<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1995
or
/ / Transition report pursuant to Section or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
----- -----
Commission file number 0-13218
COMPRESSION LABS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-2390960
- ------------------------------ ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
(NOTE: Previously I.R.S. EIN
77-0159558)
2860 Junction Avenue, San Jose, California 95134
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (408) 435-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at October 18, 1995
- ----- --------------------------------------
Common Stock 15,460,704
<PAGE> 2
COMPRESSION LABS, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations --
For the Three Months Ended September 30, 1995 and 1994................ 1
Condensed Consolidated Statements of Operations --
For the Nine Months Ended September 30, 1995 and 1994................. 2
Condensed Consolidated Balance Sheets --
September 30, 1995 and December 31, 1994.............................. 3
Condensed Consolidated Statements of Cash Flows --
For the Nine Months Ended September 30, 1995 and 1994................. 4
Notes to Condensed Consolidated Financial Statements --
September 30, 1995.................................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 10
Item 6. Exhibits and Reports on Form 8-K............................................... 12
SIGNATURES..................................................................... 13
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1995 1994
-------- --------
<S> <C> <C>
REVENUES
Net product sales $ 33,970 $ 35,697
Research and development contracts 2,842 3,227
-------- --------
Total Revenues 36,812 38,924
-------- --------
COST OF REVENUES
Net product sales 20,660 21,807
Research and development contracts 1,507 2,933
-------- --------
Total Cost of Revenues 22,167 24,740
-------- --------
GROSS MARGIN
Net product sales 13,310 13,890
Research and development contracts 1,335 294
-------- --------
Total Gross Margin 14,645 14,184
-------- --------
OPERATING EXPENSES
Selling, general and administrative 11,174 11,313
Research and development 3,446 3,727
-------- --------
Total Operating Expenses 14,620 15,040
-------- --------
OPERATING INCOME (LOSS) 25 (856)
Interest income 93 25
Interest expense (309) (159)
======== ========
NET LOSS $ (191) $ (990)
======== ========
NET LOSS PER SHARE $ (0.01) $ (0.07)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,265 14,549
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1994
-------- --------
<S> <C> <C>
REVENUES
Net product sales $103,853 $107,448
Research and development contracts 11,406 11,107
-------- --------
Total Revenues 115,259 118,555
-------- --------
COST OF REVENUES
Net product sales 65,774 66,430
Research and development contracts 6,798 10,809
-------- --------
Total Cost of Revenues 72,572 77,239
-------- --------
GROSS MARGIN
Net product sales 38,079 41,018
Research and development contracts 4,608 298
-------- --------
Total Gross Margin 42,687 41,316
-------- --------
OPERATING EXPENSES
Selling, general and administrative 33,149 31,579
Research and development 10,060 9,717
Settlement of litigation 897 --
-------- --------
Total Operating Expenses 44,106 41,296
-------- --------
OPERATING INCOME (LOSS) (1,419) 20
Interest income 102 159
Interest expense (864) (573)
======== ========
NET LOSS $ (2,181) $ (394)
======== ========
NET LOSS PER SHARE $ (0.14) $ (0.03)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,191 14,330
- ---------------------------------------------------- ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited) (Audited)
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,007 $ 11,319
Accounts receivable, less allowance for doubtful accounts
of $1,632 ($1,992 in 1994) 60,729 54,470
Inventories 26,122 29,511
Prepaid expenses and other current assets 2,057 2,715
-------- --------
Total Current Assets 99,915 98,015
-------- --------
PROPERTY AND EQUIPMENT 45,898 40,133
Less: Accumulated depreciation and amortization (25,142) (19,251)
-------- --------
Net Property and 20,756 20,882
Equipment
CAPITALIZED SOFTWARE, NET 15,980 11,868
OTHER ASSETS 6,738 886
-------- --------
Total Assets $143,389 $131,651
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 12,782 $ 9,803
Current portion of long-term debt and capital lease obligations 1,327 750
Accounts payable 19,230 20,040
Accrued liabilities 11,651 6,362
Deferred revenue 6,326 7,240
-------- --------
Total Current Liabilities 51,316 44,195
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 1,164 494
STOCKHOLDERS' EQUITY
Preferred Stock -
Undesignated Preferred Stock, $.001 par value;
4,000,000 shares authorized, none issued and outstanding -- --
Common Stock -
$.001 par value; 25,153,658 shares authorized;
shares issued and outstanding: 15,460,557
(14,655,745 in 1994) 15 15
Additional paid-in capital 120,530 114,402
Accumulated deficit (29,636) (27,455)
-------- --------
Total Stockholders' Equity 90,909 86,962
-------- --------
Total Liabilities and Stockholders' Equity $143,389 $131,651
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated by (used in) operations:
Net loss $ (2,181) $ (394)
Non-cash expenses included in net loss -
Depreciation and amortization 8,825 9,576
Changes in certain assets and liabilities -
Accounts receivable (6,259) (11,251)
Inventories 3,389 (7,017)
Prepaid expenses 658 918
Accounts payable (810) 2,974
Accrued liabilities 5,289 597
Deferred revenue (914) 3,897
-------- --------
Net cash generated by (used in) operating activities 7,997 (700)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (5,765) (7,464)
Increase in capitalized software (7,046) (4,797)
(Increase) decrease in other assets (5,852) 490
-------- --------
Net cash used in investing activities (18,663) (11,771)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of Common Stock, net of issuance costs 6,128 4,296
Payments of capital lease obligations, net (608) (132)
Collateralized borrowings 1,855 --
Borrowings under line of credit agreements 2,979 87
-------- --------
Net cash generated by financing activities 10,354 4,251
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (312) (8,220)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,319 20,513
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,007 $ 12,293
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
COMPRESSION LABS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements contain all adjustments of a normal recurring nature
that in the opinion of management are necessary to present fairly the
financial position and results of operations of Compression Labs,
Incorporated (the Company). Interim results of operations are not
necessarily indicative of the results to be expected for the full
year.
The Company's interim fiscal quarters end on the Friday of the
thirteenth week following the end of the previous quarter. The
fiscal year end will remain as December 31. Accordingly, the actual
dates of the end of the third quarters of 1995 and 1994 were
September 29 and September 30, respectively. The comparability of
the financial statements between years is not materially affected by
this presentation.
The condensed consolidated financial statements should be read
in conjunction with the financial statements and the notes
thereto for the year ended December 31, 1994, included in the
Company's 1994 Annual Report.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding. Common share equivalents have not been
included in the net loss per share calculation because the effect
would be anti-dilutive.
3. RESEARCH AND DEVELOPMENT CONTRACT REVENUE
In April 1992, the Company entered into a research and
development contract with Thomson Consumer Electronics, Inc.
(Thomson) to develop and manufacture a digital compressed video
encoding system for the GM Hughes Electronics' DIRECTV Direct
Broadcast Satellite (DBS) system. The agreement called for up to
$5,000,000 in development funding and encoding system purchases
through 1993. In 1993, 1994 and 1995, this agreement was amended to
provide for additional funding of an aggregate of $21,399,000 for
additional system purchases as well as for additional development
work consistent with the terms of the original contract. In June
1992, the Company entered into a research and development
contract with North American Philips Corporation (Philips) to
develop and manufacture digital compressed video encoders and
decoders for cable satellite uplink and head-end applications. The
agreement with Philips called for up to $1,500,000 in development
funding and additionally outlined purchase terms for the
products. In 1993, this agreement was amended to provide for
additional funding of $488,000 to complete additional research
and development according to the terms of the original
contract. Additionally, in the second quarter of 1995, the Company
purchased a technology license to manufacture and supply Moving
Picture Experts Group (MPEG-2) consumer and professional
decoders. Research and development contract revenues for these two
programs totaled $1,954,000 of the $2,842,000 in the third quarter
of 1995 and $2,612,000 of the $3,227,000 in the third quarter of
1994. For the nine months ended September 30, 1995 and 1994,
research and development contract revenues for these two programs
totaled $8,575,000 of the $11,406,000 and $9,045,000 of the
$11,107,000, respectively.
4. UNBILLED RESEARCH AND DEVELOPMENT CONTRACT RECEIVABLES AND ADVANCES
As of September 30, 1995, the Company had net unbilled receivables
of $5,070,000, primarily relating to research and development
contracts entered into with Thomson and Philips. See Note 3 of
Notes to Condensed Consolidated Financial Statements. These
receivables are generally billable based upon specified
contractual milestones.
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<PAGE> 8
5. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 6,486 $ 7,521
Work-in-process 4,595 4,293
Finished products
- Products on hand 11,139 13,151
- Products under rental and loan agreements 3,902 4,546
----------------------------------------
$26,122 $29,511
========================================
</TABLE>
6. CAPITALIZED SOFTWARE
The Company capitalized approximately $2,424,000 of internal
software development costs during the quarter ended September
30, 1995. During the nine months ended September 30, 1995, the
Company capitalized approximately $7,046,000 of software
development costs, including $95,000 of purchased software.
Amortization of capitalized software development costs and purchased
software was $1,083,000 for the quarter ended September 30, 1995, and
$2,934,000 for the nine months ended September 30, 1995. As of
September 30, 1995, capitalized software, net of accumulated
amortization, was $15,980,000 (including $201,000 of purchased
software).
7. BANK LINE OF CREDIT
The Company has $15,000,000 in a revolving credit facility
with a bank that bears interest at the bank's prime rate (currently
8.75%) plus one percent, which expires on August 21, 1996. The
line of credit agreement is secured by substantially all of the
Company's assets. Under the agreement, the Company is required to
meet certain financial covenants involving capital spending
levels and debt ratio, and may not declare or make any cash or
stock dividends. The Company was in compliance with these
requirements or had obtained a waiver for non-compliance from the
bank as of September 30, 1995. As of September 30, 1995, the balance
outstanding under this line of credit was $12,782,000.
8. INCOME TAXES
Substantially all of the Company's federal income taxes to date
have been offset by utilization of net operating loss
carryforwards. When all such carryforwards are utilized, the
Company anticipates a future provision for federal income taxes that
will more closely approximate the statutory rates.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues in the third quarter of 1995 were $36.8 million compared to
$38.9 million in the third quarter of 1994, a decrease of 5%. For the nine
months ended September 30, 1995 and 1994, total revenues were $115.3
million and $118.6 million, respectively, a decrease of 3%. Net product
revenues decreased to $34.0 million in the third quarter of 1995 from $35.7
million in the third quarter of 1994, a decrease of 5%, due primarily to a
decrease in unit shipments in both the videoconferencing and broadcast
markets, partially offset by higher average selling prices in the
videoconferencing market. For the nine months ended September 30, 1995 and
1994, net product revenues were $103.9 million and $107.4 million,
respectively. This decrease is due primarily to reduced product shipments in
the broadcast market, partially offset by increased sales in the
videoconferencing market. Codec shipments were 580 units in the third
quarter of 1995 compared to 705 units in the third quarter of 1994.
Research and development contract revenues decreased in the third
quarter of 1995 to $2.8 million from $3.2 million in the third quarter of
1994. This decrease was due primarily to the completion of work associated
with one research and development contract. For the nine months ended
September 30, 1995 and 1994, research and development contract revenue
increased to $11.4 from $11.1 million. This increase was due primarily
to an increase in work on externally funded contracts for the development
of MPEG-based encoders and decoders, partially offset by the completion of
work associated with one research and development contract. See Note 3 of
Notes to Condensed Consolidated Financial Statements.
International revenues increased to $7.7 million, or 21% of total
revenues, in the third quarter of 1995, compared to $7.1 million, or 18%
of total revenues, in the third quarter of 1994. International revenues
were $20.1 million, or 17% of total revenues, in the first nine months of
1995 compared to $21.3 million, or 18% of total revenues, for the first nine
months of 1994. There were no international revenues attributable to research
and development contracts.
GROSS MARGIN
Gross margin as a percentage of net product sales was 39% for both the third
quarter of 1995 and 1994, reflecting reduced margins in the broadcast
market due primarily to a less favorable product mix, offset by improving
margins in the videoconferencing market due primarily to increased shipments
of newer products carrying higher margins as well as cost reduction on
products sold in this market. For the nine months ended September 30, 1995
and 1994, gross margin as a percentage of net product sales was 37% and 38%,
respectively. The decrease in gross margin for the nine-month period in 1995
was due to a less favorable product mix in the broadcast market during the
first and third quarters of 1995 and lower prices in the videoconferencing
market in the first quarter of 1995, partially offset by margin
improvements in the videoconferencing market during the second and third
quarters of 1995. The Company continues to seek improvement in gross margin
through introduction of new products with higher margins, as well as through
cost reductions of existing products. However, the Company anticipates that
product gross margin will continue to be subject to fluctuations caused by the
introduction of new products, changes in product mix and variations in
manufacturing costs.
Gross margin as a percentage of research and development contract revenues
increased to 47% in the third quarter of 1995 compared to 9% in the third
quarter of 1994. For the nine months ended September 30, 1995 gross margin
as a percentage of research and development contracts revenue increased to
40% from 3% for the nine months ended September 30, 1994. The increase in
gross margin for both the three-month period and nine-month period ended
September 30, 1995 was due primarily to work on higher margin products
relating to the Company's primary research and development contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 30% of total
revenues for the third quarter of 1995 compared to 29% for the third quarter
of 1994. For the nine months ended September 30, 1995 and 1994, selling,
general and administrative expenses were 29% and 27% of total revenues,
respectively. The increase in expenses as a percentage of total revenues
was primarily due to the decrease in total revenues partially offset by a
decrease in overall spending in this area. The Company anticipates that
selling, general and administrative expenses will generally increase with
increases in the level of revenues, but may vary from quarter to quarter as a
percentage of total revenues.
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<PAGE> 10
Research and Development Expense
Research and development expense was 9% and 10% of total revenues for the
third quarter of 1995 and 1994, respectively. The decrease in research
and development expense as a percentage of total revenues was due
principally to reduced spending in this area, as well as an increase in the
amounts capitalized in conjunction with the development of new software for
more complex and feature-rich products, including MPEG standard-based
broadcast products. For the nine months ended September 30, 1995 and 1994,
research and development expense was 9% and 8% of total revenues,
respectively. The Company expects that the level of research and
development spending will continue to increase in absolute dollars in the
future, but may fluctuate quarter to quarter as a percentage of total
revenues, due to varying levels of research and development activities,
external funding, and amounts capitalized in conjunction with software
development activities.
Interest Income/Interest Expense
Interest income increased to $93,000 in the third quarter of 1995 from
$25,000 in the third quarter of 1994. The increase in interest income for the
three months ended September 30, 1995 compared to the three months ended
September 30, 1994, was due to interest relating to a customer receivable.
For the nine months ended September 30, 1995 and 1994, interest income
decreased to $102,000 from $159,000, respectively. The decrease in interest
income for the nine months ended September 30, 1995, compared to the nine
months ended September 30, 1994, was principally due to a reduction of
interest income from equipment leases and funds available for investment,
partially offset by interest income in the third quarter of 1995 relating to a
customer receivable.
Interest expense increased to $309,000 in the third quarter of 1995 from
$159,000 in the third quarter of 1994. For the nine months ended September
30, 1995, interest expense increased to $864,000 from $573,000 in 1994. The
increase was due to increased borrowings and higher interest rates during
the three months ended September 30, 1995, and the nine months ended
September 30, 1995. See Note 7 of Notes to Condensed Consolidated
Financial Statements.
Net Loss
The Company reported a net loss of $191,000 in the third quarter of 1995
compared to a net loss of $990,000 in the third quarter of 1994, an
improvement due primarily to increased gross margins on research and
development contracts and lower operating expenses. For the nine months
ended September 30, 1995 and 1994, the Company reported net losses of
$2,181,000 and $394,000, respectively. This increase in net loss was
primarily due to higher operating expenses, which include costs of $897,000
relating to legal expenses associated with the class action suit filed in
1992 against the Company and settled in the first quarter of 1995,
partially offset by higher gross margins on research and development
contracts.
Factors Affecting Future Results
The Company continues to seek improvement in operating results through
introduction of new products that are expected to have higher margins, as
well as through cost reductions of existing products. However, there can be
no assurance that the Company will be successful in its efforts. In the
future, the Company's operating results may be impacted by a number of
factors, including cancellation or delays of customer orders,
interruption or delays in the supply of key components, changes in customer
base or product mix, seasonal patterns of capital spending by customers,
new product announcements by the Company or its competitors, pricing pressures
and changes in general economic conditions. Historically, a significant
portion of the Company's shipments have been made in the last month of each
quarter. As a result, a shortfall in revenue compared to expectation may
not evidence itself until late in the quarter. Additionally, the timing
of expenditures for research and development activities and sales and
marketing programs, as well as the timing of orders by major customers,
may cause operating results to fluctuate between quarters and between years.
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<PAGE> 11
Liquidity and Capital Resources
The Company has used internally generated funds, public and private
offerings of Common Stock and Preferred Stock, sale and leaseback
arrangements and bank credit lines to finance its growth since 1983. Cash
generated by operations was $8.0 million in the first nine months of 1995
compared to cash used in operations of $0.7 million in 1994, primarily due to
a decrease in inventories, a decrease in the rate of growth of accounts
receivable, and an increase in accrued liabilities, partially offset by a
decrease in deferred revenue, a decrease in accounts payable, and a decrease
in net operating results. Net cash used in investing activities was $18.7
million in the first nine months of 1995 compared to $11.8 million during
the nine months ended September 30, 1994, due primarily to an increase in
other assets associated with the acquisition of a technology license and
increased capitalized software, partially offset by lower additions to
property and equipment. Capital additions were $5.8 million for the first
nine months of 1995 and other assets increased $5.9 million, primarily
due to the acquisition of a technology license. While the Company expects
the level of capital expenditures in 1995 to be comparable to 1994 levels,
there are no material commitments to purchase capital equipment at the
present time. Net cash generated by financing activities was $10.4 million
in the first nine months of 1995 primarily due to sales of common stock,
borrowings against the line of credit, and the establishment of term loans
using capital equipment as collateral. See Note 7 of Notes to Condensed
Consolidated Financial Statements. In the third quarter, the Company
received an aggregate of $4.9 million relating to the sale of 565,000 shares of
newly issued common stock of the Company to Fletcher Asset Management, Inc.
at prices equal to an average of market prices on the Nasdaq National Market
during a specified period.
As of September 30, 1995, the Company had cash and cash equivalents totaling
$11.0 million. The Company had a bank line of credit as of September 30,
1995 in the amount of $15.0 million, of which $12.8 million was
outstanding. See Note 7 of Notes to Condensed Consolidated Financial
Statements. Working capital decreased to $48.6 million as of September 30,
1995, compared to $53.8 million at December 31, 1994. The Company
anticipates that existing cash and lines of credit, together with sources of
additional liquidity such as private or public offerings, sale and leaseback
arrangements, equipment lease lines and bank credit lines, will be
sufficient to meet cash requirements through mid-year 1996. Should
additional funding be required, however, there can be no assurance that such
funding will be available on acceptable terms as and when required by the
Company.
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<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 24, 1993, the Company filed a complaint against Oklahoma
State University Education and Research Fund, Inc. (OSUERF) in
United Stated District Court claiming that OSUERF breached an
exclusive subcontract for the Company to provide equipment to
OSUERF under OSUERF's prime contract with the United States Army,
TRADOC Division. On November 18, 1993, the Company amended the
complaint to add Federal Leasing, Inc. (FLI) as a defendant. FLI
is a third party leasing company that acquired the Company's right,
title and interest in equipment installed under the contract
pursuant to a Federal Government Financing Agreement (Financing
Agreement) effective September 30, 1991 and leased the equipment
to TRADOC. An assertion of entitlement to indemnification has been
received by the Company from FLI. On February 4, 1994, the CIT
Group/Equipment Financing Inc. (CIT), as an assignee of FLI's
rights under the Financing Agreement, filed a complaint against the
Company in United States District Court claiming entitlement or
indemnification from the Company. The Company responded to the
complaint by denying the material charging allegations of the
complaint and stating certain affirmative defenses. Pursuant to
court order, the OSUERF and CIT actions have been consolidated.
On April 21, 1995, CIT and FLI separately moved for summary
judgment against the Company seeking damages in the amount of $2
million. The Company opposed the respective motions. By order dated
October 11, 1995 the court denied the summary judgment motions of CIT
and FLI, respectively.
The Company's amended complaint now asserts causes of action against
OSUERF for (i) breach of contract, (ii) fraud, (iii) interference
with contractual relations and (iv) indemnity, and causes of action
against FLI for (a) breach of contract and (b) declaratory
judgment. By the amended complaint, the Company claims general and
consequential damages in an unspecified amount against OSUERF and
FLI, and seeks a judicial declaration on the question of whether the
Company is obligated to indemnify FLI for OSUERF's failure to
continue making monthly payments to FLI.
Trial of this matter was set for September 18, 1995. However, due to
the pending reassignment of the case to a new judge, the parties
stipulated that as of July 6, 1995, all deadlines in the case which
had not lapsed would be postponed. While the Company has completed
the bulk of its discovery, it is anticipated that further discovery
will be scheduled, including the depositions of additional Company
witnesses. A mandatory settlement conference has been ordered
but not scheduled. In light of the order on the pending summary
judgment motions, CLI anticipates the case will be reassigned very
shortly.
The Company will vigorously defend the claims stated against it
by CIT, and believes that it has meritorious defenses. However,
there can be no assurance that the Company will prevail or obtain
indemnity for any recovery from OSUERF. If any of CIT's claims
were to be decided adversely to the Company, the Company would be
liable to pay monetary damages to CIT. The Company believes that
the ultimate resolution of this matter will not have a material
adverse impact on the Company's financial position.
On April 6, 1995, the Company filed a complaint against Southwestern
Bell Telephone Company (SWBT) in Santa Clara, California Superior
Court alleging that SWBT intentionally interfered with CLI's
contracts with OSUERF and Hughes Network Systems (HNS). In its
complaint, the Company claims general and punitive damages in an
unspecified amount against SWBT. SWBT moved to quash service of
summons for lack of personal jurisdiction, which motion was
granted on July 11, 1995. On July 25, 1995, the Company refiled
the complaint in the United States District Court for the
Western District of Oklahoma. The complaint was served on SWBT
which filed its answer on October 17, 1995, denying the material
allegations of the complaint.
On September 6, 1995, CLI filed its motion of appeal of the Superior
Court's order granting SWBT's motion to quash service of summons
for lack of personal jurisdiction. Pending the outcome of the
appeal, CLI and SWBT have stipulated that the Oklahoma federal
court action will be placed in administrative closure. An order
placing the matter in administrative closure was entered on October
20, 1995.
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<PAGE> 13
In a complaint filed December 20, 1993, in United States District
Court in Dallas, Texas, Datapoint Corporation (Datapoint) alleged
that the Company had infringed two United States patents owned by
Datapoint and relating to video conferencing networks. The complaint
seeks a judgment of infringement, monetary damages, injunctive
relief and reasonable attorney's fees. The Company responded to
the complaint on February 16, 1994 by denying the material
allegations of the complaint and asserting affirmative defenses.
Pursuant to court order, the parties have participated in mediation
before a court-appointed mediator. Discovery in the case has
commenced. The Company believes that it has meritorious defenses
to the allegations of the complaint, and is pursuing an
aggressive defense; however, there can be no assurance that the
Company will prevail. If any of the claims were to be decided
adversely to the defendants, the Company could be liable for monetary
damages to the plaintiff and be subject to injunctive relief. The
Company believes that the ultimate resolution of this matter will not
have a material adverse impact on the Company's financial position.
The Company and Voicecraft, Inc. (Voicecraft) are parties to a
License Agreement dated December 3, 1987 pursuant to which the Company
licenses certain technology from Voicecraft in exchange for the
payments of royalties. At various times since the inception of the
license/royalty relationship, disputes have arisen between the
Company and Voicecraft relating to the scope of the license, as well
as the amount of royalties due. By letter dated May 6, 1994,
Voicecraft purported to terminate the Company's license as of July 5,
1994 for its alleged failure to remit royalties as required by the
License Agreement. Voicecraft has further asserted that the
Company is infringing certain patent rights belonging to
Voicecraft. The Company disputes Voicecraft's assertions. At
present, the Company and Voicecraft are in discussion to resolve the
issues outstanding between them so as to avoid litigation. The
Company believes that the ultimate resolution of this matter will
not have a material adverse impact on the Company's financial
position.
In the normal course of business, the Company receives and makes
inquiries with regard to other possible patent infringement.
Where deemed advisable, the Company may seek or extend licenses
or negotiate settlements. Outcomes of such negotiations may not be
determinable at any point in time; however, management does not
believe that such licenses or settlements will, individually or in
the aggregate, have a material adverse impact on the Company's
financial position or results of operations.
- 11 -
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.43 Loan and Security Agreement, entered into as of
August 21, 1995, by and between Compression
Labs, Incorporated and BankAmerica Business Credit,
Inc.
27.01 Article 5 of Regulation S-X, Financial Data
Schedules for Compression Labs, Incorporated
for the Quarter Ending September 30, 1995.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1995.
No other applicable items.
- 12 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPRESSION LABS, INCORPORATED
BY William A. Berry
---------------------------------------------------
WILLIAM A. BERRY
Senior Vice President,
Chief Financial Officer (Principal Financial
and Accounting Officer, Authorized Officer)
DATE: November 9, 1995
- 13 -
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------- ------
<S> <C> <C>
10.43 Loan and Security Agreement, entered into as of August 21,
1995, by and between Compression Labs, Incorporated and
BankAmerica Business Credit, Inc.
------
27.01 Article 5 of Regulation S-X, Financial Data Schedules for
Compression Labs, Incorporated for the Quarter Ending
September 30, 1995
------
</TABLE>
<PAGE> 1
LOAN AND SECURITY AGREEMENT
Dated as of August 21, 1995
Among
BANKAMERICA BUSINESS CREDIT, INC.
as the Lender
and
COMPRESSION LABS, INCORPORATED
as the Borrower
<PAGE> 2
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Account Debtor . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Net Earnings from Operations . . . . . . . . . . . . . 1
Adjusted Tangible Assets . . . . . . . . . . . . . . . . . . . . 2
Adjusted Tangible Net Worth . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Anniversary Date . . . . . . . . . . . . . . . . . . . . . . . . 2
Assigned Contracts . . . . . . . . . . . . . . . . . . . . . . . 2
Availability . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . 3
Capital Lease . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contaminant . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . 4
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . 7
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . 7
ERISA Event . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 8
Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 8
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 8
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Intercompany Accounts . . . . . . . . . . . . . . . . . . . . . 8
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Latest Projections . . . . . . . . . . . . . . . . . . . . . . . 9
Letter of Credit Agreement . . . . . . . . . . . . . . . . . . . 9
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . 9
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Multi-employer Plan . . . . . . . . . . . . . . . . . . . . . . 9
(1)
<PAGE> 3
Net Amount of Eligible Accounts . . . . . . . . . . . . . . . . 9
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Participating Lender . . . . . . . . . . . . . . . . . . . . . . 10
Patent and Trademark Assignment . . . . . . . . . . . . . . . . 10
Payment Account . . . . . . . . . . . . . . . . . . . . . . . . 10
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . 10
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . 12
Public Authority . . . . . . . . . . . . . . . . . . . . . . . . 12
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reference Rate . . . . . . . . . . . . . . . . . . . . . . . . . 12
Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reportable Event . . . . . . . . . . . . . . . . . . . . . . . . 13
Restricted Investment . . . . . . . . . . . . . . . . . . . . . 13
Reversions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . 13
Security Interest . . . . . . . . . . . . . . . . . . . . . . . 13
Solvent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Total Facility . . . . . . . . . . . . . . . . . . . . . . . . . 14
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . 14
Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 14
Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 14
LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Total Facility . . . . . . . . . . . . . . . . . . . . . 14
2.2 Revolving Loans . . . . . . . . . . . . . . . . . . . . 14
2.3 Letters of Credit . . . . . . . . . . . . . . . . . . . 15
INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Unused Line Fee . . . . . . . . . . . . . . . . . . . . 16
3.3 Maximum Interest Rate . . . . . . . . . . . . . . . . . 16
3.4 Facility Fee . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Capital Adequacy . . . . . . . . . . . . . . . . . . . . 17
(2)
<PAGE> 4
PAYMENTS AND PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . 17
4.2 Place and Form of Payments; Extension of Time . . . . . 17
4.3 Application and Reversal of Payments . . . . . . . . . . 18
4.4 Indemnity for Returned Payments . . . . . . . . . . . . 18
BOOKS AND RECORDS; MONTHLY STATEMENTS . . . . . . . . . . . . . . . . . . 18
5.1 Lender's Books and Records . . . . . . . . . . . . . . . 18
5.2 Lender's Monthly Statements . . . . . . . . . . . . . . 18
COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Grant of Security Interest . . . . . . . . . . . . . . . 19
6.2 Perfection and Protection of Security Interest . . . . . 19
6.3 Location of Collateral . . . . . . . . . . . . . . . . . 19
6.4 Title to, Liens on, and Sale and Use of Collateral . . . 20
6.5 Intentionally Omitted. . . . . . . . . . . . . . . . . . 21
6.6 Access and Examination . . . . . . . . . . . . . . . . . 21
6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Collateral Reporting . . . . . . . . . . . . . . . . . . 22
6.9 Accounts . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Collection of Accounts; Payments . . . . . . . . . . . . 23
6.11 Inventory . . . . . . . . . . . . . . . . . . . . . . . 24
6.12 Equipment . . . . . . . . . . . . . . . . . . . . . . . 24
6.13 Assigned Contracts . . . . . . . . . . . . . . . . . . . 25
6.14 Documents, Instruments, and Chattel Paper . . . . . . . 26
6.15 Right to Cure . . . . . . . . . . . . . . . . . . . . . 26
6.16 Power of Attorney . . . . . . . . . . . . . . . . . . . 26
6.17 Lender's Rights, Duties, and Liabilities . . . . . . . . 27
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES . . . . . . . . . . . . 27
7.1 Books and Records . . . . . . . . . . . . . . . . . . . 27
7.2 Financial Information . . . . . . . . . . . . . . . . . 27
7.3 Notices to Lender . . . . . . . . . . . . . . . . . . . 29
GENERAL WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . 30
8.1 Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents . . . . . . . . . . . . 31
8.2 Validity and Priority of Security Interest . . . . . . . 31
8.3 Organization and Qualification . . . . . . . . . . . . . 31
8.4 Corporate Name; Prior Transactions . . . . . . . . . . . 32
8.5 Subsidiaries and Affiliates . . . . . . . . . . . . . . 32
8.6 Financial Statements and Projections . . . . . . . . . . 32
8.7 Intentionally Omitted . . . . . . . . . . . . . . . . . 32
8.8 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 32
8.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(3)
<PAGE> 5
8.10 Distributions . . . . . . . . . . . . . . . . . . . . . 32
8.11 Title to Property . . . . . . . . . . . . . . . . . . . 33
8.12 Intentionally Omitted . . . . . . . . . . . . . . . . . 33
8.13 Real Property; Leases . . . . . . . . . . . . . . . . . 33
8.14 Proprietary Rights Collateral . . . . . . . . . . . . . 33
8.15 Trade Names and Terms of Sale . . . . . . . . . . . . . 33
8.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . 33
8.17 Restrictive Agreements . . . . . . . . . . . . . . . . . 33
8.18 Labor Disputes . . . . . . . . . . . . . . . . . . . . . 33
8.19 Environmental Laws . . . . . . . . . . . . . . . . . . . 34
8.20 No Violation of Law . . . . . . . . . . . . . . . . . . 35
8.21 No Default . . . . . . . . . . . . . . . . . . . . . . . 35
8.22 ERISA Compliance . . . . . . . . . . . . . . . . . . . . 35
8.23 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.24 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 36
8.25 Private Offerings . . . . . . . . . . . . . . . . . . . 36
8.26 Broker's Fees . . . . . . . . . . . . . . . . . . . . . 36
8.27 No Material Adverse Change . . . . . . . . . . . . . . . 36
8.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . 36
AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 37
9.1 Taxes and Other Obligations . . . . . . . . . . . . . . 37
9.2 Corporate Existence and Good Standing . . . . . . . . . 37
9.3 Compliance with Law and Agreements . . . . . . . . . . . 37
9.4 Maintenance of Property and Insurance . . . . . . . . . 37
9.5 Environmental Laws . . . . . . . . . . . . . . . . . . . 37
9.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.7 Mergers, Consolidations, Acquisitions, or Sales . . . . 38
9.8 Distributions; Capital Changes . . . . . . . . . . . . . 38
9.9 Transactions Affecting Collateral or Obligations . . . . 38
9.10 Guaranties . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.12 Prepayment . . . . . . . . . . . . . . . . . . . . . . . 39
9.13 Transactions with Affiliates . . . . . . . . . . . . . . 39
9.14 Business Conducted . . . . . . . . . . . . . . . . . . . 39
9.15 Liens . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.16 Sale and Leaseback Transactions . . . . . . . . . . . . 39
9.17 New Subsidiaries . . . . . . . . . . . . . . . . . . . . 39
9.18 Restricted Investments . . . . . . . . . . . . . . . . . 39
9.19 Capital Expenditures . . . . . . . . . . . . . . . . . . 40
9.20 Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . 40
9.21 Further Assurances . . . . . . . . . . . . . . . . . . . 40
(4)
<PAGE> 6
CLOSING; CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . 40
10.1 Conditions Precedent to Making of Loans on the
Closing Date . . . . . . . . . . . . . . . . . . . . . 40
Representations and Warranties; Covenants . . . . . . . 40
Delivery of Document . . . . . . . . . . . . . . . . . . 40
Termination of Liens . . . . . . . . . . . . . . . . . . 40
Environmental Compliance . . . . . . . . . . . . . . . . 40
Intentionally Omitted . . . . . . . . . . . . . . . . 41
Payment of Fees and Expenses . . . . . . . . . . . . . . 41
Required Approvals . . . . . . . . . . . . . . . . . . . 41
No Material Adverse Change . . . . . . . . . . . . . . . 41
Proceedings . . . . . . . . . . . . . . . . . . . . . . 41
Excess Availability . . . . . . . . . . . . . . . . . . 41
10.2 Conditions Precedent to Each Loan . . . . . . . . . . . 41
DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.1 Events of Default . . . . . . . . . . . . . . . . . . . 42
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.1 Initial Term of Agreement; Termination . . . . . . . . . 45
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.1 Cumulative Remedies; No Prior Recourse to Collateral . . 46
14.2 No Implied Waivers . . . . . . . . . . . . . . . . . . . 46
14.3 Severability . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Governing Law . . . . . . . . . . . . . . . . . . . . . 46
14.5 Consent to Jurisdiction and Venue; Service of Process . 46
14.6 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 47
14.7 Arbitration; Reference Proceeding . . . . . . . . . . . 47
14.8 Survival of Representations and Warranties . . . . . . . 48
14.9 Other Security and Guaranties . . . . . . . . . . . . . 48
14.10 Fees and Expenses . . . . . . . . . . . . . . . . . . . 48
14.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . 49
14.12 Indemnification . . . . . . . . . . . . . . . . . . . . 50
14.13 Waiver of Notices . . . . . . . . . . . . . . . . . . . 50
14.14 Binding Effect; Assignment . . . . . . . . . . . . . . . 51
14.15 Modification . . . . . . . . . . . . . . . . . . . . . . 51
14.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . 51
14.17 Captions . . . . . . . . . . . . . . . . . . . . . . . . 51
14.18 Right of Set-Off . . . . . . . . . . . . . . . . . . . . 51
14.19 Participating Lender's Security Interests . . . . . . . 51
(5)
<PAGE> 7
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of August 21, 1995, is
entered into by and between BankAmerica Business Credit, Inc., a Delaware
corporation, with offices at Two North Lake Avenue, Suite 400, Pasadena,
California 91101 (the "Lender") and Compression Labs, Incorporated, a Delaware
corporation, with offices at 2860 Junction Avenue, San Jose, California 95134
(the "Borrower").
W I T N E S S E T H
WHEREAS, the Borrower has requested the Lender to make available to the
Borrower a revolving line of credit for loans and letters of credit in an amount
not to exceed $15,000,000 which the Borrower will use for its working capital
needs and general business purposes;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
1. DEFINITIONS
As used herein:
"Account" means the Borrower's right to payment for a
sale or lease and delivery of goods or rendition of services.
"Account Debtor" means each Person obligated in any way on or
in connection with an Account.
"Adjusted Net Earnings from Operations" means, with
respect to any fiscal period of the Borrower, the Borrower's and its
Subsidiaries' net income on a consolidated basis after provision for income
taxes for such fiscal period, as determined in accordance with GAAP and reported
on the Financial Statements for such period, less any and all of the following
included in such net income: (a) gain or loss arising from the sale of capital
asset; (b) gain arising from any write-up in the book value of any asset; (c)
earnings of any corporation, substantially all the assets of which have been
acquired by the Borrower in any manner, to the extent realized by such other
corporation prior to the date of acquisition; (d) earnings of any business
entity in which the Borrower has an ownership interest unless (and only to the
extent) such earnings shall actually have been received by the Borrower in the
form of cash distributions; (e) earnings of any Person to which assets of the
Borrower shall have been sold, transferred or disposed of, or into which the
Borrower shall have been merged, or which has been a party with the Borrower to
any
1
<PAGE> 8
consolidation or other form of reorganization, prior to the date of such
transaction; (f) gain arising from the acquisition of debt or equity securities
of the Borrower or from cancellation or forgiveness of Debt; and (g) gain
arising from extraordinary items, as determined in accordance with GAAP, or from
any other non-recurring transaction.
"Adjusted Tangible Assets" means all of the Borrower's
assets except: (a) deferred assets, other than prepaid insurance and prepaid
taxes; (b) patents, copyrights, trademarks, trade names, franchises, goodwill,
and other similar intangibles; (c) Restricted Investments; (d) unamortized debt
discount and expense; (e) assets of the Borrower constituting Intercompany
Accounts; and (f) fixed assets to the extent of any write-up in the book value
thereof resulting from a revaluation effective after the Closing Date.
"Adjusted Tangible Net Worth" means, at any date: (a)
the book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves as determined in accordance
with GAAP) at which the Adjusted Tangible Assets would be shown on a balance
sheet of the Borrower at such date prepared in accordance with GAAP less
(b) the amount at which the Borrower's liabilities would be shown on such
balance sheet, including as liabilities all reserves for contingencies and other
potential liabilities which would be shown on such balance sheet or disclosed in
the notes thereto.
"Affiliate" means: (a) a Person which, directly or
indirectly, controls, is controlled by or is under common control with, the
Borrower; (b) a Person which beneficially owns or holds, directly or indirectly,
five percent or more of any class of voting stock of the Borrower; or (c) a
Person in which five percent of any class of the voting stock is beneficially
owned or held, directly or indirectly, by the Borrower. The term control
(including the terms "controlled by" and "under common control with"), means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Person in question.
"Anniversary Date" means each anniversary of the Closing Date.
"Assigned Contracts" means, collectively, all of the
Borrower's rights and remedies under, and all monies and claims for money due or
to become due to the Borrower under, any material contracts, and any and all
amendments, supplements, extensions, and renewals thereof including, without
limitation, all rights and claims of the Borrower now or hereafter existing: (a)
under any insurance, indemnities, warranties, and guarantees provided for or
arising out of or in connection with any of the foregoing agreements; (b) for
any damages arising out of or for breach default under or in connection with the
foregoing agreements; (c) to all other amounts from time to time paid or payable
under or in connection with the foregoing agreements; or (d) to exercise or
enforce any and all covenants, remedies, powers and privileges thereunder.
"Availability" means at any time the lesser of (a) the
Total Facility, or (b) eighty percent (80%) of the Net Amount of
Eligible Accounts, minus the sum of:
(a) the unpaid balance of Revolving Loans at that
time;
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(b) the aggregate undrawn face amount of all
outstanding Letters of Credit which the Lender has caused to be issued or
obtained for the Borrower's account;
(c) reserves for the accrued but unpaid interest on
the Revolving Loans; and
(d) all other reserves which the Lender in its
reasonable discretion deems necessary to maintain with respect to the Borrower's
account.
"Bank" means Bank of America National Trust and Savings
Association in San Francisco, California.
"Business Day" means any day that is not a Saturday, Sunday, or
day on which banks in San Francisco, California, are required or permitted to
close.
"Capital Expenditures" means all payments due (whether or not
paid) during a Fiscal Year in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which have a
useful life of more than one year, including, without limitation, those arising
in connection with the direct or indirect acquisition of such assets by way of
increased product or service charges or offset items or in connection with
Capital Leases.
"Capital Lease" means any lease of Property by the Borrower
that, in accordance with GAAP, should be reflected as a liability on the balance
sheet of the Borrower.
"Closing Date" means the date of this Agreement, being the date
first written above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such term in Section 6.1.
"Contaminant" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.
"Debt" means all liabilities, obligations and indebtedness of
the Borrower to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed or otherwise, and
including, without in any way limiting the generality of the foregoing: (a) the
Borrower's liabilities and obligations to trade creditors; (b) all Obligations;
(c) all obligations and liabilities of any Person secured by any Lien on the
Borrower's Property, even though the Borrower shall not have assumed or become
liable for the payment thereof; provided, however, that all such obligations and
liabilities
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which are limited in recourse to such Property shall be included in Debt only to
the extent of the book value of such Property as would be shown on a balance
sheet of the Borrower prepared in accordance with GAAP; (d) all obligations or
liabilities created or arising under any Capital Lease or conditional sale or
other title retention agreement with respect to Property used or acquired by the
Borrower, even if the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such Property; provided, however, that
all such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of such
Property as would be shown on a balance sheet of the Borrower prepared in
accordance with GAAP; (e) all accrued pension fund and other employee benefit
plan obligations and liabilities; (f) all obligations and liabilities under
Guaranties; and (g) deferred taxes.
"Distribution" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of Property in respect
of capital stock of such corporation, other than distributions in capital stock
of the same class; or (b) the redemption or other acquisition of any capital
stock of such corporation.
"DOL" means the United States Department of Labor or any
successor department or agency.
"Eligible Accounts" means those Accounts which are not
ineligible as the basis for Revolving Loans, based on the following criteria and
on such other criteria as the Lender may from time to time establish in its
reasonable commercial discretion. Without intending to limit such discretion,
Eligible Accounts shall not include any Account:
(a) with respect to which payment is more than sixty
(60) days past due, or with respect to which more than ninety (90) days have
elapsed since its invoice date;
(b) with respect to which any of the representations,
warranties, covenants, and agreements contained in this Agreement are not or
have ceased to be correct or have been breached;
(c) with respect to which, in whole or in part, a
check, promissory note, draft, trade acceptance or other instrument for the
payment of money has been received, presented for payment and returned
uncollected for any reason;
(d) which represents a progress billing (as
hereinafter defined) or as to which the Borrower has extended, other than in the
normal course of Borrower's business but in no event more than ninety (90) days
from the original invoice date, the time for payment without the consent of the
Lender; for the purposes hereof, "progress billing" means any invoice for goods
sold or leased or services rendered under a contract or agreement pursuant to
which the Account Debtor's obligation to pay such invoice is conditioned upon
the Borrower's completion of any further performance under the contract or
agreement;
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(e) which arises from a lease or the provision of
research and development services, or which is a contra account, or is subject
to a manual credit memorandum accrual or arises from the provision of
maintenance services;
(f) as to which any one or more of the following
events has occurred with respect to the Account Debtor on such Account: death or
judicial declaration of incompetency of an Account Debtor who is an individual;
the filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Federal Bankruptcy Code; the
institution by or against the Account Debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Account Debtor;
or the cessation of the business of the Account Debtor as a going concern;
(g) if the aggregate dollar amount of all Accounts
owed by the Account Debtor thereon exceeds 15% of all Accounts, but only to the
extent such Accounts exceed such limit;
(h) owed by an Account Debtor which: (i) does not
maintain its chief executive office in the United States; or (ii) is not
organized under the laws of the United States or any state thereof; or (iii) the
Account Debtor is located in a foreign country; or (iv) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof; except to the extent that such
Account is secured or payable by a letter of credit acceptable to Lender;
(i) owed by an Account Debtor which is an Affiliate or
employee of the Borrower;
(j) except as provided in (k) below, as to which
either the perfection, enforceability, or validity of the Security Interest in
such Account, or the Lender's right or ability to obtain direct payment to the
Lender of the Proceeds of such Account, is governed by any federal, state, or
local statutory requirements other than those of the UCC;
(k) which is owed by an Account Debtor to which the
Borrower is indebted in any way, or which is subject to any right of setoff or
recoupment by the Account Debtor, unless the Account Debtor has entered into an
agreement acceptable to the Lender to waive setoff rights; or if the Account
Debtor thereon has disputed liability or made any claim with respect to any
other Account due from such Account Debtor; but
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in each such case only to the extent of such indebtedness, setoff, recoupment,
dispute, or claim;
(l) which is owed by the government of the United
States of America, or any department, agency, public corporation, or other
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as
amended, and any other steps necessary to perfect the Lender's Security Interest
therein, have been complied with to the Lender's satisfaction with respect to
such Account;
(m) Intentionally Omitted
(n) which arises out of a sale to an Account Debtor on
a bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment, or other repurchase or return basis;
(o) which is evidenced by a promissory note or other
instrument or by chattel paper;
(p) if fifty percent (50%) or more of the aggregate
dollar amount of outstanding Accounts owed at such time by the Account Debtor
thereon is classifies as ineligible under the other criteria set forth herein;
(q) with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, West Virginia, or any other
state requiring the filing of a Business Activity Report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtors in the courts or through any judicial process of such state, unless
Borrower has qualified to do business in New Jersey, Minnesota, West Virginia,
or such other states, or has filed a Notice of Business Activities Report with
the applicable division of taxation, the department of revenue, or with such
other state offices, as appropriate, for the then-current year, or is exempt
from such filing requirement;
(r) arises out of a sale not made in the ordinary
course of the Borrower's business;
(s) the goods giving rise to such Account have not
been shipped and delivered to and accepted by the Account Debtor or the services
giving rise to such Account have not been performed by the Borrower, and, if
applicable, accepted by the Account Debtor, or the Account debtor revokes its
acceptance of such goods or services;
(t) which is not subject to a first priority and
perfected security interest in favor of the Lender; or
(u) if Lender believes in its reasonable credit
judgment that the prospect of collection of such Account is impaired or that the
Account may not be paid by reason of the Account Debtor's financial inability to
pay.
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If any Account at any time ceases to be an Eligible Account by reason
of any of the foregoing exclusions or any failure to meet any other eligibility
criteria established by the Lender in the exercise of its reasonable discretion
then such Account shall promptly be excluded from the calculation of Eligible
Accounts.
"Environmental Laws" means all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety, hazardous substances, and environmental
matters applicable to the Borrower's business and facilities (whether or not
owned by it). Such laws and regulations include but are not limited to the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended; the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., as amended; the Clean Water Act, 33 U.S.C.
Section 466 et seq., as amended; the Clean Air Act, 4S U.S.C. Section 7401 et
seq., as amended; state and federal superlien and environmental cleanup
programs; and U.S. Department of Transportation regulations.
"Environmental Lien" means a Lien in favor of any Public
Authority for (a) any liability under any Environmental Laws, or (b) damages
arising from, or costs incurred by such Governmental Authority in response to, a
Release or threatened Release of a Contaminant into the environment.
"Equipment" means all of the Borrower's now owned and hereafter
acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except Inventory), including, without limitation,
data processing hardware and software, motor vehicles, aircraft, dies, tools,
jigs, and office equipment, as well as all of such types of property leased by
the Borrower and all of the Borrower's rights and interests with respect thereto
under such leases (including, without limitation, options to purchase); together
with all present and future additions and accessions thereto, replacements
therefor, component and auxiliary parts and supplies used or to be used in
connection therewith, and all substitutes for any of the foregoing, and all
manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as
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<PAGE> 14
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by the Borrower or any ERISA Affiliate from a Multi-employer Plan or
notification that a Multi-employer Plan is in reorganization; (d) the filing of
a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multi-employer Plan; (e)
an event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multi-employer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Borrower or any
ERISA Affiliate.
"Event" means any event or condition which, with notice, the
passage of time, or any combination thereof, would constitute an Event of
Default.
"Event of Default" has the meaning given to such term in
Section 11.1.
"Facility Fee" has the meaning given to such term in Section
3.4.
"Financial Statements" means, according to the context in which
it is used, the financial statements attached hereto as Exhibit B-1, or any
financial statements required to be given to the Lender pursuant to Section
7.2(a), (b), and (c), or any combination thereof.
"Fiscal Quarter" means the fiscal quarters of the Borrower
ending on March 31, June 30, September 30, and December 31 of each year.
"Fiscal Year" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower will end on
December 31, 1995.
"GAAP" means at any particular time generally accepted
accounting principles as in effect at such time.
"Guaranty" by any Person means all obligations of such Person
which in any manner directly or indirectly guarantee or assure, or in effect
guarantee or assure, the payment or performance of any indebtedness, dividend or
other obligation of any other Person (the "guaranteed obligations"), or to
assure or in effect assure the holder of the guaranteed obligations against loss
in respect thereof, including, without limitation, any such obligations incurred
through an agreement, contingent or otherwise: (a) to purchase the guaranteed
obligations or any Property constituting security therefor; (b) to advance or
supply funds for the purchase or Payment of the guaranteed obligations or to
maintain a working capital or other balance sheet condition; (c) to lease
Property or to purchase any debt or equity securities or other Property or
services.
"Intercompany Accounts" means all assets and liabilities,
however arising, which are due to the Borrower from, which are due from the
Borrower to, or which otherwise arise from any transaction by the Borrower with,
any Affiliate.
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<PAGE> 15
"Inventory" means all of the Borrower's now owned and hereafter
acquired inventory, goods, merchandise, and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work-in-process, finished goods, returned goods, and
materials and supplies of any kind, nature or description which are or might be
used or consumed in the Borrower's business or used in connection the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise and such other personal property, and all documents of title or
other documents representing them.
"IRS" means the Internal Revenue Service or any successor
agency.
"Latest Projections" means: (a) on the Closing Date and
thereafter until the Lender receives new projections pursuant to Section 7.2(f),
the projections of the Borrower's monthly financial condition, results of
operations, and cash flow for the Fiscal Year ending December 31, 1995, attached
hereto as Exhibit B-2; and (b) thereafter, the projections most recently
received by the Lender pursuant to Section 7.2(f).
"Letter of Credit Agreement" has the meaning specified in
Section 2.3.
"Letter of Credit" has the meaning specified in Section 2.3.
"Lien" means: (a) any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute, or
contract, and including without limitation, a security interest, charge, claim,
or lien arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, agreement,security agreement,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes; and (b) to the extent not included under clause (a), any
reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or other title exception or encumbrance affecting
Property.
"Loans" means, collectively, all loans and advances provided
for in Article 2 below.
"Loan Documents" means this Agreement, the Letter of Credit
Agreement, the Patent and Trademark Assignments, and all other agreements,
instruments, and documents heretofore, now or hereafter evidencing, securing,
guaranteeing or otherwise relating to the Obligations, the Collateral, the
Security Interest, or any other aspect of the transactions contemplated by this
Agreement.
"Multi-employer Plan" means a "multi-employer plan" as defined
in Section 4001(a)(3) of ERISA which is or was at any time during the current
year or the immediately preceding six (6) years contributed to by the Borrower
or any ERISA Affiliate.
"Net Amount of Eligible Accounts" means the gross amount of
Eligible Accounts less sales, excise or similar taxes, and less returns,
discounts, claims, credits and
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<PAGE> 16
allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed.
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and Debts owing by the Borrower to
the Lender, whether or not arising under this Agreement, whether or not
evidenced by any note, or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Lender in the Borrower's debts owing to others). absolute or contingent, due
or to become due, primary or secondary, as principal or guarantor, and
including, without limitation, all interest, charges, expenses, fees, reasonable
attorneys fees, filing fees and any other sums chargeable to the Borrower
hereunder, under another Loan Document, or under any other agreement or
instrument with the Lender. "Obligations" includes, without limitation, all
debts, liabilities, and obligations now or hereafter owing from Borrower to
Lender under or in connection with the Letters of Credit and the Letter of
Credit Agreement.
"Participating Lender" means any Person who shall have been
granted the right by the Lender to participate in the Loans and who shall have
entered into a participation agreement in form and substance satisfactory to the
Lender.
"Patent and Trademark Assignment" means the Collateral
Assignment of Patents (Security Agreement) and the Collateral Assignment of
Trademarks (Security Agreement), each dated as of the date hereof, executed and
delivered by the Borrower to the Lender pursuant to Sections 6.2 and 10.2 to
evidence and perfect the Lender's Security Interest in the Borrower's present
and future patents, trademarks, and related licenses and rights.
"Payment Account" means each blocked bank account or bank
account associated with a lock box, established pursuant to Section 6.10, to
which the funds of the Borrower (including, without limitation, Proceeds of
Accounts and other Collateral) are deposited or credited, and which is
maintained in the name of the Lender or the Borrower, as the Lender may
determine, on terms acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
"Pension Plan" means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or in
the case of a Multiple-employer Plan has made contributions at any time during
the immediately preceding five (5) plan years.
"Permitted Liens" means: (a) Liens for taxes not yet payable or
Liens for taxes being contested in good faith by appropriate proceedings
diligently pursued, provided that a reserve or other appropriate provision, if
any, as shall be required by GAAP shall
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<PAGE> 17
have been made therefor on the applicable Financial Statements and that a stay
of enforcement of any such Lien is in effect; (b) Liens in favor of the Lender;
(c) mechanics and materialmen's liens securing Debt not yet past due; (d) Liens
upon Equipment granted in connection with the acquisition of such Equipment by
the Borrower after the date hereof, provided that (i) the cost of each such
acquisition constitutes a Capital Expenditure permitted by Section 9.19, and
(ii) each such Lien attaches only to the Equipment acquired with the Debt
secured thereby; (e) Liens securing capital lease obligations on the assets
subject to such capital leases; (f) Liens on equipment leased by Borrower
pursuant to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such equipment (including Liens arising from UCC
financing statements regarding leases permitted by this Agreement); (g) Liens
arising from judgments, decrees or attachments to the extent and only so long as
(i) such judgment, decree, or attachment has not caused or resulted in an Event
of Default, and (ii) such liens have been stayed or bonded; (h) easements,
reservations, rights-of-way, restrictions, minor defects, or irregularities in
title, and other similar Liens affecting real property not interfering in any
material respect with the ordinary conduct of the business of Borrower; (i)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of custom duties in connection with the importation of goods; (j)
Liens arising solely by virtue of any statutory or common law provision relating
to banker's liens, rights of setoff, or similar rights and remedies as to
deposit accounts or other funds maintained with a creditor depository
institution; (k) Liens, not otherwise permitted, which Liens do not in the
aggregate exceed $250,000 at any time; and (l) Liens reflected on Exhibit A
hereto.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, Public Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower sponsors or maintains or to which the Borrower
makes, is making, or is obligated to make contributions and includes any Pension
Plan.
"Premises" means the land identified by addresses on Schedule
8.13 together with all buildings, improvements, and fixtures thereon and all
tenements, hereditament, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which the Borrower
has any interests on the Closing Date.
"Proceeds" means all products and proceeds of any Collateral,
and all proceeds of such proceeds and products, including, without limitation,
all cash and credit balances, all payments under any indemnity, warranty, or
guaranty payable with respect to any Collateral, all awards for taking by
eminent domain, all proceeds of fire or other insurance, and all money and other
Property obtained as a result of any claims against third parties or any legal
action or proceeding with respect to Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
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<PAGE> 18
"Proprietary Rights" means all of the Borrower's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights set forth on Schedule 8.14 hereto, and all other
rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present, and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds, drawings,
designs, blueprints, surveys, reports, manuals, and operating standards;
goodwill; customer and other lists in whatever form maintained; and trade secret
rights, copyright rights, rights in works of authorship, and contract rights
relating to computer software programs, in whatever form created or maintained.
"Public Authority" means the government of any country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or any department, agency, public corporation or other
instrumentality of any of the foregoing.
"Receivables" means all of the Borrower's now owned and
hereafter arising or acquired: Accounts (whether or not earned by performance),
including Accounts owed to the Borrower by any of its Subsidiaries or
Affiliates, together with all interest, late charges, penalties, collection
fees, and other sums which shall be due and payable in connection with any
Account; proceeds of any letters of credit naming the Borrower as beneficiary;
contract rights, chattel paper, instruments, documents, general intangibles
(including, without limitation, choses in action, causes of action, tax refunds,
tax refund claims, and Reversions and other amounts payable to the Borrower from
or with respect to any Plan) and all forms of obligations owing to the Borrower
(including, without limitation, in respect of loans, advances, and extensions of
credit by the Borrower to its Subsidiaries and Affiliates); guarantees and other
security for any of the foregoing; goods represented by or the sale, lease or
delivery of which gave rise to any of the foregoing; merchandise returned to or
repossessed by the Borrower and rights of stoppage in transit, replevin, and
reclamation; and other rights or remedies of an unpaid vendor, lienor, or
secured party.
"Reference Rate" means the rate of interest publicly announced
from time to time by the Bank at its headquarters in San Francisco, California,
as its reference rate. It is a rate set by the Bank based upon various factors
including Bank's costs and desired return, general economic conditions, and
other factors, and is used as a reference point for pricing some loans. However,
the Bank may price loans at, above, or below such announced rate. Any changes in
the Reference Rate shall take effect on the day specified in the public
announcement of such change.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any of the
Premises or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Premises or other property.
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"Reportable Event" means, any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Restricted Investment" means any acquisition of Property by
the Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of Stock, debt security, or other
indebtedness or obligation, or the purchase or acquisition of any other
Property, or by loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) fixed assets to be used in the business of
the Borrower, so long as the acquisition costs thereof constitute Capital
Expenditures permitted hereunder; (b) current assets arising from the sale or
lease of goods or rendition of services in the ordinary course of business of
the Borrower; (c) direct obligations of the United States of America, or any
agency thereof, or obligations guaranteed by the United States of America,
provided that such obligations mature within one year from the date of
acquisition thereof; (d) certificates of deposit maturing within one year from
the date of acquisition, bankers acceptances, Eurodollar bank deposits, or
overnight bank deposits, in each case issued by, created by, or with a bank or
trust company organized under the laws of the United States or any state thereof
having capital and surplus aggregating at least $100,000,000; (e) commercial
paper given the highest rating by a national credit rating agency and maturing
not more than 270 days from the date of creation thereof; (f) investments
consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; (g)
investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business; (h) investments in foreign
Subsidiaries in an amount not to exceed $2,000,000 in the aggregate; (i)
investments in United States Subsidiaries in an amount not to exceed $150,000
per subsidiary; and (j) other investments not otherwise permitted aggregating
not in excess of $1,000,000 at any time.
"Reversions" means any funds which may become due to the
Borrower in connection with the termination of any Plan or other employee
benefit plan.
"Revolving Loans" has the meaning specified in Section 2.2.
"Security Interest" means collectively the Liens granted to the
Lender in the Collateral pursuant to this Agreement, the other Loan Documents,
or any other agreement or instrument.
"Solvent" shall mean when used with respect to any Person that:
(a) the fair value of all its Property is in excess of the total amount of its
debts (including contingent liabilities); (b) it is able to pay its debts as
they mature; and (c) it does not have unreasonably small capital for the
business in which it is engaged or for any business or transaction in which it
is about to engage.
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"Subsidiary" means any corporation of which more than 50% of
the outstanding securities of any class or classes, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect a majority of the
corporate directors (or Persons performing similar functions), is at the time,
directly or indirectly through one or more intermediaries, owned by the Borrower
and/or one or more of its Subsidiaries.
"Total Facility" means $15,000,000.
"UCC" means the Uniform Commercial Code (or any successor
statute) of the state of California or of any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests.
"Unused Line Fee" has the meaning specified in Section 3.2.
Accounting Terms Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
Other Terms All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.
2. LOANS AND LETTERS OF CREDIT
2.1 Total Facility. Subject to all of the terms and conditions
of this Agreement, the Lender shall make available a total credit facility of up
to the Total Facility for Borrower's use from time to time during the term of
this Agreement. The Total Facility shall be comprised of a revolving line of
credit and letters of credit up to the limits of the Availability, as described
in Sections 2.2 and 2.3.
2.2 Revolving Loans. The Lender shall, upon the Borrower's
request from time to time, make revolving loans (the "Revolving Loans") to the
Borrower up to the limits of the Availability. The Lender, in its discretion,
may elect to exceed the limits of the Availability on one or more occasions, but
if it does so, the Lender shall not be deemed thereby to have changed the limits
of the Availability or to be obligated to exceed the limits of the Availability
on any other occasion. If the unpaid balance of the Revolving Loans exceeds the
Availability (determined for this purpose as if the amount of the Revolving
Loans were zero), then the Lender may refuse to make or otherwise restrict
Revolving Loans on such terms as the Lender determines until such excess has
been eliminated. The Borrower may request Revolving Loans either orally or in
writing. Each oral request for
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a Revolving Loan shall be conclusively presumed to be made by a person
authorized by the Borrower to do so and the crediting of a Revolving Loan to the
Borrower's deposit account, or transmittal to such Person as the Borrower shall
direct, shall conclusively establish the obligation of the Borrower to repay
such Revolving Loan as provided herein. The Lender will charge all Revolving
Loans and other Obligations to a loan account of the Borrower maintained with
the Lender. All fees, commissions, costs, expenses, and other charges under or
pursuant to the Loan Documents, and all payments made and out-of-pocket expenses
incurred by Lender pursuant to the Loan Documents, will be charged as Revolving
Loans to the Borrower's loan account as of the date due from the Borrower or the
date paid or incurred by the Lender, as the case may be.
2.3 Letters of Credit. The Lender shall, upon the Borrower's
request from time to time, cause documentary and standby letters of credit to be
issued for the Borrower's account (the "Letters of Credit"). The Lender will not
cause to be opened any Letter of Credit if: (a) the maximum face amount of the
requested Letter of Credit, plus the aggregate undrawn face amount of all
outstanding Letters of Credit, would exceed $1,500,000; or (b) the maximum face
amount of the requested Letter of Credit, and all commissions, fees, and charges
due from the Borrower to the Lender in connection with the opening thereof,
would cause the Availability to be exceeded at such time. The Letters of Credit
shall be governed by a Letter of Credit Financing Agreement Supplement to Loan
and Security Agreement between the Lender and the Borrower ("Letter of Credit
Agreement"), in addition to the terms and conditions hereof. All payments made
and expenses incurred by the Lender pursuant to or in connection with the
Letters of Credit and the Letter of Credit Agreement will be charged to the
Borrower's loan account as Revolving Loans.
3. INTEREST AND OTHER CHARGES
3.1 Interest. (a) The Borrower shall pay the Lender interest on
the unpaid principal balance of the Revolving Loans (including, to the extent
permitted by law, on interest thereon not paid when due) at a fluctuating per
annum rate equal to one percent (1.0%) plus the Reference Rate. Each change in
the Reference Rate shall be reflected in the foregoing interest rates as of the
effective date of such change. Interest charges shall be computed on the basis
of a year of 360 days and actual days elapsed and will be payable to the Lender
on the first day of each month hereafter.
(b) If any Event of Default occurs, then, from the
date such Event of Default occurs until it is cured, or if not cured until all
Obligations are paid and performed in full, the Borrower will pay interest on
the unpaid principal balance of the Revolving Loans at a per annum rate two
percent (2.0%) greater than the rate of interest otherwise specified herein, and
the Letter of Credit Fee shall be increased to three and one-half percent (3.5%)
per annum for standby Letters of Credit and two and one-half percent (2.5%) per
annum for documentary Letters of Credit.
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(c) In the event the Borrower and its Subsidiaries, on
a consolidated basis, incur net quarterly losses, as determined in accordance
with GAAP, in excess of $1,000,000 on a cumulative basis for the period
beginning July 1, 1995, the interest on the unpaid principal balance of the
Revolving Loans shall increase, without further notice, to a fluctuating per
annum rate equal to one and one-half percent (1.5%) plus the Reference Rate,
effective as of the first day of the Fiscal Quarter in which the Borrower and
its Subsidiaries have incurred such cumulative quarterly losses. In the event
that, following the imposition of the increased interest rate provided for in
the previous sentence, the Borrower and its Subsidiaries, on a consolidated
basis, reduce their cumulative quarterly losses from July 1, 1995 to the date of
calculation to $500,000 or less, the interest rate shall revert, without further
notice, to a fluctuating per annum rate equal to one percent (1%) plus the
Reference Rate, effective as of the first day of the Fiscal Quarter in which the
Borrower and its Subsidiaries have reduced such cumulative losses.
3.2 Unused Line Fee. For every month during the term of this
Agreement, the Borrower shall pay the Lender a fee (the "Unused Line Fee") in an
amount equal to three-eighths of one percent (0.375%) per annum, multiplied by
the average daily outstanding amount by which the Total Facility exceeds the sum
of (i) the average daily outstanding amount of Revolving Loans and (ii) the
undrawn face amount of all outstanding Letters of Credit during such month, with
the unpaid balance calculated for this purpose by applying payments immediately
upon receipt. Such a fee, if any, shall be calculated on the basis of a year of
three hundred sixty (360) days and actual days elapsed, and shall be payable to
the Lender on the first day of each month with respect to the prior month.
3.3 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations under this Agreement, the total amount of interest paid or accrued
under the terms of this Agreement is less than the total amount of interest
which would, but for this Section 3.3, have been paid or accrued if the interest
rates otherwise set forth in this Agreement had at all times been in effect,
then the Borrower shall, to the extent permitted by applicable law, pay the
Lender an amount equal to the difference between (a) the lesser of (i) the
amount of interest which would have been charged if the Maximum Rate had, at all
times, been in effect or (ii) the amount of interest which would have accrued
had the interest rates otherwise set forth in this Agreement, at all times, been
in effect and (b) the amount of interest actually paid or accrued under this
Agreement. In the event that a court determines that the Lender has received
interest and other charges hereunder in excess of the Maximum Rate, such excess
shall be deemed received on account of, and shall automatically be applied to
reduce, the Obligations other than interest, in the inverse order of
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maturity, and if there are no Obligations outstanding, the Lender shall refund
to the Borrower such excess.
3.4 Facility Fee. The Borrower will pay the Lender on the
Closing Date a facility fee of $56,250 (the "Facility Fee"). The Lender and the
Borrower agree that the Facility Fee shall be financed by the Lender as a
Revolving Loan.
3.5 Capital Adequacy. If as a result of any regulatory change
directly or indirectly affecting the Lender or any of the Lender's affiliated
companies there shall be imposed or deemed applicable any tax, reserve, special
deposit, minimum capital, capital ratio, or similar requirement against or with
respect to or measured by reference to loans made or to be made hereunder, or to
Letters of Credit issued pursuant to the Letter of Credit Agreement, and the
result shall be to increase the cost to the Lender or to any of the Lender's
affiliated companies of making or maintaining any loan or Letter of Credit
hereunder, or reduce any amount receivable, or shall be the result of the
Lender's or the Lender's affiliated company's reasonable allocation among all
affected customers of the aggregate of such increase or reductions resulting
from such event, then, within ten (10) days after receipt by the Borrower of a
certificate from Lender containing the information described in this Section 3.5
which shall be delivered to the Borrower, the Borrower agrees from time to time
to pay the Lender such additional amounts as shall be sufficient to compensate
the Lender or any of the Lender's affiliated companies for such increased costs
or reductions in amounts which the Lender determines in the Lender's sole
discretion are material. Notwithstanding the foregoing, all such amounts shall
be subject to the provisions of Section 3.3. The certificate requesting
compensation under this Section 3.5 shall identify the regulatory change which
has occurred, the requirements which have been imposed, modified or deemed
applicable, the amounts of such additional cost or reduction in the amount
receivable and the way in which such amount has been calculated.
4. PAYMENTS AND PREPAYMENTS
4.1 Revolving Loans. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition, and
without limiting the generality of the foregoing, the Borrower shall pay to the
Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability (determined for this
purpose as if the amount of the Revolving Loans were zero).
4.2 Place and Form of Payments; Extension of Time. All payments
of principal, interest, premium, and other sums due to the Lender shall be made
at the Lender's address set forth in Section 14.11. Except for Proceeds received
directly by the Lender, all such payments shall be made in immediately available
funds. If any payment of principal, interest, premium, or other sum to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date of such payment shall be
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extended to the next succeeding Business Day and interest thereon shall be
payable at the applicable interest rate during such extension.
4.3 Application and Reversal of Payments. The Lender shall
determine in its sole discretion the order and manner in which Proceeds of
Collateral and other payments that the Lender receives are applied to the
Revolving Loan, interest thereon, and the other Obligations, and the Borrower
hereby irrevocably waives the right to direct the application of any payment or
Proceeds. The Lender shall have the continuing and exclusive right to apply and
reverse and reapply any and all such Proceeds and payments to any portion of the
Obligations.
4.4 Indemnity for Returned Payments. IF AFTER RECEIPT OF ANY
PAYMENT WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS,
THE LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE, DETERMINED
TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE OBLIGATIONS OR PART THEREOF
INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUE AND THIS AGREEMENT SHALL
CONTINUE IN FULL FORCE AS IF SUCH PAYMENT HAD NOT BEEN RECEIVED BY THE LENDER
AND THE BORROWER SHALL BE LIABLE TO PAY TO THE LENDER AND HEREBY DOES INDEMNIFY
THE LENDER AND HOLD THE LENDER HARMLESS FOR THE AMOUNT OF SUCH PAYMENT
SURRENDERED. The provisions of this Section 4.4 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Lender in
reliance upon such payment, and any such contrary action so taken shall be
without prejudice to the Lender's rights under this Agreement and shall be
deemed to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section 4.4 shall survive the termination of
this Agreement.
5. BOOKS AND RECORDS; MONTHLY STATEMENTS.
5.1 Lender's Books and Records. The Borrower agrees that the Lender's
books and records showing the Obligations and the transactions pursuant to this
Agreement and the other Loan Documents shall be admissible in any action or
proceeding arising therefrom, and shall constitute prima facie proof thereof,
irrespective of whether any Obligation is also evidenced by a promissory note or
other instrument.
5.2 Lender's Monthly Statements. The Lender will provide to the
Borrower a monthly statement of Loans, payments, and other transactions pursuant
to this Agreement. Such statement shall be deemed correct, accurate, and binding
on the Borrower and as an account stated (except for reversals and
reapplications of payments made as provided in Section 4.3 and corrections of
errors discovered by the Lender), unless the Borrower notifies the Lender in
writing to the contrary within thirty (30) days after such statement is
rendered. In the event a timely written notice of objections is given by the
Borrower,
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only the items to which exception is expressly made will be considered to be
disputed by the Borrower.
6. COLLATERAL
6.1 Grant of Security Interest. (a) As security for the
Obligations, the Borrower hereby grants to the Lender a continuing security
interest in, lien on, and assignment of: (i) all Receivables, Inventory,
Equipment, Assigned Contracts, Proprietary Rights and Proceeds, wherever located
and whether now existing or hereafter arising or acquired; (ii) all moneys,
securities and other property and the Proceeds thereof, now or hereafter held or
received by, or in transit to, the Lender from or for the Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, including,
without limitation, all of the Borrower's deposit accounts, credits, and
balances with the Lender and all claims of the Borrower against the Lender at
any time existing; (iii) all of the Borrower's deposit accounts with any
financial institutions with which the Borrower maintains deposits; and (iv) all
books, records and other Property relating to or referring to any of the
foregoing, including, without limitation, all books, records, ledger cards, data
processing records, computer software and other property and general intangibles
at any time evidencing or relating to the Receivables, Inventory, Equipment,
Assigned Contracts, Proprietary Rights, Proceeds, and other property referred to
above (all of the foregoing and all other property in which the Lender may at
any time be granted a Lien, being herein collectively referred to as the
"Collateral"). The Lender shall have all of the rights of a secured party with
respect to the Collateral under the UCC and other applicable laws.
(b) All Obligations shall constitute a single loan
secured by the Collateral. The Lender may, in its sole discretion, (i) exchange,
waive, or release any of the Collateral, (ii) when an Event of Default occurs
and is continuing, apply Collateral and direct the order or manner of sale
thereof as the Lender may determine, and (iii) when an Event of Default occurs
and is continuing, settle, compromise, collect, or otherwise liquidate any
Collateral in any manner, all without affecting the Obligations or the Lender's
right to take any other action with respect to any other Collateral.
6.2 Perfection and Protection of Security Interest. The
Borrower shall, at its expense, perform all reasonable steps requested by the
Lender at any time to perfect, maintain, protect, and enforce the Security
Interest including, without limitation: (a) executing and recording of the
Patent and Trademark Assignments and executing and filing financing or
continuation statements, and amendments thereof, in form and substance
satisfactory to the Lender; (b) delivering, upon request, to the Lender the
original certificates of title for motor vehicles with the Security Interest
properly endorsed thereon; (c) delivering, upon request, to the Lender the
originals of all instruments other than negotiable instruments received in the
ordinary course of business, documents, and chattel paper, and all other
Collateral of which the Lender determines it should have physical possession in
order to perfect and protect the Security Interest therein, duly endorsed or
assigned to the Lender without restriction; (d) delivering, upon request, to the
Lender warehouse receipts covering any portion of the Collateral located in
warehouses and for
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which warehouse receipts are issued; (e) when an Event of Default occurs and is
continuing, transferring Inventory to warehouses designated by the Lender; (f)
placing notations on the Borrower's books of account to disclose the Security
Interest; (g) executing and delivering to the Lender a security agreement
relating to the Reversions in form and substance satisfactory to the Lender; (h)
delivering, upon request, to the Lender all letters of credit on which the
Borrower is named beneficiary; and (i) taking such other reasonable steps as are
deemed necessary by the Lender to maintain the Security Interest. To the extent
permitted by applicable law, the Lender may file, without the Borrower's
signature, one or more financing statements disclosing the Security Interest.
The Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Borrower's agents or
processors, then the Borrower shall notify the Lender thereof and shall notify
such Person of the Security Interest in such Collateral and, upon the Lender's
request when an Event of Default occurs and is continuing, instruct such Person
to hold all such Collateral for the Lender's account subject to the Lender's
instructions. If at any time any Collateral is located on any Premises that are
not owned by the Borrower, then the Borrower shall use reasonable efforts to
obtain written waivers, in form and substance satisfactory to the Lender, of all
present and future Liens to which the owner or lessor or any mortgagee of such
premises may be entitled to assert against the Collateral. From time to time,
the Borrower shall, upon Lender's request, execute and deliver confirmatory
written instruments pledging to the Lender the Collateral, but the Borrower's
failure to do so shall not affect or limit the Security Interest or the Lender's
other rights in and to the Collateral. So long as this Agreement is in effect
and until all Obligations have been fully satisfied, the Security Interest shall
continue in full force and effect in all Collateral (whether or not deemed
eligible for the purpose of calculating the Availability or as the basis for any
advance, loan, extension of credit, or other financial accommodation).
6.3 Location of Collateral. The Borrower represents and
warrants to the Lender that: (a) Schedule 6.3 hereto is a correct and
complete list of the Borrower's chief executive office, the location of its
books and records, the locations of the Collateral, and the location's of all of
its other places of business and (b) Schedule 6.3 correctly identifies
any of such facilities and locations that are now owned by the Borrower and sets
forth the names of the owners and lessors or sub-lessors of such facilities and
locations. The Borrower covenants and agrees that it will not maintain any
Collateral at any location other than those listed on Schedule 6.3, and
it will not otherwise change or add to any of such locations, unless it gives
the Lender prior written notice thereof and executes any and all financing
statements and other documents that the Lender requests in connection therewith.
6.4 Title to, Liens on, and Sale and Use of Collateral.
The Borrower represents and warrants to the Lender that: (a) all Collateral is
and will continue to be owned by the Borrower free and clear of all Liens
whatsoever, except for the Security Interest and other Permitted Liens; (b) the
Security Interest will not be subject to any prior Lien except for Permitted
Liens, if any; (c) the Borrower will use, store, and maintain the Collateral
with all reasonable care and will use the Collateral for lawful purposes only;
and
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(d) the Borrower will not, without the Lender's prior written approval, sell, or
dispose of or permit the sale or disposition of any Collateral, except for sales
of Inventory in the ordinary course of business and as permitted by Section
6.12. The inclusion of Proceeds in the Collateral shall not be deemed the
Lender's consent to any sale or other disposition of the Collateral except as
expressly permitted herein.
6.5 Intentionally Omitted.
6.6 Access and Examination. The Lender may at all reasonable
times have access to, examine, audit, make extracts from and inspect the
Borrower's records, files, and books of account and the Collateral and may
discuss the Borrower's affairs with the Borrower's officers and management. The
Borrower will deliver to the Lender any instrument necessary for the Lender to
obtain records from any service bureau maintaining records for the Borrower. The
Lender may, at any time when an Event of Default exists and at the Borrower's
expense, make copies of all of the Borrower's books and records, or require the
Borrower to deliver such copies to the Lender. If an Event of Default has
occurred and is continuing, the Lender may, without expense to the Lender, use
such of the Borrower's personnel, supplies, and premises as may be reasonably
necessary for maintaining or enforcing the Security Interest. Lender shall have
the right, at any time, in the name of a nominee of the Lender to verify the
validity and amount of the Accounts, by mail or telephone.
6.7 Insurance. The Borrower shall insure the Collateral against
loss or damage by fire with extended coverage, theft, burglary, pilferage, loss
in transit, and such other hazards as the Lender shall specify, in amounts,
under policies and by insurers acceptable to the Lender. Borrower shall also
maintain flood insurance for any Equipment and Inventory located in an area
designated as a "flood prone" or a "flood risk area," (hereinafter "SFHA"), as
defined by the Flood Disaster Protection Act of 1973, in an amount to be
reasonably determined by the Lender. The Borrower shall cause the Lender to be
named in each such policy as secured party or mortgagee and loss payee or
additional insured, in a manner reasonably acceptable to the Lender. Each policy
of insurance shall contain a clause or endorsement requiring the insurer to give
not less than thirty (30) days prior written notice to the Lender in the event
of cancellation of the policy for any reason whatsoever and a clause or
endorsement stating that the interest of the Lender shall not be impaired or
invalidated by any act or neglect of the Borrower or the owner of any premises
where Collateral is located nor by the occupation of such premises for purposes
more hazardous than are permitted by such policy. The Borrower shall pay, upon
Lender's request, all reasonable fees incurred by the Lender to determine
whether any of the Collateral is located in a SFHA. The Borrower shall also pay
all premiums for such insurance when due, and shall deliver to the Lender
certificates of insurance and, if requested, photocopies of the policies. If the
Borrower fails to pay such fees or to procure such insurance or the premiums
therefor when due, the Lender may (but shall not be required to) do so and
charge the costs thereof to the Borrower's loan account as a Revolving Loan. The
Borrower shall promptly notify the Lender of any loss, damage, or destruction to
the Collateral or arising from its use, whether or not covered by insurance. The
Lender is hereby authorized to collect all insurance proceeds directly. After
deducting
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from such proceeds the expenses, if any, incurred by Lender in the collection or
handling thereof, the Lender may apply such proceeds to the reduction of the
Obligations in such order as Lender determines, or at the Lender's option may
permit the Borrower to use such money, or any part thereof, to replace, repair,
restore or rebuild the Collateral in a diligent and expeditious manner with
materials and workmanship of substantially the same quality as existed before
the loss, damage or destruction.
6.8 Collateral Reporting. The Borrower will provide the Lender
with the following documents at the following times in form satisfactory to the
Lender: (a) on a weekly basis, a schedule of Accounts created since the last
such schedule; (b) on a weekly basis, a schedule or remittance advices, credit
memos and reports, and a schedule of collections of accounts receivable; (c)
upon request, copies of invoices, credit memos, shipping and delivery documents;
(d) monthly ageings of accounts receivable; (e) monthly inventory reports by
category; (f) upon request, monthly perpetual inventory reports; (g) monthly
ageings of accounts payable; (h) upon request, copies of purchase orders,
invoices, and delivery documents for Inventory and Equipment acquired by the
Borrower; (i) such other reports as to the Collateral as the Lender shall
request from time to time; and (j) certificates of an officer of the Borrower
certifying as to the foregoing. If any of the Borrower's records or reports of
the Collateral are prepared by an accounting service or other agent, the
Borrower shall, upon the request of Lender, authorize such service or agent to
deliver such records, reports, and related documents to the Lender.
6.9 Accounts. (a) The Borrower hereby represents and warrants
to the Lender and agrees with the Lender that: (i) each existing Account
represents, and each future Account will represent, a bona fide sale or lease
and delivery of goods by the Borrower, or rendition of services by the Borrower,
in the ordinary course of the Borrower's business; (ii) each existing Account
is, and each future Account will be, for a liquidated amount payable by the
Account Debtor thereon on the terms set forth in the invoice therefor or in the
schedule thereof delivered to the Lender, without offset, deduction, defense, or
counterclaim; (iii) no payment will be received with respect to any Account, and
no credit, discount, or extension, or agreement therefor will be granted on any
Account, except as reported to the Lender in accordance with this Agreement;
(iv) each copy of an invoice delivered to the Lender by the Borrower will be a
genuine copy of the original invoice sent to the Account Debtor named therein;
and (v) all goods described in each invoice will have been delivered to the
Account Debtor and all services of the Borrower described in each invoice will
have been performed.
(b) The Borrower shall not re-date any invoice or sale
or make sales on extended dating beyond that customary in the Borrower's
business or extend or modify any Account. If the Borrower becomes aware of any
matter affecting any Account, including information regarding the Account
Debtor's creditworthiness, the Borrower will promptly so advise the Lender.
(c) The Borrower shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Account without the Lender's written consent. If the
Lender consents to the
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acceptance of any such note or other instrument, it shall be considered as
evidence of the Account and not payment thereof, and the Borrower will promptly
deliver such note or instrument to the Lender appropriately endorsed. Regardless
of the form of presentment, demand, notice of dishonor, protest, and notice of
protest with respect thereto, the Borrower will remain liable thereon until such
note or instrument is paid in full.
(d) The Borrower shall notify the Lender promptly of
all disputes and claims with Account Debtors and settle or adjust them at no
expense to the Lender, but no discount, credit or allowance shall be granted to
any Account Debtor without the Lender's consent, except for discounts, credits
and allowances made or given in the ordinary course of the Borrower's business.
The Borrower shall send the Lender a copy of each credit memoranda in excess of
$40,000 as soon as issued and, upon request, copies of all credit memoranda. The
Lender may at all times when an Event of Default exists hereunder settle or
adjust disputes and claims directly with customers or Account Debtors for
amounts and upon terms which the Lender considers advisable and, in all cases,
the Lender will credit the Borrower's loan account with only the net amounts
received by the Lender in payment of any Accounts.
(e) If an Account Debtor returns any Inventory to the
Borrower when no Event of Default exists, then the Borrower shall promptly
determine the reason for such return and shall issue a credit memorandum to the
Account Debtor in the appropriate amount. The Borrower shall immediately report
to the Lender any return involving an amount in excess of $40,000 and, upon
request, shall report all returns to the Lender on a weekly basis. Each such
report shall indicate the reasons for the returns and the locations and
condition of the returned Inventory. In the event any Account Debtor returns
Inventory to the Borrower when an Event of Default exists, the Borrower shall:
(i) hold the returned Inventory in trust for the Lender; (ii) segregate all
returned Inventory from all of its other Property; (iii) dispose of the returned
Inventory solely according to the Lender's written instructions; and (iv) not
issue any credits or allowances with respect thereto without the Lender's prior
written consent. All returned Inventory shall remain subject to the Security
Interest. Whenever any Inventory is returned, the related Account shall be
deemed ineligible, and Availability shall be adjusted accordingly.
6.10 Collection of Accounts; Payments. (a) Until the Lender
notifies the Borrower to the contrary, the Borrower shall make collection of all
Accounts and other Collateral for the Lender, shall receive all payments as the
Lender's trustee, and shall immediately deliver all payments to the Lender in
their original form duly endorsed in blank or deposit them into a Payment
Account established at the Lender's request, as the Lender may direct. If the
Lender requests, the Borrower shall establish a lock-box service for collections
of Accounts at a bank mutually acceptable to the Lender and the Borrower and
pursuant to documentation satisfactory to the Lender. If such lock-box service
is established, the Borrower shall instruct all Account Debtors to make all
payments directly to the address established for such service. If,
notwithstanding such instructions, the Borrower receives any Proceeds of
Accounts, it shall receive such payments as the Lender's trustee, and shall
immediately deliver such payments to the Lender in their original form duly
endorsed in blank or deposit them into a Payment Account, as the Lender may
direct.
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All collections received in any such lock box or Payment Account or directly by
the Borrower or the Lender, and all funds in any Payment Account or other
account to which such collections are deposited, shall be the sole property of
the Lender and subject to the Lender's sole control. The Lender or the Lender's
designee may, when an Event of Default occurs and is continuing, , notify
obligors that the Accounts have been assigned to the Lender and of the Security
Interest therein, and may collect them directly and charge the collection costs
and expenses to the Borrower's loan account as a Revolving Loan. At the Lender's
request, the Borrower shall execute and deliver to the Lender such documents as
the Lender shall require to grant the Lender access to any post office box in
which collections of Accounts are received.
(b) If sales of Inventory are made for cash, the
Borrower shall immediately deliver to the Lender the identical checks, cash, or
other forms of payment which the Borrower receives.
(c) All payments received by the Lender on account of
Accounts or as Proceeds of other Collateral will be credited to the Borrower's
loan account (conditional upon final collection) after allowing two (2) Business
Days for collection.
(d) In the event the Borrower repays all of the
Obligations upon the termination of this Agreement, other than through the
Lender's receipt of payments on account of Accounts or Proceeds of other
Collateral, such payment will be credited (conditional upon final collection) to
the Borrower's loan account five (5) Business Days after the Lender's receipt
thereof.
6.11 Inventory. The Borrower represents and warrants to
the Lender that all of the Inventory is and will be held for sale or lease, or
to be furnished in connection with the rendition of services in the ordinary
course of the Borrower's business and is and will be fit for such purposes. The
Borrower will keep the Inventory in good and marketable condition, at its own
expense. The Borrower agrees that all Inventory will be produced in accordance
with the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations, and orders thereunder. The Borrower will maintain a perpetual
inventory reporting system at all times. The Borrower will conduct a physical
count of the Inventory at least once per Fiscal Year, and at such other times as
the Lender requests, and shall promptly supply the Lender with a copy of such
count accompanied by a report of the value of such Inventory (valued at the
lower of cost, on a first-in, first-out basis, or market value). The Borrower
will not, except as consistent with past practices, sell any Inventory on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis.
6.12 Equipment. The Borrower represents and warrants to
the Lender that all of the Equipment is and will be used or held for use in the
Borrower's business and is and will be fit for such purposes. The Borrower shall
keep and maintain the Equipment in good operating condition and repair (ordinary
wear and tear excepted) and shall make all necessary replacements thereof. The
Borrower shall promptly inform the Lender of any material additions to or
deletions from the Equipment. The Borrower will not, without the
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Lender's prior written consent, alter or remove any identifying symbol or number
on the Equipment. Except as otherwise herein permitted, the Borrower shall not,
without the Lender's prior written consent, sell, lease as a lessor, or
otherwise dispose of any of the Equipment provided, however,
that the Borrower may dispose of obsolete or unusable Equipment in the ordinary
course of business. In the event any of the Equipment is sold, transferred or
otherwise disposed of with the Lender's prior written consent or as otherwise
permitted hereby when an Event of Default has occurred and is continuing, and:
(a) such sale, transfer or disposition is effected without replacement of such
Equipment, or such Equipment is replaced by Equipment leased by the Borrower, or
by Equipment purchased by the Borrower subject to a lien or other right
constituting a Permitted Lien, then the Borrower shall deliver all of the cash
proceeds of any such sale, transfer or disposition to the Lender, which proceeds
shall be applied to the repayment of the Obligations; or (b) such sale, transfer
or disposition is made in connection with the purchase by the Borrower of
replacement Equipment (other than subject to a Permitted Lien), then the
Borrower shall use the proceeds of such sale, transfer or disposition to finance
the purchase by the Borrower of replacement Equipment and shall deliver to the
Lender written evidence of the use of the proceeds for such purchase. All
replacement Equipment purchased by the Borrower shall be free and clear of all
liens, claims and encumbrances, except for the Security Interest and other
Permitted Liens.
6.13 Assigned Contracts. The Borrower shall fully
perform all of its obligations under each of the Assigned Contracts, and shall
enforce all of its rights and remedies thereunder as it deems appropriate in its
business judgment and shall maintain the existence of each of the Assigned
Contracts to the extent Borrower, in the exercise of its business judgment,
believes such Assigned Contracts are necessary for its business operations. The
Borrower shall notify the Lender in writing, promptly after it becomes aware
thereof, of any event or fact which could give rise to a claim by it for
indemnification under any of the Assigned Contracts and shall diligently pursue
such right and report to the Lender on all further developments with respect
thereto. If an Event of Default has occurred and is continuing, the Borrower
shall remit directly to the Lender, for application to the Obligations in such
order as the Lender determines, all amounts received by the Borrower as
indemnification or otherwise pursuant to the Assigned Contracts. If an Event of
Default exists, then the Lender may directly enforce such right in its own or
the Borrower's name and may enter into such settlements or other agreements with
respect thereto as the Lender reasonably determines. All amounts thereby
recovered by the Lender, after deducting Lender's reasonable costs and expenses
in connection therewith, shall be applied to the Obligations in such order as
the Lender determines. In any suit, proceeding or action brought by the Lender
under any Assigned Contract for any sum owing thereunder or to enforce any
provision thereof, the Borrower shall indemnify and hold the Lender harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment, or reduction of liability whatsoever of the
obligor thereunder arising out of a breach by the Borrower of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing from the Borrower to or in favor of such obligor or its
successors. All such obligations of the Borrower shall be and remain enforceable
only against the Borrower and shall not be enforceable against the Lender.
Notwithstanding any provision hereof to the contrary, the
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Borrower shall at all times remain liable to observe and perform all of its
duties and obligations under the Assigned Contracts and the Lender's exercise of
any of its rights with respect to the Collateral shall not release the Borrower
from any of such duties and obligations. The Lender shall not be obligated to
perform or fulfill any of the Borrower's duties or obligations under the
Assigned Contracts or to make any payment thereunder or to make any inquiry as
to the nature or sufficiency of any payment or Property received by it
thereunder or the sufficiency of performance by any party thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance or payment of any amounts due.
6.14 Documents, Instruments, and Chattel Paper. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments, and
chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine; and (b) all goods evidenced by such documents, instruments, and chattel
paper are and will be owned by the Borrower free and clear of all Liens other
than Permitted Liens.
6.15 Right to Cure. The Lender may, in its sole discretion and
at any time when an Event of Default occurs and is continuing, pay any amount or
do any act reasonably required of the Borrower hereunder to preserve, protect,
maintain or enforce the Obligations, the Collateral or the Security Interest,
and which the Borrower fails to pay or do, including, without limitation,
payment of any judgment against the Borrower, any insurance premium, any
warehouse charge, any finishing or processing charge, any landlord's claim, and
any other Lien upon or with respect to the Collateral. All payments that the
Lender makes under this Section 6.15 and all out-of-pocket costs and expenses
that the Lender pays or incurs in connection with any action taken by it
hereunder shall be charged to the Borrower's loan account as a Revolving Loan.
Any payment made or other action taken by the Lender under this Section 6.15
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed thereafter as herein provided.
6.16 Power of Attorney. The Borrower hereby appoints the Lender
and the Lender's designees as the Borrower's attorney, with power: (a) when an
Event of Default occurs and is continuing, to endorse the Borrower's name on any
checks, notes, acceptances, money orders, or other forms of payment or security
that come into the Lender's possession; (b) to sign the Borrower's name on
financing statements and on verifications of Accounts; (c) when an Event of
Default occurs and is continuing , to sign the Borrower's name on any invoice,
bill of lading, or other documents of title relating to the Collateral, or
drafts against customers, on assignments, and notices to account debtors; (d) to
send requests for verification of Accounts to Account Debtors; and (e) to do all
things necessary to carry out this Agreement. The Borrower ratifies and approves
all acts of such attorney. Neither the Lender nor the attorney will be liable
for any acts or omissions or for any error of judgment or mistake of fact or
law, except for Lender's or the attorneys' gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable until
this Agreement has been terminated and the Obligations have been fully
satisfied.
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6.17 Lender's Rights, Duties, and Liabilities. The Borrower
assumes all responsibility and liability arising from or relating to the use,
sale, or other disposition of the Collateral. Neither the Lender nor any of its
officers, directors, employees, and agents shall be liable or responsible in any
way for the safekeeping of any of the Collateral, or for any act or failure to
act with respect to the Collateral, or for any loss or damage thereto, or for
any diminution in the value thereof, or for any act of default or any
warehouseman, carrier, forwarding agency or other person whomsoever, all of
which shall be at the Borrower's sole risk. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the Security
Interest or to collect or realize upon the Collateral, nor shall loss of or
damage to the Collateral release the Borrower from any of the Obligations. The
Lender may (but shall not be required to), without notice to or consent from the
Borrower, sue upon or otherwise collect, extend the time for payment of, modify
or amend the terms of, compromise or settle for cash, credit, or otherwise upon
any terms, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with respect to the
Collateral, any security therefor, any agreement relating thereto, any insurance
applicable thereto, or any Person liable directly or indirectly in connection
with any of the foregoing, without discharging or otherwise affecting the
liability of the Borrower for the Obligations or under this Agreement or any
other agreement now or hereafter existing between the Lender and the Borrower.
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1 Books and Records. The Borrower shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with GAAP
consistent with those applied in the preparation of the Financial Statements.
The Borrower shall, by means of appropriate entries, reflect in such accounts
and in all Financial Statements proper liabilities and reserves for all taxes
and proper provision for depreciation and amortization of Property and bad
debts, all in accordance with GAAP. The Borrower shall maintain at all times
books and records pertaining to the Collateral in such detail, form, and scope
as the Lender shall reasonably require, including without limitation records of:
(a) all payments received and all credits and extensions granted with respect to
the Accounts; (b) the return, rejections, repossession, stoppage in transit,
loss, damage, or destruction of any Inventory; and (c) all other dealings
affecting the Collateral.
7.2 Financial Information. The Borrower shall promptly furnish
to the Lender or its agents all such financial information as the Lender shall
reasonably request. Without limiting the foregoing, the Borrower and its
Subsidiaries will furnish to the Lender, in such detail as the Lender shall
request, the following:
(a) As soon as available, but in any event not later
than 90 days after the close of each Fiscal Year, consolidated and consolidating
audited balance sheets, and statements of income and expense, retained earnings,
and changes in financial position and stockholders equity for the Borrower and
its consolidated Subsidiaries for such Fiscal Year, and the accompanying notes
thereto, setting forth in each case in comparative form
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figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the Borrower
and its consolidated Subsidiaries as at the date thereof and for the Fiscal Year
then ended, and prepared in accordance with GAAP. Such statements shall be
examined in accordance with generally accepted auditing standards by and
accompanied by a report thereon unqualified as to scope of independent certified
public accountants selected by the Borrower and reasonably satisfactory to the
Lender.
(b) As soon as available, but in any event not later
than 45 days after the close of each fiscal quarter other than the fourth
quarter of a Fiscal Year, consolidated and consolidating unaudited balance
sheets of the Borrower and its consolidated Subsidiaries as at the end of such
quarter, and consolidated and consolidating unaudited statements of income and
expense and changes in financial position for the Borrower and its consolidated
Subsidiaries for such quarter and for the period from the beginning of the
Fiscal Year to the end of such quarter, together with the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position and
results of operation of the Borrower and its consolidated Subsidiaries as at the
date thereof and for such periods, prepared in accordance with GAAP consistent
with the audited Financial Statements required pursuant to Section 7.2(a). Such
statements shall be certified to be correct by the chief financial or accounting
officer of the Borrower, subject to normal year-end adjustments.
(c) As soon as available, but in any event not later
than 30 days after the end of each month, consolidated and consolidating
unaudited balance sheets of the Borrower and its consolidated Subsidiaries as at
the end of such month, and consolidated and consolidating unaudited statements
of income and expenses for the Borrower and its consolidated Subsidiaries for
such month and for the period from the beginning of the Fiscal Year to the end
of such month, all in reasonable detail, fairly presenting the financial
position and results of operation of the Borrower and its consolidated
Subsidiaries as at the date thereof and for such periods, and prepared in
accordance with past business practices.
(d) With each of the audited Financial Statements
delivered pursuant to Section 7.2(a), a certificate, to the extent the
accountants are prepared to do so, of the independent certified public
accountants that examined such statements to the effect that they have reviewed
and are familiar with the Loan Documents and that, in examining such Financial
Statements, they did not become aware of any fact or condition which then
constituted an Event or Event of Default, except for those, if any, described in
reasonable detail in such certificate.
(e) With each of the annual audited and quarterly
unaudited Financial Statements delivered pursuant to Sections 7.2(a) and 7.2(b),
a certificate of the chief executive or chief financial officer of the Borrower
(i) setting forth in reasonable detail the calculations required to establish
that the Borrower was in compliance with its covenants set forth in Sections
9.19 through 9.21 during the period covered in such Financial Statements, and
(ii) stating that, except as explained in reasonable detail in such
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certificate, (A) all of the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents are correct and
complete as at the date of such certificate as if made at such time, (B) no
Event or Event of Default then exists or existed during the period covered by
such Financial Statements and (iii) describing and analyzing in reasonable
detail all material trends, changes and developments in such Financial
Statements. If such certificate discloses that a representation or warranty is
not correct or complete, or that a covenant has not been complied with, or that
an Event or Event of Default existed or exists, such certificate shall set forth
what action the Borrower has taken or proposes to take with respect thereto.
(f) No sooner than 90 days and no less than 5 days
prior to the beginning of each Fiscal Year, consolidated and consolidating
projected balance sheets, statements of income and expense, and statements of
cash flow for the Borrower and its Subsidiaries as at the end of and for each
quarter of such Fiscal Year.
(g) Within 45 days after the end of each fiscal
quarter, a report of the Capital Expenditures of the Borrower and its
Subsidiaries for such quarter and a statement of cash flow for the Borrower and
its Subsidiaries for the period from the beginning of the then current Fiscal
Year to the end of such quarter, prepared in accordance with GAAP consistent
with the audited Financial Statements required pursuant to Section 7.2(a).
(h) Promptly after their preparation, copies of any
and all proxy statements, financial statements, and reports which the Borrower
makes available to its stockholders.
(i) Promptly after filing with the PBGC, DOL, or IRS,
a copy of each annual report or other filing or notice filed with respect to
each Plan of the Borrower or any ERISA Affiliate.
(j) Such additional information as the Lender may from
time to time reasonably request regarding the financial and business affairs of
the Borrower or any Subsidiary, including, without limitation, projections of
future operations on both a consolidated and consolidating basis.
7.3 Notices to Lender. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after becoming aware of the existence
of any Event or Event of Default.
(b) Immediately after becoming aware that the holder
of any Debt has given notice or taken any action with respect to a claimed
default with respect to indebtedness in excess of $200,000.
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(c) Immediately after becoming aware of any material
adverse change in the Borrower's Property, business, operations, or condition
(financial or otherwise).
(d) Immediately after becoming aware of any pending
or threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Public Authority, which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any pending
or threatened strike, work stoppage, material unfair labor practice claim, or
other material labor dispute affecting the Borrower or any of its Subsidiaries.
(f) Immediately after becoming aware of any violation
of any law, statute, regulation, or ordinance of a Public Authority applicable
to Borrower, any Subsidiary, or their respective Properties which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(g) Immediately after becoming aware of any violation
by the Borrower of Environmental Laws or immediately upon receipt of any notice
that a Public Authority has asserted that the Borrower is not in compliance with
Environmental Laws or that its compliance is being investigated.
(h) Thirty (30) days prior to the Borrower changing
its name.
(i) Immediately after becoming aware of any ERISA
Event, accompanied by any materials required to be filed with the PBGC with
respect thereto; immediately after the Borrower's receipt of any notice
concerning the imposition of any withdrawal liability under Section 4042 of
ERISA with respect to a Plan; immediately upon the establishment of any Pension
Plan not existing at the Closing Date or the commencement of contributions by
the Borrower to any Pension Plan to which the Borrower was not contributing at
the Closing Date; and immediately upon becoming aware of any other event or
condition regarding a Plan or the Borrower's or an ERISA Affiliate's compliance
with ERISA, which may materially and adversely affect the Borrower's Property,
business, operation, or condition (financial or otherwise).
Each notice given under this Section 7.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
8. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower warrants and represents to the Lender that:
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8.1 Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents. The Borrower has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest. The
Borrower has taken all necessary corporate action (including, without
limitation, obtaining approval of its stockholders) to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents. No
consent, approval, or authorization of, or declaration or filing with, any
Public Authority, and no consent of any other Person, is required in connection
with the Borrower's execution, delivery, and performance of this Agreement and
the other Loan Documents, except for those already duly obtained. This Agreement
and the other Loan Documents have been duly executed and delivered by the
Borrower and constitutes the legal, valid and binding obligation of the
Borrower, enforceable against it in accordance with its terms without defense,
setoff, or counterclaim, subject, as to enforcement of remedies, to the
following qualifications: (i) an order of specific performance and an injunction
are discretionary remedies and, in particular, may not be available where
damages are considered an adequate remedy at law, and (ii) enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization reconstruction,
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency, or similar event
of the Borrower). The Borrower's execution, delivery, and performance of this
Agreement and the other Loan Documents do not and will not conflict with, or
constitute a violation or breach of, or constitute a default under, or result in
the creation or imposition of any Lien upon the Property of the Borrower or any
of its Subsidiaries (except as contemplated by this Agreement and the other Loan
Documents) by reason of the terms of (a) any mortgage, lease, agreement, or
instrument to which the Borrower or any of its Subsidiaries is a party or which
is binding upon it, (b) any judgment, law, statute, rule or governmental
regulation applicable to the Borrower or any of its Subsidiaries, or (c) the
Certificate or Articles of Incorporation or By-Laws of the Borrower or any of
its Subsidiaries.
8.2 Validity and Priority of Security Interest. The provisions
of this Agreement and the other Loan Documents create legal and valid Liens on
all the Collateral in the Lender's favor, and when all proper filings,
recordings, and other actions necessary to perfect such Liens have been made or
taken, such Liens will constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral except the
Permitted Liens identified in subparagraphs (c), (d), (e), (f), (h), (i), (j),
and (l) of the definition of Permitted Liens, securing all the Obligations, and
enforceable against the Borrower and all third parties.
8.3 Organization and Qualification. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the state of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in all states in which qualification is
necessary in order for it to own or lease its Property and conduct its business
and the failure to qualify would not have a material adverse effect upon the
Borrower; and (c) has all requisite power and authority to conduct its business
and to own its Property.
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8.4 Corporate Name; Prior Transactions. The Borrower has not,
during the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired all
or substantially all of the assets of any Person, or acquired any of its
Property out of the ordinary course of business, except as set forth on Schedule
8.4.
8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and
complete list of the name and relationship to the Borrower of each and all of
the Borrower's Subsidiaries and other Affiliates. Each Subsidiary is (a) duly
incorporated and organized and validly existing in good standing under the laws
of its state of incorporation set forth on Schedule 8.5, and (b) qualified to do
business as a foreign corporation and in good standing in the states set forth
opposite its name on Schedule 8.5, which are the only states in which such
qualification is necessary in order for it to own or lease its Property and
conduct its business.
8.6 Financial Statements and Projections. (a) The Borrower has
delivered to the Lender the audited balance sheet and related statements of
income, retained earnings, changes in financial position, and changes in
stockholders equity for the Borrower as of December 31, 1994, and for the Fiscal
Year then ended, accompanied by the report thereon of the Borrower's independent
certified public accountants, KPMG Peat Marwick L.L.P. The Borrower has also
delivered to the Lender the unaudited balance sheet and related statements of
income and changes in financial position for the Borrower, as at March 31, 1995,
and for the three months then ended. Such financial statements are attached
hereto as Exhibit B-l. All such financial statements have been prepared in
accordance with GAAP and present accurately and fairly the Borrower's financial
position as at the dates thereof and its results of operations for the periods
then ended.
(b) The Latest Projections represent the Borrower's
best estimate of the Borrower's future financial performance for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Borrower believes are fair and
reasonable in light of current and reasonably foreseeable business conditions.
8.7 Intentionally Omitted
8.8 Solvency. The Borrower is Solvent prior to and after giving
effect to the making of each Revolving Loan.
8.9 Debt. The Borrower has no Debt, except (a) the Obligations,
(b) Debt set forth in the most recent Financial Statements delivered to the
Lender, or the notes thereto, and (c) trade payables and other contractual
obligations arising in the ordinary course of business since the date of such
Financial Statements.
8.10 Distributions. No Distribution has been declared, paid, or
made upon or in respect of any capital stock or other securities of the
Borrower.
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8.11 Title to Property. Except for Permitted Liens and except
for Property which the Borrower leases, the Borrower has good and marketable
title in fee simple to the Premises and good, indefeasible, and merchantable
title to all of its other Property including, without limitation, the assets
reflected on the most recent Financial Statements delivered to the Lender,
except as disposed of since the date thereof in the ordinary course of business.
8.12 Intentionally Omitted.
8.13 Real Property; Leases. Schedule 6.3 hereto is a correct
and complete list of all real property owned by the Borrower, all leases and
subleases of real or personal property by the Borrower as lessee or sublessee,
and all leases and subleases of real or personal property by the Borrower as
lessor or sublessor. Each of such leases and subleases is valid and enforceable
in accordance with its terms and is in full force and effect and no default by
any party to any such lease or sublease exists.
8.14 Proprietary Rights Collateral. Schedule 8.14 hereto is a
correct and complete list of all the Proprietary Rights. None of the Proprietary
Rights are subject to any licensing agreement or similar arrangement except as
set forth on Schedule 8.14. None of the Proprietary Rights infringe on or
conflict with any other Person's Property and no other Person's Property
infringes on or conflicts with the Proprietary Rights.
8.15 Trade Names and Terms of Sale. All trade names or styles
under which the Borrower will sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on Schedule
8.15.
8.16 Litigation. Except as set forth on Schedule 8.16, there is
no pending or, to the best of the Borrower's knowledge, threatened action, suit,
proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, which may materially and
adversely affect the Collateral, the repayment of the Obligations, the Lender's
rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
8.17 Restrictive Agreements. The Borrower is not a party to any
contract or agreement, and is not subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which materially and adversely affects
the Borrower's Property, business, operations, or condition (financial or
otherwise).
8.18 Labor Disputes. Except as set forth on Schedule 8.18: (a)
there is no collective bargaining agreement or other labor contract covering
employees of the Borrower or any of its Subsidiaries; (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement; (c) no union or other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
the Borrower or any of its Subsidiaries or for any similar purpose; and (d)
there is no pending or, to the best of the Borrower's knowledge, threatened
strike,
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work stoppage, material unfair labor practice claims, or other material labor
dispute against or affecting the Borrower, or any of its Subsidiaries or their
respective employees.
8.19 Environmental Laws. (a) The Borrower and its Subsidiaries
have complied in all material respects with all Environmental Laws applicable to
its Premises and business, and neither the Borrower nor any Subsidiary nor any
of its present Premises or operations, nor its past property or operations, is
subject to any enforcement order from or liability agreement with any Public
Authority or private Person respecting (i) compliance with any Environmental Law
or (ii) any potential liabilities and costs or remedial action arising from the
Release or threatened Release of a Contaminant.
(b) The Borrower and its Subsidiaries have obtained
all permits necessary for their current operations under Environmental Laws, and
all such permits are in good standing and the Borrower and its Subsidiaries are
in compliance with all terms and conditions of such permits.
(c) Neither the Borrower nor any of its Subsidiaries,
nor, to the best of the Borrower's knowledge, any of its predecessors in
interest, has stored, treated or disposed of any hazardous waste on any
Premises, as defined pursuant to 40 CFR Part 261 or any equivalent Environmental
Law, which storage, treatment, or disposal is reasonably likely to have a
materially adverse effect upon the Borrower.
(d) Neither the Borrower nor any of its Subsidiaries
has received any summons, complaint, order or similar written notice that it is
not currently in compliance with, or that any Public Authority is investigating
its compliance with, any Environmental Laws or that it is or may be liable to
any other Person as a result of a Release or threatened Release of a
Contaminant.
(e) None of the present or past operations of the
Borrower and its Subsidiaries is the subject of any investigation by any Public
Authority evaluating whether any remedial action is needed to respond to a
Release or threatened Release of a Contaminant.
(f) There is not now, nor to the best of the
Borrower's knowledge has there ever been on or in the Premises:
(i) any underground storage tanks or surface
impoundments,
(ii) any asbestos containing material, or
(iii) any polychlorinated biphenyls (PCB's)
used in hydraulic oils, electrical transformers or other equipment.
(g) Neither the Borrower nor any of its Subsidiaries
has filed any notice under any requirement of Environmental Law reporting a
spill or accidental and unpermitted release or discharge of a Contaminant into
the environment.
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(h) Neither the Borrower nor any of its Subsidiaries
has entered into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of its property) imposing
material obligations or liabilities on the Borrower or any of its Subsidiaries
with respect to any remedial action in response to the Release of a Contaminant
or environmentally related claim.
(i) None of the products manufactured, distributed or
sold by the Borrower or any of its Subsidiaries contain asbestos containing
material.
(j) No Environmental Lien has attached to any
Premises of the Borrower or any of its Subsidiaries.
8.20 No Violation of Law. The Borrower is not in violation of
any law, statute, regulation, ordinance, judgment, order, or decree applicable
to it which violation would in any respect materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the Loan
Documents, or the Borrower's Property, business, operations, or condition
(financial or otherwise).
8.21 No Default. The Borrower is not in default with respect to
any note, indenture, loan agreement, mortgage, lease, deed, or other agreement
to which the Borrower is a party or bound, which default could reasonably be
expected to materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's
Property, business, operations, or condition (financial or otherwise).
8.22 ERISA Compliance.
(a) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Public
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a material adverse effect on the Borrower's business or
operations. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a material adverse effect on the
Borrower's business or operations.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any unfunded pension liability;
(iii) neither the Borrower
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nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability under Title IV of ERISA with respect to any Pension Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to a Multi-employer Plan; and (v) neither the
Borrower nor any ERISA Affiliate has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.
8.23 Taxes. The Borrower and its Subsidiaries have filed all
tax returns and other reports required to be filed and have paid all taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable, except
those charges being contested in good faith by appropriate proceedings.
8.24 Use of Proceeds. None of the transactions
contemplated in this Agreement (including, without limitation, the use of
proceeds from the Loans) will violate or result in the violation of Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including without limitation, Regulations G,T,U and X of the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"), 12
C.F.R., Chapter II. Borrower does not own or intend to carry or purchase any
"margin stock" within the meaning of said Regulation U or G. None of the proceed
of the loans will be used, directly or indirectly, to purchase or carry (or
refinance any borrowing, the proceeds of which were used to purchase or carry)
any "security" within the meaning of the Securities Exchange Act of 1934, as
amended.
8.25 Private Offerings. Borrower has not, directly or
indirectly, offered the Loans for sale to, or solicited offers to buy part
thereof from, or otherwise approached or negotiated with respect thereto with
any prospective purchaser other than Lender. Borrower hereby agrees that neither
it nor anyone acting on its behalf has offered or will offer the Loans or any
part thereof or any similar securities for issue or sale to or solicit any offer
to acquire any of the same from anyone so as to bring the issuance thereof
within the provisions of Section 5 of the Securities Act of 1933, as amended.
8.26 Broker's Fees. Borrower represents and warrants to Lender
that no Person is entitled to any brokerage fee with respect to the transactions
described in this Agreement.
8.27 No Material Adverse Change. No material adverse change has
occurred in the Borrower's Property, business, operations, or conditions
(financial or otherwise) since the date of the Financial Statements delivered to
the Lender.
8.28 Disclosure. Neither this Agreement nor any document or
statement furnished to the Lender by or on behalf of the Borrower hereunder
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
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9. AFFIRMATIVE AND NEGATIVE COVENANTS.
The Borrower covenants that, so long as any of the Obligations remain
outstanding or this Agreement is in effect:
9.1 Taxes and Other Obligations. The Borrower and each of its
Subsidiaries shall: (a) file when due all tax returns and other reports which it
is required to file, pay, or provide for the payment, when due, of all taxes,
fees, assessments and other governmental charges against it or upon its
Property, income, and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
shall provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all Debt owed by it and
perform and discharge in a timely manner all other obligations undertaken by it;
provided, however that the Borrower and its Subsidiaries need not pay any tax,
fee, assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued.
9.2 Corporate Existence and Good Standing. The Borrower and
each of its Subsidiaries shall maintain its corporate existence and its
qualification and good standing in all states necessary to conduct its business
and own its Property, and shall obtain and maintain all licenses, permits,
franchises and governmental authorizations necessary to conduct its business and
own its Property; in each case, where failure to so qualify or to obtain such
license would have a material adverse effect on the Borrower.
9.3 Compliance with Law and Agreements. The Borrower and each
of its Subsidiaries shall comply with the terms and provisions of each judgment,
law, statute, rule, and governmental regulation applicable to it and each
contract, mortgage, lien, lease, indenture, order, instrument, agreement, or
document to which it is a party or by which it is bound.
9.4 Maintenance of Property and Insurance. The Borrower and
each of its Subsidiaries shall: (a) maintain all of its Property necessary and
useful in its business in good operating condition and repair, ordinary wear and
tear excepted; and (b) in addition to the insurance required by Section 6.7,
maintain with financially sound and reputable insurers such other insurance with
respect to its Property and business against casualties and contingencies of
such types (including, without limitation, business interruption, public
liability, product liability, and larceny, embezzlement or other criminal
misappropriation) and in such amounts as is customary for Persons of established
reputation engaged in the same or a similar business and similarly situated,
naming the Lender, at its request, as additional insured under each such policy.
9.5 Environmental Laws. The Borrower shall conduct its business
in full compliance with all Environmental Laws applicable to it, including,
without limitation, those relating to the Borrower's generation, handling, use,
storage, and disposal of hazardous and toxic wastes and substances. The Borrower
shall take prompt and
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appropriate action to respond to any non-compliance with Environmental Laws and
shall regularly report to the Lender on such response. Without limiting the
generality of the foregoing, whenever the Borrower gives notice to the Lender
pursuant to Section 7.3(g) the Borrower shall, at the Lender's request and the
Borrower's expense: (a) cause an independent environmental engineer acceptable
to the Lender to conduct such tests of the site where the Borrower's
noncompliance or alleged non-compliance with Environmental Laws has occurred and
prepare and deliver to the Lender a report setting forth the results of such
tests, a proposed plan for responding to any environmental problems described
therein, and an estimate of the costs thereof; and (b) provide to the Lender a
supplemental report of such engineer whenever the scope of the environmental
problems, or the Borrower's response thereto or the estimated costs thereof,
shall change.
9.6 ERISA. The Borrower shall cause each Plan to be qualified
within the meaning of Section 401(a) of the Code and to be administered in all
respects in compliance with ERISA and Section 401(a) of the Code.
9.7 Mergers, Consolidations, Acquisitions, or Sales. Neither
the Borrower nor any of its subsidiaries shall enter into any transaction of
merger, reorganization, or consolidation, provided, however, that any Subsidiary
may merge with any other Subsidiary or with Borrower, so long as Borrower is the
surviving entity, and provided further that Borrower and its Subsidiaries may
enter into any transaction of merger, reorganization or consolidation so long as
Borrower or such Subsidiary is the surviving entity and the consideration paid
by Borrower or such Subsidiary in connection therewith does not exceed 5% of the
Borrower's Adjusted Tangible Net Worth; or transfer, sell, assign, lease, or
otherwise dispose of all or any part of its Property, or wind up, liquidate or
dissolve, or agree to do any of the foregoing, except sales of Inventory in the
ordinary course of its business and sales of Property not to exceed $50,000 in
any Fiscal Year.
9.8 Distributions; Capital Changes. Neither the Borrower nor
any of its Subsidiaries shall: (a) directly or indirectly declare or make, or
incur any liability to make, any Distribution, except Distributions to the
Borrower by a Subsidiary wholly owned by the Borrower; or (b) make any change in
its capital structure which could adversely affect the repayment of the
Obligations.
9.9 Transactions Affecting Collateral or Obligations. Neither
the Borrower nor any of its Subsidiaries shall enter into any transaction which
materially and adversely affects the Collateral or the Borrower's ability to
repay the Obligations.
9.10 Guaranties. Neither the Borrower nor any of its
Subsidiaries shall make, issue, or become liable on any Guaranty, except
Guarantees in favor of the Lender and endorsements of instruments for deposit.
9.11 Debt. Neither the Borrower nor any of its Subsidiaries
shall incur or maintain any Debt, other than: (a) the Obligations; (b) trade
payables and contractual obligations to suppliers and customers incurred in the
ordinary course of business; (c) indebtedness with respect to capital lease
obligations and indebtedness secured by
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Permitted Liens; (d) extensions, renewal, refundings, refinancings,
modifications, amendments, and restatements of any of the foregoing, provided
that the principal amount thereof is not increased or the terms thereof are not
modified to impose more burdensome terms upon Borrower; (e) other debt of
Borrower, not exceeding $200,000 in the aggregate outstanding at any time; and
(f) other Debt existing on the Closing Date and reflected in the Financial
Statements attached as Exhibit B-l.
9.12 Prepayment. Neither the Borrower nor any of its
Subsidiaries shall voluntarily prepay any Capital Leases or Debt having a
scheduled maturity greater than one year.
9.13 Transactions with Affiliates. Except as set forth below,
neither the Borrower nor any of its Subsidiaries shall: sell, transfer,
distribute, or pay any money or Property to any Affiliate, or lend or advance
money or Property to any Affiliate, or invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness or any Property
of any Affiliate, or become liable on any Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate. Notwithstanding the foregoing,
if no Event of Default has occurred and is continuing, the Borrower and its
Subsidiaries may engage in transactions with Affiliates in the ordinary course
of business in amounts fully disclosed to the Lender and no less favorable to
the Borrower or such Subsidiary than would obtain in a comparable arm's length
transaction with a third party who is not an Affiliate.
9.14 Business Conducted. The Borrower and its Subsidiaries
shall not engage, directly or indirectly, in any line of business not related to
the businesses in which the Borrower and its Subsidiaries are engaged on the
Closing Date.
9.15 Liens. Neither the Borrower nor any of its Subsidiaries
shall create, incur, assume, or permit to exist any Lien on any Property now
owned or hereafter acquired by any of them, except Permitted Liens.
9.16 Sale and Leaseback Transactions. Neither the Borrower nor
any of its Subsidiaries shall, directly or indirectly, enter into any
arrangement with any Person providing for the Borrower or a Subsidiary to lease
or rent Property that the Borrower or a Subsidiary has or will sell or otherwise
transfer to such Person other than equipment having an aggregate value in any
Fiscal Year of not more than $250,000.
9.17 New Subsidiaries. Schedule 9.17 is a list of all of the
Borrower's Subsidiaries. Borrower may not form any new U.S. Subsidiary, unless
it gives Lender prior written notice and the newly formed Subsidiary executes a
collateralized guaranty on terms and conditions acceptable to Lender.
9.18 Restricted Investments. Neither the Borrower nor any of
its Subsidiaries shall make any Restricted Investment.
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9.19 Capital Expenditures. Neither the Borrower nor any of its
Subsidiaries shall make or incur any Capital Expenditure if, after giving effect
thereto, the aggregate amount of all Capital Expenditures by the Borrower and
its Subsidiaries (i) from the Closing Date through December 29, 1995 would
exceed $4,000,000 or (ii) in any subsequent Fiscal Year would exceed $8,000,000,
however, not to exceed $3,000,000 in any one Fiscal Quarter.
9.20 Debt Ratio. The Borrower will not permit the ratio,
calculated as of the last day of each Fiscal Quarter (commencing with the
quarter ending September 30, 1995), of Debt to Adjusted Tangible Net Worth, to
exceed as of such date .75 to 1.0.
9.21 Further Assurances. The Borrower shall execute and
deliver, or cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender may,
from time to time, request to carry out the terms and conditions of this
Agreement and the other Loan Documents.
10. CLOSING; CONDITIONS TO CLOSING
The Lender will not be obligated to make the initial Loans or to
arrange for the issuance of any Letters of Credit on the Closing Date, unless
the following conditions precedent have been satisfied in a manner satisfactory
to Lender:
10.1 Conditions Precedent to Making of Loans on the Closing
Date.
(a) Representations and Warranties; Covenants; Events.
The Borrower's representations and warranties contained in this Agreement and
the other Loan Documents shall be correct and complete; the Borrower shall have
performed and complied with all covenants, agreements, and conditions contained
herein and in the other Loan Documents which are required to have been performed
or complied with; and there shall exist no Event or Event of Default on the
Closing Date.
(b) Delivery of Documents. The Borrower shall have
delivered, or caused to be delivered, to the Lender the documents listed in
Schedule 10.1 and such documents, instruments and agreements as the Lender shall
request in connection herewith, duly executed by all parties thereto other than
the Lender, and in form and substance satisfactory to the Lender and its
counsel.
(c) Termination of Liens. The Lender shall have
received duly executed UCC-3 Termination Statements and other instruments, in
form and substance satisfactory to the Lender, as shall be necessary to
terminate and satisfy all Liens on the Property of the Borrower and its
Subsidiaries except Permitted Liens.
(d) Environmental Compliance. The Lender shall have
received evidence satisfactory to it that a violation of any Environmental Laws
does not exist on the
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Premises or in connection with the operation thereof or in connection with the
operation of the Borrower's business.
(e) Intentionally Omitted .
(f) Payment of Fees and Expenses. The Borrower shall
have paid all fees and expenses of the Lender's in-house counsel and all other
reasonable fees and expenses of the Lender incurred in connection with any of
the Loan Documents and the transactions contemplated thereby.
(g) Required Approvals. The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender determines is required in connection with the
transactions contemplated by this Agreement.
(h) No Material Adverse Change. There shall have
occurred no material adverse change in the Borrower's business or financial
condition or in the Collateral since March 31, 1995, and the Lender shall have
received a certificate of Borrower's chief financial officer to such effect.
(i) Proceedings. All proceedings to be taken in
connection with the transactions contemplated by this Agreement, and all
documents, contemplated in connection herewith, shall be satisfactory in form
and substance to the Lender and its counsel.
(j) Excess Availability. After taking into account the
Revolving Loans and the Letters of Credit issued on the Closing Date, there
shall be remaining Availability of at least ten percent (10%) of the
Availability calculated prior to the making of such Revolving Loans and the
issuance of the Letters of Credit.
10.2 Conditions Precedent to Each Loan. The obligation of the
Lender to make each Loan or to provide for the issuance of any Letter of Credit
after the Closing Date shall be subject to the further conditions precedent that
on the date of any such extension of credit the following statements shall be
true, and the acceptance by the Borrower of any extension of credit shall be
deemed to be a statement to the effect set forth in clauses (a) and (b), with
the same effect as the delivery to the Lender of a certificate signed by the
chief executive officer and chief financial officer of the Borrower, dated the
date of such extension of credit, stating that:
(a) The representations and warranties contained in
this Agreement and the other Loan Documents are correct in all material respects
on and as of the date of such extension of credit as though made on and as of
such date, except to the extent the Lender has been notified by the Borrower
that any representation or warranty is not correct and the Lender has explicitly
accepted in writing such amended representation or warranty; and
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(b) No Event or Event of Default has occurred and is
continuing, or would result from such extension of credit.
11. DEFAULT; REMEDIES
11.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) (i) failure to make payments of principal on any
of the Obligations when due, or (ii) failure to make payment of interest, fees,
or premium on any of the Obligations within five days of such payment being due;
(b) any representation or warranty made by the
Borrower in this Agreement, any of the other Loan Documents, any Financial
Statement, or any certificate furnished by the Borrower or any Subsidiary at any
time to the Lender shall prove to be untrue in any material respect as of the
date when made or furnished;
(c) (i) a default shall occur in the observance or
performance of any of the covenants and agreements contained in Section 6.10,
Sections 9.7 through 9.14, inclusive or Sections 9.16 through 9.21, inclusive,
or (ii) a default shall occur in the observance or performance of any of the
covenants and agreements contained elsewhere in this Agreement, the other Loan
Documents or in any other agreements by and between Lender and the Borrower and
the same has not been cured within ten (10) days after the Borrower shall become
aware thereof, whether by written notice from the Lender or otherwise;
(d) default shall occur in the payment of any
principal or interest on any indebtedness for borrowed money (other than the
Obligations) beyond any period of grace provided with respect thereto;
(e) the Borrower or any Subsidiary shall: (i) file a
voluntary petition in bankruptcy or file a voluntary petition or an answer or
otherwise commence any action or proceeding seeking reorganization, arrangement
or readjustment of its debts or for any other relief under the Federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing, or consent to, approve of, or
acquiesce in, any such petition, action or proceeding; (ii) apply for or
acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for it or for all or any part of its
Property; or (iii) make an assignment for the benefit of creditors;
(f) an involuntary petition shall be filed or an
action or proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any Subsidiary's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal,
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now or hereafter existing and such petition, action, or proceeding is not stayed
or dismissed within 60 days;
(g) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for the Borrower or any Subsidiary or for
all or any part of their Property shall be appointed involuntarily and not
dismissed within 60 days; or a warrant of attachment, execution or similar
process shall be issued against any part of the Property of the Borrower or any
Subsidiary and not removed within 60 days;
(h) the Borrower or any Subsidiary shall file a
certificate of dissolution under applicable state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced against it any action
or proceeding for dissolution, winding-up or liquidation, which involuntary
action is not stayed or dismissed within 60 days, or shall take any corporate
action in furtherance thereof;
(i) all or any substantial part of the Property of the
Borrower shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of the Borrower shall be
assumed by any Public Authority or any court of competent jurisdiction at the
instance of any Public Authority, except where contested in good faith by proper
proceedings diligently pursued where a stay of enforcement is in effect;
(j) any guaranty of the Obligations shall be
terminated, revoked or declared void or invalid;
(k) one or more final judgments for the payment of
money aggregating in excess of $250,000 (whether or not covered by insurance)
shall be rendered against the Borrower or any Subsidiary and the Borrower or
such Subsidiary shall fail to discharge the same within thirty (30) days from
the date of notice of entry thereof or to appeal therefrom;
(l) any loss, theft, damage or destruction of any item
or items of Collateral occurs which: (i) materially and adversely affects the
operation of the Borrower's business or (ii) is material in amount and is not
adequately covered by insurance;
(m) any event or condition shall occur or exist with
respect to a Plan that is reasonably likely to subject the Borrower or any
Subsidiary to any tax, penalty or other liabilities under ERISA or the Code
which in the aggregate are material in relation to the business, operations,
Property or financial or other condition of the Borrower and its Subsidiaries
taken as a whole; or
(n) there occurs any material adverse change in the
Borrower's Property, business, operations, or condition (financial or
otherwise).
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12. REMEDIES
(a) If an Event of Default exists, the Lender may, without
notice to or demand on the Borrower, do one or more of the following at any time
or times and in any order: (i) reduce the Availability or one or more of the
elements thereof; (ii) restrict the amount of or refuse to make Revolving Loans
and restrict or refuse to arrange for Letters of Credit; (iii) terminate this
Agreement; (iv) declare any or all Obligations to be immediately due and payable
(provided however that upon the occurrence of any Event of Default described in
Sections 11.1(e). 11.1(f), 11.1(g), or 11.1(h), all Obligations shall
automatically become immediately due and payable); and (v) pursue its other
rights and remedies under the Loan Documents and applicable law.
(b) If an Event of Default exists: (i) the Lender shall have,
in addition to all other rights, the rights and remedies of a secured party
under the UCC; (ii) the Lender may, at any time, take possession of the
Collateral and keep it on the Borrower's premises, at no cost to the Lender, or
remove any part of it to such other place or places as the Lender may desire, or
the Borrower shall, upon the Lender's demand, at the Borrower's cost, assemble
the Collateral and make it available to the Lender at a place reasonably
convenient to the Lender; and (iii) the Lender may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of sale or of
such postponed or adjourned sale without giving a new notice of sale. Without in
any way requiring notice to be given in the following manner, the Borrower
agrees that any notice by the Lender of sale, disposition or other intended
action hereunder or in connection herewith, whether required by the UCC or
otherwise, shall constitute reasonable notice to the Borrower if such notice is
mailed by registered or certified mail, return receipt requested, postage
prepaid, or is delivered personally against receipt, at least five (5) days
prior to such action to the Borrower's address specified in or pursuant to
Section 14.11. If any Collateral is sold on terms other than payment in full at
the time of sale, no credit shall be given against the Obligations until the
Lender receives payment, and if the buyer defaults in payment, the Lender may
resell the Collateral without further notice to the Borrower. In the event the
Lender seeks to take possession of all or any portion of the Collateral by
judicial process, the Borrower irrevocably waives: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Lender retain
possession and not dispose of any Collateral until after trial or final
judgment. The Borrower agrees that the Lender has no obligation to preserve
rights to the Collateral or marshall any Collateral for the benefit of any
Person. The Lender is hereby granted a license or other right to use, without
charge, the Borrower's labels, patents, copyrights, name, trade secrets, trade
names, trademarks, and advertising matter, or any similar property, in
completing production of, advertising or selling any Collateral, and the
Borrower's rights under all licenses and all franchise agreements shall inure to
the Lender's benefit. The proceeds of sale shall be applied first to all
expenses of sale, including attorneys fees, and second, in whatever order the
Lender elects, to all Obligations. The Lender will return any excess to
44
<PAGE> 51
the Borrower or such other Person as shall be legally entitled thereto and the
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives
(i) all rights to notice and hearing prior to the exercise by the Lender of the
Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing, and (ii)
all rights of set-off and counterclaim against Lender.
(d) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, an
early termination penalty equal to the early termination fee that would have
been payable under Article 13 if this Agreement had been terminated on that date
pursuant to the Borrowers election.
13. TERM AND TERMINATION
13.1 Initial Term of Agreement; Termination. The initial term of this
Agreement shall be one year from the Closing Date. This Agreement shall
automatically be renewed thereafter for successive one-year terms, unless this
Agreement is terminated as provided below. The Lender and the Borrower shall
have the right to terminate this Agreement, without premium or penalty, at the
end of the initial term or at the end of any renewal term by giving the other
written notice not less than sixty (60) days prior to the end of such term by
registered or certified mail. The Borrower may also terminate this Agreement at
any time during its initial term or any successive renewal term if: (a) it gives
the Lender sixty (60) days prior written notice of termination by registered or
certified mail; (b) it pays and performs all Obligations on or prior to the
effective date of termination; and (c) it pays the Lender, on or prior to the
effective date of termination, an early termination fee equal to two percent
(2.0%) of the average amount of the Revolving Loans and Letters of Credit
outstanding during the prior 180 day period (or lesser period if within 180 days
of the Closing Date) if such termination is made on or prior to the first
Anniversary Date; provided, however, the Lender agrees to waive payment of the
early termination fee if the Loan is repaid in full by being refinanced with
Bank of America N.T. & S.A. or by an Affiliate thereof or if the Loan is
refinanced within 90 days of Lender taking any action pursuant to Section 3.5.
and provided further that the termination fee shall be $75,000 if the Borrower
is merged into, or a substantial part of the Borrower's assets are acquired by
a third party. The Lender may also terminate this Agreement without notice
upon an Event of Default. Upon the effective date of termination of this
Agreement for any reason whatsoever, all Obligations shall become immediately
due and payable. Notwithstanding the termination of this Agreement, until all
Obligations) are paid and performed in full, the Lender shall retain all its
rights and remedies hereunder (including, without limitation, in all then
existing and after-arising Collateral).
45
<PAGE> 52
14. MISCELLANEOUS
14.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the exercise
of any others, all of which shall be cumulative. The Lender may, without
limitation, proceed directly against the Borrower to collect the Obligations
without any prior recourse to the Collateral.
14.2 No Implied Waivers. No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
14.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be is effective only to
such extent, without invalidating the remainder of this Agreement.
14.4 Governing Law. This Agreement shall be deemed to have been
made in the state of California and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
14.5 Consent to Jurisdiction and Venue; Service of Process.
Subject to the provisions of Section 14.6, the Borrower agrees that, in addition
to any other courts that may have jurisdiction under applicable laws, any action
or proceeding to enforce or arising out of this Agreement or any of the other
Loan Documents may be commenced in the Superior Court of the State of California
for Los Angeles County, or in the United States District Court for the Central
District of California, and the Borrower consents and submits in advance to such
jurisdiction and agrees that venue will be proper in such courts on any such
matter. The Borrower hereby waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any such court shall
be properly served and shall confer personal jurisdiction if served by
registered or certified mail to the Borrower. Should the Borrower fail to appear
or answer any summons, complaint, process or papers so served within thirty (30)
days after the mailing or other service thereof, it shall be deemed in default
and an order or judgment may be entered against it as demanded or prayed for in
such summons, complaint, process or papers. The choice of forum set forth in
this section shall not be deemed to preclude the enforcement of any judgment
obtained in such forum, or the taking of any action under this Agreement to
enforce the same, in any appropriate jurisdiction.
46
<PAGE> 53
14.6 Waiver of Jury Trial. THE BORROWER HEREBY WAIVES TRIAL BY
JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY LITIGATION
IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM
OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE LENDER. THE BORROWER
CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
14.7 Arbitration; Reference Proceeding. (a) ANY CONTROVERSY OR
CLAIM BETWEEN OR AMONG THE PARTIES, INCLUDING BUT NOT LIMITED TO THOSE ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH AND ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL AT THE REQUEST OF ANY PARTY BE DETERMINED BY
ARBITRATION. THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE UNITED
STATES ARBITRATION ACT (TITLE 9, U.S. CODE), NOTWITHSTANDING ANY CHOICE OF LAW
PROVISION IN THIS AGREEMENT, AND UNDER THE COMMERCIAL RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). THE ARBITRATION SHALL BE CONDUCTED WITHIN LOS
ANGELES COUNTY, CALIFORNIA. THE ARBITRATOR(S) SHALL GIVE EFFECT TO STATUTES OF
LIMITATION IN DETERMINING ANY CLAIM. ANY CONTROVERSY CONCERNING WHETHER AN ISSUE
IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR(S). JUDGMENT UPON THE
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE
INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR PURSUIT OF A
PROVISIONAL OR ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF
ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO
ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL RELIEF.
(b) Notwithstanding the provisions of subparagraph
(a), no controversy or claim shall be submitted to arbitration without the
consent of all parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation to the Lender which
is secured by real property collateral located in California. If all parties do
not consent to submission of such a controversy or claim to arbitration, the
controversy or claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall, at the
request of any party, be determined by a reference in accordance with California
Code of Civil Procedure Section 638 et seq. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA--sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
47
<PAGE> 54
(d) No provision of this paragraph shall limit the
right of any party to this Agreement to exercise self-help remedies such as
setoff, to foreclose against or sell any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any arbitration
or other proceeding. The exercise of a remedy does not waive the right of either
party to resort to arbitration or reference. At the Lender's option, foreclosure
under a deed of trust or mortgage may be accomplished either by exercise of
power of sale under the deed of trust or mortgage or by judicial foreclosure.
14.8 Survival of Representations and Warranties. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
14.9 Other Security and Guaranties. The Lender may, without
notice or demand and without affecting the Borrower's obligations hereunder,
from time to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
14.10 Fees and Expenses. The Borrower shall pay to the Lender
on demand all costs and expenses that the Lender pays or incurs in connection
with the negotiation, preparation, consummation, administration, enforcement,
and termination of this Agreement and the other Loan Documents, including,
without limitation: (a) attorneys' and paralegal's fees and disbursements of
counsel to the Lender and any Participating Lender (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff); (b) costs and expenses including attorneys' and paralegals' fees and
disbursements (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff) for any amendment, supplement,
waiver, consent, or subsequent closing in connection with the Loan Documents and
the transactions contemplated thereby; (c) costs and expenses of lien and title
searches and title insurance; (d) taxes, fees and other charges for recording
the mortgages, filing financing statements and continuations, and other actions
to perfect, protect, and continue the Security Interest; (e) sums paid or
incurred to pay any amount or take any action required of the Borrower under the
Loan Documents that the Borrower fails to pay or take; (f) costs of appraisals,
inspections, and verifications of the Collateral, including, without limitation,
travel, lodging, and meals together with an allocated charge of $500 per day for
each auditor employed by Lender for inspections of the Collateral and the
Borrower's operations; (g) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
Payment Accounts and lock boxes; (h) all amounts that the Borrower is required
to pay under the Letter of Credit Agreement; (i) costs and expenses of
preserving and protecting the Collateral; and (j) costs and expenses
48
<PAGE> 55
including attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) paid or incurred to obtain payment of the Obligations, enforce the
Security Interest, sell or otherwise realize upon the Collateral, and otherwise
enforce the provisions of the Loan Documents, or to defend any claims made or
threatened against the Lender arising out of the transactions contemplated
hereby (including without limitation, preparations for and consultations
concerning any such matters). The foregoing shall not be construed to limit any
other provisions of the Loan Documents regarding costs and expenses to be paid
by the Borrower. All of the foregoing costs and expenses shall be charged to the
Borrower's loan account as Revolving Loans. Notwithstanding anything to the
contrary contained herein, the obligation of Borrower to reimburse Lender for
its costs and expenses in negotiating, documenting, and auditing prior to the
Closing Date shall not exceed $25,000.
14.11 Notices. Except as otherwise provided herein, all
notices, demands, and requests that either party is required or elects to give
to the other shall be in writing, shall be delivered personally against receipt,
or sent by recognized overnight courier services, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
Two North Lake Avenue, Suite 400
Pasadena, California 91101
Attention: Portfolio Manager
Fax: (818) 397-1805
Tel: (818) 397-1800
with a copy to: Bank of America Legal Department
10124 Old Grove Road
San Diego, California 92131
Attention: Assistant General Counsel
Fax: (619) 549-7518
Tel: (619) 549-7510
If to the Borrower: 2860 Junction Avenue
San Jose, California 95134
Attn: Chief Financial Officer
Fax: (408) 428-2618
Tel: (408) 435-3000
with a copy to: Cooley, Godward, Castro,
Huddlesson & Tatum
Five Palo Alto Square
Palo Alto, California 94306
Attn: Pamela J. Martinson, Esq.
Fax: (415) 857-0663
Tel: (415) 843-5000
49
<PAGE> 56
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail.
14.12 Indemnification. BORROWER HEREBY INDEMNIFIES, DEFENDS AND
HOLDS LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL,
HARMLESS FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES,
DEFICIENCIES, JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST ANY OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING
OUT OF OR BY REASON OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS
(WHETHER BASED ON ANY FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR
REGULATIONS, INCLUDING, WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR
COMMERCIAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON
CONTRACT OR OTHERWISE) COMMENCED OR THREATENED, WHICH ARISE OUT OF OR ARE IN ANY
WAY BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT,
PERFORMANCE OR ADMINISTRATION OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY
UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
OR ANY ACT, OMISSION TO ACT, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO,
INCLUDING, WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE
FEES AND EXPENSES OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH
LITIGATION, INVESTIGATION, CLAIM OR PROCEEDING; PROVIDED, HOWEVER, THAT BORROWER
SHALL NOT INDEMNIFY LENDER, ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND
COUNSEL FROM SUCH DAMAGES RESULTING FROM THEIR GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against Borrower, or by Borrower
or any other party against Lender, which in Lender's sole discretion makes it
advisable for Lender to seek counsel for protection and preservation of its
liens and security assets, or to defend its own interest, such expenses and
counsel fees shall be allowed to Lender. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 14.12 may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all indemnified matters
incurred by Lender. The foregoing indemnity shall survive the payment of the
Obligations and the termination of this Agreement. All of the foregoing costs
and expenses shall be part of the Obligations and secured by the Collateral.
14.13 Waiver of Notices. Unless otherwise expressly provided
herein, the Borrower waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on the Borrower
which the Lender may elect to give shall entitle the Borrower to any or further
notice or demand in the same, similar or other circumstances.
50
<PAGE> 57
14.14 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any party acquiring any
interest in the Obligations or any part thereof.
14.15 Modification. This Agreement is intended by the Borrower
and the Lender to be the final, complete, and exclusive expression of the
agreement between them. This Agreement supersedes any and all prior oral or
written agreements relating to the subject matter hereof and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no oral agreements between the parties. No
modification, rescission, waiver, release, or amendment of any provision of this
Agreement shall be made, except by a written agreement signed by the Borrower
and a duly authorized officer of the Lender.
14.16 Counterparts. This Agreement may be executed in any
number of counterparts, and by the Lender and the Borrower in separate
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement.
14.17 Captions. The captions contained in this Agreement are
for convenience only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.
14.18 Right of Set-Off. Whenever an Event of Default exists,
the Lender is hereby authorized, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Lender or any affiliate of the Lender to or for the credit or the account
of the Borrower against any and all of the Obligations, whether or not then due
and payable. Lender agrees promptly to notify Borrower after any such set-off
and application made by Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
14.19 Participating Lender's Security Interests. The Lender
may, with notice to but without consent of the Borrower, grant one or more
participations in the Loans to Participating Lenders. If a Participating Lender
shall at any time with the Borrower's knowledge participate with the Lender in
the Loans, the Borrower hereby grants to such Participating Lender, and the
Lender and such Participating Lender shall have and are hereby given, a
continuing lien on and security interest in any money, securities and other
property of the Borrower in the custody or possession of the Participating
Lender, including the right of setoff, to the extent of the Participating
Lender's participation in the Obligations, and such Participating Lender shall
be deemed to have the same right of setoff to the extent of Participating
Lender's participation in the Obligations under this Agreement as it would have
were it a direct lender.
51
<PAGE> 58
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
"BORROWER"
Compression Labs, Incorporated,
a Delaware corporation
By: /s/ William A. Berry
---------------------------------
[William A. Berry,
Senior Vice President and
Chief Financial Officer]
"LENDER"
BankAmerica Business Credit, Inc.,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
52
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 11,007
<SECURITIES> 0
<RECEIVABLES> 62,361
<ALLOWANCES> 1,632
<INVENTORY> 26,122
<CURRENT-ASSETS> 99,915
<PP&E> 45,898
<DEPRECIATION> 25,142
<TOTAL-ASSETS> 143,389
<CURRENT-LIABILITIES> 51,316
<BONDS> 0
<COMMON> 15
0
0
<OTHER-SE> 120,530
<TOTAL-LIABILITY-AND-EQUITY> 143,389
<SALES> 33,970
<TOTAL-REVENUES> 36,812
<CGS> 20,660
<TOTAL-COSTS> 22,167
<OTHER-EXPENSES> 14,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> (191)
<INCOME-TAX> 0
<INCOME-CONTINUING> (191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
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