10Q Page 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 *
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period N/A
Commission file number: 0-10877
TCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3026925
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
222 Caspian Drive, Sunnyvale, California 94089-1014
(Address of principal executive offices) (Zip Code)
(408)747-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ___
As of March 31, 1996, 3,162,132 shares of Common Stock were
outstanding.
10Q Page 2
TCI INTERNATIONAL, INC.
PART I FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the information included
herein, when read in conjunction with the financial statements and
related notes included in the Company's Annual Report on Form 10-K
for the year ended September 30, 1995, filed with the Securities and
Exchange Commission, to be not misleading. Further, the following
financial statements reflect, in the opinion of management, all
adjustments necessary (consisting of normal recurring entries) to
present fairly the financial position and results of operations as of
and for the periods indicated.
The results of operations for the six months ended March 31, 1996,
are not necessarily indicative of results to be expected for the
entire year ending September 30, 1996.
10Q Page 3
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
March 31 March 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 7,809 $ 6,881 $13,736 $13,720
Operating costs and expenses:
Cost of revenues 5,210 4,454 8,447 8,377
Marketing, general and administrative 2,559 2,421 5,116 5,098
7,769 6,875 13,563 13,475
Income from operations 40 6 173 245
Investment income, net 343 315 681 503
Income before provision
for income taxes 383 321 854 748
Provision for income taxes 23 19 160 45
Net income $ 360 $ 302 $ 694 $ 703
Net income, per share $ .11 $ .09 $ .21 $ 22
Shares used in per share
computations 3,366 3,262 3,379 3,250
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10Q Page 4
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
March 31, September 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,137 $ 3,598
(Includes restricted cash of $2,272 on Mar. 31, 1996,
$2,474 on Sept. 30, 1995)
Short-term investments 19,481 15,068
Accounts receivable -
Billed 3,952 3,529
Unbilled 4,337 3,831
Inventories 4,857 4,282
Prepaid expenses 629 382
Total current assets 37,393 30,690
Property and equipment, net 1,549 1,592
Other assets 412 91
Total assets $39,354 $32,373
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,030 $ 1,900
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 7,782 1,754
Accrued liabilities 2,965 3,864
Total current liabilities 13,777 7,518
Stockholders' equity:
Common stock, par value $.01; authorized 5,000
shares; issued and outstanding 3,281 shares 11,780 11,780
Retained earnings 14,372 13,702
Valuation allowance-short -term investments (42) 7
Treasury shares at cost; 119 and 142 shares at
Mar. 31, 1996 and Sept. 30, 1995, respectively (533) (634)
Total stockholders' equity 25,577 24,855
Total liabilities and stockholders' equity $39,354 $32,373
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10Q Page 5
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31,
(In thousands)
1996 1995
Cash provided by (used in):
Operations:
Net income $ 694 $ 703
Reconciliation to cash provided by (used in) operations:
Depreciation 274 304
Changes in assets and liabilities:
Accounts receivable (929) 375
Refundable income taxes 0 567
Inventories (575) (428)
Prepaid expenses (568) 17
Accounts payable1,130 (648)
Customer deposits/billing in excess of revenue 6,028 (1,348)
Accrued liabilities (899) (396)
Cash provided by (used in) operations 5,155 (854)
Investing activities:
Purchases of property and equipment (232) (179)
Purchases of short-term investments (13,621) (3,449)
Proceeds from sale of short-term investments 9,159 0
Cash used in investing activities (4,694) (3,628)
Financing activities:
Repurchase of common stock for treasury stock 0 (681)
Stock options exercised 78 0
Cash provided by (used in) financing activities 78 (681)
Net increase (decrease) in cash and cash equivalents 539 (5,163)
Cash and cash equivalents at beginning of period 3,598 7,578
Cash and cash equivalents at end of period $ 4,137 $ 2,415
See accompanying Notes to Condensed Consolidated Financial Statements
10Q Page 6
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Inventories consist of the following (in thousands):
March 31, September 30,
1996 1995
Material and component parts $3,492 $3,336
Work in process 1,365 946
$4,857 $4,282
Note 2
At March 31, 1996 there were outstanding standby letters of credit of
approximately $2,832,000 serving as performance and payment bonds. The
standby letters of credit expire at various dates through 1997; however,
certain performance bonds are automatically renewable until canceled by the
beneficiary. These outstanding standby letters of credit are fully secured
by the Company's cash or short term investment portfolio.
10Q Page 7
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Fiscal Quarter of 1996
Compared to Second Fiscal Quarter of 1995
Revenues for the first six months of fiscal year 1996 were $13,736,000,
compared to revenues of $13,720,000 for the same period a year ago. Revenues
for the second quarter increased 14% from $6,881,000 in fiscal year 1995 to
$7,809,000 in fiscal year 1996. While the general business activity for the
year has increased compared to that of a year ago, variances in material
flows and the timing of completion of some fixed priced, long-term contracts
continue to contribute to quarter to quarter fluctuations in revenues and
gross profit.
Gross profit expressed as a percentage of revenue for the fiscal 1996 six
month period remained flat compared to the same period from the prior year,
and decreased from 35% to 33% for the comparative second quarters. Gross
profit expressed as a percentage of revenue may decline further during the
remaining six months of the fiscal year due to competitive bidding pressures
the Company experienced during the last 18 months in its successful pursuit
of its broadcast and spectrum monitoring related contracts. Revenues from
these contracts are expected to constitute substantially all of the Company's
total of revenue during the remainder of the fiscal year, and as such, may
serve to suppress overall profitability.
Net interest income for the first six months of fiscal year 1996 was
$681,000, an increase of 35% over net interest income of $503,000 for the
same period in fiscal year 1995. This increase is due to the benefit of a
comparatively higher cash and short-term investment balance.
Net income for the first six months of fiscal year 1996 was $694,000 or $0.21
per share, compared to net income of $703,000 or $0.22 per share for the same
period in fiscal year 1995.
The Company's total backlog at March 31, 1996 was $37 million compared to $36
million at September 30, 1995. The total funded portion of the Company's
backlog at March 31, 1996 was $32 million compared to $26 million at
September 30, 1995. The Company's funded backlog excludes unfunded and
unexercised options which the Company believes are likely to be exercised
The results of operations for the first six months in fiscal year 1996 are
not necessarily indicative of future quarterly or annual performance
expectations. This report contains forward looking statements regarding
future events and the future performance of the Company that involve risks
and uncertainties that could cause actual results to differ materially. We
refer you to the documents of the Company filed from time to time with the
Securities and Exchange Commission, such as the Company's Annual Report on
Form 10-K, Current Reports on Form 8-K and other Quarterly Reports on Form
10-Q, which contain descriptions of certain factors that could cause actual
results to differ from current expectations. See also "Factors That May
Affect Future Operating Results".
10Q Page 8
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company operates in a highly competitive environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
Fluctuations in Operating Results
The Company's operating results may fluctuate from quarter to quarter and
year to year for a number of reasons. While there is no seasonality to the
Company's business, because of the Company's relative small size, combined
with the extended delivery cycles of its long-term project-oriented business,
revenues and accompanying gross margins are inherently difficult to predict.
Because the Company plans its operating expenses, many of which are
relatively fixed in the short term, based on the assumption of stable
performance, a relatively small revenue shortfall may cause profitability
from operations to suffer. Historically, the Company has endured periods of
volatility in its revenue results due to a number of factors, including
shortfalls in new orders, delays in the availability of new products, delays
in subcontractor provided materials and services, and delays associated with
foreign construction activities. Gross margins are strongly influenced by a
mix of considerations, including pressures to be the low price supplier in
competitive bid solicitations, the mix of contract material and non-recurring
engineering services, and the mix of newly developed and existing product
sold to various customers. The Company believes these historical challenges
will continue to affect its future business.
During fiscal year 1995, The Company formed a wholly-owned subsidiary, TCI
Wireless, Inc. ("TCIW") to provide wireless communication services to the
maritime and commercial aviation markets using proprietary equipment
developed by the Company and facilities and bandwidth provided by various
coast station operators around the world. The Company expects that the
future cost of this and other development efforts may be significant enough
to generate a loss from operations in any quarter during both fiscal year
1996 and 1997.
Managing a Changing Business
As detailed in the Company's most recent Annual Report, as part of its
diversification efforts the Company intends to pursue at least three areas of
product and market development. The Company is in the process of adopting a
business management plan that includes substantial investments in its sales
and marketing organizations, increased funding of existing research and
development programs, and certain investments in corporate infrastructure
that will be required to support the Company's diversification objectives
during the next three years. Accompanying this process are a number of
risks, including a higher level of operating expenses, the difficulty of
competing with companies of larger size for talented technical personnel, and
the complexities of managing a changing business. There also exists the risk
the Company may inaccurately estimate the viability of any one or all of its
diversification efforts and as a result, may experience substantial revenue
shortfalls of a size so significant as to generate losses from operations.
10Q Page 9
Risk Associated with Expansion into Additional Markets and Product
Development
The Company believes that its future success is substantially dependent on
its ability to successfully develop and commercialize new products and
penetrate new markets. The Company intends to pursue at least three areas of
product and market development during the next three years. The first two
areas relate directly to proprietary elements of frequency management
technology for use in commercial aviation and maritime communication
applications. The third area of diversification leverages the direction
finding technology developed by the Company principally for military
applications into a world-wide market for similar radio spectrum monitoring
and surveillance equipment. There can be no assurance that the Company can
successfully develop these or any other additional products, that any such
products will be capable of being produced in commercial quantities at
reasonable cost, or that any such products will achieve market acceptance.
The inability of the Company to successfully develop or commercialize new
products would have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition
Most all of the Company's products are positioned in niche markets which
include strong elements of imbedded proprietary technology. In most of these
markets, the Company competes with companies of significantly larger size,
many of whom have substantially greater technical, marketing, and financial
resources compared to similar resources available within the Company. This
type of competition has resulted in and is expected to continue to result in
significant price competition.
10Q Page 10
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
March 31, 1996 Compared to September 30, 1995
In the course of conducting its business, the Company normally requires
advanced payments from its foreign customers. These advanced payments are
typically secured by the Company's standby letter of credit or by a surety-
backed bond. Because customer deposits are routinely used to satisfy the
Company's working capital requirements, changes in customer deposit balances
will usually be reflected as corresponding changes in cash, cash equivalents
and short term investments.
In January 1996, the Company received an advance of $8,586,000 serving as a
customer deposit for a significantly-sized spectrum monitoring contract. At
quarter end, this advance had been reduced by revenue taken on the same
contract and represented approximately 85% of the total customer deposits.
As progress is made on this contract, the size of this advance will continue
to be reduced accordingly. The customer deposit is available for use as
working capital and is secured by the Company's surety-backed bonding
facility. The payment balance due on this contract will coincide with
scheduled deliveries in fiscal year 1997.
Consolidated cash, cash equivalents and marketable securities totaled
$23,618,000 at March 31, 1996, compared to $18,666,000 at September 30, 1995.
The Company currently believes that its cash, cash equivalents and short-term
investments, together with expected revenues from operations, will be
sufficient to fund its operations through fiscal 1996.
At March 31, 1996, the Company has standby letters of credit outstanding of
approximately $2,832,000. The standby letters of credit are collateralized
by the Company's cash or short-term investments.
10Q Page 11
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The following matters were acted upon at the Annual Meeting of
Stockholders of TCI International, Inc. on February 13, 1996.
a. Management's nominees for directors, as set forth in the TCI
International, Inc. proxy statement dated January 22, 1996
and filed with the Commission, were all elected. Votes for
the directors were as follows:
Donald C. Cox For 2,335,106
Against 164,563
Alan C. Peyser For 2,335,106
Against 164,563
Directors whose term of office as a director continued after
the meeting were John W. Ballard, Hamilton W. Budge,
Asaph H. Hall, and E.M.T. Jones.
b. Proposal to approve the implementation of the 1995
Non-Employee Director Stock Option Plan was approved.
1,277,791 votes were cast in favor, 352,189 votes were cast
against, 11,022 abstained and 858,667 were unvoted.
c. A proposal to ratify the selection of KPMG Peat Marwick LLP
as independent public accountants for the fiscal year ending
September 30, 1996 was approved. 2,479,882 votes were cast
in favor, 15,055 votes were cast against, and 4,732
abstained.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: Credit agreement between the Company and Comerica Bank -
California
b. Reports on Form 8-K: None
No other applicable items.
10Q Page 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCI INTERNATIONAL, INC.
(Registrant)
/s/ John W. Ballard III
Vice President, Chief Financial Officer
(Duly authorized officer of the registrant and principal financial officer of
the registrant)
May 14, 1996
(Date)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form 10Q
for the Quarter ended March 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,137
<SECURITIES> 19,481
<RECEIVABLES> 8,289
<ALLOWANCES> 0
<INVENTORY> 4,857
<CURRENT-ASSETS> 37,393
<PP&E> 8,785
<DEPRECIATION> 7,236
<TOTAL-ASSETS> 39,354
<CURRENT-LIABILITIES> 13,777
<BONDS> 0
<COMMON> 11,247
0
0
<OTHER-SE> 14,330
<TOTAL-LIABILITY-AND-EQUITY> 39,354
<SALES> 7,809
<TOTAL-REVENUES> 7,809
<CGS> 5,210
<TOTAL-COSTS> 5,210
<OTHER-EXPENSES> 2,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 383
<INCOME-TAX> 23
<INCOME-CONTINUING> 360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
CONTINUING LETTER OF CREDIT AGREEMENT
(Security Agreement)
Date: April 29, 1996
TO: COMERICA BANK-CALIFORNIA
International Banking Department
333 W. Santa Clara Street
San Jose, California 95113
Gentlemen:
In consideration of your issuance of letters of credit at your option
from time to time substantially in accordance with our applications
therefor, as the same may be amended with our agreement or consent, we
hereby agree that, except as you and we shall otherwise specifically agree
in writing in each instance, the Terms and Conditions hereinafter set forth
shall apply to each such application and to each letter of credit issued
pursuant to such application.
TCI International, Inc.
(Applicant)
222 Caspian Drive, Sunnyvale CA 94089-1014
(Address)
/s/ John W. Ballard, III - Vice President/CFO
(Authorized Signature) (Title)
Page 1
TERMS AND CONDITIONS
In these provisions:
(1) The "Applicant" means the party or parties identified as such on page 1.
(2) "Application" means each application by the Applicant for a letter of
credit from the Bank, as such application may be amended or modified from
time to time in accordance with the provisions hereof or with the written
agreement or consent of the Applicant.
(3) The "Bank" means Comerica Bank-California.
(4) An "instrument" means any draft, receipt, acceptance of cable or written
demand for payment.
(5) "Property" means goods and merchandise and any and all documents
relative thereto, securities, funds, choses in action, and any and all other
forms of property, whether real, personal or mixed and any right or interest
therein.
(6) "Uniform Customs and Practice" means the Uniform Customs and practice
for Documentary Credits approved by the International Chamber of Commerce
and in effect and adhered to by the Bank as of the date of issuance of the
Credit.
In consideration of the issuance by the Bank, upon application by the
Applicant from time to time, at the Bank's option, of one or more letters of
credit )each such letter of credit as from time to time amended or modified
with the consent of the Applicant being hereinafter referred to as the
"Credit"), the Applicant hereby agrees with the Bank as follows with respect
to each Credit.
1. The Applicant will reimburse the Bank at its principal office, in
cash, the amount required to pay each instrument, such reimbursement to be
made on demand in the case of each sight draft or receipt, with interest
from the date of payment of the instrument to the date of reimbursement. If
the instrument is in foreign currency, such reimbursement shall be in United
States currency at the Bank's selling rate for cable transfers to the place
of payment of the instrument current on the date of reimbursement or of the
Bank's settlement of its obligation, as the Bank may require. If, for any
cause, on the date of reimbursement or settlement there is no rate of
exchange generally available for effecting such cable transfers, the
Applicant will reimburse the Bank on demand in an amount in United States
currency equivalent to the Bank's actual cost of settlement of its obligation
as the Bank shall make such settlement, with interest from the date of
settlement to the date of reimbursement. The Applicant will comply with all
governmental exchange regulations now or hereafter applicable to the Credit
or instruments or payments related thereto and will pay the Bank, on demand,
in united States currency, such amount as the Bank may be required to expend
on account of such regulations. Upon the occurrence of an event of default
the Applicant shall pay the Bank in cash an amount sufficient to pay all
monies that are or will be due to be paid at any time by the Bank or its
correspondents to meet disbursements of any kind made or they may be required
to be made pursuant to the Letter of Credit regardless of whether the
beneficiary under the Letter of Credit has requested payment or whether those
obligations have matured or remain contingent.
2. The Applicant will pay the Bank such commission as has been agreed
to, the reasonable fees and expenses of the Bank in connection with the
Credit according to the Bank's standard practice, as in effect from time to
time, and interest on the amount paid by the Bank and not reimbursed as
provided in paragraph 1 hereof, including all charges and expenses paid or
incurred by the Bank in connection therewith, at the rate of there (3%)
percent above the Bank's base rate, and effect shall be given to any change
in the interest rate resulting from a change in the base rate on the date of
such change in the base rate. The "base rate" shall mean the rate of
interest established by the Bank from time to time as its base rate, which
may not necessarily be the lowest interest rate charged by the Bank to its
borrowers. Interest shall be computed on the basis of the actual number of
days elapsed, but computed as if each year consisted of three hundred sixty
(360) days. however, if the actual amount of interest charged for and
collected shall ever exceed the maximum amount permitted by applicable law,
interest shall be calculated on a per diem basis of a year of 365 or 366
days, as the case may be. The Bank is authorized to charge Applicant's
deposit account for all required payments.
3. Upon any transfer, sale, delivery, surrender or endorsement of any
bill of lading, warehouse receipt or other document at any time(s) held by
the Bank, or held for its account by any of its corespondents, relative to
the Credit, the Applicant will indemnify and hold the Bank, and any such
correspondent(s), harmless from and against each and every claim, demand,
action or suit which may arise against the Bank, or any such
correspondent(s), by reason thereof.
4. The Applicant agrees to indemnify and hold the Bank and its
correspondents harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which the Bank or its
correspondents may incur (or which may be claimed against the Bank or its
correspondents by any person) by reason of, or in connection with, the
execution and delivery or transfer of, or payment or failure to pay under,
the Credit, or by reason of, or in connection with, any other matters arising
under this Application, or any of the transactions contemplated hereby;
provided, however, the Applicant shall not be required to indemnify the Bank
or its correspondents for any claims, damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, caused by such party's
willful and wrongful misconduct or gross negligence.
5. The Applicant will pay on demand all reasonable costs and expenses
(including without limitation, reasonable attorneys' fees and legal expenses)
incurred by the Bank in connection with the enforcement of this Agreement and
such other documents which may be delivered in connection with this Agreement
or any Application or any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain the
Bank From paying any amount under the Credit.
6. These Terms and Conditions and the Credit shall be subject to the
Uniform Customs and Practice (a copy of which is available upon request),
and, in the event any provision of the uniform Customs and Practice is or is
construed to vary from or be in conflict with any provision of the California
Uniform Commercial Code, as from time to time amended and in force (the
"Commercial Code"), the Uniform Customs and practice shall prevail. In
addition to other rights of the Bank hereunder or under application for the
Credit, any action, inaction or omission taken or suffered by the Bank, or by
any of its correspondents, under or in connection with the Credit or the
relative instruments, documents, or property, it in good faith and in
conformity with such foreign or domestic laws, regulations, or customs as the
Bank or any of its correspondents may deem to be applicable thereto, shall be
binding upon the Applicant and shall not place the Bank or any of its
correspondents under any liability to the Applicant.
7. Except insofar as instructions may be given by the Applicant in
writing or by a Request (as defined in paragraph 8 below) expressly to the
contrary with regard to, and prior to, the Bank's issuance of the Credit:
(a) although shipment(s) in excess of the quantity called for under the
Credit are made, the Bank may honor the relative instrument(s) in an amount
or amounts not exceeding the amount of the Credit, and (b) the Bank may , but
shall not be required to, honor, as complying with the terms of the Credit
and of the application therefor, any instruments or other documents otherwise
in order signed or issued by an administrator, executor, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver or other legal representative of the party authorized
under the Credit to draw or issue such instruments or other documents.
8. The Applicant authorizes the Bank to honor the Applicant's orders to
issue, amend or pay the Credit for the Applicant's account and risk upon a
request communicated to the Bank by telegram, telex, computer, facsimile
transmission, or other electronic means (a "Request") subject to the
following: (a) a Request shall be made only by those persons authorized by
the Applicant in accordance with the Bank's established requirements and the
Bank shall not be obligated to identify such persons so authorized beyond the
use of the authorized name or code identification if any is established;
(b) all Requests will be confirmed by the Bank in writing by sending to the
Applicant a copy of the documents authorized or requested by the Applicant
and the Applicant agrees promptly to examine such documents and to report any
discrepancies promptly upon receipt of such confirmation; (c) if frequent
Requests are to be made, the Bank may, but shall not be obligated to, assign
a unique code number or word and require that such code be used by the
Applicant (and if such a code number or word is established, all further
Requests shall refer to such code); (d) the Bank shall not be liable for any
loss that the Applicant may incur as a result of the Bank's compliance with a
Request in accordance with this Application even if unauthorized, provided
that the Bank acted in good Faith, and the Applicant indemnifies the Bank and
holds the Bank harmless for any such losses; (e) the Bank will not be liable
for any delays in honoring any Request, nor for any delays caused by others
to whom the Bank may transmit such Request either at the Applicant's
direction or otherwise and the Bank will not be required to honor Requests on
the day on which Requests are received unless the Bank has agreed to do so
and the Applicant has caused such Request to be received before the time the
Bank has specified to honor such Request; (f) the Bank shall not be obligated
to honor any Requests provided that the Bank has notified the Applicant by
telephonic or other prompt means, (g) all Requests shall be subject to the
terms of this Agreement and any other written or electronic agreement entered
into with the Bank by the Applicant in connection with any transaction
relating to such Request. Bank may record any request made by telephone and
any other telephonic communications between the Applicant and the Bank
regarding the Credit.
9. Applicant agrees that the user(s) of the Credit shall be deemed
agents of the Applicant and neither the Bank nor its correspondents shall be
responsible for: (a) the use which may be made of the Credit or for any acts
or omissions of the user(s) of the Credit, (b) the time, place, manner or
order in which shipment is made, (c) partial or incomplete shipment, or
failure or omission to ship any or all of the property referred to in the
Credit, (d) losses resulting from the Credit providing that a complete set of
shipping documents including one original bill of lading be forwarded by the
beneficiary directly to Applicant or its customs brokers; (e) the solvency,
responsibility or relationship to the property of any party issuing any
documents in connection with the property, (f) delay in arrival or failure to
arrive of either the property or any of the documents relating thereto;
(g) delay in giving or failure to give notice of arrival or any other notice;
(h) any breach of contract between the shipper(s) or vendor(s) and the
consignee(s) or buyer(s); (i) failure of any instrument to bear any reference
or adequate reference to the Credit, or failure of documents to accompany any
instrument at negotiation, or failure of any person to note the amount of any
instrument on the reverse of the Credit, or to surrender or take up the
Credit or to send forward documents apart from instruments as required by the
terms of the Credit, each of which provisions, if contained in the Credit
itself, it is agreed may be waived by the Bank: (j) the validity, sufficiency
or genuineness of documents, or of any endorsements thereof, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (k) payment by the Bank made against
presentation of documents which substantially comply with the terms of the
Credit; or (l) any other circumstances whatsoever in making or failing to
make payment under the Credit. In furtherance and not in limitation of the
foregoing, the Bank may accept documents that appear on their face to be in
order, without responsibility for further investigation, regardless of any
notice or information to the contrary. The Bank shall not be responsible for
any act, error, neglect or default, omission, insolvency or failure in
business of any of its correspondents. The occurrence of any one or more of
the contingencies referred to in this paragraph shall not affect, impair or
prevent the vesting of any of the Bank's rights or powers hereunder or the
Applicant's obligation to make reimbursement. The Applicant will promptly
examine (i) the copy of the Credit (and of any amendments thereof) sent to it
by the Bank and (ii) all documents and instruments delivered to it from time
to time by the Bank, and , in the event of any claim of noncompliance with
Applicant's instructions or other irregularity, will immediately notify the
Bank thereof in writing, the Applicant being conclusively deemed to have
waived any such claim against the Bank and its correspondents unless such
notice is given as aforesaid.
10. The Applicant will promptly procure any necessary import, export,
or other licenses for the import, export or shipping of the property shipped
under or pursuant to or in connection with the Credit, and comply with all
foreign and domestic governmental regulations in regard to the shipment of
such property or the financing thereof, and furnish such certificates in that
respect as the Bank may at any time require, and keep such property
adequately covered by insurance in amounts, against risks and in companies
satisfactory to the Ban, and assign the policies or certificates of insurance
to the Bank, or make the loss or adjustment, if any, payable to the Bank,
at its option, and furnish the Bank, on its demand, with evidence of
acceptance by the insurers of such assignment. Should the insurance upon
such property for any reason be unsatisfactory to the Bank, the Bank may,
at the Applicant's expense, obtain insurance satisfactory to the Bank.
11. As security for the payment or performance of any and all of the
Applicant's obligations and/or liabilities hereunder, absolute or
contingent, and also for the payment or performance of any and all other
obligations and/or liabilities, absolute or contingent, due or to become
due, which are now, or may at any time(s) hereafter be owing by the
Applicant to the Bank, or which are now or hereafter existing, the
Applicant hereby assigns, pledges, and grants the Bank a security interest
and lien upon, and the right of possession and disposal to the following
property (the "Collateral"): (a) where applicable, any and all shipping
documents, warehouse receipts, policies or certificates of insurance or
other documents or instruments accompanying or related to drafts drawn
under the Credit and in and to all property shipped, stored or otherwise
disposed of under or pursuant to or in connection with the Credit, or in
any way relating thereto or to any of the drafts drawn thereunder (whether
or not such documents, goods, or other property be released to Bank or
upon Bank's order and whether or not any such release shall be on trust or
bailee's receipt), and in and to the proceeds of each and all of the
foregoing; (b) all Applicant's rights and causes of action against all
parties arising from or in connection with the contract, sale or purchase
of any Collateral covered by the Credit, or any guarantees, agreements or
other undertaking (including those in effect between Applicant and any
account party named in the Credit), credits, policies of insurance or
other assurances in connection therewith; and (c) all property, rights,
choses in action, claims and demands of every kind now or thereafter
belonging to Applicant and which may now or hereafter be in the
possession, custody or control of, or in transit to or set apart for Bank,
Bank's agents, or correspondents for any purpose. Further, Applicant
agrees at any time and from time to time, on demand, to deliver, convey,
transfer or assign to the Bank additional security of a value and
character satisfactory to the Bank, or to make such payment as the Bank
may require. The Applicant will execute, deliver and file such financing
statements and other documents as may be requested by Bank from time to
time to create, perfect and preserve the security interest created hereby;
and the right is granted Bank, to be exercised at its option, to file from
time to time financing statements signed by Bank alone and naming Bank as
the secured party and the Applicant as the debtor, and indicating the
types, or describing the items, of collateral covered hereby, and at the
expense of the Applicant.
12. Upon the failure of the Applicant at any time to keep a margin
of security with the Bank satisfactory to the Bank; or upon the death of
any Applicant; or if any of the obligations and/or liabilities of the
Applicant to the Bank shall not be paid or performed when due; or if there
is a breach in any warranty or representation herein; or if the Applicant
shall become insolvent (however such insolvency may be evidenced) or
commit any act of bankruptcy or insolvency, or make a general assignment
for the benefit of creditors; or if the Applicant shall suspend the
transaction of its usual business or be expelled or suspended from any
exchange; or if an application is made by any judgment creditor of the
Applicant for an order directing the Bank to pay over money or to deliver
other property; or if a petition in bankruptcy shall be filed by or
against the Applicant; or if a petition shall be filed by or against the
Applicant or any proceeding shall be instituted by or against the
Applicant for any relief under any bankruptcy or insolvency
laws or any law relating to the relief of debtors, readjustment of
indebtedness, reorganization, composition or extensions; or it any
governmental authority, or any court at the instance of any governmental
authority, shall take possession of any substantial part of the property
of the Applicant or shall assume control over the affairs or operations of
the Applicant; or if a receiver shall be appointed of, or a writ or order
of attachment or garnishment shall be issued or made against, any of the
property or assets of the Applicant; or if the Bank shall in good faith
deem itself insecure at any time; thereupon, unless the Bank shall
otherwise elect, any and all obligations and liabilities of the Applicant
to the Bank, whether now existing or hereafter incurred, shall become and
be due and payable forthwith without presentation, demand or notice, all
of which are waived.
13. If any event described in paragraph 12 above shall have occurred
and be continuing, Bank may exercise in respect to the Collateral all the
rights and remedies of a secured party under the Commercial Code and any
other applicable law and also may, without notice except as specified
below, sell such Collateral or any part thereof in one or more parcels at
public or private sale, at any of Bank's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as Bank may
deem commercially reasonable. The Applicant will pay to Bank on demand all
costs and expenses (including without limitation, reasonable attorneys'
fees and legal expenses) related or incidental to the repossession,
custody, preservation, protection, preparation for sale or sale of, or
collection from, or other realization upon, any such Collateral, or
related or incidental to the establishment, preservation or enforcement of
Bank's rights and remedies in respect of any such collateral.
14. That if the Applicant is a banking institution, the Applicant
hereby appoints the Bank its agent to issue the Credit in accordance with,
and subject to, these Terms and Conditions and the Application for the
Credit.
15. The Applicant submits, in any legal proceeding related to this
Agreement, any Application or the Credit, to the nonexclusive jurisdiction
over the person of the Applicant of any court of competent jurisdiction
sitting in the State of California and agrees to a suit being brought in
any such court; waives any objection that it may now have or hereafter
have to the venue of such proceeding in any such court or that such
proceeding was brought in an inconvenient court; agrees that service of
process and any such legal proceeding may be made, and shall be
conclusively deemed sufficient and adequate, by mailing of copies thereof
(by registered or certified mail, if practicable) postage prepaid, or by
teletransmission to the Applicant at its address set forth herein or such
other address of which the Bank shall be notified in writing, in which
event, service shall be deemed complete upon the filing with the court of
a copy of the process mailed or sent and an affidavit attesting the
mailing or sending. The Applicant agrees that nothing herein shall affect
the Bank's right to affect service or process in any other manner
permitted by law.
16. If any law or regulation or the interpretation or implementation
thereof by any court or administrative or governmental authority charged
with the administration thereof shall either: (a) impose, modify or deem
applicable any reserve, capital adequacy, special deposit, limitation or
similar requirement against letters of credit issued by, or assets held
by, or deposits in or for the account of, the Bank, or (b) impose on the
Bank any insurance premium or other condition regarding this Agreement or
the Credit, and the result of any event referred to in clause (a) or (b)
above shall be to increase the cost of issuing or maintaining the Credit
over that which the Bank assumed in determining its fees or decrease the
yield to the Bank of issuing or maintaining the Credit, then, upon demand
by the Bank, the Applicant shall immediately pay to the Bank, from time to
time as specified by the Bank, additional amounts which shall be
sufficient to compensate the Bank for such increased cost or decrease in
yield, together with interest on each such amount from the date demanded
until payment in full thereof at the rate and on the terms set forth in
paragraph 2 above. A certificate as to such increased cost or decrease in
yield incurred by the Bank as a result of any event mentioned in clause
(a) or (b) above, submitted by the Bank to Applicant, shall be conclusive,
absent manifest error, as to the amount thereof.
17. The Bank shall not be deemed to have waived any of its rights
hereunder, unless the Bank or its authorized agents shall have signed such
waiver in writing. No such waiver unless expressly as stated therein,
shall be effective as to any transaction which occurs subsequent to the
date of such waiver, nor as to any continuance of a breach after such
waiver.
18. The obligations hereof shall bind the successors and assigns of
the Applicant, and all rights, benefits and privileges conferred on the
Bank shall be and are extended to and conferred upon and may be enforced
by its successors and assigns. If the Applicant is a partnership, the
obligations hereof shall continue in force and apply, notwithstanding any
change in the membership of such partnership, whether arising from the
death or retirement of one or more partners or the accession of one or
more new partners. If this Agreement is signed by two or more Applicants,
it shall be the joint and several agreement of each Applicant.
19. Except as otherwise provided herein, any notice from the Bank to
the Applicant, if mailed, shall be deemed given when mailed, postage paid,
addressed to the Applicant at its address set forth herein or such other
address of which the Bank shall be notified in writing. Whenever possible
each provision of this Agreement shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
20. Subject to the provisions of paragraph 6 above, this Agreement
and all rights, obligations and liabilities arising hereunder shall be
both governed by, and construed in accordance with, the laws of the State
of California.
21. This Agreement, any collateral documents relating to security
for the Credit and any Requests constitute the entire agreement of the
parties with respect to the subject matter hereof, and except as provided
in paragraph 8, this Agreement may not be amended except in writing signed
by both parties.
22. The Applicant acknowledges and agrees that Credits requested
will not be collateral or security for any obligation secured by real
property and that Credits requested are not intended to guaranty or relate
in any way to any obligation secured by real property. The Applicant
further acknowledges and agrees that Credits requested will not be
governed by the California antideficiency statues (Code Civ. Proc.,
sections 580a, 580b, and 580d), the One-Action Rule (Code Civ. Proc.,
section 726) or the Security-First Rule (Code Civ. Proc., section 726),
and that they will constitute a separate and independent obligation.
23. Applicant warrants that any Request submitted hereunder and any
shipment related to such request is not in violation of U.S. Treasury
Foreign Assets Control or Cuban Assets Control Regulations.
24. The Applicant agrees that the Bank may provide information
relating to any Request, Credit or relating to the Applicant to the Bank's
parent, affiliates, subsidiaries and service providers.
<PAGE>
n
MASTER REVOLVING NOTE
Variable Rate-Maturity Date-Obligatory Advances (Business and Commercial
Loans Only)
Amount Note Date Maturity Date Tax Identification
$7,000,000.00 March 5, 1996 January 1, 1998 94-1664311
On the Maturity Date, as stated above, for value received, the undersigned
promise(s) to pay to the order of COMERICA BANK-CALIFORNIA ("Bank"), at any
office of the Bank in the State of California, SEVEN MILLION AND NO/100
Dollars (U.S.) (or that portion of it advanced by the Bank and not repaid as
later provided) with interest until maturity, whether by acceleration or
otherwise, or an Event of Default, as later defined, at a per annum rate
equal to the Bank's "base rate" from time to time in effect PLUS 3.00% per
annum and after that at a rate equal to the rate of interest otherwise
prevailing under this Note plus 3% per annum (but in no event in excess of
the maximum rate permitted by law). The Bank's "base rate" is that annual
rate of interest so designated by the Bank and which is changed by the Bank
from time to time. Interest rate changes will be effective for interest
computation purposes as and when the Bank's base rate changes, Interest shall
be calculated on the basis of a 360-day year for the actual number of days
the principal is outstanding. Accrued interest on this Note shall be payable
on the 1ST day of each MONTH commencing APRIL 1, 1996, until the Maturity
Date when all amounts outstanding under this Note shall be due and payable in
full. If the frequency of interest payments is not otherwise specified,
accrued interest on this Note shall be payable monthly on the first day of
each month. If any payment of principal or interest under this Note shall be
payable on a day other than a day on which the Bank is open for business,
this payment shall be extended to the next succeeding business day and
interest shall be payable at the rate specified in this Note during this
extension. A late payment charge equal to 5% of each late payment may be
charged on any payment not received by the Bank within 10 calendar days after
the payment due date, but acceptance of payment of this charge shall not
waive any Default under this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid
interest amount owing at any time under this Note and shall be conclusive
absent manifest error. No interest shall accrue under this Note until the
date of the first advance made by the Bank; after that interest on all
advances shall accrue and be computed on the principal balance outstanding
from time to time under this Note until the same is paid in full.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or
absolute, not existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank,
by all property of any of the undersigned from time to time in the possession
of the Bank and by any other collateral, rights and properties described in
each and every deed of trust, mortgage, security agreement, pledge,
assignment and other security or collateral agreement which has been, or will
at any time(s) later be, executed by any (or all) of the undersigned to or
for the benefit of the Bank (collectively "Collateral"). Notwithstanding the
above, (i) to the extent that any portion of the indebtedness is a consumer
loan, that portion shall not be secured by any deed of trust or mortgage on
or other security interest in any of the undersigned's principal dwelling or
any of the undersigned's real property which is not a purchase money security
interest as to that portion, unless expressly provided to the contrary in
another place, or (ii) if the undersigned (or any of them) has (have) given
or give(s) Bank a deed of trust or mortgage covering real properly, that deed
of trust or mortgage shall not secure this Note or any other indebtedness of
the undersigned (or any of them), unless expressly provided to the contrary
in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all
or part of the indebtedness ("guarantor") (i) fail(s) to pay any of the
indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any indebtedness owing on a demand basis upon demand; or (ii) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any such guarantor and the Bank; or (iii)
become(s) insolvent or the subject of a voluntary or involuntary proceeding
in bankruptcy, or a reorganization, arrangement or creditor composition
proceeding, (if a business entity) cease(s) doing business as a going concern,
(if a natural person) die(s) or become(s) incompetent, (if a partnership)
dissolve(s) or any general partner of it dies, becomes incompetent or becomes
the subject of a bankruptcy proceeding or (if a corporation of a limited
liability company) is the subject of a dissolution, merger or consolidation;
or(a) if any warranty or representation made by any of the undersigned or any
guarantor in connection with this Note of any of the indebtedness shall be
discovered to be untrue or incomplete; or (b) if there is any termination,
notice of termination, or breach of any guaranty, pledge, collateral
assignment or subordination agreement relating to all or any part of the
indebtedness; or (c) if there is any failure by any of the undersigned or any
guarantor to pay when due any of its indebtedness (other than to the Bank) or
in the observance or performance of any term, covenant or condition in any
document evidencing, securing or relating to such indebtedness; or (d) if the
Bank deems itself insecure believing that the prospect of payment of this
Note or any of the indebtedness is impaired or shall fear deterioration,
removal or waste of any of the Collateral; or (e) if there is filed or issued
a levy or writ of attachment or garnishment or other like judicial process
upon the undersigned (or any of them) or any guarantor or any of the
Collateral, including without limit, any accounts of the undersigned (or any
of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without
prior notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any
provisions contained in the evidence of it to the contrary), sell or
liquidate all or any portion of the Collateral, set off against the
indebtedness any amounts owing by the Bank to the undersigned (or any of
them), charge interest at the default rate provided in the document
evidencing the relevant indebtedness and exercise any one or more of the
rights and remedies granted to the Bank by any agreement with the undersigned
(or any of them) or given to it under applicable law. In addition, if this
Note is secured by a deed of trust or mortgage covering real property, then
the trustor or mortgagor shall not mortgage or pledge the mortgaged premises
as security for any other indebtedness or obligations. This Note, together
with all other indebtedness secured by said deed of trust or mortgage, shall
become due and payable immediately, without notice, at the option of the
Bank, (a) if said trustor or mortgagor shall mortgage or pledge the mortgaged
premises for any other indebtedness or obligations or shall convey, assign or
transfer the mortgaged premises by deed, installment sale contract
instrument, or (b) if the title to the mortgaged premises shall become vested
in any other person or party in any manner whatsoever, or (c) if there is any
disposition (through one or more transactions) of legal or beneficial title
to a controlling interest of said trustor or mortgagor. All payments under
this Note shall be in immediately available United States funds, without
setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or
indulgence to the undersigned (or any of them) or release, substitution or
nonenforcement of any security, or release or substitution of any of the
undersigned, any guarantor or any other party, whether with or without
notice, shall affect the obligations of any of the undersigned. The
undersigned waive(s) all defenses or right to discharge available under
Section 3-605 of the California Uniform Commercial Code and waive(s) all
other suretyship defenses or right to discharge. The undersigned agree(s)
that the Bank has the right to sell, assign, or grant participations, or any
interest, in any or all of the indebtedness, and that, in connection with
this right, but without limiting its ability to make other disclosures to the
full extent allowable, the Bank may disclose all documents and information
which the Bank now or later has relating to the undersigned or the
indebtedness. The undersigned agree(s) that the Bank may provide information
relating to the Note or to the undersigned to the Bank's parent, affiliates,
subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for
any and all costs and expenses (including without limit, court costs, legal
expenses and reasonable attorney fees, whether inside or outside counsel if
used, whether or not suit is instituted and, if suit is instituted, whether
at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting
to collect this Note or incurred in any other matter or proceeding relating
to this Note.
The undersigned acknowledge(s) and agree(s) that there are not contrary
agreements, oral or written, establishing a term of this Note and agree(s)
that the terms and conditions of this Note may not be amended, waived or
modified except in a writing signed by an officer of the Bank expressly
stating that the writing constitutes an amendment, waiver or modification of
the terms of this Note. As used in this Note, the word "undersigned" means,
individually and collectively, each maker, accommodation party, indorser and
other party signing this Note in a similar capacity. If any provision of this
Note is unenforceable in whole or part for any reason, the remaining
provisions shall continue to be effective. THIS NOTE IS MADE IN THE STATE OF
CALIFORNIA AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USUARY
CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
For Corporations, Partnerships, Trust or Estates
/s/ John W. Ballard, III, CFO
TCI INTERNATIONAL, INC.
222 CASPIAN DRIVE,
SUNNYVALE
CA 94089
<PAGE>
\
