<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Radius, Inc.
(Name of Issuer)
Series A Convertible Preferred Stock
(Title of Class of Securities)
None
(CUSIP Number)
John J. Shay Jr., Esq.
General Counsel & Secretary
IBM Credit Corporation
1133 Westchester Avenue
White Plains, New York 10604
(914) 642-3000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
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September 13, 1996
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule
Rule 13d-1(b)(3) or (4), check the the following box | |.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
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<PAGE 2>
Schedule 13D
CUSIP No. None Page 2 of 13 Pages
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
IBM Credit Corporation I.R.S. Identification
Number: 22-2351962
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |X| (b) | |
3 SEC USE ONLY
4 SOURCE OF FUNDS OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) | |
6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 6,123,000 (See Item 4.)
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 6,123,000 (See Item 4.)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
6,123,000 (See Item 4.)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES | |
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.5% (See Item 5.)
14 TYPE OF REPORTING PERSON
CO
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<PAGE 3>
Page 3 of 13 Pages
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
International Business Machines Corporation
I.R.S. Identification Number: 13-0871985
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |X| (b) | |
3 SEC USE ONLY
4 SOURCE OF FUNDS OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) | |
6 CITIZENSHIP OR PLACE OF ORGANIZATION New York
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 6,123,000 (See Item 4.)
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 6,123,000 (See Item 4.)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
6,123,000 (See Item 4.)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES | |
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.5% (See Item 5.)
14 TYPE OF REPORTING PERSON
CO
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<PAGE 4>
Page 4 of 13 Pages
Item 1. Security and Issuer
This statement relates to the Series A Convertible Preferred
Stock, No Par Value (the "Preferred Stock"), of Radius Inc., a
California corporation having its principal executive office at
215 Moffett Park Drive, Sunnydale, California 94089 (the
"Company"), which is convertible into Common Stock, No Par Value
(the "Common Stock"), of the Company.
Item 2. Identity and Background
This statement is being filed by each of:
(i) IBM Credit Corporation, a Delaware corporation, whose
principal business is financing ("IBM Credit"). IBM Credit is a
wholly owned subsidiary of International Business Machines
Corporation. The business address and principal place of
business of IBM Credit is 1133 Westchester Avenue, White Plains,
NY 10604; and
(ii) International Business Machines Corporation, a New York
corporation, whose business address and principal place of
business is Old Orchard Road, Armonk, NY 10504 ("IBM"), has two
fundamental missions. First, IBM strives to lead in the
creation, development and manufacture of the industry's most
advanced information technologies, including computer systems,
software, networking systems and microelectronics. Second, IBM
translates these advanced technologies into value for its
customers worldwide through its sales and professional services
units in North America, Europe/Middle East/Africa, Asia Pacific
and Latin America. IBM Credit and IBM shall also be referred
to herein as the "Holders". IBM Credit and IBM constitute a
"group" (the "Group") for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, with respect to the
shares of Preferred Stock and the Warrants (as defined in Item 3
herein) reported herein as beneficially owned by any of IBM
Credit or IBM.
The name, business address, and present principal occupation or
employment of each of the directors and executive officers of IBM
are set forth below. All such directors and executive officers
listed below are citizens of the United States except Juergen
Dormann (Germany), Lodewijk C. van Wachem (Netherlands) and John
M. Thompson (Canada). Unless, otherwise indicated, the principal
business address of each director or executive officer is
International Business Machines Corporation, Old Orchard Road,
Armonk NY 10504.
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<PAGE 5>
Page 5 of 13 Pages
Present Principal Occupation or
Name and Business Address Employment
- ------------------------- ----------
Louis V. Gerstner, Jr. Chairman of the Board and Chief
Executive Officer of IBM.
Cathleen Black Director of IBM since 1995. President,
959 Eighth Avenue Hearst Magazines, a division of the
New York, NY 10019 Hearst Corporation.
Harold Brown Director of IBM from 1972 to 1977 and
Center for Strategic and since 1981. Counselor, Center for
International Studies Strategic International Studies,
Suite 40, Washington, DC, and a general partner
1800 K Street, NW in Warburg, Pincus & Company.
Washington, DC 20006
Juergen Dormann Director of IBM since January 1996.
Hoechst AG Chairman of the Management Board,
Building F821 Hoechst AG.
Frankfurt G65926
Germany
Nannerl O. Keohane Director of IBM since 1986. President
Office of the President and professor of political science at
Duke University Duke University.
207 Allen Building
Box 90001
Durham, NC 27708-0001
Charles F. Knight Director of IBM since 1993. Chairman,
Emerson Electric Co. CEO and President, Emerson Electric Co.
8000 West Florissant Avenue
P.O. Box 4100
St. Louis, MO 63136-8506
Lucio A. Noto Director of IBM since 1995. Chairman
Mobil Corporation and Chief Executive Officer of Mobil
3225 Gallows Road Corporation.
Fairfax, VA 22037
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<PAGE 6>
Page 6 of 13 Pages
John B. Slaughter Director of IBM since 1988. President of
Office of the President Occidental College.
Occidental College
1600 Campus Road
Los Angeles, CA 90041
Alex Trotman Director of IBM since 1994. Chairman
Ford Motor Company and Chief Executive Officer of the Ford
American Road Motor Company.
Dearborn, MI 48121-1899
Lodewijk C. van Wachem Director of IBM since 1992. Chairman of
Royal Dutch Petroleum Company the supervisory board of Royal Dutch
P.O. Box 162 Petroluem Company.
2501 AN The Hague
Netherlands
Charles M. Vest Director of IBM since 1994. President
President's Office and professor of mechanical engineering
Massachusetts Institute at Massachusetts Institute of Technology.
of Technology
Room 3-208
77 Massachusetts Avenue
Cambridge, MA 02139
J. Thomas Bouchard Senior Vice President, Human
Resources, IBM.
Nicholas M. Donofrio Senior Vice President and Group
Executive, IBM.
J. Bruce Harreld Senior Vice President, Strategy, IBM
Paul M. Horn Senior Vice President, Research, IBM
Ned C. Lautenbach Senior Vice President and Group Executive,
Worldwide Sales and Services, IBM, and
Chairman, IBM World Trade Corporation.
Lawrence R. Ricciardi Senior Vice President and General
Counsel, IBM.
Robert M. Stephenson Senior Vice President and Group
Executive, IBM.
G. Richard Thoman Senior Vice President and Chief
Financial Officer, IBM.
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<PAGE 7>
Page 7 of 13 Pages
John M. Thompson Senior Vice President and Group
Executive, IBM.
Partick A. Toole Senior Vice President and Group
Executive, IBM.
John R. Joyce Vice President and Controller, IBM.
John E. Hickey Vice President, Assistant General
Counsel and Secretary, IBM.
Jeffrey D. Serkes Vice President and Treasurer, IBM.
The name, business address, and present principal occupation or
employment of each of the directors and executive officers of IBM
Credit are set forth below. All such directors and executive
officers listed below are citizens of the United States. Unless,
otherwise indicated, the principal business address of each
director or executive officer is IBM Credit Corporation, 1133
Westchester Avenue, White Plains NY 10604.
Present Principal Occupation or
Name and Business Address Employment
- ------------------------- ----------
W. Wilson Lowery, Jr. Chairman of the Board of IBM Credit.
Allison R. Schleicher Vice President, Finance of IBM Credit.
Jeffrey D. Serkes Director of IBM Credit since 1995.
Vice President and Treasurer, IBM.
Joseph N. Boland Chief Credit Officer of IBM Credit.
Kimberly A. Kispert Controller and Treasuer of IBM Credit.
John J. Shay, Jr. Vice President, General Counsel and
Secretary of IBM Credit.
Robert F. Talbot General Manager, Remarketer
Financing of IBM Credit.
Curtis H. Tearte General Manager, End-User Customer
Financing of IBM Credit.
Each of the foregoing are collectively referred to herein as
the "Executive Officers and Directors." Each of the Executive
Officers and Directors disclaims beneficial ownership of any of
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the Preferred Stock, the Common Stock or the Warrants (as
hereinafter defined).
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<PAGE 8>
Page 8 of 13 Pages
During the last five years, neither the Holders nor, to the best
of the Holders' knowledge, any of the Executive Officers and
Directors has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or has been a party
to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or
is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
Federal or State securities laws or finding any violation with
respect to such laws.
Item 3. Source and Amount of Funds and Other Consideration
As more fully described in Item 4 herein, IBM Credit
acquired 750,000 shares of the Series A Convertible Preferred
Stock (the "Preferred Shares") and the Warrants (as defined
below) pursuant to a plan of the Company (the "Plan"), in
satisfaction of claims of $3,000,000 (the "Claims") and the
restructuring of IBM Credit's loan with the Company, including an
additional advance to the Company of approximately $470,000. The
Preferred Shares are convertible into, and the Warrants grant
Holder the right to acquire, shares of Common Stock (the "Common
Shares"). The Plan is outlined in (i) a Term Sheet, executed in
July 1996 by the Company, IBM Credit Corporation ("IBM
Credit"), and The Unofficial Creditors Committee (the
"Committee") of Radius, Inc. (the "Term Sheet"); (ii) a letter,
dated July 11, 1996, from L. Morris Dennis to Garrett L. Cecchini
and Harvey S. Schochet, and agreed to by the Company, IBM Credit,
and the Committee, which contained additional terms and
conditions of the Plan (the "Cover Letter"); and (iii) a form
of Addendum To Term Sheet among the Company, IBM Credit, and the
Committee, which changed certain terms of the Plan (the
"Addendum"). Holder is not a member of the Committee. The Term
Sheet is attached as Exhibit 1 hereto; the Cover Letter is
attached as Exhibit 2 hereto; and the Addendum is attached as
Exhibit 3 hereto; and the description of the Plan set forth
herein is qualified in its entirety by reference thereto. IBM
Credit has been the primary lender to the Company, and the Claims
were incurred by the Company as a result of borrowings it made
from IBM Credit in the past.
Item 4. Purpose of Transaction
The Holders hold their interest in the Preferred Shares, the
Warrants and the Common Shares for investment purposes. The
Holders may consider disposing of all or a portion of the
Preferred Shares, the Warrants, and the Common Shares at any time
and from time to time, depending upon market conditions and
prevailing prices for the Preferred Shares, the Warrants and the
Common Shares. The Holders have no plan or proposal, other than
as described herein, which may relate to or would result in: (a)
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the acquisition by any person of additional securities of the
Company, or the disposition of securities of the Company; (b) an
extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of
its subsidiaries; (c) a sale or transfer of a material amount of
assets of the Company or of any of its subsidiaries; (d) any
change in the present board of directors or management of the
Company, including any plans or proposals to change the number or
term of directors or to fill any existing vacancies on the board;
(e) any material change in the present capitalization or dividend
policy of
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<PAGE 9>
Page 9 of 13 Pages
the Company; (f) any other material change in the Company's
business or corporate structure, including but not limited to, if
the Company is a registered closed-end investment company, any
plans or proposals to make any changes in its investment policy
for which a vote is required by Section 13 of the Investment
Company Act of 1940; (g) changes in the Company's charter, bylaws
or instruments corresponding thereto or other actions which may
impede the acquisition of control of the Company by any person;
(h) causing a class of securities of the Company to be delisted
from a national securities exchange or to cease to be authorized
to be quoted in an inter-dealer quotation system of a registered
national securities association; (i) a class of equity securities
of the Company becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934; or (j) any action similar to any of those enumerated above.
The Holders reserve the right to adopt other plans or proposals
in the future.
The Company has informed the Holders that, as of June 30,
1996, it had a negative net worth, was delinquent in its accounts
payable, and that several vendors had initiated legal action to
collect allegedly delinquent accounts and at least two vendors
had orally threatened the Company with initiation of insolvency
or bankruptcy proceedings. The Company has informed the Holders
that, as a result, the Company established the Committee, which
is comprised of eight
of the Company's larger unsecured creditors, in an effort to
resolve its delinquent accounts payable, capital deficiency, and
creditor litigation issues outside of insolvency or bankruptcy
proceedings. The Company has informed the Holders that the
Company, the Committee
and IBM Credit agreed to the Plan, pursuant to which, among other
things, (i) IBM Credit received the Series A Preferred Stock in
satisfaction of $3 million of the Company's approximately $26.4
million secured indebtedness to IBM Credit and in consideration
of the restructuring of its loan with the Company, plus warrants
to purchase 600,000 shares of Common Stock (the "Warrants"), and
(ii) the Company's unsecured creditors received either shares of
Common Stock or, in the case of certain creditors, a discounted
cash payment, in satisfaction of certain claims. The Company has
informed the Holders that, pursuant to the Plan, unsecured
creditors received 36,294,198 shares of Common Stock, or 60% of
the outstanding Common Stock after consummation of the Plan. The
Company has informed the Holders that an increase in the
authorized number of shares of Common Stock was necessary to
implement the Plan, and that the Company obtained shareholder
approval for such increase at a special meeting of shareholders
on August 27, 1996. IBM Credit received the Preferred Shares
and the Warrants upon consummation of the Plan on September 13,
1996 pursuant to a Subscription Agreement, dated September 13,
1996, between IBM Credit and the Company (the "Subscription
- -
Agreement"). A copy of the Subscription Agreement is attached as
Exhibit 4 hereto, and the description of the Subscription
Agreement set forth herein is hereby qualified in its entirety by
reference thereto. A copy of the Warrants is attached as Exhibit
5 hereto. A copy of the Letter Agreement (as defined below)
modifying the terms of the Warrants is attached as Exhibit 6.
The description of the Warrants set forth herein is hereby
qualified in its entirety by reference thereto.
The Company has informed the Holders that a portion of the
Series A Preferred Stock is automatically convertible into shares
of Common Stock at any time which is 90 days after the effective
date of the Registration Statement (as defined in Item 6 herein),
if (i) the Registration
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<PAGE 10>
Page 10 of 13 Pages
Statement is in effect and the use of the prospectus contained
therein has not then been suspended, and (ii) if the trading
price of the Common Stock exceeds, for a period of 15 consecutive
trading days, a price per share equal to $0.815 and a
registration statement with respect to the Common Stock issuable
upon conversion of such securities is in effect. The Company has
informed the Holders that dividends on the Series A Preferred
Stock may be payable in common stock at the option of the
Company. The Company has informed the Holders that the
Registration Statement covers the Common Stock issuable upon such
conversion and was filed with the Securities and Exchange
Commission on September 20, 1996 and was declared effective by
the Securities and Exchange Commission on November 12, 1996. The
Company has informed the Holders that, pursuant to the terms of
the Amended and Restated Working Capital Financing and Term Loan
Agreement, dated as of August 30, 1996 (the "Financing
Agreement"), by and between the Company and IBM Credit, the
Preferred Stock is redeemable at the option of the holders of a
majority of the outstanding Preferred Shares upon the sale by the
Company of any part of the Company's interest in Splash
Technology Holdings, Inc. or its other portfolio interests and
certain other extraordinary events. In the event the holders do
not elect a redemption, the Company may redeem the Preferred
Shares at a premium. A copy of the Financing Agreement, along
with Exhibit A thereto, is attached as Exhibit 7 hereto. A copy
of the Letter Agreement (as defined below) modifying the terms of
the Financing Agreement is attached as Exhibit 6. The
description of the Financing Agreement set forth herein is hereby
qualified in its entirety by reference thereto.
The Company has informed IBM Credit that the unsecured
creditors received rights (the "Unsecured Creditors Rights") to
receive an aggregate of 11,046,060 additional shares of the
Common Stock in the event that the Series A Preferred Stock is
converted into Common Stock so that the number of shares of
Common Stock received by such unsecured creditors continues to
represent 60% of the outstanding Common Stock after such
conversion. The Holders have not received any Unsecured
Creditors Rights.
Item 5. Interest in Securities of Issuer
As more fully discussed in Item 4 herein, at the close of
business on September 13, 1996, the Holders beneficially owned
750,000 shares of Series A Convertible Preferred Stock and
warrants to purchase 600,000 additional shares of the Common
Stock, which, upon conversion of the Preferred Stock and exercise
of the Warrants, would represent approximately 8.5% of the shares
of the Common Stock outstanding on such date, after accounting
- -
for the shares of Common Stock issued to the Unsecured Creditors
upon conversion of the Preferred Stock pursuant to the Unsecured
Creditors Rights.
Except as set forth above, the Holders do not beneficially
own any shares of the Preferred Stock or the Common Stock and
have not effected any transaction in the Preferred Stock or the
Common Stock during the sixty days preceding this statement.
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<PAGE 11>
Page 11 of 13 Pages
Item 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer
The Company and IBM Credit are parties to a Registration
Rights Agreement,dated
as of September 13, 1996, by and between the Company and IBM
Credit (the "Base Registration Rights Agreement"), as amended by
that certain letter agreement, dated as of September 12, 1996 by
and between the Company and IBM Credit (the "Letter Agreement";
the Base Registration Rights Agreement as amended by the Letter
Agreement, the "Registration Rights Agreement"). A copy of the
Base Registration Rights Agreement is attached as Exhibit 8
hereto, and a copy of the Letter Agreement is attached as Exhibit
6 hereto, and the description of the Registration Rights
Agreement set forth herein is hereby qualified in its entirety by
reference thereto. Pursuant to the Registration Rights
Agreement, the Company is obligated, among other things, to
prepare and file with the Securities and Exchange Commission a
registration statement for an offering to be made on a continuous
basis pursuant to Rule 415 under the Securities Act of 1933, as
amended covering, among other things, the Preferred Shares and
the shares of Common Stock issuable upon conversion of the
Preferred Shares and the shares of Common Stock issuable upon
exercise of the Warrants. Pursuant to the Registration Rights
Agreement, the Company was obligated to use its best efforts to
have such registration statement declared effective on or before
November 12, 1996 and to keep such registration statement
effective until the earlier of September 12, 1998, subject to the
occurrence of certain events. The Company has informed the
Holders that such a registration statement (the "Registration
Statement") was filed with the Securities and Exchange Commission
on September 20, 1996 and was declared effective by the
Securities and Exchange Commission on November 12, 1996.
Except as otherwise described herein, the Holders are not a
party to any contract, arrangement, understanding or relationship
(legal or otherwise) with any person with respect to any
securities of the Company, including but not limited to, the
transfer or voting of any of such securities, finder's fees,
joint ventures, loan or option arrangements, puts or calls,
guaranties of profits, division of profits or loss, or the giving
or withholding of proxies.
Item 7. Material to be filed as Exhibits
1. Term Sheet, executed in July, 1996, between Radius,
Inc., IBM Credit Corporation, and the Unofficial Creditors
Committee of Radius, Inc.
2. Letter, dated July 11, 1996, from L. Morris Dennis
to Garrett L. Cecchini and Harvey S. Schochet, and agreed
to by Radius, Inc., IBM Credit Corporation, and the
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Unofficial Creditors Committee of Radius, Inc.
3. Form of Addendum To Term Sheet, dated July 1996, among
Radius, Inc., IBM Credit Corporation, and the Unofficial
Creditors Committee of Radius, Inc.
4. Subscription Agreement, dated September 13, 1996, by and
between Radius, Inc. and IBM Credit Corporation
5. Warrants, issued September 13, 1996 by Radius Inc.
naming IBM Credit Corporation as holder
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<PAGE 12>
[SIGNATURE]
Page 12 of 13 Pages
6. Letter, dated September 13, 1996 from Radius Inc. to IBM
Credit Corporation
7. Amended and Restated Working Capital Financing and Term
Loan Agreement, dated as of August 30, 1996 by and between
Radius Inc. and IBM Credit Corporation
8. Registration Rights Agreement, dated as of September 13,
1996, between Radius, Inc. and IBM Credit Corporation
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: March 11, 1997 IBM CREDIT CORPORATION
By: /s/ John J. Shay, Jr.
-----------------
Name: John J. Shay, Jr.
Title: Vice President, General
Counsel and Secretary
INTERNATIONAL BUSINESS MACHINES CORPORATION
By: /s/ John E. Hickey
--------------
Name: John E. Hickey
Title: Vice President, Secretary
and Assistant General Counsel
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<PAGE 13>
Page 13 of 13 Pages
Exhibit Sequential
Number Exhibit Description
1 Term Sheet, executed in July, 1996, between Radius,
Inc., IBM Credit Corporation, and the Unofficial
Creditors Committee of Radius, Inc.
2 Letter, dated July 11, 1996, from L. Morris Dennis
to Garrett L. Cecchini and Harvey S. Schochet, and
agreed to by Radius, Inc., IBM Credit Corporation,
and the Unofficial Creditors Committee of Radius, Inc.
3 Form of Addendum To Term Sheet, dated July 1996, among
Radius, Inc., IBM Credit Corporation, and the
Unofficial Creditors Committee of Radius, Inc.
4 Subscription Agreement, dated September 13, 1996, by
and between Radius, Inc. and IBM Credit Corporation
5 Warrants, issued September 13, 1996 by Radius Inc.
naming IBM Credit Corporation as holder
6 Letter, dated September 13, 1996 from Radius Inc. to
IBM Credit Corporation
7 Amended and Restated Working Capital Financing and Term
Loan Agreement, dated as of August 30, 1996 by and
between Radius Inc. and IBM Credit Corporation
8 Registration Rights Agreement, dated as of September
13, 1996, between Radius, Inc. and IBM Credit
Corporation
<PAGE 1>
EXHIBIT 1
TERM SHEET
1. GENERAL
a. The largest unsecured creditors, i.e. those with claims
in excess of $50,000, ("Major Creditors") shall convert all of
their unsecured debt (approximately $45,000,000) into Radius'
common stock.
b. A convenience class of unsecured creditors, i.e. those
with claims less than $50,000, ("Convenience Class") shall be
given the election of receiving a portion of their claim in cash
or converting into equity on same terms as Major Creditors.
c. IBM Credit Corporation ("IBM Credit") shall agree to
restructure its loan, including a conversion of a portion of its
debt into senior preferred stock convertible into Radius' common
stock.
2. CONVERSION OF DEBT INTO EQUITY BY MAJOR CREDITORS
a. Debt of Major Creditors will include "component claims"
of SCI, Avex, MSL and Mitsubishi.
b. Debt owed to Major Creditors shall be converted into the
number of shares of the common stock of Radius which will,
together with common stock issued to the members of the
Convenience Class electing to convert their debt into common
stock, represents 60% of the issued and outstanding common stock
of Radius.
i. The shares of common stock shall be allocated among the
Major Creditors and the electing members of the Convenience
Class on a prorata basis, based upon their allowed claims.
Appropriate amounts of common stock will be reserved for any
disputed claims. Determination of allowed and disputed
claims shall be made by Radius with the concurrence of the
Creditors' Committee by the Closing Date.
ii. The common stock issued to the Major Creditors shall
have the same rights and privileges as the currently
outstanding common stock of Radius, including the right to
receive the same dividends and the same right to vote.
iii. The agreement of all Major Creditors to the conversion
of their claims into shares of said common stock shall be a
condition of the obligations of Radius, IBM Credit and the
- -
Unofficial Creditors Committee of Radius, Inc. ("Committee")
under this Term Sheet. Radius, IBM Credit and the Committee
may elect to waive this requirement that all of the Major
Creditors must convert.
iv. The agreement of Major Creditors, holding at least 75%
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<PAGE 2>
of the total amount of claims held by Major Creditors, to
hold their shares in a trust or other arrangement to insure
a stable market price for the stock issued to the Major
Creditors, shall be a condition of the obligations of
Radius, IBM Credit and the Committee under this Term Sheet.
3. TREATMENT OF THE CONVENIENCE CLASS
a. This class consists of creditors of Radius, each holding
claims in an amount less than $50,000, numbering approximately
290 creditors to whom is owed approximately $1,900,000.
b. Radius will initially offer to each creditor in the
Convenience Class payment, on the Closing Date, an amount not to
exceed 20% of their allowed claim, in full payment of said claim.
The existing Committee will assist Radius in obtaining said
consents.
c. Creditors in the Convenience Class, who do not accept the
offer described in sub-paragraph III.B. above, may exchange
their claim for common stock on the same terms set forth in
paragraph II.
d. The agreement of creditors in the Convenience Class numbering
at least 95% of said creditors and holding at least 95% of the
total amount of claims held by all creditors in the Convenience
Class, to accept either the payment referred to in sub-paragraph
III.B. or the conversion of debt into common stock referred to in
sub-paragraph III.C., shall be a condition of the obligations of
Radius, IBM Credit and the Committee under this Term Sheet.
Radius, IBM Credit and the Committee may elect to waive this
requirement.
e. IBM Credit shall advance to Radius up to $500,000, to be used,
as determined by Radius, to make the payments to the creditors in
the Convenience Class, pursuant to the Working Line of Credit
referred to in paragraph IV.B. below. Radius will not pay more
than $500,000 to the Convenience Class in connection with
settling the claims of the Convenience Class.
4. RESTRUCTURE OF IBM CREDIT DEBT
IBM Credit will restructure its existing debt of approximately
$23,000,000 as follows:
a. IBM Credit will convert $3,000,000 of its existing debt
into preferred stock, convertible into the common stock of
Radius. The rights and preferences of the preferred stock are as
follows: i. The preferred stock shall at all times be senior to
any other preferred stock and have a liquidation preference of
$3,000,000 plus any accrued but unpaid dividends (collectively
the "Liquidation Value"). ii. The preferred stock shall be
convertible into the number of shares of the common stock of
- -
Radius, which will represent 7% of the issued and outstanding
common stock of Radius as of the date of the conversion into
common stock, excluding common shares issued pursuant to the
warrants or as dividends on the preferred stock and any other
equity issuances authorized by Radius and approved by IBM Credit
after the Closing Date. The common stock issued to IBM Credit,
on the conversion of the preferred stock, shall have the same
rights and privileges as the currently outstanding common stock
of Radius, including the right to receive the same dividends and
- -
<PAGE 3>
the same right to vote. iii. The preferred stock shall receive
10% cumulative dividends, which shall, at the election of
Radius, be payable either in cash or in additional shares of
common stock of Radius, at the market price in effect on the date the
dividend is due, which shall have the same rights and privileges
as the common stock to be issued to IBM Credit on the conversion
of the preferred stock into common stock. iv. The preferred
stock shall be redeemable, at IBM Credit's election, at 100%
of Liquidation Value, upon the sale of Radius' "Splash" stock
or such other non-ordinary course of business events as may be
agreed to by Radius, IBM Credit,
and the Committee prior to the Closing Date. In the event IBM
Credit does not so elect, then Radius can either, at IBM
Credit's election, (i) redeem the preferred stock at 110% of
the Liquidation Value or (ii) convert the preferred stock to
common stock pursuant to paragraph IV.A.2. above. v. Radius can
elect to convert the preferred stock into common stock, at any
time more than ninety (90) days after the Closing Date, when
the average closing market price of Radius' common stock is
more than 150% of the conversion price for a period of over
fifteen consecutive trading days, at a premium of 10% (i.e.
the shares shall be converted into common stock representing 7.7%
of the outstanding common stock rather than 7%). vi. The
preferred stock, the common stock into which it is convertible,
the warrants, the common stock issuable in connection with the
exercise of the warrants and the common stock which may be
issued as dividends on the preferred stock, shall be
registered with the SEC at the time of the issuance of the
preferred stock. IBM Credit shall have the right to demand
registration of any common stock issued to it by Radius once
per year for two years after the last such issuance. After
the expiration of the initial registration statement by Radius
(on form S-1), at IBM Credit's request, Radius shall file a form
S-3 registration statement with the SEC as soon as permitted by
the SEC and shall use its best efforts to make such
registration statement effective as soon as practicable after
notice by IBM Credit of its intention to sell common stock.
b. IBM Credit and Radius shall negotiate a new loan
agreement between IBM Credit and Radius ("Working Line of
Credit"), upon terms and conditions satisfactory to IBM
Credit and Radius, with a credit limit of at least
$5,000,000 subject to the following: i. The initial amount
of the existing indebtedness which shall continue to be
subject to the Working Line of Credit shall be the amount of the
"borrowing base" upon which IBM Credit is required to loan
pursuant to the Working Line of Credit, as of the Closing Date,
plus the amount to be advanced pursuant to paragraph III.E.
above. ii. IBM Credit shall, upon the request of Radius, be
required to make advances to Radius, as required by Radius'
business from time to time, to the extent of the "borrowing
base", without taking into account the amount advanced
pursuant to paragraph III.E. above, provided Radius, at the
- -
time of said request, is in full compliance with the terms and
conditions of said Working Line of Credit and the Term Loan
referred to below. iii. The interest rate on the amount owing
on the Working Line of Credit up to the amount of the
"borrowing base" shall be prime plus 2.25%; the interest
rate on any portion of the amount owing in excess of the
"borrowing base" shall be prime plus 3.25%. iv. The "borrowing
base" shall be: (i) the lesser of 10% of the gross value of
eligible inventory or $500,000; plus (ii) 80% of the value of
eligible domestic accounts receivable; plus (iii) the lesser of
50% of the gross value of eligible QMS (Japan) and Computers
Unlimited (Europe) accounts receivable or $500,000.
c. The balance of Radius' existing indebtedness to IBM
Credit, as of the Closing Date, shall be converted into a term
loan with a term of four years (the "Term Loan") to be paid
- -
<PAGE 4>
follows: i. The interest rate on the Term Loan shall be prime
plus 3.25% and shall be payable with the interest on the
Working Line of Credit. ii. Principal on the Term Loan shall
(subject to the minimum payments specified below) be paid as
follows: (i) 50% from the Net Operating Cash Flow of Radius;
(ii) 100% of any Non-Operating Cash Flow of Radius (i.e. net
proceeds from the disposition of assets of Radius, other than in the
ordinary course of business); and (iii) 10% of any new equity
invested in Radius during the term of the Term Loan. Net
Operating Cash Flow and Non-Operating Cash Flow of Radius
shall be defined in a manner approved by Radius, IBM Credit and
the Committee prior to the Closing Date. iii. The minimum
payments due on the Term Loan, from Net Operating Cash Flow,
shall be 37.5% of the Net Operating Cash Flow projected by
Radius, on schedules prepared by Radius and approved by IBM
Credit from time to time, during the term of the Term Loan.
Failure of Radius to achieve the levels of cash flow projected
shall constitute a "performance default" under the loan
documents and failure of Radius to pay the amounts due
pursuant to the foregoing shall constitute a "payment default"
under the loan documents. iv. IBM Credit shall have the right to
require Radius to sell the following percentages of its interest
in the "Splash stock", on a cummulative basis, and to apply the
proceeds received from said sale to the payment of the Term Loan
as follows: (i) up to 50% of Radius' interest in said stock at
any time within one year after the registration of said stock
as part of a public offering of the stock; (ii) up to 25% of
Radius' interest in said stock at any time during each of
the second and third years after the registration of said stock
as part of a public offering of the stock (plus any unsold
portion of the Radius' interest in said stock which IBM Credit
could have required Radius to sell in a previous year); (iii)
up to 100% of Radius' interest in said stock,
notwithstanding the provisions of paragraphs (a) and (b) above,
at any time after the registration of said stock as part of a
public offering of the stock, that the balance of the Term Loan
shall be more than 90% of the market value of Radius' interest in
said stock.
d. The Working Line of Credit and the Term Loan
shall be cross-collateralized and cross-defaulted and shall
include customary positive and negative covenants including a
prohibition on common stock dividends while amounts are owing
on the Working Line of Credit and the Term Loan.
e. All Non-Operating Cash Flow, including all proceeds from
any collateral held by IBM Credit to secure its indebtedness,
shall be applied in the following order: i. first, to the
payment of any amounts advanced by IBM Credit, on or after the
Closing Date, in excess of the amount of the "borrowing base"
upon which IBM Credit is required to loan pursuant to the terms
and conditions of Working Line of Credit, including the
$500,000 to be advanced pursuant to paragraph III.; ii.
- -
second, to the payment of any amounts outstanding on the Term
Loan; iii. third, at IBM Credit's election, to the
redemption of any preferred stock received by IBM Credit on
the conversion of a portion of its debt pursuant to paragraph
IV.A. of this Term Sheet; and iv. finally, to the payment of
any amounts owing on the Working Line of Credit.
f. IBM Credit and Radius will agree on what portion of the
remaining Net Operating Cash Flow, which is not required to be
applied to the Term Loan, shall be used to repay the amount to be
advanced pursuant to paragraph III.E.
5. STOCK RESTRICTIONS AND RIGHTS.
- -
<PAGE 5>
a. The issuance of the common stock (and the preferred
stock convertible into common stock, warrants, the common
stock issuable in connection with the exercise of the warrants
and the common stock which may be issued as dividends on the
preferred stock) referred to herein shall be in compliance
with all applicable federal and state securities laws.
Radius shall register said securities with the Securities
and Exchange Commission pursuant to the Securities Act of
1933, and take all action required by applicable federal and
state securities laws so that said securities may be freely
traded. Radius shall remain current in all of its required
filings pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and all applicable state securities laws.
b. It is understood that Radius may issue additional shares
of common stock to provide incentive compensation to
management of Radius, provided that the number of shares to be
issued, when combined with shares to be issued on the
exercise of any existing stock options, shall not exceed 10% of
the common stock issued and outstanding as of the Closing Date
(counting any common stock to be issued to IBM Credit upon the
conversion of its preferred stock). The issuance of said
additional shares of common stock shall not reduce the interest
of the Major Creditors, together with the members of the
Convenience Class electing to convert their debt into common
stock, below 60% of the outstanding common stock, or the
interest of IBM Credit below 7% of the outstanding common
stock. Any dilution of ownership due to the issuance of said
additional shares of common stock shall be to the currently
issued and outstanding common stock. Prior to the Closing Date,
no additional shares, nor options or other rights to acquire
shares in Radius shall be issued or granted other than in
connection with Radius' existing stock option plans (which
will not dilute the unsecured creditors' 60% and IBM Credit's
7% interests in Radius).
6. TERMINATION OF OVERRIDE PAYMENTS. Upon execution of this
Term Sheet, and for so long as the parties shall continue to
pursue their efforts to carry out the terms of this Term Sheet,
each of the members of the Committee who have continued to
supply product to Radius, on condition that Radius pay to them
an amount equal to 110% of the price of the new product shipped,
shall cease said requirement for payment of said override.
7. WARRANTS TO CREDITORS. In consideration for the credit
which they have extended and may extend in the future, the
following creditors shall receive warrants to purchase shares
of Radius' common stock as follows:
a. IBM Credit shall receive warrants to purchase
600,000 shares;
- -
b. Any Major Creditor who shall extend to Radius
open credit terms, agreed to by Radius and said Major Creditor,
shall receive warrants to purchase a number of shares computed on a
mutually agreeable basis (provided that the warrants issued to
all Major Creditors shall not exceed 600,000 shares).
c. The exercise price shall be the average
market price of Radius' common stock during the period from five
trading days prior to the Closing Date until five trading
- -
<PAGE 6>
[SIGNATURE]
days following the Closing Date, not to exceed $1.25 per share.
d. The warrants may be exercised, at any time, during
the four years following the Closing Date, provided that at the
time of said exercise, in the case of a Major Creditor who has
extended open credit terms to Radius, said Major Creditor has not
ceased extending said credit for any reason other than Radius'
failure to pay amounts owing to said Major Creditor in accordance
with said terms.
8. OTHER DOCUMENTS. This Term Sheet sets forth the broad terms
of an agreement in principle between Radius, IBM Credit and the
Committee concerning the subject matter hereof and is
intended to provide the framework for further
documentation. The provisions set forth above represent certain
key terms that have been the basis of the parties' discussions
to date and will continue to serve as the basis of the
various agreements, documents and instruments (relating to
the restructuring, recapitalization and related transactions
referenced above) to be negotiated and documented in order
for there to be a definitive and binding agreement among the
parties. Accordingly, this agreement in principle is not
intended to confer any legal or equitable rights or to impose
any legal or equitable obligations whatsoever, of any kind,
character or nature on any party. Such agreements, documents
and instruments, when they become fully effective in accordance
with their terms, shall supersede in their entirety this Term
Sheet. All parties agree to maintain the confidentiality of the
terms provided in this document, except as required by law.
9. TIMETABLE All documents and all actions necessary to carry
out the terms and conditions of this Term Sheet and the
conversion shall be executed and completed by September 30,
1996, or such other date as may be mutually agreed by the
parties to this Term Sheet ("Closing Date").
Executed effective this 11 day of July, 1996.
RADIUS, INC. IBM CREDIT CORPORATION
by /s/ Charles Berger by /s/ Philip Morse
__________________ _________________
Charles Berger, President Philip Morse
THE UNOFFICIAL CREDITORS COMMITTEE
OF RADIUS, INC.
MITSUBISHI ELECTRONICS AMERIC
- -
by
___________________________
Carl Carlson, Co-Chairman
- -
SCI SYSTEMS
by
____________________________
Michael Ledbetter, Co-Chairman
AVNET EMG
MANUFACTURERS' SERVICES LTD.
by
____________________________
by
___________________________
Dennis E. Losik
Rick Bettes
MITSUBISHI INTERNATIONAL
QUANTUM ELECTRONICS
by
____________________________
by
___________________________
Takahiro Kitamoto
Aimee Takamoto
TECH DATA CORP.
by
____________________________
David Vetter
<PAGE 1>
EXHIBIT 2
July 11, 1996
Garrett L. Cecchini, Esq.
Wright, Robinson, Osthimer & Tatum
44 Montgomery Street, 18th Floor
San Francisco, CA 94104-4705
Harvey S. Schochet, Esq.
Steefel, Levitt & Weiss
One Embarcadero Center, 29th Floor
San Francisco, CA 94111
Re:
Recapitalization of Radius, Inc.
Gentlemen:
Attached you will find the final draft of the Term Sheet
containing the agreement in principle which we believe has
been reached regarding the recapitalization of Radius,
Inc. The Term Sheet contemplates that the recapitalization
will be accomplished by an out of court voluntary arrangement
between Radius and its creditors which the Creditors Committee
will actively support. It was agreed, however, that if it
becomes apparent that the recapitalization cannot be
accomplished by an out of court voluntary arrangement, a
petition for reorganization of Radius under Chapter 11 of the
United States Bankruptcy Code will be filed to consummate the
recapitalization plan. The following is a summary of the
procedure for the attempt to achieve the plan voluntarily and
filing the pre-packaged Chapter 11 if it becomes necessary.
a. A good faith attempt shall be made by all parties to
achieve the recapitalization of Radius, in the manner set forth
in the Term Sheet, without the necessity of filing a petition
for reorganization of Radius under Chapter 11 of the United
States Bankruptcy Code. To that end, the parties shall do the
following:
i.The Committee shall, within two (2)days following execution of
the Term Sheet by Radius and IBM Credit send out a bulletin
to the creditors of Radius indicating:
(i) that the Committee has met and conferred with Radius and IBM
Credit and agreed in principle that it believes that it would
- -
be in the best interests of all unsecured creditors to
compromise or convert their claims into stock of Radius upon the
terms set forth in the Term Sheet;
- -
<PAGE 2>
(ii) that Radius will, subject to the registration of the
necessary stock, make an offer to the creditors to compromise or
convert their claims into stock of Radius upon the terms set
forth in the Term Sheet;
(iii) that the Committee recommends that the creditors
accept such offer from Radius when received;
(iv) that if the percentage of creditors specified in the
Term Sheet does not accept said offer, a petition for
reorganization of Radius under Chapter 11 of the United States
Bankruptcy Code, will be filed proposing a plan of
reorganization consistent with the Term Sheet; and
(v) that the creditors will be receiving an
informational package concerning Radius and a ballot to elect
how their claims will be treated.
b. In the event that it should become necessary because of:
i. the failure of Radius to deliver to counsel for the
Committee the items specified herein in paragraph C in a timely
manner;
ii. an inability to comply with federal or state securities
laws required to issue the preferred and common stock and
warrants provided for in the Term Sheet (including an
inability to have the registration statement become
effective on or before September 30, 1996, (the "Closing Date");
iii. an inability to obtain the necessary consents of
creditors as specified in the Term Sheet, especially in the
convenience class;
iv. the necessity of staying litigation against
Radius which would otherwise unreasonably interfere with
Radius' ability to continue to operate its business;
v. protection of Radius' Board of Directors, IBM Credit
or the Committee from claims related to their negotiations or
other dealings with one another;
vi. protection of Radius and its creditors from
materially adverse tax consequences from the conversion of debt
into stock, as provided for in the Term Sheet; or
vii. an inability, for any other reason, to carry out the
provisions of the Term Sheet without the filing of a petition for
reorganization of Radius under Chapter 11 of the United States
Bankruptcy Code, on or before the Closing Date;
Radius shall cause to be filed such a petition, in which Radius
shall propose a plan of reorganization which is consistent
- -
with the terms of the Term Sheet, other than those related to
registration of the preferred and common stock and warrants. IBM
Credit and the Committee shall support said Plan.
- -
<PAGE 3>
c. To facilitate the ability to file such a petition:
i. Radius will prepare and deposit with counsel for the
Committee, within seven (7) days from the execution of the
Term Sheet, a duly executed petition for reorganization of
Radius under Chapter 11 of the United States Bankruptcy Code and
certified resolutions of Radius' Board of Directors authorizing
the filing of such petition and such other documents as are
required to file such a petition;
ii. Radius will prepare and deposit with counsel for the
Committee, within twenty one (21) days from the execution of the
Term Sheet, an informational document to be used in the
solicitation of consents from the creditors to the compromise or
conversion of their debt as specified in the Term Sheet,
including a prospectus which complies with the disclosure
requirements of the SEC for solicitation of such conversion in
a voluntary plan and a disclosure statement describing the
recapitalization plan specified in the Term Sheet,
complying with all requirements of the United States Bankruptcy
Code.
iii. Radius and the Committee, acting in concert, shall, within
five (5) days from delivery of the above described informational
document mail said informational document to the creditors of
Radius and solicit the consents of the creditors to the
compromise or conversion of their debt as specified in the
Term Sheet. Radius shall have a period of thirty (30) days
from the mailing of said informational document to obtain the
necessary consents.
iv. Radius will prepare and deposit with counsel for the
Committee, within forty five (45) days from the execution of the
Term Sheet, all necessary schedules to the petition, a plan of
reorganization consistent with the terms of the Term Sheet,
any consents of creditors and shareholders to the plan obtained
and such other documents as are required to file a
"pre-packaged" plan of reorganization.
v. Counsel for the Committee is hereby authorized, upon the
occurrence of one of the events specified in paragraph B
above, and upon two days notice to, and consultation with,
Radius and IBM Credit, to file said petition.
d. To facilitate the payment of the fees of counsel to the
Committee for their increased level of services related to
communicating with the creditors and soliciting their consent
to the recapitalization plan set forth in the Term Sheet,
Radius shall pay to said counsel, on an accelerated basis and
no less favorable basis as counsel to Radius, the amount
shown as owing on said statement. This is not intended,
- -
however, to effect a subordination of any of
IBM Credit's claims, liens or other rights.
If the above correctly reflects your agreement, please have
your respective clients execute a copy of this letter at the
place indicated and return it to us with the executed Term
Sheet. We will also obtain the signatures of the Creditors
Committee which will be binding on them not only as members of
the Committee but as individual creditors as well.
- -
<PAGE 4>
[SIGNATURE]
Very truly yours,
L. Morris Dennis
Agreed to:
RADIUS, INC. IBM CREDIT CORPORATION
by /s/ Charles Berger by /s/ Philip Morse
___________________________ ___________________________
Charles Berger, President Philip Morse
THE UNOFFICIAL CREDITORS COMMITTEE
OF RADIUS, INC.
MITSUBISHI ELECTRONICS AMERICA SCI SYSTEMS
by by
___________________________ ___________________
Carl Carlson, Co-Chairman Michael Ledbetter, CoChairman
AVNET EMG
MANUFACTURERS' SERVICES LTD.
by
____________________________
by
___________________________
Dennis E. Losik
Rick Bettes
- -
<PAGE 5>
[SIGNATURE]
<PAGE>
MITSUBISHI INTERNATIONAL
QUANTUM ELECTRONICS
by
____________________________
by
___________________________
Takahiro Kitamoto
Aimee Takamoto
TECH DATA CORP.
by
____________________________
David Vetter
<PAGE 1>
<PAGE>
EXHIBIT 3
ADDENDUM TO TERM SHEET
This is an Addendum to the Term Sheet executed by the parties
hereto, to clarify or change certain of the terms contained
therein.
i. Paragraph II.B.1. of the Term Sheet is amended to add the
following: "If the determination of allowed and disputed
claims is not completed by the Closing Date, the shares
reserved for the disputed claims shall be issued to the
Trustees of the Creditors' Trust referred to in paragraph
II.B.4., to be distributed by them to the Major Creditors and
the members of the Convenience Class electing to convert their
debt into common stock, when the disputed claims
are resolved."
ii. Paragraph II.B.4. of the Term Sheet is amended to read
as follows: "The agreement of all of the Major Creditors and
the members of the Convenience Class electing to convert their
debt into common stock, that the portion of their shares
attributable to disputed claims shall be held in a Creditors'
Trust, to be established by a trust agreement between Radius and
the Committee, until the disputed claims are resolved shall be
a condition of the obligations of Radius,
IBM Credit and the Committee under this Term Sheet." Radius, IBM
Credit and the Committee may elect to waive this requirement."
iii. Paragraph III.C. of the Term Sheet is amended to read as
follows: "Creditors in the Convenience Class, who do not accept
the offer described in sub-paragraph III.B. above and who are
'Accredited Investors', as defined in Rule 501 to Regulation
D promulgated by the Securities and Exchange Commission ("SEC"),
may exchange their claim for common stock on the same terms set
forth in paragraph II.B."
iv. Paragraph IV.A.6. of the Term Sheet is amended to read
as follows: "The preferred stock, the common stock into which
it is convertible, the warrants to IBM Credit referred in
paragraph VII.A., the common stock issuable in connection with
the exercise of said warrants and the common stock which may be
issued as dividends on the preferred stock (the "IBM Credit
Securities"), shall be in compliance with all applicable federal
and state securities laws. The IBM Credit Securities shall
initially be issued pursuant to the exemption from the
registration requirements of the Securities Act of 1933 (the
"Act") provided by Regulation D promulgated by the SEC. As soon
- -
as permitted by the SEC after the Closing Date, (estimated to
be approximately 30 days following the Closing Date), the
resale by IBM Credit of the IBM Credit Securities shall be
registered under the Act, by the filing with the SEC of a
registration statement on Form S-1 and the diligent prosecution
of said registration statement by Radius until it becomes
effective. Thereafter, Radius shall file all statements and take
all actions necessary to maintain said registration as
"evergreen" for a period of 2 years following the Closing Date
so that said securities may be freely traded unless earlier
tradeable without restriction pursuant to Rule 144 promulgated by
the SEC. Thereafter, IBM Credit shall have the right to demand
registration of any common stock issued to it by Radius once
- -
<PAGE 2>
per year for two years after the last such issuance. At IBM
Credit's request, Radius shall file a form S-3 registration
statement with the SEC as soon as permitted by the SEC and
shall use its best efforts to make such registration statement
effective as soon as practicable after notice by IBM Credit of
its intention to sell common stock. Radius shall remain
current in all of its required filings pursuant to the Act, the
Securities Exchange Act of 1934 and all applicable state
securities laws."
v. Paragraph V.A. of the Term Sheet is amended to read as
follows: "The issuance of the common stock to be issued to the
Major Creditors and the members of the Convenience Class
electing to convert their debt into common stock shall be in
compliance with all applicable federal and state securities
laws. Said common stock shall initially be issued pursuant to the
exemption from the registration requirements of the Act provided
by Regulation D promulgated by the SEC. As soon as permitted by
the SEC after the Closing Date, (estimated to be approximately
30 days following the Closing Date), the resale by the Major
Creditors and the members of the Convenience Class electing
to convert their debt into common stock shall be registered
under the Act, by the filing with the SEC of a registration
statement on Form S-1 and the diligent prosecution of
said registration statement by Radius until it becomes effective.
Thereafter, Radius shall file all statements and take all
actions necessary to maintain said registration as
"evergreen" for a period of 2 years following the Closing Date
so that said securities may be freely traded, unless earlier
tradeable without restriction pursuant to Rule 144 promulgated
by the SEC. Thereafter, it is contemplated that the Major
Creditors and the members of the Convenience Class electing to
convert their debt into common stock shall be permitted to
resell their shares pursuant to Rule 144 promulgated by the
SEC. Radius shall remain current in all of its required
filings pursuant to the Act, the Securities Exchange Act of
1934 and all applicable state securities laws."
vi. Paragraph VI. of the Term Sheet is amended to read as
follows: "Upon execution of all agreements, documents and
instruments (relating to the restructuring, recapitalization
and related transactions referenced herein) to be negotiated
and documented and executed pursuant to, or to carry out the
purposes of, the Term Sheet, and for so long as the parties
shall continue to pursue their efforts to carry out the terms
of the Term Sheet, each of the members of the Committee who
have continued to supply product to Radius, on condition that
Radius pay to them an amount equal to 110% of the price of
the new product shipped, shall cease said requirement for
payment of said override."
vii. Paragraph VII. of the Term Sheet is amended to add to
said paragraph a new sub-paragraph E. which shall read as
- -
follows: The warrants to be issued pursuant to the provisions
of paragraph VII.B. and the common stock issuable in
connection with the exercise of said warrants shall be in
compliance with all applicable federal and state securities
laws. Said warrants and common stock shall initially be issued
pursuant to exemption from registration under the Act and
thereafter registered under the Act in the same manner as
provided in paragraph V.A. of the Term Sheet."
Except as expressly modified herein, all of the terms and
conditions of the Term Sheet shall continue in full force and
effect.
- -
<PAGE 3>
[SIGNATURE]
Executed effective this __ day of July, 1996.
RADIUS, INC. IBM CREDIT CORPORATION
by /s/ Charles Berger by /s/ Philip Morse
___________________________ ___________________________
Charles Berger, President Philip Morse
THE UNOFFICIAL CREDITORS COMMITTEE
OF RADIUS, INC.
MITSUBISHI ELECTRONICS AMERICA SCI SYSTEMS
by by
__________________________ _______________________
Carl Carlson, Co-Chairman Michael Ledbetter, Co-Chairman
AVNET EMG
MANUFACTURERS' SERVICES LTD.
by
____________________________
by
___________________________
Dennis E. Losik
Rick Bettes
MITSUBISHI INTERNATIONAL
QUANTUM ELECTRONICS
by
____________________________
by
___________________________
Takahiro Kitamoto
Aimee Takamoto
TECH DATA CORP.
by
____________________________
David Vetter
<PAGE 1>
<PAGE>
EXHIBIT 4
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of the date of acceptance
set forth below, by and between RADIUS INC., a California
corporation, with headquarters located at 215 Moffett Park Drive,
Sunnyvale, California 94089 (the "Company"), and IBM Credit
Corporation with a place of business at 5000 Executive Parkway,
Suite 450, San Ramon, California 94583 (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer has entered into an Amended and Restated
Working Capital Financing and Term Loan Agreement dated August
30, 1996 with the Company (the "Loan Agreement");
WHEREAS, the Company, has secured the agreement of its unsecured
creditors with claims against the Company of approximately $45
million to release their claims against the Company in exchange
for a number of shares of the Company's Common Stock, no par
value ("Common Stock"), equal to 60% of the issued and
outstanding shares of Common Stock;
WHEREAS, pursuant to the Loan Agreement, Buyer has agreed to
convert $3 million of secured indebtedness owed to it by the
Company into shares of the Company's Series A Convertible
Preferred Stock (the "Preferred Stock");
WHEREAS, in consideration of entering into the Loan Agreement,
the Company also has agreed to issue warrants ("Warrants") to
purchase 600,000 shares of Common Stock to Buyer;
WHEREAS, the Company and the Buyer are executing and delivering
this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as
amended (the "1933 Act");
WHEREAS, the Buyer wishes to subscribe for and purchase 750,000
shares of Preferred Stock and Warrants to purchase 600,000 shares
of Common Stock in consideration of the release of $3 million
indebtedness to Buyer (the "Obligation")as well as the entering
into of the Loan Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable
- -
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
The Buyer hereby subscribes for and agrees to purchase 750,000
shares of Preferred Stock (the "Shares") and Warrants to purchase
600,000 shares of Common Stock in full satisfaction of the
Obligation and in consideration of entering into the Loan
Agreement.
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<PAGE 2>
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. The Buyer is purchasing the Shares and Warrants for its own
account for investment only and not with a view towards the
public sale or distribution thereof;
b. The Buyer is an "Accredited Investor" as that term is
defined in Rule 501 of the General Rules and Regulations under
the 1933 Act by reason of Rule 501(a)(3) and is experienced and
knowledgeable in investing in equity and other securities;
c. All subsequent offers and sales of the Shares, the Warrants
or the shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") by the Buyer shall be made
pursuant to registration under the 1933 Act and qualification
under the applicable state securities laws or pursuant to an
exemptions from registration and qualification;
d. The Buyer understands that the Shares and the Warrants are
being offered and sold to it in reliance on specific exemptions
from the registration and qualification requirements of United
States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein
in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Shares and the Warrants;
e. The Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of
the Shares and the Warrants which have been requested by the
Buyer. The Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Buyer has had the
opportunity to obtain and to review the Company's Confidential
Private Placement Memorandum dated August 9, 1996 relating to the
offering of the shares of Common Stock to be issued to the
Company's unsecured creditors (the "Memorandum") and the exhibits
to the Memorandum. The Buyer understands that its investment in
the Shares and Warrants involves a high degree of risk;
f. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed
on or made any recommendation or endorsement of the Shares or
Warrants; and
- -
g. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights
generally.
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<PAGE 3>
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Shares. The Shares and the shares of Common
Stock issuable upon conversion of the Shares (the "Conversion
Shares"), when issued, delivered and paid for in accordance with
this Agreement, will be duly and validly authorized and issued,
fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
There are no preemptive rights of any shareholder of the Company,
as such, to acquire the Shares and Conversion Shares.
b. Concerning the Warrants and the Warrant Shares. The
Warrants, when issued, delivered and paid for in accordance with
this Agreement, will be duly and validly authorized and issued
and will constitute a valid and binding agreement of the Company
enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally. The Warrant Shares,
when issued, delivered and paid for in accordance with the terms
of the Warrants, will be duly and validly authorized and issued,
fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
There are no preemptive rights of any shareholder of the Company,
as such, to acquire the Warrant Shares.
c. Subscription Agreement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the
Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
d. Non-contravention. The execution and delivery of this
Agreement by the Company and the consummation by the Company of
the issuance of the Shares, the Conversion Shares, the Warrants
and the Warrant Shares and the other transactions contemplated by
this Agreement do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or
by-laws of the Company, or any indenture, mortgage, deed of trust
or other material agreement or instrument to which the Company is
a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation or any
applicable decree, judgment or order of any court, United States
federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of
its properties or assets.
- -
e. Approvals. The Company is not aware of any authorization,
approval or consent of any governmental body which is required to
be obtained by the Company for the issuance and sale of the
Shares, the Conversion Shares, the Warrants and the Warrant
Shares as contemplated by this Agreement.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
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<PAGE 4>
a. Transfer Restrictions. The Buyer acknowledges that (1) the
securities to be issued to it hereunder have not been and are not
being registered under the provisions of the 1933 Act or
qualified under applicable state securities laws (except to the
extent provided for in the Registration Rights Agreement referred
to in Section 4(c) of this Agreement), and may not be transferred
unless and until (A) such transfer is registered under the 1933
Act and qualified under applicable state securities laws or (B)
the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to
the Company, to the effect that the securities may be sold or
transferred pursuant to exemptions from such registration and
qualification; (2) any sale of such securities made in reliance
on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of such securities under circumstances
in which the seller, or the person through whom the sale is made,
may be deemed to be an underwriter, as that term is used in the
1933 Act, may require compliance with some other exemption under
the 1993 Act or the rules and regulations of the SEC thereunder;
and (3) neither the Company nor any other person is under any
obligations to register the securities under the 1933 Act or
qualify them under state securities laws (other than pursuant to
the Registration Rights Agreement referred to in Section 4(c) of
this Agreement) or to comply with the terms and conditions of any
exemption under the 1933 Act or applicable state securities laws.
b. Restrictive Legend. The Buyer acknowledges and agrees that,
except during such time as the securities sold hereby are
registered under the 1933 Act and qualified under applicable
state securities laws as provided in the Registration Rights
Agreement referred to in Section 4(c) of this Agreement, or after
such securities have been sold pursuant to such registration and
qualification or pursuant to exemptions (such as Rule 144) that
do not require further restrictions on transfer, the certificates
for such securities may bear a restrictive legend in
substantially the following form (and a stop-transfer order may
be placed against transfer of the certificates for such
securities):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"1933 Act"), or applicable state securities laws. The shares
have been acquired for investment and may not be sold,
transferred, assigned or hypothecated unless registered under the
1933 Act and qualified under applicable state securities laws or
unless such sale, transfer, assignment or hypothecation is exempt
from the registration requirements of the 1933 Act and the
qualification requirements of applicable state securities laws
and, at the Company's election, unless the Company receives an
opinion of counsel satisfactory to the Company that such
registration and qualification are not required.
- -
c. Registration Rights Agreement. The parties hereto agree to
enter into a Registration Rights Agreement in form acceptable to
the Company and the Buyer on or before the Closing Date.
d. Form D. The Company agrees to file a Form D with respect to
the securities sold hereby as required under Regulation D.
e. Reporting Status. So long as the Buyer beneficially owns
any of the securities sold hereby or until the third anniversary
of the Closing Date, whichever first occurs, the Company shall
file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as
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<PAGE 5>
amended (the "1934 Act"), and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
5. TRANSFER AGENT INSTRUCTIONS.
Promptly following the Closing, the Company will instruct its
transfer agent to issue one or more certificates for the Shares
(and any Conversion Shares or Warrant Shares which may be issued
in the future), bearing the restrictive legend specified in
Section 4(b) of this Agreement, registered in the name of the
Buyer or its nominee and in such denominations to be specified by
the Buyer prior to the closing. The Company warrants that no
instruction (other than such instructions referred to in this
Section 5, instructions consistent with this Agreement, including
Sections 4(a) and 4(b) hereof, or with the Registration Rights
Agreement and stop transfer instructions to give effect to
Section 4(a) hereof) will be given by the Company to the transfer
agent with respect to the Shares, the Conversion Shares and the
Warrant Shares and that the Shares, the Conversion Shares and the
Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in
this Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of the Shares, the
Conversion Shares and the Warrant Shares. If the Buyer sells the
Shares under an effective Registration Statement or if Buyer
provides the Company with an opinion of counsel that registration
and qualification of a resale by the Buyer of any of the Shares,
the Conversion Shares and the Warrant Shares in accordance with
clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall permit the transfer of such
securities and promptly instruct the Company's transfer agent to
issue one or more share certificates in such name and in such
denominations as specified by the Buyer (provided that such
specification is consistent with such opinion).
6. CLOSING DATE.
The date and time of the issuance and sale of the Shares and the
Warrants (the "Closing Date") shall be 12:00 noon, California
time, on the date which the Company has satisfied to the
conditions to closing set forth in the Loan Agreement. The
closing shall occur on the Closing Date at the offices of the
Company and is expected to occur on September 13, 1996. Unless
Buyer is issued Common Stock by October 31, 1996, however, Buyer
reserves the right to cancel this agreement by written notice to
the Company.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
- -
The Buyer understands that the Company's obligation to sell the
Shares and the Warrants to the Buyer pursuant to this Agreement
is conditioned upon:
a. The receipt and acceptance by the Company of the Buyer's
subscription for the Shares and Warrants as evidenced by
execution and delivery of this Agreement by the Company;
b. Satisfaction of the conditions referred to in Section 6
hereof;
- -
<PAGE 6>
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement and the
performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on
or before such Closing Date; and
d. Execution and delivery of a Registration Rights Agreement by
Buyer.
The foregoing conditions may be waived by the Company at its
discretion.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase
the Shares and the Warrants is conditioned upon:
a. Delivery by the Company of one or more certificates for the
Shares in accordance with this Agreement;
b. Delivery by the Company of one or more agreements
representing the Warrants promptly after the determination of the
exercise price of the Warrants. The exercise price of the
Warrants shall be average of the last sales price of the Common
Stock on the Nasdaq SmallCap Market (or other similar quotation
system) for the five trading days prior to and the five trading
days subsequent to, the Closing Date. In no event shall the
exercise price of the Warrants be more than $1.00 per share.
c. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement and the
performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed
on or before such Closing Date; and
d. Execution and delivery of the Registration Rights Agreement
by the Company.
The foregoing conditions may be waived by the Buyer at its
discretion.
9. GOVERNING LAW; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of California. A facsimile
transmission of this signed agreement shall be legal and binding
on all parties hereto. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. This Agreement may be amended only by an
- -
instrument in writing signed by the party to be charged with
enforcement. In the event of any inconsistency between any
provision of this Agreement and the Loan Agreement, the
provisions of the Loan Agreement shall govern. Any notices
required or permitted to be given under the terms of this
Agreement shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in
the mail, if mailed, or upon receipt, if delivered personally or
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<PAGE 7>
[SIGNATURE]
by courier to such party's office, in each case addressed to a
party at such party's address shown in the introductory paragraph
or on the signature page of this Agreement or such other address
as a party shall have provided by notice to the other party in
accordance with this provision.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Buyer or one of its officers thereunto duly authorized as of the
date set forth below.
IBM CREDIT CORPORATION
By: /s/ Philip N. Morse
Title: Director Remarketer Financing Portfolio Controls
Date: September 13, 1996
RADIUS INC.
By: /s/ Charles W. Berger
Title: Chairman and CEO
Date: September 13, 1996
<PAGE 1>
<PAGE>
Exhibit 5
THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR
AN EXEMPTION THEREFROM OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT A PROPOSED DISPOSITION OR PLEDGE IS PERMITTED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR A NO ACTION
LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
RADIUS INC.
WARRANT
VOID AFTER September 13, 2000
1. The Warrant.
(a) The Granting of a Warrant. This Warrant is executed and
delivered by Radius Inc., a California corporation (the
"Company"), to IBM Credit Corporation ("Holder").
(b) Number and Price of Shares Subject to Warrant. Subject to
the terms and conditions herein set forth, Holder is entitled to
purchase from the Company, at any time commencing on the date
hereof (the "Exercise Commencement Date") until this Warrant has
expired in accordance with subparagraph (e) below, 600,000 shares
of fully paid and non-assessable shares of Common Stock of the
Company (the "Shares") at a purchase price of $____ per share
(the "Warrant Price"). The number and purchase price of such
shares are subject to adjustment pursuant to paragraph 2 hereof.
This Warrant will be exercisable by the holder at any time after
the earlier to occur of (i) effectiveness of a Registration
Statement pursuant to the Securities Act of 1933, as amended,
with respect to the Shares, or (ii) six months from the date of
the issuance hereof by its giving to the Company written notice
of its intent to exercise ("Exercise Notice") on or before the
expiration of this Warrant, in the form attached hereto as
Attachment 1. Upon giving such notice, the Holder will surrender
this Warrant at the principal office of the Company and pay the
full purchase price for the Shares to be acquired upon payment in
cash or by check.
- -
(c) Net Exercise. In lieu of exercising this Warrant pursuant
to Section 1(b) above, the holder may elect to receive a number
of Shares to be calculated as follows:
X = Y(A-B)
A
where X = the number of shares of Common Stock to be issued
to the holder.
Y= the number of shares of Common Stock requested to be
exercised under this Warrant.
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<PAGE 2>
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value
of Common Stock shall mean with respect to each share of Common
Stock:
(i) if traded on a national securities exchange or the Nasdaq
National Market (or similar national quotation system), the fair
market value shall be deemed to be the closing price (last
reported sale) on the day the current fair market value of the
securities is being determined;
(ii) if traded over-the-counter, the fair market value shall be
deemed to be the closing bid price quoted on the day the current
fair market value of the securities is being determined; or
(iii) if at any time the Common Stock is not traded as
described in (i) or (ii) above, the current fair market value
shall be the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director)
for shares of Common Stock sold by the Company, from authorized
but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the fair market value
shall be deemed to be the value received by the holders of the
Company's Common Stock on a common equivalent basis pursuant to
such merger or acquisition.
(d) Effect of Exercise. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above, and the
person entitled to receive the Shares issuable upon such exercise
shall be treated for all purposes as the holder of record of such
shares as of the close of business on such date. As soon as
practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of Shares issuable
upon such exercise.
(e) Term. This Warrant shall terminate and expire as of 5:00
p.m. local California time four (4) years from the date of
issuance thereof, unless exercised in whole prior to that date.
(f) Partial Exercise. This Warrant may be exercised by the
holder from time to time as to all or a portion of the Shares
subject hereto. In the event that this Warrant is exercised as
to only a portion of the Shares subject hereto, the Company will,
upon issuance of the Shares so acquired, deliver to the holder a
new Warrant representing the remaining Shares subject hereto.
- -
2. (a) Adjustment of Warrant Price and Number of Shares. In
case at any time or from time to time on or after the effective
date hereof the holders of the Common Stock of the Company (or
any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible
shareholders, shall have become entitled to receive, without
payment therefor, other or additional stock of the Company by way
of dividend, then and in each case, the holder of this Warrant
- -
<PAGE 3>
shall, upon the exercise hereof, be entitled to receive, in
addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the
Company which such holder would hold on the date of such exercise
had it been the holder of record of such Common Stock on the date
hereof and had thereafter, during the period from the date hereof
to and including the date of such exercise, retained such shares
and/or all other additional stock receivable by it as aforesaid
during such period, giving effect to all adjustments called for
during such period by paragraphs (b) and (c) of this paragraph 2.
(b) Adjustment for Reclassification, Reorganization or
Merger. In case of any reclassification or change of the
outstanding securities of the Company or of any reorganization of
the Company (or any other corporation the stock or securities of
which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, or in case, after such
date, the Company (or any such other corporation) shall merge
with or into another corporation or convey all or substantially
all of its assets to another corporation, then and in each such
case the holder or this Warrant, upon the exercise hereof at any
time after the consummation of such reclassification, change,
reorganization, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation,
the stock or other securities or property to which such holder
would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject
to further adjustment as provided in paragraphs (a) and (c); in
each such case, the terms of this paragraph 2 shall be applicable
to the shares of stock or other securities properly receivable
upon the exercise of this Warrant after such consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time
on or after the date hereof the Company shall subdivide its
outstanding shares of Common Stock into a greater number of
shares, the Warrant Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of
shares receivable upon exercise of the Warrant shall be
proportionately increased; and, conversely, if at any time on or
after the date hereof the outstanding number of shares of Common
Stock shall be combined into a smaller number of shares, the
Warrant Price in effect immediately prior to such combination
shall be proportionately increased and the number of shares
receivable upon exercise of the Warrant shall be proportionately
decreased.
4. Holder represents and warrants to, and agrees with, the
Company, that:
(a) Purchase for Own Account. This Warrant and the
Warrant Shares are being acquired for investment for Holder's own
- -
account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the
Act, and such Holder has no present intention of selling,
granting any participation in, or otherwise distributing the
same.
(b) Disclosure of Information. Holder has received or
has had full access to all the information it considers necessary
or appropriate to make an informed investment decision with
respect to the Warrant. Holder has had an opportunity to ask
questions and receive answers from the Company regarding the
terms and conditions of the Warrant and the Warrant Shares and to
- -
<PAGE 4>
obtain additional information necessary to verify any information
furnished to Holder or to which Holder had access.
(c) Investment Experience. Holder understands that
the receipt of the Warrants and the purchase of the Warrant
Shares involves substantial risk. Holder: (i) has experience as
an investor in securities of companies in the development stage
and acknowledges that it is able to fend for itself, can bear the
economic risk of such investment in the Warrants and Warrant
Shares and has such knowledge and experience in financial or
business matters that Holder is capable of evaluating the merits
and risks of this investment in the Warrants and Warrant Shares
and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business
relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that
enables Holder to be aware of the character, business acumen and
financial circumstances of such persons.
(d) Restricted Securities. Holder understands that
the Warrants and the Warrant Shares are characterized as
"restricted securities" under the Securities Act inasmuch as they
are being acquired from the Company in a transaction not
involving a public offering and that under the Securities Act and
applicable regulations thereunder such securities may be resold
without registration under the Securities Act only in certain
limited circumstances. In this connection, Holder represents
that Holder is familiar with Rule 144 of the U.S. Securities and
Exchange Commission, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
Holder understands that the Company is under no obligation to
register any of the securities sold hereunder except as provided
in any written registration rights agreement between the Company
and Holder. Holder understands that no public market now exists
for the Warrant any of the Warrant Shares and that it is
uncertain whether a public market will ever exist for the Warrant
Shares.
(e) Further Limitations on Disposition. Without in
any way limiting the representations set forth above, Holder
further agrees not to make any disposition of the Warrant or all
or any portion of the Warrant Shares unless and until:
(i) there is then in effect a registration
statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such
registration statement; or
(ii) (A) Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company
with a statement of the circumstances surrounding the proposed
disposition, and (ii) Holder shall have furnished the Company, at
the expense of Holder or its transferee, with an opinion of
- -
counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities
under the Securities Act.
Notwithstanding the provisions of paragraphs (i) and (ii) above,
no such registration statement or opinion of counsel shall be
required: (1) for any transfer of any Warrant Shares in
compliance with SEC Rule 144 or (2) for the transfer by gift,
will or intestate succession by Holder to his or her spouse or
- -
<PAGE 5>
lineal descendants or ancestors or any trust for any of the
foregoing; provided that in each of the foregoing cases the
transferee agrees in writing to be subject to the terms of this
Section 4 to the same extent as if the transferee were the
original Holder hereunder.
(f) Legends. It is understood that the certificates
evidencing the Warrant Shares will bear the legends set forth
below:
(i) THE SALE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE. NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN EXEMPTION THEREFROM OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT A PROPOSED
DISPOSITION OR PLEDGE IS PERMITTED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
(ii) Any legend required by the laws of the State
of California, including any legend required by the California
Department of Corporations and Sections 417 and 418 if the
California Corporations Code or any other state securities laws.
The legend set forth in (i) above shall be removed by the Company
from any certificate evidencing Warrant Shares upon delivery to
the Company of an opinion by counsel, reasonably satisfactory to
the Company, that a registration statement under the Securities
Act is at that time in effect with respect to the legended
security or that such security can be freely transferred in a
public sale without such a registration statement being in effect
and that such transfer will not jeopardize the exemption or
exemptions from registration pursuant to which the Company issued
the Warrant Shares.
(g) Accredited Investor Status. Holder is an
"accredited investor" within the meaning of Regulation D
promulgated under the 1933 Act.
5. Other Adjustments. Except as provided in paragraph 2, no
adjustment on account of dividends or interest on Common Stock
will be made upon the exercise hereof.
6. No Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any subscription hereunder. In
lieu of any fractional shares which would otherwise be issuable,
the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of Common Stock
on the date of exercise, as determined in good faith by the
Company's Board of Directors.
- -
7. No Shareholder Rights. This Warrant shall not entitle its
holder to any of the rights of a shareholder of the Company.
- -
<PAGE 6>
8. Exercise of Warrant. The holder's ability to exercise this
Warrant is subject to the Company having obtained all necessary
governmental approvals prior to such exercise. The Company shall
use its best efforts to obtain such consents after the date
hereof. Subject to such approvals, this Warrant may be exercised
by the registered holder or its registered assigns, in minimum
increments of 100,000 shares of Common Stock (or any remaining
shares of Common Stock subject to this Warrant if the number of
shares of Common Stock subject to this Warrant is less than
100,000) by the surrender of this Warrant at the principal office
of the Company, accompanied by payment in full of the Warrant
Price as described above. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date
of its surrender for exercise as provided above, and the person
entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of such
Shares of record as of the close of business on such date. As
promptly as practicable on or after such date, the Company shall
issue and deliver to the person or persons entitled to receive
the same, a certificate or certificates for the number of full
shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided above.
9. Certificate of Adjustment. Whenever the Warrant Price is
adjusted, as herein provided, upon written request by the holder,
the Company shall deliver to the record holder of this Warrant a
certificate of an officer of the Company setting forth the
Warrant Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
10. Restrictions on Transfer of Warrant. This Warrant and all
rights hereunder are transferable, in whole or in part. The
terms of this Warrant shall be binding upon the successors and
assigns of the holder.
11. Market Standoff Agreement. Each holder hereby agrees that
it shall not, to the extent requested by an underwriter of
securities of the Company, sell or otherwise transfer or dispose
of any Shares (other than to donees or partners of the holder who
agree to be similarly bound) for up to one hundred eighty (180)
days following the effective date of a registration statement of
the Company filed under the Act; provided, however, that all
officers and directors of the Company then holding Common Stock
of the Company enter into similar agreements. In order to
enforce the foregoing covenant, the Company shall have the right
to place restrictive legends on the certificates representing the
Shares and to impose stop transfer instructions with respect to
the Shares (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such
period.
- -
12. Miscellaneous. This Warrant shall be governed by the laws
of the State of California. The headings in this Warrant are for
purposes of convenience and reference only, and shall not be
deemed to constitute a part hereof. Neither this Warrant nor any
term hereof may be changed, waived, discharged or terminated
except by an instrument in writing signed by the Company and the
registered holder hereof. All notices and other communications
from the Company to the holder of this Warrant shall be mailed by
first-class registered or certified mail, postage prepaid, to the
address furnished to the Company in writing by the last holder of
this Warrant who shall have furnished an address to the Company
in writing.
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<PAGE 7>
[SIGNATURE]
ISSUED this 13 day of September 1996.
HOLDER RADIUS INC.
IBM Credit Corporation
By: /s/ Philip N. Morse By: /s/ Charles W. Berger
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<PAGE 8>
<PAGE>
Attachment 1
EXERCISE NOTICE
1. The undersigned hereby elects to purchase _______ shares of
the Common Stock of Radius Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
2. Please issue a certificate representing said shares in the
name of the undersigned or in such other name as specified below:
(Name)
(Address)
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.
(Date) (Signature)
<PAGE 1>
<PAGE>
Exhibit 6
September 12, 1996
IBM Credit Corporation
1133 Westchester Avenue
White Plains, NY 10604
attn: Mr. Phil Morse
Re: supplement to loan agreement, registration rights agreement
and warrant
Gentlemen:
The purpose of this letter is to supplement the provisions of our
amended and restated loan agreement dated August 30, 1996 (the
"Loan Agreement") and our registration rights and warrant
agreements dated September 12, 1996 (the "Reg Rights" and
"Warrant" Agreement, respectively). Capitalized terms have the
meanings assigned to them in the Loan Agreement, unless otherwise
specified below.
1) At the end of Section 2.8 of the Loan Agreement add:
"Notwithstanding the foregoing but subject to the provisions of
Section 2.10, IBM Credit will not intentionally prepay a portion
of the Obligations in order to cause Customer to default on
another portion of the Obligations."
2) Pursuant to Section 5.1(K) of the Loan Agreement, at the
end of Section 2(a)(i) of the Reg Rights Agreement add: "Customer
agrees to pay IBM Credit a $3,000,000 fee on demand if the common
stock into which the Series A Preferred Stock is convertible or
which is issuable upon the exercise of the warrants (as defined
in the Warrant Agreement) is not subject to an effective
registration statement (or otherwise freely tradeable) by March
31, 1997."
3) At the end of Section 6(d) of the Reg Rights Agreement
add: "Notwithstanding the foregoing, IBM Credit can elect on
reasonable notice to jointly control the defense of any claim
against it with counsel of IBM credit's choice, provided that IBM
Credit will bear the expense of such separate representation."
4) At the end of Section 1(b) of the Warrant Agreement add:
"Moreover, in the event that there remains a balance due from the
Company to Holder under the Loan Agreement at the time of
exercise, then Holder can elect to credit such sum against the
- -
Warrant Price when the Election Notice is given. Notwithstanding
the foregoing, in the event that neither SCI Technology, Inc. nor
Mitsubishi Electronics America, Inc. extend any trade credit to
the Company prior to March 31, 1997 and Holder does not exercise
the Warrant prior to such date, then, the Warrant Price will be
reduced to $.80/share or the number of warrants will be increased
by the difference between 600,000 and the number of warrants
actually issued to trade creditors of the Company in order to
induce such creditors to extend credit to the Company, the
alternative being at the selection of the Company. If the
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<PAGE 2>
Company elects to increase the number of warrants, then the
common stock issuable upon exercise of such warrants will have
the same registration rights as the common stock issuable upon
exercise of the original warrant."
5) Pursuant to Section 2.9(A) of the Loan Agreement, Customer
and IBM Credit agree that twenty-one million, nine hundred forty
thousand dollars even ($21,940,000.00) of the Outstanding
Advances pursuant to the Existing Financing Agreement shall
constitute the Term Loan on the Closing Date.
6) For purposes of Clarification, Customer and IBM Credit
hereby confirm and agree that solely for purposes of Section
10.16 of the Loan Agreement the definition of "Affiliate" is
amended by substituting "IBM Credit" for "Customer" wherever such
term appears in such definition.
7) Customer shall provide IBM Credit on or prior to December
31, 1996 with a list of all intellectual property owned by
Customer or with respect to which Customer is a licensee pursuant
to a license. Customer further agrees to use its best efforts to
obtain from each licensor under such licenses, licensor's
consent, in form and substance satisfactory to IBM Credit, to the
assignment by IBM Credit of such license to a third party after
the occurrence of an Event of Default pursuant to the Loan
Agreement and security documents.
8) Within fifteen days (or such other shorter time period as
IBM Credit may reasonably specify) after IBM Credit's request
from time to time, Customer shall update and extend the
projections set forth in Attachment D.
9) Upon IBM Credit's reasonable request, Customer will secure
the lien release of other lienholders identified in Schedule 1 to
Attachment B, if the obligations secured by such security
interests have been satisfied or if such security interests have
expired or are no longer necessary to Customer's business.
Specifically, Customer will secure the termination or release of
the lien referred to in item 5 (Apple Computer, Inc., secured
party) of the Amerisearch report dated September 10, 1996 within
thirty days after the Closing Date.
[the balance of this page is deliberately blank]
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<PAGE 3>
[SIGNATURE]
<PAGE>
If the foregoing is acceptable, please sign and return this
letter. It will be effective upon the closing of the Loan
Agreement. Consideration is acknowledged.
Sincerely,
/s/ Charles W. Berger
Charles W. Berger, Chairman and CEO
Agreed:
IBM Credit Corporation
/s/ Philip N. Morse
_________________________________
by: Philip N. Morse, Director, Remarketer Financing Portfolio
Controls
<PAGE 1>
<PAGE>
Exhibit 7
AMENDED AND RESTATED
WORKING CAPITAL FINANCING AND
TERM LOAN
AGREEMENT
This AMENDED AND RESTATED WORKING CAPITAL FINANCING AND TERM LOAN
AGREEMENT (as amended, supplemented or otherwise modified from
time to time, this "Agreement") is hereby made this 30th day of
August, 1996, by and between IBM CREDIT CORPORATION with a place
of business at 5000 Executive Parkway, Suite 450, San Ramon, CA
94583 ("IBM Credit"), and RADIUS INC. with a place of business at
215 Moffett Park Drive, Sunnyvale, CA 94089 ("Customer").
RECITALS
WHEREAS, Customer and IBM Credit entered into that certain
Inventory and Working Capital Financing Agreement dated as of
February 17, 1995 (as amended, supplemented or otherwise modified
prior to the date hereof, the "Existing Financing Agreement")
pursuant to which Customer requested that IBM Credit finance
Customer's acquisition of inventory and equipment and finance
Customer's working capital requirements;
WHEREAS, Customer has been in default of the terms and
conditions of the Existing Financing Agreement and has been in
default of payments to its other creditors;
WHEREAS, on or about January 29, 1996 certain of the largest
unsecured creditors of Customer formed a committee (the
"Unsecured Creditors Committee") to resolve Customer's payment
defaults to its unsecured creditors;
WHEREAS, Customer and IBM Credit have agreed that IBM Credit
shall not finance Customer's purchases of Products (as defined in
the Existing Financing Agreement) from Authorized Suppliers (as
defined in the Existing Financing Agreement);
WHEREAS, IBM Credit is willing to agree to restructure the
indebtedness of Customer under the Existing Financing Agreement
by (1) converting Three Million ($3,000,000.00) of such
indebtedness to senior convertible preferred stock of Customer,
(2) continuing a portion of such indebtedness under a secured
working capital line of credit and (3) continuing the remaining
portion of such indebtedness as a secured term loan;
- -
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby
agree that the Existing Financing Agreement is hereby amended and
restated in its entirety to read as follows:
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<PAGE 2>
Section 1. DEFINITIONS
1.1 Special Definitions. The following terms shall have the
following respective meanings in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit
to Customer pursuant to Section 2.2 of this Agreement.
"A/R Advance Date": the Business Day on which IBM Credit makes
an A/R Advance under this Agreement.
"A/R Finance Charges": as defined on Attachment A.
"Abacus": Abacus, Ltd., successor in interest to Gradeup, Ltd.
and a wholly-owned subsidiary of Computers Unlimited (Europe).
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit
to Customer pursuant to this Agreement including, without
limitation, A/R Advances and the Term Loan.
"Affiliate": with respect to the Customer, any Person meeting
one of the following: (i) at least 10% of such Person's equity is
owned, directly or indirectly, by Customer; (ii) at least 10% of
Customer's equity is owned, directly or indirectly, by such
Person; or (iii) at least 10% of Customer's equity and at least
10% of such Person's equity is owned, directly or indirectly, by
the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to
be Affiliates of Customer for purposes of this Agreement.
"Approved Officer": the chief executive officer, chief financial
officer or other officer of Radius approved in writing by IBM
Credit.
"Auditors": a nationally recognized firm of independent
certified public accountants selected by Customer and
satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount
less (2) the Outstanding A/R Advances at such time.
"Average Daily Balance": the sum of the Outstanding A/R Advances
or Outstanding Term Loan, as the case may be, as of the end of
each day during a calendar month, divided by the number of days
in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other
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<PAGE 3>
day on which commercial banks in New York, New York are generally
closed or on which IBM Credit is closed.
"Closing Date": the date on which the conditions precedent to
the effectiveness of this Agreement set forth in Section 5.1
hereof are satisfied or waived in writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any
successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by
Customer to IBM Credit from time to time, as provided herein,
signed by an Approved Officer, in the form of Attachment F
hereto, detailing and certifying, among other items: Customer's
Eligible Accounts, Customer's Eligible Foreign Accounts, the
amounts and aging of all of Customer's Accounts, the amounts and
aging of Customer's accounts payable as of a specified date, all
of Customer's IBM Credit borrowing activity during a specified
period and the total amount of Customer's Borrowing Base as well
as Customer's Outstanding A/R Advances, Outstanding Term Loan,
Available Credit and any Shortfall Amount as of a specified date.
"Compliance Certificate": a certificate substantially in the
form of Attachment C.
"Default": either (1) an Event of Default or (2) any event or
condition which, but for the requirement that notice be given or
time lapse or both, would be an Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Account": as defined in Section 3.1.
"Eligible Foreign Account": an account of Customer for which the
account debtor is QMS (Japan) or Abacus that, but for (i) such
account being payable in other than U.S. dollars and (ii) the
account debtor for such account not being a resident of the
United States, constitutes an Eligible Account.
"Eligible Inventory": inventory of the Customer that (i) is in
the possession or under the control of Customer, (ii) is located
in a jurisdiction in the United States where IBM Credit has filed
effective financing statements, (iii) is subject to the perfected
security interest of IBM Credit that is prior to all other
security interests in or liens on such inventory, (iv) is being
held by Customer for sale to customers in the ordinary course of
business and (v) is not inventory constituting spare parts.
"Environmental Laws": all statutes, laws, judicial decisions,
regulations, ordinances, and other governmental restrictions
relating to pollution, the protection of the environment,
- -
occupational health and safety, or to emissions, discharges or
release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause
of action, allegation, order, violation, injury, judgment,
penalty or fine, cost or expense, resulting from the violation or
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<PAGE 4>
alleged violation of any Environmental Laws or the imposition of
any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended, or any successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": the consolidated and consolidating
balance sheets, statements of operations, statements of cash
flows and statements of changes in shareholder's equity of
Customer and its Subsidiaries for the period specified, prepared
in accordance with GAAP and consistent with prior practices.
"GAAP": generally accepted accounting principles in the United
States as in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or
other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to
the extent subject to regulation as "hazardous substances" or
"hazardous waste" under any Environmental Laws.
"Indebtedness": with respect to any Person, (1) all obligations
of such Person for borrowed money or for the deferred purchase
price of property or services (other than trade liabilities
incurred in the ordinary course of business and payable in
accordance with customary practices) or which is evidenced by a
note, bond, debenture or similar instrument, (2) all obligations
of such Person under capital leases, (3) all obligations of such
Person in respect of letters of credit, banker's acceptances or
similar obligations issued or created for the account of such
Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or
arrangement under which such Person is a party or beneficiary,
(5) all obligations under guaranties of such Person and (6) all
liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise
become liable for the payment thereof. For purposes of
clarification, Customer and IBM Credit acknowledge that preferred
stock of Customer held by IBM Credit shall not be considered
"Indebtedness" as defined herein.
"Investment": with respect to any Person (the "Investor"), (1)
any investment by the Investor in any other Person, whether by
means of share purchase, capital contribution, purchase or other
acquisition of a partnership or joint venture interest, loan,
time deposit, demand deposit or otherwise, and (2) any guaranty
- -
by the Investor of any Indebtedness or other obligation of any
other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest,
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<PAGE 5>
deed of trust, mortgage, other encumbrance or other arrangement
having the practical effect of the foregoing, including the
interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Line of Credit": as defined in Section 2.1.
"Material Adverse Effect": a material adverse effect (1) on the
business, operations, results of operations, assets, or financial
condition of the Customer, (2) on the aggregate value of the
Collateral or the aggregate amount which IBM Credit would be
likely to receive (after giving consideration to reasonably
likely delays in payment and reasonable costs of enforcement) in
the liquidation of such Collateral to recover the Obligations in
full, or (3) on the rights and remedies of IBM Credit under this
Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the
Line of Credit and (2) the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties,
representations, loans, advances, interest (including interest
accruing on or after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like
proceeding, relating to Customer, whether or not a claim for
post-filing or post-petition interest is allowed in such
proceeding), fees, reasonable expenses, indemnities, liabilities
and Indebtedness of any kind and nature whatsoever now or
hereafter arising, owing, due or payable from Customer to IBM
Credit.
"Other Agreements": all security agreements, mortgages, leases,
instruments, documents, guarantees, schedules, contracts and
similar agreements executed by Customer and delivered to IBM
Credit, pursuant to this Agreement or otherwise, and all
amendments, supplements and other modifications to the foregoing
from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of
the Outstanding A/R Advances and the Outstanding Term Loan.
"Outstanding A/R Advances": at any time of determination, the
sum of (1) the unpaid principal amount of all A/R Advances made
by IBM Credit under this Agreement; and (2) any finance charge,
fee, expense or other amount related to A/R Advances charged to
Customer's account with IBM Credit.
"Outstanding Term Loan": at any time of determination, the sum
of (1) the unpaid principal amount of the Term Loan; and (2) any
finance charge, fee, expense or other amount related to the Term
Loan charged to Customer's account with IBM Credit.
- -
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
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<PAGE 6>
(2) Indebtedness described in Section VII of Attachment B;
(3) guaranties in favor of IBM Credit;
(4) guaranties on behalf of Subsidiaries of Customer in favor of
other creditors in an aggregate amount at any time not exceeding
fifty thousand dollars ($50,000.00);
(5) Customer's obligations under its lease relating to 215
Moffett Park Drive, Sunnyvale, CA. as in existence on the date
hereof;
(6) Purchase Money Indebtedness incurred to purchase equipment
to be used in Customer's business in an amount not to exceed
$250,000 per fiscal quarter; and
(7) Other Indebtedness consented to by IBM Credit in writing
prior to the incurrence thereof.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an intercreditor agreement,
in effect from time to time between IBM Credit and any other
secured creditor;
(2) Liens described in Section I of Attachment B;
(3) Liens of warehousemen, mechanics, materialmen, workers,
repairmen, common carriers, landlords and other similar Liens
arising by operation of law or otherwise, not waived in
connection herewith, for amounts that are not yet due and payable
or being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted if an adequate
reserve or other appropriate provisions shall have been made
therefor as required to be in conformity with GAAP and an adverse
determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(4) attachment or judgment Liens individually or in the
aggregatenot in excess of fifty thousand dollars ($50,000.00)
(exclusive of (A) any amounts that are duly bonded to the
satisfaction of IBM Credit or (B) any amount fully covered by
insurance as to which the insurance company has acknowledged its
obligation to pay such judgment in full);
(5) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which,
in the aggregate, are not substantial in amount and which do not
materially detract from the value of the property subject thereto
or materially interfere with the ordinary conduct of the business
of Customer;
- -
(6) extensions and renewals of the foregoing permitted Liens;
provided that (A) the aggregate amount of such extended or
renewed Liens do not exceed the original principal amount of the
Indebtedness which it secures, (B) such Liens do not extend to
any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and
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<PAGE 7>
conditions no more restrictive than the terms and conditions of
the Liens being extended or renewed;
(7) Liens for taxes, assessments or governmental charges not
delinquent or being contested, in good faith, by appropriate
proceedings promptly instituted and diligently conducted if an
adequate reserve or other appropriate provisions shall have been
made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not
reasonably be expected to have a Material Adverse Effect;
(8) Liens arising out of deposits in connection with workers'
compensation, unemployment insurance or other social security or
similar legislation;
(9) Purchase Money Security Interests securing Purchase Money
Indebtedness constituting Permitted Indebtedness;
(10) Liens in favor of IBM Credit arising pursuant to this
Agreement; and
(11) other Liens arising after the date hereof and consented to
by IBM Credit in writing prior to the incurrence thereof.
"Person": any individual, association, firm, corporation,
partnership, trust, unincorporated organization or other entity
whatsoever.
"Policies": all policies of insurance required to be maintained
by Customer under this Agreement or any of the Other Agreements.
"Prime Rate": as of the date of determination, the average of
the rates of interest announced by Citibank, N.A., The Chase
Manhattan Bank, N.A. and Bank of America National Trust & Savings
Association as their prime or base rate, as of the last Business
Day of the calendar month immediately preceding the date of
determination, whether or not such announced rates are the actual
rates charged by such banking institutions to their most
creditworthy borrowers.
"Purchase Money Indebtedness": any Indebtedness (including
capital leases) incurred to finance the acquisition of assets to
be used in the Customer's business not to exceed the lesser of
(1) the purchase price or acquisition cost of such asset and (2)
the fair market value of such asset.
"Purchase Money Security Interest": any security interest
securing Purchase Money Indebtedness, which security interest
applies solely to the particular asset acquired with the Purchase
Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.2.
- -
"Requirement of Law": as to any Person, the articles of
incorporation and by-laws of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court
or other governmental authority, in each case applicable to or
binding upon such Person or any of its property or to which such
Person or any of its property is subject.
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<PAGE 8>
"Shortfall Transaction Fee": as defined on Attachment A.
"Subsidiary": with respect to any Person, any corporation or
other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions are at
the time directly or indirectly owned by such Person.
"Term Loan": as defined in Section 2.9.
"Termination Date": shall mean the earlier of (i) the fourth
anniversary of the date of this Agreement or such other date as
IBM Credit and Customer may agree to in writing from time to time
and (ii) the date that is ninety (90) days following the date on
which the Term Loan is paid in full.
"Voting Stock": securities, the holders of which are ordinarily,
in the absence of contingencies, entitled to elect the corporate
directors (or persons performing similar functions).
1.2. Other Defined Terms. Terms not otherwise defined in this
Agreement which are defined in the Uniform Commercial Code as in
effect in the State of New York (the "U.C.C.") shall have the
meanings assigned to them therein.
Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES
2.1. Line of Credit. Subject to the terms and conditions set
forth in this Agreement, on and after the Closing Date to but not
including the date that is the earlier of (x) the date on which
this Agreement is terminated pursuant to Section 10.1 and (y) the
date on which IBM Credit terminates the Line of Credit pursuant
to Section 9.2, IBM Credit agrees to extend to the Customer a
line of credit ("Line of Credit") in the amount set forth in
Attachment A pursuant to which IBM Credit will make to the
Customer, from time to time, A/R Advances in an aggregate amount
at any one time outstanding not to exceed the Maximum Advance
Amount. Notwithstanding any other term or provision of this
Agreement, IBM Credit may, at any time and from time to time, in
its sole discretion, (i) temporarily increase the amount of the
Line of Credit above the amount set forth in Attachment A and
decrease the amount of the Line of Credit back to the amount of
the Line of Credit set forth in Attachment A, in each case upon
notice to Customer and (y) make Advances pursuant to this
Agreement upon the request of Customer in an aggregate amount at
any one time outstanding in excess of the Line of Credit.
2.2. A/R Advances. (A) Whenever Customer shall desire IBM
Credit to provide an A/R Advance, Customer shall deliver to IBM
Credit (i) written notice of Customer's request for such an
Advance ("Request for A/R Advance") and (ii) a Collateral
Management Report. For any requested A/R Advance pursuant to
which monies will be disbursed to Customer or any Person other
- -
than IBM Credit, a Request for A/R Advance shall be delivered to
IBM Credit on or prior to 1:00 p.m. (New York City, NY time) one
Business Day prior to the requested A/R Advance Date. The Request
for A/R Advance shall specify (i) the requested A/R Advance Date
and (ii) the amount of the requested A/R Advance. Customer may
deliver a Request for A/R Advance via facsimile. Any Request for
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<PAGE 9>
A/R Advance delivered to IBM Credit shall be irrevocable.
(B) Subject to the terms and conditions of this Agreement,
on the A/R Advance Date specified in a Request for A/R Advance,
IBM Credit shall make the principal amount of each A/R Advance
available to the Customer in immediately available funds to an
account maintained by Customer. If IBM Credit is making an A/R
Advance hereunder on a day on which Customer is to repay all or
any part of an Outstanding Advance (or any other amount owing
hereunder), IBM Credit shall apply the proceeds of the A/R
Advance to such repayment and only an amount equal to the
difference, if any, between the amount of the A/R Advance and the
amount being repaid shall be made available to Customer as
provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the
unpaid principal amount thereof, at a per annum rate equal to the
lesser of (a) the finance charge set forth in Attachment A to
this Agreement under the caption "A/R Finance Charge", and (b)
the highest rate from time to time permitted by applicable law.
If it is determined that amounts received from the Customer were
in excess of such highest rate, then the amount representing such
excess shall be considered reductions to principal of Advances.
(D) Unless otherwise due and payable at an earlier date,
the unpaid principal amount of each A/R Advance shall be due and
payable on the Termination Date.
2.3. Finance and Other Charges. (A) Finance charges shall be
calculated by multiplying the applicable Delinquency Fee Rate,
Term Loan Finance Charge or A/R Finance Charge provided for in
this Agreement by Customer's applicable Average Daily Balance.
The Delinquency Fee Rate, the Term Loan Finance Charge and the
A/R Finance Charge provided for in this Agreement are each
computed on the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the
charges set forth as "Other Charges" in Attachment A. The
Customer also agrees to pay IBM Credit additional charges for any
returned items of payment received by Customer. The Customer
hereby acknowledges that any such charges are not interest but
that such charges, if unpaid, will constitute part of the
Outstanding Advances.
(C) The finance charges and Other Charges owed under this
Agreement, and any charges hereafter agreed to in writing by the
parties, will be set forth in IBM Credit's monthly billing
statement to Customer and shall be payable on the 15th day of
each month, or IBM Credit may, in its sole discretion, add unpaid
finance charges and Other Charges to the Customer's outstanding
Advances.
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(D) If any amount owed under this Agreement, including,
without limitation, any Advance, the Term Loan or any Shortfall
Amount, is not paid when due (whether at maturity, by
acceleration or otherwise), the unpaid amount thereof will bear a
late charge from and including its due date (or in the case of
any Shortfall Amount, from and including the date demand for
payment is made) to but not including the date IBM Credit
receives payment thereof, at a per annum rate equal to the lesser
of (a) the amount set forth in Attachment A to this Agreement as
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<PAGE 10>
the "Delinquency Fee Rate" and (b) the highest rate from time to
time permitted by applicable law. In addition, if any Shortfall
Amount shall not be paid when due pursuant to Section 2.5 hereof,
Customer shall pay IBM Credit an additional late charge equal to
the Shortfall Transaction Fee. If it is determined that amounts
received from Customer were in excess of such highest rate, then
the amount representing such excess shall be considered
reductions to principal of Advances.
2.4. Statements Regarding Customer's Account. IBM Credit will
send statements of each transaction hereunder as well as monthly
billing statements to Customer with respect to Advances and other
charges due on Customer's account with IBM Credit. Each
statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute
an account stated with respect to each transaction or amount
described therein unless within seven (7) calendar days after
such statement of transaction or billing statement is received by
Customer, Customer provides IBM Credit written notice objecting
that such amount or transaction is incorrectly described therein
and specifying the error(s), if any, contained therein. IBM
Credit may at any time adjust such statements of transaction or
billing statements to comply with applicable law and this
Agreement.
2.5. Shortfall. If, on any date, the Outstanding A/R Advances
shall exceed the Maximum Advance Amount (such excess, the
"Shortfall Amount"), then A/R Advances in an amount equal to the
Shortfall Amount shall be due and payable on such date and
Customer shall on such date repay the Outstanding Advances in an
amount equal to such Shortfall Amount.
2.6. Application of Payments. Customer hereby agrees that all
checks and other instruments delivered to IBM Credit on account
of Customer's Obligations shall constitute conditional payment
until such items are actually collected by IBM Credit. Customer
waives the right to direct the application of any and all
payments at any time or times hereafter received by IBM Credit on
account of the Customer's Obligations. Subject to the provision
of Section 2.10, Customer agrees that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such
payments to Customer's Obligations in such manner as IBM Credit
may deem advisable notwithstanding any entry by IBM Credit upon
any of its books and records.
2.7. Prepayment and Reborrowing By Customer. (A) All amounts
received by IBM Credit, including all amounts in respect of
Accounts deposited to the Special Accounts, may be credited by
IBM Credit from time to time to the repayment of the Obligations
under this Agreement or, in IBM Credit's sole and absolute
discretion, may be disbursed to Customer. The crediting of
amounts received by IBM Credit in respect of such Obligations
shall in all cases be subject to the final collection thereof.
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(B) Customer may at any time prepay, without notice or
penalty, in whole or in part amounts owed under this Agreement.
IBM Credit may apply payments made to it (whether by the Customer
or otherwise) to pay finance charges and other amounts owing
under this Agreement first and then to the principal amount owed
by the Customer.
(C) Subject to the terms and conditions of this Agreement,
any amount prepaid or repaid to IBM Credit in respect to the
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<PAGE 11>
Outstanding A/R Advances may be reborrowed by Customer in
accordance with the provisions of this Agreement.
2.8. Application of Collections by IBM Credit. Subject to the
provisions of Section 2.10, Customer agrees that IBM Credit may
from time to time apply any and all monies, reserves and proceeds
received or collected by IBM Credit with respect to the Accounts
and other Goods or property of Customer at any time or times
hereafter, including, without limitation, any and all funds
collected from the Lockbox and the Special Account, to pay or
prepay, as the case may be, any amounts owing by Customer to IBM
Credit whether or not such amounts are then due and payable, or
IBM Credit may, in its sole discretion, disburse any part of or
all such monies, reserves and proceeds to Customer. Customer
agrees that IBM Credit may, but shall not be obligated to, cause
funds collected from the Lockbox to be swept on a daily basis.
2.9. Term Loan. (A) On the Closing Date, the portion of the
Outstanding Advances pursuant to the Existing Financing Agreement
in an amount to be agreed upon by Customer and IBM Credit (which
amount shall include an Advance by IBM Credit to Customer
hereunder on the Closing Date in an amount not to exceed $500,000
to fund Customer's settlement of claims with certain unsecured
creditors) shall constitute a term loan to Customer (the "Term
Loan"). The Term Loan shall be subject to the Mandatory
Pre-Payments set forth in Section 2.10. Unless otherwise due and
payable at an earlier date (whether by acceleration, Mandatory
Pre-Payment or otherwise), the principal balance of the Term Loan
shall be due and payable on August 31, 2000 (or if such date is
not a Business Day, on the Business Day immediately preceding
such date).
(B) The Term Loan shall accrue a finance charge on the
unpaid principal amount thereof, at a per annum rate equal to the
lesser of (a) the finance charge set forth in Attachment A to
this Agreement under the caption "Term Loan Finance Charge", and
(b) the highest rate from time to time permitted by applicable
law. If it is determined that amounts received from the Customer
were in excess of such highest rate, then the amount representing
such excess shall be considered reductions to principal of
Advances.
2.10. Mandatory Pre-Payments. On each Mandatory Pre-Payment
Date, the Obligations of Customer to IBM Credit shall be due and
payable in an amount equal to the Mandatory Pre-Payment Amount.
For purposes of this Agreement, "Mandatory Pre-Payment Date"
shall mean each of the following dates: (i) the date of the
consummation of any sale, transfer or other disposition by
Customer of any assets (other than inventory and used or obsolete
equipment in the ordinary course of business) or operations of
Customer, including, without limitation, the sale, transfer or
other disposition of Customer's interest in Splash Technology
Holdings, Inc., UMAX Computer Corporation and Portrait Display
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Labs, Inc., (ii) the date of the receipt by Customer of any other
Non-Operating Cash Flow, (iii) the date of the consummation of
any equity investment, debt issue or capital infusion in Customer
from any source, and (iv) the thirtieth (30th) day following the
end of each fiscal quarter of Customer. For purposes of this
Agreement, "Mandatory Pre-Payment Amount" shall mean each of the
following amounts: (1) an amount equal to the proceeds of any
sale, transfer or other disposition set forth in clause (i) of
the definition of Mandatory Pre-Payment Date, (2) an amount equal
to the amount of any Non-Operating Cash Flow received by
Customer, (3) an amount equal to ten percent (10%) of the
proceeds of an equity investment, debt issue or capital infusion
set forth in clause (iii) of the definition of Mandatory
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<PAGE 12>
Pre-Payment Date, and (4) an amount equal to fifty percent (50%)
of the Operating Cash Flow of Customer for the immediately
preceding fiscal quarter, in the case of each of clauses (1), (2)
and (3) of this sentence, net of all reasonable and customary
out-of-pocket costs and expenses thereof. For purposes of this
Agreement, "Non-Operating Cash Flow" shall mean the proceeds or
other amounts received by Customer in respect of any event other
than (x) for sales of inventory and used or obsolete equipment in
the ordinary course of business and (y) any event described in
clauses (1), (3) or (4) of the definition of Mandatory
Pre-Payment Amount. For purposes of this Agreement, "Operating
Cash Flow" shall mean, with respect to a fiscal quarter of
Customer, the greater of (x) the Operating Cash Flow of Customer
for such fiscal quarter determined on substantially the same
basis set forth in Attachment D and (y) seventy-five percent
(75%) of the projected Operating Cash Flow of Customer for such
fiscal quarter, as set forth on Attachment D. Customer shall
cause the Mandatory Pre-Payment Amounts to be transferred
directly by the transferor to an account of IBM Credit specified
by IBM Credit. The Mandatory Pre-Payment Amounts shall be
applied to the Obligations of Customer under this Agreement in
the following order: first, to pay any past-due finance charges,
second, to pay any outstanding Shortfall Amount, third, to pay
the Term Loan, and fourth, upon the request of IBM Credit, to
redeem shares of convertible preferred stock of Customer held by
IBM Credit. For purposes of clarification, Customer and IBM
Credit acknowledge that Customer shall not be obligated to
satisfy the Customer's obligations pursuant to the Line of Credit
(other than for past-due interest and principal, including any
Shortfall Amount) prior to redeeming the preferred stock held by
IBM Credit. Customer shall make such arrangements and execute
such agreements, documents, instruments and papers as IBM Credit
may request to carry out the terms of this paragraph 2.10.
2.11. Sale of Stock Splash. During the first year following the
registration of any of the common stock of Splash Technology
Holdings, Inc. ("Splash") in connection with a sale of any such
stock in a public offering (the "Splash Registration"), upon the
request of IBM Credit, Customer shall use its best efforts to
sell, as soon as possible thereafter, fifty percent (50%) of
Customer's interest in Splash (as of the date hereof and
excluding any shares subject to an option issued by Customer in
favor of IBM Credit). During the second year following the
Splash Registration, upon the request of IBM Credit, Customer
shall use its best efforts to sell, as soon as possible
thereafter, a percent of Customer's interest in Splash (as of the
date hereof and excluding any shares subject to an option issued
by Customer in favor of IBM Credit) equal to seventy-five percent
(75%) minus the percent of shares sold by Customer in the
previous year. During the third year following the Splash
Registration, upon the request of IBM Credit, Customer shall use
its best efforts to sell, as soon as possible thereafter, a
percent of Customer's interest in Splash (as of the date hereof
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and excluding any shares subject to an option issued by Customer
in favor of IBM Credit) equal to one hundred percent (100%) minus
the percent of shares sold by Customer in the previous two years.
In addition to the foregoing, if at any time following the Splash
Registration the amount of the Outstanding Term Loan shall exceed
ninety percent (90%) of the market value of Customer's interest
in Splash (as of the date of determination and excluding any
shares subject to an option issued by Customer in favor of IBM
Credit), upon the request of IBM Credit, Customer shall use its
best efforts to sell, as soon as possible thereafter, a percent
of Customer's interest in Splash (as of the date hereof and
excluding any shares subject to an option issued by Customer in
favor of IBM Credit) equal to one hundred percent (100%) minus
the percent of shares previously sold by Customer.
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<PAGE 13>
Section 3. LINE OF CREDIT
ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that
IBM Credit shall have the sole right to determine eligibility of
Accounts from an Account debtor for purposes of determining the
Borrowing Base; however, without limiting such right, the
following Accounts will be deemed to be ineligible for purposes
of determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or
performance of services on non-standard terms or that allow for
payment to be made more than thirty (30) days from the date of
such sale or performance of services;
(B) Accounts unpaid more than ninety (90) days from date of
invoice;
(C) Accounts payable by an account debtor if fifty percent
(50%) or more of the aggregate outstanding balance of all such
Accounts remain unpaid for more than ninety (90) days from the
date of invoice;
(D) Accounts payable by an account debtor (other than
Abacus to the extent Abacus is an Affiliate of Customer solely by
reason of an officer or director of Abacus being an officer or
director of Customer) that is an Affiliate of Customer, or an
officer, employee, agent, guarantor, stockholder or Affiliate of
Customer or is related to or has common shareholders, officers or
directors with Customer;
(E) Accounts arising from consignment sales;
(F) Accounts with respect to which the payment by the
account debtor is or may be conditional;
(G) Accounts with respect to which:
(i) the account debtor is not a commercial entity, or
(ii) the account debtor is not a resident of the United
States;
(H) Accounts payable by any account debtor to which
Customer is or may become liable for goods sold or services
rendered by such account debtor to Customer;
(I) Accounts arising from the sale or lease of goods
purchased for a personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of
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<PAGE 14>
goods that has been used for demonstration purposes or loaned or
leased by the Customer to another party;
(K) Accounts which are progress payment accounts or contra
accounts;
(L) Accounts upon which IBM Credit does not have a valid,
perfected, first priority security interest;
(M) Accounts payable by an account debtor that is or
Customer knows will become, subject to proceedings under United
States Bankruptcy Law or other law for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any account debtor that is a
remarketer of computer hardware or software products and whose
purchases of such products from Customer have been financed by
another person who pays the proceeds of such financing directly
to Customer on behalf of such debtor;
(P) Accounts arising from the sale or lease of goods which
are billed to any account debtor but have not yet been shipped by
Customer;
(Q) Accounts with respect to which Customer has permitted
or agreed to any extension, compromise or settlement, or made any
change or modification of any kind or nature, including, but not
limited to, any change or modification to the terms relating
thereto;
(R) Accounts that do not arise from undisputed bona fide
transactions completed in accordance with the terms and
conditions contained in the invoices, purchase orders and
contracts relating thereto;
(S) Accounts that are discounted for the full payment term
specified in Customer's terms and conditions with its account
debtors, or for any longer period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts
that are billed in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates,
discounts, credits, and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in
its reasonable discretion, to be ineligible.
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The aggregate of all Accounts that are not ineligible Accounts
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<PAGE 15>
shall hereinafter be referred to as "Eligible Accounts".
3.2. Reimbursement for Charges. Customer agrees to pay for all
costs and expenses of Customer's bank in respect to collection of
checks and other items of payment, all fees relating to the use
and maintenance of the Lockbox and the Special Account (each as
defined in Section 3.3) and with respect to remittances of
proceeds of the Advances hereunder.
3.3. Lockbox and Special Account. Customer and its Subsidiaries
shall establish and maintain lockbox(es) (each, a "Lockbox") at
the address(es) set forth in Attachment A with the financial
institution(s) listed in Attachment A (each, a "Bank") pursuant
to an agreement between the Customer and each Bank in form and
substance satisfactory to IBM Credit. Customer shall also
establish and maintain a deposit account which shall contain only
proceeds of Customer's Collateral ("Special Account") with each
Bank. Customer shall enter into and maintain a contingent
blocked account agreement with each Bank for the benefit of IBM
Credit in form and substance satisfactory to IBM Credit pursuant
to which, among other things, such Bank shall agree that, upon
notice from IBM Credit, disbursements from the Special Account
shall be made only as IBM Credit shall direct. Customer
acknowledges that IBM Credit has notified or will notify each
Bank that disbursements from the Special Account shall be made
only as IBM Credit shall direct, and consents to such
notification.
3.4. Deposit Accounts. Customer shall cause to be maintained
with each bank or other financial institution at which Customer
or any of its Subsidiaries has funds (each, a "Deposit Account
Institution"), an agreement between IBM Credit and such Deposit
Account Institution, in form and substance satisfactory to IBM
Credit, to perfect IBM Credit's security interest in such funds
("Deposit Account Agreement"). Customer shall not deposit funds
into, or allow funds to remain in any account that is not subject
to a Deposit Account Agreement.
3.5. Collections. Customer shall instruct all account debtors
and all transferors of amounts described in Section 2.10 hereof
to remit payments directly to a Lockbox or a Special Account. In
addition, Customer shall have such instruction (i) printed in
conspicuous type on all invoices sent to Account debtors and (ii)
include as a term of any agreement with any such transferor and
shall use such other reasonable efforts to cause account debtors
and transferors to comply with such instructions as IBM Credit
may request. Customer shall instruct the Bank to deposit all
remittances to such Bank's Lockbox into its Special Account.
Without limiting the Customer's foregoing obligations, if, at any
time, Customer receives a remittance directly from an account
debtor or other transferor, then Customer shall make entries on
its books and records in a manner that shall reasonably identify
such remittances and shall keep a separate account on its record
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books of all remittances so received and deposit the same into
the Special Account. Until so deposited into the Special
Account, Customer shall keep all remittances separate and apart
from Customer's other property so that they are capable of
identification as the proceeds of Collateral in which IBM Credit
has a security interest.
3.6. Application of Remittances and Credits. Customer shall
apply all remittances with respect to Accounts against the
aggregate of Customer's outstanding Accounts no later than the
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<PAGE 16>
end of the Business Day on which such remittances are deposited
into the Special Account. Customer also agrees to apply each
remittance with respect to Accounts against its respective
Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In addition,
Customer shall promptly apply any credits owing in respect to any
Account when due.
3.7. Power of Attorney. Customer hereby irrevocably appoints
IBM Credit, with full power of substitution, as its true and
lawful attorney-in-fact with full power, in good faith and in
compliance with commercially reasonable standards, in the
discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument
that IBM Credit shall deem necessary or appropriate to perfect
and maintain perfected the security interest in the Collateral
contemplated under this Agreement and the Other Agreements;
(B) endorse the name of Customer upon any of the items of
payment of proceeds and deposit the same in the account of IBM
Credit for application to the Obligations; and
upon the occurrence and during the continuance of an Event of
Default as defined in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise
all Customer's rights and remedies with respect to the collection
of any Accounts;
(D) settle, adjust, compromise, extend or renew any
Accounts;
(E) settle, adjust or compromise any legal proceedings
brought to collect any Accounts;
(F) sell or assign any Accounts upon such terms, for such
amounts and at such time or times as IBM Credit may deem
advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of
Claim in Bankruptcy or similar document against any Account
debtor;
(I) prepare, file and sign Customer's name on any notice of
lien, claim of mechanic's lien, assignment or satisfaction of
lien or mechanic's lien, or similar document in connection with
any Accounts;
(J) endorse the name of Customer upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or
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similar document or agreement relating to any Account or goods
pertaining thereto;
(K) sign the name of Customer to requests for verification
of Accounts and notices thereof to Account debtors;
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<PAGE 17>
(L) sign the name of Customer on any document or instrument
that IBM Credit shall deem necessary or appropriate to enforce
any and all remedies it may have under this Agreement, at law or
otherwise;
(M) make, settle and adjust claims under the Policies with
respect to the Collateral and endorse Customer's name on any
check, draft, instrument or other item of payment of the proceeds
of the Policies with respect to the Collateral; and
(N) take control in any manner of any term of payment of
proceeds and for such purpose to notify the postal authorities to
change the address for delivery of mail addressed to Customer to
such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and
coupled with an interest and is irrevocable so long as this
Agreement is in effect or any Obligations remain outstanding.
Nothing done by IBM Credit pursuant to such power of attorney
will reduce any of Customer's Obligations other than Customer's
payment Obligations to the extent IBM Credit has received monies.
Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and
performance of the Obligations when due (whether at the stated
maturity, by acceleration or otherwise), Customer hereby grants
IBM Credit a security interest in all of Customer's right, title
and interest in and to all property and assets of every kind,
character and description whatsoever, whether now owned or
hereafter acquired or existing and wherever located, including
but not limited to the following:
(A) all inventory and equipment, and all parts thereof,
attachments, accessories and accessions thereto, products thereof
and documents therefor;
(B) all accounts, contract rights, chattel paper,
instruments, deposit accounts, obligations of any kind owing to
Customer, whether or not arising out of or in connection with the
sale or lease of goods or the rendering of services and all
books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing;
(C) general intangibles, including patents, trademarks,
trade names and copyrights;
(D) all rights now or hereafter existing in and to all
mortgages, security agreements, leases or other contracts
securing or otherwise relating to any of the foregoing; and
(E) all substitutions and replacements for all of the
foregoing, all proceeds of all of the foregoing and, to the
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extent not otherwise included, all payments under insurance or
any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as
the "Collateral".
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<PAGE 18>
Customer covenants and agrees with IBM Credit that: (a) the
security provided by this Agreement is in addition to any other
security from time to time held by IBM Credit and (b) the
security hereby created is a continuing security interest and
will cover and secure the payment and performance of all
Obligations both present and future of Customer to IBM Credit
pursuant to this Agreement and the Other Agreements.
4.2. Further Assurances. Customer shall, from time to time upon
the request of IBM Credit, execute and deliver to IBM Credit, or
cause to be executed and delivered, at such time or times as IBM
Credit may request, such other and further documents,
certificates and instruments that IBM Credit may deem necessary
to perfect and maintain perfected IBM Credit's security interests
in the Collateral and that IBM Credit may deem necessary to fully
consummate all of the transactions contemplated under this
Agreement and the Other Agreements. Customer shall make
appropriate entries on its books and records disclosing IBM
Credit's security interests in the Collateral.
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this
Agreement. The effectiveness of this Agreement is subject to the
satisfaction of, or waiver in writing by IBM Credit of compliance
with, the following conditions precedent on or prior to September
13, 1996:
(A) this Agreement executed and delivered by Customer and
IBM Credit and receipt by IBM Credit of all attachments hereto in
form and substance satisfactory to IBM Credit in its sole
discretion;
(B) (i) copies of the resolutions of the Board of Directors
of Customer in form and substance satisfactory to IBM Credit in
its sole and absolute discretion certified by the secretary or
assistant secretary of Customer authorizing the execution,
delivery and performance of this Agreement and each Other
Agreement executed and delivered in connection herewith, (ii) a
certificate of the secretary or an assistant secretary of
Customer, in form and substance satisfactory to IBM Credit in its
sole and absolute discretion, certifying the names and true
signatures of the officers of Customer authorized to sign this
Agreement and the Other Agreements and (iii) copies of the
articles of incorporation and by-laws of Customer in form and
substance satisfactory to IBM Credit in its sole and absolute
discretion certified by the secretary or assistant secretary of
Customer;
(C) certificates dated as of a recent date from the
Secretary of State or other appropriate authority evidencing the
good standing of Customer in the jurisdiction of its organization
and in each other jurisdiction where the ownership or lease of
- -
its property or the conduct of its business requires it to
qualify to do business unless the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect;
(D) copies of all approvals and consents from any Person,
in each case in form and substance satisfactory to IBM Credit in
its sole and absolute discretion, which are required to enable
Customer to authorize, or required in connection with, (a) the
execution, delivery or performance of this Agreement and each of
the Other Agreements, and (b) the legality, validity, binding
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<PAGE 19>
effect or enforceability of this Agreement and each of the Other
Agreements and (c) the execution delivery or performance and
legality, validity, binding effect or enforceability of the
restructuring contemplated in connection herewith;
(E) a lockbox agreement executed by Customer and each Bank,
in form and substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by
Customer and each Bank in form and substance satisfactory to IBM
Credit;
(G) the security interest of the Credit Managers
Association shall have been released, the security agreement
between Customer and the Credit Managers Association shall have
been terminated, UCC termination statements relating thereto
shall have been filed, appropriate filings shall have been made
terminating any filings made by the Credit Managers Association
with the United States Patent and Trademark Office and the United
States Copyright Office, all in form and substance satisfactory
to IBM Credit in its sole and absolute discretion;
(H) a favorable opinion of counsel for Customer,
satisfactory to IBM Credit, in form and substance satisfactory to
IBM Credit and Customer;
(I) UCC-1 financing statements for each jurisdiction
reasonably requested by IBM Credit executed by Customer and each
guarantor whose guaranty to IBM Credit is intended to be secured
by a pledge of its assets and all other statements, instruments
and act (including, possession by IBM Credit) necessary to
perfect IBM Credit's security interest in the Collateral;
(J) Customer shall have delivered to IBM Credit convertible
preferred stock of the Customer and warrants to purchase common
stock of Customer, in form and substance satisfactory to IBM
Credit in its sole and absolute discretion;
(K) Customer and IBM Credit shall have executed a
registration rights agreement in form and substance satisfactory
to IBM Credit in its sole and absolute discretion, which
agreement shall include terms providing for a fee to IBM Credit
in an amount equal to $3,000,000 in the event the securities
obtained by IBM Credit pursuant to the recapitalization
(including those securities set forth in paragraph J above) are
not subject to an effective registration statement on or prior to
a date to be agreed upon by Customer and IBM Credit;
(L) The existing creditors of Customer (other than IBM
Credit) shall have either (i) converted their claims against
Customer for common stock of Customer or (ii) released their
claims against Customer for cash in an amount not to exceed
$500,000 in the aggregate, other than current claims payable by
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customer in an amount satisfactory to IBM Credit, all in form and
substance satisfactory to IBM Credit in its sole and absolute
discretion;
(M) All acts necessary or desirable, in the sole and
absolute discretion of IBM Credit, to the recapitalization of
Customer outlined in the Private Placement Memorandum dated
August 9, 1996 shall have occurred and be in full force and
effect;
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<PAGE 20>
(N) the statements, certificates, documents, instruments,
financing statements, agreements and information set forth in
Attachment A and Attachment B; and
(O) all such other statements, certificates, documents,
instruments, financing statements, agreements and other
information with respect to the matters contemplated by this
Agreement as IBM Credit shall have reasonably requested.
5.2 Conditions to each Advance. No Advance will be required to
be made or renewed by IBM Credit under this Agreement unless, on
and as of the date of such Advance, the following statements
shall be true to the satisfaction of IBM Credit:
(A) The representations and warranties contained in this
Agreement or in any document, instrument or agreement executed in
connection herewith, are true and correct in all material
respects on and as of the date of such Advance as though made on
and as of such date;
(B) No event has occurred and is continuing or after giving
effect to such Advance or the application of the proceeds thereof
would result which would constitute a Default;
(C) No event has occurred and is continuing which could
reasonably be expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of
such Advance, no Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in
writing prior to each request, each request (or deemed request
pursuant to Section 2.2 (D)) for an Advance hereunder and the
receipt (or deemed receipt) by the Customer of the proceeds of
any Advance hereunder shall be deemed to be a representation and
warranty by Customer that, as of and on the date of such Advance,
the statements set forth in (A) through (D) above are true
statements. No such disclosures by Customer to IBM Credit shall
in any manner be deemed to satisfy the conditions precedent to
each Advance that are set forth in this Section 5.2.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer
represents and warrants to IBM Credit as follows:
6.1. Organization and Qualifications. Customer and each of its
Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation, (ii) has the power and authority to own its
properties and assets and to transact the businesses in which it
presently is engaged and (iii) except as otherwise disclosed in
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Attachment B or to the extent the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect, is duly
qualified and is authorized to do business and is in good
standing in each jurisdiction where it presently is engaged in
business and is required to be so qualified.
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<PAGE 21>
6.2. Rights in Collateral; Priority of Liens. Customer and each
of its Subsidiaries owns the property granted by it,
respectively, as Collateral to IBM Credit, free and clear of any
and all Liens in favor of third parties except for the Permitted
Liens. The Liens granted by the Customer and each of its
Subsidiaries pursuant to this Agreement, the Guaranties and the
Other Agreements in the Collateral constitute the valid and
enforceable first, prior and perfected Liens on the Collateral,
except to the extent any Liens that are prior to IBM Credit's
Liens are the subject of an intercreditor agreement between IBM
Credit and the holder of such Lien.
6.3. No Conflicts. The execution, delivery and performance by
Customer of this Agreement and each of the Other Agreements (i)
are within its corporate power; (ii) have been duly authorized by
all necessary corporate action; (iii) are not in contravention in
any respect of any Requirement of Law or any indenture, contract,
lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do
not require the consent, registration or approval of any
Governmental Authority or any other Person (except such as have
been duly obtained, made or given, and are in full force and
effect); and (v) will not result in the imposition of any Liens
upon any of its properties (other than for Liens in favor of IBM
Credit).
6.4. Enforceability. This Agreement and all of the other
documents executed and delivered by the Customer in connection
herewith are the legal, valid and binding obligations of
Customer, and are enforceable in accordance with their terms,
except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws affecting creditors'
rights generally or the general equitable principles relating
thereto.
6.5. Locations of Offices, Records and Inventory. The address
of the principal place of business and chief executive office of
Customer is as set forth on Attachment B or on any notice
provided by Customer to IBM Credit pursuant to Section 7.7(C) of
this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM
Credit pursuant to Section 7.14(E)) and records of Accounts, are
maintained exclusively at such location. There is no
jurisdiction in which Customer has any assets, equipment or
inventory (except for vehicles and inventory in transit for
processing) other than those jurisdictions identified on
Attachment B or on any notice provided by Customer to IBM Credit
pursuant to Section 7.7(C) of this Agreement. Attachment B, as
amended from time to time by any notice provided by Customer to
IBM Credit in accordance with Section 7.7(C) of this Agreement,
also contains a complete list of the legal names and addresses of
each warehouse at which the Customer's inventory is stored. None
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of the receipts received by Customer from any warehouseman states
that the goods covered thereby are to be delivered to bearer or
to the order of a named person or to a named person and such
named person's assigns.
6.6. Fictitious Business Names. Customer has not used any
corporate or fictitious name during the five (5) years preceding
the date of this Agreement, other than those listed on Attachment
B.
6.7. Organization. All of the outstanding capital stock of
Customer has been validly issued, is fully paid and
nonassessable.
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<PAGE 22>
6.8. No Judgments or Litigation. Except as set forth on
Attachment B, no judgments, orders, writs or decrees are
outstanding against Customer nor is there now pending or, to the
best of Customer's knowledge after due inquiry, threatened, any
litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. Except as set forth on Attachment B, the
Customer is not in default under any term of any indenture,
contract, lease, agreement, instrument or other commitment to
which it is a party or by which it, or any of its properties are
bound. Customer has no knowledge of any dispute regarding any
such indenture, contract, lease, agreement, instrument or other
commitment. No Default or Event of Default has occurred and is
continuing.
6.10. Labor Matters. Except as set forth on any notice provided
by Customer to IBM Credit pursuant to Section 7.1(F) of this
Agreement, Customer is not a party to any labor dispute. There
are no strikes or walkouts or labor controversies pending or
threatened against the Customer which could reasonably be
expected to have a Material Adverse Effect.
6.11. Compliance with Law. Customer has not violated or failed
to comply with any Requirement of Law or any requirement of any
self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension
benefit plan", "defined benefit plan", or "multi-employer benefit
plan", which Customer has established, maintained, or to which it
is required to contribute (collectively, the "Plans") is in
compliance with all applicable provisions of ERISA and the Code
and the rules and regulations thereunder as well as the Plan's
terms and conditions. There have been no "prohibited
transactions" and no "reportable event" has occurred within the
last 60 months with respect to any Plan. Customer has no
"multi-employer benefit plan". As used in this Agreement the
terms "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", and "multi-employer benefit plan" have
the respective meanings assigned to them in Section 3 of ERISA
and any applicable rules and regulations thereunder. The
Customer has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or incurred any liability to the
Pension Benefit Guaranty Corporation (the "PBGC") in connection
with a Plan (other than for premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise
disclosed in Attachment B:
(A) The Customer has obtained all government approvals
required with respect to the operation of its businesses under
any Environmental Law.
- -
(B) (i) the Customer has not generated, transported or
disposed of any Hazardous Substance; (ii) the Customer is not
currently generating, transporting or disposing of any Hazardous
Substance; (iii) the Customer has no knowledge that (a) any of
its real property (whether owned, leased, or otherwise directly
or indirectly controlled) has been used for the disposal of or
has been contaminated by any Hazardous Substance, or (b) any of
its business operations have contaminated lands or waters of
others with any Hazardous Substance; (iv) the Customer and its
respective assets are not subject to any Environmental Liability
and, to the best of the Customer's knowledge, any threatened
Environmental Liability; (v) the Customer has not received any
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<PAGE 23>
notice of or otherwise learned of any governmental investigation
evaluating whether any remedial action is necessary to respond to
a release or threatened release of any Hazardous Substance for
which the Customer may be liable; (vi) the Customer is not in
violation of any Environmental Law; (vii) there are no
proceedings or investigations pending against Customer with
respect to any violation or alleged violation of any
Environmental Law; provided however, that the parties acknowledge
that any generation, transportation, use, storage and disposal of
certain such Hazardous Substances in Customer's or its
Subsidiaries' business shall be excluded from representations (i)
and (ii) above so long as, and only so long as, Customer is at
all times generating, transporting, utilizing, storing and
disposing such Hazardous Substances in accordance with all
applicable Environmental Laws and in a manner designed to
minimize the risk of any spill, contamination, release or
discharge of Hazardous Substances other than as authorized by
Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets,
licenses, patents, patent applications, copyrights, service
marks, trademarks, trade names and trade secrets and all rights
and other property relating thereto or arising therefrom
("Intellectual Property") as are necessary or advisable to
continue to conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in
full force and effect all franchises, licenses, leases, permits,
certificates, authorizations, qualifications, easements, rights
of way and other rights and approvals which are necessary for the
operation of its businesses as presently conducted. Customer is
not in violation of the terms of any such franchise, license,
lease, permit, certificate, authorization, qualification,
easement, right of way, right or approval.
6.16. Investment Company. The Customer is not (i) an investment
company or a companycontrolled by an investment company within
the meaning of the Investment Company Act of 1940, as amended,
(ii) a holding company or a subsidiary of a holding company, or
an Affiliate of a holding company or of a subsidiary of a holding
company, within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (iii) subject to any other law which
purports to regulate or restrict its ability to borrow money or
to consummate the transactions contemplated by this Agreement or
the Other Agreements or to perform its obligations hereunder or
thereunder.
6.17. Taxes and Tax Returns. Except as otherwise disclosed on
Attachment B, Customer has timely filed all federal, state, and
local tax returns and other reports which it is required by law
to file, and has either duly paid all taxes, fees and other
governmental charges indicated to be due on the basis of such
reports and returns or pursuant to any assessment received by the
- -
Customer, or made provision for the payment thereof in accordance
with GAAP. The charges and reserves on the books of the Customer
in respect of taxes or other governmental charges are in
accordance with GAAP. No tax liens have been filed against
Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual
and bona fide sale and delivery of goods or rendition of services
to customers, made by Customer, in the ordinary course of its
business; the goods and inventory being sold and the Accounts
created are its exclusive property and are not and shall not be
subject to any Lien, consignment arrangement, encumbrance,
security interest or financing statement whatsoever (other than
Permitted Liens). The Customer's customers have accepted goods
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<PAGE 24>
or services and owe and are obligated to pay the full amounts
stated in the invoices according to their terms. There are no
proceedings or actions known to Customer which are pending or
threatened against any Material Account Obligor (as defined in
Section 7.14(B) of this Agreement) of any of the Accounts which
could reasonably be expected to result in a material adverse
effect on the obligor's ability to pay the full amounts due to
Customer.
6.19. Affiliate/Subsidiary Transactions. Except as set forth on
Attachment B, Customer is not a party to or bound by any
agreement or arrangement (whether oral or written) to which any
Affiliate or Subsidiary of the Customer is a party except (i) in
the ordinary course of and pursuant to the reasonable
requirements of Customer's business and (ii) upon fair and
reasonable terms no less favorable to Customer than it could
obtain in a comparable arm's-length transaction with an
unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual
information furnished by or on behalf of the Customer to IBM
Credit or the Auditors for purposes of or in connection with this
Agreement or any Other Agreement, or any transaction contemplated
hereby or thereby is or will be true and accurate in all material
respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material
fact necessary to make such information not misleading at such
time.
6.21. Recording Taxes. All recording taxes, recording fees,
filing fees and other charges payable in connection with the
filing and recording of this Agreement have either been paid in
full by Customer or arrangements for the payment of such amounts
by Customer have been made to the satisfaction of IBM Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other
than Permitted Indebtedness; and (ii) has not guaranteed the
obligations of any other Person (except as permitted by Section
8.4).
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment
and satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to
be furnished to IBM Credit the following information within the
following time periods:
(A) as soon as available and in any event within ninety
(90) days after the end of each fiscal year of Customer (i)
audited Financial Statements (provided that, to the extent not
- -
otherwise audited by the Auditors, the consolidating Financial
Statements may be unaudited) as of the close of the fiscal year
and for the fiscal year, together with a comparison to the
Financial Statements for the prior year, in each case accompanied
by (a) either an opinion of the Auditors without a "going
concern" or like qualification or exception, or qualification
arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably
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<PAGE 25>
satisfactory to IBM Credit, (b) such Auditors' "Management
Letter" to Customer, if any, (c) a written statement signed by
the Auditors stating that in the course of the regular audit of
the business of Customer and its consolidated Subsidiaries, which
audit was conducted by the Auditors in accordance with generally
accepted auditing standards, the Auditors have not obtained any
knowledge of the existence of any Default under any provision of
this Agreement, or, if such Auditors shall have obtained from
such examination any such knowledge, they shall disclose in such
written statement the existence of the Default and the nature
thereof, it being understood that such Auditors shall have no
liability, directly or indirectly, to anyone for failing to
obtain knowledge of any such Default; (ii) if composed, a
narrative discussion of the consolidated financial condition and
results of operations and the consolidated liquidity and capital
resources of Customer and its Subsidiaries for such fiscal year
prepared by an Approved Officer; and (iii) a Compliance
Certificate along with a schedule, in substantially the form of
Attachment C hereto, of the calculations used in determining, as
of the end of such fiscal year, whether Customer is in compliance
with the financial covenants set forth in Attachment A;
(B) as soon as available and in any event within forty-five
(45) days after the end of each fiscal quarter of Customer (i)
Financial Statements as of the end of such period and for the
fiscal year to date, together with a comparison to the Financial
Statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end
audit adjustments and except for the absence of footnotes) by an
Approved Officer of Customer as having been prepared in
accordance with GAAP; (ii) if composed, a narrative discussion of
the consolidated financial condition and results of operations
and the consolidated liquidity and capital resources of Customer
and its Subsidiaries for such period and for the fiscal year to
date prepared by an Approved Officer of Customer; and (iii) a
Compliance Certificate along with a schedule, in substantially
the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal quarter, whether
Customer is in compliance with the financial covenants set forth
in Attachment A;
(C) promptly after Customer obtains knowledge of (i) the
occurrence of a Default or Event of Default, or (ii) the
existence of any condition or event which would result in the
Customer's failure to satisfy the conditions precedent to
Advances set forth in Section 5, a certificate of an Approved
Officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(D) promptly after Customer obtains knowledge of (i) any
proceeding(s) being instituted or threatened to be instituted by
or against Customer in any federal, state, local or foreign court
or before any commission or other regulatory body (federal,
- -
state, local or foreign), or (ii) any actual or prospective
change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a
certificate of an Approved Officer of Customer specifying the
nature thereof and the Customer's proposed response thereto, each
in reasonable detail;
(E) promptly after Customer obtains knowledge that (i) any
order, judgment or decree in excess of fifty thousand dollars
($50,000.00) shall have been entered against Customer or any of
its properties or assets, or (ii) it has received any
notification of a material violation of any Requirement of Law
from any Governmental Authority, a certificate of an Approved
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<PAGE 26>
Officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(F) promptly after Customer learns of any material labor
dispute to which Customer may become a party, any strikes or
walkouts relating to any of its plants or other facilities, or
the expiration of any labor contract to which Customer is a party
or by which it is bound, a certificate of an Approved Officer of
Customer specifying the nature thereof and the Customer's
proposed response thereto, each in reasonable detail;
(G) within five (5) Business Days after request by IBM
Credit, any written certificates, schedules and reports together
with all supporting documents as IBM Credit may reasonably
request relating to the Collateral or the Customer's or any of
its Subsidiary's business affairs and financial condition;
(H) on the first Business Day of each week, a Collateral
Management Report (with back-up in form and detail satisfactory
to IBM Credit) as of the last Business Day of the immediately
preceding week;
(I) along with the Financial Statements set forth in
Section 7.1(A) and (B), and at such other times as IBM Credit may
request, the name, address and phone number of each of its
account debtors' primary contacts for each Account on the
Accounts aging report contained in its most recent Collateral
Management Report; and
(J) within three (3) days after the same are sent, copies
of all financial statements and reports which Customer sends to
its stockholders, and within three (3) days after the same are
filed, copies of all financial statements, reports and any other
documents which Customer may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
governmental authority.
Each certificate, schedule and report provided by Customer to IBM
Credit shall be signed by an Approved Officer of Customer, which
signature shall be deemed a representation and warranty that the
information contained in such certificate, schedule or report is
true and accurate in all material respects on the date as of
which such certificate, schedule or report is made and does not
omit to state a material fact necessary in order to make the
statements contained therein not misleading at such time. Each
financial statement delivered pursuant to this Section 7.1 shall
be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods.
7.2. Location of Collateral. The inventory, equipment and other
tangible Collateral shall be kept or sold at the addresses as set
forth on Attachment B or on any notice provided by Customer to
IBM Credit in accordance with Section 7.7(C). Such locations
- -
shall be certified quarterly to IBM Credit substantially in the
form of Attachment G.
7.3. Changes in Customer. Customer shall provide 30 days prior
written notice to IBM Credit of any change in Customer's name,
chief executive office and principal place of business,
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<PAGE 27>
organization, form of ownership or corporate structure; provided,
however, that Customer's compliance with this covenant shall not
relieve it of any of its other obligations or any other
provisions under this Agreement or any Other Agreement limiting
actions of the type described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its
corporate existence, maintain in full force and effect all
licenses, bonds, franchises, leases and qualifications to do
business, and all contracts and other rights necessary to the
profitable conduct of its business, (B) continue in, and limit
its operations to, the same general lines of business as
presently conducted by it unless otherwise permitted in writing
by IBM Credit and (C) comply with all Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in
writing after it learns of the occurrence of any event which
would constitute a "reportable event" under ERISA or any
regulations thereunder with respect to any Plan, or that the PBGC
has instituted or will institute proceedings to terminate any
Plan. Notwithstanding the foregoing, the Customer shall have no
obligation to notify IBM Credit as to any "reportable event" as
to which the 30-day notice requirement of Section 4043(b) has
been waived by the PBGC, until such time as such Customer is
required to notify the PBGC of such reportable event. Such
notification shall include a certificate of an Approved Officer
of Customer setting forth details as to such "reportable event"
and the action which Customer proposes to take with respect
thereto, together with a copy of any notice of such "reportable
event" which may be required to be filed with the PBGC, or any
notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall
furnish, or cause the plan administrator to furnish, to IBM
Credit the most recently filed annual report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person
under Customer's control (including, without limitation, agents
and Affiliates under such control) shall (i) comply with all
Environmental Laws in all material respects, and (ii) undertake
to use commercially reasonable efforts to prevent any unlawful
release of any Hazardous Substance by Customer or such Person
into, upon, over or under any property now or hereinafter owned,
leased or otherwise controlled (directly or indirectly) by
Customer.
(B) Customer shall notify IBM Credit, promptly upon its
obtaining knowledge of (i) any non-routine proceeding or
investigation by any Governmental Authority with respect to the
presence of any Hazardous Substances on or in any property now or
hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by
any Person or Governmental Authority against Customer or any of
Customer's assets relating to any loss or injury resulting from
- -
any Hazardous Substance, (iii) Customer's discovery of evidence
of unlawful disposal of or environmental contamination by any
Hazardous Substance on any property now or hereinafter owned,
leased or otherwise controlled (directly or indirectly) by
Customer, and (iv) any occurrence or condition which could
constitute a violation of any Environmental Law.
7.7. Collateral Books and Records/Collateral Audit. (A)
Customer agrees to maintain books and records pertaining to the
Collateral in such detail, form and scope as is consistent with
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<PAGE 28>
good business practice, which shall reflect IBM Credit's interest
in the Collateral.
(B) Customer agrees that IBM Credit or its agents may enter
upon the premises of Customer at any time and from time to time,
during normal business hours and upon reasonable notice under the
circumstances, and at any time at all on and after the occurrence
and during the continuance of an Event of Default for the
purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining
thereto, (iii) discussing the affairs, finances and business of
Customer with any officers, employees and directors of Customer
or with the Auditors and (iv) verifying Eligible Accounts,
Eligible Foreign Accounts and other Collateral. Customer also
agrees to provide IBM Credit with such reasonable information and
documentation that IBM Credit deems necessary to conduct the
foregoing activities, including, without limitation, reasonably
requested samplings of purchase orders, invoices and evidences of
delivery or other performance. Upon the occurrence and during
the continuance of a Default which has not been waived by IBM
Credit in writing, IBM Credit may conduct any of the foregoing
activities in any manner that IBM Credit deems reasonably
necessary.
(C) Customer shall give IBM Credit thirty (30) days prior
written notice of any change in the location of any Collateral,
the location of its books and records or in the location of its
chief executive office or place of business from the locations
specified in Attachment B, and will execute in advance of such
change and cause to be filed and/or delivered to IBM Credit any
financing statements, landlord or other lien waivers, or other
documents reasonably required by IBM Credit, all in form and
substance reasonably satisfactory to IBM Credit.
(D) Customer agrees to advise IBM Credit promptly, in
reasonably sufficient detail, of any substantial change relating
to the type, quantity or quality of the Collateral, or any event
which could reasonably be expected to have a Material Adverse
Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. Insurance; Casualty Loss. (A) Customer will maintain with
financially sound and reputable insurance companies: (i)
insurance on its properties, (ii) public liability insurance
against claims for personal injury or death as a result of the
use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such
amounts and against at least such risks as are usually and
prudently insured against in the same general geographical area
by companies of established repute engaged in the same or a
similar business. Customer will furnish to IBM Credit, upon its
written request, the insurance certificates with respect to such
- -
insurance. In addition, all Policies so maintained are to name
IBM Credit as an additional insured as its interest may appear.
(B) Without limiting the generality of the foregoing,
Customer shall keep and maintain, at its sole expense, the
Collateral insured for an amount not less than the amount set
forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an
"all risk" Policy in companies mutually acceptable to IBM Credit
and Customer, with a lender's loss payable endorsement or
mortgagee clause in form and substance reasonably satisfactory to
IBM Credit designating that any loss payable thereunder with
respect to such Collateral shall be payable to IBM Credit.
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<PAGE 29>
Customer agrees to instruct each insurer to give IBM Credit, by
endorsement upon the Policy issued by it or by independent
instruments furnished to IBM Credit, at least ten (10) days
written notice before any Policy shall be altered or cancelled
and that no act or default of Customer or any other person shall
affect the right of IBM Credit to recover under the Policies.
Customer hereby agrees to direct all insurers under the Policies
to pay all proceeds with respect to the Collateral directly to
IBM Credit. If Customer fails to pay any cost, charges or
premiums, or if Customer fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums. Any amounts paid
by IBM Credit hereunder shall be considered an additional debt
owed by Customer to IBM Credit due and payable by Customer
immediately upon receipt of an invoice by IBM Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes
lawfully levied or assessed against Customer or any of the
Collateral before any penalty or interest accrues thereon unless
such taxes are being contested, in good faith, by appropriate
proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made
therefor as required in order to be in conformity with GAAP and
an adverse determination in such proceedings could not reasonably
be expected to have a Material Adverse Effect.
7.10. Compliance With Laws. Customer agrees to comply with all
Requirements of Law applicable to the Collateral or any part
thereof, and to the operation of its business.
7.11. Fiscal Year. Customer agrees to maintain its fiscal year
as a year ending September 30 unless Customer provides IBM Credit
at least thirty (30) days prior written notice of any change
thereof.
7.12. Intellectual Property. Customer shall do and cause to be
done all things necessary to preserve and keep in full force and
effect all registrations of Intellectual Property which the
failure to do or cause to be done could reasonably be expected to
have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of
its material properties (business and otherwise) in good
condition and repair (ordinary wear and tear excepted) and pay
and discharge all costs of repair and maintenance thereof and all
rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of
its material properties.
7.14. Collateral. Customer shall:
(A) from time to time upon the request of IBM Credit,
provide IBM Credit with access to copies of all invoices,
- -
delivery evidences and other such documents relating to each
Account;
(B) promptly upon Customer's obtaining knowledge thereof,
furnish to and inform IBM Credit of all material adverse
information relating to the financial condition of any Account
obligor whose outstanding obligations to Customer constitute two
percent (2%) or more of the Accounts at such time (a "Material
Account Obligor");
(C) promptly upon Customer's learning thereof, notify IBM
Credit in writing of any event which would cause any obligation
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<PAGE 30>
of a Material Account Obligor to become an Ineligible Account;
(D) keep all goods rejected or returned by any account
debtor and all goods repossessed or stopped in transit by
Customer from any account debtor segregated from other property
of Customer, holding the same in trust for IBM Credit until
Customer applies a credit against such account debtor's
outstanding obligations to Customer or sells such goods in the
ordinary course of business, whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments
now owned or hereafter acquired by it in conspicuous type to show
that the same are subject to IBM Credit's security interest and
immediately thereafter deliver or cause such chattel paper and
instruments to be delivered to IBM Credit or any agent designated
by IBM Credit with appropriate endorsements and assignments to
vest title and possession in IBM Credit; until so delivered to
IBM Credit or its designated agent, Customer shall hold such
chattel paper and instruments as agent for IBM Credit;
(F) use commercially reasonable efforts to collect all
Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or
destruction of or damage to any of the Collateral. Customer
shall diligently file and prosecute its claim for any award or
payment in connection with any such loss, theft, destruction of
or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other
instruments sufficient for the purpose of assigning any such
award or payment to IBM Credit, free of any encumbrances of any
kind whatsoever;
(H) consistent with reasonable commercial practice, observe
and perform all matters and things necessary or expedient to be
observed or performed under or by virtue of any lease, license,
concession or franchise forming part of the Collateral in order
to preserve, protect and maintain all the rights of IBM Credit
thereunder;
(I) consistent with reasonable commercial practice,
maintain, use and operate the Collateral and carry on and conduct
its business in a proper and efficient manner so as to preserve
and protect the Collateral and the earnings, incomes, rents,
issues and profits thereof;
(J) at any time and from time to time, upon the request of
IBM Credit, and at the sole expense of Customer, Customer will
promptly and duly execute and deliver such further instruments
and documents and take such further action as IBM Credit may
reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and the Other Agreements and of
the rights and powers herein and therein granted, including,
- -
without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests granted
herein and the payment of any and all recording taxes and filing
fees in connection therewith;
(K) promptly, but in any event within two (2) days of
authorizing such credits, apply rebate, price protection or
other credits to the Accounts;
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7.15. Subsidiaries. IBM Credit may require that any
Subsidiaries of Customer become parties to this Agreement or any
other agreement executed in connection with this Agreement as
guarantors or sureties and grant to IBM Credit perfected first
priority security interests in their assets.
7.16. On Site Collateral Verification. Customer shall from time
to time upon the request of IBM Credit allow employees, agents
and representatives of IBM Credit access, during normal business
hours and as often as IBM Credit may request, to the premises,
inventory, books and records of Customer or any of its
Subsidiaries to verify the Collateral and Customer's compliance
with the terms of this Agreement and to discuss the business,
operations, properties and financial and other condition of the
Company or any of its Subsidiaries with such officers and
employees and agents, including without limitation, its
independent certified public accounts, as IBM Credit may from
time to time request. Customer shall use reasonable efforts to
obtain permission from third party facilities where Collateral is
located for IBM Credit to have access to such facilities to
inspect and verify such Collateral.
7.17. Lockbox Participation and Special Account Deposits.
Without limiting Customer's other Obligations, Customer
acknowledges and reaffirms its obligations pursuant to Section
3.4 of this Agreement and acknowledges and reaffirms that such
obligations apply to all Accounts of Customer including, without
limitation, Accounts payable by account debtors that are not
residents of the United States (including Accounts that are
payable by Ingram Micro, Inc. (Canada), Merisel Canada, Inc., QMS
(Japan) and Abacus) and Accounts payable by an account debtor
that is a remarketer of computer hardware and software products
whose purchases of such products from Customer have been financed
by another person who pays proceeds of such financing directly to
Customer on behalf of such account debtor. Customer agrees that
if Customer receives a remittance directly from an account
obligor, then Customer shall deposit the same into the Special
Account within one Business Day of such receipt.
7.18. Further Assurances Regarding Patents, Trademarks,
Tradenames and Copyrights. Customer shall do and cause to be
done all things necessary to preserve and keep in full force and
effect all registrations of patents, trademarks, tradenames and
copyrights necessary or advisable for the profitable conduct of
its business. With respect to any federal registration of any
patent, trademark, tradename or copyright or the filing of any
application therefor, Customer promptly shall cooperate with IBM
Credit to deliver to IBM Credit a collateral assignment with
respect to each such registration and application, in form and
substance satisfactory to IBM Credit. IBM Credit shall prepare
the form of collateral assignment based upon information provided
by Customer and, upon execution by Customer, IBM Credit shall
file such collateral assignment with the appropriate agency.
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Whenever, Customer, either by itself or through any agent,
employee, licensee or designee, shall file an application for the
registration of any patent, trademark, tradename or copyright
with the United States Patent and Trademark Office or United
States Copyright Office, Customer shall report such filing to IBM
Credit within five Business Days after such filing occurs. Upon
request of IBM Credit, Customer shall execute and deliver any and
all agreements, instruments, documents, and papers, which IBM
Credit shall prepare based upon information provided by Customer,
as IBM Credit may request to evidence and/or perfect IBM
Credit's security interest in any patent, trademark, tradename or
copyright and the goodwill and general intangibles relating
thereto or represented thereby, and Customer hereby constitutes
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IBM Credit its attorney-in-fact to execute and file all such
writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed, such power being coupled
with an interest and irrevocable until the Obligations are paid
in full and this Agreement is terminated. For the purposes of
enabling IBM Credit to exercise its rights and remedies under
this Agreement, Customer hereby grants to IBM Credit an
irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to Customer) to use, assign,
license or sublicense, following the occurrence of an Event of
Default and the exercise by IBM Credit of its rights and remedies
with respect thereto, any of the Collateral consisting of
patents, trademarks, tradenames or copyrights now owned or
hereafter acquired by Customer, wherever the same may be located,
including in such license reasonable access to all media in which
any of the licensed items may be recorded or stored and to all
computer programs used for the compilation or printout thereof.
Upon payment in full of all Obligations and termination of this
Agreement, the license granted by Customer pursuant to the
immediately preceding sentence shall be terminated.
7.19. Collateral Reconciliation Reports. Customer shall provide
to IBM Credit on each Business Day a Collateral Reconciliation
Report as of the close of business on the Business Day
immediately preceding the day such report is provided to IBM
Credit. Such Collateral Reconciliation Report shall be in form
and detail satisfactory to IBM Credit and shall include back-up
documentation supporting such reconciliation in form and detail
satisfactory to IBM Credit. Such Collateral Reconciliation
Report shall reconcile the most recently preceding Collateral
Reconciliation Report to such Collateral Reconciliation Report
and shall include new sales, collections, credits issued,
purchases, returns and any other item affecting the accounts
receivable or inventory balance since the prior reconciliation.
Such Collateral Reconciliation Report shall also include a
summary of domestic gross receivables and Eligible Receivables,
foreign gross receivables and Eligible Foreign Receivables, gross
inventory and Eligible Inventory by location.
7.20. Listings and Reconciliations. Customer shall provide to
IBM Credit on or prior to the twentieth (20th) Business Day
following each fiscal month a copy of all bank statements
received by Customer for such month along with a reconciliation
of account balances in such account from the preceding statement
to account balances in such account as of the date of such
statement.
7.21. Price Protection Credits. Except as set forth on
Attachment B, Customer shall not, without IBM Credit's prior
consent, announce any program for price protection credits that
could have the effect of reducing accounts receivable in which
IBM Credit has a security interest.
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7.22. Additional Reporting Requirements. Customer shall deliver
to IBM Credit, on the first Business Day of each week, a listing,
in form and detail satisfactory to IBM Credit in its reasonable
discretion, as of the Saturday immediately preceding such
Business Day, of (i) Customer's inventory, (ii) the location of
such inventory and (iii) the lower of the cost (net of any
applicable credits) and the fair market value of such inventory.
Customer shall deliver to IBM Credit, on the last Business Day of
each week, a cash flow projection, in form and detail
satisfactory to IBM Credit in its reasonable discretion, for the
immediately following week and each week remaining in such fiscal
quarter based upon Customer's best estimate of minimum levels of
activity for such week to support Customer's on going business
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activities. Customer shall provide to IBM Credit on the first
Business Day of each week, a projection, in form and detail
satisfactory to IBM Credit in its reasonable discretion, for such
week of Customer's Outstanding A/R Advances and Customer's
Borrowing Base.
7.23. Subsidiaries. Customer shall not make any Investment in
or loan to, or transfer any assets to any Subsidiary or Affiliate
without the prior written consent of IBM Credit.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment
and satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly
mortgage, assign, pledge, transfer, create, incur, assume, permit
to exist or otherwise permit any Lien or judgment to exist on any
of its property, assets, revenues or goods, whether real,
personal or mixed, whether now owned or hereafter acquired,
except for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or
indirectly, sell, lease, assign, transfer or otherwise dispose of
any assets other than (i) sales of inventory in the ordinary
course of business and short term rental of inventory as
demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn
out property, other than patents, trademarks, trade names and
copyrights, in the ordinary course of business, provided, that
the aggregate book value of all such assets and property so sold
or disposed of under this section 8.2 (ii) in any fiscal year
shall not exceed 5% of the consolidated assets of the Customer as
of the beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not, without the
prior written consent of IBM Credit, directly or indirectly,
merge, consolidate, liquidate, dissolve or enter into or engage
in any operation or activity materially different from that
presently being conducted by Customer.
8.4. Guaranties. The Customer will not, directly or indirectly,
assume, guaranty, endorse, or otherwise become liable upon the
obligations of any other Person, except (i) by the endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (ii) by the
giving of indemnities or warranties in connection with the sale
of inventory or other asset dispositions permitted hereunder,
(iii) for guaranties in favor of IBM Credit, or (iv) on behalf of
its Subsidiaries not to exceed an aggregate amount of fifty
thousand dollars ($50,000.00) per annum.
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8.5. Restricted Payments. The Customer will not, directly or
indirectly: (i) declare or pay any dividend (other than dividends
payable solely in common stock of Customer) on, or make any
payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of
capital stock of Customer or any warrants, options or rights to
purchase any such capital stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in
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obligations of Customer, provided, however that Customer may (x)
purchase for cash from directors, officers and employees of
Customer shares of capital stock in connection with the
termination of any such director's, officer's or employee's
service to Customer to the extent such purchases are consistent
with past practices (which may not be changed without IBM
Credit's prior consent) and are in an aggregate amount not
exceeding fifty thousand dollars ($50,000.00) per annum and (y)
redeem and pay dividends on the convertible preferred stock of
Customer held by IBM Credit; or (ii) make any optional payment or
prepayment on or redemption (including, without limitation, by
making payments to a sinking or analogous fund) or repurchase of
any Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or
indirectly, make, maintain or acquire any Investment in any
Person other than:
(A) interest bearing deposit accounts (including
certificates of deposit) which are insured by the Federal Deposit
Insurance Corporation ("FDIC") or a similar federal insurance
program;
(B) direct obligations of the government of the United
States of America or any agency or instrumentality thereof or
obligations guaranteed as to principal and interest by the United
States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement
of claims against others by reason of an event of bankruptcy or a
composition or the readjustment of debt or a reorganization of
any debtor of Customer;
(D) commercial paper of any corporation organized under the
laws of any State of the United States or any bank organized or
licensed to conduct a banking business under the laws of the
United States or any State thereof having the short-term highest
rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation;
(E) the investments set forth on Attachment E.
8.7. Affiliate/Subsidiary Transactions. The Customer will not,
irectly or indirectly, enter into any transaction with any
Affiliate or Subsidiary, including, without limitation, the
purchase, sale or exchange of property or the rendering of any
service to any Affiliate or Subsidiary of Customer except in the
ordinary course of business and pursuant to the reasonable
requirements of Customer's business upon fair and reasonable
terms no less favorable to Customer than could be obtained in a
comparable arm's-length transaction with an unaffiliated Person.
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8.8. ERISA. The Customer will not (A) terminate any Plan so as
to incur a material liability to the PBGC, (B) permit any
"prohibited transaction" involving any Plan (other than a
"multi-employer benefit plan") which would subject the Customer
to a material tax or penalty on "prohibited transactions" under
the Code or ERISA, (C) fail to pay to any Plan any contribution
which they are obligated to pay under the terms of such Plan, if
such failure would result in a material "accumulated funding
deficiency", whether or not waived, (D) allow or suffer to exist
any occurrence and during the continuance of a "reportable
event" or any other event or condition, which presents a material
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risk of termination by the PBGC of any Plan (other than a
"multi-employer benefit plan"), or (E) fail to notify IBM Credit
as required in Section 7.5. As used in this Agreement, the terms
"accumulated funding deficiency" and "reportable event" shall
have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to
it in the Code and ERISA. For purposes of this Section 8.8, the
terms material liability, tax, penalty, accumulated funding
deficiency and risk of termination shall mean a liability, tax,
penalty, accumulated funding deficiency or risk of termination
which could reasonably be expected to have a Material Adverse
Effect.
8.9. Additional Negative Pledges. Customer will not, directly
or indirectly, create or otherwise cause or permit to exist or
become effective any contractual obligation which may restrict or
inhibit IBM Credit's rights or ability to sell or otherwise
dispose of the Collateral or any part thereof after the
occurrence and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen.
Collateral shall not be stored with a bailee, warehouseman or
similar party without the prior written consent of IBM Credit
unless Customer, concurrently with the delivery of such
Collateral to such party, causes such party to issue and deliver
to IBM Credit, in form and substance satisfactory to IBM Credit,
warehouse receipts in the name of IBM Credit evidencing the
storage of such Collateral.
8.11. Use of Proceeds. The Customer shall not use any portion
of the proceeds of any Advances other than for its general
working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any
extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account,
including any of the terms relating thereto, which would affect
IBM Credit's ability to collect payment on any Account in whole
or in part, except for such extensions, compromises or
settlements made by Customer in the ordinary course of its
business, provided, however, that the aggregate amount of such
extensions, compromises or settlements does not exceed five
percent (5%) of the Customer's Accounts at any time.
8.13. Indebtedness. The Customer will not create, incur, assume
or permit to exist any Indebtedness, except for Permitted
Indebtedness.
8.14. Loans. The Customer will not make any loans, advances,
contributions or payments of money or goods to any Subsidiary,
Affiliate or parent corporation or to any officer, director or
stockholder of Customer or of any such corporation (except for
compensation for personal services actually rendered), except for
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transactions expressly authorized in this Agreement, provided,
however, that Customer may make loans to its officers in an
aggregate outstanding amount at any time not exceeding two
hundred fifty thousand dollars ($250,000.00), and to its
Subsidiaries in an aggregate outstanding amount at any time not
exceeding one hundred thousand dollars ($100,000.00).
8.15. Premium Payments. Customer shall not make, directly or
indirectly, any payments to suppliers at a premium above the
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regular invoice price on account of past due indebtedness to such
supplier without the prior written consent of IBM Credit.
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events
shall constitute an Event of Default by the Customer under this
Agreement and the Other Agreements:
(A) The failure to make timely payment of the Obligations or
any part thereof, within the earlier of (i) one Business Day
after receiving written notice that such payment has not been
made when due in accordance with the terms of any documents
evidencing the same and (ii) five days after such payment becomes
due in accordance with the terms of any documents evidencing the
same;
(B) (x) the failure to comply with or observe any term,
covenant or agreement (other than pursuant to Sections 7.1 (C)
(i), 8.1, 8.2 or 8.3) contained in this Agreement that is capable
of being remedied by Customer if such failure shall remain
unremedied for ten (10) days after written notice from IBM Credit
thereof; provided that during such 10-day period Customer is
diligently taking efforts necessary to remedy such failure or (y)
Customer fails to comply with or observe any term, covenant or
agreement contained in Sections 8.1, 8.2 or 8.3 that is capable
of being remedied by Customer if such failure shall remain
unremedied for 10 days; provided that during such 10-day period,
Customer is diligently taking efforts necessary to remedy such
failure;
(C) Customer fails to comply with or observe any term,
covenant or agreement contained in this Agreement other than as
referred to in paragraphs (A) or (B);
(D) Any representation, warranty, statement, report or
certificate made or delivered by or on behalf of Customer or any
of its officers, employees or agents or by or on behalf of any
Subsidiary or guarantor to IBM Credit was false in any material
respect at the time when made or deemed made;
(E) The occurrence of any event or circumstance which could
reasonably be expected to have a Material Adverse Effect;
(F) Customer or any Subsidiary or guarantor shall generally
not pay its debts as such debts become due, become or otherwise
declare itself insolvent, file a voluntary petition for
bankruptcy protection, have filed against it any involuntary
bankruptcy petition, cease to do business as a going concern,
make any assignment for the benefit of creditors, or a custodian,
receiver, trustee, liquidator, administrator or person with
similar powers shall be appointed for Customer or any Subsidiary
or any of its respective properties or have any of its respective
- -
properties seized or attached, or take any action to authorize,
or for the purpose of effectuating, the foregoing; provided,
however, that Customer or any Subsidiary shall have a period of
forty-five (45) days within which to discharge any involuntary
petition for bankruptcy or similar proceeding; provided, further,
however, that any of the foregoing set forth in this paragraph
(F), with respect to any Subsidiary or guarantor, could
reasonably be expected to have a Material Adverse Effect;
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(G) The use by Customer of any funds borrowed from IBM
Credit under this Agreement for any purpose other than as
provided in this Agreement;
(H) The entry of any judgment against Customer or any
guarantor in an amount in excess of fifty thousand dollars
($50,000.00) and such judgment is not satisfied, dismissed,
stayed or superseded by bond within thirty (30) days after the
day of entry thereof (and in the event of a stay or supersedeas
bond, such judgment is not discharged within thirty (30) days
after termination of any such stay or bond) or such judgment is
not fully covered by insurance as to which the insurance company
has acknowledged its obligation to pay such judgment in full;
(I) The dissolution or liquidation of Customer or any
guarantor, or Customer or any guarantor or any of their directors
or stockholders shall take any action to dissolve or liquidate
Customer or any guarantor;
(J) Any "going concern" or like qualification or exception,
or qualification arising after the date of this Agreement out of
the scope of an audit by an Auditor of his opinion relative to
any Financial Statement delivered to IBM Credit under this
Agreement;
(K) There issues a warrant of distress or distraint or any
similar proscription for any rent or taxes with respect to any of
Customer's properties, assets or premises and such warrant shall
continue for a period of two (2) Business Days from the date such
warrant is issued;
(L) Customer suspends business;
(M) The occurrence of any event or condition which enables
the holder of any Indebtedness or trade liabilities arising in
one or more related or unrelated transactions, in aggregate
principal
amount exceeding fifty thousand dollars ($50,000.00) to
accelerate the maturity thereof or the failure of Customer to pay
when due any such Indebtedness or trade liabilities;
(N) Any guaranty of any or all of the Customer's Obligations
executed by any guarantor in favor of IBM Credit, shall at any
time for any reason cease to be in full force and effect or shall
be declared to be null and void by a court of competent
jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor
shall deny that it has any further liability or obligation
thereunder or any such guarantor shall fail to comply with or
observe any of the terms, provisions or conditions contained in
any such guaranty;
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(O) Customer is in default under the material terms of any
of the Other Agreements after the expiration of any applicable
cure periods;
(P) There shall occur a "reportable event" with respect to
any Plan, or any Plan shall be subject to termination proceedings
(whether voluntary or involuntary) and there shall result from
such "reportable event" or termination proceedings a liability of
Customer to the PBGC which in the reasonable opinion of IBM
Credit will have a Material Adverse Effect;
(Q) Any "person" (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) acquires a
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beneficial interest in 50% or more of the Voting Stock of
Customer; or
(R) Customer is in default of any of the terms or
conditions of its agreements with Mitsubishi Electronics America
which default allows Mitsubishi Electronics America to exercise
any of its rights under any security agreement by and between
Customer and Mitsubishi Electronics America.
9.2. Acceleration. Upon the occurrence and during the
continuance of an Event of Default which has not been waived in
writing by IBM Credit, IBM Credit may, in its sole discretion,
take any or all of the following actions, without prejudice to
any other rights it may have at law or under this Agreement to
enforce its claims against the Customer: (a) declare all
Obligations to be immediately due and payable (except with
respect to any Event of Default set forth in Section 9.1(F)
hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice
or other demand) without presentment, demand, protest or any
other action or obligation of IBM Credit; and
(b) immediately terminate the Line of Credit hereunder.
9.3. Remedies. (A) Upon the occurrence and during the
continuance of any Event of Default which has not been waived in
writing by IBM Credit, IBM Credit may exercise all rights and
remedies of a secured party under the U.C.C. Without limiting
the generality of the foregoing, IBM Credit may: (i) remove from
any premises where same may be located any and all documents,
instruments, files and records (including the copying of any
computer records), and any receptacles or cabinets containing
same, relating to the Accounts, or IBM Credit may use (at the
expense of the Customer) such of the supplies or space of the
Customer at Customer's place of business or otherwise, as may be
necessary to properly administer and control the Accounts or the
handling of collections and realizations thereon; (ii) bring
suit, in the name of the Customer or IBM Credit and generally
shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of
payment, settle, compromise, release in whole or in part any
amounts owing on any Accounts and issue credits in the name of
the Customer or IBM Credit; (iii) sell, assign and deliver the
Accounts and any returned, reclaimed or repossessed merchandise,
with or without advertisement, at public or private sale, for
cash, on credit or otherwise, at IBM Credit's sole option and
discretion, and IBM Credit may bid or become a purchaser at any
such sale; and (iv) foreclose the security interests created
pursuant to this Agreement by any available judicial or
non-judicial procedure, or take possession of any or all of the
Collateral without judicial process and enter any premises where
any Collateral may be located for the purpose of taking
possession of or removing the same.
- -
(B) Upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM
Credit, IBM Credit shall have the right to sell, lease, or
otherwise dispose of all or any part of the Collateral, whether
in its then condition or after further preparation or processing,
in the name of Customer or IBM Credit, or in the name of such
other party as IBM Credit may designate, either at public or
private sale or at any broker's board, in lots or in bulk, for
cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM
Credit in its sole discretion may deem advisable, and IBM Credit
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shall have the right to purchase, including for a credit bid, at
any such sale. If IBM Credit, in its sole discretion, determines
that any of the Collateral requires rebuilding, repairing,
maintenance or preparation, IBM Credit shall have the right, at
its option, to do such of the aforesaid as it deems necessary for
the purpose of putting such Collateral in such saleable form as
IBM Credit shall deem appropriate. The Customer hereby agrees
that any disposition by IBM Credit of any Collateral pursuant to
and in accordance with the terms of a repurchase agreement
between IBM Credit and the manufacturer or any supplier
(including any Authorized Supplier) of such Collateral
constitutes a commercially reasonable sale. The Customer agrees,
at the request of IBM Credit, to assemble the Collateral and to
make it available to IBM Credit at places which IBM Credit shall
select, whether at the premises of the Customer or elsewhere, and
to make available to IBM Credit the premises and facilities of
the Customer for the purpose of IBM Credit's taking possession
of, removing or putting such Collateral in saleable form. If
notice of intended disposition of any Collateral is required by
law, it is agreed that ten (10) Business Days notice shall
constitute reasonable notification.
(C) IBM Credit is hereby granted, upon the occurrence and
during the continuance of any Event of Default which has not been
waived in writing by IBM Credit, an irrevocable, non-exclusive
license to use, assign, license or sublicense all computer
software programs, data bases, processes and materials used by
the Customer in its businesses or in connection with any of the
Collateral.
(D) The net cash proceeds resulting from IBM Credit's
exercise of any of the foregoing rights (after deducting all
charges, costs and expenses, including reasonable attorneys'
fees) shall be applied by IBM Credit to the payment of Customer's
Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain
liable to IBM Credit for any deficiencies, and IBM Credit in turn
agrees to remit to Customer or its successors or assigns, any
surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended
to be exhaustive and the exercise of any right shall not preclude
the exercise of any other legal or equitable rights, all of which
shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of
the Collateral by any court process Customer hereby irrevocably
waives to the extent permitted by applicable law any bonds,
surety and security relating thereto required by any statute,
court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement
of any suit or action to recover possession thereof. In
addition, Customer waives to the extent permitted by applicable
- -
law all rights of set-off it may have against IBM Credit.
Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment,
non-performance, any right of contribution, dishonor, and any
other demands, and notices required by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in
force until the earlier of (i) the Termination Date, (ii) the
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date specified in a written notice by the Customer that it
intends to terminate this Agreement which date shall be no less
than 90 days following the receipt by IBM Credit of such written
notice, and (iii) termination by IBM Credit after the occurrence
and during the continuance of an Event of Default. Upon the date
that this Agreement is terminated, all of Customer's Obligations
shall be immediately due and payable in their entirety, even if
they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of
Customer's Obligations, no termination of this Agreement or any
of the Other Agreements shall in any way affect or impair the
Customer's Obligations to IBM Credit including, without
limitation, any transaction or event occurring prior to such
termination, and IBM Credit's security interest in the
Collateral.
10.2. Indemnification. The Customer hereby agrees to indemnify
and hold harmless IBM Credit and each of its officers, directors,
agents and assigns (collectively, the "Indemnified Persons")
against all losses, claims, damages, liabilities or other
expenses (including reasonable attorneys' fees and court costs
now or hereinafter arising from the enforcement of this
Agreement, the "Losses") to which any of them may become subject
insofar as such Losses arise out of or are based upon any event,
circumstance or condition (a) occurring or existing on or before
the date of this Agreement relating to any financing arrangements
IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person
that Customer may acquire all or substantially all of the assets
of, or (b) directly or indirectly, relating to the execution,
delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby or thereby or to any of the
Collateral or to any act or omission of the Customer in
connection therewith. Notwithstanding the foregoing, the
Customer shall not be obligated to indemnify IBM Credit for any
Losses incurred by IBM Credit which are a result of IBM Credit's
gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement. IBM
Credit shall notify Customer in writing promptly upon obtaining
knowledge of any claim subject to indemnification pursuant to
this paragraph 10.2 and shall use reasonable efforts to minimize
the amount of any indemnified Loss. Customer agrees to pay
promptly, upon demand, all reasonable costs and fees, including
reasonable attorney's fees, incurred by IBM Credit in the
administration, renewal, extension, modification, documentation,
restructuring, "workout", enforcement or collection of any or all
of the Obligations, or in any litigation, arbitration, mediation,
bankruptcy or other proceeding of any type, relating thereto.
10.3. Additional Obligations. IBM Credit, without waiving or
releasing any Obligation or Default of the Customer, may perform
any Obligations of the Customer that the Customer shall fail or
- -
refuse to perform and IBM Credit may, at any time or times
hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien,
encumbrance or claim against the Collateral asserted by any
person. All sums paid by IBM Credit in performing in
satisfaction or on account of the foregoing and any expenses,
including reasonable attorney's fees, court costs, and other
charges relating thereto, shall be a part of the Obligations,
payable on demand and secured by the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER
INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER
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<PAGE 41>
IN CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT OR ANY
CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR
ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR
ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY
IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5. Alteration/Waiver. This Agreement and the Other
Agreements may not be altered or amended except by an agreement
in writing signed by the Customer and by IBM Credit. No delay or
omission of IBM Credit to exercise any right or remedy hereunder,
whether before or after the occurrence of any Event of Default,
shall impair any such right or remedy or shall operate as a
waiver thereof or as a waiver of any such Event of Default. In
the event that IBM Credit at any time or from time to time
dispenses with any one or more of the requirements specified in
this Agreement or any of the Other Agreements, such dispensation
may be revoked by IBM Credit at any time and shall not be deemed
to constitute a waiver of any such requirement subsequent
thereto. IBM Credit's failure at any time or times to require
strict compliance and performance by the Customer of any
undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Agreement shall
not waive, affect or diminish any right of IBM Credit thereafter
to demand strict compliance and performance thereof. Any waiver
by IBM Credit of any Default by the Customer under this Agreement
or any of the Other Agreements shall not waive or affect any
other Default by the Customer under this Agreement or any of the
Other Agreements, whether such Default is prior or subsequent to
such other Default and whether of the same or a different type.
None of the undertakings, agreements, warranties, covenants, and
representations of the Customer contained in this Agreement or
the Other Agreements and no Default by the Customer shall be
deemed waived by IBM Credit unless such waiver is in writing
signed by an authorized representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the
Other Agreements or the application thereof to any Person or
circumstance is held invalid or unenforceable, the remainder of
this Agreement and the Other Agreements and the application of
such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other
Agreements being severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or
times hereafter made by IBM Credit to the Customer under this
Agreement or the Other Agreements shall constitute one loan
secured by IBM Credit's security interests in the Collateral and
by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the
Customer to IBM Credit or any assignor of IBM Credit.
- -
10.8. Additional Collateral. All monies, reserves and proceeds
received or collected by IBM Credit with respect to Accounts and
other property of the Customer in possession of IBM Credit at any
time or times hereafter are hereby pledged by Customer to IBM
Credit as security for the payment of Customer's Obligations and
shall be applied promptly by IBM Credit on account of the
Customer's Obligations in accordance with the provisions of this
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<PAGE 42>
Agreement; provided, however, IBM Credit may release to the
Customer such portions of such monies, reserves and proceeds as
IBM Credit may from time to time determine, in its sole
discretion.
10.9. No Merger or Novations. Neither the obtaining of any
judgment nor the exercise of any power of seizure or sale shall
operate to extinguish the Obligations of the Customer to IBM
Credit secured by this Agreement and shall not operate as a
merger of any covenant in this Agreement, and the acceptance of
any payment or alternate security shall not constitute or create
a novation and the obtaining of a judgment or judgments under a
covenant herein contained shall not operate as a merger of that
covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this
Agreement and the Other Agreements are for convenience only and
do not define or limit the contents of any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other
Agreements shall be binding upon and inure to the benefit of IBM
Credit and the Customer and their respective successors and
assigns; provided, that the Customer shall have no right to
assign this Agreement or any of the Other Agreements without the
prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this
Agreement, any notice required or desired to be served, given or
delivered hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered (A) upon receipt if
deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or
answerback if sent by telecopy, or other similar facsimile
transmission, (C) one Business Day after deposit with a reputable
overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be
properly addressed to the party to be notified and sent to the
address or number indicated as follows:
(i) If to IBM Credit at:
IBM Credit Corporation
5000 Executive Parkway,Suite #450
San Ramon, CA 94583
Attention: Remarketer Finance Center Manager
Telecopy: (510) 277-5675
(ii) If to Customer at:
Radius Inc.
215 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Chief Executive Officer
Telecopy: 408-541-5271
- -
or to such other address or number as each party designates to
the other in the manner prescribed herein.
10.13. Counterparts. This Agreement may be executed in any
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<PAGE 43>
number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto were upon the same
instrument.
10.14. Amendment and Restatement. Notwithstanding anything
contained herein or in any other document to the contrary, it is
understood and agreed by Customer and IBM Credit that the claims
of IBM Credit arising hereunder and existing as of the date
hereof constitute continuing claims arising out of the
obligations of Customer under the Existing Financing Agreement.
Customer acknowledges and agrees that the Indebtedness
represented by the Advances outstanding as of the date hereof has
not been satisfied or discharged and that this Agreement amends
and restates such Indebtedness and is not intended to effect a
novation of the obligations of Customer which were evidenced by
the Existing Financing Agreement.
10.15. Third Party Beneficiaries. This Agreement is made and
entered into for the sole protection and benefit of the parties
hereto and their permitted successors and assigns, and neither
this Agreement nor any of the Other Agreements is intended to
operate as, directly or indirectly, nor shall be construed as
effecting in any way, directly or indirectly, a waiver, estoppel,
discharge, release, or other modification of the parties rights
against any Person, nor shall any other Person have any right of
action hereunder.
10.16. General Release. Customer does hereby release, acquit
and forever discharge, for itself and its successors and assigns,
IBM Credit, Affiliates of IBM Credit, and each and every present
and former officer, director, employee, agent, successor and
assign of IBM Credit and Affiliate of IBM Credit (the
"Releasees") from any and all manner of actions, causes of
action, suits, debts, costs, claims and demands whatsoever,
regardless of whether known or unknown, at law or in equity or
under federal, state, foreign, or other law, which against the
Releasees or any one or more of them Customer, ever had, now has
or which can, shall or may hereafter accrue for, upon or by
reason of, arising out of or in connection with any matter, cause
or thing whatsoever from the beginning of the world to the day of
this Agreement, excluding claims arising under ordinary product
and service warranties for product and services purchased by
Customer from Affiliates of IBM Credit in the ordinary course of
Customer's business, but including any claims relating to
Mississippi I or Mississippi II product or services. Customer
hereby waives, to the fullest extent permitted by law, the
benefits of any statute, law, rule, regulation or common law,
which may limit the scope of the covenants and releases contained
herein. Customer intends by this Release to forever release,
acquit, waive and forever discharge the Releasees of and from any
and all claims and rights described above, it being understood
that all claims or rights which Customer or any person who claims
by, through or under Customer may have against the Releasees
- -
shall be forever released, acquitted, waived and forever
discharged, and such persons shall be forever barred from
bringing or asserting the same in their own name or names,
jointly or with or through any other person, natural, corporate
or otherwise; provided, however, that Customer is not waiving any
rights or claims under this Agreement arising on or after the
date hereof.
SECTION 1542 OF THE CIVIL CODE OF THE STATE OF
CALIFORNIA PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
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<PAGE 44>
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
CUSTOMER IS AWARE THAT IT MAY HEREAFTER DISCOVER CLAIMS OR
FACTS IN ADDITION TO OR DIFFERENT FROM THOSE IT NOW KNOWS OR
BELIEVES TO BE TRUE WITH RESPECT TO THE MATTERS RELATED
HEREIN. NEVERTHELESS, IT IS THE INTENTION OF CUSTOMER TO
FULLY, FINALLY AND FOREVER SETTLE AND RELEASE ALL SUCH
MATTERS, AND ALL CLAIMS RELATIVE THERETO, WHICH DO NOW
EXIST, MAY EXIST, OR HERETOFORE HAVE EXISTED BETWEEN
CUSTOMER AND THE RELEASEES. IN FURTHERANCE OF SUCH
INTENTION, THE RELEASES GIVEN HEREIN SHALL BE AND REMAIN IN
EFFECT AS FULL AND COMPLETE RELEASES OF ALL SUCH MATTERS,
NOTWITHSTANDING THE DISCOVERY OR EXISTENCE OF ANY ADDITIONAL
CLAIMS OF FACTS RELATIVE THERETO. CUSTOMER WAIVES AND
RELINQUISHES ANY AND ALL RIGHTS IT MAY HAVE UNDER SECTION
1542 OF THE CALIFORNIA CIVIL CODE AS CURRENTLY WORDED OR
HEREAFTER AMENDED.
10.17. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW.
TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER
AGREEMENTS, THE CUSTOMER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR
FOR THE RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW
YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREINAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT
IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE
SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM
OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH
IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT
SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
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<PAGE 45>
[SIGNATURE]
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
(WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE
STATE OF NEW YORK.
10.18. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER
HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN
WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY
DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
Initials: __________
IN WITNESS WHEREOF, the Customer has read this entire Agreement,
and has caused its authorized representatives to execute this
Agreement and has caused its corporate seal to be affixed hereto
as of the date first written above.
RADIUS INC.
By:/s/ Charles W. Berger
Print Name: Charles W. Berger
Title: Chairman and CEO
ACCEPTED this 30 day of August, 1996,
IBM CREDIT CORPORATION
By: /s/ Philip N. Morse
Print Name: Philip N. Morse
Title: Director Remarketer Financing Portfolio Controls
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<PAGE 46>
<PAGE>
ATTACHMENT A, EFFECTIVE DATE September 12, 1996
("IWCF ATTACHMENT A")
TO AMENDED AND RESTATED WORKING CAPITAL FINANCING
AND TERM LOAN AGREEMENT ("IWCF AGREEMENT")
DATED August 30, 1996
Customer: Radius, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Five Million Dollars ($5,000,000.00);
(B) Borrowing Base:
(a) The lesser of 10% of the fair market value of Eligible
Inventory as of the date of determination as reflected
in Customer's most recent Collateral Management Report
or $500,000.00; plus
(b) 80% of Eligible Accounts as of the date of
determination as reflected in the Customer's most
recent Collateral Management Report; plus
(c) the lesser of 50% of Eligible Foreign Accounts as of
the date of determination as reflected in Customer's
most recent Collateral Management Report or
$500,000.00; plus
(C) Collateral Insurance Amount: Fifteen Million Dollars
($15,000,000.00)
(D) A/R Finance Charge: Prime Rate plus 2.25%
(E) Term Loan Finance Charge: Prime Rate plus 3.25%
(F) Delinquency Fee Rate: Prime Rate plus 6.500%
.pa
<PAGE 47>
IWCF ATTACHMENT A
TO AMENDED AND RESTATED WORKING CAPITAL FINANCING
AND TERM LOAN AGREEMENT ("IWCF AGREEMENT")
(G) Shortfall Transaction Fee: Shortfall Amount multiplied by
0.30%
(H) Other Charges:
(i) Application Processing Fee: N/A
(ii) Monthly Service Fee: $2,000.00
(iii) Closing Fee: N/A
(iv) Commitment Fee: N/A
- -
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be
maintained at the following Bank(s):
Name of Bank: Silicon Valley Bank
Address: 3003 Tasman Drive
Santa Clara, CA 95054
Phone: (408) 654-5560
Lockbox Address: Dept. No. 05711 San Francisco, CA 94139-5711
Special Account #: 0351777270
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<PAGE 48>
IWCF ATTACHMENT A
TO AMENDED AND RESTATED WORKING CAPITAL FINANCING AND
TERM LOAN AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following
respective meanings in this Attachment A. All amounts shall be
determined in accordance with generally accepted accounting
principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected
to become cash within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting
from past or current transactions that require settlement
within the on-going twelve month period. All indebtedness
to IBM Credit shall be considered a Current Liability for
purposes of determining compliance with the Financial
Covenants.
Interest Coverage Ratio shall mean the ratio of Revenue plus
all other income minus all costs except interest and tax
expenses to interest expense.
Long Term shall mean beyond the on-going twelve month
period.
Long Term Assets shall mean assets that take longer than a
year to be converted to cash. They are divided into four
categories: tangible assets, investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which
mature more than twelve months from the
date of determination, or mature within twelve months from such
date but are renewable or extendible at the option of
the debtor to a date more than twelve months from the date
of determination.
Net Profit after Tax shall mean Revenue plus all other
income, minus all costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate
of products or services transferred by an enterprise to its
customers for which said customers have paid or are
obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to
- -
third parties as evidenced by an executed Notes Payable
Subordination Agreement in favor of IBM Credit.
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<PAGE 49>
IWCF ATTACHMENT A
TO AMENDED AND RESTATED WORKING CAPITAL FINANCING
AND TERM LOAN AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses, trademarks,
trade names, copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any thereof,
and other similar intangibles (but not including contract
rights) and other current and non-current assets as
identified in Customer's financial statements; and
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long
Term Assets.
Total Liabilities shall mean the Current Liabilities and Long
Term Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership
in an enterprise) is equal to Total Assets minus Total
Liabilities.
Working Capital shall mean Current Assets minus Current
Liabilities.
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<PAGE 50>
IWCF ATTACHMENT A
TO AMENDED AND RESTATED WORKING CAPITAL FINANCING
AND TERM LOAN AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial
ratios, percentages and amounts at all times:
a) Revenue on an annual basis (i.e., the current fiscal
year-to-date Revenue annualized) to Working Capital
ratio greater than zero and equal to or less than
9.0:1.0;
b) Current Assets to Current Liabilities ratio greater
than: 1.0 to 1 as of the quarter ending 9/30/96;
c) Current Assets to Current Liabilities ratio greater
than: 1.0 to 1 as of the quarter ending 12/31/96;
d) Current Assets to Current Liabilities ratio greater
than: 1.3 to 1 as of the quarter ending 3/31/97;
e) Current Assets to Current Liabilities ratio greater
than: 1.5 to 1 as of the quarter ending 6/30/97;
f) Current Assets to Current Liabilities ratio greater
than: 1.8 to 1 as of the quarter ending 9/30/97 and
thereafter;
g) Net Profit after Tax to Revenue percentage equal to or
greater than 2.5 percent;
h) Interest Coverage Ratio equal to or greater than 2.0
from 10/1/96 through 9/30/97; equal to or greater than
4.0 from 10/1/97 and thereafter;
i) Minimum Working Capital of $12 million dollars as of
the quarter ending 9/30/96;
j) Minimum Working Capital of $12 million dollars as of
the quarter ending 12/31/96;
k) Minimum Working Capital of $15 million dollars as of
the quarter ending 3/31/97 and thereafter;
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<PAGE 51>
IWCF ATTACHMENT A
TO AMENDED AND RESTATED WORKING CAPITAL FINANCING
AND TERM LOAN AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
IV. Additional Conditions Precedent Pursuant to Section 5.1 (M)
of the Agreement:
. Executed Waiver of Landlord Lien for all premises in which a
landlord has the right of levy for rent;
. A Certificate of Location of Collateral whereby the Customer
certifies where Customer presently keeps or sells inventory,
equipment and other tangible Collateral;
. A Compliance Certificate as to Customer's compliance with
the financial covenants set forth in Attachment A as of the last
fiscal month of Customer for which financial statements have been
published;
. A copy of an all-risk insurance certificate pursuant to
Section 7.8 (B) of the Agreement;
<PAGE 1>
EXHIBIT 8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 13, 1996
(this "Agreement"), is made by and between RADIUS INC., a
California corporation (the "Company"), and the person named on
the signature page hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with each of the Subscription Agreements,
between certain unsecured creditors of the Company ("Creditors")
and the Company (the "Subscription Agreements"), the Company has
issued and sold to the Creditors shares (the "Shares") of Common
Stock, no par value (the "Common Stock") and certain Common Stock
Purchase Rights ("Rights") in satisfaction of certain claims of
such Creditors as set forth in the Subscription Agreements;
WHEREAS, the Company has issued to IBM Credit Corporation ("IBM
Credit") shares of Series A Convertible Preferred Stock (the
"Series A Preferred") and Warrants ("Warrants") to purchase
600,000 shares of Common Stock in satisfaction of certain
outstanding indebtedness of the Company to IBM Credit and
extension by IBM Credit of an advance of up to $500,000 as well
as the restructuring of the Company's remaining indebtedness to
IBM Credit (such transactions with IBM Credit are collectively
referred to herein as the "Restructuring");
WHEREAS, the Company has issued or will issue to certain
unsecured creditors ("Key Suppliers") Warrants to purchase an
aggregate of 600,000 shares of Common Stock;
WHEREAS, to induce (i) the Creditors to execute and deliver the
Subscription Agreements, (ii) IBM Credit to enter into the
Restructuring and, (iii) the Key Suppliers to accept Warrants to
ensure favorable credit and supply terms, the Company has agreed
to provide certain registration rights under the Securities Act
of 1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the "Securities
Act"), and applicable state securities laws with respect to the
Registrable Securities (defined below);
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Initial Investor hereby agree
as follows:
- -
1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
(a) "Demand Securities" means the Warrant Shares and the
Dividend Shares.
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<PAGE 2>
(b) "Demand Registration" means a registration effected pursuant
to Section 2(b) hereof.
(c) "Dividend Shares" means any shares of Common Stock issuable
in lieu of cash dividends paid or to be paid on the Series A
Preferred.
(d) "Effectiveness Period" means with respect to (i) the Shelf
Registration, a period of 24 consecutive months from the
effective date of the Registration Statement relating to the
Initial Registration and (ii) any Demand Registration, a period
of 90 consecutive days from the effective date of the Demand
Registration and excluding any period of time in which the
Effectiveness Period may be suspended pursuant to the provisions
of clauses (i)-(iv) of Section 3(a).
(e) "Form S-3" means such form under the Securities Act as is in
effect on the date hereof or any successor registration form
under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(f) "Holdover Securities" means Registrable Securities which are
held by an Investor after the end of the Effectiveness Period for
the Shelf Registration and which Investor also holds Demand
Securities.
(g) "Initial Registration" means a registration effected
pursuant to Section 2(a) hereof.
(h) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(i) "register," "registered" and "registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act
and, to the extent required hereunder, pursuant to Rule 415, and
the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
(j) "Registrable Securities" means the Shares, the Warrant
Shares, the Dividend Shares, the Rights Shares, the Series A
Shares, the Series A Preferred and the Warrants.
(k) "Registration Statement" means a registration statement of
the Company under the Securities Act with respect to the Shelf
Registration or the Demand Registration, as the case may be.
(l) "Registration Termination Date" means the date on which the
Company's obligation to register or maintain any registration
with respect to any Registrable Securities terminates as provided
in Section 11 hereof.
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(m) "Rights Shares" means shares of Common Stock issued or
issuable pursuant to the Rights issued to the Creditors pursuant
to the Subscription Agreements.
(n) "Rule 144" means Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or
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<PAGE 3>
regulation hereafter adopted by the SEC.
(o) "Rule 415" means Rule 415 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC.
(p) "SEC" means the U.S. Securities and Exchange Commission.
(q) "Securities Act" means the Securities Act of 1933, as
amended.
(r) "Series A Shares" means shares of Common Stock issued or
issuable upon conversion of the Series A Preferred.
(s) "Shelf Registration" means the Initial Registration and any
Subsequent Registration.
(t) "Subsequent Registration" has the meaning specified in
Section 2 hereof.
(u) "Target Effective Date" means 60 days after the issuance of
the Shares.
(v) "Target Filing Date" means 10 days after the issuance of the
Shares.
(w) "Underwritten Offering" means an underwritten public
offering on a firm commitment basis.
(x) "Warrant Shares" means shares of Common Stock issued or
issuable upon exercise of the Warrants issued to IBM Credit and
the Key Suppliers.
2. Registration.
(a) Initial Registration.
(i) The Company shall prepare and file with the SEC a
Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Registrable
Securities. The Initial Registration shall be on Form S-1 or
another appropriate form permitting registration of such
Registrable Securities for resale by such holders in the manner
or manners designated by them (including, without limitation, one
or more underwritten offerings). Such filing shall be made on or
before the Target Filing Date. The Company shall use its best
efforts to have such Initial Registration declared effective on
or before the Target Effective Date and to keep the Initial
Registration continuously effective under the Securities Act
until the earlier to occur of the date that is 24 months from the
effectiveness date of the Initial Registration (the "Initial
Effectiveness Period") or the Registration Termination Date.
- -
(ii) If the Initial Registration or a Subsequent Registration
ceases to be effective for any reason at any time during the
Effectiveness Period (other than because of the occurrence of the
Registration Termination Date with respect to the Registrable
Securities covered thereby), the Company shall use its best
efforts to obtain the prompt withdrawal of any order suspending
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<PAGE 4>
the effectiveness thereof, and in any event shall within 30 days
of such cessation of effectiveness file an amendment to the
Initial Registration in a manner reasonably expected to obtain
the withdrawal of the order suspending the effectiveness thereof,
or file an additional "shelf" Registration Statement pursuant to
Rule 415 covering all of the Registrable Securities (a
"Subsequent Registration"). If a Subsequent Registration is
filed, the Company shall use its best efforts to cause the
Subsequent Registration to be declared effective as soon as
practicable after such filing and to keep such Registration
Statement continuously effective until the earlier to occur of
the end of the Effectiveness Period or the Registration
Termination Date.
(iii) The Company shall supplement and amend the Shelf
Registration if required by the rules, regulations or
instructions applicable to the registration form used by the
Company for such Shelf Registration, if required by the
Securities Act.
(b) Demand Registration.
(i) If the Company shall receive at any time after the end of
the Effectiveness Period for the
Shelf Registration, a written request from the Investors of at
least thirty-three percent (33%) of the Demand Securities then
outstanding that the Company file a registration statement under
the Securities Act covering the registration of the Demand
Securities pursuant to this Section 2(b), then the Company shall,
within ten (10) business days of the receipt of such written
request, give written notice of such request ("Request Notice")
to all Investors, and file within thirty (30) days and use its
best efforts to cause such Registration Statement to become
effective within an additional thirty (30) days, the Registration
Statement covering all Demand Securities which Investors request
to be registered and included in such registration by written
notice given such Investors to the Company within twenty (20)
days after receipt of the Request Notice; provided that the
Registrable Securities requested by all Investors to be
registered pursuant to such request must be at least thirty-three
percent (33%) of all Demand Securities then outstanding; provided
further, that in the event the proposed offering described in the
Request Notice is an Underwritten Offering, then additional
Holdover Securities (other than Warrants and Series A Preferred)
held by Investors may be included in the registration described
in the Request Notice, subject to compliance with subsection (ii)
below.
(ii) If the Investors initiating the registration request under
this Section 2(b) ("Initiating Investors") intend to distribute
the Demand Securities covered by their request by means of an
Underwritten Offering, then they shall so advise the Company as a
part of their request made pursuant to this Section 2(b) and the
- -
Company shall include such information in the Request Notice
referred to in subsection (i) of this Section 2(b). In such
event, the right of any Investor to include his Demand Securities
and, if applicable, Holdover Securities in such registration
shall be conditioned upon such Investor's participation in such
Underwritten Offering and the inclusion of such Investor's Demand
Securities in the Underwritten Offering (unless otherwise
mutually agreed by a majority in interest of the Initiating
Investors and such Investor) to the extent provided herein. All
Investors proposing to distribute their securities through such
Underwritten Offering shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters
selected for such Underwritten Offering by the Company.
Notwithstanding any other provision of this Section 2(b), if the
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<PAGE 5>
underwriter(s) advise(s) the Company in writing that marketing
factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Investors
owning Demand Securities and, if applicable, Holdover Securities,
which would otherwise be registered and underwritten pursuant
hereto, and the number of Demand Securities and, if applicable,
Holdover Securities, that may be included in the Underwritten
Offering shall be reduced as required by the underwriter(s) and
allocated among the Investors owning Demand Securities and, if
applicable, Holdover Securities, on a pro rata basis according to
the number of Demand Securities and, if applicable, Holdover
Securities, then outstanding held by each Investor requesting
registration (including the Initiating Investors).
(iii) Maximum Number of Demand Registrations. The Company is
obligated to effect only two (2) such registrations pursuant to
this Section 2(b) in any calendar year.
(iv) Deferral. Notwithstanding the foregoing, if the Company
shall furnish to Investors requesting a Demand Registration, a
certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of
such registration statement, then the Company shall have the
right to defer such filing for a period of not more than one
hundred twenty (120) days after receipt of the request of the
Initiating Investors; provided, however, that the Company may not
utilize this right more than once in any twelve (12) month
period.
(v) Form S-3 Registration. In lieu of the Company's obligation
to effect Demand Registrations pursuant to this Section 2(b), the
Company may, at its election, at any time after the Effectiveness
Period of the Shelf Registration, prepare, file and cause to be
effective a Registration Statement on Form S-3, and subject to
the provisions of Section 3(a), keep such Registration Statement
effective pursuant to Rule 415 until the Registration Termination
Date. Upon the effectiveness of such Registration Statement on
Form S-3, the Investors shall no longer be permitted to effect a
Demand Registration.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities pursuant to this
Agreement, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no
event later than as is set forth in Section 2 hereof) a
Registration Statement with respect to all Registrable Securities
to be included therein, and thereafter use its best efforts to
cause the Registration Statement to become effective as soon as
reasonably possible after such filing, and keep the Registration
- -
Statement effective pursuant to Rule 415 (except in the case of
an underwritten offering, for which Rule 415 will not be used) at
all times during the Effectiveness Period or until the
Registration Termination Date, whichever occurs first, which
Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they
were made, not misleading provided, however, that each Investor
shall have complied with its obligations under Section 4 with
respect to the Registrable Securities of such Investor to be
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<PAGE 6>
included in the Registration Statement. Notwithstanding the
foregoing, in the event that (i) any request is made by the SEC
or any other federal or state governmental authority during the
Effectiveness Period for amendments or supplements to a
Registration Statement or related prospectus, (ii) any event
occurs that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any
material respect or which requires the making of any changes in
the Registration Statement or prospectus so that, in the case of
the Registration Statement, it will not contain any untrue
statement of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and that
in the case of the prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, (iii) during the Effective Period for the
Shelf Registration, the Company becomes eligible to utilize From
S-3 (in which case, the Company shall be permitted to terminate
the effectiveness of the Initial Registration and file a
Registration Statement on Form S-3 and use its best efforts to
cause such Registration Statement to become effective within
thirty (30) days with respect to the Registrable Securities), or
(iv) in the judgment of the Company, it is advisable to suspend
use of the prospectus included in such Registration Statement for
a discrete period of time due to pending corporate developments
(including the pending automatic conversion of the Series A
Shares referred to in Section 7.2(a) of Article III of the
Company's Articles of Incorporation, as amended, in which case
such discrete period shall be one day), public filings with the
SEC or similar events, then the Company shall deliver a
certificate in writing to the Investors whose Registrable
Securities are included in the Registration Statement to the
effect of the foregoing and, upon receipt of such certificate,
the use of the Registration Statement and prospectus will be
deferred or suspended and will not recommence until such
Investor's receipt of copies of the supplemented or amended
prospectus, or until such Investors are advised in writing by the
Company that the prospectus may be used, and until such Investors
have received copies of any additional or supplemental filings
that are incorporated or deemed incorporated by reference in such
prospectus. The Company will use its best efforts to ensure that
the use of the Registration Statement and prospectus may be
resumed, as soon as practicable and, in the case of a pending
development, filing or event referred to in (iv) above, as soon,
in the judgment of the Company, as disclosure of the material
information relating to such pending development, filing or event
would not have a materially adverse effect on the Company's
ability to consummate the transaction, if any, to which such
development, filing or event relates. Notwithstanding the
foregoing or any other provision of this Agreement, the period
during which the Company shall be required to maintain the
- -
effectiveness of a Registration Statement with respect to a
Demand Registration shall be extended by 1 day for each full or
partial day during which the use of such Registration Statement
or prospectus is deferred or suspended by the Company in
accordance with this Section 2(b);
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Shelf
Registration or Demand Registration effective at all times until
the end of the Effectiveness Period or the Registration
Termination Date, whichever occurs first, and, during such
period, comply with the provisions of the Securities Act with
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<PAGE 7>
respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement until such time as
all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement, such number of copies of
a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents, as
such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Shelf Registration or
Demand Registration under such other securities or blue sky laws
of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities or Demand Securities, as
applicable, being offered reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (iii) take such other
actions as may be necessary to maintain such registrations and
qualifications in effect at all times until the end of the
Effectiveness Period or the Registration Termination Date,
whichever occurs first, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable
Securities or Demand Securities, as applicable, for sale in such
jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (I)
quality to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (II)
subject itself to general taxation in any such jurisdiction,
(III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than
nominal expense or burden to the Company or (V) make any change
in its charter or by-laws;
(e) as promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of
which the Company has knowledge, as a result of which the
prospectus included in the Shelf Registration or Demand
Registration, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor
may reasonably request;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities
- -
being sold (or, in the event of an Underwritten Offering, the
managing underwriters) of the issuance by the SEC (or any state
agency) of any stop order or other suspension of effectiveness of
any Registration Statement (or state qualification) at the
earliest possible time;
(g) permit a single firm of counsel designated as selling
shareholders' counsel by the Investors to review a Registration
Statement and all amendments and supplements thereto a reasonable
period of time prior to their filing with the SEC, provided,
however, any such objection to the filing of any Registration
Statement or amendment thereto or any prospectus or supplement
- -
<PAGE 8>
thereto shall be made by written notice (the "Objection Notice")
delivered to the Company no later than three (3) Business Days
after the party or parties asserting such objection receives
draft copies of the documents that the Company proposes to file.
The Objection Notice shall set forth the objections and the
specific areas in the draft documents where such objections
arise, and shall not file any document in a form to which such
counsel reasonably objects, provided that the Company shall be
permitted to take such actions that are required to comply with
applicable law;
(h) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of
the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the Securities
Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the
effective date of any Registration Statement and any post
effective amendment thereto;
(i) make available for inspection by any Investor, any
underwriter participating to any Underwritten Offering, and any
attorney, accountant or other agent retained by any such Investor
or underwriter (collectively, the "Inspectors"), all pertinent
documents of the Company (collectively, the "Records"), as shall
be reasonably necessary to enable each Inspector to exercise its
due diligence responsibility, if and to the extent it has any
such responsibility under the Securities Act, and cause the
Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each
Inspector shall hold in confidence and shall not make any
disclosure (except to an Investor) of any Record or other
non-public information relating to the Company received by such
Inspector unless (i) the disclosure of such Records is necessary
to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the
information in such Records has been made generally available to
the public other than by disclosure in violation of this or any
other agreement; and provided further, however, that in the event
any Investor obtains material nonpublic information concerning
the Company pursuant to this Section 3(i) or Section 3(a) or 3(e)
or otherwise, such Investor shall not purchase or sell or
otherwise trade in any securities of the Company in violation of
applicable law until such information is made public by the
Company. The Company shall not be required to disclose any
confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality
agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form
of this Section 3(i). Each Investor agrees that it shall, upon
- -
learning that disclosure of such Records is sought in or by a
court or governmental body of competent jurisdiction, given
prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, the Records deemed
confidential;
(j) use its best efforts either to (i) cause all the Registrable
Securities covered by any Registration Statement to be listed on
a national securities exchange, if the listing of such
Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure the quotation of the Registrable
Securities on the Nasdaq National Market if such quotation is
then permitted under the rules of the Nasdaq;
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<PAGE 9>
(k) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the
effective date of any Registration Statement;
(l) cooperate with the Investors who hold Registrable Securities
being sold and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing Registrable
Securities to be sold pursuant to the Shelf Registration or
Demand Registration, as the case may be, and enable such
certificates to be in such denominations or amounts as the case
may be, and registered in such names as the managing underwriter
or underwriters, if any, or the Investors may reasonable request;
and
(m) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable
Securities pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall
have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with
respect to any Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to the effect the registration of the Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. At
least fifteen (15) days prior to the first anticipated filing
date of the Shelf Registration or the Demand Registration, as the
case may be, the Company shall notify each Investor of the
information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of
such Investor's Registrable Securities included in the
Registration Statement. If within five (5) business days prior
to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then
the Company may file the Shelf Registration or the Demand
Registration, as the case may be, without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
- -
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of any kind described
in Section 3(e) or 3(f), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until
such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies in such
Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such
notice;
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<PAGE 10>
(d) No Investor may participate in any Underwritten Offering
hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investors entitled hereunder to
approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the
terms of such underwriting arrangements and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions
and other fees and expenses of investment bankers and any manager
or managers of such underwriting and legal expenses of the
underwriters applicable with respect to its Registrable
Securities, in each case to the extent not payable by the Company
pursuant to the terms of this Agreement;
(e) No Investor shall include the Investor's Registrable
Securities in any Registration Statement relating to a Demand
Registration unless the Investor has at such time a current
intent to sell such Registrable Securities, and by including such
Registrable Securities in such Registration Statement, the
Investor will be deemed to represent to the Company that the
Investor has such intent. Any sale of any Registrable Securities
by any Investor under any Registration Statement will constitute
a representation and warranty by such Investor that the
information relating to such Investor and its plan of
distribution is as set forth in the prospectus prepared by the
Company and furnished to such Investor for use in connection with
such disposition, and such prospectus does not as of the time of
such sale contain any untrue statement of a material fact
relating to such Investor or its plan of distribution and that
such prospectus does not as of the time of such sale omit to
state any material fact relating to such Investor or its plan of
distribution necessary to make the statements in such Prospectus,
in light of the circumstances under which they were made, not
misleading;
(f) Each Investor agrees that, in disposing of any Registrable
Securities pursuant to any Registration Statement, the Investor
will cause the disposition to be made in accordance with the
terms of the Registration Statement, including the plan of
distribution described therein, and will comply with all
applicable securities laws, including Rules 10b-2, 10b-5, 10b-6
and 10b-7 promulgated under the Exchange Act. Each Investor
agrees that in selling any Registrable Securities under any
Registration Statement, the Investor will deliver the current
prospectus contained in the Registration Statement, as amended
and supplemented, to all persons as required by the Securities
Act and the regulations thereunder and will comply with any
applicable "blue sky" laws and regulations in connection with the
disposition of such shares.
(g) Each Investor hereby agrees that it shall not, to the extent
requested by an underwriter of securities of the Company, sell or
- -
otherwise transfer or dispose of any Registrable Securities or
other securities of the Company then owned by such Investor
(other than to donees or affiliates of the Investor who agree to
be similarly bound) for up to one hundred eighty (180) days
following the effective date of a registration statement of the
Company filed under the Securities Act; provided, however, that
all executive officers and directors of the Company then holding
Common Stock of the Company enter into similar agreements. In
order to enforce the foregoing covenant, the Company shall have
the right to place restrictive legends on the certificates
representing the shares subject to this Section and to impose
stop transfer instructions with respect to the Registrable
Securities and such other shares of stock of each Investor (and
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<PAGE 11>
the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
5. Expenses of Registration. All expenses, other than
underwriting discounts and commissions and brokerage commissions
and other fees and expenses of investment bankers, incurred in
connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and
accounting fees and the fees and disbursements of counsel for the
Company and counsel for the Investors as provided in Section
3(g), shall be borne by the Company; provided, however, that the
Investors shall bear the fees and out-of-pocket expenses of their
legal counsel, if any, selected by the Investors pursuant to
Subsection (ii) of Section 2(b) hereof in the case of an
Underwritten Offering. Notwithstanding the foregoing, the
Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2(b) if
the registration request is subsequently withdrawn at the request
of the Investors of a majority of the Demand Securities to be
registered, unless the Investors of a majority of the Demand
Securities then outstanding agree to forfeit their right to one
(1) demand registration pursuant to this Section 2(b) (in which
case such right shall be forfeited by all Investors holding
Demand Securities).
6. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable
Securities, the directors, if any, of such Investor, the
officers, if any, of such Investor, each person, if any, who
controls any Investor within the meaning of the Securities Act or
the Exchange Act, and, in the case of a Demand Registration, if
the Registration Statement is for an underwritten offering, any
underwriter (as defined in the Securities Act) for the Investors,
the directors, if any, of such underwriter and the officers, if
any, of such underwriter, and each person, if any, who controls
any such underwriter within the meaning of the Securities Act or
the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, expenses or liabilities (joint or
several) (collectively, "Claims") to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are
based upon any of the following statements, omissions or
violations in any Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or
- -
necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of
the circumstances under which the statements therein were made,
not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, any state securities law or any
rule or regulation by the Company of the Securities Act, the
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<PAGE 12>
Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section
6(d) with respect to the number of legal counsel, the Company
shall reimburse the Indemnified Persons, promptly as such expense
are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (I) shall not apply to
a Claim arising out of or based upon (A) a Violation which occurs
in reliance upon and in conformity with information furnished in
writing to the Company by any Indemnified Person or underwriter
for such Indemnified Person (to the extent such information was
provided by or on behalf of such Indemnified Person)expressly for
use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant
to Section 3(c) hereof or (B) any violation by an Investor of the
Investor's obligations under this Agreement; (II) with respect to
any preliminary prospectus shall not inure to the benefit of any
such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then
amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; and
(III) shall not apply to amounts paid in settlement of any claim
if such settlement is effected without the prior written consent
of the Company, which consent shall not be unreasonably withheld,
provided, however, that if such claim is settled without the
consent of the Company and such claim is subsequently reduced to
a final, non appealable judgment or settlement which is adverse
to the Company, then the provisions of this clause III shall be
of no effect. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify
and hold harmless, to the same extent and in the same manner set
forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each
person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any other shareholder
and, in the case of a Demand Registration, any underwriter
selling securities pursuant to the Registration Statement or any
of its directors or officers or any person who controls such
shareholder or underwriter within the meaning of the Securities
Act or the Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim to
- -
which any of them may become subject, under the Securities Act,
the Exchange Act or otherwise, insofar as such Claim arises out
of or is based upon (i) any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with
such Registration Statement; and such Investor will reimburse any
legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim or (ii) any
violation by any Investor of such Investor's obligations under
this Agreement; provided, however, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without
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<PAGE 13>
the prior written consent of such Investor, which consent shall
not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the
transfer of the Registrable Securities by the Investors pursuant
to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section
6(b) with respect to any preliminary prospectus shall not inure
to the benefit of any Indemnified Party if the untrue statement
or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in any
distribution, to the same extent as provided above, with respect
to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying parties; provided, however, that an Indemnified
Person or Indemnified Party shall have the right to retain its
own counsel, with the reasonable fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or
potential conflicts of interests between such Indemnified Person
or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay for only one
separate legal counsel for the Indemnified Persons; such legal
counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities and shall be approved by
the Company, such approval not to be unreasonably withheld. The
failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required
by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense,
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as such expense, loss, damage or liability is incurred and is due
and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6,
(b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of
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<PAGE 14>
Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC
that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have
the Company register Registrable Securities other than Rights
Shares pursuant to this Agreement shall be automatically assigned
by the Investors to transferees or assignees of all of any
portion of such securities only if: (a) the Investor agrees in
writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within
a reasonable time after such transfer or assignment, furnished
with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to
which such registration rights are being transferred or assigned,
(c) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state
securities laws, and (d) at or before the time the Company
received the written notice contemplated by clause (b) of this
sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein and
(e) the transfer or assignment is made in compliance with the
transfer restrictions in any Subscription Agreement, Rights
Agreement, Warrant Agreement, or Series A Preferred Purchase
Agreement, as applicable.
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10. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and Investors who hold a majority in interest of the
Registrable Securities with each share of Series A Preferred and
each Series A Share being treated as one security and each
Warrant and each Warrant Share being treated as one security.
Any amendment or waiver effected in accordance with this Section
10 shall be binding upon each Investor and the Company.
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<PAGE 15>
11. Term. The term of this Agreement and the obligations of the
parties hereunder (other than their obligations under Sections 5,
6 and 7, which will continue) will end (the "Registration
Termination Date") (i) with respect to Registrable Securities
other than Demand Shares or Holdover Securities, on the earlier
to occur of (A) the sale of the Registrable Securities, or (B) at
the end of the Effectiveness Period for the Shelf Registration,
and (ii) with respect to the Demand Shares and Holdover
Securities, on the earlier to occur of (A) the sale of the Demand
Securities and Holdover Securities, or (B) 24 months from the
date of issuance of such securities. In no event will the
Company be required to register hereunder or maintain any
registration hereunder of any Registrable Securities that are
then eligible for resale under Rule 144.
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when
personally delivered (by hand, by courier or overnight delivery
service, by telephone, facsimile transmission or other means) or
sent by certified mail, return receipt requested, properly
addressed and with proper postage prepaid (i) if to the Company,
at Radius Inc., 215 Moffett Park Drive, Sunnyvale, California
94089, Attention: President, (ii) if to the Initial Investor, at
the address set forth under its name in the Subscription
Agreement and (iii) if to any other Investor, at such address as
such Investor shall have provided in writing to the Company, or
at such other address as each such party furnishes by notice
given in accordance with this Section 12(b), and shall be
effective, when personally delivered, upon receipt and, when so
sent by certified mail, four days after deposit with the United
States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a wavier thereof.
(d) This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of California applicable
to agreements made and to be performed entirely within such
State. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the
- -
extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any
other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There
are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
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<PAGE 16>
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context
may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the
meaning hereof.
(i) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto
by telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
RADIUS INC.
By: /s/ Charles W. Berger
Name: Charles W. Berger
Title: Chairman and CEO
INITIAL INVESTOR:
Name: IBM Credit Corporation
By: /s/ Philip N. Morse
Name: Philip N. Morse
Title: Director Remarketer Financing Portfolio Controls
Permanent Address:
IBM Credit Corporation
1133 Westchester Avenue
White Plains, New York 10604
Taxpayer Identification Number
(required by transfer agent): 22-2351962
