<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the quarterly period ended September 30, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from _____ to _____
SEC File Number 0-24725
GLOBAL ELECTION SYSTEMS INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
British Columbia, Canada 85-0394190
(State or Province of Incorporation) (IRS Employer Identification No.)
1611 Wilmeth Road, McKinney, TX, 75069
(Address of Principal Executive Offices)
972 - 542 - 6000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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[ ] No [x]
(issuer not subject to filing requirements for past 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of November 19, 1998,
the issuer had 18,482,440 shares of its common stock outstanding.
Transitional Small Business Disclosure Form (check one): Yes [ ] No [x]
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis.
Part 2. OTHER INFORMATION
Item 1. Legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Summary of Significant Accounting Policies:
The accounting policies as set forth in Global Election
Systems Inc.'s Form 10-SB/A, filed on July 31, 1998 have been adhered to in
preparing the accompanying interim consolidated financial statements. These
statements are unaudited, but include all adjustments, consisting of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the results for the interim period. Results for an interim
period are not necessarily indicative of results for a full year.
a) Foreign Currency Transactions
The accounts of the Company are prepared in U. S. funds and
the Company's Canadian operations are translated into U.S. dollars as follows:
Monetary assets and liabilities at quarter-end rates All other
assets and liabilities at historical rates Revenue and expense
items at the average rate of exchange
prevailing during the quarter.
Exchange gains and losses arising from these
transactions are reflected in income or expense in the period.
b) Inventory
Inventory of finished goods and work-in-progress is
valued at the lower of cost and net realizable value as estimated by management.
Raw materials, which consist of parts and components, are valued at average cost
less any allowances for obsolescence. Inventory of goods taken in trade is
valued at the lesser of trade-in value and net realizable value as estimated by
management.
<PAGE> 4
GLOBAL ELECTION SYSTEMS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDING
30 SEPTEMBER 1998 AND 1997
PREPARED WITHOUT AUDIT IN U.S. FUNDS
<PAGE> 5
GLOBAL ELECTION SYSTEMS INC. Statement 1
INTERIM CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
Prepared without audit in U.S. Funds
ASSETS 1998 1997
<S> <C> <C>
CURRENT
Cash and short term deposits $ 62,438 $ 463,271
Accounts receivable 3,722,757 2,984,653
Contracts receivable 4,898,650 1,102,308
Deposits and prepaid expenses 212,307 101,943
Inventory 5,721,988 1,882,998
Current portion of agreements receivable 573,701 464,672
----------- -----------
15,191,841 6,999,845
AGREEMENTS RECEIVABLE 336,474 819,612
CAPITAL ASSETS 426,248 513,719
OTHER ASSETS 958,681 1,319,210
----------- -----------
$16,913,244 $ 9,652,386
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT
Bank loan $ 361,700 $ 340,148
Accounts payable and accrued liabilities 4,051,147 1,292,770
Customer deposits -- 39,804
Deferred revenue 128,294 346,284
Current portion of loans payable 1,313,880 156,307
----------- -----------
5,855,021 2,175,313
LOANS PAYABLE 36,757 193,598
----------- -----------
5,891,778 2,368,911
SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
SHARE CAPITAL
Authorized:
100,000,000 common voting shares, without par value
20,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
18,482,440 common shares (1997 - 15,689,440) 10,125,867 9,922,345
RETAINED EARNINGS (DEFICIT) - Statement 2 895,599 (2,638,870)
----------- -----------
11,021,466 7,283,475
----------- -----------
$16,913,244 $ 9,652,386
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ON BEHALF OF THE BOARD:
Signed: "HOWARD T. VAN PELT"
- ----------------------------
HOWARD T. VAN PELT, Director
Signed: "CLINTON H. RICKARDS"
- -----------------------------
CLINTON H. RICKARDS, Director
<PAGE> 6
GLOBAL ELECTION SYSTEMS INC. Statement 2
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
Retained Total
Common Shares Earnings
Shares Amount (Deficit)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - 31 December 1993 13,527,237 $ 8,419,336 $ (1,164,452) $ 7,254,884
Issuance of shares for name and operating assets of 250,000 434,626 -- 434,626
Lynro Manufacturing Corporation ($1.74 per share)
Issuance of shares for expenses ($0.83 per share) 58,334 48,594 -- 48,594
Issuance of shares on exercise of options ($0.48
per share) 50,000 23,904 -- 23,904
Loss for the year -- -- (1,508,214) (1,508,214)
------------ ------------ ------------ ------------
Balance - 31 December 1994 13,885,571 8,926,460 (2,672,666) 6,253,794
Issuance of shares on exercise of warrants ($0.77
per share) 203,869 156,538 -- 156,538
Issuance of shares on exercise of options ($0.56
per share) 100,000 55,777 -- 55,777
Loss for the year -- -- (1,042,042) (1,042,042)
------------ ------------ ------------ ------------
Balance - 31 December 1995 14,189,440 9,138,775 (3,714,708) 5,424,067
Issuance of shares on exercise of options ($0.47
per share) 500,000 235,422 -- 235,422
Loss for the year -- -- (1,736,657) (1,736,657)
------------ ------------ ------------ ------------
Balance - 31 December 1996 14,689,440 9,374,197 (5,451,365) 3,922,832
Net income for the period -- -- 2,053,512 2,053,512
------------ ------------ ------------ ------------
Balance - 30 June 1997 14,689,440 9,374,197 (3,397,853) 5,976,344
Issuance of shares for name and operating assets of
I-Mark Systems, Inc. ($0.55 per share) 1,000,000 548,148 -- 548,148
Net income for the period - Statement 3 -- -- 758,983 758,983
------------ ------------ ------------ ------------
Balance - 30 September 1997 15,689,440 9,922,345 (2,638,870) 7,283,475
Issuance of performance shares from escrow ($0.06
per share) 2,738,000 155,562 -- 155,562
Issuance of shares on exercise of options ($0.89
per share) 30,000 26,632 -- 26,632
Issuance of shares on exercise of options ($0.85
per share) 25,000 21,328 -- 21,328
Net income for the period -- -- 3,278,563 3,278,563
------------ ------------ ------------ ------------
Balance - 30 June 1998 18,482,440 10,125,867 639,693 10,765,560
Net income for the period - Statement 3 -- -- 255,906 255,906
------------ ------------ ------------ ------------
Balance - 30 September 1998 18,482,440 $ 10,125,867 $ 895,599 $ 11,021,466
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
GLOBAL ELECTION SYSTEMS INC. Statement 3
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales and operating income $ 4,272,463 $ 3,672,238
Other income 9,025 9,741
------------ ------------
4,281,488 3,681,979
------------ ------------
COSTS AND EXPENSES
Cost of sales and operating expenses 1,835,439 1,737,516
Selling, administrative and general expenses 1,522,335 1,027,546
Research and development expenses 374,971 106,963
Amortization 125,531 50,273
Interest 36,131 762
Other expenses -- (64)
------------ ------------
3,894,407 2,922,996
------------ ------------
INCOME BEFORE UNDERNOTED 387,081 758,983
Revaluation of used equipment (131,175) --
------------ ------------
NET INCOME FOR THE PERIOD $ 255,906 $ 758,983
EARNINGS PER SHARE - U.S. FUNDS
Basic $ 0.01 $ 0.05
Fully diluted $ 0.01 $ 0.05
- ---------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON 18,482,440 15,519,577
SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
GLOBAL ELECTION SYSTEMS INC. Statement 4
INTERIM CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED 30 SEPTEMBER
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the period $ 255,906 $ 758,983
Item not affecting cash
Amortization 125,531 50,273
----------- -----------
381,437 809,256
Changes in non-cash working capital
Accounts and contracts receivable 1,670,063 675,458
Deposits and prepaid expenses 34,782 (47,034)
Inventory (2,054,114) (250,631)
Accounts payable and accrued liabilities (656,055) 55,669
Customer deposits -- 3,585
Deferred revenue (76,506) 107,015
----------- -----------
(700,393) 1,353,318
----------- -----------
INVESTING ACTIVITIES
Capital assets acquired (51,747) (1,026,685)
Loans receivable 43,590 27,145
----------- -----------
(8,157) (999,540)
----------- -----------
FINANCING ACTIVITIES
Bank loan 449,741 50,148
Loans payable (18,378) (18,485)
----------- -----------
431,363 31,663
----------- -----------
NET INCREASE (DECREASE) IN CASH (277,187) 385,441
Cash position - Beginning of period 339,625 77,830
----------- -----------
CASH POSITION - END OF PERIOD $ 62,438 $ 463,271
- -----------------------------------------------------------------------------------------
SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of shares for name and operating $ - $548,148
assets of I-Mark Systems, Inc.
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion and analysis of the operating results
and the financial position of the Company should be read in
conjunction with the Company's Interim Financial Statements
and the notes to them. See "Interim Consolidated Financial
Statements". The financial statements have been prepared in
United States dollars in accordance with Canadian GAAP.
Certain of the information discussed in this report contains
forward-looking statements regarding future events or the
future financial performance of the Company, and is subject
to a number of risks and other factors which could cause the
actual results to differ materially from those contained in
any forward-looking statements. Among those factors are:
general business and economic conditions: customer acceptance
and demand for the company's products; the Company's overall
ability to design, test and introduce new products on a
timely basis; the nature of the markets addressed by the
Company's products; the interaction with governmental
entities in the United States and world-wide which purchase
the Company's products; the unknown and unforeseen effects of
potential "Year 2000" problems encountered by the Company,
its suppliers, customers and others; and other risk factors
listed from time to time in documents filed by the Company
with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997.
SALES AND OPERATING INCOME.
Sales and other income increased 16.3 %, or $ 599,000, to
$ 4,281,000 in the three months ended September 30, 1998 from $ 3,682,000 in the
three months ended September 30, 1997. The increase in sales resulted from first
time sales of the Company's AccuTouch system, technology which was acquired by
the Company from I-Mark on September 1, 1997.
The Company experienced no discernible direct effect on its
operations from the current Asian currency and economic crisis inasmuch as the
Company has no sales there.
COST OF SALES AND OPERATING EXPENSES.
Cost of sales and operating expenses increased 5.6 %, or
$ 97,000, to $ 1,835,000 in the 1998 period from $ 1,738,000 in the 1997 period.
In the 1998 period, cost of sales and operating expense as a percentage of gross
revenues decreased to 42.9% from 47.2% in the 1997 period due to the Company's
efficiency efforts. The Company continues in its efforts to efficiently utilize
labor and reduce cost of parts.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
In the three months ended September 30, 1998 selling,
administrative and general expenses increased 48.2 %, or $ 494,000, to
$ 1,522,000, from $ 1,028,000. This increase was within the Company's operating
plan. The increase is due largely to an increase in manpower of approximately
25 % and associated costs thereon in the sales, field support and administrative
areas. In addition, expenses relating to the I-Mark asset acquisition have been
incurred for the whole 1998 period whereas in the 1997 period expenses were
incurred for only two months.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses increased 250.6 %, or
$ 268,000, to $ 375,000 in the 1998 period from $ 107,000. The increase is due
to providing enhancements to software for the AccuTouch system. The Company
expects this additional cost to continue in the second quarter. The Company
continues to fund research and development in order to offer leading edge
products to the market place.
<PAGE> 10
AMORTIZATION.
Amortization increased 149.7 %, to $ 126,000 in the 1998
period, from $ 50,000. This increase was due primarily to amortization of I-Mark
goodwill.
INTEREST.
Interest expense increased $ 35,000, to $ 36,000 in the 1998
period from $ 1,000. The increase was within the Company's operating plan and
resulted from interest on U.S. bank loans.
OTHER EXPENSES.
No significant changes occurred in this item in the 1998
period compared to the 1997 period.
REVALUATION OF USED EQUIPMENT.
During the 1998 period the Company instituted a conservative
policy of writing down trade-in inventory. The trade-in inventory write off
amounted to $ 131,000 in the 1998 period. The trade-in inventory write down will
continue for the next seven consecutive quarters.
EARNINGS PER SHARE.
The Company's earnings for the first quarter ended September
30, 1998 were $ 387,000 or $0.02 per share before a write down of $ 131,000 for
trade-in inventory. The earnings after the trade-in inventory write down were
$ 256,000 or $0.01 per share compared to the same period for fiscal 1998 of
$ 759,000 or $0.05 per share. The decrease in earnings per share for the 1998
period as compared to the 1997 period was attributable to increases in research
and development, amortization and interest expense along with the write down of
the trade-in inventory.
LIQUIDITY AND CAPITAL RESOURCES.
The Company uses a combination of internally generated funds
and bank borrowings to finance its acquisitions, working capital requirements,
capital expenses and operations.
During the period ended September 30, 1998, the Company
generated most of its funding through cash flow.
At September 30, 1998 the Company's cash totaled $ 62,438, a
decrease of $ 277,187 from June 30, 1998. Accounts and contracts receivable
decreased to $ 8,621,000 at September 30, 1998 from $ 10,291,000 at June 30,
1998. Due to the nature of the Company's business, timing of payments on large
contracts may vary significantly, causing significant variances from period to
period in the mix of cash, other liquid funds, accounts receivable and contracts
receivable. Inventory figures may vary significantly, depending upon delivery
dates for voting systems. At September 30, 1998, inventory
<PAGE> 11
amounted to $ 5,722,000, an increase of $ 2,054,000 from June 30, 1998.
Inventory has increased due to the addition of the AccuTouch system.
The Company has contractual arrangements with customers
whereby credit terms may be extended for the amounts due for voting systems. At
September 30, 1998, loans receivable less current portion amounted to $ 336,000,
a decrease of $ 67,000 from June 30, 1998. These loans are repaid at varying
terms and with varying interest rates determined on a case by case basis.
Historically, the Company has not experienced any default in connection with
loans due from customers.
The Company currently has five loans outstanding, all with
Western Bank, Albuquerque, New Mexico. One loan in the amount of $ 361,700 is
secured by a loan receivable amounting to $ 401,442. This loan bears an interest
rate of Western Bank of Albuquerque Prime Rate and is due January 6, 1999. Two
other loans in the amounts of $ 55,135 and $ 1,020,000, respectively, are
secured by specific Global USA contracts in the amounts of $ 111,459 and $
2,155,312 and bear interest at bank prime and 10.5 % respectively. The final two
loans in the amount of $ 137,602 and $ 137,900, respectively, are secured by a
blanket assignment of accounts receivable, and bear interest at bank prime and
bank prime plus 1 %. The loans are used for working capital.
During the Company's current and two most recently ended
fiscal years, the Company has not experienced any material impact from inflation
or changing prices on its net sales and revenues or on income from continuing
operations.
Management believes that financial resources, including
internally generated funds and available bank line of credit and borrowings will
be sufficient to finance the Company's current operations and capital
expenditures, excluding acquisitions, for the next twelve months.
Subsequent events.
On October 12, 1998, Global USA secured a $ 3,000,000
operating line of credit with the Hibernia National Bank of Texas. The operating
line of credit is secured by a blanket assignment of accounts receivable and
general intangibles and bears interest at The Wall Street Journal Prime Rate,
and is guaranteed by the Company.
YEAR 2000 ISSUE.
DESCRIPTION OF THE ISSUE:
The Y2K issue refers to the ability of certain date sensitive
computer chips, software, and systems to recognize a two - digit data field as
belonging to the 21st century. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be anticipated
or predicted with any degree of certainty. The Y2K issue may create unforeseen
risks to the Company from its internal computer systems as well as from computer
systems of third parties with which it deals. Failures of the Company's and / or
third parties' computer systems could have a material adverse impact on the
Company's ability to conduct its business.
<PAGE> 12
YEAR 2000 ASSESSMENT:
Management of the Company has been assessing the magnitude of
the Y2K issue with respect to the Company's products, business, suppliers and
customers. In conjunction with the Company's assessment of Y2K issues which
might affect it, the Company will be formulating plans to address the Y2K issue,
including contingencies to address unforeseen problems.
INTERNAL BUSINESS:
Management is currently reviewing all internal business
computer systems to ensure that these systems either will be Y2K ready, or will
be modified or replaced by Y2K systems.
SUPPLIERS:
The major suppliers to the Company are component parts
distributors. Often the Company sources its products and manufacturing services
from multiple, competing vendors. The Company is conducting reviews of its key
suppliers to ensure Y2K readiness of as many vendors as possible. There can be
no assurance that the systems of other companies on which the Company relies
will be Y2K ready on a timely basis and will not have an adverse effect on the
operations of the Company. In the instances where the Company is unable to
determine that its vendors have taken appropriate steps to minimize disruption
due to non - Y2K readiness, the Company will consider contingency plans,
including moving to currently identified alternate sources, or developing new
alternative sources of supply.
PRODUCTS:
The Company has completed an assessment of the magnitude of
the Y2K issue with respect to the Company's products. The Company's AccuVote and
AccuTouch systems are designed to be Y2K compliant, which is generally a
requirement in requests for proposals issued by governmental units for voting
systems. Should further review indicate that either of the AccuVote or AccuTouch
systems is not compliant in some respect not now known to the Company, the
Company's ability to submit proposals to potential customers or to be awarded
contracts for its systems would be materially adversely affected. Were the
Company unable to submit proposals, or were the Company impeded in its ability
to obtain awards of contracts for its systems because Y2K issues, its revenues,
both quarterly and annually, could be expected to decline materially and the
Company's business and financial performance would be materially adversely
affected.
COSTS:
The Company does not expect the cost of its Y2K assessment,
including both incremental spending and reallocated resources, to be material.
The current assessment does not include potential costs related to any customer
or other claims or the cost of internal software and hardware being replaced in
the normal course of business. This assessment is subject to change because
there is no uniform definition of "readiness for Y2K". All customer situations
cannot be anticipated, particularly those involving third party products;
therefore, the Company may see claims as a result of the Y2K transition. These
claims, if successful, could have a material adverse impact on future results.
<PAGE> 13
CUSTOMERS:
The Company has not yet assessed the extent to which its
governmental unit customers are Y2K compliant, although it believes that,
particularly in the United States, governmental units are aware of and are
addressing the issues. The Company cannot predict the effect of a lack of Y2K
compliance by its customers on the Company. The inability of a governmental unit
to generate data needed in order to conduct elections or to interface with the
Company's voting systems, or other problems, could prevent the customer from
using the Company's systems or could result in disruption of the election
process. The Company is unable to predict the impact this could have on its
business and revenues or the extent of any liability to third parties the
Company might incur, although the impact or liability could be materially
adverse to the Company and its business.
COST ESTIMATES:
The Company has not been required to incur costs for Y2K
remedial work and has not set aside any contingency fund to deal with any
contingencies which may arise. The costs for Y2K compliance are based upon
management's best estimates, which were derived from numerous assumptions about
future events, including third-party modification plans and other factors.
However, the Company cannot guarantee that those estimates will be accurate and
actual results could differ materially from those plans. Specific factors that
might cause material differences include, but are not limited to, the
availability and cost of personnel trained in this area and the ability to
identify and correct all relevant computer codes.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 21, 1998, Election Systems and Software,
Inc. ("ES&S") filed a suit against the Registrant's
wholly-owned subsidiary, Global Election Systems, Inc., a
Delaware corporation, (Global USA") in the United States
District Court for the District of Nebraska. The suit alleges
that Global USA's AccuTouch system infringes U.S. Patent No.
5,583,329, issued to ES&S, which allegedly covers a direct
recording electronic voting machine and voting process ("ES$S
Patent"). ES&S has asked for treble monetary damages to be
proven at the time of trial, declaratory judgment stating that
Global USA's AccuTouch system infringes the ES&S Patent, and
injunctive relief. The lawsuit relates solely to the AccuTouch
system and to no other Global USA product or service.
On October 15, 1998, Global USA filed its answer
denying the allegations of the lawsuit and, based upon an
opinion of patent counsel obtained when the Registrant
acquired assets of I-Mark in 1997, affirmatively stating that
its products and technology do not infringe the ES&S Patent.
In addition, Global USA filed a counterclaim against ES&S
asking: (1) that the ES&S Patent be declared invalid and/or
unenforceable, (2) for a declaratory judgment that Global USA
has not infringed any of the claims of the ES&S Patent, (3)
that ES&S, all of its officers, agents, counsel, servants and
employees be enjoined from charging infringement of the ES&S
Patent by Global USA or its customers:
<PAGE> 14
and (4) that costs, expenses and attorney's fees be awarded to
Global USA. Global USA also filed a demand for a jury trial.
The lawsuit does not affect production and sale of
Global USA's flagship product, the AccuVote, or any of Global
USA's other products and services other than the AccuTouch
system. Were ES&S to prevail in its lawsuit, Global USA would
be unable to sell its AccuTouch system as currently configured
unless a license to use the patented technology could be
secured, might be liable for damages for past sales, and would
need to reconfigure its AccuTouch system, any of which could
be expected to materially adversely affect the Registrant's
business and financial condition for at least the near term.
Neither securing a license nor reconfiguring the AccuTouch
system may be possible or economically feasible. However, the
Registrant does not, based on its evaluation of the claims and
the ES&S Patent, believe that the claims made by ES&S have
merit or that ES&S will prevail.
Except for the ES&S lawsuit, the Registrant is not a
party to any material pending legal proceedings and is not
aware of any proceeding that a governmental authority is
contemplating.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
03.1 Memorandum and Articles of Incorporation, as
amended.*
04.1 Parts 7, 10 , 12, and 27 of the Memorandum and
Articles of Incorporation, as amended, set
forth in Exhibit 3.1**
10.1 $ 3,000,000 Operating Line of Credit between
Hibernia National Bank of Texas and Global
Election Systems, Inc., dated October 12, 1998.
11.1 Computation of per-share income Treasury Stock
Method of Global Election Systems, Inc.
27 Financial Data Schedule
* Incorporated by reference to Exhibit 2(1) to the Company's Form 10-SB
filed July 31, 1998.
** Incorporated by reference to Exhibit 3(1) to the Company's Form 10-SB
filed July 31, 1998.
The Company filed no reports on Form 8-K during the first quarter of
Fiscal 1999.
<PAGE> 15
Signature
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, hereunto duly authorized.
Dated: November 19, 1998
Global Election Systems Inc.
By: /s/ Howard T. Van Pelt
---------------------------------------
Howard T. Van Pelt, President and
Chief Financial Officer
<PAGE> 16
EXHIBIT INDEX
03.1 Memorandum and Articles of Incorporation, as
amended.*
04.1 Parts 7, 10 , 12, and 27 of the Memorandum and
Articles of Incorporation, as amended, set
forth in Exhibit 3.1**
10.1 $ 3,000,000 Operating Line of Credit between
Hibernia National Bank of Texas and Global
Election Systems, Inc., dated October 12, 1998.
11.1 Computation of per-share income Treasury Stock
Method of Global Election Systems, Inc.
27 Financial Data Schedule
* Incorporated by reference to Exhibit 2(1) to the Company's Form 10-SB
filed July 31, 1998.
** Incorporated by reference to Exhibit 3(1) to the Company's Form 10-SB
filed July 31, 1998.
The Company filed no reports on Form 8-K during the first quarter of
Fiscal 1999.
<PAGE> 1
EXHIBIT 10.1
NOTICE OF FINAL AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,000,000.00 10-12-1998 10-12-1999 T44
- ------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
BORROWER: GLOBAL ELECTION SYSTEMS, INC. (TIN: 85-0394190) Lender: HIBERNIA NATIONAL BANK OF TEXAS
1611 WILMETH ROAD ATTN: LOAN DOCUMENTATION-ALEXANDRIA
MCKINNEY, TX 75069 2318 RICHMOND RD.
TEXARKANA, TX 75503
</TABLE>
================================================================================
------------------------------------------------------------------------------
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
AS USED IN THIS NOTICE, THE FOLLOWING TERMS HAVE THE FOLLOWING MEANINGS:
LOAN. The term "Loan" means the following described loan: an Article
1B-1D of the Texas Credit Title and Section 303 of the Texas Finance
Code (formerly Chapter 1 of the Texas Credit Code) non-precomputed
Variable Rate (at THE WALL STREET JOURNAL PRIME RATE, making an initial
rate of 8.250%), Nondisclosable Revolving Line of Credit Loan to a
Corporation for $3,000,000.00 due on October 12, 1999.
PARTIES. The term "Parties" means Hibernia National Bank of Texas and
any and all entities or individuals who are obligated to repay the loan
or have pledged property as security for the Loan, including without
limitation the following:
BORROWER: GLOBAL ELECTION SYSTEMS, INC.
GUARANTOR: GLOBAL ELECTION SYSTEMS INC. CANADA
LOAN AGREEMENT. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds
of trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
<TABLE>
<S> <C>
Corporate Resolution to Borrow Corporate Resolution to Guarantee
Promissory Note / Change in Terms Agr. Commercial Guaranty
Security Agreement UCC - 1
Disbursement Request and Authorization Notice of Final Agreement
</TABLE>
------------------------------------------------------------------------------
THIS NOTICE OF FINAL AGREEMENT IS GIVEN BY HIBERNIA NATIONAL BANK OF TEXAS
PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE. EACH PARTY
WHO SIGNS BELOW, OTHER THAN HIBERNIA NATIONAL BANK OF TEXAS, ACKNOWLEDGES,
REPRESENTS, AND WARRANTS TO HIBERNIA NATIONAL BANK OF TEXAS THAT IT HAS
RECEIVED, READ AND UNDERSTOOD THIS NOTICE OF FINAL AGREEMENT. THIS NOTICE IS
DATED OCTOBER 12,1998.
BORROWER:
GLOBAL ELECTION SYSTEMS, INC.
By: /s/ HOWARD T. VAN PELT
----------------------------------------
HOWARD T. VAN PELT, PRESIDENT
GUARANTOR:
GLOBAL ELECTION SYSTEMS, INC. CANADA
By: /s/ HOWARD T. VAN PELT
----------------------------------------
HOWARD T. VAN PELT, PRESIDENT
LENDER:
HIBERNIA NATIONAL BANK OF TEXAS
BY:
----------------------------------------
AUTHORIZED OFFICER
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.25a (c) 1998 CFI ProServices, Inc.
All rights reserved. [TX-121 E3.25 F3.25 P3.25 GLOBAL.LN C7.OVL]
<PAGE> 2
BOARDING DATA
================================================================================
The information contained on this Boarding Data Sheet is for Lender's use only.
================================================================================
<TABLE>
<S> <C> <C>
BORROWER: GLOBAL ELECTION SYSTEMS, INC. (TIN: 85-0394190) LENDER: HIBERNIA NATIONAL BANK OF TEXAS
1611 WILMETH ROAD ATTN: LOAN DOCUMENTATION-ALEXANDRIA
MCKINNEY, TX 75069 2318 RICHMOND RD.
TEXARKANA, TX 75503
</TABLE>
COUNTY: COLLIN
TIN: 85-0394190
OFFICERS: ADDRESS:
HOWARD T. VAN PELT, PRESIDENT
ACCOUNT/CUSTOMER NUMBER: BUS. PHONE:
LOAN DESCRIPTION: This is an Article 1B-1D of the Texas Credit Title and
Section 303 of the Texas Finance Code (formerly Chapter 1 of the Texas Credit
Code) non-precomputed Variable Rate (at THE WALL STREET JOURNAL PRIME RATE,
making an initial rate of 8.250%), Nondisclosable Revolving Line of Credit
Loan to a Corporation for $3,000,000.00 due on October 12, 1999.
================================================================================
GUARANTORS: AMOUNT
GLOBAL ELECTION SYSTEMS INC. CANADA Unlimited
1562 RAND AVENUE
VANCOUVER, BC V6P3G2
================================================================================
FEES AND CHARGES:
<TABLE>
<S> <C>
UNDISBURSED FUNDS: $3,000,000.00
NOTE PRINCIPAL: $3,000,000.00
PREPAID FINANCE CHARGES: $ 0.00
AMOUNT FINANCED: $3,000,000.00
</TABLE>
================================================================================
PAYMENT INFORMATION:
<TABLE>
<CAPTION>
NO. OF
PAYMENTS AMOUNT DUE
<S> <C> <C>
Quarterly interest payments beginning 01-12-1999
1 $3,000,000.00 10-12-1999 plus all accrued unpaid interest.
</TABLE>
APR: 8.365
INTEREST RATE: 8.250 @ 365/360 at THE WALL STREET JOURNAL PRIME RATE adjusted
each day
CURRENT INDEX: 8.250
NOT ROUNDED
POST MATURITY RATE. The maximum rate allowed by applicable law.
TOTAL OF PAYMENTS: $3,125,468.75 (estimate)
LOAN TYPE: Line of Credit / Multiple Advance
TYPE(S) OF INSURANCE PURCHASED: No Insurance Purchased.
================================================================================
CLASSIFICATION DATA: NON DISCLOSABLE CORPORATION
<TABLE>
<S> <C> <C> <C> <C>
LOAN NUMBER: LOAN DATE: 10-12-1998 DEPARTMENT / BRANCH: 1
CALL CODE: DISBURSEMENT DATE: 10-12-1998 OFFICER: T44
PURPOSE CODE: MATURITY DATE: 10-12-1999 LAST EDIT: LADSUE
COLLATERAL CODE: PORTFOLIO: 8028
LOAN NAME: GLOBAL
STD. LOAN: COMMERCIAL MISCELLANEOUS SECURED
ARTICLE: Article 1B-1D
PURPOSE: PURPORT GROWTH OF ACCOUNT RECEIVABLES AND INVENTORY
</TABLE>
================================================================================
COLLATERAL INFORMATION:
<TABLE>
<CAPTION>
OWNER INSURANCE COVERAGE
DESCRIPTION CODE AMOUNT BASIS DEDUCTIBLE
<S> <C> <C> <C> <C>
All Accounts and General Intangibles 2
</TABLE>
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.25a(c) 1998 CFI ProServices, Inc.
All rights reserved. [TX-140 E3.25 F3.25 P3.25 GLOBAL.LN C7.OVL]
<PAGE> 3
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,000,000.00 10-12-1998 10-12-1999 T44
- ------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
BORROWER: GLOBAL ELECTION SYSTEMS, INC. LENDER: HIBERNIA NATIONAL BANK OF TEXAS
(TIN: 85-0394190) ATTN: LOAN DOCUMENTATION-ALEXANDRIA
1611 WILMETH ROAD 2318 RICHMOND RD.
MCKINNEY, TX 75069 TEXARKANA, TX 75503
</TABLE>
================================================================================
<TABLE>
<S> <C> <C>
PRINCIPAL AMOUNT: $3,000,000.00 INITIAL RATE: 8.250% DATE OF NOTE: OCTOBER 12, 1998
</TABLE>
PROMISE TO PAY. GLOBAL ELECTION SYSTEMS, INC. ("BORROWER") PROMISES TO PAY TO
HIBERNIA NATIONAL BANK OF TEXAS ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF THREE MILLION & 00/100
DOLLARS ($3,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST
SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH
ADVANCE OR MATURITY, WHICHEVER OCCURS FIRST.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this Note has
been implemented under the "Weekly Rate" as referred to in Section 303.201 of
the Texas Finance Code and Articles 1D.002 and 1D.003 of the Texas Credit
Title. The terms, including the rate, or index, formula, or provision of law
used to compute the rate on the Note, will be subject to revision as to
current and future balances, from time to time by notice from Lender in
compliance with Section 303.403 of the Texas Finance Code.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN
ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
OCTOBER 12, 1999. IN ADDITION, BORROWER WILL PAY REGULAR QUARTERLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING JANUARY 12, 1999, AND ALL SUBSEQUENT
INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH QUARTER AFTER THAT. The
annual interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding, unless such calculation
would result in a usurious rate, in which case interest shall be calculated on
a per diem basis of a year of 365 or 366 days, as the case may be. Borrower
will pay Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest,
then to principal, and any remaining amount to any unpaid collection costs and
late charges. Notwithstanding any other provision of this Note, Lender will
not charge interest on any undisbursed loan proceeds. No scheduled payment,
whether of principal or interest or both, will be due unless sufficient loan
funds have been disbursed by the scheduled payment date to justify the
payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the THE
WALL STREET JOURNAL PRIME RATE (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE
APPLIED PRIOR TO MATURITY TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE
AT A RATE EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 8.250% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. For purposes of this
Note, the "maximum rate allowed by applicable law" means the greater of (a)
the maximum rate of interest permitted under federal or other law applicable
to the indebtedness evidenced by this Note, or (b) the "Weekly Rate" as
referred to in Section 303.201 of the Texas Finance Code and Articles 1D.002
and 1D.003 of the Texas Credit Title.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate
allowed by applicable law. Borrower will pay interest on all sums due after
final maturity, whether by acceleration or otherwise, at that rate, with the
exception of any amounts added to the principal balance of this Note based on
Lender's payment of insurance premiums, which will continue to accrue interest
at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse
change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (h) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office
any instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor
vehicle offered as security for this loan, or premiums or identifiable charges
received in connection with the sale of authorized insurance. THIS NOTE HAS
BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF TEXAS. IF
THERE IS A LAWSUIT, AND IF THE TRANSACTION EVIDENCED BY THIS NOTE OCCURRED IN
BOWIE COUNTY, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF BOWIE COUNTY, THE STATE OF TEXAS. LENDER AND
BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
DISHONORED CHECK CHARGE. Borrower will pay a processing fee of $25.00 if any
check given by Borrower to Lender as a payment on this loan is dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any
and all such accounts, and, at Lenders option, to administratively freeze all
such accounts to allow Lender to protect Lender's charge and setoff rights
provided on this paragraph.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: HOWARD T. VAN PELT,
PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's Internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant
to this Note for purposes other than those authorized by Lender, or (e) Lender
in good faith deems itself insecure under this Note or any other agreement
between Lender and Borrower. THIS REVOLVING LINE OF CREDIT SHALL NOT BE
SUBJECT TO SEC. 346 OF THE TEXAS FINANCE CODE.
YEAR 2000 COMPLIANT. Borrower represents and warrants that all material
systems and software used in the conduct of its business will have appropriate
capabilities and compatibility to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates. Upon
reasonable request, Borrower agrees to provide to Lender documentation
satisfactory to Lender to establish that its systems and software are year
2000 compliant, or that Borrower is in the process of implementing a plan to
ensure that its systems and software will be year 2000 compliant before
December 31, 1999.
<PAGE> 4
10-12-1998 PROMISSORY NOTE PAGE 2
LOAN NO (Continued)
================================================================================
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot
be enforced, this fact will not affect the rest of the Note. In particular,
this section means (among other things) that Borrower does not agree or
intend to pay, and Lender does not agree or intend to contract for, charge,
collect, take, reserve or receive (collectively referred to herein as "charge
or collect"), any amount in the nature of interest or in the nature of a fee
for this loan, which would in any way or event (including demand, prepayment,
or acceleration) cause Lender to charge or collect more for this loan than
the maximum Lender would be permitted to charge or collect by federal law or
the law of the State of Texas (as applicable). Any such excess interest or
unauthorized fee shall, instead of anything stated to the contrary, be
applied first to reduce the principal balance of this loan, and when the
principal has been paid in full, be refunded to Borrower. The right to
accelerate maturity of sums due under this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to charge or collect any unearned
interest in the event of acceleration. All sums paid or agreed to be paid to
Lender for the use, forbearance or detention of sums due hereunder shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of the loan evidenced by this Note until
payment in full so that the rate or amount of interest on account of the loan
evidenced hereby does not exceed the applicable usury ceiling. Lender may
delay or forgo enforcing any of its rights or remedies under this Note
without losing them. Borrower and any other person who signs, guarantees or
endorses this Note, to the extent allowed by law, waive presentment, demand
for payment, protest, notice of dishonor, notice of intent to accelerate the
maturity of this Note, and notice of acceleration of the maturity of this
Note. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for
any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lenders security
interest in the collateral without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
GLOBAL ELECTION SYSTEMS, INC.
By: /s/ HOWARD T. VAN PELT
----------------------------------------
HOWARD T. VAN PELT, PRESIDENT
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.25a(c)1998 CFI ProServices, Inc. All rights reserved. [TX-D20 E3.25 F3.25
P3.25 GLOBAL.LN C7.OVL]
<PAGE> 5
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
T44
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
BORROWER: GLOBAL ELECTION SYSTEMS, INC. LENDER: HIBERNIA NATIONAL BANK OF TEXAS
(TIN: 85-0394190) ATTN: LOAN DOCUMENTATION-ALEXANDRIA
1611 WILMETH ROAD 2318 RICHMOND RD.
MCKINNEY, TX 75069 TEXARKANA, TX 75503
GUARANTOR: GLOBAL ELECTION SYSTEMS INC. CANADA
1562 RAND AVENUE
VANCOUVER, BC V6P3G2
==================================================================================================================================
</TABLE>
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS UNLIMITED.
CONTINUING UNLIMITED GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION,
GLOBAL ELECTION SYSTEMS INC. CANADA ("GUARANTOR") ABSOLUTELY AND
UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO HIBERNIA NATIONAL
BANK OF TEXAS ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF
THE UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS
DEFINED BELOW) OF GLOBAL ELECTION SYSTEMS, INC. ("BORROWER") TO LENDER
ON THE TERMS AND CONDITIONS SET FORTH IN THIS GUARANTY. UNDER THIS
GUARANTY, THE LIABILITY OF GUARANTOR IS UNLIMITED AND THE OBLIGATIONS
OF GUARANTOR ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings
when used in this Guaranty:
BORROWER. The word "Borrower" means GLOBAL ELECTION SYSTEMS,
INC..
GUARANTOR. The word "Guarantor" means GLOBAL ELECTION SYSTEMS
INC. CANADA.
GUARANTY. The word "Guaranty" means this Guaranty made by
Guarantor for the benefit of Lender dated October 12, 1998.
INDEBTEDNESS. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of
Borrower's liabilities, obligations, debts, and indebtedness to
Lender, now existing or hereinafter incurred or created,
including, without limitation, all loans, advances, interest,
costs, attorneys' fees, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and
liabilities of Borrower, or any of them, and any present or
future judgments against Borrower, or any of them; and whether
any such indebtedness is voluntarily or involuntarily incurred,
due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be
liable individually or jointly with others, or primarily or
secondarily, or as guarantor or surety; whether recovery on the
Indebtedness may be or may become barred or unenforceable against
Borrower for any reason whatsoever; and whether the Indebtedness
arises from transactions which may be voidable on account of
infancy, insanity, ultra vires, or otherwise.
LENDER. The word "Lender" means Hibernia National Bank of Texas,
its successors and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be
open and continuous for so long as this Guaranty remains in force.
Guarantor intends to guarantee at all times the performance and prompt
payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness. Accordingly, no
payments made upon the Indebtedness will discharge or diminish the
continuing liability of Guarantor in connection with any remaining
portions of the indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any
notice to Guarantor or to Borrower, and will continue in full force
until all Indebtedness incurred or contracted before receipt by Lender
of any notice of revocation shall have been fully and finally paid and
satisfied and all other obligations of Guarantor under this Guaranty
shall have been performed in full. If Guarantor elects to revoke this
Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be mailed to Lender, by certified mail, at
the address of Lender listed above or such other place as Lender may
designate in writing. Written revocation of this Guaranty will apply
only to advances or new Indebtedness created after actual receipt by
Lender of Guarantor's written revocation and Lender's written
acknowledgment of receipt. For this purpose and without limitation,
the term "new Indebtedness" does not include Indebtedness which at
the time of notice of revocation is contingent, unliquidated,
undetermined or not due and which later becomes absolute, liquidated,
determined or due. This Guaranty will continue to bind Guarantor for
all Indebtedness incurred by Borrower or committed by Lender prior to
receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the
Indebtedness. All renewals, extensions, substitutions, and
modifications of the Indebtedness granted after Guarantor's
revocation, are contemplated under this Guaranty and, specifically
will not be considered to be new Indebtedness. This Guaranty shall
bind the estate of Guarantor as to Indebtedness created both before
and after the death or incapacity of Guarantor, regardless of Lender's
actual notice of Guarantor's death. Subject to the foregoing,
Guarantor's executor or administrator or other legal representative
may terminate this Guaranty in the same manner in which Guarantor
might have terminated it and with the same effect. Release of any
other guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more
Guarantors shall not affect the liability of any remaining Guarantors
under this Guaranty. IT IS ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN
THE AGGREGATE AMOUNT OF INDEBTEDNESS COVERED BY THIS GUARANTY, AND IT
IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY GUARANTOR THAT REDUCTIONS
IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS ($0.00), PRIOR TO
WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL NOT CONSTITUTE
A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS
ANY OF THE GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE
INDEBTEDNESS GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender,
either before or after any revocation hereof, without notice or demand
and without lessening or otherwise affecting Guarantor's liability
under this Guaranty, from time to time: (a) prior to revocation as set
forth above, to make one or more additional secured or unsecured loans
to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change one or more
times the time for payment or other terms of the Indebtedness or any
part of the Indebtedness, including increases and decreases of the
rate of interest on the Indebtedness; extensions may be repeated and
may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and
exchange, enforce, waive, subordinate, fail or decide not to perfect,
and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with
any one or more of Borrower's sureties, endorsers, or other guarantors
on any terms or in any manner Lender may choose; (e) to determine how,
when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial
sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell,
transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or
in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any
kind have been made to Guarantor which would limit or qualify in any
way the terms of this Guaranty; (b) this Guaranty is executed at
Borrower's request and not at the request of Lender; (c) Guarantor has
full power, right and authority to enter into this Guaranty; (d) the
provisions of this Guaranty do not conflict with or result in a
default under any agreement or other instrument binding upon Guarantor
and do not result in a violation of any law, regulation, court decree
or order applicable to Guarantor; (e) Guarantor has not and will not,
without the prior written consent of Lender, sell, lease, assign,
encumber, hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein; (f)
upon Lender's request, Guarantor will provide to Lender financial and
credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future
financial information which will be provided to Lender is and will be
true and correct in all material respects and fairly present the
financial condition of Guarantor as of the dates the financial
information is provided; (g) no material adverse change has occurred
in Guarantor's financial condition since the date of the most recent
financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition;
(h) no litigation, claim, investigation, administrative proceeding or
similar action (including those for unpaid taxes) against Guarantor is
pending or threatened; (i) Lender has made no representation to
Guarantor as to the creditworthiness of Borrower; and (j) Guarantor
has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect
Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Lender shall have no
obligation to disclose to Guarantor any information or documents
acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor
waives any right to require Lender (a) to continue lending money or to
extend other credit to Borrower; (b) to make any presentment, protest,
demand, or notice of any kind, including notice of any nonpayment of
the Indebtedness or of any nonpayment related to any collateral, or
notice of any action or nonaction on the part of Borrower, Lender,
any surety, endorser, or other guarantor in connection with the
Indebtedness or in connection with the creation of new or additional
loans or obligations; (c) to resort for payment or to proceed directly
or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any
<PAGE> 6
10-12-1998 COMMERCIAL GUARANTY
LOAN NO (CONTINUED) PAGE 2
collateral held by Lender from Borrower, any other guarantor, or any
other person; (e) to give notice of the terms, time, and place of any
public or private sale of personal property security held by Lender
from Borrower or to comply with any other applicable provisions of the
Uniform Commercial Code; (f) to pursue any other remedy within
Lender's power; or (g) to commit any act or omission of any kind, or
at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b)
the Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or
otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b),
or any successor provision of the Federal bankruptcy laws.
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas
Business and Commerce Code. Guarantor also waives any and all rights
or defenses arising by reason of (a) any "one action" or "anti-
deficiency" law or any other law which may prevent Lender from
bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of
sale; (b) any election of remedies by Lender which destroys or
otherwise adversely affects Guarantor's subrogation rights or
Guarantor's rights to proceed against Borrower for reimbursement,
including without limitation, any loss of rights Guarantor may suffer
by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any
other guarantor, or of any other person, or by reason of the cessation
of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim
discharge of the Indebtedness on the basis of unjustified impairment
of any collateral for the Indebtedness; (e) any statute of
limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of
Borrower to Lender which is not barred by any applicable statute of
limitations; or (f) any defenses given to guarantors at law or in
equity other than actual payment and performance of the Indebtedness.
If payment is made by Borrower, whether voluntarily or otherwise, or
by any third party, on the Indebtedness and thereafter Lender is
forced to remit the amount of that payment to Borrower's trustee in
bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness
shall be considered unpaid for the purpose of enforcement of this
Guaranty.
Guarantor further waives and agrees not to assert or claim at any time
any deductions to the amount guaranteed under this Guaranty for any
claim of setoff, counterclaim, counter demand, recoupment or similar
right, whether such claim, demand or right may be asserted by the
Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants
and agrees that each of the waivers set forth above is made with
Guarantor's full knowledge of its significance and consequences and
that, under the circumstances, the waivers are reasonable and not
contrary to public policy or law. If any such waiver is determined to
be contrary to any applicable law or public policy, such waiver shall
be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of
setoff against the moneys, securities or other property of Guarantor
given to Lender by law, Lender shall have, with respect to Guarantor's
obligations to Lender under this Guaranty and to the extent permitted
by law, a contractual security interest in and a right of setoff
against, and Guarantor hereby assigns, conveys, delivers, pledges, and
transfers to Lender all of Guarantor's right, title and interest in
and to, all deposits, moneys, securities and other property of
Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit,
whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be
exercised without demand upon or notice to Guarantor. No security
interest or right of setoff shall be deemed to have been waived by any
act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any
delay in so doing. Every right of setoff and security interest shall
continue in full force and effect until such right of setoff or
security interest is specifically waived or released by an instrument
in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that
the Indebtedness of Borrower to Lender, whether now existing or
hereafter created, shall be prior to any claim that Guarantor may now
have or hereafter acquire against Borrower, whether or not Borrower
becomes insolvent. Guarantor hereby expressly subordinates any claim
Guarantor may have against Borrower, upon any account whatsoever, to
any claim that Lender may now or hereafter have against Borrower. In
the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of
creditors, by voluntary liquidation, or otherwise, the assets of
Borrower applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by Lender
to the Indebtedness of Borrower to Lender. Guarantor does hereby
assign to Lender all claims which it may have or acquire against
Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the
purpose of assuring to Lender full payment in legal tender of the
Indebtedness. If Lender so requests, any notes or credit agreements
now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to
this Guaranty and shall be delivered to Lender. Guarantor agrees, and
Lender hereby is authorized, in the name of Guarantor, from time to
time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other
actions as Lender deems necessary or appropriate to perfect, preserve
and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the
parties as to the matters set forth in this Guaranty. No
alteration of or amendment to this Guaranty shall be effective
unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and
accepted by Lender in the State of Texas. If there is a lawsuit,
and if the transaction evidenced by this Guaranty occurred in
Bowie County, Guarantor agrees upon Lender's request to submit
to the jurisdiction of the courts of Bowie County, State of
Texas. Lender and Guarantor hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by
either Lender or Guarantor against the other. This Guaranty
shall be governed by and construed in accordance with the laws
of the State of Texas and applicable Federal laws.
ATTORNEYS' FEES. In addition to the amount of this Guaranty set
forth above, Lender may hire an attorney to help enforce this
Guaranty if Guarantor does not pay, and Guarantor will pay
Lender's reasonable attorneys' fees. Guarantor also will pay
Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any
public office any instrument securing this Guaranty; the
reasonable cost actually expended for repossessing, storing,
preparing for sale, and selling any security; and fees for
noting a lien on or transferring a certificate of title to any
motor vehicle offered as security for this Guaranty.
NOTICES. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimile (unless otherwise required by law), and, except
for revocation notices by Guarantor, shall be effective when
actually delivered or when deposited with a nationally
recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party
to whom the notice is to be given at the address shown above or
to such other addresses as either party may designate to the
other in writing. All revocation notices by Guarantor shall be
in writing and shall be effective only upon delivery to Lender
as provided above in the section titled "DURATION OF GUARANTY."
If there is more than one Guarantor, notice to any Guarantor
will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one
Borrower or Guarantor, then all words used in this Guaranty in
the singular shall be deemed to have been used in the plural
where the context and construction so require; and where there
is more than one Borrower named in this Guaranty or when this
Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any
one or more of them. The words "Guarantor," "Borrower," and
"Lender" include the heirs, successors, assigns, and transferees
of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty to be invalid
or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to
any other persons or circumstances, and all provisions of this
Guaranty in all other respects shall remain valid and
enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to
act on their behalf, and any Indebtedness made or created in
reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights
under this Guaranty unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Guaranty shall not prejudice or constitute a waiver of Lender's
right otherwise to demand strict compliance with that provision
or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor,
shall constitute a waiver of any of Lender's rights or of any of
Guarantor's obligations as to any future transactions. Whenever
the consent of Lender is required under this Guaranty, the
granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such
consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
<PAGE> 7
10-12-1998 COMMERCIAL GUARANTY Page 3
Loan No (Continued)
===============================================================================
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED OCTOBER 12, 1998.
GUARANTOR:
GLOBAL ELECTION SYSTEMS INC. CANADA
BY: /s/ HOWARD T. VAN PELT
-------------------------------
HOWARD T. VAN PELT, PRESIDENT
================================================================================
<PAGE> 8
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$3,000,000.00 10-12-1998 10-12-1999 T44
- --------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY
PARTICULAR LOAN OR ITEM.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
BORROWER: GLOBAL ELECTION SYSTEMS, INC. LENDER: HIBERNIA NATIONAL BANK OF TEXAS
(TIN: 85-0394190) ATTN: LOAN DOCUMENTATION-ALEXANDRIA
1611 WILMETH ROAD 2318 RICHMOND RD.
MCKINNEY, TX 75069 TEXARKANA, TX 75503
============================================================================================================================
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN GLOBAL
ELECTION SYSTEMS, INC. (REFERRED TO BELOW AS "GRANTOR"); AND HIBERNIA
NATIONAL BANK OF TEXAS (REFERRED TO BELOW AS "LENDER"). FOR VALUABLE
CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE
COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE
THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN
ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform
Commercial Code. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located:
ALL ACCOUNTS AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All accessions, accessories, increases, and additions to
and all replacements of and substitutions for any property
described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in
this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in
the section titled "Events of Default."
GRANTOR. The word "Grantor" means GLOBAL ELECTION SYSTEMS, INC., its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and earned interest,
together with all other indebtedness and costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents. In addition, the word "Indebtedness" includes
all other obligations, debts and liabilities, plus interest thereon,
of Grantor, or any one or more of them, to Lender, as well as all
claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Grantor may be
liable individually or jointly with others; whether Grantor may be
obligated as guarantor, surety, accommodation party or otherwise.
LENDER. The word "Lender" means Hibernia National Bank of Texas, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated
October 12, 1998, in the principal amount of $3,000,000.00 from
GLOBAL ELECTION SYSTEMS, INC. to Lender, together with all renewals
of, extensions of, modifications of, refinancings of, consolidations
of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security
interest in and hereby assigns, conveys, delivers, pledges, and transfers
all of Grantor's right, title and interest in and to Grantor's accounts
with Lender (whether checking, savings, or some other account), including
all accounts held jointly with someone else and all accounts Grantor may
open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all indebtedness against any and all
such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as
follows:
ORGANIZATION. Grantor is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State
of Texas. Grantor has its chief executive office at 1611 WILMETH
ROAD, MCKINNEY, TX 75069. Grantor will notify Lender of any change
in the location of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary
action by Grantor and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles
of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Grantor or (b) any law, governmental
regulation, court decree, or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are
requested by Lender to perfect and continue Lender's security
interest in the Collateral. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's interest
upon any and all chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue the security interest
granted in this Agreement. Lender may at any time, and without
further authorization from Grantor, file a carbon, photographic or
other reproduction of any financing statement or of this Agreement
for use as a financing statement. Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. THIS
IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN
THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN
THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor
is a party, and its certificate or articles of incorporation and
bylaws do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists
of accounts, chattel paper, or general intangibles, the Collateral
is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated
on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral. At the time
any account becomes subject to a security interest in favor of
Lender, the account shall be a good and valid account representing
an undisputed, bona fide indebtedness incurred by the account
debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or
for services theretofore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against
any such account; and no agreement under which any deductions or
discounts may be claimed shall have been made with the account
debtor except those disclosed to Lender in writing.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantors address
shown above, or at such other locations as are acceptable to Lender.
Except in the ordinary course of its business, including the sales
of inventory, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender. To
the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles
outside the State of Texas, without the prior written consent of
<PAGE> 9
10-12-1998 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO (CONTINUED)
================================================================================
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms "hazardous
waste" and "hazardous substance" shall also include, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.
The representations and warranties contained herein are based on Grantor's
due diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender. GRANTOR MAY FURNISH THE REQUIRED INSURANCE WHETHER
THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY GRANTOR OR THROUGH
EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT
BUSINESS IN THE STATE OF TEXAS. If Grantor fails to provide any required
insurance or fails to continue such insurance in force, Lender may, but
shall not be required to, do so at Grantor's expense, and the cost of the
insurance will be added to the Indebtedness. If any such insurance is
procured by Lender at a rate or charge not fixed or approved by the State
Board of Insurance, Grantor will be so notified, and Grantor will have the
option for five (5) days of furnishing equivalent insurance through any
Insurer authorized to transact business in Texas. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days' prior written notice to Lender and not including
any disclaimer of the insurer's liability for failure to give such a
notice. Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not be impaired in any way by any
act, omission or default of Grantor or any other person. In connection with
all policies covering assets in which Lender holds or is offered a security
interest, Grantor will provide Lender with such loss payable or other
endorsements as Lender may require. If Grantor at any time fails to obtain
or maintain any insurance as required under this Agreement, Lender may (but
shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may
(but shall not be obligated to) pay all costs for insuring, maintaining and
<PAGE> 10
10-12-1998 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO (CONTINUED)
================================================================================
preserving the Collateral. All such expenditures incurred or paid by Lender for
such purposes will then bear interest at the Note rate from the date incurred or
paid by Lender to the date of repayment by Grantor. All such expenses shall
become a part of the Indebtedness and, at Lender's option, will (a) be payable
on demand, (b) be added to the balance of the Note and be apportioned among and
be payable with any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining term of the Note,
or (c) be treated as a balloon payment which will be due and payable at the
Note's maturity. This Agreement also will secure payment of these amounts. Such
right shall be in addition to all other rights and remedies to which Lender may
be entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Texas Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter, provided
Lender does so without a breach of the peace or a trespass, upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lander may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Texas. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of the State
of Texas. Lender and Grantor hereby waive the right to any jury trial in
any action, proceeding, or counterclaim brought by either Lender or Grantor
against the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and applicable Federal laws.
ATTORNEYS' FEES AND OTHER COSTS. Lender may hire an attorney to help
collect the Note if Grantor does not pay, and Grantor will pay Lender's
reasonable attorneys' fees. Grantor also will pay Lender all other amounts
actually incurred by Lender as court costs, lawful fees for filing,
recording, or releasing to any public office any instrument securing the
Note; the reasonable cost actually expended for repossessing, storing,
preparing for sale, and selling any security; and fees for noting a lien on
or transferring a certificate of title to any motor vehicle offered as
security for the Note, or premiums or identifiable charges received in
connection with the sale of authorized insurance.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants
<PAGE> 11
10-12-1998 COMMERCIAL SECURITY AGREEMENT Page 4
LOAN NO (CONTINUED)
================================================================================
issued in payment for the Collateral; (c) to settle or compromise any and
all claims arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the claim;
and (d) to file any claim or claims or to take any action or institute or
take part in any proceedings, either in its own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may seem to be
necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be
irrevocable and shall remain in full force and effect until renounced by
Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lenders right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
OCTOBER 12, 1998.
GRANTOR:
GLOBAL ELECTION SYSTEMS, INC.
By: /s/ HOWARD T. VAN PELT
-----------------------------------
HOWARD T. VAN PELT, PRESIDENT
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.25a (c) 1998 CFI ProServices,
Inc. All rights reserved. ETX-E40 E3.25 F3.25 P3.25 GLOBAL.LN C7.OVL]
<PAGE> 1
EXHIBIT 11.1
GLOBAL ELECTION SYSTEMS INC.
Computation of Per-Share Income
Treasury Stock Method
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, 1998 September 30, 1997
Three Months Three Months
<S> <C> <C>
Weighted average number of share outstanding 18,482,440 15,519,577
Total common and common equivalent shares 19,919,107 16,864,440
Net Income for the period $ 255,906 $ 758,983
Weighted average number of share outstanding 18,482,440 15,519,577
Earnings per share - basic $ 0.01 $ 0.05
Net Income for the period $ 255,906 $ 758,983
Total common and common equivalent shares 19,919,107 16,864,440
Earnings per share - fully diluted $ 0.01 $ 0.05
Earnings per share:
</TABLE>
Basic earnings per share is computed by dividing the net income for the period
by the weighted average number of common shares outstanding for the period.
Fully diluted earnings per share is computed by dividing the net income for the
period by the common and common equivalent shares outstanding for the period.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 62,438
<SECURITIES> 0
<RECEIVABLES> 8,621,407
<ALLOWANCES> 0
<INVENTORY> 5,721,988
<CURRENT-ASSETS> 15,191,841
<PP&E> 886,979
<DEPRECIATION> 460,731
<TOTAL-ASSETS> 16,913,244
<CURRENT-LIABILITIES> 5,855,021
<BONDS> 0
0
0
<COMMON> 10,125,867
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,913,244
<SALES> 4,272,463
<TOTAL-REVENUES> 4,281,488
<CGS> 1,835,439
<TOTAL-COSTS> 1,835,439
<OTHER-EXPENSES> 1,897,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,131
<INCOME-PRETAX> 255,906
<INCOME-TAX> 0
<INCOME-CONTINUING> 255,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,906
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
