FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-15997
FILENET CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3757924
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3565 Harbor Boulevard
Costa Mesa, CA 92626
(Address of principal executive offices) (Zip code)
(714) 966-3400
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common stock 15,253,550 at August 8, 1997
<PAGE>
FILENET CORPORATION
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996........................... 1
Consolidated Statements of Operations
for the quarters and six months ended June 30, 1997 and 1996........ 2
Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996..................... 3
Notes to Consolidated Financial Statements.......................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 12
Item 4. Submission of Matters to a Vote of Securities Holders............... 12
Item 5. Certain Considerations.............................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................... 17
SIGNATURE........................................................... 18
INDEX TO EXHIBITS................................................... 19
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
FILENET CORPORATION
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 40,009 $ 28,530
Short-term marketable securities............ 30,368 22,037
------ ------
Total cash and short-term marketable
securities............................. 70,377 50,567
------ ------
Accounts receivable, net.................... 43,661 75,469
Inventories................................. 6,058 8,794
Prepaid expenses and other.................. 7,834 8,336
Deferred income taxes....................... 6,065 5,641
----- -----
Total current assets............................. 133,995 148,807
------- -------
Net property and equipment....................... 27,882 28,329
Long-term marketable securities.................. 5,498 16,705
Other............................................ 881 1,838
--- -----
Total assets..................................... $168,256 $195,679
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 8,964 $ 16,752
Accrued liabilities:
Compensation............................ 13,004 10,728
Unearned maintenance revenue............ 7,443 5,554
Royalties............................... 2,884 4,531
Other................................... 15,359 21,903
------ ------
Total current liabilities........................ 47,654 59,468
------ ------
Deferred income taxes............................ 3,400 3,405
Stockholders' equity:
Preferred stock - $.10 par value; authorized,
7,000,000 shares; none issued and
outstanding................................ - -
Common stock - $.01 par value; authorized,
100,000,000 shares; issued and outstanding
15,434,905 and 15,230,566 shares at
June 30, 1997 and December 31, 1996,
respectively............................... 129,310 127,813
Retained earnings (accumulated deficit)..... (5,400) 7,874
Other....................................... (2,140) 1,687
------ -----
121,770 137,374
Less 200,000 treasury shares at cost........ 4,568 4,568
----- -----
Total stockholders' equity....................... 117,202 132,806
------- -------
Total liabilities and stockholders' equity....... $168,256 $195,679
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
FILENET CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenue:
Software revenue............ $31,075 $33,035 $ 53,157 $ 70,153
Service revenue............. 23,256 20,093 41,493 37,308
Hardware revenue............ 8,119 11,869 15,362 24,280
----- ------ ------ ------
Total revenue................. 62,450 64,997 110,012 131,741
------ ------ ------- -------
Costs and expenses:
Cost of software revenue.... 3,166 4,781 6,165 8,644
Cost of service revenue..... 13,765 12,344 26,896 23,794
Cost of hardware revenue.... 4,838 7,378 10,167 15,597
Research and development.... 9,593 9,057 19,733 17,479
Selling, general and
administrative............ 31,021 28,849 60,787 58,876
Merger, restructuring and
write-off of purchased
in-process research and
development costs......... 6,000 - 6,000 16,011
----- ----- ----- ------
Total costs and expenses...... 68,383 62,409 129,748 140,401
------ ------ ------- -------
Operating income (loss)....... (5,933) 2,588 (19,736) (8,660)
Other income, net........ 580 763 1,301 1,594
--- --- ----- -----
Income (loss) before income
taxes....................... (5,353) 3,351 (18,435) (7,066)
Provision (benefit) for income
taxes....................... (1,499) 838 (5,161) 2,241
------ --- ------ -----
Net income (loss)............. $(3,854) $ 2,513 $(13,274) $ (9,307)
======= ======= ======== ========
Net income (loss) per share... $ (0.25) $ 0.15 $ (0.88) $ (0.62)
======= ======= ======== ========
Weighted average common and
common equivalent shares
outstanding................. 15,195 16,366 15,120 15,021
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FILENET CORPORATION
Consolidated Statements Of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(13,274) $ (9,307)
Adjustments to reconcile net loss to net
cash (used by) provided by operating
activities:
Write-off of purchased in-process
research and development costs....... - 10,011
Depreciation and amortization.......... 6,689 5,995
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable.............. 29,580 (12,268)
Inventories...................... 2,852 (751)
Prepaid expenses and other....... 145 (3,616)
Accounts payable................. (7,457) (2,200)
Accrued liabilities:
Compensation................. 2,430 1,066
Unearned maintenance revenue. 1,921 2,081
Royalties.................... (1,647) 1,033
Other............................ (4,871) 2,805
------ -----
Net cash provided by (used by) operating
activities................................... 16,368 (5,151)
------ ------
Cash flows from investing activities:
Proceeds from sale of equipment........... 124 2,715
Capital expenditures...................... (6,930) (9,273)
Payment for purchase of IFSL.............. - (11,711)
Purchase of marketable securities......... (16,215) (15,214)
Proceeds from sales and maturity of
marketable securities................... 19,170 18,805
------ ------
Net cash used by investing activities.......... (3,851) (14,678)
------ -------
Cash flows from financing activities-
Proceeds from issuance of common stock.... 1,497 3,285
Effect of exchange rate changes on cash and
cash equivalents............................. (2,535) 26
------ --
Net increase (decrease) in cash and cash
equivalents.................................. 11,479 (16,518)
Cash and cash equivalents, beginning of year... 28,530 43,378
------ ------
Cash and cash equivalents, end of period....... $ 40,009 $ 26,860
======== ========
Supplemental cash flow information:
Interest paid............................. $ 160 $ 217
Income taxes paid......................... $ 2,461 $ 2,440
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FILENET CORPORATION
Notes To Consolidated Financial Statements
1. In the opinion of the management of FileNet Corporation ("the Company"),
the accompanying unaudited consolidated financial statements reflect
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position of the Company at June 30, 1997 and
the results of its operations for the three months and six months ended
June 30, 1997 and 1996 and its cash flows for the six months ended June 30,
1997 and 1996. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant to
rules and regulations of the Securities and Exchange Commission ("SEC"),
although the Company believes that the disclosures in the consolidated
financial statements are adequate to ensure the information presented is
not misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
and Management's Discussion and Analysis of Results of Operations and
Financial Condition contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, and with the Company's Current Report
on Form 8-K, dated April 1, 1997, and filed by the Company with the SEC on
April 1, 1997. The results of operations for the interim periods are not
necessarily indicative of the operating results for the year.
2. Certain reclassifications have been made to the prior year's consolidated
financial statements to conform with the current year's presentation.
3. Net loss per share for the second quarter ended June 30, 1997, and for the
six months ended June 30, 1997 and 1996, was based upon the weighted
average number of actual shares of common stock outstanding. Net income per
share for the second quarter ended June 30, 1996 was computed using the
weighted average number of common and common equivalent shares outstanding
during the period.
4. The $16.0 million merger, restructuring and write-off of purchased
in-process research and development costs for the six months ended June 30,
1996, consisted of $10.0 million for the write-off of purchased in-process
research and development costs related to the acquisition of International
Financial Systems, Ltd. ("IFSL"), $4.2 million in merger costs related to
the acquisition of Saros Corporation ("Saros"), and $1.8 million in
restructuring costs related to the acquisitions of Saros and Watermark
Software Inc. ("Watermark").
5. During the second quarter ended June 30, 1997, the Company recognized $6.0
million in restructuring and other charges to consolidate the Watermark
business unit's Burlington, Massachusetts engineering and marketing
functions with those at FileNet's Costa Mesa, California location as well
as reduced headcount in certain other areas of the Company. The
restructuring and other charges consists primarily of severance costs,
write-off of impaired assets, and facility closing costs.
4
<PAGE>
6. During 1997, the Financial Accounting Standards Board issued Statement No.
128 (SFAS 128), "Earnings Per Share." Under SFAS 128, the Company will be
required to disclose basic earnings per share and diluted earnings per
share for all periods for which an income statement is presented, which
will replace disclosure currently being made for primary earnings per share
and fully diluted earnings per share. SFAS 128 requires adoption for fiscal
periods ending after December 15, 1997. There is no impact on the Company's
primary or fully diluted earnings per share for the second quarter ended
June 30, 1997 and the six months ended June 30, 1997 and 1996. Basic and
diluted earnings per share, as computed under SFAS 128, would have been
$0.17 and $0.15 per share, respectively, for the second quarter ended June
30, 1996.
7. In October 1994, Wang Laboratories, Inc. ("Wang") filed a complaint in the
United States District Court for the District of Massachusetts alleging
that the Company is infringing five patents held by Wang. On June 23, 1995,
Wang amended its complaint to include an additional related patent. On July
2, 1996, Wang filed a complaint in the same court alleging that Watermark,
formerly a wholly-owned subsidiary that was merged into the Company, is
infringing three of the same patents asserted in the initial complaint. On
October 9, 1996, Wang withdrew its claim that one of the patents it
initially asserted is infringed by the Company's products which were
commercialized before the initial complaint was filed. Wang reserved the
right to assert that patent against the Company's products commercialized
after that date in a separate lawsuit. Based on the Company's analysis of
these Wang patents and their respective file histories, the Company
believes that it has meritorious defenses to Wang's claims; however, the
ultimate outcome or any resulting potential loss cannot be determined at
this time.
In March 1997, Eastman Kodak Company ("Kodak") purchased the Wang imaging
business unit that has responsibility for this litigation. The patents in
the suit have been transferred to a Kodak subsidiary, Kodak Limited of
England, which in turn has exclusively licensed them to another Kodak
subsidiary, Eastman Software, Inc. in the United States. On July 30, 1997,
the Court permitted Eastman Software, Inc. to be substituted in the
litigation in place of Wang and Kodak Limited of England. The Company
cannot predict what, if any, impact this will have on the litigation. If it
should be determined that the patents at issue in the litigation are valid
and are infringed by any of the Company's products, including Watermark
products, the Company will, depending on the product, redesign the
infringing products or seek to obtain a license to market the products.
There can be no assurance that the Company will be able to obtain such a
license on acceptable terms.
On December 20, 1996, plaintiff Michael I. Goldman filed a class action
complaint against the Company and certain of its officers and directors in
the Superior Court of California, County of Orange (the "State Action").
5
<PAGE>
The action was purportedly filed on behalf of a class of purchasers of the
Company's common stock during the period October 19, 1995 through July 2,
1996. Plaintiff alleges that the Company and other defendants violated Cal.
Corp. Code Sections 25400 and 25500, Cal. Civ. Code Sections 1709-1710 and
Cal. Bus. & Prof. Code Sections 17200 et seq. in connection with various
public statements made by the Company and certain of its officers and
directors during the putative class period. The complaint seeks unspecified
compensatory and punitive damages, interest, attorneys' fees, expert
witness fees, costs, and equitable or injunctive relief.
On April 1, 1997, plaintiff Michael I. Goldman filed another class action
complaint against the Company and certain of its officers and directors in
the United States District Court for the Central District of California
(the "Federal Action"). The action purportedly was filed on behalf of the
same class of purchasers of the Company's common stock as the State Action.
The allegations contained in the Federal Action are very similar to the
allegations contained in the State Action, except that the Federal Action
asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act and Rule 10b-5. The complaint seeks unspecified compensatory damages,
interest, attorneys' fees, expert witness fees, costs and equitable or
injunctive relief. On July 2, 1997, the Court granted plaintiff's motion to
be appointed "lead plaintiff" under the Private Securities Litigation
Reform Act. Defendants intend to file a motion to dismiss the complaint on
August 29, 1997.
In the State Action, on April 14, 1997, the Company filed a motion to stay
all proceedings in light of the filing of the Federal Action by the same
plaintiff. This motion was denied without prejudice by the Court on May 13,
1997, and the case was assigned to the Complex Case Panel of Judges.
Defendants demurred to the Complaint and moved to stay the action, in light
of the parallel federal case. Plaintiff has filed a motion for class
certification. Discovery is proceeding in the State Action.
The Company believes that all of the allegations contained in the
complaints filed in the State and Federal Actions are without merit and
intends to defend the actions vigorously.
The Company, in the normal course of business, is subject to various other
legal matters. While the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of
these other matters will not have a materially adverse effect on the
Company's consolidated results of operations or financial condition.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FILENET CORPORATION
The following should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in Part I--Item 1 and Certain
Considerations in Part II--Item 5 of this Quarterly Report, the audited
consolidated financial statements, and notes thereto, and Management's
Discussion and Analysis of Results of Operations and Financial Condition
contained in the registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and with the Company's Current Report on Form 8-K filed by the
Company with the SEC on April 1, 1997.
Results of Operations
Revenue.
Domestic revenues increased 9% in the second quarter and decreased 11% for the
first six months of 1997 while international revenues decreased 29% and 28% in
the second quarter and first six months of 1997, respectively, when compared to
the corresponding periods in 1996. International revenues constituted
approximately 25% and 34% of total revenues in the second quarters of 1997 and
1996, respectively, and 28% and 32% of total revenues in the first six months of
1997 and 1996, respectively. Management expects that the Company's international
operations will continue to provide a significant portion of total revenues;
however, international revenues could be adversely affected if the U.S. dollar
strengthens against international currencies.
<TABLE>
<CAPTION>
(In Millions) ---- Second Quarter ---- ------- Six Months -------
1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
Software revenue $31.1 $33.0 (6%) $ 53.1 $ 70.1 (24%)
................................ ........................ ..........................
Percentage of total revenue 50% 51% 48% 53%
................................ ........................ ..........................
Service revenue 23.3 20.1 16% 41.5 37.3 11%
................................ ........................ ..........................
Percentage of total revenue 37% 31% 38% 28%
................................ ........................ ..........................
Hardware revenue 8.1 11.9 (32%) 15.4 24.3 (37%)
................................ ........................ ..........................
Percentage of total revenue 13% 18% 14% 19%
................................ ........................ ..........................
Total revenue $62.5 $65.0 (4%) $110.0 $131.7 (16%)
................................ ........................ ..........................
</TABLE>
Software revenue decreased by 6% for the quarter ended June 30, 1997 over the
same period of 1996 due to a continued weakness in new orders experienced
internationally, specifically in Germany and the United Kingdom.
7
<PAGE>
Service revenue increased by 16% for the quarter ended June 30, 1997 over the
same period of 1996. Service revenue consists of revenue from software
maintenance services provided to the Company's customers and other revenue that
includes professional services, training, repairs and supplies. The increase was
due to the growth of the Company's installed base and an increase in spare parts
repairs. Service revenue as a percentage of total revenue increased to 37% for
the quarter ended June 30, 1997 from 31% in the same quarter last year due to
the decrease in software and hardware revenue cited herein.
Hardware revenue decreased by 32% for the quarter ended June 30, 1997 over the
same period of 1996 primarily due to weakness in new orders experienced both
domestically and internationally and the Company's focus on increasing its
higher margin software revenues. Additionally, hardware revenue for 1996
included a number of international sales with significant hardware content.
For the six month period ended June 30, 1997, total revenue decreased by 16% to
$110.0 million over the same period in 1996. Software revenue decreased 24%,
service revenue increased 11%, and hardware revenue decreased 37% due to the
reasons cited above.
Cost of Revenue.
<TABLE>
<CAPTION>
(In Millions) ---- Second Quarter ---- ------- Six Months -------
1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
Cost of software revenue $ 3.2 $ 4.8 (33%) $ 6.2 $ 8.6 (28%)
..................................... ........................ ..........................
As a percentage of software revenue 10% 15% 12% 12%
..................................... ........................ ..........................
Cost of service revenue 13.8 12.3 12% 26.9 23.8 13%
..................................... ........................ ..........................
As a percentage of service revenue 59% 61% 65% 64%
..................................... ........................ ..........................
Cost of hardware revenue 4.8 7.4 (35%) 10.1 15.6 (35%)
..................................... ........................ ..........................
As a percentage of hardware revenue 59% 62% 66% 64%
..................................... ........................ ..........................
Total cost of revenue $21.8 $24.5 (11%) $43.2 $48.0 (10%)
..................................... ........................ ..........................
As a percentage of total revenue 35% 38% 39% 36%
..................................... ........................ ..........................
</TABLE>
The cost of software revenue includes royalties paid to third parties and the
cost of software distribution. The cost of software revenue as a percentage of
software revenue for the second quarter of 1997 decreased to 10% from 15% in the
same period of 1996 due to a product mix during 1996 that included products with
higher royalty costs.
8
<PAGE>
The cost of service revenue includes software support and professional services
personnel, supplies, and the cost of third party hardware maintenance. The cost
of service revenue as a percentage of service revenue for the second quarter of
1997 decreased to 59% from 61% in the same period of 1996 due to favorable
margins related to the revenue derived from the repair of spare parts cited
above.
The cost of hardware revenue includes the Company's cost of OSAR manufacturing,
third-party purchased hardware and the cost of hardware integration personnel.
The cost of hardware revenue as a percentage of hardware revenue for the second
quarter of 1997 decreased to 59% from 62% in the same period of 1996 primarily
due to the product mix that included a greater percentage of higher margin OSAR
sales.
The cost of software revenue as a percentage of software revenue and the cost of
service revenue as a percentage of service revenue for the six months ended June
30, 1997, remained consistent with the same period in 1996. For the six month
period ended June 30, 1997, the cost of hardware revenue as a percentage of
hardware revenue increased to 66% from 64% in the same period of 1996 due to the
decrease in hardware revenue without a corresponding decrease in the fixed costs
related to the Company's hardware integration activities and due to competitive
pricing pressures associated with the hardware market.
Operating Expenses.
<TABLE>
<CAPTION>
(In Millions) ---- Second Quarter ---- ------- Six Months -------
1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 9.6 $ 9.1 5% $19.7 $17.5 13%
..................................... ........................ ..........................
As a percentage of total revenue 15% 14% 18% 13%
..................................... ........................ ..........................
Selling, general and administrative $31.0 $28.8 8% $60.8 $58.9 3%
..................................... ........................ ..........................
As a percentage of total revenue 50% 44% 55% 45%
..................................... ........................ ..........................
</TABLE>
Research and Development. Research and development expenses increased 5% for the
second quarter of 1997 compared to the same period of 1996 due to a general
increase in salaries resulting from an increased demand for engineers and
depreciation expense associated with capital equipment additions. Research and
development costs as a percentage of total revenue remained consistent for the
second quarter of 1997 compared to the same period of 1996.
For the six month period ended June 30, 1997, research and development expenses
increased by 13% over the same period of 1996 due to the reasons cited above and
an addition of development personnel and related facilities. As a percentage of
total revenue, research and development costs increased to 18% compared to 13%
for the same period last year due to a combination of the factors cited above
and the lower revenue experienced in the first half of 1997.
9
<PAGE>
Selling, general and administrative expenses increased by 8% for the second
quarter of 1997 compared to the same period of 1996. The increase was primarily
due to the Company's continued efforts to expand internationally. As a
percentage of total revenue, selling, general and administrative expenses
increased to 50% compared to 44% for the same period last year primarily due to
the reasons cited above and the lower revenue experienced in the quarter.
For the six month period ended June 30, 1997, selling, general and
administrative expenses increased by 3% over the same period of 1996 for the
same reasons cited above. As a percentage of total revenue, selling, general and
administrative expenses increased to 55% compared to 45% for the same period
last year due to the reasons cited above.
Merger, Restructuring and Write-off of Purchased In-process Research and
Development Costs. The $6.0 million in restructuring and other charges for the
second quarter ended June 30, 1997 is related to the consolidation of the
Watermark business unit's Burlington, Massachusetts engineering and marketing
functions with those at FileNet's Costa Mesa, California location as well as a
reduction in headcount in certain other areas of the Company. The restructuring
charge consists primarily of severance costs, write-off of impaired assets and
facility closing costs.
Merger, restructuring and write-off of purchased in-process research and
development costs for the six months ended June 30, 1996 consist of a $10.0
million charge for the write-off of purchased in-process research and
development and acquisition costs related to the IFSL purchase and $6.0 million
for fees and expenses related to the Saros acquisition and restructuring costs
in connection with the consolidation of certain operations of Saros and
Watermark.
Effective Tax Rate. The Company's combined federal, State and foreign annual
effective tax rate for the quarter ended June 30, 1997 was 28% compared to 45%
for the same period in 1996. The 1996 effective tax rate included non-deductible
merger and other costs for the Saros and IFSL acquisitions. The effective tax
rate for 1996, exclusive of the non-deductible merger and other costs, was 25%.
The higher effective tax rate in 1997 is attributable to earnings generated in
certain foreign jurisdictions.
Net Loss. Net loss for the second quarter ended June 30, 1997 was $3.9 million,
or 25 cents per share on 15.2 million shares outstanding compared to net income
of $2.5 million or 15 cents per share on 16.4 million weighted average common
and common equivalent shares for the same period in 1996. Excluding
restructuring and other charges net of related tax benefit, the Company had
income for the June 30, 1997 quarter of $0.5 million or 3 cents per share on
15.4 million weighted average common and common equivalent shares. For the six
months ended June 30, 1997, FileNet had a net loss after restructuring and other
charges of $13.3 million, or 88 cents per share on 15.1 million average shares
outstanding compared with a net loss of $9.3 million, or 62 cents per share on
15.0 million average shares outstanding for the same period last year.
10
<PAGE>
Foreign Currency Fluctuations and Inflation. The Company's performance can be
affected by changes in foreign currency values relative to the U.S. dollar in
relation to the Company's revenue and operating expenses. The net impact to net
income from foreign exchange transactions and hedging activities are immaterial
for all periods reported. Management believes that inflation has not had a
significant impact on the prices of the Company's products, the cost of its
materials, or its operating results for the quarters ended June 30, 1997 and
1996.
Other Financial Instruments. The Company enters into forward foreign exchange
contracts as a hedge against effects of fluctuating currency exchange rates on
monetary assets and liabilities denominated in currencies other than the
functional currency of the relevant entity. The Company is exposed to market
risk on the forward exchange contracts as a result of changes in foreign
exchange rates; however, the market risk should be offset by changes in the
valuation of the underlying exposures. Gains and losses on these contracts,
which equal the difference between the forward contract rate and the prevailing
market spot rate at the time of valuation, are recognized in the consolidated
statement of operations. The counterparties to these instruments are major
financial institutions. The Company uses commercial rating agencies to evaluate
the credit quality of the counterparties, and the Company does not anticipate a
loss resulting from any credit risk of these institutions. The unrealized gains
and losses from these contracts were immaterial at both June 30, 1997 and June
30, 1996.
Liquidity and Capital Resources
As of June 30, 1997, combined cash, cash equivalents and short- and long-term
marketable securities totaled $75.9 million, an increase of $8.6 million from
$67.3 million at the end of 1996. The increase is primarily a result of cash
provided by operating activities of $16.4 million offset by capital expenditures
of $6.9 million.
Accounts receivable decreased to $43.7 million at June 30, 1997 from $75.5
million at December 31, 1996. Days sales outstanding decreased to 63 days as of
June 30, 1997 compared to 95 days as of December 31, 1996. Current liabilities
decreased to $47.7 million at June 30, 1997 from $59.5 million at December 31,
1996. The decrease is primarily a result of a decrease in accounts payable and
lower accrued sales commissions, royalties and other expenses as a result of
lower revenue.
The Company has an unsecured line of credit of $20 million available from a
commercial bank. This line of credit expires in May 1999 and is subject to the
maintenance of certain financial covenants. The Company also has several
borrowing arrangements with foreign banks which expire at various times
throughout 1997 pursuant to which the Company may borrow up to approximately $2
million. As of June 30, 1997, there were no borrowings against these credit
lines.
The Company anticipates that its present cash balances together with internally
generated funds and credit lines will be sufficient to meet its working capital
and capital expenditure needs throughout 1997.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
See notes to financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1997 Annual Meeting of the Stockholders of the Company was held at
9:00 a.m. on May 20, 1997, in Costa Mesa, California.
(b) At the annual meeting, the following four individuals were elected to
the Company's Board of Directors, constituting all members of the
Board of Directors:
----------------------------------------------------------------------
Nominee Affirmative Votes Votes Withheld
----------------------------------------------------------------------
Theodore J. Smith 12,259,814 585,320
----------------------------------------------------------------------
Frederick K. Fluegel 12,278,339 566,795
----------------------------------------------------------------------
John C. Savage 12,279,960 565,174
----------------------------------------------------------------------
William P. Lyons 12,278,189 566,945
----------------------------------------------------------------------
(c) The following additional proposals were considered at the Annual
Meeting and were approved according to the respective vote of the
stockholders.
1. Proposal to approve an amendment to the 1995 Stock Option Plan (
the "1995 Plan") to (i) increase the number of shares of Common
Stock issuable under the 1995 Plan by an additional 600,000
shares, (ii) render non-employee Board members eligible to
receive option grants and direct stock issuances under the
Discretionary Option Grant and Stock Issuance Programs in effect
under the 1995 Plan, (iii) remove certain restrictions on the
eligibility of non-employee Board members to serve as Plan
Administrator, (iv) eliminate the existing limitation of the 1995
Plan which precludes the grant of additional incentive stock
options under the federal tax laws once the total number of
shares issued under the plan, whether as vested or unvested
shares, exceeded 3,050,000 shares and (v) effect a series of
additional changes to the provisions of the 1995 Plan (including
the stockholder approval requirements and transferability of
non-statutory options) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities and Exchange
Commission which exempts certain officer and director
transactions under the 1995 Plan from the short-swing liability
provisions of the federal securities laws.
----------------------------------------------------------------------
Votes for Votes Against Abstentions Broker Non-Votes
----------------------------------------------------------------------
8,909,797 3,393,928 181,457 359,952
----------------------------------------------------------------------
2. Proposal to approve an amendment to the 1988 Employee Qualified
Stock Purchase Plan ( the "Purchase Plan") to increase the number
of shares of Common Stock issuable under the Purchase Plan by an
additional 150,000 shares.
----------------------------------------------------------------------
Votes for Votes Against Abstentions Broker Non-Votes
----------------------------------------------------------------------
11,111,046 1,192,067 182,069 359,952
----------------------------------------------------------------------
12
<PAGE>
Item 5. Certain Considerations.
This quarterly report on form 10-Q contains forward-looking statements
that involve risks and uncertainties, including those discussed below and
in the Management's Discussion and Analysis of Results of Operations and
Financial Condition section and Notes to Consolidated Financial Statements
in the Company's Annual Report to Stockholders. The actual results that
the Company achieves may differ materially from any forward-looking
statements due to such risks and uncertainties. All such factors should be
considered by investors in the Company.
RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT. The market for the
Company's products is characterized by rapid technological developments,
evolving industry standards, changes in customer requirements and frequent
new product introductions and enhancements. The Company's continued
success will be dependent upon its ability to continue to enhance its
existing products, develop and introduce, in a timely manner, new products
incorporating technological advances and respond to customer requirements.
To the extent one or more of the Company's competitors introduce products
that more fully address customer requirements, the Company's business
could be adversely affected. There can be no assurance that the Company
will be successful in developing and marketing enhancements to its
existing products or new products on a timely basis or that any new or
enhanced products will adequately address the changing needs of the
marketplace. If the Company is unable to develop and introduce new
products or enhancements to existing products in a timely manner in
response to changing market conditions or customer requirements, the
Company's business and operating results could be adversely affected. From
time to time, the Company or its competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten
the life cycles of the Company's existing products. There can be no
assurance that announcements of currently planned or other new products
will not cause customers to delay their purchasing decisions in
anticipation of such products, which could have a material adverse effect
on the Company's business and operating results.
UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS. Prior growth rates in the Company's revenue and
operating results should not necessarily be considered indicative of
future growth or operating results. Future operating results will depend
upon many factors, including the demand for the Company's products, the
effectiveness of the Company's efforts to continue to integrate various
products it has developed or acquired through acquisition of others and to
achieve the desired levels of sales from such product integration, the
level of product and price competition, the length of the Company's sales
cycle, seasonality of individual customer buying patterns, the size and
timing of individual transactions, the delay or deferral of customer
implementations, the budget cycles of the Company's customers, the timing
of new product introductions and product enhancements by the Company and
its competitors, the mix of sales by products, services and distribution
channels, levels of international sales, acquisitions by competitors,
changes in foreign currency exchange rates, the ability of the Company to
develop and market new products and control costs, and general domestic
and international economic and political conditions. As a result of these
factors, revenues and operating results for any quarter are subject to
variation and are not predictable with any significant degree of accuracy.
13
<PAGE>
Therefore, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Moreover, such factors
could cause the Company's operating results in a given quarter to be below
the expectations of public market analysts and investors. In either case,
the price of the Company's common stock could be materially adversely
affected.
COMPETITION. The document imaging, workflow, COLD and document management
software markets are highly competitive, and there are certain competitors
of the Company with substantially greater sales, marketing, development
and financial resources. The Company believes that the competitive factors
affecting the market for its products and services include vendor and
product reputation; product quality, performance and price; the
availability of products on multiple platforms; product scalability;
product integration with other enterprise applications; product
functionality and features; product ease-of use; and the quality of
customer support services and training. The relative importance of each of
these factors depends upon the specific customer involved. While the
Company believes it competes favorably in each of these areas, there can
be no assurance that it will continue to do so. Moreover, the Company's
present or future competitors may be able to develop products comparable
or superior to those offered by the Company, offer lower price products or
adapt more quickly than the Company to new technologies or evolving
customer requirements. Competition is expected to intensify. In order to
be successful in the future, the Company must respond to technological
change, customer requirements and competitors' current products and
innovations. There can be no assurance that it will be able to continue to
compete effectively in its market or that future competition will not have
a material adverse effect on its business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS. The Company's success
depends in part on its ability to protect its proprietary rights to the
technologies used in its principal products. The Company relies on a
combination of copyrights, trademarks, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights.
There can be no assurance that the Company's existing or future
copyrights, trademarks, trade secrets or other intellectual property
rights will be of sufficient scope or strength to provide meaningful
protection or commercial advantage to the Company. FileNet has no software
patents. Also, in selling certain of its products, the Company relies on
"shrink wrap" licenses that are not signed by licensees and, therefore,
may be unenforceable under the laws of certain jurisdictions. In addition,
the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
There can be no assurance that such factors would not have a material
adverse effect on the Company's business or operating results.
14
<PAGE>
The Company may from time to time be notified that it is infringing certain
patent or intellectual property rights of others. Combinations of
technology acquired through past or future acquisitions and the Company's
technology will create new products and technology which may give rise to
claims of infringement. While no actions other than the ones discussed
below are currently pending against the Company for infringement of patent
or other proprietary rights of third parties, there can be no assurance
that third parties will not initiate infringement actions against the
Company in the future. Infringement actions can result in substantial cost
to and diversion of resources of the Company. If the Company were found to
infringe upon the rights of others, no assurance can be given that licenses
would be obtainable on acceptable terms or at all, that significant damages
for past infringement would not be assessed or that further litigation
relative to any such licenses or usage would not occur. The failure to
successfully defend any claims or obtain necessary licenses or other
rights, the ultimate disposition of any claims or the advent of litigation
arising out of any claims of infringement, could have a material adverse
effect on the Company's business, financial condition or results of
operations.
In October 1994, Wang Laboratories, Inc. ("Wang") filed a complaint in the
United States District Court for the District of Massachusetts alleging
that the Company is infringing five patents held by Wang. On June 23, 1995,
Wang amended its complaint to include an additional related patent. On July
2, 1996, Wang filed a complaint in the same court alleging that Watermark,
formerly a wholly-owned subsidiary that was merged into the Company, is
infringing three of the same patents asserted in the initial complaint. On
October 9, 1996, Wang withdrew its claim that one of the patents it
initially asserted is infringed by the Company's products which were
commercialized before the initial complaint was filed. Wang reserved the
right to assert that patent against the Company's products commercialized
after that date in a separate lawsuit. Based on the Company's analysis of
these Wang patents and their respective file histories, the Company
believes that it has meritorious defenses to Wang's claims; however, the
ultimate outcome or any resulting potential loss cannot be determined at
this time.
In March 1997, Eastman Kodak Company ("Kodak") purchased the Wang imaging
business unit that has responsibility for this litigation. The patents in
the suit have been transferred to a Kodak subsidiary, Kodak Limited of
England, which in turn has exclusively licensed them to another Kodak
subsidiary, Eastman Software, Inc. in the United States. On July 30, 1997,
the Court permitted Eastman Software, Inc. to be substituted in the
litigation in place of Wang and Kodak Limited of England. The Company
cannot predict what, if any, impact this will have on the litigation. If it
should be determined that the patents at issue in the litigation are valid
and are infringed by any of the Company's products, including Watermark
products, the Company will, depending on the product, redesign the
infringing products or seek to obtain a license to market the products.
There can be no assurance that the Company will be able to obtain such a
license on acceptable terms.
15
<PAGE>
DEPENDENCE ON CERTAIN RELATIONSHIPS. The Company has entered into a number
of co-marketing relationships with other companies such as Microsoft
Corporation, Compaq Computer Corporation, SAP AG, HP and Sun Microsystems,
Inc. There can be no assurance that these companies will not reduce or
discontinue their relationships with or support of the Company and its
products. Disruption of these relationships could have a material adverse
effect on the Company's business and operating results.
DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL. The Company's success
depends to a significant degree upon the continued contributions of its key
management, marketing, technical and operational personnel, including
members of senior management and technical personnel of acquired companies.
In general, the Company does not utilize employment agreements for its key
employees. The loss of the services of one or more key employees could have
a material adverse effect on the Company's operating results. The Company
also believes its future success will depend in large part upon its ability
to attract and retain additional highly skilled management, technical,
marketing, product development and operational personnel. Competition for
such personnel is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel.
INTERNATIONAL SALES. Historically, the Company has derived approximately
one-third of its total revenues from international sales. International
business is subject to certain risks including varying technical
standards, tariffs and trade barriers, political and economic instability,
reduced protection for intellectual property rights in certain countries,
difficulties in staffing and maintaining foreign operations, difficulties
in managing foreign distributors, potentially adverse tax consequences,
currency exchange fluctuations, the burden of complying with a wide
variety of complex operations, foreign laws, regulations and treaties and
the possibility of difficulties in collecting accounts receivable. There
can be no assurance that any of these factors will not have a material
adverse effect on the Company's business or operating results.
ACQUISITION-RELATED RISKS. The acquisitions of Watermark, Saros and IFSL
have presented and will continue to present the Company with numerous
challenges, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies and managing separate
geographic operations. The challenges have absorbed and may continue to
absorb significant management attention that would otherwise be available
for the ongoing development of the Company's business. If the Company's
management does not respond to these challenges effectively, the Company's
results of operations could be adversely affected. Moreover, there can be
no assurance that the anticipated benefits of the acquisitions will be
realized. The Company and the acquired companies could experience
difficulties or delays in integrating their respective technologies or
developing and introducing new products. In particular, one of the reasons
for FileNet's acquisition of Saros was the perceived market potential for
Saros' new products, including the recently announced @mezzanine and Saros
Document Server for BackOffice, which have yet to be proven in the
marketplace, as well as other products currently under development. Delays
16
<PAGE>
in or non-completion of the development of these new products, or lack of
market acceptance of such products, could have an adverse impact on the
Company's future results of operations and result in a failure to realize
anticipated benefits of the acquisitions.
PRODUCT LIABILITY. The Company's license agreements with customers
typically contain provisions designed to limit their exposure to potential
product liability claims. However, it is possible that such limitation of
liability provisions may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product
liability claims to date, the sale and support of products by them may
entail the risk of such claims, and there can be no assurance that the
Company will not be subject to such claims in the future. A successful
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and
financial condition.
STOCK PRICE VOLATILITY. The Company believes that a variety of factors
could cause the price of its common stock to fluctuate, perhaps
substantially, including quarter-to-quarter variations in operating
results; announcements of developments related to its business;
fluctuations in its order levels; general conditions in the technology
sector or the worldwide economy; announcements of technological
innovations, new products or product enhancements by the Company or its
competitors; key management changes; changes in joint marketing and
development programs; developments relating to patents or other
intellectual property rights or disputes; and developments in the
Company's relationships with its customers, distributors and suppliers. In
addition, in recent years the stock market in general, and the market for
shares of high technology stocks in particular, has experienced extreme
price fluctuations which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely
affect the market price of the Company's common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The list of exhibits contained in the accompanying Index to Exhibits is
herein incorporated by reference.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated April 1, 1997, relating to its
announcement of an estimated loss for the first quarter ended March 31,
1997 and plan to restructure.
17
<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.
FILENET CORPORATION
By: /s/_Mark S. St. Clare_______
Mark S. St. Clare,
Chief Financial Officer and Sr. Vice President, Finance
(Principal Financial Officer)
Date
August 14, 1997
18
<PAGE>
Index to Exhibits
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
3.1* Restated Certificate of Incorporation, as amended (filed as Exhibit
3.1 to Form S-4 filed on January 26, 1996; Registration No.
333-00676).
3.1.1* Certificate of Amendment of Restated Certificate of Incorporation
(filed as Exhibit 3.1.1 to Form S-4 filed on January 26, 1996,
Registration No. 333-00676).
3.2* Bylaws (filed as Exhibit 3.2 of the Registrant's registration
statement on Form S-1, Registration No. 33-15004 (the "Form S-1")).
4.1* Form of certificate evidencing Common Stock (filed as Exhibit 4.1 to
the Form S-1, Registration No. 33-15004).
4.2* Rights Agreement, dated as of November 4, 1988 between FileNet
Corporation and the First National Bank of Boston, which includes the
form of Rights Certificate as Exhibit A and the Summary of Rights to
Purchase Common Shares as Exhibit B (filed as Exhibit 4.2 to Form S-4
filed on January 26, 1996; Registration No. 333-00676).
10.1 Second Amended and Restated Credit Agreement (Multicurrency) by and
among the Registrant and Bank of America National Trust and Savings
Association dated June 25, 1997, effective June 1, 1997.
10.2* Business Alliance Program Agreement between the Registrant and Oracle
Corporation dated July 1, 1996, as amended by Amendment One thereto
(filed as Exhibit 10.4 to Form 10-QA for the quarter ended June 30,
1996).
10.3* Runtime Sublicense Addendum between the Registrant and Oracle
Corporation dated July 1, 1996, as amended by Amendment One thereto
(filed as Exhibit 10.4 to Form 10-QA for the quarter ended June 30,
1996).
10.4* Full Use and Deployment Sublicense Addendum between the Registrant
and Oracle Corporation dated July 1, 1996, as amended by Amendment One
thereto (filed as Exhibit 10.4 to Form 10-QA for the quarter ended
June 30, 1996).
10.5* Lease between the Registrant and C. J. Segerstrom & Sons for the
headquarters of the Company, dated April 30, 1987 (filed as Exhibit
10.19 to the Form S-1).
10.6* Third Amendment to the Lease between the Registrant and C. J.
Segerstrom & Sons dated April 30, 1987, for additional facilities at
the headquarters of the Company, dated October 1, 1992 (filed as
exhibit 10.7 to Form 10-K filed on April 4, 1997).
10.7 Fifth Amendment to the Lease between the Registrant and C. J.
Segerstrom & Sons dated April 30, 1987, for the extension of the term
of the lease, dated March 28, 1997(filed as exhibit 10.8 to Form 10-Q
for the quarter ended March 31, 1997).
10.8* 1989 Stock Option Plan for Non-Employee Directors of FileNet
Corporation, as amended by the First Amendment, Second Amendment,
Third Amendment thereto (filed as Exhibit 10.9 to Form S-4 filed on
January 26, 1996; Registration No. 333-00676).
10.9* Amended and Restated 1995 Stock Option Plan of FileNet Corporation as
approved by stockholders at the Registrant's Annual Meeting on May 8,
1996 (filed as Exhibit 99.1 to Form S-8 filed on July 29, 1996).
- --------------------------------------------
* Incorporated herein by reference
19
<PAGE>
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
10.10* Second Amended and Restated Stock Option Plan of FileNet
Corporation, together with the forms of Incentive Stock Option
Agreement and Non-Qualified Stock Option Agreements (filed as Exhibits
4(a), 4(b) and 4(c), respectively, to the Registrant's Registration
Statement on Form S-8, Registration No. 33-48499), and an Amendment
thereto (filed as Exhibit 4(d) to the Registrant's Registration
Statement on Form S-8, Registration No. 33-69920), and the Second
Amendment thereto (filed as Appendix A to the Registrant's Proxy
Statement for the Registrant's 1994 Annual Meeting of Stockholders,
filed on April 29, 1994).
10.11* Agreement for the Purchase of IBM products dated December 20, 1991
(filed on May 5, 1992 with the Form 8 amending the Company's Form 10-K
for the fiscal year ended December 31, 1991).
10.12* Amendment #A1011-941003-01 dated September 30, 1994, to the
Agreement for the Purchase of IBM products dated December 20,
1991(filed as exhibit 10.12 to Form 10-K filed on April 4, 1997).
10.13* Development and Initial Supply Agreement between the Registrant and
Quintar Company dated August 20, 1992 (filed as Exhibit 10.21 to Form
10-K for the year ended January 3, 1993).
10.14* Amendment dated December 22, 1992 to the Development and Initial
Supply Agreement between the Registrant and Quintar Company dated
August 20, 1992 (filed as Exhibit 10.22 to Form 10-K for the year
ended January 3, 1993).
10.15* Product License Agreement between the Registrant and Novell, Inc.
dated May 16, 1995 (filed as Exhibit 10.26 to Form 10-Q for the
quarter ended July 2, 1995).
10.16* Agreement and Plan of Merger between the Registrant and Watermark
Software Inc. dated July 18, 1995 (filed as Exhibit 10.27 to Form 10-Q
for the quarter ended July 2, 1995).
10.17* Agreement and Plan of Merger between the Registrant and Saros
Corporation, as amended, dated January 17, 1996 (filed as Exhibits
2.1, 2.2, 2.3, and 2.4 to Form 8-K on March 13, 1996).
10.18* Stock Purchase Agreement by and Among FileNet Corporation, IFS
Acquisition Corporation, Jawaid Khan and Juergen Goersch dated January
17, 1996 and Amendment 1 to Stock Purchase Agreement dated January 30,
1996 (filed as Exhibit 10.2 to form 10-K for the year ended December
31, 1995).
27 Financial Data Schedule
- ---------------------------------------------
* Incorporated herein by reference
20
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
(MULTICURRENCY)
Dated as of June 25, 1997, effective as of June 1, 1997
between
FILENET CORPORATION
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
Definitions and Financial Requirements............................. 1
1.01 Definitions........................................................ 1
1.02 Financial Requirements............................................. 8
ARTICLE II
The Credit Facilities.............................................. 8
2.01 The Revolving Facility............................................. 8
2.02 Advances Under the Revolving Facility.............................. 9
2.03 Commercial Letters of Credit under the Revolving Facility.......... 11
2.04 Standby Letters of Credit Under the Revolving Facility............. 12
2.05 Local Currency Advances............................................ 14
2.06 Bank Guaranties.................................................... 14
2.07 Optional Prepayment................................................ 15
2.08 Mandatory Payment.................................................. 15
2.09 Commitment Fee. .................................................... 16
2.10 Default Rate....................................................... 16
2.11 Early Termination of Commitment.................................... 16
ARTICLE III
Extensions of Credit, Payments and Interest Calculations........... 16
3.01 Requests for Credit................................................ 16
3.02 Disbursements and Payments......................................... 17
3.03 Branch Accounts.................................................... 17
3.04 Evidence of Indebtedness........................................... 17
3.05 Interest Calculation............................................... 17
3.06 Late Payments; Compounding......................................... 17
3.07 Business Day....................................................... 17
3.08 Taxes and Other Charges............................................ 18
3.09 Illegality......................................................... 19
3.10 Increased Costs.................................................... 19
3.11 Funding Losses..................................................... 20
3.12 Inability to Determine Rates....................................... 20
3.13 Certificate of the Bank............................................ 20
3.14 Debits to Borrower's Account....................................... 20
3.15 Survival........................................................... 21
ARTICLE IV
Conditions to Availability of Credit............................... 21
4.01 Conditions to First Extension of Credit............................ 21
4.02 Conditions to Each Extension of Credit............................. 21
i
<PAGE>
Section Page
ARTICLE V
Representations and Warranties..................................... 22
5.01 Corporate Existence and Power...................................... 22
5.02 Authorization...................................................... 22
5.03 Enforceability..................................................... 23
5.04 Compliance with Laws............................................... 23
5.05 Permits, Franchises................................................ 23
5.06 Litigation......................................................... 23
5.07 No Event of Default................................................ 23
5.08 Other Obligations.................................................. 23
5.09 Tax Returns........................................................ 23
5.10 Information Submitted.............................................. 24
5.11 No Material Adverse Effect......................................... 24
5.12 ERISA Compliance................................................... 24
5.13 Environmental Matters.............................................. 24
ARTICLE VI
Affirmative Covenants.............................................. 25
6.01 Notices of Certain Events.......................................... 25
6.02 Financial and Other Information.................................... 25
6.03 Books, Records, Audits and Inspections............................. 26
6.04 Use of Facility.................................................... 26
6.05 Insurance.......................................................... 26
6.06 Compliance with Laws............................................... 27
6.07 Change in Name, Structure or Location.............................. 27
6.08 Existence and Properties........................................... 27
6.09 Additional Acts.................................................... 27
ARTICLE VII
Negative Covenants................................................. 27
7.01 Other Indebtedness................................................. 27
7.02 Liens 28
7.03 Capital Assets..................................................... 29
7.04 Dividends.......................................................... 29
7.05 Loans 29
7.06 Acquisitions, Liquidations and Mergers............................. 29
7.07 Sale of Assets..................................................... 30
7.08 Business Activities................................................ 30
7.09 Regulations G, T, U, and X......................................... 30
7.10 Use of Proceeds - Ineligible Securities............................ 30
7.11 Quick Ratio........................................................ 31
7.12 Total Liabilities to Tangible Net Worth............................ 31
7.13 Tangible Net Worth................................................. 31
7.14 Consecutive Quarterly Losses; Losses in One Quarter................ 32
ii
<PAGE>
ARTICLE VIII
Events of Default.................................................. 32
8.01 Events of Default.................................................. 32
(a) Failure to Pay......................................... 32
(b) Breach of Representation or Warranty................... 32
(c) Specific Defaults...................................... 32
(d) Other Defaults......................................... 32
(e) Trade Suits............................................ 32
(f) Judgments.............................................. 32
(g) Failure to Pay Debts; Voluntary Bankruptcy............. 33
(h) Involuntary Bankruptcy................................. 33
(i) Default of Other Financial Obligations................. 33
(j) Default under other Credit Documents................... 33
(k) Default of Other Bank Obligations...................... 33
(l) Material Adverse Effect................................ 33
(m) ERISA 33
(n) Change of Control...................................... 34
8.02 Remedies........................................................... 34
ARTICLE IX
Miscellaneous...................................................... 35
9.01 Successors and Assigns............................................. 35
9.02 Consents and Waivers............................................... 35
9.03 Governing Law...................................................... 35
9.04 Costs and Attorneys' Fees.......................................... 35
9.05 Integration; Amendment............................................. 36
9.06 Borrower's Documents............................................... 36
9.07 Participations..................................................... 36
9.08 General Indemnification............................................ 36
9.09 Arbitration; Reference Proceeding.................................. 37
9.10 Notices............................................................ 38
9.11 Headings; Interpretation........................................... 39
9.12 Severability....................................................... 39
9.13 Counterparts....................................................... 39
9.14 Waiver of Jury Trial............................................... 39
EXHIBITS
Exhibit A Form of Compliance Certificate
iii
<PAGE>
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
(MULTICURRENCY)
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(MULTI-CURRENCY) (this "Agreement") is entered into as of June 25, 1997,
effective as of June 1, 1997, between FILENET CORPORATION (the "Borrower"), and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank").
A. The Borrower and the Bank have entered into an Amended and
Restated Credit Agreement dated as of April 30, 1994, as amended and restated by
a Second Amended and Restated Credit Agreement (Multicurrency), as amended (as
so amended and restated and amended, the "Original Credit Agreement"), pursuant
to which the Bank has agreed, on the terms and conditions contained therein, to
extend credit to the Borrower and certain of its subsidiaries.
B. The parties hereto desire to amend and restate in its entirety
the Original Credit Agreement upon the terms and conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements contained
herein, the Borrower and the Bank agree as follows:
ARTICLE I
Definitions and Financial Requirements.
1.01 Definitions. The following terms (including plural and singular versions
thereof) have the meanings indicated:
"Acceptable Subsidiary": a Subsidiary of the Borrower acceptable to the
Bank in its sole discretion that (a) is specified as a "Borrower" on a
continuing guaranty executed by the Borrower in form and substance satisfactory
to the Bank, (b) has executed such credit and related documentation with and in
favor of the Bank as the Bank may request, and (c) (i) for extensions of credit
in the form of Dollar Advances, Offshore Currency Advances, or letters of credit
denominated in Dollars, is located in the United States and (ii) for purposes of
extensions of credit in the form of Local Currency Advances, letters of credit
denominated in a Local Currency or Bank Guaranties, is located outside of the
United States.
"Advance": an advance hereunder, which, subject to the terms and conditions
hereof, may be in Dollars, an Offshore Currency, or a Local Currency.
1
<PAGE>
"Availability Period": the period commencing on the date of this Agreement
and ending on the date that is the earlier to occur of (a) May 31, 1999, or (b)
the date on which the Bank's commitment to extend credit hereunder terminates.
"Bank Guaranty": a guaranty issued hereunder by an Offshore Credit Provider
for the Borrower's or an Acceptable Subsidiary's account.
"Bank Guaranty Outstanding Amount": at any time, the amount or
Equivalent Amount guaranteed pursuant to any Bank Guaranty but not disbursed
thereunder at such time, plus all amounts paid under any Bank Guaranty by an
Offshore Credit Provider which have not yet been reimbursed, plus any other
obligation or liability of the Borrower or an Acceptable Subsidiary to any
Offshore Credit Provider with respect to any Bank Guaranty.
"Business Day": any day other than a Saturday, a Sunday, or other day
on which commercial banks in San Francisco, California, are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Advance, means such a day on which dealings are carried on in the
applicable offshore interbank market.
"CD Rate": for any CD Rate Interest Period, the rate of interest (rounded
upward to the next 1/100th of 1%) determined pursuant to the following formula:
CD Rate = Certificate of Deposit Rate + Assessment
1.00 - Reserve Percentage Rate
Where:
"Assessment Rate" means, for any day of such CD Rate
Interest Period, the rate determined by the Bank as equal to
the annual assessment rate in effect on the first day of such
CD Rate Interest Period that is payable to the FDIC by a
member of the Bank Insurance Fund that is classified as
adequately capitalized and within supervisory subgroup "A" (or
a comparable successor assessment risk classification within
the meaning of 12 C.F.R. ss.327.3) for insuring time deposits
at offices of such member in the United States, or, in the
event that the FDIC shall at any time hereafter cease to
assess time deposits based upon such classifications or
successor classifications, equal to the maximum annual
assessment rate in effect on such day that is payable to the
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FDIC by commercial banks (whether or not applicable to the
Bank) for insuring time deposits at offices of such banks in
the United States.
"Certificate of Deposit Rate" means, for any CD Rate
Interest Period, the rate of interest per annum determined by
the Bank to be the arithmetic mean (rounded upward to the
nearest 1/100th of 1%) of the rates notified to the Bank as
the rates of interest bid by two or more certificate of
deposit dealers of recognized standing selected by the Bank
for the purchase at face value of dollar certificates of
deposit issued by major United States banks, for a maturity
comparable to the CD Rate Interest Period and in the
approximate amount of the CD Rate Advance to be made, at the
time selected by the Bank on the first day of such CD Rate
Interest Period.
"Reserve Percentage" means, for any CD Rate Interest
Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the nearest 1/100th of 1%), as determined by
the Bank, in effect on the first day of such interest period
(including any ordinary, marginal, emergency, supplemental,
special and other reserve percentages) prescribed by the FRB
for determining the maximum reserves to be maintained by
member banks of the Federal Reserve System with deposits
exceeding $1,000,000,000 for new non-personal time deposits
for a period comparable to the CD Rate Interest Period and in
an amount of $100,000 or more.
"CD Rate Advance": an Advance that bears interest based on the CD Rate.
"CD Rate Interest Period": for each CD Rate Advance, the period
commencing on the date the CD Rate Advance begins to bear interest at a rate
based on the CD Rate and ending 30, 60, 90, or 180 days thereafter, as requested
by the Borrower; provided, however, that no such CD Rate Interest Period shall
extend beyond the Final Maturity Date.
"Closing Date": the date on which all conditions to the initial extension
of credit hereunder are satisfied.
"Code": the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder as from time to time in effect.
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"Compliance Certificate": a certificate, substantially in the form of
Exhibit A, executed and delivered on behalf of the Borrower by an appropriate
officer of the Borrower.
"Credit Documents": collectively, this Agreement and each other agreement,
documents and instrument now or hereafter delivered to the Bank (including any
Offshore Credit Provider) in connection with the credits established herein and
the transactions contemplated hereby.
"Credit Limit": the amount $20,000,000 or the Equivalent Amount thereof.
"Default": any event or circumstance which, with the giving of notice, the
lapse of time, or both, would (if not cured or otherwise remedied during such
time) constitute an Event of Default.
"Dollars", "dollars" and "$": each, lawful money of the United States.
"Dollar Advances": specified in subsection 2.01(c).
"Environmental Laws": any foreign, federal, state, local, or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any governmental authority, any and all requirements of law and
any and all common law requirements, rules, and bases of liability regulating,
relating to, or imposing liability or standards of conduct concerning pollution
or protection of human health or the environment or Hazardous Substances or any
activity involving Hazardous Substances, as now or may at any time hereafter may
be in effect.
"Equivalent Amount": whenever this Agreement requires or permits a
determination on any date of the equivalent in dollars of an amount expressed in
a currency other than dollars, the equivalent amount in dollars of any amount
expressed in a currency other than dollars as determined by the Bank on such
date on the basis of the Spot Rate for the purchase of dollars with such other
currency on the relevant date.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder as from time to time in
effect.
"ERISA Event": (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Borrower from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as defined in
Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as
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such a withdrawal under Section 4062(e) of ERISA; (c) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to
terminate a Pension Plan subject to Title IV of ERISA; (d) a failure by the
Borrower to make required contributions to a Pension Plan or other Plan subject
to Section 412 of the Code; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan; (f) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Borrower; or (g) an
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code with respect to any Pension Plan.
"Event of Default": any event listed in Article VIII of this Agreement.
"FDIC": the Federal Deposit Insurance Corporation, or any entity succeeding
to any of its principal functions.
"Final Maturity Date": (a) in respect of any Advances, May 31, 1999; (b) in
respect of any commercial letters of credit, November 30, 1999; (c) in respect
of any standby letters of credit, May 31, 2000; and (d) in respect of any Bank
Guaranties, May 31, 2000.
"FRB": the Board of Governors of the Federal Reserve System, or any entity
succeeding to any of its principal functions.
"Hazardous Substance": any hazardous or toxic substance, material,
pollutant, waste or similar designation, defined, listed, classified, or
regulated as such in or under any Environmental Laws, including asbestos,
petroleum, or petroleum products (including gasoline, crude oil, or any fraction
thereof), polychlorinated biphenyls, and urea-formaldehyde insulation.
"Investment Guidelines": the Borrower's Investment Guidelines submitted to
the Bank and approved by the Bank prior to the Closing Date, and any changes
thereto after the Closing Date to the extent approved by the Bank in writing.
"IRS": the Internal Revenue Service or any entity succeeding to any of its
principal functions under the Code.
"L/C Outstanding Amount": at any time, the undrawn amount (or
Equivalent Amount thereof) at such time of any letter of credit issued
hereunder, plus the amount (or Equivalent Amount thereof) of all drafts or
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drawings paid or accepted by the Bank or an Offshore Credit Provider which have
not yet been reimbursed to the Bank or such Offshore Credit Provider, plus any
other obligation or liability of the Borrower or any Acceptable Subsidiary to
the Bank or an Offshore Credit Provider with respect to any letter of credit
issued under this Agreement.
"Local Currency": specified in subsection 2.01(c).
"Local Currency Advance": specified in subsection 2.01(c).
"Material Adverse Effect": (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of the
Borrower or any Acceptable Subsidiary to perform under any Credit Document; or
(c) a material adverse effect upon the legality, validity, binding effect or
enforceability of any Credit Document.
"Offshore Credit Provider": a foreign office, foreign branch or foreign
affiliate of the Bank, acceptable to the Bank. "Offshore Currency": specified in
subsection 2.01(c).
"Offshore Currency Advance": specified in subsection 2.01(c).
"Offshore Rate": for each Offshore Rate Interest Period, the rate of
interest (rounded upward to the next 1/16th of 1%) determined pursuant to the
following formula:
Offshore Rate = Offered Rate
----------------------------------------
1.00 - Eurodollar Reserve
Percentage
Where:
"Offered Rate" means the rate of interest at
which deposits in the applicable currency in the approximate
amount of the Offshore Rate Advance to be made and having a
maturity comparable to such Offshore Rate Interest Period
would be offered by the Bank's Grand Cayman Branch, Grand
Cayman, British West Indies (or such other office as may be
designated for such purpose by the Bank), to major banks in
the offshore interbank market upon request of such banks at
approximately 8:00 a.m. San Francisco time two Business Days
prior to the first day of such Offshore Rate Interest Period.
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"Eurodollar Reserve Percentage" means, for any Offshore Rate Interest
Period, the maximum reserve percentage (expressed as a decimal, rounded upward
to the next 1/100th of 1%) in effect on the first day of such Offshore Rate
Interest Period (whether or not applicable to the Bank) under regulations issued
from time to time by the FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities") having a term comparable to such Offshore Rate Interest Period.
"Offshore Rate Advance": an Advance for which interest is based on the Offshore
Rate.
"Offshore Rate Interest Period": for each Offshore Rate Advance the
period commencing on the date the Offshore Rate Advance begins to bear interest
at a rate based on the Offshore Rate and ending one, two, three, or six months
thereafter, as requested by the Borrower; provided, however, that the last day
of each Offshore Rate Interest Period shall be determined in accordance with the
practices of the applicable offshore interbank markets as from time to time in
effect, and provided further that no such interest period shall extend beyond
the Final Maturity Date.
"PBGC": the Pension Benefit Guaranty Corporation or any entity succeeding
to any of its principal functions under ERISA.
"Pension Plan": a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which the Borrower sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in the case of a
multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five plan years.
"Plan": an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Borrower sponsors or maintains or to which the Borrower makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Reference Rate": for any day, the rate of interest in effect for such
day as publicly announced from time to time by the Bank in San Francisco,
California, as its "reference rate." It is a rate set by the Bank based upon
various factors including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
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in the reference rate announced by the Bank shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Reference Rate Advance": an Advance that bears interest based on the
Reference Rate.
"Reportable Event": any of the events set forth in Section 4043(c) of ERISA
or the regulations thereunder, other than any such event for which the 30-day
notice requirement under ERISA has been waived in regulations issued by the
PBGC.
"Revolving Facility": the line of credit described in Section 2.01.
"Spot Rate": for a currency, the rate quoted by the Bank as the spot
rate for the purchase by the Bank of such currency with another currency through
its Foreign Exchange Trading Center #5193, San Francisco, California, or such
other of the Bank's offices as it may designate from time to time, at
approximately 8:00 a.m. (San Francisco time) on the date two Business Days prior
to the date as of which the foreign exchange computation is made.
"Subsidiary": of the Borrower, any corporation, association,
partnership, joint venture, or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of entities other than
corporations), is owned or controlled directly or indirectly by the Borrower or
one or more Subsidiaries of the Borrower or a combination thereof.
"Unfunded Pension Liability": the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
1.02 Financial Requirements. Unless otherwise specified in this Agreement,
all accounting terms used in this Agreement shall be interpreted, all financial
computations required under this Agreement shall be made, and all financial
information required under this Agreement shall be prepared, in accordance with
generally accepted accounting principles in effect from time to time in the
United States, consistently applied.
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ARTICLE IIII
The Credit Facilities
2.01 The Revolving Facility. (a) From time to time during the Availability
Period, subject to the terms and provisions hereof, the Bank, on a revolving
basis, will (i) make Advances to the Borrower or an Acceptable Subsidiary, (ii)
create and issue commercial and standby letters of credit for the Borrower's or
an Acceptable Subsidiary's account, and (iii) cause to be issued Bank Guaranties
for the Borrower's or an Acceptable Subsidiary's account.
(b) This amendment and restatement of the Original Credit
Agreement shall not be deemed a repayment, satisfaction, cancellation or
novation of any credit outstanding thereunder or any other obligations of the
Borrower or its Subsidiaries under the Original Credit Agreement or any of
documents or instruments given in connection therewith, which shall instead
continue and constitute obligations hereunder and under the other Credit
Documents. All such documents or instruments given in connection therewith shall
be deemed to be Credit Documents hereunder, and all guaranties issued by the
Borrower with respect to credit extended or which may be extended by the Bank to
its Subsidiaries shall remain in full force and effect and shall be deemed to be
issued hereunder.
(c) Advances hereunder may be made in (i) dollars ("Dollar
Advances") to the Borrower or an Acceptable Subsidiary, (ii) in a lawful
currency other than dollars which is freely transferable and convertible into
dollars and is traded in the offshore interbank currency markets at the time of
the Advance (an "Offshore Currency") ("Offshore Currency Advances") to the
Borrower or an Acceptable Subsidiary, or (iii) in a lawful currency other than
dollars which is available at a branch or affiliate of the Bank located in a
country other than the United States and is the legal tender of that country
where the branch or affiliate is located (a "Local Currency") ("Local Currency
Advances") to an Acceptable Subsidiary.
(d) The aggregate of (i) all Dollar Advances, (ii) the
Equivalent Amount of all Offshore Currency Advances and Local Currency Advances,
(iii) the L/C Outstanding Amount of all letters of credit, and (iv) the Bank
Guaranty Outstanding Amount of all Bank Guaranties may not exceed at one time
the Credit Limit.
2.02 Advances Under the Revolving Facility. (a) Subject to the other
provisions of this Section, Dollar Advances under the Revolving Facility shall
bear interest at a rate per annum equal to the Reference Rate. The Borrower
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shall pay or cause the applicable Acceptable Subsidiary to pay interest monthly,
on the last day of each month until the Final Maturity Date, on which date all
accrued and unpaid interest shall be due and payable. The Borrower shall repay
or cause the applicable Acceptable Subsidiary to repay the principal amount of
each Reference Rate Advance on the date such advance is converted into an
Offshore Rate Advance or a CD Rate Advance under subsections (b) or (c) below,
and on the Final Maturity Date.
(b) In lieu of the interest rate described above, the Borrower
or the applicable Acceptable Subsidiary may elect during the Availability Period
to have all or portions of Advances under the Revolving Facility be in dollars
or an Offshore Currency and bear interest at the Offshore Rate plus 0.75% per
annum during an Offshore Rate Interest Period, subject to the following
requirements:
(i) Each Offshore Rate Advance shall be, if in
Dollars, for an amount not less than $500,000, or, if in an Offshore
Currency, in a minimum amount acceptable to the Bank.
(ii) The Borrower shall pay or cause the applicable
Acceptable Subsidiary to pay interest on each Offshore Rate Advance on
the last day of the Offshore Rate Interest Period for such Advance;
provided, however, that if any Interest Period for a Offshore Rate
Advance exceeds one month, interest shall also be payable on the date
which falls one month after the beginning of such Interest Period and
on each date which falls one month after any such interest payment
date. The Borrower shall repay or cause the applicable Acceptable
Subsidiary to repay the principal balance of each Offshore Rate Advance
on the last day of the Offshore Rate Interest Period for such Advance,
and (if sooner occurring) on the Final Maturity Date.
(iii) Any payment of an Offshore Rate Advance prior
to the last day of the Offshore Rate Interest Period for such Advance,
whether voluntary, by reason of acceleration or otherwise, including
any mandatory payments required under this Agreement and applied by the
Bank to an Offshore Rate Advance, shall be accompanied by the amount of
accrued interest on the amount repaid and by the amount (if any)
required by Section 3.11.
(c) In lieu of the interest rates described above in this
Section, the Borrower or the applicable Acceptable Subsidiary may elect during
the Availability Period to have all or portions of Advances under the Revolving
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Facility be in dollars and bear interest at the CD Rate plus 0.75% per annum
during a CD Rate Interest Period, subject to the following requirements:
(i) Each CD Rate Advance shall be for an amount not
less than $500,000.
(ii) The Borrower shall pay or cause the applicable
Acceptable Subsidiary to pay interest on each CD Rate Advance on the
last day of the CD Rate Interest Period for such Advance; provided,
however, that if any Interest Period for a CD Rate Advance exceeds 30
days, interest shall also be payable on the date which falls 30 days
after the beginning of such Interest Period and on each date which
falls 30 days after any such interest payment date. The Borrower shall
repay or cause the applicable Acceptable Subsidiary to repay the
principal balance of each CD Rate Advance on the last day of the CD
Rate Interest Period for such Advance, and (if sooner occurring) on the
Final Maturity Date.
(iii) Any payment of a CD Rate Advance prior to the
last day of the CD Rate Interest Period for such Advance, whether
voluntary, by reason of acceleration or otherwise, including mandatory
payments required under this Agreement and applied by the Bank to a CD
Rate Advance, shall be accompanied by the amount of accrued interest on
the amount repaid and by the amount (if any) required by Section 3.11.
(d) For purposes of determining the Borrower's and any applicable
Acceptable Subsidiary's compliance with subsection 2.01(d), the Equivalent
Amount of Offshore Currency Advances shall be determined, and redetermined by
the Bank as of the applicable borrowing date in respect of such Advance
(including the date such Advance was converted into an Offshore Currency Advance
under subsection 2.02(b)), and on the last Business Day of each month.
2.03 Commercial Letters of Credit under the Revolving Facility.03
Commercial Letters of Credit under Commercial Letters of Credit under the
Revolving Facility. (a) Each commercial letter of credit shall, except as
provided in subsection 2.03(b), be denominated in dollars and issued pursuant to
the terms and conditions hereof and of a Bank standard form Application and
Security Agreement for Commercial Letter of Credit (or such other form as the
Bank may require) executed by the Borrower or an Acceptable Subsidiary.
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(b) The Bank or any Offshore Credit Provider may, from time to
time during the Availability Period, in its sole discretion, issue commercial
letters of credit denominated in Local Currencies to Acceptable Subsidiaries.
Neither the Bank nor any Offshore Credit Provider shall have any obligation to
issue any such commercial letters of credit denominated in Local Currencies
unless the Bank and the relevant Acceptable Subsidiary agree, at the time of
such Acceptable Subsidiary's request for such a letter of credit, on the
repayment terms and other material provisions for such letter of credit and the
Borrower or such Acceptable Subsidiary shall execute such applications,
agreements and additional documentation as the Bank or the Offshore Credit
Provider may require relating to such letter of credit.
(c) Each commercial letter of credit shall:
(i) expire on or before 180 days after the date such
letter of credit is issued, but in no event later than the Final
Maturity Date;
(ii) require drafts payable in dollars (or, in the
case of letters of credit issued under subsection 2.03(b), in the
applicable currency) at sight or up to 180 days after sight; and
(iii) be otherwise in form and substance and in favor
of beneficiaries and for purposes satisfactory to the Bank.
(d) The Borrower shall pay or cause the applicable Acceptable
Subsidiary to pay to the Bank or the applicable Offshore Credit Provider
issuance fees, negotiation fees, and other fees at the times and in the amounts
the Bank or the Offshore Credit Provider advises the Borrower from time to time
as being applicable to the Borrower's or the Acceptable Subsidiary's commercial
letters of credit.
(e) Each draft paid by the Bank or an Offshore Credit Provider
under a commercial letter of credit issued hereunder shall be reimbursed by the
Borrower or the applicable Acceptable Subsidiary to the Bank or such Offshore
Credit Provider on the date such draft is paid by the Bank or the Offshore
Credit Provider. Any sum owed to the Bank or an Offshore Credit Provider with
respect to a commercial letter of credit issued for the Borrower's or any
Acceptable Subsidiary's account which is not paid when due shall, at the option
of the Bank in each instance, be deemed to be an Advance to the Borrower
outstanding under the Revolving Facility and shall thereafter bear interest at
the Reference Rate.
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(f) At the expiration of the Availability Period, the Bank may
require the Borrower to provide or cause the applicable Acceptable Subsidiary to
provide cash collateral in the amount of the L/C Outstanding Amount of any
commercial letters of credit outstanding under this Agreement, and, in addition
to any other rights or remedies which the Bank may have under this Agreement or
otherwise, upon the occurrence of an Event of Default, the Bank may require the
Borrower to provide or cause the applicable Acceptable Subsidiary to provide
cash collateral in the amount of the L/C Outstanding Amount of any commercial
letters of credit outstanding under this Agreement.
2.04 Standby Letters of Credit Under the Revolving Facility.04 Standby
Letters of Credit Under the Standby Letters of Credit Under the Revolving
Facility. (a) Each standby letter of credit shall, except as provided in
subsection 2.04(b), be denominated in dollars and issued pursuant to the terms
and conditions hereof and of a Bank standard form Application and Agreement for
Standby Letter of Credit (or such other form as the Bank may require) executed
by the Borrower or an Acceptable Subsidiary.
(b) The Bank or any Offshore Credit Provider may, from time to
time during the Availability Period, in its sole discretion, issue standby
letters of credit denominated in Local Currencies to Acceptable Subsidiaries.
Neither the Bank nor any Offshore Credit Provider shall have any obligation to
issue any such standby letters of credit denominated in Local Currencies unless
the Bank and the relevant Acceptable Subsidiary agree, at the time of such
Acceptable Subsidiary's request for such a letter of credit, on the repayment
terms and other material provisions for such letter of credit and the Borrower
or such Acceptable Subsidiary shall execute such applications, agreements and
additional documentation as the Bank or the Offshore Credit Provider may require
relating to such letter of credit.
(c) Each standby letter of credit shall: (i) expire on or
before one year after the date such letter of credit is issued, but in no event
later than the Final Maturity Date; and (ii) be otherwise in form and substance
and in favor of beneficiaries and for purposes satisfactory to the Bank.
(d) The Borrower shall pay or cause the applicable Acceptable
Subsidiary to pay to the Bank a non-refundable fee equal to 1.00% per annum of
the outstanding undrawn amount of each standby letter of credit issued hereunder
for its account or for the account of an Acceptable Subsidiary (with a minimum
fee of $250), payable annually in advance, and calculated on the basis of the
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face amount outstanding on the day the fee is calculated, or, in the case of
standby letters of credit issued to an Acceptable Subsidiary and denominated in
a Local Currency, such fees as are applicable to such letter of credit pursuant
to subsection 2.04(b). However, if an Event of Default exists, at the option of
the Bank, the amount of the fee shall be increased to 3% per annum, commencing
on the day the Bank provides notice of the increase to the Borrower, or such
fees as are applicable to a standby letter of credit denominated in a Local
Currency pursuant to subsection 2.04(b). The Borrower shall also pay or cause
the applicable Acceptable Subsidiary to pay such other fees and commissions at
the times and in the amounts the Bank advises the Borrower from time to time as
being applicable to the Borrower's or Acceptable Subsidiaries' standby letters
of credit.
(e) Each draft paid by the Bank or an Offshore Credit Provider
under a standby letter of credit issued hereunder shall be reimbursed by the
Borrower or the Acceptable Subsidiary to the Bank or such Offshore Credit
Provider on the date such draft is paid by the Bank or the Offshore Credit
Provider. Any sum owed to the Bank or an Offshore Credit Provider with respect
to a standby letter of credit issued for the Borrower's or an Acceptable
Subsidiary's account which is not paid when due shall, at the option of the Bank
in each instance, be deemed to be an Advance to the Borrower outstanding under
the Revolving Facility and shall thereafter bear interest at the Reference Rate.
(f) At the expiration of the Availability Period, the Bank may
require the Borrower to provide or cause the applicable Acceptable Subsidiary to
provide cash collateral in the amount of the L/C Outstanding Amount of any
standby letters of credit outstanding under this Agreement, and, in addition to
any other rights or remedies which the Bank may have under this Agreement or
otherwise, upon the occurrence of an Event of Default, the Bank may require the
Borrower to provide or cause the applicable Acceptable Subsidiary to provide
cash collateral in the amount of the L/C Outstanding Amount of any standby
letters of credit outstanding under this Agreement.
(g) The aggregate of the L/C Outstanding Amount in respect of
standby letters of credit and the Bank Guaranty Outstanding Amount may not
exceed at any time $10,000,000.
2.05 Local Currency Advances. (a) From time to time during the Availability
Period, the Bank or any Offshore Credit Provider may, in its sole discretion,
make Local Currency Advances to Acceptable Subsidiaries.
(b) Neither the Bank nor any Offshore Credit Provider shall
have any obligation to make any Local Currency Advance unless the following
conditions are satisfied:
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(i) the Bank and the relevant Acceptable Subsidiary
agree, at the time of such Acceptable Subsidiary's request for a Local
Currency Advance, on the currency, the amount, the principal payment
date(s), the interest rate and payment date(s), the prepayment and
overdue payment terms, and the reserve, tax and other material
provisions for such Advance; and
(ii) The Borrower and such Acceptable Subsidiary
shall execute such additional documentation as the Bank or such
Offshore Credit Provider may require relating to each Local Currency
Advance.
2.06 Bank Guaranties. (a) From time to time during the Availability Period,
the Bank may, in its sole discretion, issue Bank Guaranties to the Borrower and
to Acceptable Subsidiaries. Each Bank Guaranty shall be issued by an Offshore
Credit Provider and pursuant to the laws of the jurisdiction in which such
Offshore Credit Provider is located and subject to any other applicable law.
Each Bank Guaranty shall be issued pursuant to the terms and conditions hereof
and of a Bank standard form indemnity agreement and any other Bank standard
forms for guaranties executed by the Borrower or the relevant Acceptable
Subsidiary.
(b) Each Bank Guaranty shall:
(i) expire on or before the date which is one year
after the date it is issued, but in any event no later than the Final
Maturity Date; and
(ii) be otherwise in form and substance and in favor of
beneficiaries and for purposes satisfactory to the Bank.
(c) The Borrower or the relevant Acceptable Subsidiary shall
pay the Offshore Credit Provider issuance fees and other fees at the times and
in the amounts the Bank advises the Borrower or the Acceptable Subsidiary from
time to time as being applicable to Bank Guaranties issued for the Borrower's or
the Acceptable Subsidiary's account.
(d) Each payment by the Offshore Credit Provider under a Bank
Guaranty shall be reimbursed by the Borrower or the Acceptable Subsidiary to the
Offshore Credit Provider on the date of such payment. Any sum owed to the
Offshore Credit Provider with respect to a Bank Guaranty issued under this
Section which is not paid when due shall, at the option of the Offshore Credit
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Provider in each instance, be deemed to be an Advance to the Borrower by the
Bank outstanding under the Revolving Facility and shall thereafter bear interest
at the Reference Rate.
(e) At the expiration of the Availability Period, the Bank may
require the Borrower to provide or cause the applicable Acceptable Subsidiary to
provide cash collateral in the amount of the Bank Guaranty Outstanding Amount,
and, in addition to any other rights or remedies which the Bank may have under
this Agreement or otherwise, upon the occurrence of an Event of Default, the
Bank may require the Borrower to provide or cause the applicable Acceptable
Subsidiary to provide cash collateral in the amount of the Bank Guaranty
Outstanding Amount.
(f) The aggregate of the Bank Guaranty Outstanding Amount and
the L/C Outstanding Amount in respect of standby letters of credit may not
exceed at any time $10,000,000.
2.07 Optional Prepayment Subject to Section 3.11, the Borrower or the
applicable Acceptable Subsidiary may, at any time or from time to time, upon not
less than three Business Days' irrevocable notice to the Bank, prepay Advances
in whole or in part. If such notice is given by the Borrower or the applicable
Acceptable Subsidiary, the prepayment amount specified therein shall be due and
payable on the date specified therein, together with accrued interest to the
date of repayment on the amount so prepaid.
2.08 Mandatory Payment. If at any time and for any reason the total amount
of credit outstanding under this Agreement exceeds the limitations set forth
herein, the Borrower shall or shall cause the applicable Acceptable Subsidiary
to, subject to Section 3.11, pay to the Bank, upon demand, the amount of the
excess; provided, that if the foregoing applies due to a change in applicable
rates of exchange between Dollars and Offshore Currencies or Local Currencies,
the Borrower shall be obligated to pay such amount only if the excess is greater
than $500,000 or the Equivalent Amount thereof. Payments under this Section may
be applied to the obligations of the Borrower or the Acceptable Subsidiaries to
the Bank in the order and manner as the Bank in its discretion may determine.
Payments to be applied to outstanding letters of credit and drafts accepted
under letters of credit and Bank Guaranties may, at the Bank's option, be used
to prepay, or held as cash collateral to secure, the Borrower's or any
Acceptable Subsidiary's obligations to the Bank or any Offshore Credit Provider
with respect thereto.
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2.09 Commitment Fee. The Borrower shall pay to the Bank a commitment fee at
the rate of 0.20% per annum on the average daily unused portion of the credit
provided under this Agreement. For purposes of computing the unused portion, the
L/C Outstanding Amount and the Bank Guaranty Outstanding Amount shall be deemed
to be usage. The commitment fee shall be computed on a calendar quarter basis,
except for the first period which shall commence on May 1, 1997 and end on June
30, 1997, and the last period which shall end on the last day of the
Availability Period. The commitment fee shall be payable in arrears on June 30,
1997, on the last day of each successive quarter thereafter, and on the last day
of the Availability Period.
2.10 Default Rate. Upon the occurrence and during the continuation of any
Event of Default, and without constituting a waiver of any such Event of
Default, (a) Advances under the Revolving Facility shall at the option of the
Bank bear interest at a rate per annum which is 2.00% per annum higher than the
rate of interest otherwise provided under this Agreement, and (b) Offshore
Currency Advances shall at the option of the Bank be redenominated and converted
into the Equivalent Amount of Reference Rate Advances in Dollars.
2.11 Early Termination of Commitment. The Borrower may at any time
terminate the Bank's (including any Offshore Credit Provider's) commitment to
extend credit hereunder by giving no less than five Business Days' prior notice
to the Bank and paying in full the entire amount of credit outstanding hereunder
(including the L/C Outstanding Amount and Bank Guaranty Outstanding Amount),
together with any sums due under Section 3.11. Payments to be applied to
outstanding letters of credit and drafts accepted under letters of credit and
Bank Guaranties may, at the Bank's option, be used to prepay, or held as cash
collateral to secure, the Borrower's and Acceptable Subsidiaries' obligations to
the Bank with respect thereto. All accrued commitment fees to, but not including
the effective date of any termination of the commitment, shall be paid on the
effective date of such termination.
ARTICLE IIIIII
Extensions of Credit, Payments and Interest Calculations
3.01 Requests for Credit. Each request for an extension of credit shall be
made in writing on a form acceptable to the Bank or in any other manner
acceptable to the Bank.
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3.02 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower or an Acceptable Subsidiary under this Agreement shall
be made in the funds and at such branch of the Bank as the Bank may from time to
time select.
3.03 Branch Accounts. Each extension of credit under this Agreement shall
be made for the account of such branch, office, or affiliate of the Bank as the
Bank may from time to time select.
3.04 Evidence of Indebtedness. Principal, interest, and all other sums due
to the Bank (or any Offshore Credit Provider) under this Agreement shall be
evidenced by entries in records maintained by the Bank (or such Offshore Credit
Provider), and, if required by the Bank, by a promissory note or notes. Each
payment on and any other credits with respect to principal, interest, and all
other sums due under this Agreement shall be evidenced by entries to records
maintained by the Bank or such Offshore Credit Provider. The loan accounts or
records maintained by the Bank or any Offshore Credit Provider shall be
conclusive absent manifest error of the amount of the credit extended hereunder
and the interest and payments thereon. Any failure to so record or any error in
doing so shall not, however, limit or otherwise affect the obligation of the
Borrower or any Acceptable Subsidiary hereunder to pay any amount owing.
3.05 Interest Calculation. Interest based on the Reference Rate shall be
computed on the basis of a 365/366-day year, actual days elapsed. All other
interest and fees payable under this Agreement shall be computed on the basis of
a 360 day year and actual days elapsed, which results in more interest or a
larger fee than if a 365-366 day year were used.
3.06 Late Payments; Compounding. Any sum payable by the Borrower hereunder
(including unpaid interest) if not paid when due shall bear interest (payable on
demand) from its due date until payment in full at a rate per annum equal to the
Reference Rate plus 2.00% per annum. At the option of the Bank, in each
instance, any sum payable hereunder which is not paid when due (including unpaid
interest) may be added to principal of the Revolving Facility and shall
thereafter bear interest at the rate applicable to principal.
3.07 Business Day. Any sum payable by the Borrower or an Acceptable
Subsidiary hereunder which becomes due on a day which is not a Business Day
shall be due on the next Business Day after such due date, unless, in the case
of an Offshore Rate Loan, the result of such extension would be to carry such
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Offshore Rate Interest Period into another calendar month, in which event such
Offshore Rate Interest Period shall end on the immediately preceding Business
Day. Any payments received by the Bank or an Offshore Credit Provider on a day
which is not a Business Day shall be deemed to be received on the next Business
Day after such date of receipt.
3.08 Taxes and Other Charges. (a) (i) If any taxes (other than taxes on net
income (A) imposed by the country or any subdivision of the country in which the
Bank's principal office or actual lending office is located and (B) measured by
the United States taxable income the Bank would have received if all payments
under or in respect of this Agreement and any instrument or agreement required
hereunder were exempt from taxes levied by the Borrower's country) are at any
time imposed on any payments under or in respect of this Agreement or any
instrument or agreement required hereunder including, but not limited to,
payments made pursuant to this Section, the Borrower shall pay all such taxes
and shall also pay to the Bank, at the time interest is paid, all additional
amounts which the Bank specifies as necessary to preserve the after-tax yield
the Bank would have received if such taxes had not been imposed.
(ii) The additional amounts necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been
imposed shall be calculated pursuant to the formula:
(w)(t)(i)
y = -----------
1-w-t
where the terms are defined as follows:
y = additional payment to be made to the Bank
w = withholding tax rate levied by foreign
government
t = the Bank's combined Federal and state tax
rate
i = amount of interest to be paid on Credit
(computed by using the base rate plus
quoted spread)
1 = one
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(b) The Borrower will provide the Bank with original tax
receipts, notarized copies of tax receipts, or such other documentation as will
prove payment of tax in a court of law applying the United States Federal Rules
of Evidence, for all taxes paid by the Borrower pursuant to subsection (a)
above. The Borrower will deliver receipts to the Bank within 30 days after the
due date for the related tax.
3.09 Illegality. (a) If the Bank determines that (i) the introduction of
any law, rule, regulation, treaty, or determination of an arbitrator or court or
other governmental authority or any change in or in the interpretation or
administration thereof has made it unlawful, or that any central bank or other
governmental authority has asserted that it is unlawful, for the Bank (directly
or through any Offshore Credit Provider) to make or extend any Advance or other
credit under this Agreement, or (ii) any order, judgment, or decree of any
governmental authority or arbitrator purports by its terms to enjoin or restrain
the Bank (or any Offshore Credit Provider) from making or extending any Advance
or other credit hereunder, then, on notice thereof by the Bank to the Borrower,
the obligation of the Bank to make or extend such Advance or other credit
(directly or through any Offshore Credit Provider) shall be suspended until the
Bank shall have notified the Borrower that the circumstances giving rise to such
determination no longer exist.
(b) If the Bank determines that it is unlawful for it or any
applicable Offshore Credit Provider to maintain any Offshore Rate Advance or
Local Currency Advance hereunder, the Borrower shall prepay or shall cause the
applicable Acceptable Subsidiary to prepay in full all Offshore Rate Advances or
Local Currency Advances, as the case may be then outstanding, together with
interest accrued thereon, either on the last day of the applicable Offshore Rate
Interest Period or the interest period applicable to the Local Currency Advance
if the Bank or such Offshore Credit Provider may lawfully continue to maintain
such Advances to such day and such loans have an interest period, or
immediately, if the Bank may not lawfully continue to maintain such Advances or
such loans have no interest period, together with any amounts required to be
paid in connection therewith pursuant to Section 3.11.
3.10 Increased Costs. The Borrower shall pay to the Bank, on demand, the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks (but not including any such statute, regulation,
request or requirement which has the effect of changing the reserve requirements
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or Assessment Rate to the extent already included in the calculation of the CD
Rate or the Offshore Rate). The costs and losses will be allocated to this
facility in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets
and commitments for credit.
3.11 Funding Losses. The Borrower shall reimburse the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of the failure of the Borrower (or any Acceptable Subsidiary) to
make any payment or prepayment of principal of any Advance hereunder made at a
rate of interest related to the Offshore Rate or the CD Rate (including payments
made after any acceleration thereof), or to borrow at such a rate, or the
prepayment of an Advance which bears interest at such a rate on a day which is
not the last day of the interest period with respect thereto (including payments
made after any acceleration thereof or because the total amount of credit
exceeds the limitations set forth herein), or the redenomination and conversion,
upon the occurrence of any Event of Default, of an Advance which bears interest
at such a rate; including any such loss or expense arising from the liquidation
or reemployment of funds obtained by it to maintain its Advances made at a rate
related to the Offshore Rate or the CD Rate hereunder or from fees payable to
terminate any deposits from which such funds were obtained or deemed obtained.
3.12 Inability to Determine Rates. The Bank has no obligation to accept an
election for an Offshore Rate Advance or a CD Rate Advance if (a) deposits in
the applicable currency in the principal amount, and for the period equal to the
interest period, for such Advance are not available in the applicable funding
market; or (b) the Offshore Rate or CD Rate does not accurately reflect the cost
of such Advance. Nothing contained herein shall, however, obligate the Bank to
obtain the funds for any Advance in any particular manner.
3.13 Certificate of the Bank. If the Bank claims any reimbursement or
compensation pursuant to Section 3.10 or Section 3.11, then the Bank shall
deliver to the Borrower a certificate setting forth in reasonable detail the
amount payable to the Bank thereunder and such certificate shall be conclusive
and binding on the Borrower in the absence of manifest error.
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3.14 Debits to Borrower's Account. The Borrower hereby authorizes the Bank
to debit the Borrower's deposit account number 1233012785 at the Global Payments
Operations, Concord, CA office of the Bank in the amount of principal, interest,
fees, or any other amount due under this Agreement or under any instrument or
agreement required under this Agreement. The Bank may, at its option, debit the
account on the date such amounts become due, or, if such due date is not a
Business Day, on the next Business Day after such due date. If there are
insufficient funds in the account to cover the amount debited to the accounts in
accordance with this Section, such debit may be reversed in whole or in part, at
the option of the Bank in its sole discretion, and the amount not debited shall
be deemed to remain unpaid.
3.15 Survival. The agreements and obligations of the Borrower under
Sections 3.08 through 3.11 shall survive the expiration or termination of the
commitment to extend credit hereunder and the payment of all other obligations
of the Borrower or any Acceptable Subsidiary hereunder or under the other Credit
Documents.
ARTICLE IVIV
Conditions to Availability of Credit.
The Bank's obligation to extend credit under this Agreement is subject
to the Bank's receipt of the following, each in form and substance satisfactory
to the Bank:
4.01 Conditions to First Extension of Credit. Before the first extension of
credit:Extension of Credit
(a) This Agreement, executed by the Borrower;
(b) Satisfactory evidence of due authorization of the
execution, delivery, and performance by the Borrower and any Acceptable
Subsidiary of this Agreement and any other Credit Documents, including certified
resolutions, incumbency certificate, articles of incorporation and bylaws, or a
certificate stating that such items previously delivered to the Bank are still
in effect and have not been amended or modified;
(c) Certificates of state officials showing that the Borrower
is in good standing or qualified to conduct business under the laws of the state
of its organization and, if requested by the Bank, in any other state in which
the Borrower is required to be so qualified;
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(d) A certificate of an appropriate officer of the Borrower
as to the matters set forth in Section 4.02(a) and (b); (e) A
copy of the Borrower's current Investment Guidelines, which must
be satisfactory to the Bank;
(f) Payment of any fee or expense required hereunder prior
to the first extension of credit;
(g) Such other approvals, opinions, documents or instruments
as the Bank may request.
4.02 Conditions to Each Extension of Credit. Before each extension or
renewal of credit (including pursuant to any election under Section 2.02(b)),
including the first:
(a) The representations and warranties of the Borrower contained in this
Agreement shall be true on and as of the date of each extension of credit;
(b) Immediately prior to and immediately after giving effect
to such extension of credit, no Default or Event of Default shall exist;
(c) Executed originals of all Credit Documents required under
Article II shall have been delivered to the Bank.
Each request for an extension of credit hereunder shall constitute a
representation and warranty by the Borrower, as of the date of each such request
and as of the date of each extension of credit, that the conditions in this
Section are satisfied.
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ARTICLE V
Representations and Warranties
The Borrower represents and warrants that:
5.01 Corporate Existence and Power. The Borrower and each Subsidiary: (a)
is a corporation duly organized and existing under the laws of the jurisdiction
of its organization; (b) has the power and authority and all governmental
licenses, authorizations, consents, and approvals to own its assets, carry on
its business, and to execute, deliver, and perform its obligations under, the
Credit Documents to which it is a party ; and (c) is duly qualified and properly
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease, or operation of property or the conduct of its business
requires such license or qualification.
5.02 Authorization. The execution, delivery, and performance by the
Borrower and each Acceptable Subsidiary of this Agreement and any other Credit
Document to which any of them is a party, have been duly authorized by all
necessary corporate action, and do not and will not:
(a) contravene the terms of any organizational or charter
documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any lien, security interest, or charge under, any agreement,
contract, indenture, document, or instrument to which the Borrower or any
Subsidiary is a party or by which any property is bound, or any order,
injunction, writ, or decree of any governmental authority to which the Borrower
or any Subsidiary or any of their respective property is subject; or
(c) violate any law, rule, regulation, or determination of an
arbitrator or of a court or other governmental authority, in each case
applicable to or binding upon the Borrower or any Subsidiary or any of their
respective property.
5.03 Enforceability. This Agreement is a legal, valid, and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and the other Credit Documents and any other instrument or agreement
required under this Agreement, when executed and delivered, will be legal,
valid, binding, and enforceable in accordance with its terms against the
Borrower or the Acceptable Subsidiary, as applicable.
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<PAGE>
5.04 Compliance with Laws. Each of the Borrower and its Subsidiaries is in
compliance with all foreign, federal, state and local laws, rules, regulations
and determinations of arbitrators, courts and other governmental authorities
materially affecting the business, operations or property of the Borrower and
such Subsidiaries (including Environmental Laws).
5.05 Permits, Franchises. The Borrower or its Subsidiaries possess all
permits, memberships, franchises, contracts, and licenses required and all
trademark rights, trade name rights, patent rights, and fictitious name rights
necessary to enable the Borrower and its Subsidiaries to conduct the businesses
in which they are now engaged.
5.06 Litigation. There is no litigation, tax claim, proceeding,
governmental or administrative action, investigation, arbitration proceeding or
dispute pending, or, to the knowledge of the Borrower, threatened, against or
affecting the Borrower or any of its Subsidiaries or any of their properties,
the adverse determination of which would result in a Material Adverse Effect.
5.07 No Event of Default. There exists no Default or Event of Default.
5.08 Other Obligations. As of the Closing Date, the Borrower or its
Subsidiaries is not in default under any other agreement involving the borrowing
of money, the extension of credit, or the lease of real or personal property, to
which the Borrower or such Subsidiary is a party as borrower, guarantor,
installment purchaser, or lessee, except as disclosed in writing to the Bank
prior to the Closing Date.
5.09 Tax Returns. The Borrower has no knowledge of any material pending
assessments or adjustments with respect to its or its Subsidiaries' income tax
liabilities for any year, except as disclosed in writing to the Bank prior to
the Closing Date.
5.10 Information Submitted. All financial and other information that has
been submitted by the Borrower or a Subsidiary to the Bank, including the
Borrower's financial statement delivered to the Bank most recently prior to the
Closing Date: (a) in the case of financial statements, is prepared in accordance
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<PAGE>
with generally accepted accounting principles consistently applied; and (b) is
true and correct in all material respects and is complete insofar as may be
necessary to give the Bank true and accurate knowledge of the subject matter
thereof.
5.11 No Material Adverse Effect. Since December 31, 1996, there has been no
Material Adverse Effect.
5.12 ERISA Compliance. Except as specifically disclosed to the Bank in
writing prior to the Closing Date: (a) each Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) there are no pending, or to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any governmental
authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect; (c) there has been no
prohibited transaction or other violation of the fiduciary responsibility rule
with respect to any Plan which could reasonably result in a Material Adverse
Effect; (d) no ERISA Event has occurred or is reasonably expected to occur with
respect to any Pension Plan; (e) no Pension Plan has any Unfunded Pension
Liability; (f) the Borrower has not incurred, nor does it reasonably expect to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (g) no
trade or business (whether or not incorporated under common control with the
Borrower within the meaning of Section 414(b), (c), (m) or (o) of the Code)
maintains or contributes to any Pension Plan or other Plan subject to Section
412 of the Code; and (h) neither the Borrower or entity under common control
with the Borrower in the preceding sentence has ever contributed to any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
5.13 Environmental Matters. (a) (i) The properties of the Borrower and its
Subsidiaries do not contain and have not previously contained (at, under, or
about any such property) any Hazardous Substances or other contamination (A) in
amounts or concentrations that constitute or constituted a violation of, or
could give rise to liability under, any Environmental Laws, (B) which could
interfere with the continued use, occupation or operation of such property, (C)
which could impair the fair market value thereof or (D) in levels or
concentrations requiring cleanup or other management under applicable standards
or guidelines of foreign, federal, state or local environmental agencies; and
(ii) there has been no transportation or disposal of Hazardous Substances from,
nor any release or threatened release of Hazardous Substances at or from, any
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property of the Borrower or any of its Subsidiaries in violation of or in any
manner which could give rise to liability under any Environmental Laws.
(b) Neither the Borrower nor any of its Subsidiaries has
received or is aware of any material claim or notice of material violation,
alleged material violation, non-compliance, liability or potential liability
regarding environmental matters, Hazardous Substances or compliance with
Environmental Laws with regard to the properties or operations of the Borrower
or any of its Subsidiaries, nor does the Borrower have knowledge or reason to
believe that any such action is being contemplated, considered, or threatened.
ARTICLE VI
Affirmative Covenants
So long as credit is available under this Agreement and until full and
final payment of all of the Borrower's and any Acceptable Subsidiaries'
obligations under this Agreement and any other Credit Document:
6.01 Notices of Certain Events. The Borrower shall promptly give written
notice to the Bank of:
(a) all litigation, proceedings or actions affecting the Borrower or
its Subsidiaries where the amount claimed is $1,000,000 or more;
(b) any substantial dispute which may exist between the Borrower or
its Subsidiaries and any governmental regulatory body or law enforcement
authority;
(c) any Default or Event of Default;
(d) any of the representations and warranties in Article V ceases to
be true and correct; and
(e) any other matter which has resulted or could reasonably be
expected to result in a Material Adverse Effect.
6.02 Financial and Other Information. The Borrower shall deliver to
the Bank in form and detail satisfactory to the Bank, and in such number of
copies as the Bank may request:
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(a) Within 95 days after the end of each fiscal year, (i) the
Borrower's consolidated financial statements for such year audited by a
certified public accountant together with an unqualified opinion of such
certified public accountant and including, at a minimum, the Borrower's balance
sheet and statements of income, retained earnings, and cashflow; and (ii) a
complete copy of Borrower's Form 10-K Annual Report submitted to the Securities
and Exchange Commission for such year;
(b) Within 50 days after the end of each fiscal quarter, (i)
the Borrower's consolidated financial statements for such period prepared by the
Borrower and including, at a minimum, the Borrower's balance sheet and
statements of income, retained earnings, and cash flow, and (ii) a complete copy
of Borrower's Form 10-Q Quarterly Report submitted to the Securities and
Exchange Commission for such quarter;
(c) Concurrently with the delivery of the financial statements referred to
in subsections 6.02(a) and (b) above, a Compliance Certificate;
(d) Within 10 days after the date of filing with the Securities and
Exchange Commission, copies of the Borrower's Form 8-K Current Reports;
(e) Promptly after any changes thereto, any changes to the Investment
Guidelines; and
(f) Promptly upon request, such other materials and
information relating to the Borrower or its Subsidiaries as the Bank may
request.
6.03 Books, Records, Audits and Inspections. The Borrower shall, and shall
cause its Subsidiaries to, maintain adequate books, accounts and records, and
prepare all financial statements required hereunder in accordance with generally
accepted accounting principles consistently applied, and in compliance with the
regulations of any governmental regulatory body having jurisdiction over the
Borrower or its Subsidiaries, or the Borrower's or its Subsidiaries' businesses,
and permit employees or agents of the Bank at any reasonable time to inspect the
Borrower's and its Subsidiaries' properties, and to examine or audit the
Borrower's and its Subsidiaries' books, accounts, and records and make copies
and memoranda thereof.
6.04 Use of Facility. The Borrower shall use and shall cause the Acceptable
Subsidiaries to use the credit facility provided herein solely for working
capital and other general corporate purposes not in contravention of any
requirement of law.
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6.05 Insurance. The Borrower shall, and shall cause its Subsidiaries to,
maintain and keep in force insurance of the types and in amounts customarily
carried in lines of businesses similar to those of the Borrower and its
Subsidiaries, as applicable, including fire, extended coverage, public liability
(including coverage for contractual liability), property damage (including use
and occupance), business interruption, and workers' compensation, all carried by
insurers and in amounts satisfactory to the Bank, with loss payable endorsements
on such types of insurance as the Bank may request, and deliver to the Bank from
time to time, at the Bank's request, a copy of each insurance policy, or if
permitted by the Bank, a certificate of insurance setting forth all insurance
then in effect.
6.06 Compliance with Laws. The Borrower shall at all times comply with, and
cause its Subsidiaries to comply with, all laws, statutes (including any
fictitious name statute), rules, regulations, orders, and directions of any
governmental authority having jurisdiction over the Borrower or any of its
Subsidiaries or the business of the Borrower or any of its Subsidiaries
(including all Environmental Laws).
6.07 Change in Name, Structure or Location. The Borrower shall notify the
Bank in writing prior to any change in (a) the Borrower's name or the name of
any Acceptable Subsidiary, (b) the Borrower's or any Acceptable Subsidiary's
business or legal structure, or (c) the Borrower's or any Acceptable
Subsidiary's place of business or chief executive office if the Borrower has
more than one place of business.
6.08 Existence and Properties. The Borrower and each of its Subsidiaries
shall maintain and preserve its existence and all rights, privileges, and
franchises now enjoyed, conduct its business in an orderly, efficient, and
customary manner, keep all the its properties in good working order and
condition, and from time to time make all needed repairs, renewals, or
replacements thereto and thereof so that the efficiency of such property shall
be fully maintained and preserved.
6.09 Additional Acts. The Borrower shall perform, on request of the Bank,
such acts as may be necessary or advisable to perfect any lien or security
interest contemplated hereby or otherwise to carry out the intent of this
Agreement.
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ARTICLE VII
Negative Covenants
So long as credit is available under this Agreement and until full and
final payment of all of the Borrower's and any Acceptable Subsidiary's
obligations under this Agreement and any other Credit Document:
7.01 Other Indebtedness. The Borrower and its Subsidiaries shall not
create, incur, assume, or permit to exist any indebtedness or liabilities for or
resulting from borrowed money, loans, or advances, or for the deferred purchase
price of property under capital leases, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, or become liable as a
surety, guarantor, accommodation endorser, or otherwise for or upon the
obligation of any other person, firm, corporation or other entity; provided,
however, that this Section shall not prohibit:
(a) the acquisition of goods, supplies, or merchandise on normal trade
credit;
(b) the execution of bonds or undertakings in the ordinary course of its
business as presently conducted;
(c) the endorsement of negotiable instruments received in the ordinary
course of its business as presently conducted;
(d) indebtedness for borrowed money to banks other than the Bank incurred
by Subsidiaries which does not exceed $5,000,000 in the aggregate (including
commitments and outstandings) outstanding at any time;
(e) indebtedness secured by purchase money liens permitted under Section
7.02(f), provided that the aggregate of such indebtedness incurred in any fiscal
year does not exceed $10,000,000;
(f) guarantees by the Borrower or its Subsidiaries in favor of the Bank; or
(g) guarantees by the Borrower of indebtedness incurred by Subsidiaries
which is permitted under subsection (d) of this Section 7.01.
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7.02 Liens. The Borrower shall not, and shall not suffer or permit any of
its Subsidiaries to, create, assume, or suffer to exist any security interest,
deed of trust, mortgage, lien (including the lien of an attachment, judgment, or
execution), or encumbrance, securing a charge or obligation, on or of any of its
or their property, real or personal, whether now owned or hereafter acquired,
except: (a) security interests and deeds of trust in favor of the Bank; (b)
liens, security interests, and encumbrances in existence as of the date of this
Agreement and disclosed to the Bank in writing prior to the Closing Date; (c)
liens for current taxes, assessments, or other governmental charges which are
not delinquent or remain payable without any penalty; (d) liens in connection
with workers' compensation, unemployment insurance, or other social security
obligations; (e) mechanics', worker's, materialmen's, landlords', carriers', or
other like liens arising in the ordinary and normal course of business with
respect to obligations which are not due; and (f) purchase money security
interests in personal property hereafter acquired when the security interest
does not extend beyond the property purchased, the liability secured does not
exceed 100% of the cost thereof, and the aggregate amount of liabilities secured
by such property do not exceed, at any one time, $10,000,000.
7.03 Capital Assets. The Borrower on a consolidated basis shall not expend
or incur obligations for the acquisition of fixed or capital assets on a
cumulative basis of more than (i) $25,000,000 for the fiscal year ending
December 31, 1997, (ii) $30,000,000 for the fiscal year ending December 31,
1998, and (iii) $30,000,000 for the fiscal year ending December 31, 1999.
7.04 Dividends. Neither the Borrower nor any of its Subsidiaries that is
not wholly-owned by the Borrower shall declare or pay any dividends or
distributions on any of its shares now or hereafter existing, or purchase,
redeem or otherwise acquire for value any of its shares, or create any sinking
fund in relation thereto, except for (i) dividends payable solely in its capital
stock and (ii) repurchases of its shares in an aggregate cumulative amount not
to exceed $10,000,000 after March 31, 1997.
7.05 Loans. Neither the Borrower nor any of its Subsidiaries shall make any
loans, advances, or other extensions of credit to any of the Borrower's or such
Subsidiary's executives, officers, or directors or shareholders (or any
relatives of any of the foregoing), or make loans, advances or other extensions
of credit to or invest in any other person, firm, corporation, or other entity,
other than (a) investments in cash equivalents; (b) extensions of credit in the
nature of accounts receivable or notes receivable arising from the sale or lease
of goods or services in the ordinary course of business; (c) extensions of
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credit by the Borrower to any of its wholly-owned Subsidiaries or by any of its
wholly-owned Subsidiaries to another of its wholly-owned Subsidiaries; and (d)
investments incurred in order to consummate acquisitions or other transactions
otherwise permitted under Section 7.06, provided that such acquisitions or other
transactions are undertaken in accordance with all applicable requirements of
law.
7.06 Acquisitions, Liquidations and Mergers. The Borrower shall not, and
shall not suffer or permit any Subsidiary to, liquidate or dissolve or enter
into any consolidation, merger, partnership, joint venture, or other
combination, or to purchase control of, or the assets or business of, any other
person, firm, corporation or other entity; provided that this Section shall not
prohibit any such transaction where (i) the consolidated or merged entity or
partnership or joint venture or acquired assets or business involves business
activities and operations substantially the same as or related to the present
business activities and operations of the Borrower, and (ii) in the case of a
consolidation, merger or combination, the Borrower or such Subsidiary shall be
the surviving entity, and provided further that any Subsidiary may merge with
the Borrower, provided that the Borrower shall be the continuing or surviving
corporation, or with any one or more Subsidiaries, provided that if any
transaction shall be between a Subsidiary and a wholly-owned Subsidiary, the
wholly-owned Subsidiary shall be the continuing or surviving corporation.
7.07 Sale of Assets. Neither the Borrower nor any of its Subsidiaries shall
(a) sell, lease, or otherwise dispose of its business or assets as a whole or
such as in the opinion of the Bank constitutes a substantial portion of its
business or assets; (b) sell or otherwise dispose of any of its accounts
receivable except in connection with the collection of same in the ordinary
course of business; (c) sell or otherwise dispose of any of its assets except
for full, fair and reasonable consideration; or (d) enter into any sale and
leaseback agreement covering any of its fixed or capital assets if the amount of
financing being extended pursuant to such agreement exceeds $5,000,000.
7.08 Business Activities. The Borrower and its Subsidiaries shall not
engage in any business activities or operations substantially different from or
unrelated to present business activities and operations.
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7.09 Regulations G, T, U, and X. The Borrower shall not, and shall not
permit any of its Subsidiaries to, use any portion of the proceeds of any
Advances or extensions of credit hereunder, directly or indirectly, (i) to
purchase or carry margin stock (within the meanings of Regulations G, T, U, and
X of the FRB), (ii) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry any such margin stock, (iii) to extend
credit for the purpose of purchasing or carrying any such margin stock, or (iv)
to acquire any security in any transaction that is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
7.10 Use of Proceeds - Ineligible Securities. The Borrower shall not, and
shall not permit any Acceptable Subsidiary to, directly or indirectly, use any
portion of the proceeds of any Advances or extensions of credit hereunder (i)
knowingly to purchase Ineligible Securities from BASI during any period in which
BASI makes a market in such Ineligible Securities, (ii) knowingly to purchase
during the underwriting or placement period Ineligible Securities being
underwritten or privately placed by BASI, or (iii) to make payments of principal
or interest on Ineligible Securities underwritten or privately placed by BASI
and issued by or for the benefit of the Borrower or any Subsidiary or affiliate
of the Borrower. As used in this Section, "BASI" means BancAmerica Securities,
Inc., a wholly-owned subsidiary of BankAmerica Corporation. BASI is a registered
broker-dealer and permitted to underwrite and deal in certain Ineligible
Securities; and "Ineligible Securities" means securities which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. ss. 24, Seventh), as amended.
7.11 Quick Ratio. The Borrower shall not permit at any time on a
consolidated basis its Quick Ratio to be less than 1.50: 1.00. For purposes of
this Agreement,
(a) "Quick Ratio" shall mean the ratio of (i) the sum of (A)
consolidated cash, (B) accounts receivable net of any reserves or offsets, (C)
short-term cash investments, (D) investment grade marketable securities not
classified as long-term investments, and (E) long-term investments not to exceed
$15,000,000 and in compliance with the Investment Guidelines, to (ii) Current
Liabilities; and
(b) "Current Liabilities" shall include all funded and
unfunded indebtedness under this Agreement and the other Credit Documents
(including undrawn amounts (or the Equivalent Amount thereof) of all letters of
credit and Bank Guaranties and drawn and unreimbursed obligations with respect
thereto).
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7.12 Total Liabilities to Tangible Net Worth. The Borrower shall not permit
at any time on a consolidated basis the ratio of the Borrower's Total
Liabilities to Tangible Net Worth to exceed 0.75: 1.00. For purposes of this
Agreement,
(a) "Total Liabilities" shall include all funded and unfunded
indebtedness under this Agreement and the other Credit Documents (including
undrawn amounts (or the Equivalent Amount thereof) of all letters of credit and
Bank Guaranties and drawn and unreimbursed obligations with respect thereto);
and
(b) "Tangible Net Worth" means the gross book value of the
assets of the Borrower and its Subsidiaries (exclusive of goodwill, patents,
trademarks, trade names, organization expense, treasury stock (to the extent
included in gross assets), unamortized debt discount and expense, deferred
charges, capitalized software and other like intangibles and excluding (i) loans
from the Borrower or its Subsidiaries to any of its employees, officers, or
owners, and (ii) any value placed on any leasehold, provided, however, that
leasehold improvements may be included in the value of the Borrower's
consolidated assets) less (A) reserves applicable thereto and (B) all
liabilities including accrued and deferred income taxes.
7.13 Tangible Net Worth. The Borrower shall not permit at any time on a
consolidated basis its Tangible Net Worth to be less than $105,000,000 plus the
sum of (i) 75% of net income after income taxes (without subtracting losses)
earned in each quarterly accounting period commencing after March 31, 1997, plus
(ii) the net proceeds from any equity securities issued after March 31, 1997,
plus (iii) any increase in stockholders' equity resulting from the conversion of
debt securities to equity securities after March 31, 1997, less (iv) the lesser
of (a) $10,000,000 or (b) the amount of repurchases by the Borrower of its
equity securities after March 31, 1997.
7.14 Consecutive Quarterly Losses; Losses in One Quarter.14 Consecutive
Quarterly Losses; Losses in Consecutive Quarterly Losses; Losses in One Quarter.
The Borrower on a consolidated basis shall not incur, (a) any quarterly net
(after tax) or operating loss in excess of $7,500,000 for the quarter ending
June 30, 1997, (b) any quarterly net (after tax) or operating loss in excess of
$2,000,000 for the quarter ending September 30, 1997, and (c) for the quarter
ending December 31, 1997 and each quarter thereafter (i) any quarterly net
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(after tax) or operating loss in any two consecutive fiscal quarters and (ii)
any quarterly net (after tax) or operating loss in excess of 5% of its
consolidated Tangible Net Worth. For purposes of clarification of clause (c), if
there is a net (after tax) or operating loss in the quarter ending September 30,
1997, the quarter ending December 31, 1997 must be profitable.
ARTICLE VIII
Events of Default
8.01 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement:
(a) Failure to Pay. The Borrower or any Acceptable Subsidiary fails to pay,
when due, any installment of principal, or any interest, fee or any other sum
due under this Agreement or any other Credit Document in accordance with the
terms hereof or thereof.
(b) Breach of Representation or Warranty. Any representation or warranty
herein or in any other Credit Document proves to have been false or misleading
in any material respect when made or deemed made.
(c) Specific Defaults. The Borrower fails to perform or observe any term,
covenant or agreement contained in Section 6.01, 6.02, or 6.03 or Article VII.
(d) Other Defaults. The Borrower or any Acceptable Subsidiary fails to
perform or observe any other term or covenant contained in this Agreement or any
Credit Document.
(e) Trade Suits. One or more suits are filed against the Borrower by a
trade creditor or trade creditors of the Borrower in the aggregate amount of
$5,000,000 or more.
(f) Judgments. One or more judgments or arbitration awards are entered
against the Borrower or any of its Subsidiaries or the Borrower or any of its
Subsidiaries enters into any settlement agreement with respect to any litigation
or arbitration, in the aggregate amount of $3,000,000 or more on a claim or
claims not fully covered by insurance.
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(g) Failure to Pay Debts; Voluntary Bankruptcy. The Borrower or any
Subsidiary (i) fails to pay the Borrower's or y such Subsidiary's debts
generally as they come due, or (ii) files any petition, proceeding, case, or
action for relief under any bankruptcy, reorganization, insolvency, or
moratorium law, or any other law or laws for the relief of, or relating to,
debtors.
(h) Involuntary Bankruptcy. An involuntary petition is filed under any
bankruptcy or similar statute against the Borrower or any Subsidiary, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator, or other
similar official is appointed to take possession of the properties of the
Borrower or any Subsidiary; provided, however, that such Event of Default shall
be deemed cured if such petition or appointment is set aside or withdrawn or
ceases to be in effect within 60 days from the date of said filing or
appointment.
(i) Default of Other Financial Obligations. Any default occurs under any
other agreement involving the borrowing of money or the extension of credit to
which the Borrower or any Subsidiary may be a party as borrower, guarantor, or
installment purchaser, if such default consists of the failure to pay any
obligation when due or if such default gives to the holder of the obligation
concerned the right to accelerate the obligation.
(j) Default under other Credit Documents. Any Credit Document (other than
this Agreement), guaranty, subordination agreement, or other agreement or
instrument required hereunder or executed in connection herewith is breached or
becomes ineffective or any default occurs under any such agreement or instrument
or Borrower disavows its obligations under any such guaranty.
(k) Default of Other Bank Obligations. Any default occurs under any other
obligation of the Borrower or any Subsidiary to the Bank or to any subsidiary or
affiliate of the Bank.
(l) Material Adverse Effect. There occurs a Material Adverse Effect.se
Effect
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(m) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan
which has resulted or could reasonably be expected to result in liability of the
Borrower under Title IV of ERISA to the Pension Plan or PBGC in an aggregate
amount in excess of $500,000; (ii) the commencement or increase of contributions
to, or the adoption of or the amendment of a Pension Plan by the Borrower which
has resulted or could reasonably be expected to result in an increase in
Unfunded Pension Liability among all Pension Plans in an aggregate amount in
excess of $500,000; or (iii) any of the representations and warranties contained
in Section 5.12 shall cease to be true and correct which, individually or in
combination, has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(n) Change of Control. (i) any person, firm, corporation or other entity (a
"person") or two or more persons acting in concert shall acquire beneficial
ownership, directly or indirectly, of securities of the Borrower (or other
securities convertible into such securities) representing 30% or more of the
combined voting power of all securities of the Borrower entitled to vote in the
election of directors; or (ii) during any period of up to 12 consecutive months,
commencing after the Closing Date, individuals who at the beginning of such
12-month period were directors of the Borrower shall cease for any reason to
constitute a majority of the Board of Directors of the Borrower unless the
persons replacing such individuals were nominated by the Board of Directors of
the Borrower; or (iii) any person or two or more persons acting in concert
acquiring by contract or otherwise, or entering into a contract or arrangement
which upon consummation will result in its or their acquisition of, or control
over, securities of the Borrower (or other securities convertible into such
securities) representing 30% or more of the combined voting power of all
securities of the Borrower entitled to vote in the election of directors.
8.02 Remedies. If any Event of Default occurs,
(a) any indebtedness of the Borrower or of any Acceptable
Subsidiary under any of the Credit Documents, any term thereof to the contrary
notwithstanding, shall at the Bank's option (but automatically upon the
occurrence of an Event of Default described in subsection 8.01(g)(ii) or
subsection 8.01(h)) and without notice become immediately due and payable
without presentment, demand, protest, or notice of dishonor, or any other
notice, all of which are hereby expressly waived by the Borrower to the full
extent permitted by law, and the Bank may declare an amount equal to the maximum
aggregate amount that is or at any time thereafter may become available for
drawing under any then-outstanding letters of credit (whether or not any
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beneficiary shall have presented, or be entitled at such time to present, the
drafts or other documents required to draw under such letters of credit) and the
Bank Guaranty Outstanding Amount, to be immediately due and payable;
(b) the obligation, if any, of the Bank (including through any
Offshore Credit Provider) to make further loans or extensions of credit
hereunder shall immediately cease and terminate, and
(c) the Bank and each Offshore Credit Provider shall have all
rights, powers, and remedies available under each of the Credit Documents, or
accorded by law, including the right to resort to any or all security for any
credit accommodation described herein, and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law.
All rights, powers, and remedies of the Bank and each Offshore Credit Provider
may be exercised at any time by the Bank or such Offshore Credit Provider and
from time to time after the occurrence of an Event of Default. All rights,
powers, and remedies of the Bank and any Offshore Credit Provider in connection
with each of the Credit Documents are cumulative and not exclusive and shall be
in addition to any other rights, powers, or remedies provided by law or equity.
ARTICLE IX
Miscellaneous
9.01 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Borrower shall not assign this Agreement or any
other Credit Document or any of the rights, duties or obligations of the
Borrower hereunder without the prior written consent of the Bank.
9.02 Consents and Waivers. No failure to exercise and no delay in
exercising, on the part of the Bank or any Offshore Credit Provider, any right,
remedy, power, or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power, or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power, or privilege. No consent or waiver under this
Agreement shall be effective unless in writing. No waiver of any breach or
default shall be deemed a waiver of any breach or default thereafter occurring.
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9.03 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California.
9.04 Costs and Attorneys' Fees. The Borrower shall, whether or not the
transactions contemplated hereby shall be consummated, pay or reimburse the Bank
on demand for all reasonable out-of-pocket costs and expenses incurred by the
Bank in connection with the development, preparation, delivery, administration,
and execution of, and any amendment, supplement, waiver or modification to, this
Agreement and any other Credit Document and the consummation of the transactions
contemplated hereby and thereby, including reasonable attorney fees and
disbursements and the allocated cost of internal counsel and disbursements,
incurred by the Bank with respect thereto; and in connection with the
enforcement, attempted enforcement or preservation of any rights or remedies
hereunder or under any Credit Document, including any "workout" or restructuring
under this Agreement, including attorney fees and disbursements and the
allocated cost of internal counsel and disbursements. As used herein,
"out-of-pocket costs" shall include the allocated cost of internal counsel to
the Bank, and other non-routine Bank resources (such as internal environmental
consultants or asset auditors). The agreements and obligations of the Borrower
under this Section shall survive the expiration or termination of the commitment
to extend credit hereunder and the payment of all other obligations of the
Borrower or any Acceptable Subsidiary hereunder or under the other Credit
Documents.
9.05 Integration; Amendment. This Agreement, together with the other Credit
Documents, embodies the entire agreement and understanding between the Borrower
and the Bank. This Agreement may be amended or modified only in writing, signed
by the Borrower and the Bank.
9.06 Borrower's Documents. The Bank shall be under no obligation to return
any schedules, invoices, statements, budgets, forecasts, reports or other papers
delivered by the Borrower and shall destroy or otherwise dispose of same at such
time as the Bank, in its discretion, deems appropriate.
9.07 Participations. The Bank may at any time sell, assign, grant
participations in, or otherwise transfer to any other person, firm, corporation
or other entity (a "Participant") all or part of the obligations of the Borrower
and any Acceptable Subsidiary under this Agreement and any other Credit
Document. The Borrower authorizes the Bank and each Participant, upon the
occurrence of an Event of Default, to proceed directly by right of setoff,
banker's lien, or otherwise, against any assets of the Borrower and any
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Acceptable Subsidiary which may be in the hands of the Bank or such Participant,
respectively. The Borrower authorizes the Bank to disclose to any prospective
Participant and any Participant any and all information in the Bank's possession
concerning the Borrower and its Subsidiaries, this Agreement or any other Credit
Document.
9.08 General Indemnification. The Borrower shall pay and indemnify the
Bank, the Offshore Credit Providers, the Bank's parent company, and each of
their respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "Indemnified Person") and hold harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses, or disbursements (including
reasonable attorneys' fees and disbursements and the allocated costs of internal
counsel) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance, and administration of this Agreement and any
other Credit Documents, or the transactions contemplated hereby and thereby, and
with respect to any investigation, litigation, or proceeding related to this
Agreement, any violation of any Environmental Law by the Borrower or its
Subsidiaries, any use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence (whether actual or alleged)
of a Hazardous Substance on, under or about the property or operations of or
property leased to the Borrower or any of its Subsidiaries, any transportation
from or other off-site management of any Hazardous Substance generated or used
by the Borrower or any of its Subsidiaries, or the loans and other extensions of
credit hereunder or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person. The agreements and obligations of the Borrower in this Section shall
survive the expiration and termination of the commitment to extend credit
hereunder and the payment of all other obligations of the Borrower or any
Acceptable Subsidiary hereunder or under the other Credit Documents.
9.09 Arbitration; Reference Proceeding. (a) Any controversy or claim
between or among the parties, including but not limited to those arising out of
or relating to this Agreement or any other Credit Document or other agreements
or instruments relating hereto or delivered in connection herewith and any claim
based on or arising from an alleged tort, shall at the request of any party be
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determined by arbitration. The arbitration shall be conducted in accordance with
the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of a provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
(b) Notwithstanding the provisions of subsection (a) of this
Section, no controversy or claim shall be submitted to arbitration without the
consent of all parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation to the Bank which
is secured by real property collateral located in California. If all parties do
not consent to submission of such a controversy or claim to arbitration, the
controversy or claim shall be determined as provided in subsection (c) of this
Section.
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subsections (a) and (b) of this Section
shall, at the request of any party, be determined by a reference in accordance
with California Code of Civil Procedure Sections 638 et seq. If such an election
is made, the parties shall designate to the court a referee or referees selected
under the auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee if
there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of
any party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At the Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
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9.10 Notices. (a) All notices, requests and other communications provided
for hereunder shall be in writing and mailed or delivered to a party at its
address specified on the signature pages hereof, or to such other address as
shall be designated by such party in a written notice to the other parties.
(b) All such notices and communications shall, when
transmitted by overnight delivery, be effective when delivered for overnight
delivery, or if personally delivered, upon such personal delivery, except that
notices pursuant to Article II shall not be effective until actually received by
the Bank.
(c) The Borrower acknowledges and agrees that any agreement of
the Bank pursuant to Article II to receive notices by telephone or facsimile is
solely for the convenience and at the request of the Borrower. Telephone
requests may be made by any individual identified in writing to the Bank on a
form acceptable to the Bank as being authorized to make such requests. The Bank
shall be entitled to rely upon any written or telephone request from persons it
reasonably believes to be authorized by the Borrower to make such requests
without making independent inquiry. The Borrower assumes the full risk of, and
the Bank shall not be responsible for, any delays or errors in transmission, and
the obligation of the Borrower to repay the loans and other extensions of credit
hereunder shall not be affected in any way or to any extent by any failure by
the Bank to receive written confirmation of any telephonic or facsimile notice
or the receipt by the Bank of a confirmation which is at variance with the terms
understood by the Bank to be contained in the telephonic or facsimile notice.
9.11 Headings; Interpretation. Article, section, and paragraph headings are
for reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement. The meaning of defined terms shall be equally
applicable to the singular and plural forms of the defined terms. The words
"hereof", "herein", "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; and article, subsection, section, schedule and
exhibit references are to this Agreement unless otherwise specified. The term
"including" is not limiting and means "including without limitation." In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding", and the word "through" means "to and including."
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9.12 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
9.13 Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
9.14 Waiver of Jury Trial. IF A CONTROVERSY OR CLAIM IS NOT SUBMITTED TO
ARBITRATION AS PROVIDED AND LIMITED IN SUBSECTIONS (a) AND (b) OF SECTION 9.09
OR IS NOT DETERMINED BY A REFERENCE AS PROVIDED IN SUBSECTION (c) OF SUBSECTION
9.09, THEN THE BORROWER AND THE BANK WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR
ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER CREDIT DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FILENET CORPORATION
By:
Typed Name:
Title:
By:
Typed Name:
Title:
Address where notices to
Borrower are to be sent:
3565 Harbor Blvd.
Costa Mesa, CA 92626
Attn:
Telecopier No.:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
Typed Name: Debra Staiger
Title: Vice President
Address where notices to
Bank are to be sent:
530 Lytton Avenue
Palo Alto, CA 94301
Attn: Debra Staiger
Vice President
Telecopier No.: 415-853-4476
44
<PAGE>
EXHIBIT A
FILENET CORPORATION
COMPLIANCE CERTIFICATE
Date: , 199
Reference is made to that certain Second Amended and Restated Credit
Agreement (Multicurrency) (the "Credit Agreement") dated as of June 25, 1997,
effective as of June 1, 1997, between FileNet Corporation (the "Borrower") and
Bank of America National Trust and Savings Association, a national banking
association (the "Bank"). Unless otherwise defined herein, capitalized terms
used herein have the respective meanings assigned to them in the Credit
Agreement.
The undersigned responsible officer of the Borrower hereby certifies as
of the date hereof that he/she is the of the Borrower, and that, as such, he/she
is authorized to execute and deliver this Compliance Certificate (the
"Certificate") to the Bank on the behalf of the Borrower and its consolidated
Subsidiaries, and that:
[Use the following paragraph if this Certificate is delivered in connection with
the financial statements required by subsection 6.02(a) of the Credit
Agreement.]
1. Attached as Schedule 1 hereto are (a) a true and correct copy of the
audited consolidated balance sheet of the Borrower as of the end of the fiscal
year ended _______________, 199__, (b) the related consolidated statements of
income, retained earnings and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, and
accompanied in each case by the unqualified opinion of ______________ [insert
name of independent certified public accounting firm], and (c) a complete copy
of the Borrower's Form 10K annual report submitted to the Securities and
Exchange Commission for such year.
or
[Use the following paragraph if this Certificate is delivered in connection with
the financial statements required by subsection 6.02(b) of the Credit
Agreement.]
1. Attached as Schedule 1 hereto is (a) a true and correct copy of the
unaudited consolidated balance sheet of the Borrower as of the end of such
A-1
<PAGE>
quarter ended ____________, 199__, (b) the related consolidated statements of
income, retained earnings and cash flows of the Borrower for the period
commencing on the first day and ending on the last day of such quarter, and (c)
a complete copy of the Borrower's Form 10-Q Quarterly Report submitted to the
Securities and Exchange Commission for such quarter.
2. The undersigned has reviewed and is familiar with the terms of the
Credit Agreement and has made, or has caused to be made under his/her
supervision, a detailed review of the transactions and conditions (financial or
otherwise) of the Borrower during the accounting period covered by the attached
financial statements.
3. The attached financial statements are complete and correct in all
material respects, and have been prepared in accordance with generally accepted
accounting principles on a basis consistent with prior periods.
4. To the best of the undersigned's knowledge, the Borrower and any
Acceptable Subsidiaries, during such period, have each observed, performed or
satisfied all of their respective covenants and other agreements, and satisfied
every condition in the Credit Agreement and other Credit Documents to be
observed, performed or satisfied by the Borrower or such Acceptable
Subsidiaries, and the undersigned has no knowledge of any Default or Event of
Default.
5. The following financial covenant analyses and information set forth
on Schedule 2 attached hereto are true and accurate on and as of the date of
this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of ,
199 . ------------------- --
FILENET CORPORATION
By:
Title:
A-2
<PAGE>
Date: ______________, 199__
For the fiscal quarter/year
ended ______________, 199__
SCHEDULE 2
to Compliance Certificate1/
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
Actual Required/Permitted
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
1. Section 7.01(d) Other Bank Borrowings by Subsidiaries
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
Indebtedness of Subsidiaries for borrowed money from Not to exceed $5,000,000
other banks ----------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
2. Section 7.01(e) Purchase Money Obligations and
Section 7.02 Purchase Money Liens
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
Purchase money obligations and related liens ---------- Not to exceed $10,000,000
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
3. Section 7.03 Capital Assets
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
Obligations for the acquisition of fixed or capital Not to exceed (i) $25,000,000 from 1/1/97
assets through 12/31/97, (ii) $30,000,000 from
1/1/98 through 12/31/98, and (iii)
$30,000,000 from 1/1/99 through 12/31/99.
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
4. Section 7.04(ii) Stock Repurchases
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
Stock repurchases ---------- Not to exceed $10,000,000 after
March 31, 1997
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
5. Section 7.07(d) Sale and Leaseback
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
Financing under sale and leaseback agreements of Not to exceed $5,000,000
fixed or capital assets ----------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
S-1
<PAGE>
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
6. Section 7.11 Quick Ratio
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A. (i) cash
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(ii net accounts receivable
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(iii) short-term cash
investments
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(iv) investment grade marketable
securities not classified as
long-term investments
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(v) long-term investments in compliance
with the Investment Guidelines (not
to exceed $15,000,000)
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(i) + (ii) + (iii) + (iv) + (v) =
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
B. Current liabilities (including all funded and
unfunded obligations under the Credit Agreement
and other Credit Documents, including undrawn
amounts (or the Equivalent Amount thereof) of
all letters of credit and Bank Guaranties and
drawn and unreimbursed obligations with respect
thereto
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A = Not less than 1.50 to 1.00
--- ==========
B
S-2
<PAGE>
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
7. Section 7.12 Total Liabilities to Total Net Worth
the ratio of
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A. total liabilities (including all funded and
unfunded obligations under the Credit Agreement
and other Credit Documents, including undrawn
amounts (or the Equivalent Amount thereof) of
all letters of credit and Bank Guaranties and
drawn and unreimbursed obligations with respect
thereto
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
B. Tangible Net Worth
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
the difference of:
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(i) gross book value of assets
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
less
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(ii) goodwill, patents, trademarks,
trade names, organization
expense, capitalized
software, treasury stock
(to the extent included
in assets), unamortized
debt discount and
expense, deferred
charges, and other like
intangibles, monies due
from affiliates,
officers, directors, or
shareholders of the
Borrower or any of its
Subsidiaries, and value
placed on any leasehold
(other than leasehold
improvements)
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
less
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(iii) applicable reserves __________
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
less
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(iv) all liabilities (including ___________
accrued and deferred
income taxes)
S-3
<PAGE>
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
-----------
(i) - (ii) - (iii) - (iv) =
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A = Not greater than 0.75 to 1.00
--- ===========
B
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
8. Section 7.13 Tangible Net Worth ___________ Not less than the sum of:
-------------------------------
Tangible Net Worth (from 7 above)
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A. $105,000,000
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
plus
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
B. 75% of net income
after taxes (with-
out subtracting
losses) for each
fiscal quarter
commencing after
3/31/97 ________
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
plus
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
C. 100% of net pro-
ceeds from
the issuance of any
equity securities
issued after 3/31/97 --------
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
plus
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
D. 100% of any increase
in shareholders'
equity from
conversion of debt
to equity after
3/31/97 ________
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
less
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
E. Stock repurchases
from and after
3/31/97 (not to
exceed $10,000,000) ________
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A + B + C + D - E =
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
S-4
<PAGE>
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
9. Section 7.14 Consecutive Quarterly Losses; Losses in
One Quarter
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
A. (i) Net (after tax) income (loss) for
fiscal quarter reported on
Not in excess of $7,500,000 for quarter
ending 6/30/97, $2,000,000 for quarter ending
9/30/97, and 5% of Tangible Net Worth (from
7 above)for quarters commencing on and after
10/1/97.
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(ii) Operating income (loss) for fiscal
quarter reported on
Not in excess of $7,500,000 for quarter
ending 6/30/97, $2,000,000 for quarter ending
9/30/97, and 5% of Tangible Net Worth (from
7 above)for quarters commencing on and after
10/1/97.
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
B.2/ (i) Net (after tax) income (loss)
immediately preceding fiscal quarter
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(ii) Net (after tax) income (loss) for If (i) is a loss, (ii) shall
fiscal quarter reported on not be a loss.
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
C.2/ (i) Operating income (loss) for the
immediately preceding fiscal quarter
- ------ ------------------------------------------------------ ------------------------ ---------------------------------------------
(ii) Operating income (loss) for fiscal If (i) is a loss, (ii) shall
quarter reported on not be a loss.
====== ====================================================== ======================== =============================================
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1/ All amounts determined on a consolidated basis.
2/ B and C apply for quarters commencing on and after 10/1/97 (i.e., if
quarter ending 9/30/97 is a loss, quarter ending 12/31/97 must be
profitable).
S-5
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 40,009
<SECURITIES> 30,368
<RECEIVABLES> 43,661
<ALLOWANCES> 0
<INVENTORY> 6,058
<CURRENT-ASSETS> 133,995
<PP&E> 85,637
<DEPRECIATION> 57,755
<TOTAL-ASSETS> 168,256
<CURRENT-LIABILITIES> 47,654
<BONDS> 0
0
0
<COMMON> 124,742
<OTHER-SE> (2,140)
<TOTAL-LIABILITY-AND-EQUITY> 168,256
<SALES> 68,519
<TOTAL-REVENUES> 110,012
<CGS> 16,332
<TOTAL-COSTS> 43,228
<OTHER-EXPENSES> 86,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,435)
<INCOME-TAX> (5,161)
<INCOME-CONTINUING> (13,274)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,274)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
