<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MAY 24, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
COMMISSION FILE NUMBER 0-10558
ALPHA MICROSYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3108178
(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
2722 S. FAIRVIEW STREET, SANTA ANA, CA 92704
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 957-8500
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
-----
As of June 30, 1998, there were 10,914,112 shares of the registrant's Common
Stock outstanding.
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ALPHA MICROSYSTEMS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited) at May 24, 1998 and
February 22, 1998 3
Condensed Consolidated Statements of
Operations (Unaudited) for the Three
Months Ended May 24, 1998 and
May 25, 1997 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended May 24, 1998
and May 25, 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
May 24, February 22,
1998 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,741 $ 5,003
Accounts receivable, net of allowance for
doubtful accounts of $250 and $294 at
May 24, 1998 and February 22, 1998,
respectively 3,727 3,781
Inventories 626 580
Notes receivable 161 161
Prepaid expenses and other current assets 455 229
-------- --------
Total current assets 7,710 9,754
Property and equipment, net of accumulated
depreciation of $9,811 and $9,479 at
May 24, 1998 and February 22, 1998,
respectively 3,362 3,186
IT Service contracts, net 1,538 1,192
Software costs, net 1,145 1,067
Notes receivable 417 417
Other assets, net 218 172
-------- --------
$ 14,390 $ 15,788
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 1,000 $ 1,000
Accounts payable 1,518 1,699
Deferred revenue 1,845 1,888
Accrued compensation 183 386
Other current liabilities 390 356
Current portion of long-term debt 89 92
-------- --------
Total current liabilities 5,025 5,421
Long-term debt 60 60
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued -- --
Common stock, no par value; 20,000,000
shares authorized; 10,914,112
shares issued and outstanding at
May 24, 1998 and February 22, 1998,
respectively 31,011 31,011
Accumulated deficit (21,750) (20,761)
Foreign currency translation adjustment 44 57
-------- --------
Total shareholders' equity 9,305 10,307
-------- --------
$ 14,390 $ 15,788
======== ========
</TABLE>
See accompanying notes.
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ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
May 24, May 25,
1998 1997
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<S> <C> <C>
Net sales:
IT Services $ 4,064 $ 3,049
Product 1,382 1,500
------- -------
Total net sales 5,446 4,549
Cost of sales:
IT Services 3,655 2,219
Product 854 1,047
------- -------
Total cost of sales 4,509 3,266
------- -------
Gross margin 937 1,283
Operating expenses:
Selling, general and administrative 1,601 2,150
Engineering, research and development 306 364
------- -------
Total operating expenses 1,907 2,514
------- -------
Loss from operations (970) (1,231)
Other (income) expense:
Interest income (26) (98)
Interest expense 26 1
Other expense, net 16 1
Foreign exchange gain (9) (7)
------- -------
Total other (income) expense 7 (103)
Loss before taxes (977) (1,128)
Income tax expense 12 9
------- -------
Net loss $ (989) $(1,137)
======= =======
Basic and diluted net loss per share $ (0.09) $ (0.11)
======= =======
Number of shares used in the computation
of basic and diluted per share amounts 10,914 10,822
======= =======
</TABLE>
See accompanying notes
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ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
May 24, May 25,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (989) $(1,137)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 504 398
Provision for losses on accounts receivable -- 10
Provision for slow-moving inventory (1) 9
Other changes in operating assets and liabilities:
Accounts receivable 52 327
Inventories (46) (99)
Notes receivable -- 2
Prepaid expenses and current assets (226) (64)
Accrued compensation (203) (150)
Accounts payable and accrued liabilities (147) 149
Deferred revenue (188) (74)
Other, net (4) 1
-------- -------
Net cash used in operating activities (1,248) (628)
Cash flows from investing activities:
Purchase of short-term investments -- (3,949)
Proceeds from sale of short-term investments -- 3,970
Acquisition of IT service assets (434) --
Purchases of equipment (430) (127)
Capitalization of software costs (143) (251)
-------- -------
Net cash used in investing activities (1,007) (357)
Cash flows from financing activities:
Issuance of common stock -- 1
Principal repayments on debt (3) (4)
-------- -------
Net cash used in financing activities (3) (3)
Effect of exchange rate changes on cash (4) (1)
-------- -------
Decrease in cash and cash equivalents (2,262) (989)
Cash and cash equivalents at beginning of period 5,003 1,768
-------- -------
Cash and cash equivalents at end of period $ 2,741 $ 779
======== =======
See accompanying notes.
</TABLE>
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ALPHA MICROSYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
(as such term is defined in the private Securities Litigation Reform Act of
1995) and information relating to Alpha Microsystems (the "Company" or "Alpha
Micro") that are based on the beliefs of the management of the Company as well
as assumptions made by and information currently available to the management of
Alpha Micro. Forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(The "Exchange Act") and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward looking
statements, include (i) the outcome of litigation will not have a material
adverse effect, (ii) the Company's ability to successfully complete and
integrate acquisitions within the services industry, (iii) the ability of the
Company to successfully reduce operating costs related to acquired operations.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. In addition, the business and operations of the
Company are subject to substantial risks that increase the uncertainty inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company, or any
other person that the objectives or plans of the Company will be achieved.
1. INTERIM ACCOUNTING POLICY
In the opinion of management of Alpha Microsystems (the "Company" or "Alpha
Micro"), the accompanying unaudited condensed consolidated financial statements
contain all adjustments necessary (consisting only of normal recurring
adjustments) to fairly present the consolidated financial position of the
Company at May 24, 1998, and the consolidated results of its operations and cash
flows for the quarters ended May 24, 1998 and May 25, 1997. These condensed
consolidated financial statements do not include all disclosures normally
presented annually under generally accepted accounting principles and,
therefore, they should be read in conjunction with the Company's annual report
on Form 10-K for the year ended February 22, 1998.
Certain amounts have been reclassified in prior periods to conform to the
current period presentation.
The results of operations for the quarter ended May 24, 1998 are not necessarily
indicative of the results to be expected for the full fiscal year.
REVENUE RECOGNITION
The Company recognizes revenue on its product sales on shipment, and recognizes
revenue on its IT service sales and post contract customer support on a
straight-line basis over the contract period. When significant obligations
remain after a software product has been delivered, revenue is not recognized
until obligations have been completed or are no longer significant. The costs of
any insignificant obligations are accrued when the related revenue is
recognized. Revenue is recognized only when collection of the resulting
receivable is probable.
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PER SHARE INFORMATION
Basic and diluted earnings per share is based on the weighted average common
shares outstanding during the periods presented and excludes any dilutive
effects of options and warrants. For the periods presented, the effect of
options and warrants has been excluded from diluted earnings per share as their
effect is anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
As of February 23, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. During the
first quarter of 1999 and 1998, total comprehensive loss amounted to $1,002,000
and $1,139,000, respectively.
The Company adopted SOP 97-2, which supersedes SOP 91-1 and provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 contains more restrictive revenue recognition
provisions for software arrangements containing multiple elements (i.e.
upgrades, enhancements, implementation and other services) similar to the
arrangements entered into by the Company. The adoption of this statement had no
impact on the Company's consolidated financial position, results of operations
or cash flows.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on the
first-in, first-out method. Inventories, net of reserves for excess and obsolete
inventories of $96,000 and $98,000 at May 24, 1998, and February 22, 1998,
respectively, comprise the following:
(In thousands)
<TABLE>
<CAPTION>
MAY 24, FEBRUARY
1998 22, 1998
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<S> <C> <C>
Raw materials $597 $568
Work in process 14 4
Finished goods 15 8
---- ----
$626 $580
==== ====
</TABLE>
3. DEBT
On June 9, 1998, the Company obtained a new, three-year, $3 million credit
facility from Imperial Bank. Advances under the facility are subject to
availability based on eligible accounts receivable and certain financial
covenants, including tangible net worth, debt to tangible net worth and quick
ratio minimum requirements. Under the facility, a $2 million accounts receivable
line of revolving credit has been designated for working capital and $1 million
has
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been designated to finance potential acquisitions under the Company's current
business plan. Amounts drawn under the accounts receivable line bear interest at
the bank's prime rate plus 2 percent. Borrowings for acquisitions approved by
the bank mature one year from the date of funding and bear interest at the
bank's prime rate plus 2.5 percent.
4. CONTINGENCIES
The Company's current involvement with litigation is as follows:
Carlos Garralda and Andre Warnier, employees of the Company's former subsidiary,
Alpha Microsystems Belgium, S.A. ("AMB"), filed an action in November 1995
against AMB and the Company in Orange County Superior Court alleging that AMB is
in breach of its obligations under Belgium employment law to pay salaries for a
notice period of up to two years following termination of employment. The
Plaintiffs allege, among other things, that the Company has alter ego liability
for these obligations. The plaintiffs are claiming compensatory damages in
excess of $780,000 and unspecified punitive damages. A settlement of the case
between AMB and Andre Warnier in the Belgium action was effected on October 18,
1996. Five hundred thousand dollars ($500,000) of the compensatory damages in
the Orange County lawsuit are related to the claims by Mr. Warnier. In December
1997, the Company and Warnier executed a settlement agreement, which involved no
payment by the Company, and Warnier dismissed his Orange County case with
prejudice. Separately, Garralda dismissed his Orange County case without
prejudice upon the Company's execution of a Tolling Agreement allowing Garralda
to re-file the suit upon the occurrence of specified conditions. Although no
assurances as to the outcome of the litigation can be given, management believes
that this litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
In December 1995, Phoenix Marketing, Inc. d.b.a. Electronic Business Systems,
Inc., in response to the Company's collection efforts for a past due account,
filed an amended cross-complaint alleging damages of $3,200,000 for defective
merchandise, loss of business reputation and loss of future business. The Iowa
court has referred this case to arbitration, which arbitration is now scheduled
to begin in November 1998. Although no assurances as to the outcome of the
litigation can be given, management believes that the plaintiff's claims are
without merit.
The Company is currently involved in certain other claims and litigation. The
Company does not consider any of these other claims or litigation to be
material. Management has made provisions in the Company's financial statements
for the settlement of lawsuits for which unfavorable outcomes are both probable
and estimable. In the opinion of management, results of known existing claims
and litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
-8-
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
The following table was derived from the Condensed Consolidated Statements of
Operations as a percentage of net sales for the quarters ended May 24, 1998 and
May 25, 1997:
<TABLE>
<CAPTION>
RELATIONSHIP TO NET SALES
-------------------------
THREE MONTHS ENDED
-------------------------
MAY 24, MAY 25,
1998 1997
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<S> <C> <C>
Net sales:
IT Service 74.6% 67.0%
Product 25.4 33.0
----- -----
Total net sales 100.0 100.0
Cost of sales 82.8 71.8
----- -----
Gross margin 17.2 28.2
Selling, general and administrative expense 29.4 47.3
Engineering, research and development expense 5.6 8.0
Interest (income) expense, net - (2.2)
Other (income) expense, net 0.1 (0.1)
----- -----
Loss before taxes (17.9) (24.8)
Net loss (18.2)% (25.0)%
===== =====
</TABLE>
GENERAL
During the first quarter of fiscal 1999, the Company continued to implement its
IT services business acquisition and growth strategy and its internet strategy
of pursuing strategic alliances for its AlphaCONNECT internet technology. As a
result of International Data Corporation's affirmation of the AlphaCONNECT
technology as published in an independent recent research bulletin, the Company
expects to increase its investment going forward. In the first quarter of fiscal
1999, the Company acquired the ongoing IT services contracts and certain related
assets of M & J Technologies for an estimated purchase price of $950,000. The
purchase price, which is contingent on future annualized revenues, is to be paid
over 18 months, with 50 percent of the purchase price paid on the closing date
of the acquisition. During the fourth quarter of fiscal 1998, the Company
acquired the telephony service division ("ATI") of Applied Cellular Technologies
Corporation and to date the Company has not realized the anticipated
contribution to the results of operations.
The Company had negative earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $466,000, during the first quarter ended May 24,
1998, compared to a negative EBITDA of $833,000, during the same period of the
prior fiscal year. The current quarter loss includes $179,000 relating to the
operations of ATI not included in the prior quarter.
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RESULTS OF OPERATIONS
Three Months Ended May 24, 1998 and May 25, 1997
Net sales increased $897,000, or 19.7 percent, to $5,446,000 for the quarter
ended May 24, 1998 from $4,549,000 for the quarter ended May 25, 1997. The 1998
quarter includes $756,000 attributable to ATI, not included in the prior year.
Total IT service revenue increased $1,015,000, or 33.3 percent, to $4,064,000
for the quarter just ended from $3,049,000 for the same period in the prior
year. IT service contract revenues derived from the Company's proprietary AMOS
product line decreased from approximately 70 percent in the first quarter of
1998 to less than 40 percent in the first quarter of 1999. This shift of the
Company's IT service focus from proprietary to third-party product IT services
demonstrates the success of its IT services business strategy and also mitigates
the significance of the decline in proprietary product and service revenues as
it becomes a smaller percentage of total revenues.
Total product revenues declined $118,000, or 7.9 percent, to approximately
$1,382,000 from approximately $1,500,000 for the comparable period. While
domestic product sales remained flat, European product sales declined $115,000.
No assurances can be made as to future product sales levels whether domestic or
international.
Total gross margin for the Company for the first quarter of fiscal 1999
decreased to 17.2 percent compared to 28.2 percent during the same period last
year. IT services gross margin declined to 10.1 percent during the quarter ended
May 24, 1998, from 27.2 percent during the same period in the prior year. This
decline reflects a negative 13 percent gross margin impact during the first
quarter of fiscal 1999 primarily from the ATI operations acquired after the
first quarter of 1998, and subsequent cost reductions including payroll costs
have been made by the Company in response to such results. Additionally, the
gross margin was negatively impacted 4 percent in 1999 due to increased
depreciation related to IT service business acquisitions and increased payroll
costs related to new IT service personnel hired for recently awarded IT service
contracts, for which no service revenue was recognized during the first quarter
of 1999. Further, due to the shift from proprietary to third-party IT services,
the Company does not expect gross margins to remain at historical levels.
Product gross margin for the quarter ended May 24, 1998, increased to 38.2
percent compared to 30.2 percent during the same period in the prior year. This
improvement is primarily due to operating cost reductions.
Selling, general and administrative expenses decreased $549,000 to $1,601,000
for the quarter ended May 24, 1998, compared to $2,150,000 for the quarter ended
May 25, 1997. The decline in quarter to quarter costs is primarily due to
reduced spending related to the AlphaCONNECT internet technology.
Research and development expenses (which include engineering support and
services) incurred for the three months ended May 24, 1998, decreased by $58,000
to $306,000 from $364,000 during the same period in the prior fiscal year.
Research and development expenses as a percentage of product sales decreased to
22.1 percent for the three months just ended from 24.2 percent during the
comparable period in the prior fiscal year.
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LIQUIDITY AND CAPITAL RESOURCES
During the three months ended May 24, 1998, the Company's working capital
decreased $1,648,000 to $2,685,000 from $4,333,000 at February 22, 1998. This
decline includes anticipated working capital requirements as follows: $434,000
in direct acquisition costs; $210,000 of working capital utilized in the further
implementation of the Company's new integrated information system; and
approximately $250,000 due to equipment purchases to support new service
capabilities such as AS-400, Sun Microsystems and other products.
The Company believes that its current cash position, augmented by future
operating activities, and working capital available through its Imperial Bank
revolving credit facility, will provide sufficient resources to finance its
working capital requirements through fiscal year 1999. Advances under the bank
facility are subject to availability based on eligible accounts receivable and
certain financial covenants, including tangible net worth, debt to tangible net
worth and quick ratio minimum requirements. The Company has also received a
Letter of Commitment from ING Equity Partners II, L.P. to provide up to $20
million as an equity investment. The letter is subject to customary provisions
including, among other things, no material adverse changes and is contingent
upon the consummation of a qualifying acquisition. The Company is also pursuing
additional financing from other sources to support its acquisition strategy,
although there can be no assurances that any financing will be available on
acceptable terms. The Company's future capital requirements depend on a variety
of factors, including, but not limited to, the rate of decline in the
traditional proprietary business; the success, timing, and amount of investment
required to penetrate the Internet/intranet markets; service revenue growth or
decline; and potential acquisitions.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit Index.
(b) A Current Report on Form 8-K was filed by the Company on June 2, 1998
regarding a Letter of Intent from ING Equity Partners to make an equity
investment.
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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.
ALPHA MICROSYSTEMS
(Registrant)
Date: July 2, 1998 By: /s/ Douglas J. Tullio
-------------------------
President and
Chief Executive Officer
Date: July 2, 1998 By: /s/ Jeffrey J. Dunnigan
---------------------------
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Number Description of Documents
- ------ ------------------------
2.9 First Amendment to Agreement of Purchase and Sale by and between
the Registrant and M & J Technologies, Inc., effective May 1,
1998
4.7 Warrant to Purchase Common Stock issued to Imperial Bank dated
June 9, 1998
10.64 Security and Loan Agreement by and between Registrant and
Imperial Bank dated June 9, 1998
10.65 Addendum to Security and Loan Agreement by and between Registrant
and Imperial Bank dated June 9, 1998
10.66 General Security Agreement by and between Registrant and Imperial
Bank dated June 9, 1998
10.67 Credit Terms and Conditions ("Credit Agreement") by and between
Registrant and Imperial Bank dated June 9, 1998
27. Financial Data Schedule
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<PAGE> 1
Exhibit 2.9
FIRST AMENDMENT
TO
AGREEMENT OF PURCHASE AND SALE
This First Amendment to Agreement of Purchase and Sale ("Amendment") is
entered into effective as of May 1, 1998 by and among ALPHA MICROSYSTEMS, a
California corporation ("Buyer"), and M&J TECHNOLOGIES, a Florida corporation
("Seller"), with reference to the following facts:
A. Buyer and Seller entered into that certain Agreement of Purchase and
Sale on the 19th day of February, 1998 (the "Agreement").
B. Buyer has subsequently purchased certain assets of American Computer
Enhancements, Inc. ("ACE"), including its customer list (the "ACE Customer
List").
C. The parties desire to amend the Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. All terms defined in the Agreement shall have the same meanings when
used herein.
2. Buyer may, in its sole and absolute discretion, license the ACE
Customer List to Seller for the sole purpose of enabling Seller to (i) solicit
hardware maintenance contracts on Buyer's behalf; and (ii) sell hardware
products. Seller agrees, as a condition to such license, that it will not (i)
provide hardware maintenance services, whether on a time and materials basis or
contract basis or otherwise, to any customer on the ACE Customer List; (ii)
refer any customer on the ACE Customer List to any service provider other than
Buyer; or (iii) disclose the ACE Customer List to any other person or entity.
Buyer's license to Seller of the ACE Customer List shall be effective upon the
delivery of the ACE Customer List to Seller.
3. To the extent as a result of the efforts of Seller, Buyer enters into
any agreements with a customer on the ACE Customer List to provide hardware
maintenance service on a fixed fee basis for a fixed period of time, such
agreement shall be deemed to be a "Transferred Service Contract" for the
purposes of calculating Post Closing Actual Monthly Contract Revenue pursuant to
Section 2.04(e) of the Agreement.]
4. Except as set forth herein, the Agreement remains in full force and
effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
ALPHA MICROSYSTEMS,
a California corporation
By:
-----------------------------
Its:
---------------------
M&J TECHNOLOGIES,
a Florida corporation
By:
-----------------------------
Its:
---------------------
<PAGE> 1
Exhibit 4.7
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Alpha Microsystems, a California Corporation
Number of Shares: 33,000
Class of Stock: Common
Initial Exercise Price: $2.50 per share
Issue Date: June 9, 1998
Expiration Date: June 9, 2005
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00
and for other good and valuable consideration, IMPERIAL BANK or registered
assignee ("Holder") is entitled to purchase the number of fully paid and
non-assessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this Warrant, subject to the provisions and upon the terms and conditions set
forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
this Warrant in whole but not in part and a duly executed Notice of Exercise in
substantially the form attached as Appendix 1 to the principal office of the
Company. Unless Holder is exercising the conversion right set forth in Section
1.2, Holder shall also deliver to the Company a check for the aggregate Warrant
Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.3 Intentionally Omitted
1.4 Intentionally Omitted
<PAGE> 2
1.5 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.6 Delivery of Certificate. Promptly after Holder exercises or converts
this Warrant, the Company shall deliver to Holder certificates for the Shares
acquired .
1.7 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.8 Repurchase on Sale, Merger, or Consolidation of the Company.
1.8.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction.
1.8.2. Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.8.3. Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the Acquisition on the
same terms as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
<PAGE> 3
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuance. The Warrant Price shall be
subject to adjustment down, but not up, to equal the price per share that
Preferred Shares are convertible into Common Stock on an issuance of Preferred
Shares to ING Equity Partners after the date of this Warrant.
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
<PAGE> 4
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) Intentionally omitted.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, shall, upon issuance, and payment
therefore pursuant to the terms hereof, be duly authorized, validly issued,
fully paid and non-assessable, and free of any liens and encumbrances except for
restrictions on transfer provided for herein or under applicable federal and
state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares shall be subject to the registration rights set forth on
Exhibit C.
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holder written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2 not more than 90 days
and not less than 30 days before the Expiration Date. If the notice is not so
given, the Expiration Date shall automatically be extended until 30 days after
the date the Company delivers the notice to Holder.
<PAGE> 5
4.2 Legends. This Warrant and the Shares shall be imprinted with a
legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant may not be transferred or assigned in
whole or in part without compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder
may transfer all but not less than all of this Warrant by giving the Company
notice of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s). Unless the Company is filing
financial information with the SEC pursuant to the Securities Exchange Act of
1934, the Company shall have the right to refuse to transfer this Warrant to any
person who directly competes with the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
<PAGE> 6
Alpha Microsystems
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase all of the shares of the
Common Stock of Alpha Microsystems issuable pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised with
respect to all of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
Chief Financial Officer
Controllers Department
Imperial Bank
P.O. Box 92991
Los Angeles, CA 90009
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
IMPERIAL BANK
- -----------------------------------
(Signature)
- -----------------------------------
(Date)
<PAGE> 8
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
--------------------------------------
,
---------------- ----------
Chief Financial Officer
Controllers Department
Imperial Bank
P.O. Box 92991
Los Angeles, CA 90009
Gentleperson:
This is to advise you that the Warrant issued to you described below
will expire on JUNE 9, 2005.
Issuer: Alpha Microsystems
Issue Date: JUNE 9, 1998
Class of Security Issuable: Common
Exercise Price Per Share: $2.50
Number of Shares Issuable: 33,000
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your
only notice of pending expiration.
Alpha Microsystems
By:
-----------------------------
Its:
-----------------------------
<PAGE> 9
EXHIBIT A
---------
INTENTIONALLY OMITTED
<PAGE> 10
EXHIBIT B
---------
INTENTIONALLY OMITTED
<PAGE> 11
EXHIBIT C
---------
Registration Rights
-------------------
The Shares shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of any
agreement ("Agreement") now or hereafter granting registration rights to any
existing or future holder of the Company's stock.
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit C is attached, Holder shall not be deemed to be a party to the
Agreement, but solely entitled to the registration rights created thereby.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
<PAGE> 1
Exhibit 10.64
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between Alpha Microsystems, a California
corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as may
be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
75% of Eligible Accounts and in no event more than $2,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on demand and (b) on or before the tenth
day of each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of two percent (
2.000 %) per annum in excess of the rate of interest which Bank has
announced as its prime lending rate ("Prime Rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance of the loan account is outstanding divided by 360, which
shall for interest computation purposes be considered one year. Bank at its
option may demand payment of any or all of the amount due under the Loan
Account including accrued but unpaid interest at any time. Such notice may
be given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall not be
less than a minimum monthly charge of $ 250.00 . Bank is hereby authorized
to charge Borrower's deposit account(s) with Bank for all sums due Bank
under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drains, acceptances,
general intangibles and other forms of obligations and receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrowers Accounts excluding,
however, (1) all Accounts under which payment is not received within 90
days from any invoice date, (2) all Accounts against which the account
debtor or any other person obligated to make payment thereon asserts any
defense, offset, counterclaim or other right to avoid or reduce the
liability represented by the Account and (3) any Accounts if the account
debtor or any other person liable in connection therewith is insolvent,
subject to bankruptcy or receivership proceedings or has made an
assignment for the benefit of creditors or whose credit standing is
unacceptable to Bank and Bank has so notified Borrower. Eligible
Accounts shall only include such accounts as Bank in its sole discretion
shall determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrowers present and future Accounts,
including all proceeds due thereunder, all guaranties and security therefor,
and hereby grants to Bank a continuing security interest in all moneys in
the Collateral Account referred to in Section 6 hereof, as security for any
and all obligations of Borrower to Bank, whether now owing or hereafter
incurred and whether direct, indirect, absolute or contingent. So long as
Borrower is indebted to Bank or Bank is committed to extend credit to
Borrower, Borrower will execute and deliver to Bank such assignments,
including Bank's standard forms of Specific or General Assignment covering
individual Accounts, notices, financing statements, and other documents and
papers as Bank may require in order to affirm, effectuate or further assure
the assignment to Bank of the Collateral or to give any third party,
including the account debtors obligated on the Accounts, notice of Bank's
interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence ail Borrower's Accounts,
provided that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts
by Borrower, whether in the form of cash, checks, notes, or other
instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep ail such collections separate and apart from all other
funds and property so as to be capable of identification as the property of
Bank and deliver said collections daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be
applied by Bank directly to the payment of Borrower's Loan Account or any
other obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection. Returned
items at Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and such
other information as Bank may request.
Page 1 of 3
<PAGE> 2
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving returns, repossessions, and loss or
damage of or to merchandise represented by the Accounts and of any credits,
adjustments or disputes arising in connection with the goods or services
represented by the Accounts and, in any of such events, Borrower will
immediately pay to Bank from its own funds (and not from the proceeds of
Accounts or Inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other incorporation
papers, or of any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is found or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the Collateral becomes
subject to Bank's security interest will have, good and clear title to the
Collateral, subject only to Bank's rights therein; (iii) Each Account is, or
at the time the Account comes into existence will be, a true and correct
statement of a bona fide indebtedness incurred by the debtor named therein
in the amount of the Account for either merchandise sold or delivered (or
being held subject to Borrower's delivery instructions) to, or services
rendered, performed and accepted by, the account debtor; (iv) That there are
or will be no defenses, counterclaims, or setoffs which may be asserted
against the Accounts; and (v) any and all financial information, including
information relating to the Collateral, submitted by Borrower to Bank,
whether previously or in the future, is or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and at such times as Bank may require,
statements showing aging and reconciliation of the Accounts and collections
thereon; (iii) Permit representatives of Bank to inspect the Borrower's
books and records relating to the Collateral and make extracts therefrom at
any reasonable time and to arrange for verification of the Accounts, under
reasonable procedures, acceptable to Bank, directly with the account debtors
or otherwise at Borrower's expense; (iv) Promptly notify Bank of any
attachment or other legal process levied against any of the Collateral and
any information received by Borrower relative to the Collateral, including
the Accounts, the account debtors or other persons obligated in connection
therewith, which may in any way affect the value of the Collateral or the
rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon
demand for any and all legal costs, including reasonable attorneys' fees,
and other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby, enforcing
any term or provision of this Security Agreement or otherwise or in the
checking, handling and collection of the Collateral and the preparation and
enforcement of any agreement relating thereto; (vi) Notify Bank of each
location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver to
Bank policies insuring the Collateral against loss or damage by such risks
and in such amounts, forms and companies as Bank may require and with loss
payable solely to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies and any unearned or returned
premium thereon shall at the option of Bank become the sole property of
Bank, such policies and the proceeds of any other insurance covering or in
any way relating to the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; (viii) In the event the unpaid
balance of Borrower's Loan Account shall exceed the maximum amount of
outstanding loans to which Borrower is entitled under Section 1 hereof,
Borrower shall immediately pay to Bank, from its own funds and not from the
proceeds of Collateral, for credit to Borrower's Loan Account the amount of
such excess.
10. Bank may at any time, without prior notice to Borrower, collect the Accounts
and may give notice of assignment to any and all account debtors, and
Borrower does hereby make, constitute and appoint Bank its irrevocable, true
and lawful attorney with power to receive, open and dispose of all mail
addressed to Borrower, to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank upon
the Accounts to endorse the name of the undersigned upon any document or
instrument relating to the Collateral; in its name or otherwise, to demand,
sue for, collect and give acquittances for any and all moneys due or to
become due upon the Accounts; to compromise, prosecute or defend any action,
claim or proceeding with respect thereto; and to do any and all things
necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and ail other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
to execute any financing statements covering the collateral in favor of any
secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become
insolvent or make an assignment for the benefit of creditors; or (v) Any
proceeding be commenced by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt or moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all-necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank at
a place designated by Bank which is reasonably convenient to Borrower and
Bank, and Borrower waives all claims for damages due to or arising from or
connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by law,
or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at as option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such extent
as Bank may deem advisable, and any sums expended therefor by Bank shall be
repaid by Borrower and secured hereby. Bank shall have the right to enforce
one or more remedies hereunder successively or concurrently, and any such
action shall not estop or prevent Bank from pursuing any funkier remedy
which it may have hereunder or by law. If a sufficient sum is not realized
from any such disposition of Collateral to pay all obligations secured by
this Security Agreement, Borrower hereby promises and agrees to pay Bank any
deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make
Page 2 of 3
<PAGE> 3
loans to Borrower as provided in Section 1 hereof shall immediately
terminate and the unpaid balance of the Loan Account, all other obligations
secured hereby and all other sums due hereunder shall immediately become due
and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports
and other types of documents and records submitted to Bank in connection
with the transactions contemplated herein at any time subsequent to four
months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set Forth
in any other security or other agreement executed by Borrower, but each and
every condition hereof shall be in addition thereto.
*16. Additional Provisions: The Addendum or Exhibit "A" attached (and all
amendments thereto and replacements therefor) Is incorporated herein by this
reference.
Executed this 9th day of June, 1998
Alpha MicroSystems
------------------
(Name of Borrower)
IMPERIAL BANK BY:
--------------------------------------
(Authorized Signature and Title)
BY: BY:
-------------------------------- --------------------------------------
Leila Ghoroghchi, Vice President (Authorized Signature and Title)
*If none, insert "None"
Page 3 of 3
<PAGE> 1
Exhibit 10.65
EXHIBIT "A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT ("SECURITY AND LOAN AGREEMENT") BETWEEN
ALPHA MICROSYSTEMS AND IMPERIAL BANK
DATED: JUNE 9, 1998
This Addendum is made and entered into JUNE 9, 1998, between ALPHA MICROSYSTEMS
("Borrower") and IMPERIAL BANK ("Bank"). This Addendum amends and supplements
the Security and Loan Agreement. In the event of any inconsistency between the
terms herein and the terms of the Security and Loan Agreement, the terms herein
shall in all cases govern and control. All capitalized terms herein, unless
otherwise defined herein, shall have the meaning set forth in the Security and
Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on JUNE
8, 2001, subject to Bank's right to renew said commitment at its sole
discretion. Any renewal of the commitment shall not be binding upon the Bank
unless it is in writing and signed by an officer of the Bank.
2. Borrower represents and warrants that:
a. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower other than that which has
previously been disclosed to Bank in writing, and Borrower is not in
default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
b. FINANCIAL CONDITION. The balance sheet of Borrower as of February 22,
1998, and the related profit and loss statement on that date, a copy of
which has heretofore been delivered to Bank by Borrower, and all other
statements and data submitted in writing by Borrower to Bank in
connection with this request for credit are true and correct, and said
balance sheet and profit and loss statement truly present the financial
condition of Borrower as of the date thereof and the results of the
operations of Borrower for the period covered thereby, and have been
prepared in accordance with generally accepted accounting principles on
a basis consistently maintained. Since such date, there have been no
material adverse changes in the financial condition or business of
Borrower. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and
Borrower has not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet, other than in
the ordinary and normal course of its business, which may have material
adverse effect upon its financial condition, operations or business as
now conducted.
c. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights,
and licenses to conduct its business as now operated, without any known
conflict with valid trademarks, trade names, copyrights patents and
license rights of others.
d. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
3. Borrower agrees that so long as it is indebted to Bank, or as long as Bank
has any obligation to make any advances to Borrower, or as long as the
Security and Loan Agreement is outstanding it will not, without Bank's
written consent:
a. TYPE OF BUSINESS, MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its executive
management.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except
obligations now existing as shown in Borrower's financial statement
dated February 22, 1998, excluding those being refinanced by Bank; or
sell or transfer, either with or without recourse, any accounts or notes
receivable or any moneys due to become due.
Page 1 of 5
<PAGE> 2
c. LIENS AND ENCUMBRANCES. Create, incur, assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or
other title retention agreement) upon any asset now owned or hereafter
acquired by it, other than liens now existing as
shown in the financial statement dated February 22, 1998, and liens for
taxes not delinquent and liens in Bank's favor.
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to
any person or other entity other than in the ordinary and normal course
of its business as now conducted or make any investment in the
securities of any person or other entity other than the United States
Government or commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Ind., or certificates of deposit maturing more than
one (1) year from the date of investment therein issued by Bank; or
guarantee or otherwise become liable upon the obligation of any person
or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business.
e. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity;
or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefore; or sell any assets except in the ordinary course
of its business as now conducted; or sell, lease, assign, or transfer
any substantial part of its business, or fixed assets, or any property
or other assets necessary for the continuance of its business as now
conducted, including without limitation the selling of any property or
other asset accompanied by leasing back of the same.
f. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than
dividends payable in common stock of Borrower and Preferred Stock
dividends to ING Equity Partners) or make any other distribution of any
of its capital stock now outstanding or hereafter issued or purchase,
redeem or retire any of such stock.
g. CAPITAL EXPENDITURES. Make or incur obligations for capital expenditures
excluding spares inventory, in excess of $800,000 in any one fiscal
year.
h. LEASE LIABILITY. Make or incur liability for payments of rent under
leases of real property in excess of $500,000 and personal property
(capital leases) in excess of $500,000 in any one fiscal year.
4. Should there be a default under the Security and Loan Agreement, the General
Security Agreement or under any note executed by Borrower in favor of Bank,
or under any other document executed by Borrower in favor of Bank, all
obligations, loans and liabilities of Borrower to Bank, due or to become
due, whether now existing or hereafter arising, shall at the option of the
Bank, become immediately due and payable without notice or demand, and Bank
shall thereupon have the right to exercise all of its default rights and
remedies.
5. Bank will advance up to 75% of Eligible Accounts up to maximum of $2,000,000
provided, however, that Bank, in its sole and absolute discretion may adjust
the foregoing advance rate to a lower amount deemed prudent by Bank
contingent upon "dilution" exceeding 5% on an annual basis as determined by
Bank audit. For purposes of this Addendum, "dilution" shall be defined as
non-cash credits applied to accounts receivable. Eligible Accounts shall
only include such accounts as Bank in its sole discretion shall determine
are eligible from time to time. In addition to the provisions in the
Security and Loan Agreement, "Eligible Accounts" shall also NOT include any
of the following:
a. Account balances over ninety (90) days from invoice date.
b. Credit balances greater than ninety (90) days from invoice date.
c. Accounts with respect to which 25% or more of the account debtor's total
accounts or obligations outstanding to Borrower are more than 90 days
from invoice date are not eligible.
Page 2 of 5
<PAGE> 3
d. For accounts representing more than 15% of Borrower's total accounts
receivable, the balance in excess of the 15% is not eligible. However,
the Bank may deem, in its sole discretion, the entire amount, or any
portion thereof, eligible.
e. Accounts with respect to international transactions unless insured by an
insurance company acceptable to the Bank or covered by letters of credit
issued or confirmed by a bank acceptable to the Bank. Bank, in its sole
discretion, may deem as eligible amounts due from major, publicly owned
foreign companies.
f. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
g. Accounts where the account debtor is a seller to Borrower, whereby a
potential offset (contra) exists.
h. Consignment or guaranteed sales.
i. Bill and hold accounts.
j. Collection accounts.
k. C.O.D. accounts.
l. Salesmen's accounts for promotional purposes.
m. Government receivables, unless formally assigned to the Bank.
n. Pre-billings other than the pre-billed monthly contracts.
o. Annual maintenance contracts.
6. All financial covenants and financial information referenced herein shall be
interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance
with financial covenants shall be calculated and monitored on a monthly
basis.
7. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, or as long as Bank has any
obligation to make any advances to Borrower, or as long as the Security and
Loan Agreement is outstanding it will:
a. On a monthly basis, maintain a minimum EFFECTIVE TANGIBLE NET WORTH
(defined as stockholder's equity, plus subordinated debt, less any
intangible assets, including but not limited to goodwill, trademarks,
patents, copyrights, organization expense, and all amounts due from
officers, stockholders, and affiliates) of not less than $9,000,000 plus
90% of all extraordinary gains, proceeds from capital stock sold, and
equity issued in connection with mergers and acquisitions, and 70% of
positive net income after taxes.
b. On a monthly basis, maintain a maximum TOTAL DEBT TO EFFECTIVE TANGIBLE
NET WORTH (defined as total liabilities excluding deferred revenues to
effective tangible net worth) of not more than 1.00 to 1.00.
c. On a monthly basis, maintain a minimum QUICK RATIO (defined as cash and
equivalents and accounts receivable to current liabilities less deferred
revenues) of at least 1.50 to 1.00.
d. Maintain all primary accounts and banking relationship with Bank during
the term of the Loan Commitment. Maintain, or cause to be maintained, on
deposit with Bank, non-interest bearing demand deposit balances
sufficient to compensate Bank for all services provided by Bank.
Balances shall be calculated after reduction for the reserve requirement
of the Federal Reserve Board and uncollected funds. Any deficiencies
shall be charged directly to the Borrower on a monthly basis.
e. Within 10 days from each month-end, deliver to Bank an accounts
receivable aging reconciled to the general ledger of Borrower, and a
detailed accounts payable aging reconciled to the Borrower's general
ledger and setting forth the amount of any book overdraft or the amount
of checks issued but not sent. All the foregoing will be in form
satisfactory to the Bank. Also provide the Bank, on a quarterly basis or
more frequently if demanded by Bank, a complete address list of all
active customers.
Page 3 of 5
<PAGE> 4
f. Within 45 days after each month end, deliver to Bank a profit and loss
statement and balance sheet of Borrower in form satisfactory to Bank,
all certified by an officer of Borrower.
g. Within 45 days after each month end, deliver to Bank a covenant
compliance calculation certified by the CFO of Borrower.
h. Within 45 days after each fiscal quarter end, deliver to Bank 10Q
reports.
i. Within 90 days after the close of Borrower's fiscal year, deliver to
Bank the 10K report and the same financial statements as otherwise
provided monthly together with Changes in Financial Position Statement,
prepared on an audited basis by an independent certified public
accountant selected by Borrower but acceptable to Bank.
k. Within 90 days after the close of Borrower's fiscal year, income
statement and balance sheet projections for the following fiscal year.
l. All other information that Bank may reasonably request.
m. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct
its business in an orderly manner without voluntary interruption and if
a corporation or partnership, maintain and preserve its existence.
n. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses. Borrower shall
provide evidence of property insurance in amounts and types acceptable
to the Bank. Bank to be named as Loss Payee.
o. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties,
and any of its liabilities at any time existing, except to the extent
and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any material adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves segregated to the
extent required by generally accepted accounting practice) deemed
adequate with respect thereto.
p. RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access
to, and to examine its properties, books and records at all reasonable
times, at least two times a year at a fee to the Borrower of $2,500 per
audit.
8. INTEREST RATE. The rate of interest applicable to the Loan Account shall be
2.00% (Two Percent) per year in excess of the rate of interest which Bank
has announced as its prime lending rate ("Prime Rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance of the loan account is outstanding divided by 360, which
shall, for interest computation purposes, be considered one year. Should
Borrower be in default, as default is defined herein, Bank at its option may
demand payment of any or all of the amount due under the Loan Account
including accrued but unpaid interest, at any time. Notice of such demand
may be given verbally or in writing and should be effective upon receipt by
Borrower.
9. COMMITMENT FEE. A commitment fee of $20,000, equal to 1.00% (One Percent),
of the line of credit amount will be due upon execution hereof.
10. UNUSED FEE. A fee of 0.50% (One-half Percent), per annum, on any unused
amount of the line of credit, will be assessed and payable quarterly in
arrears.
Page 4 of 5
<PAGE> 5
11. NOTICE OF DEFAULT. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or which would be such an event
of default upon notice and lapse of time.
12. MISCELLANEOUS PROVISIONS.
a. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this
agreement or any not issued in connection with a loan that Bank may make
hereunder are cumulative to, not exclusive of, any rights or remedies
otherwise available.
13. This Addendum is executed by and on behalf of the parties as of the date
first above written.
ALPHA MICROSYSTEMS
"BORROWER"
BY: BY:
------------------------- -----------------------
TITLE: TITLE:
------------------------- -----------------------
IMPERIAL BANK
"BANK"
BY:
-------------------------
TITLE:
-------------------------
Page 5 of 5
<PAGE> 1
Exhibit 10.66
IMPERIAL BANK GENERAL SECURITY AGREEMENT
Member FDIC
(TANGIBLE AND INTANGIBLE PERSONAL PROPERTY
This Agreement is executed on JUNE 9, 1998 , by
ALPHA MICROSYSTEMS (HEREINAFTER CALLED "OBLIGOR").
In consideration of financial accommodations given, to be given or continued,
the Obligor grants to IMPERIAL BANK (hereinafter called "Bank") a security
interest in (a) all property (i) delivered to Bank by Obligor, (ii) which shall
be in Bank's possession or control in any matter or for any purpose, (iii)
described below, (iv) now owned or hereafter acquired by Obligor of the type or
class described below and/or in any supplementary schedule hereto, or in any
financing statement filed by Bank and executed by or on behalf of Obligor; (b)
all deposits accounts of Obligor at Bank and (c) the proceeds, increase and
products of such property, all accessions thereto, and all property which
Obligor may receive on account of such collateral which Obligor will immediately
deliver to Bank (collectively referred to as "Collateral") to secure payment and
performance of all of Obligor's present or future debts or obligations to Bank,
whether absolute or contingent (hereafter referred to as "Debt"). Unless
otherwise defined, words used herein have the meanings given them in the
California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
- -------------------------------------------------------------------------------
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
- -------------------------------------------------------------------------------
Engine or other equipment:
(For aircraft - original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type Account Number Amount $
------------------ ---------------- -----------
In name of Depository
------------------------------- ----------------------
AND ALL EXTENSIONS OR RENEWALS THEREOF.
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
All personal property, whether presently existing or hereafter created
or acquired, including but not limited to: All accounts, chattel paper,
documents, instruments, money, deposit accounts and general intangibles
including returns, repossessions, books and records relating thereto,
and equipment containing said books and records. All Investment property
including securities and securities entitlements. All goods including
equipment and inventory. All proceeds including, without limitation,
insurance proceeds. All guarantees and other security therefor.
The collateral not in Bank's possession will be located at 2722 S. FAIRVIEW
STREET. SANTA ANAL CA 92704
If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
. ("Borrower").
Page 1 of 4
<PAGE> 2
All the terms and provisions on page 3 hereof are incorporated herein as though
set forth in full, and constitute a part of this Agreement.
Signature
Name (indicate title, if applicable) Address
2722 S. FAIRVIEW STREET
ALPHA MICROSYSTEMS SANTA ANA CA 92704
- ------------------ ------------------------------- -----------------------
- ------------------ ------------------------------- -----------------------
- ------------------ ------------------------------- -----------------------
Page 2 of 4
<PAGE> 3
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs of
collecting the Debt, of protecting, insuring or realizing on Collateral, and any
expenditure of Bank pursuant hereto, including attorneys' fees and expenses,
with interest at the rate of 24% per year, or the rate applicable to the Debt
whichever is less, from due date of expenditure, and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder for the
purpose indicated on the application therefore, and will promptly contract to
purchase and pay the purchase price of any property which becomes Collateral
hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location disclosed to
Bank and will not remove the Collateral from the location.
(b) Keep the Collateral separate and identifiable
(c) Maintain the Collateral in good and saleable condition, repair it if
necessary, clean, feed, shelter. water, medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the Collateral in all such ways as
are considered good practice by owners of like property, use it lawfully and
only as permitted by insurance policies, and permit Bank to inspect the
Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the Collateral
(other than inventory Collateral) until the Debt has been paid, even though
Bank has a security interest in proceeds of such Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May, until notice from Bank, sell, lease or otherwise dispose of
inventory Collateral in the ordinary course of business only, and collect the
cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as received in a
demand deposit account with Bank, containing only such proceeds and deliver
statements identifying units of inventory disposed of, accounts which gave
rise to proceeds, and all acquisitions and returns of inventory as required
by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank and
deliver to Bank all non-cash proceeds other than inventory received in trade.
(d) If not in default, may obtain release of Bank's interest in individual
units of inventory upon request, therefore, payment to Bank of the release
price of such units shown on any Collateral schedule supplementary hereto,
and compliance herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general intangibles and
proceeds described in 4(c) above, Obligor warrants, represents and agrees:
(a) All such Collateral is genuine, enforceable in accordance with its terms
free from default, prepayment, defense and conditions precedent (except as
disclosed to and accepted by Bank in writing), and is supported by
consecutively numbered invoices to, or rights against, the debtors thereon.
Obligor will supply Bank with duplicate invoices or other evidence of
Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have authority
and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content and
manner of preparation and execution and has been properly registered,
recorded, and/or filed to protect Obligor's interest thereunder;
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be applied
on any particular obligation shall be considered to be a payment on the
account in which Bank has a security interest. Should any remittance include
a payment not on an account, it shall be delivered to Bank and, if no event
of default has occurred, Bank shall pay Obligor the amount of such payment;
(e) Obligor agrees not to compromise, settle or adjust any account or renew
or extend the time of payment thereof without Bank's prior written consent.
6. Obligor owns all Collateral absolutely, and no other person has or claims any
interest in any Collateral, except as disclosed to and accepted by Bank in
writing. Obligor will defend any proceeding which may affect title to or Bank's
security interest in any Collateral, and will indemnify and hold Bank free and
harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request, and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's cost
and expense, without any duty to do so, get and pay for insurance naming as the
insured, at Bank's option, either both Obligor and Bank, or only Bank, and the
cost thereof shall be secured by this Security Agreement, and shall be repayable
as provided in Paragraph 1 above.
9. Obligor will give Bank any information it requires. All information at any
time supplied to Bank by Obligor (including, but not limited to, the value and
condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Obligor
will notify Bank of any adverse change in such information. Obligor will
promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act which
Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest, and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral;
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or take
security for the payment thereof, and compromise disputes in connection
therewith;
(c) Use or operate Collateral for the purpose of preserving Collateral or its
value and for preserving or liquidating Collateral.
Page 3 of 4
<PAGE> 4
11. If more than one Obligor signs this Agreement, their liability is joint
and several. Any Obligor who is married agrees that recourse may be had against
separate property for the Debt. Discharge of any Obligor except for full
payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid or performed in full, Bank's rights shall continue
even if the Debt is outlawed. All Obligors waive: (a) any right to require Bank
to proceed against any Obligor before any other, or to pursue any other remedy;
(b) presentment, protest and notice of protest, demand and notice of nonpayment,
demand or performance, notice of sale, and advertisement of sale; (c) any right
to the benefit of or to direct the application of any Collateral until the Debt
shall have been paid; (d) and any right of subrogation to Bank until Debt shall
have been paid or performed in full.
12. Upon default, at Bank's option, without demand or notice, all or any part
of the Debt shall immediately become due. Bank shall have all rights given by
law, and may sell, in one or more sales, Collateral in any county where Bank has
an office. Bank may purchase at such sale. Sales for cash or on credit to a
wholesaler, retailer or user of the Collateral, or at public or private auction,
are all to be considered commercially reasonable. Bank may require Obligor to
assemble the Collateral and make it available to Bank at the entrance to the
location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with Bank or
breach of any warranty herein, or Borrower's failure to pay or perform any
agreement with Bank.
(b) Any change in Obligor's or Borrower's financial condition which in Bank's
judgment impairs the prospect of Borrower's payment or performance.
(c) Any actual or reasonably anticipated deterioration of the Collateral or
in the market price thereof which causes it, in Bank's judgment, to become
unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Death, termination of business, assignment for creditors, insolvency,
appointment of receiver, or the filing of any petition under bankruptcy or
debtor's relief laws of, by or against Obligor or Borrower or any guarantor
of the Debt.
(f) Any warranty or representation which is false or is believed in good
faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure of Bank
to exercise any right or remedy shall not waive any obligation of Obligor or
Borrower or right of Bank to modify this Agreement, or waive any other similar
default.
14. On transfer of all or any pan of the Debt, Bank may transfer all or any part
of the Collateral. Bank may deliver all or any part of the Collateral to any
Obligor at any time. Any such transfer or delivery shall discharge Bank from all
liability and responsibility with respect to such Collateral transferred or
delivered. This Agreement benefits Bank's successors and assigns and binds
Obligor's heirs, legatees, personal representatives, successors and assigns.
Obligor agrees not to assert against any assignee of Bank any claim or defense
that may exist against Bank. Time is of the essence. This Agreement and
supplementary schedules hereto contain the entire security agreement between
Bank and Obligor. Obligor will execute any additional agreements, assignments or
documents reasonably required by Bank to carry this Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of California, to the jurisdiction of whose courts the Obligor
hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein in
the singular shall be considered to have been used in the plural where thc
context and construction so require.
16. To thc extent that Obligor acquires any trademarks, service marks, trade
names and service names and/or the goodwill associated therewith, copyrights,
patents and/or patent applications (collectively "Intellectual Property"),
Obligor shall give prompt notice thereof to Bank and shall take any and all
actions requested from time to time by Bank to perfect Obligor's interest in
such Intellectual Property and to perfect Bank's first priority interest
therein. Without limiting the generality of the foregoing, the Obligor agrees as
follows: Upon Obligor creating, writing, producing or acquiring any software,
computer source codes or other computer programs (collectively, the "Software"),
Obligor shall promptly register such Software with the U.S. Copyright Office and
to the extent Obligor's rights therein are acquired from any third party,
Obligor shall promptly upon such acquisition file with the U.S. Copyright Office
any and all documents necessary to perfect Obligor's rights therein. Upon
Obligor creating, writing, producing or otherwise acquiring any Software,
Obligor shall give prompt notice thereof to Bank. Obligor shall execute and
deliver to Bank any and all copyright mortgages, UCC financing statements and
other documents and instruments which Bank may request in connection with the
Bank perfecting its first priority security interest in such Software.
Page 4 of 4
<PAGE> 1
Exhibit 10.67
CREDIT TERMS AND CONDITIONS ("CREDIT AGREEMENT")
------------------------------------------------
This Agreement is made by and between Alpha Microsystems ("Borrower")
and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security agreement(s)
executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor
of Bank, or any other agreements executed in conjunction therewith
(collectively, the "Loan Documents"), Bank shall make loans to Borrower from
time to time as advances are requested by Borrower until June 9, 1999 not to
exceed, in the aggregate, $1,000,000. To induce Bank to make loans to Borrower
and in consideration of any loan or loans Bank may make to Borrower, Borrower
warrants and agrees as follows:
A. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and existing
and in good standing under the laws of the State of California, without limit as
to the duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms; subject only to bankruptcy, insolvency
or similar laws affecting creditors rights generally.
3. NO CONFLICT. The execution, delivery and performance of this Agreement are
not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other encumbrance
to be created or imposed upon any such property by reason thereof.
4. LITIGATION. There is no litigation or other proceeding pending or threatened
against or affecting Borrower which if determined adversely to Borrower or its
interest would have a material adverse effect on the financial condition of
Borrower, and Borrower is not in default with respect to any order, writ,
injunction, decree or demand of any court or other governmental or regulatory
authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of February 22, 1998, a
copy of which has heretofore been delivered to Bank by Borrower, and all other
statements and data submitted in writing by Borrower to Bank in connection with
this request for credit are true and correct, and said balance sheet truly
presents the financial condition of Borrower as of the date thereof, and has
been prepared in accordance with generally accepted accounting principles on a
basis consistently maintained. Since such date, there have been
1
<PAGE> 2
no material adverse changes in the financial condition or business of Borrower.
Borrower has no knowledge of any liabilities, contingent or otherwise, at such
date not reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same are not
subject to any liens or encumbrances other than those permitted by Section C.3
hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all necessary
trademarks, trade names, copyrights, patents, patent rights, and licenses to
conduct its business as now operated, without any known conflict with the valid
trademarks, trade names, copyrights, patents and license rights of others.
9. REGULATION U. The proceeds of any loan (the "Loan" or collectively, if more
than one, the "Loans") extended pursuant to the Loan Documents shall not be used
to purchase or carry margin stock (as defined within Regulation U of the Board
of Governors of the Federal Reserve system).
B. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, or so long as Bank has any obligation to
extend credit to Borrower, it will, unless Bank shall otherwise consent in
writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and other
authority adequate for the conduct of its business; maintain its properties,
equipment and facilities in good order and repair; conduct its business in an
orderly manner without voluntary interruption and, if a corporation or
partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment and as to property insurance have Bank named as loss payee in a Lenders
"Loss Payable" Endorsement Form 438BFU or equivalent.
3. INTEREST RATE. Pay interest on the loan at the rate of 2.50% (two and a half
percent) per year in excess of the rate of interest which Bank has announced as
its prime lending rate ("Prime Rate") which shall vary concurrently with any
change in such Prime Rate. Interest shall be computed at the above rate on the
basis of the actual number of days during which the principal balance of the
loan is outstanding divided by 360, which shall, for interest computation
purposes, be considered one year.
4. COMMITMENT FEE. Pay a commitment fee of 1.50% (one and a half percent) of the
line of credit amount upon execution hereof.
2
<PAGE> 3
5. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by
it adequate with respect thereto.
6. RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times and upon reasonable notice
during normal business hours; and furnish Bank:
a. As soon as available, and in any event within forty five (45)
days after the close of each month of each fiscal year of Borrower,
commencing with the month next ending, a balance sheet, profit and
loss statement and reconciliation of Borrower's capital accounts as
of the close of such period and covering operations for the portion
of Borrower's fiscal year ending on the last day of such period, all
in reasonable detail, prepared in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and a covenant compliance calculation certified by an appropriate
officer of Borrower;
b. As soon as available, and in any event within ninety (90) days of
fiscal year end, a report of Borrower as of the close of and for
each fiscal year, all in reasonable detail, prepared on an audited
basis by an independent certified public accountant selected by
Borrower and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently
maintained by Borrower and certified by an appropriate officer of
Borrower;
c. In connection with each fiscal year end financial statement
furnished to Bank hereunder, any management letter of Borrower's
independent certified public accountant;
d. As soon as available, and in any event within forty five (45)
days of fiscal quarter end, a 10Q report;
e. As soon as available, and in any event within ninety (90) days of
fiscal year end, a 10K report;
f. As soon as available, balance sheet and income statement
projections for the following fiscal year;
g. All other information relating to the affairs of Borrower as the
Bank may reasonably request from time to time;
7. NOTICE OF DEFAULT. Promptly notify Bank in writing of the occurrence of any
Event of Default hereunder or any event which upon notice and lapse of time
would be an Event of Default.
3
<PAGE> 4
8. OPERATING ACCOUNTS. Maintain all primary accounts and banking relationship
with Bank during the term of any loans from Bank to Borrower. Borrower shall
maintain, or cause to be maintained, on deposit with Imperial Bank, non-interest
bearing demand deposit balances sufficient to compensate Bank for all services
provided by Bank. Balances shall be calculated after reduction for the reserve
requirement of the Federal Reserve Board and uncollected funds. Any deficiencies
shall be charged directly to the Borrower on a monthly basis.
9. ATTORNEY'S FEES. Pay promptly to Bank without demand after notice, with
interest thereon from the date of expenditure at the rate applicable to any
loans from Bank to Borrower, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising any such loan
after the occurrence of an Event of Default, whether or not suit is filed. If
suit is brought to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
10. FINANCIAL COVENANTS. Maintain the following financial covenants:
a. QUICK RATIO defined as cash and equivalents and accounts
receivable to current liabilities excluding deferred revenues of not
less than 1.50 to 1.00 at all times.
b. EFFECTIVE TANGIBLE NET WORTH, defined as net worth plus
Subordinated Debt, if any, minus intangibles, shall not, at any
time, be less than $9,000,000 plus 90% of all extraordinary gains,
proceeds from capital stock sold, and equity issued in connection
with mergers and acquisitions, and 70% of positive Net Income after
taxes.
c. DEBT TO EFFECTIVE TANGIBLE NET WORTH defined as total liabilities
excluding deferred revenues to effective tangible net worth of not
more than 1.00 to 1.00 at all times.
11. OTHER TERMS AND CONDITIONS:
a) Each acquisition to be pre-approved by Bank on a case by case
basis.
b) Advances under the non-revolving line of credit on pre-approved
acquisitions will be limited to one time (1x) previous fiscal year's
EBITDA (defined as earnings before interest expense, taxes,
depreciation and amortization expense) of the company being
acquired.
All financial covenants and financial information referenced herein
shall be interpreted and prepared in accordance with generally accepted
accounting principals applied on a basis consistent with previous years.
Compliance with financial covenants shall be calculated and monitored on
a monthly basis.
C. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as
Bank has any obligation to extend credit to Borrower, it will not, without
Bank's written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the character of
its business; or make any change in its executive management.
4
<PAGE> 5
2. OTHER INDEBTEDNESS. Other than in the ordinary course of business and
consistent with past practices, create, incur, assume or permit to exist any
indebtedness for borrowed moneys, other than loans from the Bank, except
obligations now existing as shown in the financial statement dated February 22,
1998, excluding those obligations being refinanced by Bank.
3. LIENS AND ENCUMBRANCES. Other than in the ordinary course of business and
consistent with past practices, create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind upon any asset now owned, other than
liens for taxes not delinquent and liens in Bank's favor, except for those
already existing as of February 22, 1998.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to any
person or other entity other than in the ordinary and normal course of its
business as now conducted or make any investment in the securities of any person
or other entity other than the United States Government or commercial paper
maturing no more than one (1) year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Ind., or certificates of deposit
maturing more than one (1) year from the date of investment therein issued by
Bank; or guarantee or otherwise become liable upon the obligation of any person
or other entity, except by endorsement of negotiable instruments for deposit or
collection in the ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease assign or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same.
6. CAPITAL EXPENDITURES. Make or incur obligations for capital expenditures,
which includes purchase money indebtedness or capital lease obligations and
excludes spares inventory, in excess of $800,000 in any one fiscal year.
7. LEASE LIABILITY. Make or incur additional liability for payments of rent
under leases of real property in excess of $500,000 or personal property in
excess of $500,000 in any one fiscal year.
D. EVENTS OF DEFAULT
The occurrence of any of the following events (each an "Event of
Default") shall, at Bank's option, terminate Bank's commitment to lend and make
all sums of principal and interest then remaining unpaid on all Borrower's
indebtedness to Bank immediately due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived:
1. FAILURE TO PAY. Failure to pay any installment of principal or interest on
any indebtedness of Borrower to Bank.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
5
<PAGE> 6
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of attachment, or
similar process shall be entered or filed against Borrower or any of its assets
and shall remain unvacated, unbonded or unstayed for a period later than five
days prior to the date of any proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Borrower and, if instituted
against it, shall be consented to.
E. MISCELLANEOUS PROVISIONS
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank or
any holder of any note issued by Borrower to Bank, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement or any note issued in
connection with a loan that Bank may make hereunder, are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
2. ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank hereunder
shall be cumulative and not alternative and shall be in addition to all rights,
powers and remedies given to Bank by law against Borrower or any other person,
including but not limited to Bank's rights of setoff or banker's lien.
3. INUREMENT. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assigns of Borrower.
4. APPLICABLE LAW. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of whose
courts the parties hereby agree to submit.
5. OFFSET. In addition to and not in limitation of all rights of offset that
Bank or other holder of any note issued by Borrower in favor of Bank may have
under applicable law, Bank or other holder of such notes shall, upon the
occurrence of any Event of Default or any event which with the passage of time
or notice would constitute such an Event of Default, have the right to
appropriate and apply to the payment of the outstanding under any such note any
and all balances, credits, deposits, accounts or monies of Borrower then or
thereafter with Bank or other holder, within ten (10) days after the Event of
Default, and notice of the occurrence of any Event of Default by Bank to
Borrower.
6. SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7. TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
6
<PAGE> 7
8. INTEGRATION CLAUSES. Except for the Loan Documents, the Agreement constitutes
the entire agreement between Bank and Borrower regarding the Loan, and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value. In the event of a conflict or inconsistency
among any other documents and instruments and this Agreement, the provisions of
this Agreement shall prevail.
9. ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
10. MODIFICATION. This Agreement may be modified only by a writing signed by
both parties hereto.
11. JUDICIAL REFERENCE.
a. Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to the Loan
Documents, which controversy, dispute or claim is not settled in writing within
thirty (30) days after the "Claim Date" (defined as the date on which a party
subject to the Loan Documents gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning the Loan Documents, including whether such
controversy, dispute or claim is subject to the reference proceeding and except
as set forth above, the parties waive their rights to initiate any legal
proceedings against each other in any court or jurisdiction other than the
Superior Court in the County where the Real Property, if any, is located or Los
Angeles County if none (the "Court"). The referee shall be a retired Judge of
the Court selected by mutual agreement of the parties, and if they cannot so
agree within forty-five (45) days after the Claim Date, the referee shall be
promptly selected by the Presiding Judge of the Court (or his representative).
The referee shall be appointed to sit as a temporary judge, with all of the
powers for a temporary judge, as authorized by law, and upon selection should
take and subscribe to the oath of office as provided for in Rule 244 of the
California Rules of Court (or any subsequently enacted Rule). Each party shall
have one peremptory challenge pursuant to CCP ss.170.6. The referee shall (a) be
requested to set the matter for hearing within sixty (60) days after the Claim
Date and (b) try any and all issues of law or fact and report a statement of
decision upon them, if possible, within ninety (90) days of the Claim Date. Any
decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP ss.644 in any court in the State of
California having jurisdiction. Any party may apply for a reference proceeding
at any time after thirty (30) days following notice to any other party of the
nature of the controversy, dispute or claim, by filing a petition for a hearing
and/or trial. All discovery permitted by this Agreement shall be completed no
later than fifteen (15) days before the first hearing date established by the
referee. The referee may extend such period in the event of a party's refusal to
provide requested discovery for any reason whatsoever, including, without
limitation, legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice, and request for production or inspection of documents shall
be responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Superior Court is empowered
to issue temporary and/or provisional remedies, as appropriate.
7
<PAGE> 8
b. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, ss.1280 through ss.1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.
This Agreement is executed on behalf of the parties by duly authorized
representatives as of _____, 19__.
IMPERIAL BANK ("BANK")
By:
----------------------------
Date:
----------------------------
ALPHA MICROSYSTEMS ("BORROWER")
By:
----------------------------
Date:
----------------------------
By:
----------------------------
Date:
----------------------------
8
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> FEB-23-1998
<PERIOD-END> MAY-24-1998
<CASH> 2,741
<SECURITIES> 0
<RECEIVABLES> 3,977
<ALLOWANCES> 250
<INVENTORY> 626
<CURRENT-ASSETS> 7,710
<PP&E> 13,173
<DEPRECIATION> 9,811
<TOTAL-ASSETS> 14,390
<CURRENT-LIABILITIES> 5,025
<BONDS> 60
0
0
<COMMON> 31,011
<OTHER-SE> (21,706)
<TOTAL-LIABILITY-AND-EQUITY> 14,390
<SALES> 1,382
<TOTAL-REVENUES> 5,446
<CGS> 854
<TOTAL-COSTS> 4,509
<OTHER-EXPENSES> 1,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> (977)
<INCOME-TAX> 12
<INCOME-CONTINUING> (989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (989)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
