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 April 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-11069
INTERPOINT CORPORATION
Incorporated under the laws I.R.S. Identification
of the State of Washington No. 91-0850556
10301 Willows Road
P.O. Box 97005
Redmond, Washington 98073-9705
(206) 882-3100
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.
[X] Yes [ ] No
The total shares of common stock without par value outstanding at the
end of the quarter reported is 7,799,054.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial statements
CONSOLIDATED BALANCE SHEETS
April 30, 1996 and October 31, 1995
ASSETS
April 30, 1996 October 31, 1995
-------------- ----------------
(Unaudited)
Current assets:
Cash $ 1,762,277 $ 777,844
Trade accounts receivable, less
allowance for doubtful accounts
of $211,000 in 1996 and $133,000
in 1995 19,536,969 16,963,322
Inventories 22,542,544 18,008,496
Prepaid expenses and other 514,190 418,447
Deferred income taxes 759,116 764,253
----------- -----------
Total current assets 45,115,096 36,932,362
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization of $14,265,000 in 1996
and $13,275,000 in 1995 8,703,085 8,716,192
Note receivable 1,087,500 --
Investment in common stock -- 1,629,640
Other assets 796,315 641,932
----------- -----------
$55,701,996 $47,920,126
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable $ 187,408 $ 8,583,680
Accounts payable 8,739,377 6,799,365
Income taxes payable 1,266,948 1,335,080
Accrued wages and commissions 2,977,980 2,919,042
Other current liabilities 731,179 662,107
Long-term debt, current portion 1,007,824 1,342,464
----------- -----------
Total current liabilities 14,910,716 21,641,738
Long-term debt 16,054,804 3,551,357
Accrued retirement benefits 569,259 572,260
Deferred income taxes 807,251 804,232
Commitments
Stockholders' equity:
Preferred stock, 500,000 shares authorized,
none issued -- --
Common stock, 10,000,000 shares authorized,
7,799,054 shares issued and outstanding,
(7,655,508 in 1995) 990,948 shares
reserved 4,825,331 4,707,331
Retained earnings 18,209,153 16,212,902
Cumulative translation adjustments 325,482 430,306
----------- -----------
Total stockholders' equity 23,359,966 21,350,539
----------- -----------
$55,701,996 $47,920,126
=========== ===========
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Three months and six months ended April 30, 1996 and 1995
(Unaudited)
Three months ended Six months ended
April 30, April 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $25,946,475 $16,041,106 $45,076,607 $29,583,105
Cost of sales 1,872,200 10,946,894 32,811,939 20,266,685
----------- ----------- ----------- -----------
Gross profit 7,074,275 5,094,212 12,264,668 9,316,420
Selling and
administrative 4,074,618 3,615,457 7,808,190 7,002,289
Research and
development 563,949 392,318 1,065,514 860,492
----------- ----------- ----------- -----------
Operating profit 2,435,708 1,086,437 3,390,964 1,453,639
Other expenses (net) (283,470) (216,101) (574,702) (462,463)
Equity in net income
(loss) of an affiliate 102,976 (1,068) 155,789 39,865
Income from other equity
transactions 270,647 -- 270,647 --
----------- ---------- ----------- -----------
Income before provision
for income taxes 2,525,861 869,268 3,242,698 1,031,041
Provision for income
taxes 1,011,400 251,528 1,246,447 304,157
----------- ---------- ----------- -----------
Net income $ 1,514,461 $ 617,740 $ 1,996,251 $ 726,884
=========== =========== =========== ===========
Average number of
common and common
equivalent shares
outstanding 8,125,120 7,956,936 8,050,230 7,958,998
=========== =========== =========== ===========
Net income per share $ .19 $ .08 $ .25 $ .09
=========== =========== =========== ===========
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 30, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
Operating activities:
Net income $ 1,996,251 $ 726,884
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,070,607 969,277
Equity in net income of an affiliate (155,789) (39,865)
Income from other equity transactions (270,647) --
Net book value of assets retired -- 2,156
Change in assets and liabilities:
Receivables (2,591,697) 395,896
Inventories (4,595,853) (1,866,722)
Prepaid expenses and other (104,263) 29,761
Other assets (346,202) (47,911)
Accounts payable 1,971,703 (464,169)
Income taxes payable (66,174) 264,682
Accrued liabilities 157,442 (144,751)
Accrued retirement benefits -- 37,558
----------- -----------
Net cash used in operating activities (2,934,622) (137,204)
----------- -----------
Investing activities:
Purchases of property, plant and equipment (1,031,449) (690,027)
Proceeds from sale of investment in common
stock 1,087,500 --
----------- -----------
Net cash provided by (used in) investing
activities 56,051 (690,027)
----------- -----------
Financing activities:
Net proceeds from (repayments of) short-term
loans payable (8,396,272) 493,386
Net proceeds from long-term revolving
loan payable 12,900,000 --
Proceeds from long-term borrowings -- 312,045
Repayment of long-term debt (731,193) (579,357)
Proceeds from issuance of common stock for
stock options 118,000 75,848
----------- -----------
Net cash provided by financing
activities 3,890,535 301,922
----------- -----------
Effect of exchange rate changes on cash (27,531) 413
----------- -----------
Net increase (decrease) in cash 984,433 (524,896)
Cash at beginning of period 777,844 541,805
----------- -----------
Cash at end of period $ 1,762,277 $ 16,909
=========== ===========
See accompanying notes.
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(Unaudited)
Note 1. Basis of presentation - The accompanying condensed financial
statements are unaudited and should be read in conjunction with the
Interpoint financial statements included in the Company's fiscal 1995
Annual Report on Form 10-K. Operating results for the six-month period
ended April 30, 1996, are not necessarily indicative of the results
that may be expected for the full year. In the opinion of management,
all adjustments necessary for a fair presentation of interim operating
results are reflected herein.
Note 2. Per share calculations - Per-share calculations are determined
on the weighted average number of common and common equivalent shares
outstanding during each period. On May 30, 1996, the Company announced
a two-for-one stock split effective for shareholders of record as of
June 13, 1996. Retroactive effect was given to the distribution.
Note 3. Inventories - Inventory is comprised as follows:
April 30, 1996 October 31, 1995
-------------- ----------------
Finished goods $ 5,915,111 $ 4,736,490
Work-in-process 6,942,848 6,483,072
Raw materials 10,798,550 7,693,764
----------- -----------
23,656,509 18,913,326
Allowance for inventory obsolescence 1,113,965 904,830
----------- -----------
$22,542,544 $18,008,496
=========== ===========
Note 4. Income from other equity transactions - In March 1996, the
Company sold its minority interest in Apex Microtechnology Corporation
(Apex) of Tucson, Arizona for $2,175,000. Sale terms include a cash
payment and note receivable each equaling $1,087,500. The sale
resulted in a pre-tax gain of approximately $390,000 reflecting the
sales price less the balance sheet valuation of approximately
$1,785,000. The valuation is the sum of the purchase price of $904,200
and earnings of approximately $881,000 accumulated under the equity
method of accounting, including approximately $103,000 earned this
quarter but prior to the sale. Income taxes payable of approximately
$353,000 associated with the sale of Apex have been recorded resulting
in an after-tax gain of approximately $37,000. The $353,000 tax due,
which will be paid on an installment basis, is computed as the
difference of the sales value and original purchase price.The note
receivable bears interest at prime plus one percent, payable interest
only through 1998 then payable $30,208 per month plus interest through
2001. Other sale terms include a potential additional payment in the
event of a sale or public offering of Apex shares over the next five
years.
Offsetting the gain is a pre-tax loss of approximately $119,000
associated with the write down of an unrelated investment.
Note 5. Loan payable - In March 1996, Interpoint signed a five year
secured revolving credit agreement with its principal bank to refinance
its domestic borrowings and provide a source of available cash. The
new financing arrangement comprises a $20 million reducing line of
credit. Borrowings against the line of credit bear interest at the
bank's prime rate or adjusted LIBOR rate. The revolving credit
agreement requires the Company to comply with certain financial
covenants; as of April 30, 1996, the Company was in compliance with all
such covenants.
<PAGE>
Note 6. Industry segment information - Net sales by industry segment
are presented in the table below.
Three months ended Six months ended
April 30, April 30,
1996 1995 1996 1995
----------- ----------- ----------- ------------
Microelectronics $12,167,275 $ 9,364,881 $20,691,027 $17,084,087
Data Storage 13,779,200 6,676,225 24,385,580 12,499,018
----------- ----------- ----------- -----------
$25,946,475 $16,041,106 $45,076,607 $29,583,105
=========== =========== =========== ===========
Note 7. Reclassification - Certain items in the previous year
financial statements have been reclassified to conform with the current
year presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Total revenues for the quarter ended April 30, 1996, were $26 million,
an increase of 62 percent versus the same quarter a year ago. There
was growth in both business segments, however the data storage segment
experienced the most significant increase. The increase of over 100
percent is primarily associated with the sales of Digital Linear Tape
(DLT) library products which were introduced late in fiscal year 1995.
The Company expects continued strong sales of these products. Sales
from the Microelectronics business increased by 30 percent due to
growth both in proprietary and custom products.
Gross margin declined from 32 percent in the second quarter of 1995 to
27 percent during the current quarter. This percentage is consistent
with margins experienced in the first quarter of this year. The
decline comes primarily from the change in product mix as lower margin
ADIC products have increased as a percentage of the Company's sales.
The DLT products are lower margin primarily due to the expensive tape
drive component. In addition there were some non-recurring charges in
the Microelectronics business. The Company anticipates a slight margin
increase for the final two quarters of fiscal 1996.
Selling and administrative costs have decreased significantly as a
percentage of sales from 23 percent in 1995 to 16 percent in 1996. The
volume increase in sales provides strong operating leverage without
commensurate growth in these costs.
Other expenses consist primarily of interest costs which have increased
in connection with the increased usage on the short and long term
revolving lines of credit. The increase is net of the effect of
slightly lower interest rates on these lines.
Income from other equity transactions reflects a gain on the sale of
Apex Microtechnology Corporation (Apex), net of the write down of an
unrelated investment. Equity in net income of an affiliate relates to
earnings accounted for on the equity method prior to the sale.
Income taxes are higher than the statutory rate for the second quarter
of 1996 due to tax expense recorded in connection with the sale of
Apex. Because earnings on the equity method are not recognized for
taxation purposes, the tax gain, to be recognized on the installment
basis, is significantly larger than the gain shown in the financial
statements.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2.9 million for the six
months ended April 30, 1996, primarily due to increases in inventories
and accounts receivable. The inventory growth is to support sales
volumes in both businesses, with the bulk of the increase being
attributable to ADIC. Trade receivables increased due to the increased
sales volume coupled with the elimination of early pay discounts for
certain data storage distributors.
In March 1996, the Company signed a five-year secured credit agreement
with its principal bank to repay existing short-term debt and provide
operating cash. The new financing arrangement comprises a $20 million
reducing line of credit which bears interest at the bank's prime rate
or adjusted LIBOR rate. At April 30, 1996, this rate was 7.35%. The
agreement requires the Company to comply with certain financial
covenants. As of April 30, 1996, the Company was in compliance with
all such covenants.
The Company believes that the new financing together with a $700,000
facility to finance capital equipment and cash generated by operations
will be sufficient to meet its cash requirements for the upcoming year.
FORWARD LOOKING INFORMATION
The information set forth above includes "forward-looking" information
as outlined in the recently enacted Private Securities Litigation
Reform Act of 1995. The Cautionary Statements filed by the Company as
Exhibit 99 to the Quarterly Report on Form 10Q for the period ended
January 31, 1996 are incorporated herein by reference and investors are
specifically referred to such Cautionary Statements for a discussion of
factors which could affect the Company's operations and forward-looking
statements contained herein.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 10.1
Credit Agreement between Interpoint Corporation and Seafirst Bank
dated March 29, 1996
Exhibit 10.2
Revolving Note, Interpoint Corporation dated March 29, 1996
Exhibit 10.3
Security Agreement between Interpoint Corporation and Seafirst Bank
dated March 29, 1996
Exhibit 10.4
Security Agreement between Advanced Digital Information Corporation
and Seafirst Bank dated March 29, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERPOINT CORPORATION
Dated: June 14, 1996 /s/Peter H. van Oppen
------------- ----------------------------
Peter H. van Oppen, Chairman
and Chief Executive Officer
Dated: June 14, 1996 /s/Leslie S. Rock
------------- ----------------------------
Leslie S. Rock
Vice President, Treasurer
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the second
quarter 10-Q 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> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 1,762
<SECURITIES> 0
<RECEIVABLES> 19,537
<ALLOWANCES> 211
<INVENTORY> 22,543
<CURRENT-ASSETS> 45,115
<PP&E> 22,968
<DEPRECIATION> 14,265
<TOTAL-ASSETS> 55,702
<CURRENT-LIABILITIES> 14,911
<BONDS> 16,055
0
0
<COMMON> 4,825
<OTHER-SE> 18,209
<TOTAL-LIABILITY-AND-EQUITY> 55,702
<SALES> 45,077
<TOTAL-REVENUES> 45,077
<CGS> 32,812
<TOTAL-COSTS> 32,812
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 575
<INCOME-PRETAX> 3,243
<INCOME-TAX> 1,246
<INCOME-CONTINUING> 1,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,996
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
Exhibit 10.1
CREDIT AGREEMENT
Between
INTERPOINT CORPORATION
and
SEAFIRST BANK
Dated March 29, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1 ARTICLE 3
Definitions 1 Collateral Security 6
1.1 ADIC 1 3.1 Collateral 6
1.2 Adjusted LIBOR Rate 1 3.2 Maintenance of Security 6
1.3 Advances 1 3.3 Negative Pledge 6
1.4 Assessment Rate 1 3.4 Setoff 6
1.5 Available Amount 2
1.6 Business Day 2 ARTICLE 4
1.7 Cash Flow 2 Interest Rate Options 7
1.8 Commencement Date 2 4.1 Interest Rates and Payment
1.9 Credit Limit 2 Dates 7
1.10 Debt 2 4.2 Procedure 7
1.11 Debt Service Coverage 4.3 Option Restrictions 7
Ratio 2 4.4 Repayments 7
1.12 Debt Service 2 4.5 Reversion to Prime 7
1.13 ERISA 2 4.6 Inability to Participate
1.14 Funded Debt 2 in Market 7
1.15 Funded Debt Ratio 3 4.7 Costs 7
1.16 GAAP 3 4.8 Basis of Quotes 8
1.17 Interest Payment Dates 3
1.18 Interest Period 3 ARTICLE 5
1.19 LIBOR Rate 3 Conditions of Lending 8
1.20 LIBOR Rate Loans 3 5.1 Authorization 8
1.21 Loan Documents 3 5.2 Documentation 8
1.22 London Banking Day 3 5.3 Proof of Insurance 8
1.23 Margin 4 5.4 Representations and
1.24 Modified Quick Ratio 4 Warranties 8
1.25 Obligations 4 5.5 Compliance 9
1.26 Person 4
1.27 Plan 4 ARTICLE 6
1.28 Prime Rate 4 Representations and
1.29 Prime Rate Loans 4 Warranties 9
1.30 Reserve Adjustment 4 6.1 Existence
1.31 Subsidiary 4 6.2 Enforceability 9
1.32 Swap Obligations 4 6.3 No Legal Bar 9
1.33 Tangible Net Worth 5 6.4 Financial Information 9
1.34 Termination Date 5 6.5 Liens and Encumbrances 10
1.35 Unsecured Trade Credit 5 6.6 Litigation 10
6.7 Payment of Taxes 10
ARTICLE 2 6.8 Employee Benefit Plan 10
Revolving Loan 5 6.9 Misrepresentations 10
2.1 Revolving Loan Facility 5 6.10 No Default 10
2.2 Revolving Note 5 6.11 No Burdensome Restrictions 10
2.3 Procedure for Advances 5
2.4 Facility Fee 6
<PAGE>
ARTICLE 7
Affirmative Convenants 11
7.1 Use of Proceeds 11
7.2 Tangible Net Worth 11
7.3 Debt Service Coverage Ratio 11
7.4 Modified Quick Ratio 11
7.5 Funded Debt Ratio 11
7.6 Financial Information 11
7.7 Maintenance of Existence 12
7.8 Books and Records 12
7.9 Access to Premises and
Records 12
7.10 Notice of Events 13
7.11 Payment of Debts and
Taxes 13
7.12 Insurance 13
7.13 Subsidiary Guaranties 14
ARTICLE 8
Negative Covenants 14
8.1 Debt 14
8.2 Liens and Encumbrances 14
8.3 Guaranties 15
8.4 Disposition of Assets 15
8.5 Mergers 15
8.6 Wage and Hour Laws 15
8.7 ERISA 15
8.8 Dissolution 15
8.9 Business Activities 15
8.10 Acquisitions 15
8.11 Capital Expenditures 16
ARTICLE 9
Events and Consequences
of Default 16
9.1 Events of Default 16
9.2 Remedies Upon Default 17
ARTICLE 10
Miscellaneous 18
10.1 Manner of Payments 18
10.2 Notices 19
10.3 Documentation and
Administration Expenses 19
10.4 Collection Expenses 19
10.5 Waiver 20
10.6 Assignment 20
10.7 Merger 20
10.8 Amendments 20
10.9 Mandatory Arbitration 20
10.10 Construction 21
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made between Interpoint Corporation,
a Washington corporation ("Borrower"), and Bank of America NW, N.A., doing
business as Seafirst Bank, a national banking association (including its
successors and/or assigns, "Bank"). The parties agree as follows:
ARTICLE 1
Definitions
All terms defined below shall have the meaning indicated. All references
in this Agreement to:
(a) "dollars" or "$" shall mean U.S. dollars;
(b) "Article," "Section," or "Subsection" shall mean articles, sections,
and subsections of this Agreement, unless otherwise indicated;
(c) terms defined in the Washington version of the Uniform Commercial
Code, R.C.W. 62A.9-101, et seq. ("UCC"), and not otherwise defined in this
Agreement, shall have the meaning given in the UCC; and
(d) an accounting term not otherwise defined in this Agreement shall
have the meaning assigned to it under GAAP.
.1 ADIC shall mean Advanced Digital Information Corporation, a Washington
corporation.
.2 Adjusted LIBOR Rate shall mean for any day that per annum rate equal to
the sum of (a) the Margin, (b) the Assessment Rate, and (c) the quotient of
(i) the LIBOR Rate as determined for such day, divided by (ii) the Reserve
Adjustment. The Adjusted LIBOR Rate shall change with any change in the
LIBOR Rate on the first day of each Interest Period and on the effective date
of any change in the Assessment Rate or Reserve Adjustment.
.3 Advances shall mean the disbursement of loan proceeds under the Revolving
Loan. An Advance shall not constitute a "payment order" under R.C.W.
62A.4A-103.
.4 Assessment Rate shall mean as of any day the minimum annual percentage
rate established by the Federal Deposit Insurance Corporation (or any successor)
for the assessment due from members of the Bank Insurance Fund (or any
successor) in effect for the assessment period during which said day occurs
based on deposits maintained at such members' offices located outside of the
United States. In the event of a retroactive reduction in the Assessment Rate
after a commencement of any Interest Period, Bank shall not retroactively
adjust as to such Interest Period any interest rate calculated using the
Assessment Rate.
<PAGE>
.5 Available Amount shall mean at any time the amount of the Credit Limit,
minus the unpaid balance of the Revolving Note.
.6 Business Day shall mean any day other than a Saturday, Sunday, or other
day on which commercial banks in Seattle, Washington, are authorized or
required by law to close.
.7 Cash Flow shall mean Borrower's net income after taxes (after
eliminating any unusual or infrequent gains and losses up to a maximum of
$250,000) subject to the following adjustments:
(a) Items added to net income shall be charges against income
consisting of depreciation of real and personal property, amortization,
write-off of goodwill and other intangibles, and interest expense.
(b) Items deducted from net income shall be cash paid by Borrower for
unfunded capital expenditures and dividends and distributions paid to
Borrower's shareholders.
.8 Commencement Date shall mean the first day of any Interest Period as
requested by Borrower.
.9 Credit Limit shall mean $20,000,000 through March 31, 1998; $18,000,000
from April 1, 1998 through March 31, 1999; $16,000,000 from April 1, 1999
through March 31, 2000; and $14,000,000 from April 1, 2000 through the
Termination Date.
.10 Debt shall mean all consolidated obligations, on a GAAP basis, included
in the liability section of a balance sheet of Borrower.
.11 Debt Service Coverage Ratio shall mean the ratio of Cash Flow to Debt
Service.
.12 Debt Service shall mean for any period the amount of cash interest
expense together with the current portion of Funded Debt, as of the last day
of the relevant period, excluding any repayments made or required to be made
pursuant to reductions in the Credit Limit.
.13 ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended.
.14 Funded Debt shall mean, as of the date of determination, the aggregate
principal amount of all Debt except (a) Unsecured Trade Credit, (b) accrued
liabilities, (c) current and deferred income taxes payable, and (d) other
non-interest bearing liabilities.
<PAGE>
.15 Funded Debt Ratio shall mean the ratio of (a) Funded Debt, to
(b) Borrower's consolidated net income, adjusted for any unusual or
infrequent gains and losses up to a maximum of $250,000, plus depreciation
plus amortization plus other non-cash charges plus income tax expense plus
interest expense, on a trailing four-quarter basis.
.16 GAAP shall mean generally accepted accounting principles as in effect
from time to time in the United States and as consistently applied by Borrower.
.17 Interest Payment Dates shall mean the first Business Day of each month,
and upon maturity, including upon maturity by acceleration.
.18 Interest Period shall mean the period commencing on the date of any
Advance at or conversion to an Adjusted LIBOR Rate and ending on any date
thereafter as selected by Borrower, subject to the restrictions of
Section 4.3. If any Interest Period would end on a day which is not a
Business Day, the Interest Period shall be extended to the next succeeding
Business Day, unless the next succeeding Business Day falls in the next
month, in which case the Interest Period shall be shortened to the preceding
Business Day.
.19 LIBOR Rate shall mean for any Interest Period the per annum rate,
calculated on the basis of actual number of days elapsed over a year of 360
days, for U.S. Dollar deposits for a period equal to the Interest Period
appearing on the display designated as "Page 3750" on the Telerate Service
(or such other page on that service or such other service designated by the
British Banker's Association for the display of that Association's Interest
Settlement Rates for U.S. Dollar deposits) as of 11:00 a.m., London time, on
the day which is two London Banking Days prior to the first day of the
Interest Period. If there is no period equal to the Interest Period on the
display, the LIBOR Rate shall be determined by straight-line interpolation
to the nearest month (or week or day if expressed in weeks or days)
corresponding to the Interest Period between the two nearest neighboring
periods on the display.
.20 LIBOR Rate Loans shall mean those portions of principal of the
Revolving Note accruing interest at the Adjusted LIBOR Rate.
.21 Loan Documents shall mean collectively this Agreement, the Revolving
Note, the Term Note, all documents representing Swap Obligations, and all other
mortgages, deeds of trust, security agreements, documents, instruments, and
other agreements now or later executed in connection with this Agreement.
.22 London Banking Day shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks in London, England, are authorized or
required by law to close.
.23 Margin shall mean 1.65% at all times when the Funded Debt Ratio, as
determined for the most recent quarter end, is less than 1.50 to 1; and 1.90%
at all times when the Funded Debt Ratio, as determined for the most recent
quarter end, is greater than or equal to 1.50 to 1.
<PAGE>
.24 Modified Quick Ratio shall mean the ratio of (a) Borrower's cash and
trade accounts receivable, net of allowance for doubtful accounts, to (b) the
outstanding principal balance of the Revolving Note.
.25 Obligations shall mean the Revolving Note, all Swap Obligations, the
term note made by Borrower to Bank scheduled to mature on August 1, 1997 (the
"Term Note"), and all fees, costs, expenses, and indemnifications due to Bank
under this Agreement.
.26 Person shall mean any individual, partnership, corporation, business
trust, unincorporated organization, joint venture, or any governmental
entity, department, agency, or political subdivision.
.27 Plan shall mean any employee benefit plan or other plan maintained for
Borrower's employees and covered by Title IV of ERISA, excluding any plan
created or operated by or for any labor union.
.28 Prime Rate shall mean the floating commercial loan reference rate of
Bank, publicly announced from time to time as its "prime rate" (calculated on
the basis of actual number of days elapsed over a year of 360 days), with any
change in the Prime Rate to be effective on the date the "prime rate" changes.
.29 Prime Rate Loans shall mean those portions of principal of the
Revolving Note accruing interest at the Prime Rate.
.30 Reserve Adjustment shall mean as of any day the remainder of one minus
that percentage (expressed as a decimal) which is the highest of any such
percentages established by the Board of Governors of the Federal Reserve
System (or any successor) for required reserves (including any emergency,
marginal, or supplemental reserve requirement) regardless of the aggregate
amount of deposits with said member bank and without benefit of any possible
credit, proration, exemptions, or offsets for time deposits established at
offices of member banks located outside of the United States or for
eurocurrency liabilities, if any.
.31 Subsidiary shall mean a corporation 50.1% or more of the outstanding
voting stock of which is owned, directly or indirectly, by Borrower or by one
or more other Subsidiaries, or by Borrower together with one or more other
Subsidiaries.
.32 Swap Obligations shall mean all indebtedness and obligations of Borrower
to Bank under any ISDA (or successor) Master Agreement, or equivalent
interest rate swap agreement, including all schedules thereto, confirmations of
transactions thereunder, and documents, definitions, and agreements
incorporated therein by reference or relating thereto (and including, without
limitation, any interest due thereon, fees, costs, and expenses connected
therewith, and termination payments and indemnifications relating thereto).
<PAGE>
.33 Tangible Net Worth shall mean Borrower's total shareholders equity,
including any intangible assets reported on Borrower's balance sheet as of
October 31, 1995, but excluding any intangible assets or goodwill associated
with subsequent operations or acquisitions.
.34 Termination Date shall mean April 1, 2001, or such earlier date upon
which Bank's commitment to lend is terminated pursuant to Subsection 9.2(a).
.35 Unsecured Trade Credit shall mean unsecured, short-term Debt arising
from current operations by purchasing on credit goods, services, supplies, or
merchandise and not constituting borrowings.
ARTICLE 2
Revolving Loan
.1 Revolving Loan Facility. Subject to the terms and conditions of this
Agreement, Bank shall make Advances to Borrower from time to time, until the
Termination Date ("Revolving Loan"), with the aggregate principal amount at
any one time outstanding not to exceed the Credit Limit. Borrower may use
the Revolving Loan by borrowing, prepaying, and reborrowing the Available
Amount, in whole or in part.
.2 Revolving Note. The obligation of Borrower to repay the Revolving Loan
shall be evidenced by a promissory note (including all renewals,
modifications, and extensions thereof, the "Revolving Note") made by Borrower
to the order of Bank, and shall bear interest as provided in Article 4. The
Revolving Note shall be secured as provided in Article 3 and shall be in
substantially the same form as Exhibit A attached. If at any time the
outstanding principal balance of the Revolving Note shall exceed the Credit
Limit, Borrower shall immediately repay principal of the Revolving Note in
an amount sufficient to reduce the principal balance of the Revolving Note to
the Credit Limit then in effect.
.3 Procedure for Advances. Borrower may borrow under the Revolving Loan on
any Business Day. Borrower shall give Bank irrevocable notice (written or
oral) specifying the amount to be borrowed and the requested borrowing date.
Bank must receive such notice on or before 3:30 p.m., Seattle time, on the
day borrowing is requested, or by such earlier time as may be required under
Article 4. All Advances shall be discretionary to the extent notification by
Borrower is given subsequent to that time.
<PAGE>
.4 Facility Fee. Borrower shall pay to Bank upon execution of this
Agreement a facility fee of $70,000. In addition, on the last Business Day
of each April, July, October, and January, beginning April 30, 1999, and
accruing from April 1, 1999, Borrower shall pay to Bank in arrears a
commitment fee equal to .125% per annum of the daily difference between the
Credit Limit and the outstanding principal balance of the Revolving Note.
ARTICLE 3
Collateral Security
.1 Collateral. As security for the prompt payment and performance of all
Obligations, Borrower and ADIC have granted or will grant to Bank a first
lien security interest in the following collateral (the "Collateral"): all of
their respective accounts, inventory, equipment, fixtures, general
intangibles, documents, instruments, chattel paper, financial assets,
investment property, and deposit accounts, wherever located, all whether now
owned or hereafter acquired, and all proceeds and products thereof; provided
that Bank's security interest shall not be required to be a first lien as
to fixed assets subject to purchase money security interests permitted under
this Agreement.
.2 Maintenance of Security. Borrower shall execute and deliver to Bank,
whenever requested, such security instruments as Bank deems necessary, in its
sole opinion, for the preservation of its security interest or to ensure the
priority of each security interest. Borrower hereby irrevocably appoints
Bank as its attorney-in-fact, solely for the purpose of executing on
Borrower's behalf any financing statement or other security document deemed
necessary by Bank to carry out the purposes of this Article, which
appointment shall continue so long as this Agreement remains in effect or any
Obligations remain outstanding.
.3 Negative Pledge. So long as any amount is payable by Borrower under this
Agreement, Borrower shall not allow any Collateral to be transferred or
encumbered, except sales in the ordinary course of business, purchase money
finance of fixed assets, or encumbrances to secure the Obligations.
.4 Setoff. Bank may exercise the right of setoff, assert its banker's
lien, or counterclaim against any interest of Borrower in each deposit
account which Borrower may now or later have with Bank, or any property which
is now or shall later be in Bank's possession.
<PAGE>
ARTICLE 4
Interest Rate Options
.1 Interest Rates and Payment Date. The Revolving Note shall bear interest
from the date of Advance on the unpaid principal balance outstanding from
time to time at the Prime Rate or Adjusted LIBOR Rate as selected by Borrower
and all accrued interest shall be payable in arrears on each Interest Payment
Date.
.2 Procedure. Borrower may, on any London Banking Day two London Banking
Days before a Commencement Date, request Bank to give an Adjusted LIBOR Rate
quote for a specified loan amount and Interest Period. Bank will then quote to
Borrower the available Adjusted LIBOR Rate. Borrower shall have two hours
from the time of the quote to elect an Adjusted LIBOR Rate by giving Bank
irrevocable notice of such election.
.3 Option Restrictions. Each Interest Period shall be one month, two months,
three months, or one year. In no event shall the Interest Period extend
beyond the Termination Date. The minimum amount of a LIBOR Rate Loan shall
be $500,000.
.4 Prepayments. If Borrower prepays all or any portion of a LIBOR Rate Loan
prior to the end of an Interest Period, there shall be due at the time of any
such prepayment the Prepayment Fee, determined in accordance with Form
51-6325, which shall be attached as Exhibit 1 to the Revolving Note.
Borrower may prepay Prime Rate Loans on any Business Day without premium or
penalty.
.5 Reversion to Prime. The Revolving Note shall bear interest at the Prime
Rate unless an Adjusted LIBOR Rate is specifically selected. At the termination
of any Interest Period, each LIBOR Rate Loan shall revert to a Prime Rate Loan
unless Borrower directs otherwise pursuant to Section 4.2.
.6 Inability to Participate in Market. If Bank in good faith cannot
participate in the Eurodollar market for legal or practical reasons, the
Adjusted LIBOR Rate shall cease to be an interest rate option. Bank shall
notify Borrower if and when it again becomes legal or practical to
participate in the Eurodollar market, at which time the Adjusted LIBOR Rate
shall resume being an interest rate option.
.7 Costs. Borrower shall, as to LIBOR Rate Loans, reimburse Bank for all
costs, taxes, and expenses, and defend and hold Bank harmless for any
liabilities, which Bank may incur as a consequence of any changes in the cost of
participating in, or in the laws or regulations affecting, the Eurodollar
market, including any additional reserve requirements, except to the extent
such costs are already calculated into the Adjusted LIBOR Rate. This
covenant shall survive this Agreement and the payment of the Revolving Note.
<PAGE>
.8 Basis of Quotes. Borrower acknowledges that Bank may or may not in any
particular case actually match-fund a LIBOR Rate Loan. FDIC assessments, and
Federal Reserve Board reserve requirements, if any are assessed, will be based
on Bank's best estimates of its marginal cost for each of these items.
Whether such estimates in fact represent the actual cost to Bank for any
particular dollar or Eurodollar deposit or any LIBOR Rate Loan will depend
upon how Bank actually chooses to fund the LIBOR Rate Loan. By electing an
Adjusted LIBOR Rate, Borrower waives any right to object to Bank's means of
calculating the Adjusted LIBOR Rate quote accepted by Borrower.
ARTICLE 5
Conditions of Lending
Bank's obligation to make the initial Advance is subject to the conditions
precedent listed in Sections 5.1 through 5.3, and to make subsequent Advances
is subject to the conditions precedent listed in Sections 5.4 and 5.5, unless
waived by Bank in writing:
.1 Authorization. Borrower shall have delivered to Bank a certified copy
of minutes of a meeting of Borrower's board of directors authorizing the
transactions contemplated by this Agreement and the execution, delivery, and
performance of all Loan Documents, together with appropriate certificates of
incumbency.
.2 Documentation. Borrower shall have executed and delivered to Bank all
documents to reflect the existence of the Obligations and Borrower and ADIC
shall have executed and delivered to Bank all documents necessary to perfect,
as a first lien (except as otherwise permitted under this Agreement), the
security interests granted to Bank.
.3 Proof of Insurance. Proof of insurance as required by Section 7.12 shall
have been provided to Bank.
.4 Representations and Warranties. The representations and warranties
made by Borrower in the Loan Documents and in any certificate, document, or
financial statement furnished at any time shall continue to be true and
correct, except to the extent that such representations and warranties
expressly relate to an earlier date.
.5 Compliance. No Default or other event which, upon notice or lapse of
time or both would constitute a Default, shall have occurred and be
continuing, or shall exist after giving effect to the advance of credit to
be made.
<PAGE>
ARTICLE 6
Representations and Warranties
To induce Bank to enter into this Agreement, Borrower represents, warrants,
and covenants to Bank as follows:
.1 Existence. Borrower is in good standing as a corporation under the
laws of the state of Washington, has the power, authority, and legal right
to own and operate its property or lease the property it operates and to
conduct its current business; and is qualified to do business and is in good
standing in all other jurisdictions where the ownership, lease, or operation of
its property or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse
effect on Borrower.
.2 Enforceability. The Loan Documents, when executed and delivered by
Borrower, shall be enforceable against Borrower in accordance with their
respective terms.
.3 No Legal Bar. The execution, delivery, and performance by Borrower of
the Loan Documents, and the use of the loan proceeds, shall not violate any
existing law or regulation applicable to Borrower; any ruling applicable to
Borrower of any court, arbitrator, or governmental agency or body of any
kind; Borrower's organizational documents; any security issued by Borrower;
or any mortgage, indenture, lease, contract, undertaking, or other agreement
to which Borrower is a party or by which Borrower or any of its property may
be bound.
.4 Financial Information. By submitting each of the financial statements
required by Subsection 7.6(a) and 7.6(b), Borrower is deemed to represent and
warrant that: (a) such statement is complete and correct and fairly presents
the financial condition of Borrower as of the date of such statement;
(b) such statement discloses all liabilities of Borrower that are required to
be reflected or reserved against under GAAP, whether liquidated or
unliquidated, fixed or contingent; and (c) such statement has been prepared
in accordance with GAAP. As of this date, there has been no adverse change
in Borrower's financial condition since preparation of the last such
financial statements delivered to Bank which would materially impair Borrower's
ability to repay the Obligations.
.5 Liens and Encumbrances. As of this date, Borrower has good and marketable
title to its property free and clear of all security interests, liens,
encumbrances, or rights of others, except for taxes which are not yet
delinquent and for conditions, restrictions, easements, and rights of way of
record which do not materially affect the use of any of Borrower's property.
<PAGE>
.6 Litigation. Except as disclosed in writing to Bank, there is no
threatened (to Borrower's knowledge) or pending litigation, investigation,
arbitration, or administrative action which may materially adversely affect
Borrower's business, property, operations, or financial condition.
.7 Payment of Taxes. Borrower has filed or caused to be filed all tax
returns when required to be filed; and has paid all taxes, assessments, fees,
licenses, excise taxes, franchise taxes, governmental liens, penalties, and
other charges levied or assessed against Borrower or any of its property
imposed on it by any governmental authority, agency, or instrumentality that
are due and payable (other than those returns or payments of which the
amount, enforceability, or validity are contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP are provided on Borrower's books).
.8 Employee Benefit Plan. Borrower is in compliance in all respects with the
provisions of ERISA and the regulations and published interpretations
thereunder. Borrower has not engaged in any acts or omissions which would
make Borrower liable to the Plan, to any of its participants, or to the
Internal Revenue Service, under ERISA.
.9 Misrepresentations. No information, exhibits, data, or reports furnished
by Borrower or delivered to Bank in connection with Borrower's application
for credit misstates any material fact, or omits any fact necessary to make
such information, exhibits, data, or reports not misleading.
.10 No Default. Borrower is not in default in any Loan Document, or in any
contract, agreement, or instrument to which it is a party.
.11 No Burdensome Restrictions. No contract or other instrument to which
Borrower is a party, or order, award, or decree of any court, arbitrator, or
governmental agency, materially impairs Borrower's ability to repay the
Obligations.
ARTICLE 7
Affirmative Covenants
So long as this Agreement shall remain in effect, or any liability exists
under the Loan Documents, Borrower shall:
.1 Use of Proceeds. Use the proceeds of the Revolving Loan for working
capital or other general corporate purposes.
<PAGE>
.2 Tangible Net Worth. Maintain a Tangible Net Worth, measured quarterly, of
not less than $20,000,000, increasing to $23,000,000 by quarter ending
October 31, 1996; to $27,000,000 by quarter ending October 31, 1997; and to
$32,000,000 by quarter ending October 31, 1998, and for all quarters
thereafter. If Borrower sells its existing investment in Apex Microtechnology
Corporation ("Apex"), and separately elects to implement a stock repurchase
program, the minimum Tangible Net Worth required to be maintained as of
October 31, 1996 and each quarter end thereafter until but not including
October 31, 1998 shall be reduced by the lesser of (a) $2,000,000, or (b) the
total cost of stock repurchased by Borrower through its stock repurchase
program, or (c) the cash proceeds received by Borrower from the sale of its
investment in Apex.
.3 Debt Service Coverage Ratio. Maintain a Debt Service Coverage Ratio,
measured quarterly, on a trailing four-quarter basis, of at least 2.00 to 1,
increasing to 2.25 to 1 by quarter ending October 31, 1997; and increasing
to 2.50 to 1 by quarter ending October 31, 1998, and for all quarters
thereafter.
.4 Modified Quick Ratio. Maintain a Modified Quick Ratio, measured
quarterly, of at least 1.0 to 1 through quarter ending July 31, 1997, at
east 1.1 to 1 as of quarter ending October 31, 1997; at least 1.2 to 1 as of
quarter ending October 31, 1998; and at least 1.3 to 1 as of quarter ending
October 31, 1999, and as of each quarter end thereafter.
.5 Funded Debt Ratio. Maintain a Funded Debt Ratio, measured quarterly,
on a trailing four-quarter basis, of not more than 2.50 to 1, decreasing to
2.25 to 1 by quarter ending October 31, 1997; and to 2.00 to 1 by quarter
ending October 31, 1998, and for all quarters thereafter.
.6 Financial Information. Maintain a standard system of accounting in
accordance with GAAP and furnish to Bank the following:
(a) SEC Reporting. As soon as made available to the Securities and
Exchange Commission or Borrower's shareholders, copies of all 10-Q and
10-K filings;
(b) Annual Financial Statements. As soon as available and, in any event,
within 90 days after the end of each fiscal year, a copy of the consolidated
balance sheet, consolidated statement of income and retained earnings,
consolidated statement of shareholders' equity, and consolidated statement
of cash flow of Borrower for such year, setting forth in each case, in
comparative form, corresponding figures from the preceding annual
statements, each audited by independent certified public accountants of
recognized standing selected by Borrower and satisfactory to Bank
certifying that such statement is complete and correct, fairly presents
without qualification the financial condition of Borrower for such period,
is prepared in accordance with GAAP, and has been audited in conformity
with generally accepted auditing standards;
<PAGE>
(c) Aging Report. Quarterly or more frequently as requested by Bank, a
report providing the agings of accounts receivable and accounts payable, in
form and substance satisfactory to Bank;
(d) Projections. Annually, within 90 days of each fiscal year end,
consolidated financial projections of Borrower for the fiscal year then
beginning, in form satisfactory to Bank;
(e) Other Certificates. Together with the delivery of the financial
statements required by Subsections 7.6(a) and 7.6(b), a certificate of the
chief accounting officer of Borrower, in the form of Exhibit B attached; and
(f) Additional Financial Information. As soon as available and, in any
event, within ten days after request, such other data, information, or
documentation as Bank may reasonably request.
.7 Maintenance of Existence. Preserve and maintain its existence, powers,
and privileges in the jurisdiction of its formation, and qualify and remain
qualified in each jurisdiction in which its presence is necessary or
desirable in view of its business, operations, or ownership of its property.
Borrower shall also maintain and preserve all of its property which is
necessary or useful in the proper course of its business, in good working
order and condition, ordinary wear and tear excepted.
.8 Books and Records. Keep accurate and complete books, accounts, and
records in which complete entries shall be made in accordance with GAAP,
reflecting all financial transactions of Borrower.
.9 Access to Premises and Records. At all reasonable times and as often as
Bank may reasonably request, permit any authorized representative designated by
Bank to have access to the premises, property, and financial records of
Borrower, including all records relating to the finances, operations, and
procedures of Borrower, and to make copies of or abstracts from such records.
.10 Notice of Events. Furnish Bank prompt written notice of:
(a) Proceedings. Any proceeding instituted by or against Borrower in
any court or before any commission or regulatory body, or any proceeding
threatened against it in writing by any governmental agency which if
adversely determined would have a material adverse effect on Borrower's
business, property, or financial condition, or where the amount involved
is $250,000 or more and not covered by insurance;
<PAGE>
(b) Material Development. Any material development in any such
proceeding referred to in Subsection 7.10(a);
(c) Defaults. Any accident, event, or condition which is or, with
notice or lapse of time or both, would constitute a Default, or a default
under any other agreement to which Borrower is a party; and
(d) Adverse Effect. Any other action, event, or condition of any
nature which could result in a material adverse effect on the business,
property, or financial condition of Borrower.
.11 Payment of Debts and Taxes. Pay each Debt greater than $100,000 and
perform all material obligations promptly and in accordance with their terms,
and pay and discharge promptly all taxes, assessments, and governmental
charges or levies imposed upon Borrower, its property, or revenues prior to
the date on which penalties attach thereto, as well as all lawful claims
for labor, material, supplies, or otherwise which, if unpaid, might become a
lien or charge upon Borrower's property. Borrower shall not, however, be
required to pay or discharge any such tax, assessment, charge, levy, or
claim so long as its enforceability, amount, or validity is contested in good
faith by appropriate proceedings.
.12 Insurance. Maintain commercially adequate levels of coverage with
financially sound and reputable insurers, including, without limitation:
(a) Property Insurance. Insurance on all property of a character
usually insured by organizations engaged in the same or similar type of
business as Borrower against all risks, casualties, and losses through
extended coverage or otherwise and of the kind customarily insured against
by such organizations, with such policy or policies covering tangible
collateral to name Bank as loss payee, as its interests may appear;
(b) Liability Insurance. Public liability insurance against tort
claims which may be asserted against Borrower; and
(c) Additional Insurance. Such other insurance as may be required
by law.
.13 Subsidiary Guaranties. Provide to Bank, upon demand, a full and
continuing guaranty of the Obligations by each Subsidiary of Borrower.
<PAGE>
ARTICLE 8
Negative Covenants
So long as this Agreement shall remain in effect, or any liability shall exist
under the Loan Documents, Borrower shall not, without prior written consent
of Bank, which consent shall not be unreasonably withheld:
.1 Debt. Create, incur, assume, permit to exist, or otherwise become
committed for any Debt except any:
(a) Unsecured Trade Credit. Unsecured Trade Credit;
(b) Existing Obligations. Debt owing to Bank, or in existence as of this
date and disclosed to Bank, and all renewals, modifications, and extensions
thereof;
(c) Purchase Money Finance. Debt incurred to finance the acquisition of
fixed assets, subject to other restrictions of this Agreement;
(d) Lease Agreements. Debt incurred in connection with capital leases
calling for payments in the aggregate not exceeding $250,000 in any one
fiscal year; and
(e) Ordinary Course. Debt incurred in the ordinary course of business
and appearing on the liability section of the balance sheet of Borrower,
prepared in accordance with GAAP, including, without limitation, accrued
liabilities and taxes payable.
.2 Liens and Encumbrances. Create, incur, or assume, or agree to create,
incur, or assume any lien, whether consensual or nonconsensual, on any of its
property, or to enter into any lease with respect to any of its property
except:
(a) Existing Liens. Liens in effect as of this date;
(b) Purchase Money Liens. Liens securing purchase money finance of
fixed assets, as permitted under Subsection 8.1(c);
(c) Liens of Bank. Liens in favor of Bank;
(d) Tax Liens. Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings; and
(e) Incidental Liens. Other liens incidental to the conduct of its
business or the ownership of its property which are not incurred in
connection with the borrowing of money or the obtaining of credit, and
which do not in the aggregate materially impair the value or use of
property.
<PAGE>
.3 Guaranties. Assume, guaranty, endorse, become a surety for, indemnify,
or otherwise in any fashion become responsible for, directly or indirectly, any
obligation of any Person, except:
(a) Negotiable Instruments. Endorsements on negotiable instruments for
deposit or collection in the ordinary course of business; and
(b) Performance Bonds. Performance bonds as required in the ordinary
course of Borrower's business.
.4 Disposition of Assets. Sell, transfer, lease, or otherwise assign or
dispose of a substantial portion of its property to any Person, outside the
ordinary course of business.
.5 Mergers. Become a party to any merger, consolidation, or like corporate
change, or make any substantial transfer or contribution to, or material
investment in, stock, shares, or licenses of any Person, if any such merger,
investment, or the like is in an amount of $500,000 or more.
.6 Wage and Hour Laws. Engage in any material violation of the federal Fair
Labor Standards Act or any comparable state wage and hour law.
.7 ERISA. Engage in any act or omission which would make Borrower materially
liable under ERISA to the Plan, to any of its participants, or to the Internal
Revenue Service.
.8 Dissolution. Adopt any agreement or resolution for dissolving,
terminating, or substantially altering Borrower's present business activities.
.9 Business Activities. Engage or enter into any activity which is unusual
to Borrower's existing business.
.10 Acquisitions. Make any acquisition, or permit any Subsidiary to make
any acquisition, in an amount of $500,000 or more, without the prior written
consent of Bank, which shall not be unreasonably withheld so long as Bank has
received complete information concerning the details of such acquisition.
.11 Capital Expenditures. Make in any one fiscal year capital expenditures
which when cumulated exceed $2,500,000, or in any two consecutive fiscal
years capital expenditures which when cumulated exceed $4,000,000.
<PAGE>
ARTICLE 9
Events and Consequences of Default
.1 Events of Default. Any of the following events shall, at the option of
Bank and at any time without regard to any previous knowledge on the part of
Bank, constitute a default by Borrower under the terms of this Agreement, the
Revolving Note, and all other Loan Documents ("Default"):
(a) Nonpayment. Any payment or reimbursement due or demanded under this
Agreement or any Loan Document is not made within five days of the date when
due;
(b) Breach of Warranty. Any representation or warranty made in
connection with this Agreement or any other Loan Document, or any
certificate, notice, or report furnished pursuant hereto, is determined by
Bank to be false in any material respect when made, and is relied upon by
Bank to its detriment;
(c) Failure to Perform. Any other term, covenant, or agreement contained
in any Loan Document is not performed or satisfied, and, if remediable, such
failure continues unremedied for 30 days after written notice thereof has been
given to Borrower by Bank;
(d) Defaults on Other Obligations. There exists a default in the
performance of any other agreement or obligation for the payment of borrowed
money, for the deferred purchase price of property or services, or for the
payment of rent under any lease, whether by acceleration or otherwise,
which obligation exceeds $100,000, and which would permit such obligation
to be declared due and payable prior to its stated maturity; and such default
continues for 30 days after Borrower receives written notice thereof from the
creditor so affected;
(e) Loss, Destruction, or Condemnation of Property. A portion of
Borrower's property is affected by any uninsured loss, damage, destruction,
theft, sale, or encumbrance other than created herein or is condemned,
seized, or appropriated, the effect of which materially impairs Borrower's
financial condition or its ability to pay its debts as they come due;
(f) Attachment Proceedings and Insolvency. Borrower or any of Borrower's
property is affected by any:
<PAGE>
(i) Judgment lien, execution, attachment, garnishment, general
assignment for the benefit of creditors, sequestration, or forfeiture, to
the extent Borrower's financial condition or its ability to pay its
debts as they come due is thereby materially impaired; or
(ii) Proceeding under the laws of any jurisdiction relating to
receivership, insolvency, or bankruptcy, whether brought voluntarily or
involuntarily by or against Borrower, including, without limitation,
any reorganization of assets, deferment or arrangement of debts, or any
similar proceeding, and, if such proceeding is involuntarily brought
against Borrower, it is not dismissed within 60 days;
(g) Judgments. Final judgment on claims not covered by insurance which,
together with other outstanding final judgments against Borrower, exceeds
$250,000, and which materially impairs Borrower's financial condition or its
ability to pay its debts as they come due, is rendered against Borrower and is
not discharged, vacated, or reversed, or its execution stayed pending appeal,
within 60 days after entry, or is not discharged within 60 days after the
expiration of such stay; or
(h) Government Approvals. Any governmental approval, registration, or
filing with any governmental authority, now or later required in connection
with the performance by Borrower of its obligations under the Loan
Documents, is revoked, withdrawn, or withheld, or fails to remain in full
force and effect, except Borrower shall have 60 days after notice of any
such event to take whatever action is necessary to obtain all necessary
approvals, registrations, and filings.
.2 Remedies Upon Default. If any Default occurs and is continuing, Bank may
at its option, by notice to Borrower:
(a) Terminate Commitments. Terminate Bank's commitment to make
Advances;
(b) Suspend Commitments. Refuse to make further Advances until any
Default has been cured;
(c) Accelerate. Declare the Revolving Note and/or the Term Note,
together with all accrued interest, to be immediately due and payable
without presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived by Borrower;
(d) Setoff. Exercise its right of setoff against deposit accounts of
Borrower with Bank;
<PAGE>
(e) Collateral. Proceed to realize on any or all Collateral by any
available means; and/or
(f) All Remedies. Pursue any other available legal and equitable
remedies.
All of Bank's rights and remedies in all Loan Documents shall be cumulative
and can be exercised separately or concurrently.
ARTICLE 10
Miscellaneous
.1 Manner of Payments.
(a) Payments on Nonbusiness Days. Whenever any event is to occur or any
payment is to be made under any Loan Document on any day other than a Business
Day, such event may occur or such payment may be made on the next succeeding
Business Day and such extension of time shall be included in computation of
interest in connection with any such payment.
(b) Payments. All payments and prepayments to be made by Borrower shall
be made to Bank when due, at Bank's office as may be designated by Bank, without
offsets or counterclaims for any amounts claimed by Borrower to be due from
Bank, in U.S. dollars and in immediately available funds.
(c) Application of Payments. All payments made by Borrower shall be
applied first against fees, expenses, and indemnities due; second, against
interest due; and third, against principal, with Bank having the right, after
a Default which is continuing, to apply any payments or collections received
against any one or more of the Obligations in any manner which Bank may choose.
(d) Recording of Payments. Bank is authorized to record on a schedule
or computer-generated statement the date and amount of each Advance, all
conversions between interest rate options, and all payments of principal and
interest. All such schedules or statements, absent manifest error, shall
constitute prima facie evidence of the accuracy of the information so recorded.
.2 Notices. Bank may make Advances and conversions between interest rates
based on telephonic, telex, and oral requests made by any Person whom Bank in
good faith believes to be authorized to act on behalf of Borrower. All other
notices, demands, and other communications to be given pursuant to any of the
Loan Documents shall be in writing and shall be deemed received the earlier
of when actually received, or two days after being mailed, postage prepaid and
addressed as follows, or as later designated in writing:
<PAGE>
Bank:
SEAFIRST BANK
Western Commercial Banking, Team 2
10500 N.E. 8th Street, 5th Floor
Bellevue, WA 98004
Attention: Thomas E. Kasanders
Borrower:
INTERPOINT CORPORATION
10301 Willows Road
Redmond, WA 98052
Attention: Leslie Rock
.3 Documentation and Administration Expenses. Borrower shall pay, reimburse,
and indemnify Bank for all of Bank's reasonable costs and expenses, including,
without limitation, all accounting, appraisal, and report preparation fees or
expenses, all reasonable attorneys' fees (including the allocated cost of
in-house counsel), legal expenses, and recording or filing fees, incurred in
connection with the negotiation, preparation, execution, and administration of
this Agreement and all other Loan Documents, and all amendments, supplements, or
modifications thereto, and the perfection of all security interests, liens, or
encumbrances that may be granted to Bank; provided, that Borrower shall not
be required to reimburse Bank for more than $2,000 of Bank's legal fees and
other documentation fees for initial documentation of the facility represented
by this Agreement. Borrower acknowledges that any legal counsel retained or
employed by Bank acts solely on the Bank's behalf and not on Borrower's behalf,
despite Borrower's obligation to reimburse Bank for the cost of such legal
counsel, and that Borrower has had sufficient opportunity to seek the advice of
its own legal counsel with regard to this Agreement.
.4 Collection Expenses. The nonprevailing party shall, upon demand by the
prevailing party, reimburse the prevailing party for all of its costs, expenses,
and reasonable attorneys' fees (including the allocated cost of in-house
counsel) incurred in connection with any controversy or claim between said
parties relating to this Agreement or any of the other Loan Documents, or to
an alleged tort arising out of the transactions evidenced by this Agreement,
including those incurred in any action, bankruptcy proceeding, arbitration or
other alternative dispute resolution proceeding, or appeal, or in the course of
exercising any judicial or nonjudicial remedies.
.5 Waiver. No failure to exercise and no delay in exercising, on the part of
Bank, any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power, or privilege. Further, no waiver or
indulgence by Bank of any Default shall constitute a waiver of Bank's right to
declare a subsequent similar failure or event to be a Default.
<PAGE>
.6 Assignment. This Agreement is made expressly for the sole benefit of
Borrower and for the protection of Bank and its successors and assigns. The
rights of Borrower hereunder shall not be assignable by operation of law or
otherwise, without the prior written consent of Bank.
.7 Merger. The rights and obligations set forth in this Agreement shall not
merge into or be extinguished by any of the Loan Documents, but shall continue
and remain valid and enforceable. This Agreement and the other Loan Documents
constitute Bank's entire agreement with Borrower with regard to the Revolving
Loan, and supersede all prior writings and oral negotiations. No oral or
written representation, covenant, commitment, waiver, or promise of either
Bank or Borrower shall have any effect, whether made before or after the date of
this Agreement, unless contained in this Agreement or another Loan Document, or
in an amendment complying with Section 10.8. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
<PAGE>
.8 Amendments. Any amendment or waiver of, or consent to any departure by
Borrower from any provision of, this Agreement shall be in writing signed by
each party to be bound thereby, and shall be effective only in the specific
instance and for the specific purpose for which given.
.9 Mandatory Arbitration.
(a) At the request of either Bank or Borrower, any controversy or claim
between Bank and Borrower, arising from or relating to this Agreement or
any of the other Loan Documents, or arising from an alleged tort, shall be
settled by arbitration in Seattle, Washington. The United States
Arbitration Act shall apply even though this Agreement is otherwise
governed by Washington law. The proceedings shall be administered by the
American Arbitration Association under its commercial rules of arbitration.
Any controversy over whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any
court having jurisdiction over the parties. The institution and
maintenance of an action for judicial relief or pursuit of an ancillary or
provisional remedy shall not constitute a waiver of the right of either party,
including the plaintiff, to submit the controversy or claim to arbitration if
such action for judicial relief is contested. For purposes of the application
of the statute of limitations, the filing of an arbitration pursuant to this
subsection is the equivalent of the filing of a lawsuit, and any claim or
controversy which may be arbitrated under this subsection is subject to any
applicable statute of limitations. The arbitrator(s) will have the authority
to decide whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis. The parties
consent to the joinder of any guarantor, hypothecator, or other party
having an interest relating to the claim or controversy being arbitrated in
any proceedings under this Section.
(b) No provision of this subsection shall limit the right of Borrower or
Bank to exercise self-help remedies such as set-off, foreclosure, retention or
sale of any collateral, or obtaining any ancillary, provisional, or interim
remedies from a court of competent jurisdiction before, after, or during the
pendency of any arbitration proceeding. The exercise of any such remedy
does not waive the right of either party to request arbitration.
.10 Construction. Each term of this Agreement and each Loan Document shall
be binding to the extent permitted by law and shall be governed by the laws of
the State of Washington, excluding its conflict of laws rules. If one or
more of the provisions of this Agreement should be invalid, illegal, or
unenforceable in any respect, the remaining provisions of this Agreement
shall remain effective and enforceable. If there is a conflict among the
provisions of any Loan Documents, the provisions of this Agreement shall be
controlling. The captions and organization of this Agreement are for
convenience only, and shall not be construed to affect any provision of this
Agreement.
DATED March 29, 1996.
Borrower:
INTERPOINT CORPORATION
By /s/Leslie S. Rock
-------------------------
Title Vice President, Treasurer
-------------------------
Bank:
SEAFIRST BANK
By /s/T.E. Kasanders
_________________________
Title Vice President
-------------------------
EXHIBIT 10.2 DUE: April 1, 2001
REVOLVING NOTE
INTERPOINT CORPORATION
$20,000,000.00 Dated: March 29, 1996
Seattle, Washington
INTERPOINT CORPORATION ("Maker") unconditionally promises to
pay to the order of Bank of America NW, N.A., doing business as
SEAFIRST BANK ("Bank") at its Western Commercial Banking, Team 2
office, on or before April 1, 2001, in immediately available
funds, the principal sum of Twenty Million and No/100 Dollars
($20,000,000.00), or such lesser sum as may be outstanding under
this Note, together with interest on the daily unpaid principal
balance from the date of each Advance until paid in full in
accordance with the terms, conditions, and definitions of the
Credit Agreement dated March 29, 1996 ("Agreement") between
Maker, as Borrower, and Bank. If at any time the outstanding
principal balance of this Note shall exceed the Credit Limit,
Maker shall immediately repay principal of the this Note in an
amount sufficient to reduce the principal balance of this Note to
the Credit Limit then in effect.
This Note is the Revolving Note referred to in the
Agreement, and the Agreement is incorporated herein. Also
incorporated herein is Exhibit 1 attached hereto, regarding
prepayment fees.
If a Default shall occur, interest shall accrue, at the
option of the holder of this Note, from the date of Default at a
floating rate per annum three percent (3%) above the Prime Rate,
as the Prime Rate may vary from time to time, and the entire
unpaid principal amount of this Note, together with all accrued
interest, shall become immediately due and payable at the option
of the holder hereof.
Advances under this Note may be made by Bank at the oral or
written request of Leslie S. Rock, Peter H. van Oppen, Chris
Willis, Marilyn Goldberg, any one acting alone, who are
authorized to request Advances and direct the disposition of any
such Advances until written notice of the revocation of such
authority is received by Bank at its office indicated above. Any
such Advance shall be conclusively presumed to have been made to
or for the benefit of Maker when made in accordance with such
requests and directions, or when said Advances are deposited to
the credit of an account of Maker with Bank, regardless of the
fact that persons other than those authorized under this
paragraph may have authority to draw against such account.
Except as otherwise expressly set forth in the Agreement,
Maker hereby waives presentment, demand, protest, and notice of
dishonor hereof. Each party signing or endorsing this Note signs
as maker and principal, and not as guarantor, surety, or
accommodation party; and is estopped from asserting any defense
based on any capacity other than maker or principal.
This Note shall be governed by and construed in accordance
with the laws of the State of Washington.
INTERPOINT CORPORATION
By /s/Leslie s. Rock
-------------------------
Title Vice President, Treasurer
-------------------------
EXHIBIT 10.3
SECURITY AGREEMENT
This security agreement ("Agreement") is made and entered
into by Interpoint Corporation, a Washington corporation
("Borrower"), for the benefit of Bank of America NW, N.A., doing
business as Seafirst Bank, a national banking association
("Secured Party").
RECITALS:
A. Concurrently with the execution hereof, Secured Party
and Borrower entered into a Credit Agreement dated March 29, 1996
(together with all supplements, exhibits, and amendments thereto,
referred to as the "Credit Agreement"), pursuant to which Secured
Party agreed to make available to Borrower certain credit
facilities (the "Credit Facilities").
B. Borrower wishes to grant to Secured Party a security
interest in all certain of its assets as security for all the
Secured Obligations.
NOW, THEREFORE, in order for Secured Party to extend the
Credit Facilities, Borrower agrees as follows:
1
DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings when used herein. For the
purposes of this Agreement, the following terms shall have the
following meanings:
"Accounts" means any right to payment for goods sold or
leased or for services rendered that is not evidenced by an
Instrument or Chattel Paper, whether or not it has been earned by
performance.
"Account Debtor" means the party who is obligated on or
under any Account, Chattel Paper, or General Intangible.
"Assignee Deposit Account" shall have the meaning set forth
in Section 5.7 hereof.
"Applicable Law" shall mean the laws of the State of
Washington, without regard to its choice of law rules.
"Chattel Paper" means all interest of Borrower in writings
that evidence both a monetary obligation and a security interest
in or a lease of specific goods, including any group of writings
consisting of both a security agreement or a lease and an
Instrument or series of Instruments.
"Collateral" means all personal property, tangible and
intangible, wherever located, now owned or hereafter acquired by
Borrower, or in which Borrower has or later obtains an interest,
and all products, profits, rents, and proceeds of such property,
including but not limited to Accounts, Chattel Paper, Deposit
Accounts, Documents, Equipment, General Intangibles, Goods,
Instruments, Inventory, Trademarks, and Vehicles.
"Deposit Account" means a demand, time, savings, passbook,
or like account maintained with a bank, savings and loan
association, credit union, or like organization, other than an
account evidenced by a certificate of deposit.
"Document" means all of Borrower's right, title, and
interest in or to any document of title as defined in RCW 62A.1-
201 and any receipt of the kind described in RCW 62A.7-201(2).
<PAGE>
"Equipment" means all of Borrower's right, title, and
interest in and to Goods that are used or bought for use
primarily in business and that are not included within the
definition of Inventory, including but not limited to all
machinery, equipment, furnishings, fixtures, vehicles, tools,
supplies, and other equipment of any kind and nature and all
additions, substitutions, and replacements of any of the
foregoing, together with all attachments, components, parts,
accessories, improvements, upgrades, and accessories installed
thereon or affixed thereto.
"Event of Default" means an occurrence of a Default as
defined in the Credit Agreement.
"Financial Assets" means all of Borrower's right, title, and
interest in and to any financial asset as defined in RCW 62A.8-
102.
"Fixtures" shall have the meaning given to such term in RCW
62A.9-101 et seq.
"General Intangibles" means all personal property (including
things in action) other than Goods, Accounts, Chattel Paper,
Documents, Instruments, and money, including but not limited to
all Trademarks, insurance proceeds, patents, copyrights, trade
names, trade secrets, goodwill, registration, license rights,
licenses, permits, corporate and other business records, rights
to refunds or indemnification, tax refunds, choses in action,
judgments taken on any rights or claims included in the
Collateral, and all other intangible personal property of
Borrower of every kind and nature.
"Goods" means all things that are movable or that are
fixtures, not including money, Documents, Instruments, Accounts,
Chattel Paper, or General Intangibles.
"Governmental Approvals" means any approval by or
registration or filing with any Governmental Body, now or later
required in connection with the performance by Borrower of its
obligations under the Loan Documents.
"Governmental Body" means any local, state, or federal
government, or any agency, subdivision, or court thereof.
"Instrument" means any negotiable instrument or security or
other writing that evidences a right to the payment of money and
is not itself a security agreement or lease and is of a type that
is in the ordinary course of business transferred by delivery
with any necessary endorsement or assignment.
"Inventory" means all Goods held by Borrower for sale or
lease, furnished or to be furnished by Borrower under any
contract of service, or held by Borrower as raw materials, work
in progress, or materials used or consumed in Borrower's
business.
"Investment Property" means all of Borrower's right, title,
and interest in and to any investment property as defined in RCW
62A.9-115.
"Secured Obligations" means the "Obligations" as defined in
the Credit Agreement, and any obligations which are specified in
this Agreement as being included as Secured Obligations.
"Trademark" means (a) any trademark, trade name, corporate
name, company name, business name, fictitious business name,
trade style, service mark, logo or other source or business
identifier, and the goodwill associated therewith, now existing
or hereafter adopted or acquired, any registration or recording
thereof, and any application in connection therewith, whether in
the United States Patent and Trademark Office or in any similar
office or agency of the United States or of any state thereof, or
any other country or any political subdivision thereof, or
otherwise, including but not limited to any thereof referred to
in Schedule A-1 hereto, and (b) all renewals thereof.
"Vehicle" means any car, truck, trailer, forklift, loader,
construction or earth-moving equipment, or other vehicle covered
by a certificate of title of any state, including but not limited
to any tires or other appurtenances to any of the foregoing.
<PAGE>
2
GRANT OF SECURITY INTEREST
As security for the prompt payment and satisfaction of the
Secured Obligations, Borrower hereby grants to Secured Party a
continuing security interest in and assigns to Secured Party all
of Borrower's right, title, and interest in the Collateral and
all products, profits, rents, and proceeds thereof.
3
COVENANTS OF BORROWER
Borrower shall fully perform each of the covenants set forth
below.
.1 Obligations to Pay.
(a) Borrower shall pay to Secured Party, in timely
fashion and in full, all amounts payable by Borrower to
Secured Party, pursuant to the Credit Agreement and the
other Loan Documents; and
(b) Borrower shall pay and reimburse Secured Party for
all expenditures including reasonable attorney fees and
legal expenses (including the allocated cost of the services
of in-house counsel) in connection with the exercise by
Secured Party of any of its rights or remedies under the
Credit Agreement or the other Loan Documents.
.2 Performance. Borrower shall fully perform in a timely
fashion every covenant, agreement, and obligation set forth in
the Credit Agreement and the other Loan Documents.
.3 Further Documentation. At its own expense, Borrower
shall execute and deliver any financing statement, any renewal,
substitution, or correction thereof, or any other document; shall
procure any document; and shall take such further action as
Secured Party may reasonably require in obtaining the full
benefits of this Agreement.
.4 Filing Fees. Borrower shall pay all costs of filing
any financing, continuation, or termination statement with
respect to the security interests granted herein.
.5 Pledges. Borrower shall deliver and pledge to Secured
Party, endorsed or accompanied by instruments of assignment or
transfer satisfactory to Secured Party, any Instruments,
Documents, General Intangibles, or Chattel Paper that Secured
Party may specify from time to time.
.6 Maintenance of Records. Borrower shall keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral including but not limited to a record
of all payments received and all credits granted with respect to
the Collateral and all other dealings with the Collateral.
Borrower shall mark its records pertaining to the Collateral to
evidence this Agreement and the security interests granted
herein. Borrower shall deliver and turn over to Secured Party
copies of all records pertaining to the Collateral at any time
after the occurrence and during the continuation of an Event of
Default, if so demanded by Secured Party.
.7 Disposition of Collateral. Except as allowed in the
Credit Agreement, Borrower shall not sell or transfer any of the
Collateral or release, compromise, or settle any obligation or
receivable due to Borrower.
<PAGE>
.8 Indemnification. Borrower agrees to pay, and to
indemnify Secured Party and hold Secured Party harmless from, all
liabilities, costs, and expenses including but not limited to
legal fees and expenses with respect to or resulting from (a) any
delay in paying any excise, sales, or other taxes that may be
payable or determined to be payable with respect to any of the
Collateral, (b) any delay by Borrower in complying with any
requirement of law applicable to any of the Collateral, or (c)
any of the transactions contemplated by this Agreement. In any
suit, proceeding, or action brought by Secured Party under any
Account to enforce payment of any sum owing thereunder or to
enforce any provisions of any Account, Borrower will indemnify
Secured Party and hold Secured Party harmless from all expense,
loss, or damage suffered by reason of any defense, setoff,
counterclaim, recoupment, reduction, or liability whatsoever of
the Account Debtor thereunder arising out of a breach by Borrower
of any obligation thereunder or arising out of any other
agreement, indebtedness, or liability at any time owing to or in
favor of such Account Debtor or its successors from Borrower.
.9 Further Identification of Collateral. Borrower will
furnish to Secured Party from time to time statements and
schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured
Party may reasonably request, all in reasonable detail.
.10 Notices. Borrower will advise Secured Party promptly
in reasonable detail at its address set forth in the Credit
Agreement of any Lien (other than Liens created hereby or
permitted under the Credit Agreement) on or claim asserted
against any of the Collateral and (b) of the occurrence of any
other event that could reasonably be expected to have a material
adverse effect on the Collateral or on the Liens created
hereunder.
.11 Changes in Locations, Name, Etc. Borrower will not (a)
change the location of its chief executive office/chief place of
business from that specified in Section 4.10 or remove its
records from the location specified in Section 4.7, (b) permit
any of the Inventory or Equipment (excluding Vehicles) to be kept
at locations other than those listed on Schedule A-2 hereto, or
(c) change its name, identity, or structure to such an extent
that any financing statement filed by Secured Party in connection
with this Agreement would become seriously misleading, unless it
shall have given Secured Party at least ten days' prior written
notice thereof.
.12 Trademarks.
(a) Unless the failure to do so would have a material
adverse effect on Borrower, Borrower (either itself or
through licensees) will (i) continue to use each Trademark
on each and every trademark class of goods applicable to its
current line as reflected in its current catalogs,
brochures, and price lists in order to maintain such
Trademark in full force free from any claim of abandonment
for nonuse, (ii) maintain as in the past the quality of
products and services offered under such Trademark, (iii)
employ such Trademark with the appropriate notice of
registration, (iv) not adopt or use any mark that is
confusingly similar to or a colorable imitation of such
Trademark unless Secured Party shall obtain a perfected
security interest in such mark pursuant to this Agreement,
and (v) not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act
whereby any Trademark may become invalidated.
(b) Borrower will notify Secured Party immediately if
it knows, or has reason to know, of (i) any application or
registration relating to any Trademark material to its
business that may become abandoned or dedicated, or (ii) any
adverse determination or development (including but not
limited to the institution of, or any adverse determination
or development in, any proceeding in the United States
Patent and Trademark Office or any court or tribunal in any
country) regarding Borrower's ownership of any material
Trademark or its right to register, keep, or maintain the
same.
(c) Whenever Borrower, either by itself or through any
agent, employee, licensee, or designee, shall file an
application for the registration of any material Trademark
with the United States Patent and Trademark Office or any
similar office or agency in any other country or any
political subdivision thereof, Borrower shall report such
filing to Secured Party within five Business Days after the
last day of the calendar month in which such filing occurs.
Borrower shall execute and deliver to Secured Party all
agreements, instruments, powers of attorney, documents, and
papers that Secured Party may reasonably request to evidence
Secured Party's security interest in any Trademark and in
the goodwill and general intangibles of Borrower relating to
or represented by the Trademark. Borrower hereby
constitutes Secured Party its attorney-in-fact to execute
and file all such writings for the foregoing purposes, with
all acts of such attorney being hereby ratified and
confirmed; and such power, being coupled with an interest,
is irrevocable until all Secured Obligations are paid in
full.
<PAGE>
(d) Borrower will take all reasonable and necessary
steps, including but not limited to all reasonable and
necessary steps in any proceeding before the United States
Patent and Trademark Office or any similar office or agency
in any other country or any political subdivision thereof,
to maintain and pursue each application, to obtain the
relevant registration, and to maintain each registration of
material Trademarks, including but not limited to filing
applications for renewal, affidavits of use, and affidavits
of incontestability.
(e) If any Trademark that is included in the
Collateral is infringed, misappropriated, or diluted by a
third party, Borrower shall promptly notify Secured Party
after it learns thereof and, unless the failure to do so
would have a material adverse effect on Borrower, shall take
such action as Borrower reasonably deems appropriate under
the circumstances to protect such Trademark.
.13 Insurance. Borrower agrees to insure the Collateral
against all hazards in form and amount reasonably satisfactory to
Secured Party. If Borrower fails to obtain such insurance,
Secured Party shall have the right, but not the obligation, to
obtain either insurance covering both Borrower's and Secured
Party's interest in the Collateral, or insurance covering only
Secured Party's interest in the Collateral. Borrower agrees to
pay any premium charged for such insurance. This amount may be
added to the outstanding balance of the Credit Facilities, and
interest thereon shall be charged at the rate specified in any
applicable Loan Document, or Secured Party may demand immediate
payment. Any unpaid insurance premium advanced by Secured Party
shall be secured under the terms of this Agreement. Secured
Party will have no liability whatsoever for any loss which may
occur by reason of the omission or lack of coverage of any such
insurance. Borrower hereby assigns to Secured Party the right to
receive proceeds of such insurance to the full amount of the
Secured Obligations and hereby directs any insurer to pay all
proceeds directly to Secured Party, and authorizes Secured Party
to endorse any draft. In Secured Party's sole discretion, during
the continuance of an Event of Default,
Secured Party may apply any insurance proceeds either toward the
repair or replacement of the property or reduction of the balance
of the Secured Obligations; otherwise, such proceeds will be
applied either toward the repair or replacement of the property
or reduction of the balance of the Secured Obligations, as
determined by Borrower in its sole discretion.
.14 Copy of Financing Statement. Borrower agrees that a
carbon, photographic, or other reproduction of a financing
statement or this Agreement is sufficient as a financing
statement.
4
REPRESENTATIONS AND WARRANTIES
Borrower hereby makes the following representations and
warranties:
.1 Title to Collateral. Borrower has good and marketable
title to all the Collateral, free and clear of all Liens
excepting only the security interests created pursuant to this
Agreement or permitted pursuant to the Credit Agreement.
.2 No Impairment of Collateral. None of the Collateral
shall be impaired or jeopardized because of the security interest
herein granted.
.3 Other Agreements. The execution and delivery of this
Agreement, the consummation of the transactions provided for
herein, and the fulfillment of the terms hereof will not result
in the breach of any of the terms, conditions, or provisions of,
or constitute a default under, or conflict with, or cause any
acceleration of any obligation under any (a) agreement or other
instrument to which Borrower is a party or by which Borrower is
bound or (b) Applicable Law.
<PAGE>
.4 No Approvals. No Governmental Approvals of any nature
are required in connection with the security interests herein
granted, except the filing of UCC financing statements.
.5 Authority. Borrower has full power and authority to
assign to Secured Party and to grant to Secured Party a security
interest in the Collateral.
.6 Location of Records. The address of the office where
the records of Borrower are kept concerning the Collateral is set
forth on Schedule A-3.
.7 Location of Collateral. The locations of all Inventory
and Equipment of Borrower are described on Schedule A-2.
.8 Name. Borrower conducts its business only under the
names listed on Schedule A-6.
.9 Accounts. The amount represented by Borrower to
Secured Party from time to time as owing by each Account Debtor
or by all Account Debtors in respect of the Accounts will at such
time be the correct amount actually owing by such Account Debtor
or Debtors thereunder. No material amount payable to Borrower
under or in connection with any Account is evidenced by any
Instrument or Chattel Paper that has not been delivered to
Secured Party.
.10 Chief Executive Office. Borrower's chief executive
office and chief place of business is located at the address set
forth on Schedule A-4.
.11 Trademarks. Schedule A-1 hereto includes all
Trademarks owned by Borrower in its own name as of the date
hereof. To the best of Borrower's knowledge, each such Trademark
is valid, subsisting, unexpired, and enforceable and has not been
abandoned. Except as set forth in Schedule A-5, none of such
Trademarks is the subject of any licensing or franchise
agreement. No holding, decision, or judgment that would limit,
cancel, or question the validity of any such Trademark has been
rendered by any Governmental Body. No action or proceeding is
pending that (a) seeks to limit, cancel, or question the validity
of any such Trademark or (b) would, if adversely determined, have
a material adverse effect on the value of any Trademark.
5
SECURED PARTY'S RIGHTS WITH RESPECT TO THE COLLATERAL
.1 No Duty on Secured Party's Part. Secured Party shall
not be required (except at its option upon the occurrence and
during the continuation of any Event of Default) to realize upon
any Accounts, Instruments, Chattel Paper, or General Intangibles;
collect the principal, interest, or payment due thereon, exercise
any rights or options of Borrower pertaining thereto; make
presentment, demand, or protest; give notice of protest,
nonacceptance, or nonpayment; or do any other thing for the
protection, enforcement, or collection of such Collateral. The
powers conferred on Secured Party hereunder are solely to protect
Secured Party's interests in the Collateral and shall not impose
any duty upon Secured Party to exercise any such powers. Secured
Party shall be accountable only for amounts that Secured Party
actually receives as a result of the exercise of such powers; and
neither Secured Party nor any of its officers, directors,
employees, or agents shall be responsible to Borrower for any act
or failure to act hereunder.
.2 Negotiations with Account Debtors. Upon the occurrence
and during the continuation of any Event of Default, Secured
Party may, in its sole discretion, extend or consent to the
extension of the time of payment or maturity of any Instruments,
Accounts, Chattel Paper, or General Intangibles.
.3 Right to Assign. Except as otherwise provided in the
Credit Agreement, Secured Party may assign or transfer the whole
or any part of the Secured Obligations and may transfer therewith
as collateral security the whole or any part of the Collateral;
and all obligations, rights, powers, and privileges herein
provided shall inure to the benefit of the assignee and shall
bind the successors and assigns of the parties hereto.
<PAGE>
.4 Duties Regarding Collateral. Beyond the safe custody
thereof, Secured Party shall not have any duty as to any
Collateral in its possession or control, or as to any
preservation of any rights of or against other parties.
.5 Collection From Account Debtors. Upon the occurrence
and during the continuation of any Event of Default, Borrower
shall, upon demand by Secured Party (and without any grace or
cure period), notify all Account Debtors to make payment to
Secured Party of any amounts due or to become due. Borrower
authorizes Secured Party, during the continuation of an Event of
Default, to contact the Account Debtors for the purpose of having
all or any of them pay their obligations directly to Secured
Party.
.6 Inspection. Secured Party and its designees, from time
to time at reasonable times and intervals, may inspect the
Equipment and Inventory and inspect, audit, and make copies of
and extracts from all records and all other papers in the
possession of Borrower.
.7 Assignee Deposit Account. Upon the occurrence and
during the continuation of an Event of Default and demand by
Secured Party, Borrower will transmit and deliver to Secured
Party, in the form received, immediately after receipt, all cash,
checks, drafts, Chattel Paper, Instruments, or other writings for
the payment of money (properly endorsed, where required, so that
the items may be collected by Secured Party) that may be received
by Borrower at any time. All items or amounts that are delivered
by Borrower to Secured Party, or collected by Secured Party from
the Account Debtors, shall be deposited to the credit of a
Deposit Account ("Assignee Deposit Account") of Borrower with
Secured Party, as security for the payment of the Secured
Obligations. Borrower shall have no right to withdraw any funds
deposited in the Assignee Deposit Account. Secured Party shall,
upon the request of Borrower made not more than twice in any
week, apply all or any of the balance, representing collected
funds, in the Assignee Deposit Account, to payment of the Secured
Obligations, whether or not then due, in such order of
application, not inconsistent with the terms of the Credit
Agreement and this Agreement, as Secured Party may determine; and
Secured Party may, from time to time in its discretion, release
all or any of such balance to Borrower.
6
SECURED PARTY'S RIGHTS AND REMEDIES
.1 General. Upon the occurrence of any Event of Default,
Secured Party may exercise its rights and remedies in the Credit
Agreement and in any other Loan Documents and any other rights
and remedies at law and/or in equity, simultaneously or
consecutively, all of which rights and remedies shall be
cumulative. The choice of one or more rights or remedies shall
not be construed as a waiver or election barring other rights and
remedies. Borrower hereby acknowledges and agrees that Secured
Party is not required to exercise all rights and remedies
available to it equally with respect to all the Collateral and
that Secured Party may select less than all the Collateral with
respect to which the rights and remedies as determined by Secured
Party may be exercised.
.2 Notice of Sale, Duty to Assemble Collateral. In
addition to or in conjunction with the rights and remedies
referred to in Section 6.1 hereof:
(a) Written notice mailed to Borrower at the address
designated herein ten days or more prior to the date of
public or private sale of any of the Collateral shall
constitute reasonable notice.
(b) If Secured Party requests, Borrower will assemble
the Collateral and make it available to Secured Party at
places that Secured Party shall reasonably select, whether
on Borrower's premises or elsewhere.
<PAGE>
7
GENERAL PROVISIONS
.1 Entire Agreement. This Agreement, together with the
Credit Agreement and the other Loan Documents, sets forth all the
promises, covenants, agreements, conditions, and understandings
between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements
and understandings, inducements, or conditions, express or
implied, oral or written, with respect thereto, except as
contained or referred to herein. This Agreement may not be
amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom
enforcement of such amendment, waiver, discharge, or termination
is sought.
.2 Invalidity. If any provision of this Agreement shall
for any reason be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other
provision hereunder, but this Agreement shall be construed as if
such invalid or unenforceable provision had never been contained
herein.
.3 Nonwaiver and Nonexclusive Rights and Remedies.
(a) No right or remedy herein conferred upon or
reserved to Secured Party is intended to be to the exclusion
of any other right or remedy, but each and every such right
or remedy shall be cumulative and shall be in addition to
every other right or remedy given hereunder and now or
hereafter existing at law or in equity.
(b) No delay or omission by Secured Party in
exercising any right or remedy accruing upon an Event of
Default shall impair any such right or remedy, or shall be
construed to be a waiver of any such Event of Default, or an
acquiescence therein, nor shall it affect any subsequent
Event of Default of the same or of a different nature.
.4 Termination of Security Interest. When all the Secured
Obligations have been paid in full and Secured Party has no
ongoing credit commitment to Borrower in effect, the security
interest provided herein shall terminate and Secured Party shall
return to Borrower all Collateral then held by Secured Party, if
any, and upon written request of Borrower shall execute, in form
for filing, termination statements of the security interests
herein granted. Thereafter, no party hereto shall have any
further rights or obligations hereunder.
.5 Successors and Assigns. All rights of Secured Party
hereunder shall inure to the benefit of its successors and
assigns, and all obligations of Borrower shall be binding upon
its successors and assigns.
.6 Secured Party's Appointment as Attorney-in-Fact.
(a) Borrower hereby irrevocably constitutes and
appoints Secured Party and any officer or agent thereof,
with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority
in the place and stead of Borrower and in the name of
Borrower or in its own name, from time to time in Secured
Party's discretion, for the purpose of carrying out the
terms of this Agreement during the existence of any Event of
Default, to take any and all appropriate action, and to
execute any and all documents and instruments that may be
necessary or desirable to accomplish the purposes of this
Agreement; and without limiting the generality of the
foregoing, Borrower hereby gives Secured Party the power and
right, on behalf of Borrower, without consent by or notice
to Borrower, to do the following:
<PAGE>
(i) to transfer to Secured Party or to any other
person all or any of said Collateral, to endorse any
Instruments pledged to Secured Party, and to fill in
blanks in any transfers of Collateral, powers of
attorney, or other documents delivered to Secured
Party;
(ii) to pay or discharge taxes and liens levied or
placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the
terms of this Agreement, and to pay all or any part of
the premiums therefor and the costs thereof;
(iii) upon the occurrence and during the
continuation of any Event of Default (A) to take
possession of, endorse, and collect any checks, drafts,
notes, acceptances, or other instruments for the
payment of moneys due under any Account, Instrument, or
General Intangible or with respect to any other
Collateral and (B) to file any claim or to take any
other action or proceeding in any court of law or
equity or otherwise deemed appropriate by Secured Party
for the purpose of collecting all such moneys due under
any Account, Instrument, or General Intangible or with
respect to any other Collateral whenever payable; and
(iv) upon the occurrence and during the
continuation of any Event of Default (A) to direct any
party liable for any payment under any of the
Collateral to make payment of all moneys due or to
become due thereunder directly to Secured Party or as
Secured Party shall direct; (B) to ask for, demand,
collect, and receive payment of and receipt for, any
and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of
any Collateral; (C) to sign and endorse any invoices,
freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors,
assignments, verifications, notices, and other
documents in connection with any of the Collateral; (D)
to commence and prosecute any suits, actions, or
proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of
any Collateral; (E) to defend any suit, action, or
proceeding brought against Borrower with respect to any
Collateral; (F) to settle, compromise, or adjust any
suit, action, or proceeding described in clause (E)
above and, in connection therewith, to give such
discharge or releases as Secured Party may deem
appropriate; (G) to assign any Trademark (along with
the goodwill of the business to which any such
Trademark pertains) throughout the world for such term
or terms, on such conditions, and in such manner as
Secured Party shall in its sole discretion determine;
and (H) generally, to sell, transfer, pledge, and make
any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all
purposes; and to do, at Secured Party's option and
Borrower's expense, at any time or from time to time,
all acts and things that Secured Party deems necessary
to protect, preserve or realize upon the Collateral and
Secured Party's liens thereon and to effect the intent
of this Agreement, all as fully and effectively as
Borrower might do.
(b) Borrower hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof.
This power of attorney is a power coupled with an interest
and shall be irrevocable.
(c) Borrower also authorizes Secured Party, at any
time and from time to time, to execute, in connection with
the sale provided for in Article 6 hereof, any endorsements,
assignments, or other instruments of conveyance or transfer
with respect to the Collateral.
(d) The powers conferred on Secured Party hereunder
are solely to protect Secured Party's interests in the
Collateral and shall not impose any duty upon Secured Party
to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither it nor
any of its officers, directors, employees, or agents shall
be responsible to Borrower for any act or failure to act
hereunder.
.7 Performance by Secured Party of Borrower's Obligations.
If Borrower fails to perform or comply with any of its
agreements contained herein and Secured Party, as provided for by
the terms of this Agreement, shall itself perform or comply, or
otherwise cause performance or compliance, with such agreement,
the expense of Secured Party incurred in connection with such
performance or compliance, together with interest thereon at the
rate provided for in the Credit Agreement upon the occurrence of
an Event of Default, shall be payable by Borrower to Secured
Party on demand and shall constitute Secured Obligations.
<PAGE>
.8 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed and
enforced in accordance with and shall be governed by the
Applicable Law.
.9 Notices. All notices, requests, consents, demands,
approvals, and other communications hereunder shall be deemed to
have been duly given, made, or served if in writing and when
delivered in accordance with the notice provisions of the Credit
Agreement.
.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original
Agreement, but all of which together shall constitute one and the
same instrument.
Dated as of March 29, 1996.
Borrower:
INTERPOINT CORPORATION
By /s/Leslie S. Rock
-------------------------
Title Vice President, Treasurer
-------------------------
Secured Party:
SEAFIRST BANK
By T.E. Kasanders
-------------------------
Title Vice President
-------------------------
<PAGE>
SCHEDULE A TO SECURITY AGREEMENT
DATED AS OF MARCH 29, 1996
Schedule A-1 (Specific Trademarks):
NONE
Schedule A-2 (Locations of Inventory or Equipment):
10301 Willows Road
Redmond, WA 98052
14833 - 87th Street N.E.
Redmond, WA 98052
Schedule A-3 (Location of Records):
10301 Willows Road, Redmond, WA 98052
Schedule A-4 (Location of Chief Executive Offices):
10301 Willows Road, Redmond, WA 98052
Schedule A-5 (Trademark Licenses or Assignments):
NONE
Schedule A-6 (Tradenames used):
Interpoint Corporation
Interpoint Taiwan Corporation
Interpoint (UK) Ltd.
Interpoint France SARL
Interpoint GmbH
Interpoint Trade Corporation
EXHIBIT 10.4
SECURITY AGREEMENT
This security agreement ("Agreement") is made and entered
into by Advanced Digital Information Corporation, a Washington
corporation ("Grantor"), for the benefit of Bank of America NW,
N.A., doing business as Seafirst Bank, a national banking
association ("Secured Party").
RECITALS:
A. Concurrently with the execution hereof, Secured Party
and Interpoint Corporation, a Washington corporation ("Borrower")
entered into a Credit Agreement dated March 29, 1996 (together
with all supplements, exhibits, and amendments thereto, referred
to as the "Credit Agreement"), pursuant to which Secured Party
agreed to make available to Borrower certain credit facilities
(the "Credit Facilities").
B. Grantor wishes to grant to Secured Party a security
interest in all certain of its assets as security for all the
Secured Obligations.
NOW, THEREFORE, in order for Secured Party to extend the
Credit Facilities, Grantor agrees as follows:
1
DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings when used herein. For the
purposes of this Agreement, the following terms shall have the
following meanings:
"Accounts" means any right to payment for goods sold or
leased or for services rendered that is not evidenced by an
Instrument or Chattel Paper, whether or not it has been earned by
performance.
"Account Debtor" means the party who is obligated on or
under any Account, Chattel Paper, or General Intangible.
"Assignee Deposit Account" shall have the meaning set forth
in Section 5.7 hereof.
"Applicable Law" shall mean the laws of the State of
Washington, without regard to its choice of law rules.
"Chattel Paper" means all interest of Grantor in writings
that evidence both a monetary obligation and a security interest
in or a lease of specific goods, including any group of writings
consisting of both a security agreement or a lease and an
Instrument or series of Instruments.
"Collateral" means all personal property, tangible and
intangible, wherever located, now owned or hereafter acquired by
Grantor, or in which Grantor has or later obtains an interest,
and all products, profits, rents, and proceeds of such property,
including but not limited to Accounts, Chattel Paper, Deposit
Accounts, Documents, Equipment, General Intangibles, Goods,
Instruments, Inventory, Trademarks, and Vehicles.
"Deposit Account" means a demand, time, savings, passbook,
or like account maintained with a bank, savings and loan
association, credit union, or like organization, other than an
account evidenced by a certificate of deposit.
"Document" means all of Grantor's right, title, and interest
in or to any document of title as defined in RCW 62A.1-201 and
any receipt of the kind described in RCW 62A.7-201(2).
"Equipment" means all of Grantor's right, title, and
interest in and to Goods that are used or bought for use
primarily in business and that are not included within the
definition of Inventory, including but not limited to all
machinery, equipment, furnishings, fixtures, vehicles, tools,
supplies, and other equipment of any kind and nature and all
additions, substitutions, and replacements of any of the
foregoing, together with all attachments, components, parts,
accessories, improvements, upgrades, and accessories installed
thereon or affixed thereto.
"Event of Default" means an occurrence of a Default as
defined in the Credit Agreement.
"Financial Assets" means all of Grantor's right, title, and
interest in and to any financial asset as defined in RCW 62A.8-
102.
"Fixtures" shall have the meaning given to such term in RCW
62A.9-101 et seq.
"General Intangibles" means all personal property (including
things in action) other than Goods, Accounts, Chattel Paper,
Documents, Instruments, and money, including but not limited to
all Trademarks, insurance proceeds, patents, copyrights, trade
names, trade secrets, goodwill, registration, license rights,
licenses, permits, corporate and other business records, rights
to refunds or indemnification, tax refunds, choses in action,
judgments taken on any rights or claims included in the
Collateral, and all other intangible personal property of Grantor
of every kind and nature.
"Goods" means all things that are movable or that are
fixtures, not including money, Documents, Instruments, Accounts,
Chattel Paper, or General Intangibles.
"Governmental Approvals" means any approval by or
registration or filing with any Governmental Body, now or later
required in connection with the performance by Grantor of its
obligations under the Loan Documents.
"Governmental Body" means any local, state, or federal
government, or any agency, subdivision, or court thereof.
"Instrument" means any negotiable instrument or security or
other writing that evidences a right to the payment of money and
is not itself a security agreement or lease and is of a type that
is in the ordinary course of business transferred by delivery
with any necessary endorsement or assignment.
"Inventory" means all Goods held by Grantor for sale or
lease, furnished or to be furnished by Grantor under any contract
of service, or held by Grantor as raw materials, work in
progress, or materials used or consumed in Grantor's business.
"Investment Property" means all of Grantor's right, title,
and interest in and to any investment property as defined in RCW
62A.9-115.
"Secured Obligations" means the "Obligations" as defined in
the Credit Agreement, and any obligations which are specified in
this Agreement as being included as Secured Obligations.
"Trademark" means (a) any trademark, trade name, corporate
name, company name, business name, fictitious business name,
trade style, service mark, logo or other source or business
identifier, and the goodwill associated therewith, now existing
or hereafter adopted or acquired, any registration or recording
thereof, and any application in connection therewith, whether in
the United States Patent and Trademark Office or in any similar
office or agency of the United States or of any state thereof, or
any other country or any political subdivision thereof, or
otherwise, including but not limited to any thereof referred to
in Schedule A-1 hereto, and (b) all renewals thereof.
"Vehicle" means any car, truck, trailer, forklift, loader,
construction or earth-moving equipment, or other vehicle covered
by a certificate of title of any state, including but not limited
to any tires or other appurtenances to any of the foregoing.
2
GRANT OF SECURITY INTEREST
As security for the prompt payment and satisfaction of the
Secured Obligations, Grantor hereby grants to Secured Party a
continuing security interest in and assigns to Secured Party all
of Grantor's right, title, and interest in the Collateral and all
products, profits, rents, and proceeds thereof.
3
COVENANTS OF GRANTOR
Grantor shall fully perform each of the covenants set forth
below.
.1 Obligations to Pay. Grantor shall pay and reimburse
Secured Party for all expenditures including reasonable attorney
fees and legal expenses (including the allocated cost of the
services of in-house counsel) in connection with the exercise by
Secured Party of any of its rights or remedies under this
Agreement.
.2 Further Documentation. At its own expense, Grantor
shall execute and deliver any financing statement, any renewal,
substitution, or correction thereof, or any other document; shall
procure any document; and shall take such further action as
Secured Party may reasonably require in obtaining the full
benefits of this Agreement.
.3 Filing Fees. Grantor shall pay all costs of filing any
financing, continuation, or termination statement with respect to
the security interests granted herein.
.4 Pledges. Grantor shall deliver and pledge to Secured
Party, endorsed or accompanied by instruments of assignment or
transfer satisfactory to Secured Party, any Instruments,
Documents, General Intangibles, or Chattel Paper that Secured
Party may specify from time to time.
.5 Maintenance of Records. Grantor shall keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral including but not limited to a record
of all payments received and all credits granted with respect to
the Collateral and all other dealings with the Collateral.
Grantor shall mark its records pertaining to the Collateral to
evidence this Agreement and the security interests granted
herein. Grantor shall deliver and turn over to Secured Party
copies of all records pertaining to the Collateral at any time
after the occurrence and during the continuation of an Event of
Default, if so demanded by Secured Party.
.6 Disposition of Collateral. Except as allowed in the
Credit Agreement, Grantor shall not sell or transfer any of the
Collateral or release, compromise, or settle any obligation or
receivable due to Grantor.
.7 Indemnification. Grantor agrees to pay, and to
indemnify Secured Party and hold Secured Party harmless from, all
liabilities, costs, and expenses including but not limited to
legal fees and expenses with respect to or resulting from (a) any
delay in paying any excise, sales, or other taxes that may be
payable or determined to be payable with respect to any of the
Collateral, (b) any delay by Grantor in complying with any
requirement of law applicable to any of the Collateral, or (c)
any of the transactions contemplated by this Agreement. In any
suit, proceeding, or action brought by Secured Party under any
Account to enforce payment of any sum owing thereunder or to
enforce any provisions of any Account, Grantor will indemnify
Secured Party and hold Secured Party harmless from all expense,
loss, or damage suffered by reason of any defense, setoff,
counterclaim, recoupment, reduction, or liability whatsoever of
the Account Debtor thereunder arising out of a breach by Grantor
of any obligation thereunder or arising out of any other
agreement, indebtedness, or liability at any time owing to or in
favor of such Account Debtor or its successors from Grantor.
.8 Further Identification of Collateral. Grantor will
furnish to Secured Party from time to time statements and
schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured
Party may reasonably request, all in reasonable detail.
.9 Notices. Grantor will advise Secured Party promptly in
reasonable detail at its address set forth in the Credit
Agreement of any Lien (other than Liens created hereby or
permitted under the Credit Agreement) on or claim asserted
against any of the Collateral and (b) of the occurrence of any
other event that could reasonably be expected to have a material
adverse effect on the Collateral or on the Liens created
hereunder.
.10 Changes in Locations, Name, Etc. Grantor will not (a)
change the location of its chief executive office/chief place of
business from that specified in Section 4.10 or remove its
records from the location specified in Section 4.7, (b) permit
any of the Inventory or Equipment (excluding Vehicles) to be kept
at locations other than those listed on Schedule A-2 hereto, or
(c) change its name, identity, or structure to such an extent
that any financing statement filed by Secured Party in connection
with this Agreement would become seriously misleading, unless it
shall have given Secured Party at least ten days' prior written
notice thereof.
.11 Trademarks.
(a) Unless the failure to do so would have a material
adverse effect on Borrower, Grantor (either itself or
through licensees) will (i) continue to use each Trademark
on each and every trademark class of goods applicable to its
current line as reflected in its current catalogs,
brochures, and price lists in order to maintain such
Trademark in full force free from any claim of abandonment
for nonuse, (ii) maintain as in the past the quality of
products and services offered under such Trademark, (iii)
employ such Trademark with the appropriate notice of
registration, (iv) not adopt or use any mark that is
confusingly similar to or a colorable imitation of such
Trademark unless Secured Party shall obtain a perfected
security interest in such mark pursuant to this Agreement,
and (v) not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act
whereby any Trademark may become invalidated.
(b) Grantor will notify Secured Party immediately if
it knows, or has reason to know, of (i) any application or
registration relating to any Trademark material to its
business that may become abandoned or dedicated, or (ii) any
adverse determination or development (including but not
limited to the institution of, or any adverse determination
or development in, any proceeding in the United States
Patent and Trademark Office or any court or tribunal in any
country) regarding Grantor's ownership of any material
Trademark or its right to register, keep, or maintain the
same.
(c) Whenever Grantor, either by itself or through any
agent, employee, licensee, or designee, shall file an
application for the registration of any material Trademark
with the United States Patent and Trademark Office or any
similar office or agency in any other country or any
political subdivision thereof, Grantor shall report such
filing to Secured Party within five Business Days after the
last day of the calendar month in which such filing occurs.
Grantor shall execute and deliver to Secured Party all
agreements, instruments, powers of attorney, documents, and
papers that Secured Party may reasonably request to evidence
Secured Party's security interest in any Trademark and in
the goodwill and general intangibles of Grantor relating to
or represented by the Trademark. Grantor hereby constitutes
Secured Party its attorney-in-fact to execute and file all
such writings for the foregoing purposes, with all acts of
such attorney being hereby ratified and confirmed; and such
power, being coupled with an interest, is irrevocable until
all Secured Obligations are paid in full.
(d) Grantor will take all reasonable and necessary
steps, including but not limited to all reasonable and
necessary steps in any proceeding before the United States
Patent and Trademark Office or any similar office or agency
in any other country or any political subdivision thereof,
to maintain and pursue each application, to obtain the
relevant registration, and to maintain each registration of
material Trademarks, including but not limited to filing
applications for renewal, affidavits of use, and affidavits
of incontestability.
(e) If any Trademark that is included in the
Collateral is infringed, misappropriated, or diluted by a
third party, Grantor shall promptly notify Secured Party
after it learns thereof and, unless the failure to do so
would have a material adverse effect on Borrower, shall take
such action as Grantor reasonably deems appropriate under
the circumstances to protect such Trademark.
.12 Insurance. Grantor agrees to insure the Collateral
against all hazards in form and amount reasonably satisfactory to
Secured Party. If Grantor fails to obtain such insurance,
Secured Party shall have the right, but not the obligation, to
obtain either insurance covering both Grantor's and Secured
Party's interest in the Collateral, or insurance covering only
Secured Party's interest in the Collateral. Grantor agrees to
pay any premium charged for such insurance. This amount may be
added to the outstanding balance of the Credit Facilities, and
interest thereon shall be charged at the rate specified in any
applicable Loan Document, or Secured Party may demand immediate
payment. Any unpaid insurance premium advanced by Secured Party
shall be secured under the terms of this Agreement. Secured
Party will have no liability whatsoever for any loss which may
occur by reason of the omission or lack of coverage of any such
insurance. Grantor hereby assigns to Secured Party the right to
receive proceeds of such insurance to the full amount of the
Secured Obligations and hereby directs any insurer to pay all
proceeds directly to Secured Party, and authorizes Secured Party
to endorse any draft. In Secured Party's sole discretion, during
the continuance of an Event of Default, Secured Party may apply
any insurance proceeds either toward the repair or replacement of
the property or reduction of the balance of the Secured
Obligations; otherwise, such proceeds will be applied either
toward the repair or replacement of the property or reduction of
the balance of the Secured Obligations, as determined by Grantor
in its sole discretion.
.13 Copy of Financing Statement. Grantor agrees that a
carbon, photographic, or other reproduction of a financing
statement or this Agreement is sufficient as a financing
statement.
4
REPRESENTATIONS AND WARRANTIES
Grantor hereby makes the following representations and
warranties:
.1 Title to Collateral. Grantor has good and marketable
title to all the Collateral, free and clear of all Liens
excepting only the security interests created pursuant to this
Agreement or permitted pursuant to the Credit Agreement.
.2 No Impairment of Collateral. None of the Collateral
shall be impaired or jeopardized because of the security interest
herein granted.
.3 Other Agreements. The execution and delivery of this
Agreement, the consummation of the transactions provided for
herein, and the fulfillment of the terms hereof will not result
in the breach of any of the terms, conditions, or provisions of,
or constitute a default under, or conflict with, or cause any
acceleration of any obligation under any (a) agreement or other
instrument to which Grantor is a party or by which Grantor is
bound or (b) Applicable Law.
.4 No Approvals. No Governmental Approvals of any nature
are required in connection with the security interests herein
granted, except the filing of UCC financing statements.
.5 Authority. Grantor has full power and authority to
assign to Secured Party and to grant to Secured Party a security
interest in the Collateral.
.6 Location of Records. The address of the office where
the records of Grantor are kept concerning the Collateral is set
forth on Schedule A-3.
.7 Location of Collateral. The locations of all Inventory
and Equipment of Grantor are described on Schedule A-2.
.8 Name. Grantor conducts its business only under the
names listed on Schedule A-6.
.9 Accounts. The amount represented by Grantor to Secured
Party from time to time as owing by each Account Debtor or by all
Account Debtors in respect of the Accounts will at such time be
the correct amount actually owing by such Account Debtor or
Debtors thereunder. No material amount payable to Grantor under
or in connection with any Account is evidenced by any Instrument
or Chattel Paper that has not been delivered to Secured Party.
.10 Chief Executive Office. Grantor's chief executive
office and chief place of business is located at the address set
forth on Schedule A-4.
.11 Trademarks. Schedule A-1 hereto includes all
Trademarks owned by Grantor in its own name as of the date
hereof. To the best of Grantor's knowledge, each such Trademark
is valid, subsisting, unexpired, and enforceable and has not been
abandoned. Except as set forth in Schedule A-5, none of such
Trademarks is the subject of any licensing or franchise
agreement. No holding, decision, or judgment that would limit,
cancel, or question the validity of any such Trademark has been
rendered by any Governmental Body. No action or proceeding is
pending that (a) seeks to limit, cancel, or question the validity
of any such Trademark or (b) would, if adversely determined, have
a material adverse effect on the value of any Trademark.
5
SECURED PARTY'S RIGHTS WITH RESPECT TO THE COLLATERAL
.1 No Duty on Secured Party's Part. Secured Party shall
not be required (except at its option upon the occurrence and
during the continuation of any Event of Default) to realize upon
any Accounts, Instruments, Chattel Paper, or General Intangibles;
collect the principal, interest, or payment due thereon, exercise
any rights or options of Grantor pertaining thereto; make
presentment, demand, or protest; give notice of protest,
nonacceptance, or nonpayment; or do any other thing for the
protection, enforcement, or collection of such Collateral. The
powers conferred on Secured Party hereunder are solely to protect
Secured Party's interests in the Collateral and shall not impose
any duty upon Secured Party to exercise any such powers. Secured
Party shall be accountable only for amounts that Secured Party
actually receives as a result of the exercise of such powers; and
neither Secured Party nor any of its officers, directors,
employees, or agents shall be responsible to Grantor for any act
or failure to act hereunder.
.2 Negotiations with Account Debtors. Upon the occurrence
and during the continuation of any Event of Default, Secured
Party may, in its sole discretion, extend or consent to the
extension of the time of payment or maturity of any Instruments,
Accounts, Chattel Paper, or General Intangibles.
.3 Right to Assign. Except as otherwise provided in the
Credit Agreement, Secured Party may assign or transfer the whole
or any part of the Secured Obligations and may transfer therewith
as collateral security the whole or any part of the Collateral;
and all obligations, rights, powers, and privileges herein
provided shall inure to the benefit of the assignee and shall
bind the successors and assigns of the parties hereto.
.4 Duties Regarding Collateral. Beyond the safe custody
thereof, Secured Party shall not have any duty as to any
Collateral in its possession or control, or as to any
preservation of any rights of or against other parties.
.5 Collection From Account Debtors. Upon the occurrence
and during the continuation of any Event of Default, Grantor
shall, upon demand by Secured Party (and without any grace or
cure period), notify all Account Debtors to make payment to
Secured Party of any amounts due or to become due. Grantor
authorizes Secured Party, during the continuation of an Event of
Default, to contact the Account Debtors for the purpose of having
all or any of them pay their obligations directly to Secured
Party.
.6 Inspection. Secured Party and its designees, from time
to time at reasonable times and intervals, may inspect the
Equipment and Inventory and inspect, audit, and make copies of
and extracts from all records and all other papers in the
possession of Grantor.
.7 Assignee Deposit Account. Upon the occurrence and
during the continuation of an Event of Default and demand by
Secured Party, Grantor will transmit and deliver to Secured
Party, in the form received, immediately after receipt, all cash,
checks, drafts, Chattel Paper, Instruments, or other writings for
the payment of money (properly endorsed, where required, so that
the items may be collected by Secured Party) that may be received
by Grantor at any time. All items or amounts that are delivered
by Grantor to Secured Party, or collected by Secured Party from
the Account Debtors, shall be deposited to the credit of a
Deposit Account ("Assignee Deposit Account") of Grantor with
Secured Party, as security for the payment of the Secured
Obligations. Grantor shall have no right to withdraw any funds
deposited in the Assignee Deposit Account. Secured Party shall,
within one business day, apply all or any of the balance,
representing collected funds, in the Assignee Deposit Account, to
payment of the Secured Obligations, whether or not then due, in
such order of application, not inconsistent with the terms of the
Credit Agreement and this Agreement, as Secured Party may
determine; or release all or any of such balance to Grantor.
6
SECURED PARTY'S RIGHTS AND REMEDIES
.1 General. Upon the occurrence of any Event of Default,
Secured Party may exercise its rights and remedies in the Credit
Agreement and in any other Loan Documents and any other rights
and remedies at law and/or in equity, simultaneously or
consecutively, all of which rights and remedies shall be
cumulative. The choice of one or more rights or remedies shall
not be construed as a waiver or election barring other rights and
remedies. Grantor hereby acknowledges and agrees that Secured
Party is not required to exercise all rights and remedies
available to it equally with respect to all the Collateral and
that Secured Party may select less than all the Collateral with
respect to which the rights and remedies as determined by Secured
Party may be exercised.
.2 Notice of Sale, Duty to Assemble Collateral. In
addition to or in conjunction with the rights and remedies
referred to in Section 6.1 hereof:
(a) Written notice mailed to Grantor at the address
designated herein ten days or more prior to the date of
public or private sale of any of the Collateral shall
constitute reasonable notice.
(b) If Secured Party requests, Grantor will assemble
the Collateral and make it available to Secured Party at
places that Secured Party shall reasonably select, whether
on Grantor's premises or elsewhere.
7
GENERAL PROVISIONS
.1 Entire Agreement. This Agreement, together with the
Credit Agreement and the other Loan Documents, sets forth all the
promises, covenants, agreements, conditions, and understandings
between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements
and understandings, inducements, or conditions, express or
implied, oral or written, with respect thereto, except as
contained or referred to herein. This Agreement may not be
amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom
enforcement of such amendment, waiver, discharge, or termination
is sought.
.2 Invalidity. If any provision of this Agreement shall
for any reason be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other
provision hereunder, but this Agreement shall be construed as if
such invalid or unenforceable provision had never been contained
herein.
.3 Nonwaiver and Nonexclusive Rights and Remedies.
(a) No right or remedy herein conferred upon or
reserved to Secured Party is intended to be to the exclusion
of any other right or remedy, but each and every such right
or remedy shall be cumulative and shall be in addition to
every other right or remedy given hereunder and now or
hereafter existing at law or in equity.
(b) No delay or omission by Secured Party in
exercising any right or remedy accruing upon an Event of
Default shall impair any such right or remedy, or shall be
construed to be a waiver of any such Event of Default, or an
acquiescence therein, nor shall it affect any subsequent
Event of Default of the same or of a different nature.
.4 Termination of Security Interest. When all the Secured
Obligations have been paid in full and Secured Party has no
ongoing credit commitment to Borrower in effect, the security
interest provided herein shall terminate and Secured Party shall
return to Grantor all Collateral then held by Secured Party, if
any, and upon written request of Grantor shall execute, in form
for filing, termination statements of the security interests
herein granted. Thereafter, no party hereto shall have any
further rights or obligations hereunder.
.5 Successors and Assigns. All rights of Secured Party
hereunder shall inure to the benefit of its successors and
assigns, and all obligations of Grantor shall be binding upon its
successors and assigns.
.6 Secured Party's Appointment as Attorney-in-Fact.
(a) Grantor hereby irrevocably constitutes and
appoints Secured Party and any officer or agent thereof,
with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority
in the place and stead of Grantor and in the name of Grantor
or in its own name, from time to time in Secured Party's
discretion, for the purpose of carrying out the terms of
this Agreement during the existence of any Event of Default,
to take any and all appropriate action, and to execute any
and all documents and instruments that may be necessary or
desirable to accomplish the purposes of this Agreement; and
without limiting the generality of the foregoing, Grantor
hereby gives Secured Party the power and right, on behalf of
Grantor, without consent by or notice to Grantor, to do the
following:
(i) to transfer to Secured Party or to any other
person all or any of said Collateral, to endorse any
Instruments pledged to Secured Party, and to fill in
blanks in any transfers of Collateral, powers of
attorney, or other documents delivered to Secured
Party;
(ii) to pay or discharge taxes and liens levied or
placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the
terms of this Agreement, and to pay all or any part of
the premiums therefor and the costs thereof;
(iii) upon the occurrence and during the
continuation of any Event of Default (A) to take
possession of, endorse, and collect any checks, drafts,
notes, acceptances, or other instruments for the
payment of moneys due under any Account, Instrument, or
General Intangible or with respect to any other
Collateral and (B) to file any claim or to take any
other action or proceeding in any court of law or
equity or otherwise deemed appropriate by Secured Party
for the purpose of collecting all such moneys due under
any Account, Instrument, or General Intangible or with
respect to any other Collateral whenever payable; and
(iv) upon the occurrence and during the
continuation of any Event of Default (A) to direct any
party liable for any payment under any of the
Collateral to make payment of all moneys due or to
become due thereunder directly to Secured Party or as
Secured Party shall direct; (B) to ask for, demand,
collect, and receive payment of and receipt for, any
and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of
any Collateral; (C) to sign and endorse any invoices,
freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors,
assignments, verifications, notices, and other
documents in connection with any of the Collateral; (D)
to commence and prosecute any suits, actions, or
proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of
any Collateral; (E) to defend any suit, action, or
proceeding brought against Grantor with respect to any
Collateral; (F) to settle, compromise, or adjust any
suit, action, or proceeding described in clause (E)
above and, in connection therewith, to give such
discharge or releases as Secured Party may deem
appropriate; (G) to assign any Trademark (along with
the goodwill of the business to which any such
Trademark pertains) throughout the world for such term
or terms, on such conditions, and in such manner as
Secured Party shall in its sole discretion determine;
and (H) generally, to sell, transfer, pledge, and make
any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all
purposes; and to do, at Secured Party's option and
Grantor's expense, at any time or from time to time,
all acts and things that Secured Party deems necessary
to protect, preserve or realize upon the Collateral and
Secured Party's liens thereon and to effect the intent
of this Agreement, all as fully and effectively as
Grantor might do.
(b) Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof.
This power of attorney is a power coupled with an interest
and shall be irrevocable.
(c) Grantor also authorizes Secured Party, at any time
and from time to time, to execute, in connection with the
sale provided for in Article 6 hereof, any endorsements,
assignments, or other instruments of conveyance or transfer
with respect to the Collateral.
(d) The powers conferred on Secured Party hereunder
are solely to protect Secured Party's interests in the
Collateral and shall not impose any duty upon Secured Party
to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither it nor
any of its officers, directors, employees, or agents shall
be responsible to Grantor for any act or failure to act
hereunder.
.7 Performance by Secured Party of Grantor's Obligations.
If Grantor fails to perform or comply with any of its agreements
contained herein and Secured Party, as provided for by the terms
of this Agreement, shall itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the expense
of Secured Party incurred in connection with such performance or
compliance, together with interest thereon at the rate provided
for in the Credit Agreement upon the occurrence of an Event of
Default, shall be payable by Grantor to Secured Party on demand
and shall constitute Secured Obligations.
.8 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed and
enforced in accordance with and shall be governed by the
Applicable Law.
.9 Notices. All notices, requests, consents, demands,
approvals, and other communications hereunder shall be deemed to
have been duly given, made, or served if in writing and when
delivered in accordance with the notice provisions of the Credit
Agreement.
.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original
Agreement, but all of which together shall constitute one and the
same instrument.
Dated as of March 29, 1996.
Grantor:
ADVANCED DIGITAL INFORMATION CORPORATION
By /s/Peter H. van Oppen
-------------------------
Title Chief Executive Officer
-------------------------
Secured Party:
SEAFIRST BANK
By T.E. Kasanders
------------------------
Title Vice President
------------------------
<PAGE>
SCHEDULE A TO SECURITY AGREEMENT
DATED AS OF MARCH 29, 1996
Schedule A-1 (Specific Trademarks):
Advanced Digital Information Corporation has trademarked the
product name "Scalar."
Schedule A-2 (Locations of Inventory or Equipment):
10201 Willows Road
Redmond, WA 98052
Schedule A-3 (Location of Records):
10201 Willows Road, Redmond, WA 98052
Schedule A-4 (Location of Chief Executive Offices):
10301 Willows Road, Redmond, WA 98052
Schedule A-5 (Trademark Licenses or Assignments):
NONE
Schedule A-6 (Tradenames used):
Advanced Digital Information Corporation
ADIC Europe
