 5, 1998, of $885,000, and to the
Company's equipment. Advances made to the Company are repayable in full
upon demand in the event of a default under the agreement, including a
breach in any material respect of any representation or warranty as to the
receivables purchased or the Company's insolvency. As of November 5, 1998,
pursuant to the Agreement, the Bank had made advances aggregating $376,000
against receivables with a face amount of $476,000.
In addition, the Bank has issued on behalf of the Company to the Company's
landlord a letter of credit in the amount of $400,000 to secure the
Company's obligations under the terms of its office lease. The letter of
credit is secured by a 30-day certificate of deposit with the Bank in the
amount of $400,000.
The Company believes that existing cash balances, cash flow from
operations, the availability of credit under its credit facility with
Silicon Valley Bank and other potential sources of financing will be
sufficient to support the Company's working capital requirements for at
least the next twelve months. The Company's ability to generate sufficient
cash flows for working capital is dependent on the Company's ability to
increase sales and to receive from customers in a timely fashion adequate
payments in connection with its contracts. There is no assurance that such
sales or payment levels will be achieved. If cash flows from operations
and advances available under its credit facility are insufficient to
satisfy the Company's working capital requirements, the Company will be
required to reduce expenses, raise additional funds through debt or equity
financing or sales of assets and/or consider strategic alternatives. There
can be no assurance that reductions in expenses would be achievable in a
timely manner or, if achieved, that they would not have a material adverse
effect on the Company's ability to generate revenues at the levels achieved
to date. Further, there is no assurance that adequate additional funds
will be available, in a timely manner or on terms favorable to the Company.
The Company's Chief Executive Officer has agreed that in the event that
financing can not be obtained in a timely manner and that, at any time
until September 28, 1999, the Company's working capital becomes inadequate
to support the business at its then current level, he will make available
working capital, through a loan guarantee or a loan, in the principal
amount of up to $3.5 million (less any amounts raised after September 28,
1998 from financing activities or through the sale or pledge of assets).
Such loan, if any, would bear interest at prime plus 2%, would be repayable
out of the first funding available to the Company or upon a change of
control, if any, and would be collateralized by assets of the Company.
Additional Factors Affecting Future Operating Results
ACE*COMM provides products to a technology driven industry sector.
Therefore, ACE*COMM's success is dependent in part upon factors beyond its
control. This report contains forward-looking statements relating to the
prospective operating results of the Company. The following are factors,
in addition to those set forth in "--Liquidity and Capital Resources" and "-
- - -Year 2000", which could affect ACE*COMM's future operating results. These
factors are intended to serve as a cautionary statement to statements that
may be made, either verbally or in writing, including those in any other
forward-looking statements made by or on behalf of, the Company.
To date, a significant portion of the Company's revenue has been derived
from substantial orders placed by large organizations. The Company expects
that in the future it will continue to be dependent upon a limited number
of customers in any given period for a significant portion of its revenue.
The Company's future success may depend upon the continued demand by such
customer for its products and services. The Company's results of
operations and financial condition could be materially adversely affected
by the failure of anticipated orders to materialize and by deferrals or
cancellation of orders.
Sales to traditional carriers have provided and are expected to continue to
provide substantial revenue. The Company's business is dependent upon the
continued growth of the telecommunications industry, in the United States
and internationally, on the continued convergence of voice and data
networks and on the evolution and widespread adoption of emerging network
technologies. Any decline in the growth of the industry, the failure of
these markets to converge or the failure of these network technologies to
evolve or achieve widespread market acceptance could have a material
adverse effect on the Company.
A key element of the Company's business strategy is to develop strategic
alliances with leading companies that provide telecommunications services
or that manufacture and market network equipment in order to expand the
Company's distribution channels and enter new markets. There can be no
assurance that the Company will be able to continue to increase the number
of, or to expand, these types of relationships, in order to market its
products effectively, particularly internationally.
The Company's growth has placed significant demands on the Company's
administrative, operational and financial personnel and systems.
Additional expansion by the Company may further strain the Company's
management, financial and other resources. There can be no assurance that
the Company's systems, procedures, controls and existing space will be
adequate to support continued growth of the Company's operations. If the
Company is unable to respond to and manage changing business conditions,
the quality of its products and services and its results of operations
could be materially adversely affected.
The new and emerging carrier market in the United States and overseas
represents a source of growing demand for the Company's products, software
licenses and services. In that this market segment is relatively new and
in that many of these organizations are in the early stages of their
development, financial resources may be limited and may adversely affect
their ability to pay for the Company's products, software licenses and
services.
The Company derived approximately $10.2 million, or 45% of its total
revenues, from customers outside of the United States in 1998. The Company
anticipates that a significant amount of future revenues will be derived
from sales to end users in Asia, Europe and other areas of the world.
These revenues may be adversely affected by the changing economic
conditions in foreign countries, which, in turn, could have a material
adverse effect on the Company's business, financial condition and results
of operations.
The Company's ability to successfully develop new, and enhance existing,
products, to service its customers, and to remain competitive depends in
large part on its ability to attract and retain highly qualified technical,
sales and marketing and management personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will
be able to continue to attract and retain such personnel.
Year 2000
The Company develops and markets hardware and software products which (i)
collect call record data for use in customer billing, customer care,
network surveillance, alarm processing and network management and (ii)
automate certain of such network operation and management functions. The
Company's products are incorporated in systems used by post, telephone and
telegraph companies, telephone and wireless carriers, and large
enterprises. The Company's products must be able to process date-dependent
data correctly. The Year 2000 problem refers to the limitations in the
programming code of certain existing software programs which limit the
ability of such programs to accurately produce or process date-sensitive
information for the Year 2000 and beyond. In the case of the Company's
products, unless the relevant software programs are modified prior to
December 31, 1999, the supply by an end-user's system of inaccurate date-
sensitive data (such as call records) or inaccuracies in the Company's
software (including third party operating system software) could cause the
Company's products to provide erroneous or inaccurate output data to its
customers for billing, network management, etc. Certain of the Company's
installed products are the subject of warranties or of maintenance
contracts under which the Company agrees to modify products to accurately
process date-sensitive information, including with dates around January 1,
2000.
The Company is in the process of completing an assessment of its current
products (including component parts supplied by third parties) for Year
2000 compliance, using a testing program developed by the British Standards
Institute. The assessment and any required modifications are being
performed by in-house Company personnel. Based on such testing, the
Company believes that products delivered after October 1, 1997 are Y2K
compliant. The Company is in the process to notifying customers that older
products may require modification to become Y2K compliant and is offering
maintenance contracts to provide such modifications for a fee. Certain,
but not all, customers have entered into such contracts.
The Company also has assessed what it believes to be its most critical
internal software programs and operating systems, including its internal
network, accounting software and telephone systems. The Company has tested
or will be testing these systems within the next 12 months and has already
replaced certain of its systems with new systems that are warranted to be
compliant. Assuming that such systems operate as warranted, the Company
does not expect that any further cost of modifying such software and
systems to Year 2000 compliance would be material to its financial
condition or results of operations. The Company has not completed an
assessment of its non-information technology systems (e.g. elevators,
HVAC).
The Company's business, financial condition and results of operations could
be materially adversely affected by the Year 2000 problem if it or third
parties fail to successfully address this issue. In particular, if
customers fail to modify their systems such as to supply accurate data,
their systems could be significantly disrupted and claims against the
Company could result. These and other Y2K related problems encountered by
the Company's strategic partners and customers could have a material
adverse effect on the Company, through the impact of litigation or the loss
of business. In addition, in the event that the Company's internal systems
are not compliant, the Company could experience considerable delays in
customer service, sales and collections and in compiling sales and
financial information and performing other administrative functions. The
Company may have to expend more resources than is currently anticipated to
resolve Year 2000 issues and such expenditures could have a material
adverse effect on the Company's results of operations and financial
condition.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
3.5 Articles of Amendment and Articles Supplementary dated October 15,
1996
10.20 Accounts Receivable Purchase Agreement between Silicon Valley
Bank and the Registrant dated November 3, 1998.
10.21 Agreement between George T. Jimenez and the Registrant dated as
of September 28, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE*COMM CORPORATION
DATE November 16, 1998 By /s/ George T. Jimenez
---------------------
George T. Jimenez
President and Chief Executive Officer
/s/ Leslie Oleynik
---------------------
Leslie Oleynik
Controller
(Principal Accounting Officer)
Exhibit 3.5
ACE*COMM CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
ACE*COMM Corporation, a Maryland corporation
(hereinafter referred to as the "Corporation"), hereby
certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby
amended and restated by striking out Articles SECOND through
NINTH and substituting in lieu thereof the following:
ARTICLE II
NAME
The name of the corporation (which is hereafter
referred to as the "Corporation") is:
ACE*COMM CORPORATION
ARTICLE III
PURPOSES FOR WHICH CORPORATION IS FORMED
The purposes for which the Corporation is formed
are as follows:
(a) To design, create and produce computer
software and related products and to manufacture and sell
computer peripheral equipment and related electronic and
telecommunications equipment.
(b) To provide consulting services, computer
software and electronics design services, data processing
services, and all other types of related services, and
engage in all other related activities.
(c) To buy and sell real and personal
property and investments in contracts and securities.
(d) To carry on any and all business,
transactions and activities permitted by the Maryland
<PAGE>
General Corporation Law which may be deemed desirable by the
Board of Directors of the Corporation, whether or not
identical with or related to the business described in the
foregoing paragraphs of this Article, as well as all
activities and things necessary and incidental thereto, to
the full extent empowered by such laws.
ARTICLE IV
RESIDENT AGENT AND PRINCIPAL OFFICE
The post office address of the principal office of
the Corporation in this State is 209 Perry Parkway,
Gaithersburg, Maryland 20877. The name of the Resident
Agent of the Corporation in this State is CSC - Lawyers
Incorporating Service Company, 11 East Chase Street,
Baltimore, Maryland 21202. Said Resident Agent is a
corporation organized under the laws of the State of
Maryland.
ARTICLE V
AUTHORIZED STOCK
The total number of shares of stock of all classes
which the Corporation has authority to issue is Fifty
Million (50,000,000) shares, consisting of Forty-Five
Million (45,000,000) shares of Common Stock, par value $.01
per share (the "Common Stock"), and 5,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred
Stock"). The aggregate par value of all shares having par
value is Five Hundred Thousand Dollars ($500,000.00).
ARTICLE VI
BOARD OF DIRECTORS
Section 1. Number of Directors.
The Corporation shall have five (5) directors,
which number may be increased or decreased pursuant to the
Bylaws, but the number of directors shall not be less than
the lesser of three (3) or the number of stockholders. The
directors shall be divided into three classes (denominated
as Class I, Class II and Class III), as nearly equal in
number as reasonably possible, with the term of office of
the Class I directors to expire at the 1997 annual meeting
of stockholders, the term of office of the Class II
directors to expire at the 1998 annual meeting of
stockholders and the term of office of the Class III
directors to expire at the 1999 annual meeting of
stockholders. At each annual meeting of stockholders
following such initial classification and election,
directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after
their election, provided that the stockholders electing new
or replacement directors may from time to time specify a
term of less than three years in order to maintain the
number of directors in each class as nearly equal as
possible.
Section 2. Initial Directors.
The following individuals shall serve as the
initial directors, in the classes specified below.
Class I directors - Gilbert A. Wetzel and Gary P. Golding
Class II directors - Paul G. Casner, Jr.
Class III directors - George T. Jimenez
Section 3. Board Authorization of Stock Issuance.
The Board of Directors of the Corporation is
hereby empowered to authorize by resolutions from time to
time the issuance of shares of its stock of any class,
whether now or hereafter authorized, and securities
convertible into shares of its stock, of any class or
classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
Section 4. Classification of Stock.
The Board of Directors shall have the power to
classify or reclassify any unissued stock, whether now or
hereafter authorized, by setting or changing the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications,
or terms or conditions of redemption of such stock.
<PAGE>
Section 5. Conflict of Interest.
No contract or other transaction between this
Corporation and any other corporation, partnership,
individual or other entity and no act of this Corporation
shall in any way be affected or invalidated by the fact that
any of the directors of this Corporation are directors,
principals, partners or officers of such other entity, or
are pecuniarily or otherwise interested in such contract,
transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed or known to
the Board of Directors or to a committee of the Board of
Directors if the matter involves a committee decision, and
the contract, transaction or act shall be authorized,
approved or ratified by a majority of disinterested
directors on the Board or on such committee, as the case may
be, even if the number of disinterested directors
constitutes less than a quorum or (ii) the contract,
transaction or act shall be authorized, ratified or approved
in any other manner permitted by the Maryland General
Corporation Law.
Section 6. Removal of Directors.
Any director, or the entire Board of Directors,
may be removed from office at any time, but only for cause
and then only by the affirmative vote of the holders of at
least 80% of the aggregate combined voting power of all
classes of capital stock entitled to vote in the election of
directors, voting as one class, and only at a special
meeting of stockholders called for such purpose. For
purposes of this Section, "cause" shall mean the willful and
continuous failure of a director to perform duties to the
Corporation (other than any such failure resulting from
temporary incapacity due to physical or mental illness) or
gross misconduct materially and demonstrably injurious to
the Corporation.
<PAGE>
ARTICLE VII
PROVISIONS CONCERNING CERTAIN RIGHTS
OF THE CORPORATION AND THE SHAREHOLDERS
Section 1. Right to Amend Charter.
The Corporation reserves the right to make, from
time to time, any amendments of its charter which may now or
hereafter be authorized by law, pursuant to the vote of
stockholders required by law, including any amendments which
alter the contract rights of any class of outstanding stock
as expressly set forth in the charter; provided, however,
that any amendment to, repeal of or adoption of any
provision inconsistent with Section 1 of Article VI, Section
6 of Article VI, Section 4 of this Article, Section 5 of
this Article, or this Section 1 of this Article, shall be
effective only if it is approved by the affirmative vote of
the holders of at least 80% of the aggregate combined voting
power of all classes of capital stock entitled to vote
thereon, voting as one class.
Section 2. Elimination of Preemptive Rights.
Unless otherwise provided by the Board of
Directors, no holder of stock of any class shall be entitled
to preemptive rights to subscribe for or purchase or receive
any part of any new or additional issue of stock of any
class of the Corporation or securities convertible into
stock of any class of the Corporation.
Section 3. Required Stockholder Vote.
Notwithstanding any provision of law requiring any
action to be taken or authorized by the affirmative vote of
the holders of a greater proportion of the votes of all
classes or of any class of stock of the Corporation, such
action shall be effective and valid if taken or authorized
by the affirmative vote of a majority of the total number of
votes entitled to be cast thereon, except as otherwise
provided in this charter.
<PAGE>
Section 4. Bylaws.
The Board of Directors, and not the stockholders,
shall have the exclusive power to make, alter, amend or
repeal the Bylaws of the Corporation.
ARTICLE VIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 1. Mandatory Indemnification.
The Corporation shall indemnify its currently
acting and its former directors and officers against any and
all liabilities and expenses incurred in connection with
their services in such capacities to the maximum extent
permitted by the Maryland General Corporation Law, as from
time to time amended.
Section 2. Discretionary Indemnification.
If approved by the Board of Directors, the
Corporation may indemnify its employees, agents and persons
who serve and have served, at its request as a director,
officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture or other enterprise
or employee benefit plan to the extent determined to be
appropriate by the Board of Directors.
Section 3. Advancing Expenses Prior to a Decision.
The Corporation shall advance expenses to its
directors and officers entitled to mandatory indemnification
to the maximum extent permitted by the Maryland General
Corporation Law, as from time to time amended, and may in
the discretion of the Board of Directors advance expenses to
employees, agents and others who may be granted
indemnification.
<PAGE>
Section 4. Other Provisions for Indemnification.
The Board of Directors may, by bylaw, resolution
or agreement, make further provision for indemnification of
directors, officers, employees and agents.
Section 5. Limitation of Liability of Directors and
Officers.
To the maximum extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, as from time to time
amended, no director or officer of the Corporation shall
have any liability to the Corporation or its stockholders
for money damages. This limitation on liability applies to
events occurring at the time a person serves as a director
or officer of the Corporation whether or not such person is
a director or officer at the time of any proceeding in which
liability is asserted.
Section 6. Effect of Amendment or Repeal.
No amendment, modification or repeal of this
charter, nor the adoption of any additional provision of
this charter or the By-laws nor, to the fullest extent
permitted by the Maryland General Corporation Law, any
amendment, modification or repeal of law shall eliminate or
reduce the effect of the provisions in this charter limiting
liability or indemnifying certain persons or adversely
affect any right or protection then existing thereunder in
respect of any acts or omissions occurring prior to such
amendment, modification, repeal, or adoption.
SECOND: The Amendment and Restatement of the
charter of the Corporation herein was duly and unanimously
approved and advised by the Board of Directors on June 23,
1996, and was approved by the affirmative vote of the
stockholders of the Corporation as required by the Maryland
General Corporation Law on August 5, 1996.
THIRD: The Amendment and Restatement of the
charter of the Corporation as hereinabove set forth has been
duly advised by the Board of Directors and approved by the
<PAGE>
stockholders of the Corporation in the manner and by the
vote required by law.
FOURTH: (a) The total number of shares of all
classes of stock of the Corporation authorized prior to this
amendment, and the number and par value of each class, were
as follows:
45,341,211 shares with an aggregate par value of
Two Million One Hundred Ninty-Nine Thousand Six Hundred
Eighty-Four Dollars and Fifty-Four Cents ($2,199,684.54), of
which 45,000,000 are common stock with a par value of $.01
per share and an aggregate par value of Four Hundred Fifty
Thousand Dollars ($450,000.00), 1,000 shares are Class B
Preferred with a par value of $1.00 per share and an
aggregate par value of One Thousand Dollars ($1,000.00),
211,727 shares are Class C Convertible Preferred, Series 1,
with a par value of $5.14 per share and an aggregate par
value of One Million Eighty-Eight Thousand Two Hundred
Seventy-Six Dollars and Seventy-Eight Cents ($1,088,276.78),
and 128,484 shares are Class C Convertible Preferred, Series
2, with a par value of $5.14 per share and an aggregate par
value of Six Hundred Sixty Thousand Four Hundred Seven
Dollars and Seventy-Six Cents ($660,407.76).
(b) The total number of shares of all
classes of stock of the Corporation as increased, and the
number and par value of the shares of each class, are as
follows:
Fifty Million (50,000,000) shares, consisting of
Forty-Five Million (45,000,000) shares of Common Stock, par
value $.01 per share (the "Common Stock"), and Five Million
(5,000,000) shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), with an aggregate par value
of Five Hundred Thousand Dollars ($500,000.00).
(c) The aggregate par value of all
shares of all classes of stock of the Corporation heretofore
authorized was $2,199,684.54. The aggregate par value of
all shares of all classes of stock as reduced by this
amendment is $500,000.00. This amendment has the effect of
<PAGE>
reducing the aggregate par value of all shares of all
classes of stock of the Corporation by $1,699,684.54.
IN WITNESS WHEREOF, ACE*COMM CORPORATION has
caused these Articles of Amendment and Restatement to be
signed in its name and on its behalf by its Vice President
and attested by its Secretary this 19th day of August, 1996,
and its Vice President acknowledges that they are the act
and deed of the Corporation, and states under the penalties
of perjury that to the best of his knowledge, information
and belief, the matters and facts set forth herein are true
in all material respects.
ATTEST: ACE*COMM CORPORATION
/s/ Loretta L. Rivers By:/s/ James M. Moore
Loretta L. Rivers, Secretary James M. Moore, Vice President
ACE*COMM CORPORATION
ARTICLES SUPPLEMENTARY
ACE*COMM Corporation, a Maryland corporation having its
principal office in Gaithersburg, Maryland, (the"Company")
hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: These Articles Supplementary are filed in
accordance with Section 3-603(c)(4) of the Maryland General
Corporation Law (the "MGCL"), to the extent required to
evidence the election of the Company to be included within
the provisions of Section 3-602 of the MGCL.
Notwithstanding the filing of these Articles, the Company's
election so to be governed is qualified and limited to the
extent set forth in the resolutions set forth below.
SECOND: The Board of Directors of the Company duly
adopted the following resolutions at a meeting held on June
23, 1996:
RESOLVED, that, to the extent and only to the
extent set forth in this Resolution, the Company
elects that it shall be subject to the provisions
of Subtitle 6 of Title 3 of the Maryland General
Corporation Law (sometimes known as the Maryland
Business Combination Law, or the "MBCL" herein),
including the provisions of Section 3-602 thereof,
with respect to business combinations with any
<PAGE>
person who first becomes an interested
stockholders after the date of this Resolution (or
with any affiliate of such interested
stockholders) subject to the terms, conditions,
exceptions and limitations set forth below.
(1) Nothing contained herein shall
deprive the Company or any person of any
exemption or exception provided for in the
MBCL, and (without limiting the foregoing) the
ability of the Company by resolution of its
Board of Directors to approve or exempt any
business combination pursuant to Section 3-
603(c) of the MBCL is expressly preserved.
(2) The provisions of Section 3-602 of
the MBCL shall not apply to a business
combination with any person who is an
interested stockholder of the Company or an
affiliate thereof on the date of this
Resolution or who becomes an interested
stockholder of the Company or an affiliate
thereof as of the time the Company first has
100 beneficial owners or who was an interested
stockholder or an affiliate at any time prior
thereto (each such interested stockholder
being referred to herein as an "Excluded
Person"), provided that this exception for
Excluded Persons shall not preclude the
application of the MBCL to any business
combination by the Company with any other
person who becomes an interested stockholder
and who is deemed a beneficial owner of
securities beneficially owned by any Excluded
Person if such interested stockholder would be
an interested stockholder without being deemed
a beneficial owner of securities beneficially
owned by an Excluded Person.
(3) To the extent that terms used in
this resolution are defined in the MBCL they
shall have the meanings ascribed to them in
the MBCL.
<PAGE>
(4) This Resolution constitutes, to the
extent and only to the extent provided above,
a limited and qualified election by the Board
of Directors
of the Company, pursuant to Section 3-603(d)
of the MBCL, to be subject to the provisions
of the MBCL, including Section 3-602 thereof,
with respect to future interested stockholders
and their affiliates. This Resolution may be
added to or supplemented by resolution of the
Board of Directors (without a vote of
stockholders) to the maximum extent permitted
by law. In the event that the MBCL shall be
amended in the future, the Company retains, to
the maximum extent that shall be permitted by
law, the power to make such additional
provisions, by resolution of the Board of
Directors (without a vote of stockholders) as
the Board of Directors shall deem appropriate
to carry out the intent of this Resolution in
view of any such amendment.
(5) The date of this Resolution is June
24, 1996.
FURTHER RESOLVED, that the appropriate officers of
the Company be and they hereby are directed to
execute and file with the Maryland State
Department of Assessments and Taxation any
appropriate documents required to effect the
intent of the foregoing resolutions.
IN WITNESS WHEREOF, ACE*COMM Corporation has caused
these presents to be signed in its name and on its behalf by
its President or one of its Vice Presidents and its
corporate seal to be hereunto affixed attested by its
secretary this __ day of
August, 1996, and the undersigned officers acknowledge that
these Articles Supplementary are the act of the Corporation,
<PAGE>
that to the best of their knowledge, information and belief
all matters and facts set forth herein relating to the
authorization and approval of these Articles are true in all
material respects, and that this statement is made under the
penalties of perjury.
ATTEST: ACE*COMM Corporation
__________________________ By:________________________
Loretta Rivers, Secretary George T. Jimenez,
President
Silicon Valley
Financial Services A
Division of Silicon
Valley Bank 3003
Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This Accounts Receivable Purchase Agreement (the
"Agreement") is made on this ____ day of
______________, 1998, by and between Silicon Valley
Financial Services (a division of Silicon Valley
Bank) ("Buyer") having a place of business at the
address specified above and ACE*COMM CORPORATION, a
Maryland corporation ("Seller"), having its
principal place of business and chief executive
office at 704 Quince Orchard Road, Gaithersburg,
Maryland 20878.
1. Definitions. When used herein, the following
terms shall
have the following meanings.
1.1. "Account Balance" shall mean, on any given day,
the
gross amount of all Purchased Receivables unpaid on
that day.
1.2. "Account Debtor" shall have the meaning set
forth in the Massachusetts Uniform Commercial Code
and shall include any person liable on any Purchased
Receivable, including without limitation, any
guarantor of the Purchased Receivable and any issuer
of a letter of credit or banker's acceptance.
1.3. "Adjustments" shall mean all discounts,
allowances, returns, disputes, counterclaims,
offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted
by or on behalf of any Account Debtor with respect to
any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as
set
forth in Section 3.3 hereof.
1.5. "Advance" shall have the meaning set forth
in Section 2.2 hereof.
1.6. "Cash Balances Covenant" shall mean, at any
given time, that the Seller has on deposit with the
Bank (including the Restricted Account, but not
including any escrowed or payroll funds), an amount
equal to 1.5 times the amount of the aggregate
Advances hereunder (as defined herein).
1.7. "Collateral" shall have the meaning set forth in
Section 8 hereof.
1.8. "Collections" shall mean all good funds received
by
Buyer from or on behalf of an Account Debtor with
respect to Purchased Receivables.
<PAGE>
1.9. "Compliance Certificate" shall mean a
certificate, in a form provided by Buyer to Seller,
which contains the certification of the chief
financial officer of Seller that, among other things,
the representations and warranties set forth in this
Agreement are true and correct as of the date such
certificate is delivered.
1.10. "Event of Default" shall have the meaning
set
forth in Section 9 hereof.
1.11. "Finance Charges" shall have the
meaning set forth
in Section 3.2 hereof.
1.12. "Invoice Transmittal" shall mean a
writing signed
by an authorized representative of Seller which
accurately identifies the receivables which Buyer, at
its election, may purchase, and includes for each
such receivable the correct amount owed by the
Account Debtor, the name and address of the Account
Debtor, the invoice number, the invoice date and the
account code.
1.13. "Obligations" shall mean all advances,
financial
accommodations, liabilities, obligations, covenants
and duties owing, arising, due or payable by Seller
to Buyer of any kind or nature, present or future,
arising under or in connection with this Agreement,
whether or not evidenced by any note, guarantee or
other instrument, whether arising on account or by
overdraft, whether direct or indirect (including
those acquired by assignment) absolute or contingent,
primary or secondary, due or to become due, now owing
or hereafter arising, and however acquired;
including, without limitation, all Advances, Finance
Charges, Administrative Fees, interest, Repurchase
Amounts, fees, expenses, professional fees and
attorneys' fees and any other sums chargeable to
Seller hereunder or otherwise.
1.14. "Prime Rate" shall mean the rate
announced from
time to time by Silicon Valley Bank as its Prime
Rate.
1.15. "Purchased Receivables" shall mean all
those
accounts, receivables, and rights to payment, and all
proceeds thereof (all of the foregoing being referred
to as "Receivables"), arising out of the invoices
identified on or delivered with any Invoice
Transmittal delivered by Seller to Buyer which Buyer
elects to purchase and for which Buyer makes an
Advance. Purchased Receivables shall include
Restricted Receivables.
1.16. "Reconciliation Date" shall mean the
last calendar
day of each Reconciliation Period.
1.17. "Reconciliation Period" shall mean
each calendar
month of every year.
<PAGE>
1.18. "Refund" shall have the meaning set
forth in
Section 3.5 hereof.
1.19. "Release Event" shall have the meaning
set forth
in Section 3.1 hereof.
1.20. "Reserve" shall have the meaning set
forth in
Section 2.4 hereof.
1.21. "Repurchase Amount" shall have the
meaning set
forth in Section 4.2 hereof.
1.22. "Restricted Account" shall mean an
account
maintained in the Seller's name at Silicon Valley
Bank with respect to which the Borrower may not
withdraw proceeds until a Release Event.
1.23. "Restricted Receivables" shall have
the meaning
set forth in Section 2.1 hereof.
2. Purchase and Sale of Receivables.
2.1. Offer to Sell Receivables. During the term
hereof, and provided that there does not then exist
any Event of Default or any event that with notice,
lapse of time or otherwise would constitute an Event
of Default, Seller may request that Buyer purchase
receivables and Buyer may, in its sole discretion,
elect to purchase receivables provided further that
the Seller is in compliance with all of the terms and
conditions herein, including, without limitation,
Section 2.2 below. Seller shall deliver to Buyer an
Invoice Transmittal with respect to any receivable
for which a request for purchase is made. An
authorized representative of Seller shall sign each
Invoice Transmittal delivered to Buyer. Buyer shall
be entitled to rely on all the information provided
by Seller to Buyer on or with the Invoice Transmittal
and to rely on the signature on any Invoice
Transmittal as an authorized signature of Seller.
Notwithstanding the terms herein, in the event that
the Seller is in compliance with the Cash Balances
Covenant at the time the Seller requests that Buyer
purchase a receivable, and no Event of Default exists
hereunder, and the purchase of said receivable will
not result in an Event of Default, or a breach of the
Cash Balances Covenant, then the Buyer shall
purchase said receivable, and the Advance (as defined
herein) resulting for said receivable shall be
credited by the Buyer to the Restricted Account (the
"Restricted Receivables").
2.2. Acceptance of Receivables. Except as
specifically provided in Section 2.1 above, Buyer
shall have no obligation to purchase any receivable
listed on an Invoice Transmittal, and Buyer may
exercise its sole discretion in approving the credit
of each Account Debtor before buying any receivable.
Upon
<PAGE>
acceptance by Buyer of all or any of the receivables
described on any Invoice Transmittal, Buyer shall pay
to Seller Eighty (80%) percent of the face amount of
each receivable Buyer desires to purchase or such
lesser percentage, if any, as the parties may agree
in writing, and if no such agreement is reached,
Seller may withdraw in writing its offer to sell a
particular receivable. Such payment shall be the
"Advance" with respect to such receivable. Upon
Buyer's acceptance of the receivable and payment to
Seller of the Advance, the receivable shall become a
"Purchased Receivable." Except with respect to
Restricted Receivables, it shall be a condition to
each Advance that: (i) all of the representations
and warranties set forth in Section 6 of this
Agreement be true and correct in all material
respects on and as of the date of the related Invoice
Transmittal and on and as of the date of such Advance
as though made at and as of each such date, and (ii)
no Event of Default or any event or condition that
with notice, lapse of time or otherwise would
constitute an Event of Default shall have occurred
and be continuing, or would result from such Advance,
and (iii) the account debtor has been approved by the
Buyer in writing. Notwithstanding the foregoing, in
no event shall the aggregate amount of all Purchased
Receivables (including Restricted Receivables)
outstanding at any time exceed Four Million Dollars
($4,000,000.00).
2.3. Effectiveness of Sale to Buyer. Effective
upon Buyer's payment of an Advance, and for and in
consideration therefor and in consideration of the
covenants of this Agreement, subject to Buyer's
obligations hereunder, Seller hereby absolutely
sells, transfers and assigns to Buyer, all of
Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may
become due on or with respect to such Purchased
Receivable. Buyer shall be the absolute owner of
each Purchased Receivable. Buyer shall have, with
respect to any goods related
to the Purchased Receivable, all the rights and
remedies of an unpaid seller under the Massachusetts
Uniform Commercial Code and other applicable law.
2.4. Establishment of a Reserve. Upon the
purchase by Buyer
of each Purchased Receivable, Buyer shall establish a
reserve. The reserve shall be the amount by which the
face amount of the Purchased Receivable exceeds the
Advance on that Purchased Receivable (the "Reserve");
provided, the Reserve with respect to all Purchased
Receivables outstanding at any one time shall be an
amount not less than twenty percent (20.0%) of the
Account Balance at that time, and may be set at such
higher percentage as the parties may agree, to the
extent that the parties agree to a lower Advance
percentage as provided in Section 2.2. The Reserve
shall be a book balance maintained on the records of
Buyer and shall not be a segregated fund.
3. Collections, Charges and Remittances.
<PAGE>
3.1. Collections. Upon receipt by Buyer of
Collections,
Buyer shall promptly credit such Collections to
Seller's Account Balance on a daily basis. Upon the
receipt by Buyer of Collections with respect to
Restricted Receivables, the Advance previously
deposited by Buyer to Seller's Restricted Account
shall be released to Seller (the "Release Event").
Notwithstanding the foregoing, if Seller is in
default under this Agreement, Buyer shall apply all
Collections to Seller's Obligations hereunder in such
order and manner as Buyer may determine. If an item
of collection is not honored or Buyer does not
receive good funds for any reason, the amount shall
be included in the Account Balance as if the
Collections had not been received and Finance Charges
under Section 3.2 shall accrue thereon.
3.2. Finance Charges. On each Reconciliation
Date Seller
shall pay to Buyer a finance charge in an amount
equal to the Bank's Prime Rate, plus four percent
(4.0%) per annum, of the average daily Account
Balance outstanding during the applicable
Reconciliation Period (the "Finance Charges"). Buyer
shall deduct the accrued Finance Charges from the
Reserve as set forth in Section 3.5 below.
3.3. Administrative Fee. On each Reconciliation
Date Seller
shall pay to Buyer an Administrative Fee equal to
0.625% of the face amount of each Purchased
Receivable first purchased during that Reconciliation
Period (the "Administrative Fee"). Buyer shall
deduct the Administrative Fee from the Reserve as set
forth in Section 3.5 below.
3.4. Accounting. Buyer shall prepare and send
to Seller
after the close of business for each Reconciliation
Period, an accounting of the transactions for that
Reconciliation Period, including the amount of all
Purchased Receivables, all Collections, Adjustments,
Finance Charges, and the Administrative Fee. The
accounting shall be deemed correct and conclusive
unless Seller makes written objection to Buyer within
thirty (30) days after the Buyer mails the accounting
to Seller.
3.5. Refund to Seller. Provided that there does
not then
exist an Event of Default, Buyer shall promptly
refund to Seller, after the Reconciliation Date, the
amount, if any, which Buyer owes to Seller at the end
of the Reconciliation Period according to the
accounting prepared by Buyer for that Reconciliation
Period (the "Refund"). The Refund shall be an amount
equal to:
(1) (1) The Reserve as of the beginning
of that Reconciliation Period, plus
(2) the Reserve created for each
Purchased Receivable purchased during that
Reconciliation Period, minus
<PAGE>
(2) The total for that Reconciliation
Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(1)
(3) Adjustments;
(4) Repurchase Amounts, to the extent
Buyer has agreed to accept payment thereof
by deduction from the Refund;
(5) the Reserve for the Account
Balance as of the first day of the
following Reconciliation Period in the
minimum percentage set forth in Section 2.4
hereof; and
(6) all amounts due, including
professional fees and expenses, as set
forth in Section 12 for which oral or
written demand has been made by Buyer to
Seller during that Reconciliation Period to
the extent Buyer has agreed to accept
payment thereof by deduction from the
Refund.
In the event the formula set forth in this Section
3.5 results in an amount due to Buyer from Seller,
Seller shall make such payment in the same manner as
set forth in Section 4.3 hereof for repurchases. If
the formula set forth in this Section 3.5 results in
an amount due to Seller from Buyer, Buyer shall make
such payment by check, subject to Buyer's rights
under Section 4.3 and Buyer's rights of offset and
recoupment.
4. Recourse and Repurchase Obligations.
4.1. Recourse. Buyer's acquisition of Purchased
Receivables from Seller shall be with full recourse
against Seller. In the event the Obligations exceed
the amount of Purchased Receivables and Collateral,
Seller shall be liable for any deficiency.
4.2. Seller's Agreement to Repurchase. Seller
agrees to pay to Buyer on demand, the full face
amount, or any unpaid portion, of any Purchased
Receivable:
(1) which remains unpaid ninety (90)
calendar days after the invoice date (unless
otherwise agreed in writing by Buyer); or
(2) which is owed by any Account Debtor
who has filed, or has had filed against it, any
bankruptcy case, assignment for the benefit of
creditors, receivership, or insolvency
proceeding or who has become insolvent (as
defined in the United States Bankruptcy Code) or
who is generally not paying its debts as such
debts become due; or
<PAGE>
(3) with respect to which there has been
any breach of warranty or representation (in any
material respect) set forth in Section 6 hereof
or any breach of any covenant contained in this
Agreement;
(4) with respect to which the Account
Debtor asserts any discount, allowance, return,
dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or
short payment; or
(5) which is a Restricted Receivable, in
the event the Seller fails to meet the Cash
Balances Covenant at any time.
together with all reasonable attorneys' and
professional fees and expenses and all court costs
incurred by Buyer in collecting such Purchased
Receivable and/or enforcing its rights under, or
collecting amounts owed by Seller in connection with,
this Agreement (collectively, the "Repurchase
Amount"). The proper repurchase of a Purchased
Receivable pursuant to this Section 4.2 shall cure
any Event of Default resulting, if any, with respect
to such Purchased Receivable.
4.3. Seller's Payment of the Repurchase Amount
or Other Amounts Due Buyer. When any Repurchase
Amount or other amount owing to Buyer becomes due
Buyer shall inform Seller of the manner of payment
which may be any one or more of the following in
Buyer's sole discretion: (a) in cash immediately
upon demand therefor; (b) by delivery of substitute
invoices and an Invoice Transmittal acceptable to
Buyer which shall thereupon become Purchased
Receivables; (c) by adjustment to the Reserve
pursuant to Section 3.5 hereof; (d) by deduction
from or offset against the Refund that would
otherwise be due and payable to Seller;
(e) by deduction from or offset against the amount
that otherwise would be forwarded to Seller in
respect of any further Advances that may be made by
Buyer; or (f) by any combination of the foregoing as
Buyer may from time to time choose.
4.4. Seller's Agreement to Repurchase All
Purchased Receivables. Upon and after the occurrence
of an Event of Default, Seller shall, upon Buyer's
demand (or, in the case of
an Event of Default under Section 9(B), immediately
without notice or demand from Buyer) repurchase all
the Purchased Receivables then outstanding, or such
portion thereof as Buyer may demand. Such demand
may, at Buyer's option, include and Seller shall pay
to Buyer immediately upon demand, cash in an amount
equal to the Advance with respect to each Purchased
Receivable then outstanding together with all accrued
Finance Charges, Adjustments, Administrative Fees,
attorney's and professional fees, court costs and
expenses as provided for herein, and any other
Obligations. Upon receipt of payment in full of the
Obligations, Buyer shall immediately instruct Account
Debtors to pay Seller directly, and return to Seller
any Refund <PAGE>
due to Seller. For the purpose of calculating any
Refund due under this Section only, the
Reconciliation Date shall be deemed to be the date
Buyer receives payment in good funds of all the
Obligations as provided in this Section 4.4.
5. Power of Attorney. Seller does hereby
irrevocably appoint
Buyer and its successors and assigns as Seller's true
and lawful attorney in fact, and hereby authorizes
Buyer, regardless of whether there has been an Event
of Default, (a) to sell, assign, transfer, pledge,
compromise, or discharge the whole or any part of the
Purchased Receivables; (b) to demand, collect,
receive, sue, and give releases to any Account Debtor
for the monies due or which may become due upon or
with respect to the Purchased Receivables and to
compromise, prosecute, or defend any action, claim,
case or proceeding relating to the Purchased
Receivables, including the filing of a claim or the
voting of such claims in any bankruptcy case, all in
Buyer's name or Seller's name, as
Buyer may choose; (c) to prepare, file and sign
Seller's name on any notice, claim, assignment,
demand, draft, or notice of or satisfaction of lien
or mechanics' lien or similar document with respect
to Purchased Receivables; (d) to notify all Account
Debtors with respect to the Purchased Receivables to
pay Buyer directly; (e) to receive, open, and
dispose of all mail addressed to Seller for the
purpose of collecting the Purchased Receivables; (f)
to endorse Seller's name on any checks or other forms
of payment on the Purchased Receivables; (g) to
execute on behalf of Seller any and all instruments,
documents, financing statements and the like to
perfect Buyer's interests in the Purchased
Receivables and Collateral; and (h) to do all acts
and things necessary or expedient, in furtherance of
any such purposes. If Buyer receives a check or item
which is payment for both a Purchased Receivable and
another receivable, the funds shall first be applied
to the Purchased Receivable and, so long as there
does not exist an Event of Default or an event that
with notice, lapse of time or otherwise would
constitute an Event of Default, the excess shall be
remitted to Seller. Upon the occurrence and
continuation of an Event of Default, all of the power
of attorney rights granted by Seller to Buyer
hereunder shall be applicable with respect to all
Purchased Receivables and all Collateral.
6. Representations, Warranties and Covenants.
6.1. Receivables' Warranties, Representations
and Covenants. To induce Buyer to buy receivables and
to render its services to Seller, and with full
knowledge that the truth and accuracy of the
following are being relied upon by the Buyer in
determining whether to accept receivables as
Purchased Receivables, Seller represents, warrants,
covenants and agrees, with respect to each Invoice
Transmittal delivered to Buyer and each receivable
described therein, that:
<PAGE>
(1) Seller is the absolute owner of each
receivable set forth in the Invoice Transmittal
and has full legal right to sell, transfer and
assign such receivables;
(2) The correct amount of each receivable
is as set forth in the Invoice Transmittal and
is not in dispute;
(3) The payment of each receivable is not
contingent upon the fulfillment of any
obligation or contract, past or future and any
and all obligations required of the Seller have
been fulfilled as of the date of the Invoice
Transmittal;
(4) Each receivable set forth on the
Invoice Transmittal is based on an actual sale
and delivery of goods and/or services actually
rendered, is presently due and owing to Seller,
is not past due or in default, has not been
previously sold, assigned, transferred, or
pledged, and is free of any and all liens,
security interests and encumbrances other than
liens, security interests or encumbrances in
favor of Buyer or any other division or
affiliate of Silicon Valley Bank;
(5) There are no defenses, offsets, or
counterclaims against any of the receivables,
and no agreement has been made under which the
Account Debtor may claim any deduction or
discount, except as otherwise stated in the
Invoice Transmittal;
(6) Each Purchased Receivable shall be the
property of
the Buyer and shall be collected by Buyer, but
if for any reason it should be paid to Seller,
Seller shall promptly notify Buyer of such
payment, shall hold any checks, drafts, or
monies so received in trust for the benefit of
Buyer, and shall promptly transfer and deliver
the same to the Buyer;
(1)
(7) Buyer shall have the right of
endorsement, and also the right to require
endorsement by Seller, on all payments received
in connection with each Purchased Receivable and
any proceeds of Collateral;
(8) Seller, and to Seller's best
knowledge, each Account Debtor set forth in the
Invoice Transmittal, are and shall remain
solvent as that term is defined in the United
States Bankruptcy Code and the Massachusetts
Uniform Commercial Code, and no such Account
Debtor has filed or had filed against it a
voluntary or involuntary petition for relief
under the United States Bankruptcy Code;
<PAGE>
(9) Each Account Debtor named on the
Invoice Transmittal will not object to the
payment for, or the quality or the quantity of
the subject matter of, the receivable and is
liable for the amount set forth on the Invoice
Transmittal; and
(10) At Buyer's request, each Account
Debtor shall promptly be notified, after
acceptance by Buyer, that the Purchased
Receivable has been transferred to and is
payable to Buyer, and Seller shall not take or
permit any action to countermand such
notification.
6.2. Additional Warranties, Representations and
Covenants. In addition to the foregoing warranties,
representations and covenants, to induce Buyer to buy
receivables and to render its services to Seller,
Seller hereby represents, warrants, covenants and
agrees that:
(1) Seller will not assign, transfer,
sell, or grant ,or permit any lien or security
interest in any Purchased Receivables or
Collateral to or in favor of any other party,
without Buyer's prior written consent;
(2) The Seller's name, form of
organization, chief executive office, and the
place where the records concerning all
Purchased Receivables and Collateral are kept
is set forth at the beginning of this Agreement,
Collateral is located only at the location set
forth in the beginning of this Agreement, or,
if located at any additional location, as set
forth on a schedule attached to this Agreement,
and Seller will give Buyer at least thirty (30)
days prior written notice if such name,
organization, chief executive office or other
locations of Collateral or records concerning
Purchased Receivables or Collateral is changed
or added and shall execute any documents
necessary to perfect Buyer's interest in the
Purchased Receivables and the Collateral;
(3) Seller shall (i) pay all of its
normal gross payroll for employees, and all
federal and state taxes, as and when due,
including without limitation all payroll and
withholding taxes and state sales taxes; (ii)
deliver at any time and from time to time at
Buyer's request,
evidence satisfactory to Buyer that all such
amounts have been paid to the proper taxing
authorities; and (iii) if requested by Buyer,
pay its payroll and related taxes
through a bank or an independent payroll
service acceptable to Buyer.
<PAGE>
(4) Seller has not, as of the time Seller
delivers to Buyer an Invoice Transmittal, or as
of the time Seller accepts any Advance from
Buyer, filed a voluntary petition for relief
under the United States Bankruptcy Code or had
filed against it an involuntary petition for
relief;
(5) Seller shall provide Buyer with a
Compliance Certificate (i) on a quarterly basis
to be received by Buyer no later than the fifth
calendar day following each calendar quarter,
and; (ii) on a more frequent or other basis if
and as requested by Buyer.
7. Adjustments. In the event of a breach of any of
the
representations, warranties, or covenants set forth
in Section 6.1, or in the event any Adjustment or
dispute is asserted by any Account Debtor, Seller
shall promptly advise Buyer and shall, subject to the
Buyer's approval, resolve such disputes and advise
Buyer of any adjustments. Unless the disputed
Purchased Receivable is repurchased by Seller and the
full Repurchase Amount is paid, Buyer shall remain
the absolute owner of any Purchased Receivable which
is subject to Adjustment or repurchase under Section
4.2 hereof, and any rejected, returned, or
recovered personal property, with the right to take
possession thereof at any time. If such possession
is not taken by Buyer, Seller is to resell it for
Buyer's account at Seller's expense with the proceeds
made payable to Buyer, subject to the terms and
conditions hereunder. While Seller retains
possession of said returned goods, Seller shall
segregate said goods and mark them "property of
Silicon Valley Financial Services."
8. Security Interest. To secure the prompt
payment and
performance to Buyer of all of the Obligations,
Seller hereby grants to Buyer a continuing lien upon
and security interest in all of Seller's now
existing or hereafter arising rights and interest in
the following , whether now owned or existing or
hereafter created, acquired, or arising, and wherever
located (collectively, the "Collateral"):
(1) All accounts, receivables, contract
rights, chattel paper, instruments, documents,
letters of credit, bankers acceptances, drafts,
checks, cash, securities, and general
intangibles (including, without limitation, all
claims, causes of action, deposit accounts,
guaranties, rights in and claims under insurance
policies (including rights to premium refunds),
rights to tax refunds, copyrights, patents,
trademarks, rights in and under license
agreements, and all other intellectual
property);
<PAGE>
(2) All inventory, including Seller's
rights to any returned or rejected goods, with
respect to which Buyer shall have all the rights
of any unpaid seller, including the rights of
replevin, claim and delivery, reclamation, and
stoppage in transit;
(3) All monies, refunds and other amounts
due Seller, including, without limitation,
amounts due Seller under this Agreement
(including Seller's right of offset and
recoupment);
(4) Investment Property;
(5) All equipment, machinery, furniture,
furnishings, fixtures, tools, supplies and motor
vehicles (the "Equipment");
(6) All farm products, crops, timber,
minerals and the like (including oil and gas);
(7) All accessions to, substitutions for, and
replacements of, all of the foregoing;
(8) All books and records pertaining to
all of the foregoing; and
(9) All proceeds of the foregoing, whether
due to voluntary or involuntary disposition,
including insurance proceeds.
Seller is not authorized to sell, assign, transfer or
otherwise convey any Collateral without Buyer's prior
written consent, except in the Seller's usual course
of business.
Notwithstanding the foregoing, the Buyer will
subordinate its security interest in any Equipment,
now or hereafter owned by Seller, and a certain Note
Receivable from ANSTEC INCORPORATED dated February 1,
1998 in the principal amount of $1,584,747.08. Seller
agrees to sign UCC financing statements, in a form
acceptable to Buyer, and any other instruments and
documents requested by Buyer to evidence, perfect, or
protect the interests of Buyer in the Collateral.
Seller agrees to deliver to Buyer the originals of
all instruments, chattel paper and documents
evidencing or related to Purchased Receivables and
Collateral.
9. Default. The occurrence of any one or more of
the following
shall constitute an Event of Default hereunder:
(1) Seller fails to pay any amount owed to
Buyer as and when due;
<PAGE>
(2) There shall be commenced by or against
Seller any voluntary or involuntary case under
the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or
appointment of a receiver or custodian for any
of its assets (however, it shall not be an Event
of Default hereunder until the earlier of (x)
the entry of an order for relief against the
Seller, or (y) the expiration of sixty (60) days
without dismissal of such complaint,
application, or petition if such complaint,
application, or petition filed against the
Seller was not filed by or at the direction of
the Seller or any related entity, and is being
diligently contested);
(3) Seller shall become insolvent in that
its debts are greater than the fair value of its
assets, or Seller is generally not paying its
debts as they become due or is left with
unreasonably small capital;
(4) Any involuntary lien, garnishment,
attachment or the like is issued against or
attaches to the Purchased Receivables or any
Collateral which is in excess of $25,000, and is
not discharged within thirty (30) days;
(5) Seller shall breach, in any material
respect, any other covenant, agreement,
warranty, or representation set forth herein,
and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer
has given Seller oral or written notice thereof;
provided, that if
such breach is incapable of being cured it shall
constitute an immediate default hereunder;
(6) A default or event of default shall
occur under any agreement between Seller and any
creditor of Seller for indebtedness in excess of
$100,000, in the aggregate, which indebtedness
is accelerated by such creditor, or
(7) Any creditor that has entered into a
subordination agreement with Buyer shall breach
any of the terms of or not comply with such
subordination agreement.
10. Remedies Upon Default. Upon the occurrence of
an Event of Default, (1) without implying any
obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations
to Seller; (2) all or a portion of the Obligations
shall be, at the option of and upon demand by Buyer,
or with respect to an Event of Default described in
Section 9(B), automatically and without notice or
demand, due and payable in full; and (3) Buyer shall
have and may exercise all the rights and remedies
under this Agreement and under applicable law,
including the rights and remedies of a secured party
under the Massachusetts Uniform Commercial Code, all
the power of attorney rights described in Section 5
with respect to all Collateral, and the right to
collect, dispose of, sell, lease, use, and realize
upon all Purchased Receivables and all Collateral,
including the proceeds of the Restricted Account, in
any commercial reasonable manner. Seller and Buyer
agree that any notice of sale required to be given to
Seller shall be deemed to be reasonable if given ten
(10) days prior to the date on or after which the
sale may be held. In the event that the Obligations
are accelerated hereunder, Seller shall repurchase
all of the Purchased Receivables as set forth in
Section 4.4.
11. Accrual of Interest. If any amount owed by
Seller hereunder is not paid when due, including,
without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 12, and
any other Obligations, such amounts shall bear
interest at a per annum rate equal to the per annum
rate of the Finance Charges until the earlier of (i)
payment in good funds or (ii) entry of a final
judgment thereof, at which time the principal amount
of any money judgment remaining unsatisfied shall
accrue interest at the highest rate allowed by
applicable law.
12. Fees, Costs and Expenses; Indemnification. The
Seller will pay to Buyer immediately upon demand all
fees, costs and expenses (including fees of
attorneys and professionals and their costs and
expenses ) that Buyer incurs or may from time to
time impose in connection with any of the following:
(a) preparing, negotiating, administering (however
not including the Buyer's overhead costs), and
enforcing this Agreement or any other agreement
executed in connection herewith, including any
amendments, waivers or consents in connection with
any of the foregoing, (b) any litigation or dispute
(whether instituted by Buyer, Seller or any other
person) in any way relating to the Purchased
Receivables, the Collateral, this Agreement or any
other agreement executed in connection herewith or
therewith, (d) enforcing any rights against Seller or
any guarantor, or any Account Debtor, (e) protecting
or enforcing its interest in the Purchased
Receivables or the Collateral, (f) collecting the
Purchased Receivables and the Obligations, and (g)
the representation of Buyer in connection with any
bankruptcy case or insolvency proceeding involving
Seller, any Purchased Receivable, the Collateral, any
Account Debtor, or any guarantor. Seller shall
indemnify and hold Buyer harmless from and against
any and all claims, actions, damages, costs,
expenses, and liabilities of
any nature whatsoever arising in connection with any
of the foregoing.
13. Severability, Waiver, and Choice of Law. In the
event that any provision of this Agreement is deemed
invalid by reason of law, this Agreement will be
construed as not containing such provision and the
remainder of the Agreement shall remain in full force
and effect. Buyer retains all of its rights, even if
it makes an Advance after a default. If Buyer waives
a default, it may enforce a later default. Any
consent or waiver under, or amendment of, this
Agreement must be in writing. Nothing contained
herein, or any action taken or not taken by Buyer at
<PAGE>
any time, shall be construed at any time to be
indicative of any obligation or willingness on the
part of Buyer to amend this Agreement or to grant to
Seller any waivers or consents. This Agreement has
been transmitted by Seller to Buyer at Buyer's office
in Wellesley, Massachusetts and has been executed and
accepted by Buyer in Massachusetts. This Agreement
shall be governed by and interpreted in accordance
with the internal laws of the Commonwealth of
Massachusetts.
14. Account Collection Services. Certain Account
Debtors may require or prefer that all of Seller's
receivables be paid to the same address and/or party,
or Seller and Buyer may agree that all receivables
with respect to certain Account Debtors be paid to
one party. In such event Buyer and Seller may agree
that Buyer shall collect all receivables whether
owned by Seller or Buyer and (provided that there
does not then exist an Event of Default or event that
with notice, lapse or time or otherwise would
constitute an Event of Default, and subject to
Buyer's rights in the Collateral) Buyer agrees to
remit to Seller the amount of the receivables
collections it receives with respect to receivables
other than Purchased Receivables. It is understood
and agreed by Seller that this Section does not
impose any affirmative duty on Buyer to do any act
other than to turn over such amounts. All such
receivables and collections are Collateral and in the
event of Seller's default hereunder, Buyer shall
have no duty to remit collections of Collateral and
may apply such collections to the obligations
hereunder and Buyer shall have the rights of a
secured party under the Massachusetts Uniform
Commercial Code.
15. Notices. All notices shall be given to Buyer
and Seller at the addresses set forth on the first
page of this Agreement, and shall be delivered and
received: (a) one (1) business day after deposit with
an overnight mail or messenger service, with
delivered confirmed by such service; or (b) on the
same date of confirmed transmission or delivery if
sent by telecopy or by hand delivery.
16. Jury Trial. SELLER AND BUYER EACH HEREBY (a)
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL ON ANY
CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY; (b)
RECOGNIZE AND AGREE THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER
INTO THIS AGREEMENT; AND (c) REPRESENT AND WARRANT
THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR
ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS
LEGAL COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES
ALL RIGHTS TO A JURY TRIAL.
17. Term and Termination. The term of this
Agreement shall be for one (1) year from the date
hereof, and from year to year thereafter unless
terminated in writing by Buyer or Seller. Seller and
Buyer shall each have the right to terminate this
<PAGE>
Agreement at any time. Notwithstanding the
foregoing, any termination of this Agreement shall
not affect Buyer's security interest in the
Collateral and Buyer's ownership of the Purchased
Receivables, and this Agreement shall continue to be
effective, and Buyer's rights and remedies hereunder
shall survive such termination, until all
transactions entered into and Obligations incurred
hereunder or in connection herewith have been
completed and satisfied in full. Upon termination
and payment in full of the Obligations, Buyer shall
execute such releases and termination statements as
Seller may reasonably request.
18. Titles and Section Headings. The titles and
section headings used herein are for convenience only
and shall not be used in interpreting this Agreement.
19. Other Agreements. The terms and provisions of
this Agreement shall not adversely affect the rights
of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document,
instrument or agreement. The terms of such other
documents, instruments and agreements shall remain in
full force and effect notwithstanding the execution
of this Agreement. Seller acknowledges specifically
that any security agreements, liens and/or security
interests currently securing payment of any
obligations of Seller owing to Buyer or any other
division or affiliate of Silicon Valley Bank also
secure Seller's obligations under this Agreement, and
are valid and subsisting and are not adversely
affected by execution of this Agreement. Seller
further acknowledges that (a) any collateral under
other outstanding security agreements or other
documents between Seller and Buyer or any other
division or affiliate of Silicon Valley Bank secures
the obligations of Seller under this Agreement and
(b) a default by Seller under this Agreement
constitutes a default under other outstanding
agreements between Seller and Buyer or any other
division or affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed
this
Agreement as an instrument under seal under the laws
of the Commonwealth of Massachusetts as of on the day
and year above written.
SELLER:
ACE*COMM CORPORATION
By __________________________________________________
(duly authorized)
Name:________________________________________________
<PAGE>
Title:_______________________________________________
__
BUYER:
SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By__________________________________________________
Title
________________________________________________
AGREEMENT
This Agreement, dated as of September 28, 1998, is
between George T. Jimenez, individually, and ACE*COMM
Corporation, a Maryland corporation. In consideration of
the mutual benefits derived herefrom and certain other good
and valid consideration, receipt of which hereby is
acknowledged, the parties, intending to be legally bound,
covenant and agree as follows:
1. If at any time during the next twelve months the
following occur: (a) ACE*COMM's working capital becomes
inadequate to support the business at its then current level
and (b) financing for working capital adequate to support
the business at such level can not be obtained in a timely
manner, then Mr. Jimenez will make available through a loan
or loan guarantee, for working capital, up to $3,500,000 in
principal amount (less any amounts raised by ACE*COMM after
September 28, 1998, from financing activities or through the
sale or pledge of assets). Such loan, if any, would bear
interest at the prime rate of interest at Crestar Bank plus
2% per annum, would be repayable upon demand and, an any
event out of the first alternate funding available to
ACE*COMM or upon a change of control of ACE*COMM, if any,
and would be fully collateralized by the assets of the
Company.
2. Mr. Jimenez has provided an unconditional
guarantee, fully secured by his cash or marketable
securities, of ACE*COMM's reimbursement obligation for any
amount paid by Crestar Bank in connection with a $450,000
letter of credit issued on behalf of ACE*COMM in connection
with ACE*COMM's lease of its headquarters building.
ACE*COMM hereby agrees to repay Mr. Jimenez upon demand for
any amounts paid by him under such guarantee. ACE*COMM's
repayment obligation may be secured from time to time by
assets of the Company at the request of Mr. Jimenez.
Any amount required to be paid by ACE*COMM pursuant to
this section which is not made on the date that the same
becomes due and payable, shall continue as an obligation of
ACE*COMM until it is fully paid, and ACE*COMM agrees in
addition to pay, to the extent permitted by law, late
interest thereon at the prime rate of interest at Crestar
Bank plus 2% per annum, adjusted daily, such late interest
<PAGE>
to accrue from the date such overdue payment became due and
payable until paid. ACE*COMM shall also pay, promptly upon
demand, all costs of collection, including reasonable
attorneys' fees if this Agreement is referred to an attorney
for collection after default with respect thereto, whether
or not an action is instituted to enforce or collect on this
Agreement. Time is of the essence hereof for all purposes.
ACE*COMM waives presentment and demand for payment,
protest or notice of protest for non-payment, bringing of
suit and diligence in taking any action to collect any sums
owing thereunder or in proceeding against any of the rights
and properties securing payment hereof. From time to time,
without affecting the obligations of ACE*COMM contained
herein, Mr. Jimenez may modify the terms of repayment of
obligations under this Agreement, without causing such
actions to constitute a notation of the repayment
obligations under this Agreement or any waiver of rights.
The acceptance by Mr. Jimenez of any repayment of
obligations by ACE*COMM that is less than payment in full of
all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to exercise any
rights for full repayment.
Any attorney at law may appear in any court of record
in the State of Maryland or in the United States, after
demand for payment of the obligations under this Agreement
and waive the issuing of service of process and confess a
judgment against ACE*COMM in favor of Mr. Jimenez for the
amount then appearing due under this Agreement, together
with interest, costs of suit and reasonable attorneys' fees.
3. This Agreement shall be effective as of the date
hereof and shall be binding upon and inure to the benefit
of, the parties and their respective heirs, successors,
assigns, and personal representatives, as the case may be.
As used herein, the successors of the Company shall include,
but not be limited to, any successor by way of merger,
consolidation, sale of all or substantially all of the
assets, or similar reorganization or change in control.
4. Any term, provision or condition of this Agreement
(other than as prohibited by applicable law) may be waived
<PAGE>
in writing at any time by the party which is entitled to the
benefits thereof. This Agreement has been duly authorized,
executed and delivered and constitutes the valid and binding
obligations of the parties hereto, enforceable in accordance
with its terms. The validity and construction of this
Agreement or any of its provisions shall be determined under
the laws of the State of Maryland, without giving effect to
its conflicts of laws provisions, and without regard to its
place of execution or its place of performance. If any one
or more of the terms or provisions of this Agreement shall
for any reason be held to be invalid, illegal or
unenforceable, in whole or in part, or in any respect or in
the event that any one or more of the provisions of this
Agreement operated or would prospectively operate to
invalidate this Agreement, then and in either of those
events, such provision or provisions only shall be deemed
null and void to the extent such term or provision is held
to be invalid, illegal or unenforceable and shall not affect
any other provision of this Agreement and the remaining
provisions of this Agreement shall remain operative and in
full force and effect and shall in no way be affected,
prejudiced or disturbed thereby.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the 28th day of September, 1998.
GEORGE T. JIMENEZ
/S/ GEORGE T. JIMENEZ
ACE*COMM CORPORATION
By: /S/ GEORGE T. JIMENEZ
George T. Jimenez
Chairman of the Board
(authorized by the Board of Directors)
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