<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 0-19207
QUARTERDECK CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4320650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13160 MINDANAO WAY, MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 309-3700
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 periods 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
--- ---
The number of shares of the Registrant's common stock, $.001 par value,
outstanding as of July 31, 1996 was 36,205,788
<PAGE> 2
QUARTERDECK CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Unaudited Condensed Balance Sheets
as of June 30, 1996 and September 30, 1995 3
Consolidated Unaudited Condensed Statements of
Operations for the three months and nine months
ended June 30, 1996 and 1995 4
Consolidated Unaudited Condensed Statements of Cash Flows for the nine
months ended June 30, 1996 and 1995 5
Notes to Consolidated Unaudited Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUARTERDECK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
JUNE 30, SEPTEMBER 30,
1996 1995
---------- -------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 14,409 $39,669
Trade accounts receivable 12,623 13,621
Deferred tax asset 4,515 2,178
Refundable income taxes 3,284 -
Inventories 3,376 2,281
Other current assets 5,021 4,006
---------- -------
Total current assets 43,228 61,755
Building 8,720 -
Note Receivable from Related Party - Building - 469
Equipment and leasehold improvements 11,897 8,335
Capitalized software costs 4,433 2,807
Other assets 8,795 3,333
---------- -------
$ 77,073 $76,699
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,855 $13,582
Accrued liabilities 15,331 14,973
Current portion of long-term obligations 17 255
Loan payable to bank 2,000 -
Accrued acquisition, restructuring and other charges 3,380 3,455
---------- -------
Total current liabilities 28,583 32,265
6% Convertible notes, due March 31, 2001 25,000 -
Long-term obligations, less current portion 114 164
---------- -------
Total liabilities 53,697 32,429
Stockholders' equity:
Preferred stock (authorized: 2,000 shares; issued and
outstanding: none) - -
Common stock (authorized: 50,000 shares; issued
and outstanding: 32,414 and 31,173 shares) 31 31
Treasury stock (559) (559)
Additional paid-in-capital 49,673 40,002
Retained earnings (Accumulated deficit) (25,185) 5,359
Foreign currency translation adjustment (584) (563)
---------- -------
Total stockholders' equity 23,376 44,270
---------- -------
$ 77,073 $76,699
========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
unaudited condensed financial statements.
3
<PAGE> 4
QUARTERDECK CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net revenues $ 16,022 $ 28,091 $ 105,683 $ 86,302
Cost of revenues 11,252 8,120 36,045 25,008
--------- --------- --------- --------
Gross margin 4,770 19,971 69,638 61,294
Operating expenses:
Research and development 5,365 3,937 15,875 10,540
Sales and marketing 17,089 7,699 48,253 21,320
General and administrative 9,216 4,913 20,907 15,780
Acquisition and restructuring 1,660 3,459 9,130 3,603
--------- --------- --------- --------
Total operating expenses 33,330 20,008 94,165 51,243
Operating income, (loss) (28,560) (37) (24,527) 10,051
Other income, net 1,305 600 1,718 1,279
--------- --------- --------- --------
Income, (loss) before income taxes (27,255) 563 (22,809) 11,330
Provision (benefit) for income taxes (4,307) 33 (3,431) 355
--------- --------- --------- --------
Net income (loss) $ (22,948) $ 530 $ (19,378) $ 10,975
========= ========= ========= ========
Net income, (loss) per share $ (0.73) $ 0.02 $ (0.62) $ 0.34
========= ========= ========= ========
Shares used to compute net income,
(loss) per share 31,547 32,383 31,421 31,820
========= ========= ========= ========
Additional unaudited pro forma data:
Income, (loss) before
income taxes $ (27,255) $ 563 $ (22,810) $ 11,330
Pro forma income taxes (4,307) 648 3,432 3,163
--------- --------- --------- --------
Pro forma net income (loss) $ (22,948) $ (85) $ (19,378) $ 8,167
========= ========= ========= ========
Pro forma net income
(loss) per share $ (0.73) $ 0.00 $ (0.62) $ 0.26
========= ========= ========= ========
Shares used to compute
pro forma net income
(loss) per share 31,547 31,771 31,421 31,820
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
unaudited condensed financial statements
4
<PAGE> 5
QUARTERDECK CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1996 1995
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $(19,378) $10,975
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 4,406 2,838
Amortization of capitalized software costs 3,341 1,206
Stock compensation - 42
Elimination of duplicate net income from
acquired entities (717) (384)
Loss on sale and abandonment of assets - 34
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable 1,230 (3,396)
Refundable income taxes (3,065) 6,301
Inventories (689) (882)
Other current assets (1,359) (470)
Deferred tax asset (2,202) (1,344)
Other assets (4,571) (45)
Accounts payable (5,759) (3,514)
Accrued liabilities (716) 3,843
Accrued acquisition, restructuring and other charges (75) 2,245
Foreign currency translation adjustment (43) 285
-------- -------
Total adjustments (10,219) 6,759
-------- -------
Net cash (used) provided by operating activities (29,597) 17,734
-------- -------
Cash flows from investing activities:
Purchases of marketable securities - (85,630)
Sales of marketable securities 34,285 80,092
(Decrease) increase in unrealized gain, marketable securities (195) -
Capital expenditures (16,113) (2,111)
Capitalized software costs (3,169) (865)
Proceeds from sale of assets - 2
Advances to affiliates - (1,100)
Cash acquired in acquisitions 177 559
Purchases of minority interest of other companies - (1,700)
-------- -------
Net cash provided (used) by investing activities 14,985 (10,753)
-------- -------
Cash flows from financing activities:
Principal payments under long-term obligations (238) (74)
Dividends to shareholders of acquired entity (7,307) (7,904)
Notes payable to related parties - 891
Net proceeds from issuance of common stock 4,182 348
Proceeds from issuance of Convertible Notes 25,000 -
Proceeds from bank construction loan 2,000 -
-------- -------
Net cash provided (used) by financing activities 23,637 (6,739)
-------- -------
Net increase in cash and cash equivalents 9,025 242
Cash and cash equivalents at beginning of period 5,384 9,879
-------- -------
Cash and cash equivalents at end of period $ 14,409 $10,121
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 39 10
Income tax 1,594 50
Non-cash transaction:
Tax benefits arising from exercise of non-qualified stock options 1,100 42
</TABLE>
The accompanying notes are an integral part of these consolidated
unaudited condensed financial statements.
5
<PAGE> 6
QUARTERDECK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements of
Quarterdeck Corporation are unaudited (except for the Balance Sheet as of
September 30, 1995) and have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in Quarterdeck's Annual Report
on Form 10-K for the fiscal year ended September 30, 1995, and in the Company's
Form S-4 and Form 8-K regarding the Company's acquisition of Inset Systems, Inc.
("Inset"), and in the Company's Form S-3 and Form 8-K regarding the Company's
acquisition of Datastorm Technologies, Inc. ("Datastorm") and in the Company's
Form 8-K regarding the Company's acquisition of Future Labs, Inc. ("Future
Labs") In the opinion of management, the accompanying consolidated unaudited
condensed financial statements include all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair presentation. The
results of operations for the three and nine month periods ended June 30, 1996
are not necessarily indicative of results to be expected for the full fiscal
year.
2. GENERAL
Quarterdeck Corporation develops, markets and supports computer
software products and offers services in two strategic business areas: utilities
and Internet solutions. Quarterdeck is a leader in bringing utilities solutions
to the Windows 3.x, Windows 95, Windows NT and DOS environments. The company
also offers a line of Internet applications and telecommunications and
collaborative computing products for corporate, small business and individual
users. The company's diverse customer base includes government, education,
corporate, small business and individual users (SOHO). The company has offices
in England, France, Germany and Australia, with its European headquarters
based in Dublin, Ireland.
The Company was incorporated in California in 1982 as Quarterdeck
Office Systems. In June 1991, the Company changed its state of incorporation
from California to Delaware. In February 1995, the Company changed its name to
Quarterdeck Corporation. In September 1995, the Company moved its principal
offices to 13160 Mindanao Way, Marina del Rey, California, 90292; its telephone
number is (310) 309-3700. Quarterdeck's Internet home page can be located on the
World Wide Web at http://www.quarterdeck.com/. Unless the context otherwise
indicates, the "Company" and "Quarterdeck" refer to Quarterdeck Corporation, its
predecessor and its subsidiaries.
3. RECLASSIFICATIONS
In order to conform to evolving financial reporting practices by the
software industry, the Company is reporting the amortization of capitalized
software and technical support costs as costs of revenues for all periods
presented. The Company had previously reported amortization of capitalized
software as research and development expense, and technical support costs as
sales and marketing expense. Certain other amounts have been reclassified to
provide consistent presentation. In combining the financial results of the
Company with the results from the acquired entities that were previously
Subchapter S Corporations, Datastorm and Landmark, and in compliance with the
specific guidelines for pooling of interests accounting, the Undistributed
Retained Earnings of these entities have been combined with Quarterdeck's
Additional paid-in-capital for all periods presented.
6
<PAGE> 7
4. ACQUISITIONS AND STRATEGIC INVESTMENTS
On July 18, 1996 Quarterdeck completed the acquisition of Vertisoft
Systems, Inc., ("Vertisoft") a developer and publisher of utility software.
Quarterdeck issued 3.5 million shares of common stock in exchange for all of the
outstanding stock of Vertisoft. Since the transaction closed subsequent to the
periods reported on herein, the results of Vertisoft are not included in the
accompanying financial statements. The transaction will be accounted for as an
immaterial pooling of interests and therefore, the consolidated financial
statements that will be issued covering the fourth quarter of 1996 and later,
will be restated to include Vertisoft for all periods beginning on or after
October 1, 1995.
On May 15, 1996, Quarterdeck consummated the acquisition of Future
Labs, Inc., a developer of real-time collaborative technology. Quarterdeck
issued 663,768 shares of common stock in exchange for all of the outstanding
stock of Future Labs. The transaction was accounted for as an immaterial pooling
of interests and therefore, the consolidated financial statements for all
periods beginning on or after October 1, 1995 have been restated to reflect the
combined operations of Quarterdeck and Future Labs.
On March 28, 1996, Quarterdeck consummated the acquisition of
Datastorm, the developer and publisher of Procomm Plus, one of the industry's
leading data communications products. Quarterdeck issued 5.2 million shares of
common stock in exchange for all of the outstanding stock of Datastorm. The
transaction was accounted for as a pooling of interests and therefore, the
consolidated financial statements for all periods presented herein have been
restated to reflect the combined operations of Quarterdeck and Datastorm.
Datastorm had a calendar year end and accordingly, the Datastorm
statement of operations for the year ended December 31, 1995, was restated and
combined with the Quarterdeck statement of operations for the fiscal year ended
September 30, 1995. In order to conform Datastorm's year end to Quarterdeck's
fiscal year end, the consolidated unaudited condensed statement of operations
for the nine months ended June 30, 1996 includes three months (October,
November, December 1995) for Datastorm, which are included in the consolidated
statement of operations for the fiscal year ended September 30, 1995.
Accordingly, an adjustment has been made to Retained earnings during the nine
months ended June 30, 1996 for the duplication of net income of $717,000 for the
three month period ended December 31, 1995. Other results for such three month
period of Datastorm include net sales of $9,283,000 and a gross margin of
$5,146,000. The consolidated financial statement for the nine months ended June
30, 1995 combines Quarterdeck's financial statements for the nine months ended
June 30, 1995 with Datastorm's financial statements for the nine months ended
September 30, 1995.
Datastorm's S corporation status terminated upon acquisition by
Quarterdeck. Datastorm's undistributed earnings for all periods prior to the
merger have been reclassified to Additional paid-in-capital in the combined
financial statements in accordance with pooling of interests accounting.
On December 29, 1995, Quarterdeck acquired Inset, a developer of
graphics utility and application software for personal computers. Quarterdeck
issued 921,218 shares of common stock in exchange for all of the outstanding
common stock of Inset. This transaction was also accounted for as a pooling of
interests and therefore, the consolidated financial statements for all periods
presented herein have been restated to reflect the combined operations of
Quarterdeck and Inset.
On December 24, 1995, the Company and a Belgian venture capital group,
formed a new entity, Quarterdeck Flanders N.V. ("QDF"), for the purpose of the
development, integration and commercialization of advanced software products
utilizing certain advanced speech technologies. These products will be designed
to complement the Company's existing and future products. The Company has
entered into a five year renewable exclusive license with QDF for publishing its
products. QDF has entered into a three year exclusive license with Lernout &
Hauspie Speech Products N.V. ("LHSP") covering certain product types and
applications. The Company has also made an equity investment in LHSP. LHSP is a
developer and licensor of advanced speech technologies. The Company purchased
50.002% of QDF in exchange for an agreement to make a capital contribution of
$900,000. Such contribution has not been made as of the date of this report. The
financial position and results of operations, from inception, approximately
January 1, 1996, of QDF are wholly immaterial to the attached financial
statements and are therefore not included in the financial statements presented
herein.
7
<PAGE> 8
On February 7, 1996 the Company acquired, in a private placement of
common stock, a less than 5% interest in Infonautics Corporation in exchange for
$3,250,000. Infonautics has certain Internet software products that are planned
to be integrated with certain Internet products of Quarterdeck. This transaction
is accounted for under the cost method of accounting and the investment is
included on the Balance sheet in Other assets and is carried at lower of cost or
market. Infonautics consummated an initial public offering of its common stock
during May of 1996. Quarterdeck's shares in Infonautics were not registered at
that time and therefore remain subject to certain limitations on resale.
Quarterdeck has entered into an agreement to purchase approximately 80%
of the outstanding shares of capital stock of Limbex Corporation ("Limbex") that
it currently does not own. The acquisition is expected to close on or before
August 16, 1996. The purchase price is based on a formula but is expected to
result in Quarterdeck's payment of approximately, 1.3 million shares of its
common stock during the quarter ending September 30, 1996 in exchange for all of
the shares of Limbex Corporation common stock. In addition, Quarterdeck will be
obligated to pay on the one year anniversary of the closing of the acquisition
approximately $3.6 million in cash or shares of Quarterdeck common stock as
valued at such time, or a combination thereof (all at Quarterdeck's election) in
consideration for the outstanding shares of Limbex preferred stock. Limbex is
responsible for providing much of the intelligent agent search technology that
is incorporated into the Company's WebCompass product. This investment is also
accounted for under the cost method of accounting, but will be consolidated
after the acquisition is completed.
During the quarter ended June 30, 1996, Quarterdeck issued 198,165
shares of common stock in exchange for Pinnacle's right, title, and interest in
the Company's CleanSweep utility software. Quarterdeck is also obligated to
pay certain minimum royalties of $200,000 per year for four years commencing
no later than March 31, 1997. The Company has paid an additional $100,000 and
is obligated for an additional $200,000, as payment for consulting services
and a non-competition agreement with the principal of Pinnacle.
On July 16, 1996 the Company purchased certain assets and technology
relating to remote control software from Interlink Technology Co. ("Interlink")
as an essential part of the Company's communication product line. Quarterdeck
issued 205,000 shares of common stock and is obligated to issue approximately
$1,381,000 worth of additional shares, up to a maximum of 205,000 additional
shares, on the six month anniversary of the closing date based on the trading
price of Quarterdeck common stock at such time. The acquisition will be
accounted for as a purchase.
5. CONVERTIBLE NOTES
On March 28, 1996, the Company issued $25 million principal amount of
6% Convertible Senior Subordinated Notes, due 2001 ("Notes"), to an
institutional investor in a private placement pursuant to the terms of a Note
Agreement, dated March 1, 1996. The Notes are convertible generally after April
1, 1997, at an initial conversion price of $21.18 per share. The conversion
price is adjustable for certain below market equity issuances and the Notes
contain other customary anti-dilution provisions. Subject to complying with
other certain terms, the Notes may be prepaid without penalty, subject to
conversion, anytime between April 1997 and April 1999 if the Company's Common
Stock had been trading, for 20 of the 30 trading days preceding notice of
prepayment, approximately 18% above the then current conversion price.
6. INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Quarterdeck
provides for income taxes during interim reporting periods based upon an
estimate of its annual effective tax rate. This estimate includes all
anticipated federal, state and foreign income taxes.
7. REVENUE RECOGNITION
Revenue from the sale of software products is recognized upon shipment,
where collection of the resulting receivable is probable and there are no
significant obligations remaining. The estimated costs to fulfill technical
support obligations to end users arising from the sale of software are accrued
upon shipment. Certain limited rights of return and exchange from customers
exist as defined by the Company's general distributor agreements. The Company
establishes allowances for estimated product returns and exchanges as a reserve
against gross revenues.
8
<PAGE> 9
8. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents at June 30, 1996 amounted to $14,409,000.
9. COMPUTATION OF NET INCOME PER SHARE
The income (loss) per common and common equivalent share for the three and nine
month periods ended June 30, 1996 and 1995 have been computed using the weighted
average number of common and common stock equivalent (unless anti-dilutive),
shares outstanding for each period as summarized below (000's omitted):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common
stock outstanding during period 31,547 30,970 31,421 30,909
Common stock equivalents of
stock options outstanding - 1,413 - 911
------ ------ ------ ------
Shares used in net income
(loss) per share calculation 31,547 32,383 31,421 31,820
====== ====== ====== ======
</TABLE>
Common stock equivalents generally consist of outstanding stock options
and shares of common stock held in escrow.
The weighted average number of shares of common stock outstanding
during each of the periods has been adjusted to reflect the issuance of 921,218
shares of common stock issued in connection with the Inset acquisition and to
reflect the issuance of 5.2 million shares of common stock issued in connection
with the Datastorm acquisition. The weighted average number of shares of common
stock outstanding during the periods beginning on or after October 1, 1995 have
been adjusted to reflect the issuance of 663,768 shares of common stock issued
in connection with the Future Labs acquisition. Primary and fully diluted net
income per share are the same amounts for each of the periods presented. For
those periods the Company incurred a net loss, the share amounts exclude 678,000
shares, which are anti-dilutive, that are in escrow, in connection with the
Inset, Datastorm, and Future Labs acquisitions.
10. ACQUISITION AND RESTRUCTURING CHARGES
Acquisition and other similar charges incurred amounted to $1.7 million
and $9.1 million, for an after-tax per share cost of $0.05 and $0.25
respectively, for the three and nine months ended June 30, 1996. These charges
relate primarily restructuring charges and acquisition costs incurred in
connection with the acquisitions of Future Labs in June of 1996, Datastorm in
March of 1996 and Inset in December 1995. These expenses principally include
fees for financial advisory, legal and accounting services, personnel severance
and benefits, and other related expenses. The remaining portion of the
acquisition and other charges relate to additional restructuring charges and
acquisition costs incurred during those periods.
Accrued acquisition, restructuring and other charges decreased from
$3,455,000 at September 30, 1995 to $3,380,000 at June 30, 1996. Payments made
against accrued balances during the three and nine months ended June 30, 1996
amounted to $2,864,000 and $9,205,000 respectively. Additional accruals for the
current quarter were related to restructuring charges and the Future Labs
acquisition and amounted to $1,660,000. Accruals during the first two quarters
amounted to $6,349,000 and related to the acquisitions of Datastorm and Inset.
9
<PAGE> 10
11. BANK CREDIT LINE
On August 13, 1996, the Company's revolving credit facility with Bank
of America was amended, and the bank waived the Company's non-compliance with
certain financial covenants therein for the quarter ended June 30, 1996. The
Company may borrow the lesser of 75% of Eligible Accounts Receivable or $15.0
million. As of July 31, 1996 the maximum available borrowing the Company could
be eligible for under this line was approximately $7.5 million. The line is
secured by Quarterdeck's domestic accounts receivable and inventory. The current
term of the line of credit matures June 30, 1997. The line can be used for
general corporate purposes, including investments and acquisitions, and bears
interest, at the Company's option, at either the bank's reference (prime)
interest rate plus 0.50% or the U.S. offshore rate plus a margin of 2.00%. The
line is subject to the Company complying with certain customary financial
covenants and restrictions, including a prohibition of the payment of dividends,
other than those payable solely in capital stock, and a prohibition of any stock
repurchase activity. At June 30, 1996 the Company did not have any borrowings
outstanding under the line.
In April of 1996, the Company borrowed $2.0 million from a bank to
partially finance the completion of the building which is under construction in
Columbia, Missouri. The loan is a renewable one year loan with principal and all
accrued interest, at a rate of 4.5% per annum, due April 5, 1997. It is the
Company's intention to renew the loan when due. The loan is secured by all
equipment owned by the Datastorm subsidiary.
On August 6, 1996, the Company's Datastorm subsidiary secured
construction financing from a bank of up to $5.0 million with an interest rate
equal to the bank's commercial base rate, currently 8.25%, which is secured
by the Columbia, Missouri building which is under construction. The loan is
guaranteed by Quarterdeck and is believed to be sufficient to complete
construction. The principal amount plus any unpaid interest is due
February 7, 1997.
12. PRO FORMA DATA
The consolidated unaudited condensed statements of operations includes
a pro forma presentation for an estimate of the amount of income taxes which
would have been recorded if Datastorm and Landmark (the entities newly pooled
with Quarterdeck) had been C Corporations for all periods presented.
13. BUILDING
Prior to being acquired by Quarterdeck, Datastorm loaned to a
partnership, whose partners were Datastorm shareholders, funds the partnership
used to commence the construction of a new building which is planned to house
Datastorm. In connection with the acquisition, the Company was obligated to
acquire the building from the partnership. The advances were carried in Note
receivable from related party on the Balance sheet. During the quarter ended
June 30, 1996 the Company completed the acquisition of the building in exchange
for, among other things, cancellation of the Note receivable.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations focuses primarily on the results of the Company's operations,
liquidity, and capital resources. This item should be read in conjunction with
the consolidated financial statements, the notes thereto and other information,
including information set forth in the Company's Form 10-K for the fiscal year
ended September 30, 1995 and in the Company's Forms S-4, S-3 and Forms 8-K
regarding the Company's acquisitions of Future Labs, Datastorm and Inset filed
with the Securities and Exchange Commission.
In addition to an analysis of recent and historical financial results,
the Form 10-K includes an analysis of certain of the Company's business risks,
including risks which are inherent to software development as well as specific
trends and uncertainties relating to the competitive environment in which the
Company operates. The Company has sought to identify and disclose the
significant risks to its business. However, the Company cannot predict where or
to what extent any of such risks may be realized nor can there be any assurance
that the Company has identified all possible issues which the Company faces now
or may face in the future. In particular, the Company has recently completed a
number of acquisitions and made investments in certain companies and may make
additional acquisitions. Investors should carefully read the Form 10-K together
with this Form 10-Q and all other recent filings the Company has made with the
Securities and Exchange Commission, and consider all such risks before making an
investment decision with respect to the Company's stock
This Form 10-Q contains forward-looking statements which are made
pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. Within this Form 10-Q, words such as "believes",
"anticipates", "plans", "expects", "intends" and similar expressions are
intended to identify forward-looking statements, but are not the exclusive
means of identifying such statements. These forward-looking statements involve
a number of risks and uncertainties, including the timely development and market
acceptance of products and technologies, sell-through of products in the sales
channel, successful integration of acquisitions, the ability to secure
additional sources of financing, the ability to reduce operating expenses and
other factors described throughout this Form 10-Q and in the Company's other
filings with the Securities and Exchange Commission. The actual results that the
Company achieves may differ materially from any forward-looking statements due
to such risks and uncertainties. The Company undertakes no obligation to revise
any forward-looking statements in order to reflect events or circumstances that
may arise after the date of this report.
RESULTS OF OPERATIONS
As a result of the numerous strategic acquisitions the Company has
completed in the past 18 months, management is focusing significant effort on
the effective integration of all operations. The Company is in the process of
eliminating redundant functions and processes including certain production,
technical support and administrative functions. The slower than anticipated
integration of the acquired companies has directly contributed to generally
higher operating expenses for the Company as a whole. While the Company has
recently taken significant steps as part of its overall restructuring plan,
there can be no assurance that the Company will succeed in reducing expenses and
returning to profitability.
Net Revenues: Net revenues for the three months ended June 30, 1996
decreased by $12,069,000 or 43.0% while net revenues for the nine months ended
June 30, 1996 increased by $19,381,000 or 22.5%, in relation to the comparative
periods of the prior year. The current quarter's sales decrease is due in large
part to a significant decline in sell-through levels for memory management
products that the Company is about to update; a decline in the historic rates of
sell-through of PROCOMM PLUS data communications software following unusually
high sell-through after the new product launch in the March quarter; and slower
than planned integration of the Company's acquisitions.
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The decline in sell-through of memory management products is primarily
attributed to the continuing decrease in the cost of memory (DRAM) together
with the fact that current versions of the Company's memory management
products are nearing the end of their product life-cycle. The Company plans to
release new and updated versions of these products in the coming months. The
delayed release of PROCOMM from the Fall of 1995 to February of 1996 led to
unusually high initial sell-through levels due to pent up demand.
Consequently, a return to normal sales levels led to reduced sell-through as
compared to the quarter ended March 31, 1996. Continued weakness in sales of
the Company's memory management and/or communications products would have a
material adverse effect on future revenues.
The reduction in sell-through of the Company's memory management and
communication products resulted in higher than anticipated channel inventory
levels. In order to bring inventory levels in line with current and anticipated
sell-through levels the Company decided to reduce shipments of these products.
In addition to these revenue reductions, the Company recorded an additional
reserve for sales returns to provide for future returns as well as actual
returns during the June quarter. This additional reserve further reduced net
revenues for the three months ended June 30, 1996 to approximately $16 million.
The increase in nine month net revenues compared with the prior year
period result primarily from an increasingly diversified product portfolio
resulting from internal product development and the sales increases of acquired
products, particularly Datastorm's PROCOMM PLUS. The Company has also broadened
its distribution capabilities through expansion of its distribution network and
acquisition of a direct sales organization.
Net revenues from European and other international distributors,
dealers and end-users outside of the United States for the three and nine months
ended June 30, 1996 amounted to $3,927,000 and $20,464,000, representing 24.5%
and 19.4% of the Company's net revenues. Comparative amounts from the prior year
three and nine month periods were $5,060,000 and $11,705,000 or 18.0% and 13.6%
of net revenues. The increased proportion of sales to foreign markets compared
to prior periods illustrate a present trend toward increased business from
outside the US as a percentage of its total revenue. There can be no assurance
that this trend will continue, or that foreign operations and sales will
continue to be successful. However, it is management's present belief that
growth in the industry is a worldwide phenomenon and that the Company should
make attempts to position itself to generate sales in both foreign and domestic
markets.
Due to the inherent uncertainties in software development and in the
microcomputer software industry, the Company is unable to predict whether the
net revenue trends noted above will continue.
Cost of Revenues: The Company's cost of revenues includes product
packaging, documentation and diskettes, manufacturing expenses, amortization of
capitalized software costs, technical support costs as well as translation costs
and royalties paid to third parties. The cost of revenues as a percentage of net
revenues increased to 70.2% for the three month period ended June 30, 1996
compared to 28.9% for the three month period ended June 30, 1995. The nine month
comparative figures also show an increase in cost of revenues as a percentage of
net revenues to 34.1% for the nine month period ended June 30, 1996 compared to
29.0% for the nine month period ended June 30, 1995. The three month percentage
increase results largely from decreased revenues over which to spread indirect,
or semi-fixed costs of revenues, including production and technical support
costs. Certain of these production and support costs were higher than the
Company anticipated as a result of slower than expected integration of
acquired operations. As a result of focusing the internet business unit
towards information management and collaboration/communications products, the
Company recorded charges during the June quarter related to the write-off of
third party capitalized software costs and prepaid royalties. In addition,
the Company increased reserves for obsolete or slow-moving inventory
resulting from the current level of product sell-through with respect to
Internet products the Company no longer plans to actively market.
In order to conform to evolving financial reporting practices by the
software industry, the Company is reporting the amortization of capitalized
software and technical support costs, including salaries, as costs of revenues
for all periods presented. Such costs were previously classified as research and
development and sales and marketing expenses, respectively.
Capitalized software development and purchased software costs are
amortized over a period of one to three years, commencing upon initial product
release. Fluctuations in amortization expense between periods may arise
depending on the amount of software costs incurred and capitalized for
particular software products and their respective release dates and amortization
periods. Amortization of capitalized software costs increased from
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<PAGE> 13
$285,000 for the three month period ended June 30, 1995 to $1,036,000 for the
three month period ended June 30, 1996. This expense also increased for the nine
months ended June 30, 1996 to $2,861,000 from $1,206,000 for the comparative
period of the prior year. The increase in amortization of software development
costs is consistent with the growth of fiscal year to date revenues and the
increased product offerings by the Company together with the aforementioned
charges.
Future cost of revenues as a percentage of net revenues will depend, in
addition to the amount of amortization of capitalized software, on total sales,
the mix of sales by product, by domestic versus international, and by single
unit versus multiple license packages, among other things.
The microcomputer software industry has experienced increased price
competition in recent years. The Company anticipates that increased price
competition will continue in the future and may result in reduced margins.
Research and Development: Research and development expenses consist
primarily of salaries and benefits and consulting fees to support product
development, including product testing and documentation. Research and
development expense for the three months ended June 30, 1996 increased to
$5,365,000 or 33.5% of net revenues from $3,937,000 or 14.0% of net revenues
for the comparable period of the prior year. For the nine month periods these
expenses also increased to $15,875,000 or 15.0% of net revenues from
$10,540,000 or 12.2% of net revenues. The increase in research and development
expense is due to increased research and development staffing levels and to
increases in payments to third parties for contracted product development
required to support the Company's expanding internet and utilities product
development efforts.
The Company capitalized $2,117,000 of purchased software costs during
the three months ended June 30, 1996. The Company did not capitalize any
internal software development costs, since the majority of development efforts
incurred during the periods related to new products for which technological
feasibility had not yet been established.
The Company believes that to remain competitive it is necessary to
continue to invest in software development efforts while at the same time
considering the acquisition of complementary software products. The Company
anticipates that spending for software development and purchased software will
increase in the future. However, because of the inherent uncertainties of
software development projects and the software market in general, there can be
no assurance that increased software development efforts or additional purchased
software will result in successful product introductions or increased sales.
Sales and Marketing, and General and Administrative: Sales and
marketing, and general and administrative expenses consist of salaries and
commissions and related costs of administrative, sales and marketing, and
customer service personnel as well as advertising, trade show and promotional
expenses and facilities costs. For the three and nine months ended June 30,
1996, Sales and marketing expenses increased by $9,390,000 and $26,933,000
respectively over comparable periods of the prior year, while increasing as a
percentage of net revenues from 27.4% to 106.7% and from 24.7% to 45.7% for the
three and nine months ended June 30, 1996, respectively. Due to the lead times
required for the commitment of marketing programs, the Company was unable to
reduce these expenses commensurate with the reduction in revenues. The
increase in expense over the comparative period of the prior year includes an
increase in cooperative sales expenses of $2.5 million, in advertising and
direct marketing costs of $2.2 million, and in personnel costs of $2.3 million.
Expenditures were also incurred for the expansion of the Company's direct
sales organization. Quarterdeck believes substantial sales and marketing
efforts are essential to successfully introduce new products, to achieve
revenue growth and to maintain and enhance the Company's competitive position.
However, as a result of competitive pressure, the international and direct
sales operations, as well as the introduction of new and upgraded products,
Quarterdeck does expect the expenses associated with these efforts to continue
to constitute its most significant operating expense. There can be no
assurance that these increased sales and marketing efforts will be successful
or that management will be successful in effectively reducing these costs.
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For the three and nine months ended June 30, 1996, General and
administrative expenses increased by $4,303,000 and $5,127,000 respectively over
the comparative periods of the prior year, while increasing as a percentage of
net revenues, from 17.5% to 57.5% for the three months ended, and from 18.3% to
19.8% for the nine months ended June 30, 1995 and 1996, respectively. The
current quarter increase includes an increase in facilities costs, including
depreciation, of $1.8 million and an increase in numerous other miscellaneous
categories totaling nearly $2.0 million. By the end of the quarter the Company
had eliminated approximately sixty employees on its way to the planned eleven
percent reduction of its workforce. The elimination of redundant positions,
consolidation of facilities and the restructuring of the Company into two core
business units, Utilities and Internet, has resulted in a reduction in
operating expenses expected to result in annual cost savings in excess of
$20.0 million annually.
Other Income: Other income for the three and nine months ended June 30,
1996, includes approximately $1,435,000 of gain on the sale of a portion of the
Company's investment in the common stock of Lernout & Hauspie.
Acquisition, Restructuring, and Other Charges: These charges incurred
amounted to $1.7 million and $9.1 million, for an after-tax per share cost of
$0.05 and $0.25 respectively, for the three and nine months ended June 30, 1996.
These charges relate primarily to acquisition and subsequent restructuring
costs. Such restructuring costs were incurred in order to take advantage of
economies of scale, eliminate redundant functions and in an attempt to reduce
overall operating costs in connection with the acquisitions of Datastorm in
March 1996, and Inset in December 1995. Acquisition expenses include fees for
financial advisory, legal and accounting services, and other related expenses.
The Company expects to incur significant acquisition and related charges in the
future quarter ending September 30, 1996 in connection with the Vertisoft and
Limbex acquisitions.
Income Taxes: The Company's estimated current effective tax rate of 16%
(benefit) reflects the amount of tax benefit the Company believes it will
realize over the remainder of the year. Prior to March 28, 1996, Datastorm,
which was acquired during the second quarter, was an S corporation whereby the
income tax effects of Datastorm's activities accrued directly to its
shareholders. Similarly, the income tax effects of Landmark's activities accrued
to it's shareholders prior to it having been acquired by Quarterdeck in June of
1995.
At June 30, 1996, the Company had a net deferred tax asset of
$4,515,000, net of a valuation allowance of $8,386,000. This net deferred tax
asset is comprised of the estimated tax effect of expected future reversing
temporary differences, relating in part to tax losses and to charges taken for
book purposes that are not deductible for federal income tax purposes until the
amounts are paid in the future, net of the valuation allowance. Management
believes that it is more likely than not that the Company will realize benefit
of the net deferred tax asset. Further reduction of the valuation allowance is
dependent on a number of factors including the timing of reversal of the
temporary differences, and an assessment of the future realization of the
deferred tax assets.
Net Income: Net income for the three and nine months ended June 30,
1996 decreased to a loss of $22,948,000 or $0.73 per share and $19,378,000 or
$0.62 per share from $530,000 or $0.02 per share and $10,975,000 or $0.35 per
share, respectively as compared to the comparable periods of the prior year.
Trends and Uncertainties: The computer software industry is subject to
rapid technological changes often evidenced by new competing products and
improvements in existing products. Quarterdeck depends on the successful
development or acquisition and resulting sales of new products, including
upgrades of existing products, to replace revenues from products introduced in
prior periods that may have begun to experience reduced revenues. If
Quarterdeck's current leading products become outdated and lose market share
faster than those revenues are replaced by new products, or if new products or
existing product upgrades are not introduced when planned or do not achieve the
revenues anticipated by Quarterdeck, Quarterdeck's operating results could be
materially adversely affected. Even with normal development cycles, the market
environment can change so quickly that features in products can become outdated
soon after market introduction. These events may occur in the future and may
have an adverse effect on future revenues and operating results.
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<PAGE> 15
While Quarterdeck expects that memory management will continue to add
value to Windows 95 and legacy systems, the Company has expanded its focus from
a sole reliance on memory management to a broader base of desktop utilities. In
September 1995, Quarterdeck released the first of several new system utility
products for Windows 95, including: WinProbe (a system and hardware
diagnostic), CleanSweep (a disk management utillity) and MagnaRAM (a memory
compression utility). QEMM, Quarterdeck's leading memory management product,
was upgraded to version 8.0 with the inclusion of several new technologies and
is targeted to provide solutions for Windows 95 as well as new enhanced support
for Windows 3.1 and continued support for DOS. In July 1996, Quarterdeck
released the second wave of new system utilities for Windows 95 with the
release of Fix-IT (a pacesetting software configuration diagnostic and
correction tool), Zip-IT (a drag-and-drop utility for creating and maintaining
compressed files), Name-IT (a utility to allow Windows 95 long filenames in
16-bit applications) and Remove-IT (a windows uninstallation utility). The
combination of Remove-IT and CleanSweep give Quarterdeck an unprecedented
leading position in the Windows uninstaller market. While Quarterdeck has
diluted its reliance on memory management with the introduction of new utility
products, like WinProbe, CleanSweep and Fix-IT, there can be no assurance that
any of these technologies will continue to provide sufficient benefit to the
user over and above what the base operating systems, applications and hardware
can provide.
Quarterdeck is devoting substantial efforts to the development of
software products that are designed to operate on Microsoft's Windows 95 and
Windows NT. Microsoft may incorporate advanced utilities or other features in
Windows 95 or Windows NT that may decrease the demand for certain of the
Company's products, including those under development. If Quarterdeck is not
able to continue to successfully, and timely develop and market products that
function under Windows 95 and Windows NT, and offer value to Windows 95 and
Windows NT users, future revenues would be adversely affected.
Future competitive product releases may cause disruptions in orders for
the Company's products while users and the marketplace evaluate the competitive
products. The extent of the disruption in orders and the impact on future orders
of the Company's products will depend on various factors that are not fully
known at this time. Among those factors are the level of functionality,
performance and features included in the final release of competitive products
and the market's evaluation of those products as compared to the then current
functionality, performance and features of the Company's products.
The Company's Internet-related products compete with Internet access,
creation and server tools from a variety of companies, including Microsoft
Corporation, Netscape Communications Corporation and other connectivity,
networking and Internet software application developers, Internet access
providers and other on-line service providers, as well as operating system
vendors, including Microsoft Corporation and IBM. The original Mosaic browser
developed by the National Center for Supercomputing Applications is available
for download in electronic format for free from the Internet. Certain
competitors have also made versions of their Internet access, creation and
server products available on the Internet for users to download at no charge
or for extended evaluation. In addition, the market for Internet products may
be adversely impacted to the extent that vendors of PC hardware or PC
operating systems incorporate Internet tools, functions or capabilities within
their operating systems or PC hardware and thereby reduce the market for
stand-alone Internet products.
Quarterdeck is dedicating substantial efforts on products and services
for the telecommunications and collaborative computing and Internet markets and
expects that a significant portion of future revenues will come from these
products and services. The revenues from such new products and services may be
less than Quarterdeck anticipates due to various factors including the timing of
release in relation to competitive products and services, and uncertainties
surrounding the rate and extent of development of these new and emerging
markets. Quarterdeck's Internet-related products and services are dependent on
the viability and continued growth of the Internet, and its expanded use by
businesses and individuals for networking and communications.
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There are currently few laws or regulations directly applicable to
access or to commerce on the Internet. However, due to the increasing popularity
and use of the Internet, it is possible that a number of laws and regulations
may be adopted with respect to the Internet. Such laws and regulations may cover
issues such as user privacy, pricing and characteristics and quality of products
and services. The Telecommunications Act of 1996 (the "1996 Act"), which was
recently enacted and the judicial interpretation of which is uncertain, imposes
criminal penalties for transmission of or allowing access to certain obscene
communications over the Internet and other computer services and contains
additional provisions intended to protect minors. In addition, America's
Carriers Telecommunication Association ("ACTA") recently filed a Petition for
Declaratory Ruling Special Relief, and Institution of Rulemaking (the "ACTA
Petition") before the Federal Communications Commission ("FCC"), arguing that
the FCC has authority to regulate the Internet and, as such, should regulate, as
they do the telecommunications carriers, the providers of computer software
products (such as the Company) which enable voice transmission over the
Internet. The ACTA Petition requests the FCC to declare its authority over
interstate and international telecommunications services using the Internet, to
order providers of the aforementioned software to cease the sale of such
software pending a rulemaking, and to institute a rulemaking body to govern the
use of the Internet as a means for providing telecommunications services. The
enactment of the 1996 Act, and of any similar laws or regulations in the future,
may decrease the growth or use of the Internet, which could in turn decrease the
demand for the Company's services and products and increase the Company's cost
of doing business or otherwise have an adverse effect on the Company's business,
operating results and financial condition.
While the acquisition of Future Labs, Datastorm, Inset, and other
acquisitions previously completed during fiscal 1995 have broadened the
Company's product portfolio and sales distribution channels, the acquisitions
have resulted in the Company competing with other companies and in markets where
it has not previously competed. The Company has also made investments in certain
companies, and anticipates that it may make additional synergistic acquisitions
and investments in the future. There are significant business risks associated
with acquisitions, including the successful combination of the companies in an
efficient and timely manner, the coordination of research and development and
sales efforts, the retention of key personnel, diversion of management's
attention away from day-to-day matters and the integration of the acquired
products. Additionally, there may be an adverse impact on revenues of acquired
companies due to the transition of products' sales and marketing and research
and development activities. The Company's success will depend, in part, on its
ability to integrate the operations of acquired companies and effectively
utilize the acquired intellectual property.
The Company's distributor and reseller customers also carry the
products of Microsoft Corporation and other of the Company's competitors, many
of whom have substantially greater financial resources than the Company. The
distributors and resellers have limited capital to invest in inventory and
their decisions to purchase the Company's products and in the case of
resellers, to give them critical shelf space, is partly a function of pricing,
terms and special promotions offered by the Company's competitors, over which
the Company has no control and which it cannot predict.
The Company's pattern of revenues and earnings were affected during the
third quarter, and may be affected in the future by the phenomenon known as
"channel fill." Channel fill occurs following the introduction of a new product
or a new version of products as distributors buy significant quantities of the
new product or version in anticipation of sales of such product or version.
Following such purchases, the rate of distributors' purchases often declines,
depending on the rates of purchases by end users or "sell-through." The
phenomenon of "channel fill" may also occur in anticipation of price increases
or in response to sales promotions or incentives, some of which may be designed
to encourage customers to accelerate purchases that might otherwise occur in
later periods. Channels may also become filled simply because the distributors
are unable to, or do not, sell their inventories to retail distribution or end
users as anticipated. If sell-through does not occur at a sufficient rate,
distributors will delay purchases or cancel orders in later periods or return
prior purchases in order to reduce their inventories. Consequently, there can be
no assurance that existing inventories will not adversely impact the sales of
future periods. In addition, between the date the Company announces a new
version or new product and the date of release, distributors, dealers and end
users often delay purchases, cancel orders or return products in anticipation of
the availability of the new version or new product. Such order delays or
cancellations can cause material fluctuations in revenues from one quarter to
the next. Net revenues may be materially affected favorably or adversely by
these effects.
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The Company operates with relatively little order backlog; therefore,
if near-term demand for the Company's products weaken in a given quarter, there
could be a material adverse effect on revenues and on the Company's operating
results. Like other manufacturers of packaged software products, Quarterdeck is
exposed to the risk of product returns from distributors and reseller customers.
There can be no assurance that actual returns in excess of recorded allowances
will not result in a material adverse effect on business, operating results and
financial condition.
FACTORS AFFECTING QUARTERLY RESULTS AND STOCK PRICE
The Company has in the past experienced wide fluctuations in its
operating results and stock price, and the Company's future operating results
and stock price could be subject to significant volatility, particularly on a
quarterly basis. The Company's revenues and quarterly operating results may
experience significant fluctuations and be unpredictable as the result of a
number of factors including, among others, introduction of new or enhanced
products by the Company or its competitors, rapid technological changes in the
Company's markets, seasonality of revenues, changes in operating expenses and
general economic conditions. Any shortfalls in revenues or quarterly results
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period.
Net income per share is calculated using the treasury stock method (see
Note 9 of Notes to Consolidated Unaudited Financial Statements). Increases in
the price of Quarterdeck's stock can have an adverse impact on the calculation
of net income per share in that period as more outstanding instruments are
included as common shares outstanding.
As a result of the foregoing factors and other factors that may arise
in the future, the market price of the Company's common stock may be subject to
significant fluctuations over a short period of time. These fluctuations may be
due to factors specific to the Company, to changes in analysts' earnings
estimates, or to factors affecting the computer industry or the securities
markets in general.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, Quarterdeck's cash and cash equivalents totaled
$14,409,000 and has further declined to approximately $10,000,000 as of July 31,
1996, as compared to cash and cash equivalents of $5,384,000 and short term
investments of $34,285,000 at September 30, 1995. During the nine months ended
June 30, 1996 the Company's total cash and short term investments has declined
by $25,260,000. The decrease in cash and short-term investment balances result
primarily from the Company's year to date losses, payment of dividends by
acquired companies prior to acquisition, approximately $5.9 million of
investments made by the Company in strategic technologies, including the stock
of certain companies possessing such technology, and $13.4 million in capital
investments, including $8.2 million for the construction of a new facility in
Columbia, Missouri, that will house Datastorm. On August 6, 1996, the Company's
Datastorm subsidiary secured construction financing from a bank of up to $5.0
million with an interest rate equal to the bank's commercial base rate,
currently 8.25%, which is secured by the Columbia, Missouri building which is
under construction. The loan is guaranteed by Quarterdeck and is believed to be
sufficient to complete construction. The principal amount plus any unpaid
interest is due February 7, 1997. In addition, management is presently exploring
the potential of a sale-leaseback transaction and other long-term financing
options with respect to the building. There can be no assurance that the Company
will be successful in obtaining such long-term financing with acceptable terms
and conditions. Working capital at June 30, 1996 amounted to $14,645,000, a
decrease of $14,845,000, as compared to $29,490,000 at September 30, 1995.
On March 28, 1996, the Company issued $25.0 million principal amount of
6% Convertible Senior Subordinated Notes, due 2001, to a single institutional
investor in a private placement pursuant to the terms of a Note Agreement, dated
March 1, 1996 (the "Note Agreement"). The Notes are convertible generally after
April 1, 1997, at an initial conversion price of $21.18 per share. The
conversion price is adjustable for certain below market equity issuances and the
Notes contain other customary anti-dilution provisions. The Notes may be prepaid
without penalty, subject to conversion, anytime between April 1997 and April
1999 if the Company's Common Stock had been trading, for 20 of the 30 trading
days preceding notice of prepayment, approximately 18% above the then current
conversion price. The Note Agreement limits the Company's indebtedness for
borrowed funds, other than the Notes, to 50% of Consolidated Net Worth (as
defined in the Note Agreement.)
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On August 13, 1996, the Company's revolving credit facility with Bank
of America was amended, and the bank waived the Company's non-compliance with
certain financial covenants therein for the quarter ended June 30, 1996. The
Company may borrow the lesser of 75% of Eligible Accounts Receivable or $15.0
million. As of July 31, 1996 the maximum available borrowing the Company could
be eligible for under this line was approximately $7.5 million. The line is
secured by Quarterdeck's domestic accounts receivable and inventory. The current
term of the line of credit matures June 30, 1997. The line can be used for
general corporate purposes, including investments and acquisitions, and bears
interest, at the Company's option, at either the bank's reference (prime)
interest rate plus 0.50% or the U.S. offshore rate plus a margin of 2.00%. The
line is subject to the Company complying with certain customary financial
covenants and restrictions, including a prohibition of the payment of dividends,
other than those payable solely in capital stock, and a prohibition of any stock
repurchase activity. At June 30, 1996 the Company did not have any borrowings
outstanding under the line. As of July 31, 1996, the Company had borrowings of
$1.25 million outstanding under the line.
The Company believes existing cash and cash equivalents, plus funds
provided by operations, borrowing capacity under the line of credit and
projected borrowing against the Datastorm facility should be sufficient to fund
operations for the coming twelve months. Nevertheless, the Company is presently
exploring various financing alternatives, including equipment financing,
secured debt, convertible debt, additional sales of equity securities and the
sale of certain of its prior investments in order to finance the core business
of the Company and help provide adequate working capital for operations. Over
the short term, the Company expects to increase its borrowings under its
credit facility and that anticipated increases in sales (as compared to the
June quarter) will increase the Company's borrowing base under the facility. In
addition, the expense reductions resulting from the restructuring should
provide additional funds from operations in future quarters. However, there is
no guarantee that increased sales will occur or that any such increase will
result in adequate operating funds, or that such additional financing will be
available, or if available, will be available on acceptable terms. Should
product shipments be delayed, or should construction of the Datastorm facility
not be completed as planned, or should the Company experience significant
shortfalls in planned revenues, or experience unforeseen expenses, the Company
might not be able to fund operations for the coming twelve months. Any
decision to obtain financing through debt or through equity investment will
depend on various factors, including, among others, financial market
conditions, strategic acquisition and investment opportunities, and
developments in the Company's markets. The sale of additional equity
securities or future conversion of any convertible debt would result in
additional dilution to the Company's stockholders.
The Company conducts business in various foreign currencies and is
therefore subject to the transaction exposures that arise from foreign exchange
rate movements between the dates that foreign currency transactions are recorded
and the date that they are consummated. The Company is also subject to certain
exposures arising from the translation and consolidation of the financial
results of its foreign subsidiaries. There can be no assurance that actions
taken to manage such exposures will continue to be successful or that future
changes in currency exchange rates will not have a material impact on the
Company's future operating results. The Company does not hedge either its
translation risk or its economic risk.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various pending claims and lawsuits.
Management believes that the disposition of such matters will not have a
material adverse impact on the results of operations or financial position of
the Company.
ITEM 2. CHANGES IN SECURITIES
The Credit Facility and the Note Agreement both contain prohibitions
from the payment of cash dividends by the Company. See notes 5 and 11 to the
accompanying Condensed Consolidated Unaudited Financial Statements. The
Company's prior and present intention was to retain any earnings to finance the
operations, growth and possible additional acquisitions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Exhibits
10.1 Waiver and Second amendment to Credit Agreement dated as of
August 13, 1996, between Quarterdeck Corporation and Bank of
America N.T. & S.A.
10.2 Registration Rights Agreement among Quarterdeck Corporation
and the shareholders of Vertisoft Systems, Inc., dated as of
July 18, 1996. (Which supercedes the version of such
agreement filed with the Form 8-K with respect to the
Vertisoft acquisition listed below.)
(b) Reports on Form 8-K:
A Form 8-K, restating for certain material acquisitions, the
financial information contained in the Company's report on Form 10-K
for the year ended September 30, 1995 was filed with the Securities and
Exchange Commission on June 25, 1996.
A Form 8-K/A with respect to the Company's acquisitions of
Datastorm and Inset was filed with the Securities and Exchange
Commission on May 24, 1996.
A Form 8-K, with respect to the Company's May 15, 1996
acquisition of Future Labs. was filed with the Securities and
Exchange Commission.
A Form 8-K with respect to the Company's acquisition of
Datastorm Technologies, Inc. was filed with the Securities and Exchange
Commission on April 12, 1996.
A Form 8-K with respect to the Company's July 18, 1996
acquisition of Vertisoft was filed with the Securities and Exchange
Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
QUARTERDECK CORPORATION
(REGISTRANT)
Date: August 14, 1996 \s\ Gaston Bastiaens
--------------------
Gaston Bastiaens
President and Chief Executive Officer
Date: August 14, 1996 \s\ Frank Greico
----------------
Frank Greico
Sr. Vice President and
Chief Financial Officer
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EXHIBIT 10.1
WAIVER AND SECOND AMENDMENT TO CREDIT AGREEMENT
THIS WAIVER AND SECOND AMENDMENT TO CREDIT AGREEMENT ("Waiver and
Amendment"), dated as of August 13, 1996, is entered into by and between
QUARTERDECK CORPORATION (the "Borrower") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (the "Bank").
RECITALS
A. The Bank and the Borrower are parties to a Credit Agreement dated
as of February 14, 1996, as amended by that First Amendment to Credit Agreement
dated as of March 28, 1996 (the "Credit Agreement"), pursuant to which the Bank
has extended certain credit facilities to the Borrower and its Acceptable
Subsidiaries.
B. The Borrower has reported to the Bank the existence of certain
Events of Default under the Credit Agreement. The Borrower has requested that
the Bank waive certain Events of Default and agree to certain amendments to the
Credit Agreement.
C. The Bank is willing to waive certain Events of Default under the
Credit Agreement, and to amend the Credit Agreement, subject to the terms and
conditions of this Waiver and Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in the
Credit Agreement.
2. Defaults and Waiver.
(a) For purposes of this Waiver and Amendment, the
"Existing Defaults" shall mean:
(i) the Event of Default existing on this date
under Section 8.01(c) of the Credit Agreement as a consequence
of a breach of the negative covenant set forth at Section 7.12
of the Credit Agreement solely for the quarter ended June 30,
1996 through the Effective Date;
(ii) the Event of Default existing on this date
under Section 8.01(c) of the Credit Agreement as a consequence
of a breach of the negative covenant set
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forth at Section 7.14 of the Credit Agreement solely for the
quarter ended June 30, 1996 through the Effective Date; and
(iii) the Event of Default existing on this date
under Section 8.01(c) of the Credit Agreement as a consequence
of a breach of the negative covenant set forth at Section 7.15
of the Credit Agreement solely for the quarter ended June 30,
1996 through the Effective Date.
(b) Subject to and upon the terms and conditions hereof,
the Bank hereby waives the Existing Defaults.
(c) Nothing contained herein shall be deemed a waiver of
(or otherwise affect the Bank's ability to enforce) any other default
or Event of Default, including without limitation (i) any default or
Event of Default as may now or hereafter exist and arise from or
otherwise be related to the Existing Defaults (including without
limitation any cross-default arising under the Credit Agreement by
virtue of any matters resulting from the Existing Defaults), and (ii)
any default or Event of Default arising at any time after the
Effective Date and which arises under the same provisions of the
Credit Agreement as those implicated by any of the Existing Defaults.
3. Amendments to Credit Agreement.
(a) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Applicable Margin" by amending and restating such
defined term in its entirety as follows:
"'Applicable Margin': (a) with respect to Offshore
Rate Advances, 2.00% per annum, and (b) with respect to
Reference Rate Advances, 0.50% per annum."
(b) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Availability Period" by amending and restating such
defined term in its entirety as follows:
"'Availability Period': the period commencing on the
date of this Agreement and ending on the date that is the
earlier to occur of (a) June 30, 1997, and (b) the date on
which the Bank's commitment to extend credit hereunder
terminates."
(c) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Borrowing Base" by
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amending and restating such defined term in its entirety as follows:
"'Borrowing Base': as of any date of determination
thereof, an amount equal to 75% of the value of all Eligible
Accounts (net of all bad debt reserves, reserves for returns,
discounts and marketing funds, or similar reserves applicable
thereto) outstanding at such date."
(d) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Credit Documents" by adding the phrase ",the
Collateral Documents" after "this Agreement".
(e) Section 1.01 of the Credit Agreement shall be amended
at the defined term "Credit Limit" by amending and restating such
defined term in its entirety as follows:
"'Credit Limit': the amount $15,000,000 or the
Equivalent Amount thereof, as the same may be reduced pursuant
to Section 2.08."
(f) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Eligible Account" by amending and restating such
defined term in its entirety as follows:
"'Eligible Account': at the time of any determination
thereof, any Account of the Borrower as to which each of the
following requirements has been met to the satisfaction of the
Bank:
(a) The Borrower has lawful and absolute title to
such Account and such Account is, in the Borrower's reasonable
judgment, collectible in the ordinary course of business;
(b) Such Account is not subject to a bona fide
dispute, setoff, counterclaim or other claim or defense on the
part of any Person (including the Account Debtor of the
Account) denying liability under such Account;
(c) Such Account is not subject to any lien,
encumbrance, security interest or similar charge in favor of
any Person, except Liens permitted by Section 7.02 (other than
subsection (k) thereof);
(d) Such Account is a bona fide Account (which with
respect to an Account arising from a sale of goods, was
created as a result of a sale on an absolute basis and
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not on consignment, approval, or sale-and-return basis, it
being understood that (i) Accounts subject to "re-balancing",
i.e. where the Account Debtor has the right to return certain
products in exchange for other products then stocked by such
Account Debtor, and (ii) Accounts where the Account Debtor has
the right to return certain products in exchange for newer
versions of the same, but, in each case, the amount of the
Account is not reduced as a result thereof shall not be
considered to be Accounts created as a result of a sale on a
sale-and-return basis) of the Borrower arising in the ordinary
course of the Borrower's business and which:
(i) if an Account arising from the sale of
goods, covers goods which have been shipped or delivered and
on which have been taken all other actions necessary to create
a binding obligation on the part of the Account Debtor on such
Account;
(ii) if an Account relating to the
furnishing of services, covers services which have been
performed and completed and on which have been taken all other
actions necessary to create a binding obligation on the part
of the Account Debtor on such Account;
(e) The Account Debtor on such Account is not:
(i) an employee, affiliate (including a
partnership, joint venture, limited liability company, joint
stock company or other Person in which the Borrower has a
direct or indirect ownership interest), parent, or Subsidiary
of the Borrower;
(ii) the federal government or a political
subdivision thereof unless the Bank has agreed to the contrary
in writing and the Borrower has complied with the Federal
Assignment of Claims Act of 1940, as amended, and the rules
and regulations promulgated thereunder as from time to time in
effect; or
(iii) any state of the United States or any
city, town, municipality or division thereof, or located in a
foreign country;
(f) Such Account is not in default. An Account
shall be deemed to be in default if any of the following have
occurred with respect to such Account:
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(i) the Account is outstanding more than 90 days
past its original due date; or
(ii) the Account Debtor on such Account is the
subject of any reorganization, bankruptcy, receivership,
custodianship, insolvency, or other proceeding analogous to
those described in subsections 8.01(f) or (g);
(g) Such Account is not the obligation of an Account
Debtor who is in default (as defined in subparagraph (f) of
this definition) on 25% or more of the Accounts upon which
such Account Debtor is obligated to the Borrower;
(h) Such Account is the subject of a first priority
perfected security interest in favor of the Bank securing the
respective obligations of the Borrower and the Acceptable
Subsidiaries under this Agreement and the other Credit
Documents; and
(i) The Account is otherwise reasonably acceptable to
the Bank.
In addition to the foregoing limitations, the dollar amount of
Eligible Accounts included in the Borrowing Base which are
obligations of a single Account Debtor shall not exceed the
concentration limit established for that Account Debtor. To
the extent the total of such Eligible Accounts exceeds an
Account Debtor's concentration limits, the amount of any such
excess shall not be Eligible Accounts. The concentration
limit for each Account Debtor other than Ingram Micro and Tech
Data Corporation shall be equal to 10% of the Borrower's
Accounts as of the time in question. The concentration limit
for Ingram Micro shall be the greater of (1) 35% of the
Accounts of the Borrower or (2) $6,000,000, and the
concentration limit for Tech Data Corporation shall be 25% of
the Accounts of Borrower."
(g) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Final Maturity Date" by amending and restating such
defined term in its entirety as follows:
"'Final Maturity Date': (a) in respect of any Advances,
June 30, 1997; (b) in respect of any
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commercial letters of credit, June 30, 1997; and (c) in
respect of any standby letters of credit, June 30, 1997."
(h) Section 1.01 of the Credit Agreement shall be amended at
the defined term "Material Adverse Effect" by deleting the word "or"
before clause (c) thereof and adding the following at the end of
clause (c) thereof: ";or (d) a material adverse effect upon the
perfection or priority of any lien granted under any of the Collateral
Documents".
(i) Section 1.01 of the Credit Agreement shall be amended by
adding the following new defined terms in the appropriate alphabetical
order:
"Collateral": all property and interests in property
and proceeds thereof now owned or hereafter acquired by the
Borrower and its Subsidiaries in or upon which a lien now or
hereafter exists in favor of the Bank, whether under this
Agreement or under any other documents executed by any such
Person and delivered to the Bank.
"Collateral Documents" : collectively, (i) the
Security Agreement and all other security agreements,
mortgages, deeds of trust, patent and trademark assignments,
lease assignments, guarantees and other similar agreements
between the Borrower or any Subsidiary and the Bank now or
hereafter delivered to the Bank pursuant to or in connection
with the transactions contemplated hereby, and all financing
statements (or comparable documents now or hereafter filed in
accordance with the UCC or comparable law) against the
Borrower or any Subsidiary as debtor in favor of the Bank and
(ii) any amendments, supplements, modifications, renewals,
replacements, consolidations, substitutions and extensions of
any of the foregoing.
"Datastorm": Datastorm Technologies, Inc., a
Missouri corporation and a Subsidiary of the Borrower.
"Datastorm Property": the real property owned by
Datastorm and located at 2401 LeMone Industrial Boulevard,
Columbia, MO 65205.
"Security Agreement": the Security Agreement dated
as of August 13, 1996 delivered by the Borrower in favor of
the Bank, and any other security agreement
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delivered by a Subsidiary in favor of the Bank pursuant to
Section 2.10.
"UCC": the Uniform Commercial Code as in effect in
the State of California.
(j) Each of (i) the first sentence of subsection 2.02(a) of
the Credit Agreement, (ii) the last line of subsection 2.03(d) of the
Credit Agreement, (iii) the last line of subsection 2.04(d) of the
Credit Agreement, and (iv) the first sentence of Section 3.06 of the
Credit Agreement, shall be amended by adding "plus the Applicable
Margin" after the words "Reference Rate".
(k) Subsection 2.04(c) of the Credit Agreement shall be
amended by deleting the words "the Applicable Margin" in the first
sentence thereof and inserting "2.00% per annum" in lieu thereof.
(l) Subsection 2.04(f) of the Credit Agreement shall be
amended and restated in its entirety as follows:
"(f) The aggregate of the L/C Outstanding Amounts in
respect of standby letters of credit and commercial letters of
credit may not exceed at any time $2,000,000 or the Borrowing
Base."
(m) The following shall be added as Section 2.10 of the
Credit Agreement:
"2.10 Security. All obligations of the Borrower and
the Acceptable Subsidiaries under this Agreement and all other
Credit Documents shall be secured by all Accounts and
inventory of the Borrower in accordance with the Collateral
Documents. The Borrower shall cause its Subsidiaries to
pledge their respective inventory, if necessary, so that, no
later than September 15, 1996 and at all times thereafter, no
less than 75% of the domestic inventory of the Borrower and
its Subsidiaries, on a consolidated basis, is subject to a
perfected first priority lien (subject only to liens permitted
under Section 7.02) in favor of the Bank. In connection
therewith, the Borrower shall cause the applicable
Subsidiaries to deliver such security agreements, lien
searches, certificates, financing statements, opinions and
other documents as the Bank may reasonably request in
connection with the granting and perfection of such liens."
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(n) The following are added as Section 5.15 and Section 5.16,
respectively, of the Credit Agreement:
"5.15 Collateral Documents. (a) The provisions of
each of the Collateral Documents are effective to create in
favor of the Bank, a legal, valid and enforceable first
priority security interest in all right, title and interest of
the Borrower or the Subsidiary party thereto in the collateral
described therein, subject only to liens permitted under
Section 7.02; and financing statements have been filed in the
offices in all of the jurisdictions listed in the schedule to
the Security Agreement.
(b) All representations and warranties
of the Borrower and any Subsidiary party to a Security
Agreement contained in the Collateral Documents are true and
correct.
5.16 Solvency. The Borrower and each Subsidiary
party to a Security Agreement is solvent. As used in this
Section, "solvent" means, at any time, with respect to a
Person, that (a) the fair value of the property of the Person
is greater than the amount of the Person's liabilities
(including disputed, contingent and unliquidated liabilities)
as such value is established and liabilities evaluated for
purposes of Section 101(31) of the U.S. Bankruptcy Code and,
in the alternative, for purposes of the California Uniform
Fraudulent Transfer Act; (b) the present fair saleable value
of the property of the Person is not less than the amount that
will be required to pay the probable liability of the Person
on its debts as they become absolute and matured; (c) the
Person is able to realize upon its property and pay its debts
and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course
of business; (d) the Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond the
Person's ability to pay as such debts and liabilities mature;
and (e) the Person is not engaged in business or a
transaction, and is not about to engage in business or a
transaction, for which the Person's property would constitute
unreasonably small capital."
(o) Subsection 6.02(d) of the Credit Agreement shall be
amended and restated in its entirety as follows:
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"(d) within 25 days after the end of each calendar
month (or, if there exists an Event of Default, more
frequently as may be required by the Bank), (i) a Borrowing
Base Certificate, and (ii) a detailed aging of all accounts
receivable outstanding as of such last day in form and
substance reasonably requested by the Bank; and"
(p) Subsection 6.02(f) of the Credit Agreement shall be
amended and restated in its entirety as follows:
"(f) Promptly upon request, such other materials and
information relating to the Borrower, its Subsidiaries or the
Collateral as the Bank may reasonably request."
(q) Subsection 6.03 of the Credit Agreement shall be amended
and restated in its entirety as follows:
"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 in all material respects 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 Collateral and the Borrower's and its
Subsidiaries' properties, to conduct appraisals of the
Collateral, and to examine or audit the Borrower's and its
Subsidiaries' books, accounts, and records and make copies and
memoranda thereof. Unless there shall have occurred and be
continuing an Event of Default (in which case the foregoing
shall be at the Borrower's expense), the foregoing shall be at
the Bank's expense; provided that, notwithstanding that no
Event of Default shall have occurred and be continuing, the
Borrower shall pay for the Bank's reasonable costs (including
the allocated cost of internal audits or appraisals) for
conducting audits and appraisals of the Collateral, but no
more than four times each calendar year unless an Event of
Default shall have occurred and be continuing. In the event
any Collateral, properties, books, accounts or records are in
the possession of or under the control of a third party, the
Borrower shall direct and hereby authorizes such third party
to permit
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access to the Bank's employees or agents for the purpose of
performing the inspections, appraisals, examinations or audits
permitted under this Section and to respond to any requests
from the Bank for information concerning the amount, status or
condition of any Collateral in such third party's possession
or control. The Borrower shall cause its officers and
employees to give full cooperation and assistance in
connection with any such inspection, appraisal, examination or
audit."
(r) Section 6.05 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"6.05 Insurance. In addition to insurance
requirements set forth in the Collateral Documents, 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 or the applicable Subsidiary, including fire,
extended coverage, public liability (including, in the case of
the Borrower and Datastorm, coverage for contractual
liability), property damage (including, in the case of the
Borrower and Datastorm, use and occupance) and workers'
compensation, all carried by responsible insurers, and, in the
case of fire and property damage insurance, naming the Bank as
loss payee and as additional insured, as its interests may
appear, 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."
(s) The following shall be added as new Section 6.09 to the
Credit Agreement:
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"6.09 Further Assurances. Promptly upon request by
the Bank, the Borrower shall (and shall cause any of its
Subsidiaries to) do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register, any and
all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates,
assurances and other instruments the Bank may reasonably
require from time to time in order (a) to carry out more
effectively the purposes of this Agreement or any other Credit
Document, (b) to subject to the liens created by any of the
Collateral Documents any of the properties, rights or
interests covered by any of the Collateral Documents, (iii) to
perfect and maintain the validity, effectiveness and priority
of any of the Collateral Documents and the liens intended to
be created thereby, and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Bank
the rights granted or now or hereafter intended to be granted
to the Bank under any Credit Document or under any other
document executed in connection therewith."
(t) Subsection 7.01(d) of the Credit Agreement shall be
amended and restated in its entirety to read as follows:
"(d) indebtedness secured by liens permitted by
subsections 7.02(f), (n), (o) and (p)."
(u) Section 7.02 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"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 listed on
Schedule 7.02; (c) liens for current taxes, assessments, or
other governmental charges which are not delinquent or remain
payable without any penalty or which are being contested in
good faith and by
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appropriate proceedings, and as to which to no foreclosure or
forfeiture proceeding has been commenced, or, if commenced,
which has been stayed; (d) liens (other than any lien imposed
by ERISA or any lien on the Collateral) 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 or which are being contested in
good faith and by appropriate proceedings, and as to which no
foreclosure or forfeiture proceeding has been commenced, or,
if commenced, which has been stayed; (f) purchase money
security interests in personal or real property hereafter
acquired when the security interest does not extend beyond the
property purchased; (g) liens (other than any such lien on the
Collateral) incurred and deposits made in the ordinary course
of business to secure the performance (including by way of
surety bonds or appeal bonds) of tenders, bids, leases,
contracts, statutory obligations or similar obligations or
arising as a result of progress payments under contracts, in
each case in the ordinary course of business and not relating
to the repayment of indebtedness for borrowed money; (h)
easements, rights-of-way, covenants, consents, reservations,
encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded) that do not materially
interfere with the ordinary conduct of business, materially
detract from the value of the asset to which they attach or
materially impair the use thereof; (i) building restrictions,
zoning laws and other statutes, laws, rules, regulations,
ordinances and restrictions; (j) leases, subleases or
easements (other than, in each case, in respect of the
Collateral) granted in the ordinary course of business to
others not materially interfering with the business of, and
consistent with past practices of, the Borrower or the
relevant Subsidiary; (k) any attachment or judgement lien, not
otherwise constituting an Event of Default, in existence less
than 30 days after the entry thereof or with respect to which
(i) execution has been stayed, (ii) payment is covered in full
by insurance, or (iii) the Borrower or Subsidiary is in good
faith prosecuting an appeal or other appropriate proceedings
for review and has set aside on its books such reserves as may
be required by GAAP with respect to such judgment or award;
(l) liens or other encumbrances
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existing on assets of any Person at the time such Person
becomes a Subsidiary and not created in anticipation thereof;
(m) other liens (other than any such lien on the Collateral)
incidental to the conduct of the business or the ownership of
the assets of the Borrower or any Subsidiary that (i) were not
incurred in connection with borrowed money, (ii) do not in the
aggregate materially detract from the value of the assets
subject thereto or materially impair the use thereof in the
operation of such business and (iii) do not secure obligations
aggregating in excess of $250,000; (n) liens on personal
property (other than the Collateral) securing indebtedness
(including arising out of a sale and leaseback transaction)
not to exceed in aggregate principal amount outstanding at any
one time the amount of $7,500,000; (o) liens on the Datastorm
Property, securing indebtedness not to exceed in aggregate
principal amount outstanding at any one time the value of the
Datastorm Property, or arising out of a sale and leaseback
transaction of the Datastorm Property; (p) liens on property
of Datastorm (other than the Collateral), securing existing
indebtedness not to exceed in aggregate principal amount
outstanding at any one time the amount of $2,000,000; and (q)
any lien, security interest or other encumbrance constituting
a renewal, extension or replacement of any lien, security
interest or encumbrance permitted under this Section; provided
(i) the principal amount of indebtedness or other obligation
secured by such renewal, extension or replacement lien or
encumbrance does not exceed the principal amount of the
indebtedness or other obligation renewed, extended or replaced
unless such excess is otherwise permitted hereby at the time
of the extension, renewal or replacement, and (ii) such lien
or encumbrance is limited to all or a part of the property
subject to the lien or encumbrance extended, renewed or
replaced."
(v) Section 7.07 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"7.07 Sale of Assets. The Borrower shall not, and
shall not suffer or permit any Subsidiary to, (a) sell, lease,
or otherwise dispose of its business or assets as a whole or
such as constitutes a substantial portion of the consolidated
business or assets of the Borrower and its Subsidiaries; (b)
sell or otherwise dispose of any of its accounts receivable
except in
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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 (other than in respect of a
sale and leaseback transaction permitted under subsection
7.02(n) or in respect of the Datastorm Property, in each case
whether a "true sale" or a financing transaction)."
(w) Section 7.12 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"7.12 Quick Ratio. The Borrower shall not permit at
any time on a consolidated basis the sum of cash, short-term
cash investments, marketable securities not classified as
long-term investments and accounts receivable (net of any bad
debt reserve) to be less than 1.00 times current liabilities
(which shall include all outstanding Advances (or the
Equivalent Amount thereof) and the L/C Outstanding Amount)."
(x) Section 7.13 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"7.13 Total Liabilities to Tangible Net Worth. The
Borrower shall not permit at any time on a consolidated basis
the Borrower's total liabilities (which shall include all
outstanding Advances (or the Equivalent Amount thereof) and
the L/C Outstanding Amount, and exclude the outstanding
principal amount of the Subordinated Notes) to exceed 1.15
times Tangible Net Worth. For purposes of this covenant only,
Tangible Net Worth shall include the outstanding principal
amount of the Subordinated Notes."
(y) Section 7.14 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"7.14 Tangible Net Worth. The Borrower shall not
permit at any time on a consolidated basis its Tangible Net
Worth to be less (i) than 85% of its Tangible Net Worth as of
June 30, 1996 plus (ii) the net proceeds from any equity
securities issued after June 30, 1996, plus (iii) any increase
in stockholders' equity resulting from the conversion of debt
securities to equity securities after the date of this
Agreement, less (iv) Permitted Acquisition Charges less (v)
goodwill or other intangible assets acquired in
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connection with an acquisition (provided that such acquisition
is not prohibited hereunder and such goodwill or other
intangible assets are acquired and recognized in the
consolidated financial statements of the Borrower in the same
fiscal quarter as the related acquisition)."
(z) Section 7.15 of the Credit Agreement shall be amended and
restated in its entirety as follows:
"7.15 Profitability. The Borrower shall not permit
as of the last day of any fiscal quarter for the fiscal
quarter then ending on a consolidated basis (i) a negative net
operating income, which shall be defined as income before any
deduction for interest expense, taxes, or extraordinary items,
and without giving effect to any interest or other
non-operating income or (ii) a negative net income, which
shall be defined as net income after tax (excluding
extraordinary items); provided, that net operating income and
net income shall be calculated without reduction for any
Permitted Acquisition Charges; and provided, further, that
solely for the quarter ending September 30, 1996, the Borrower
may have such a negative net operating income or net income
provided that the absolute negative amount of each is not
greater than $2,000,000."
(aa) The following shall be added as new Section 7.16 to the
Credit Agreement:
"7.16 Subordinated Indebtedness. The Borrower shall
not, and shall not permit any Subsidiary to, amend, modify,
supplement, or amend and restate any documents evidencing or
given in connection with any subordinated indebtedness
(including the Subordinated Notes) or make any prepayments on
any such subordinated indebtedness (including the Subordinated
Notes).
(bb) Subsection 8.01(j) of the Credit Agreement shall be
amended and restated in its entirety as follows:
"(j) Collateral.
(i) any provision of any Collateral
Document shall for any reason cease to be valid and
binding on or enforceable against the Borrower or any
Subsidiary party thereto or the Borrower or any
Subsidiary shall so state in writing or bring an
15
<PAGE> 16
action to limit its obligations or liabilities thereunder; or
(ii) any Collateral Document shall for
any reason (other than pursuant to the terms thereof)
cease to create a valid security interest in the
Collateral purported to be covered thereby or such
security interest shall for any reason cease to be a
perfected and first priority security interest
subject only to liens permitted under Section 7.02."
(cc) Section 9.04 of the Credit Agreement shall be amended by
adding the following sentence at the end thereof:
"The Borrower shall also pay or reimburse the Bank upon demand
for all appraisal (including the allocated cost of internal
appraisal services), audit (including the allocated cost of
internal audit services), search and filing costs, fees and
expenses, incurred or sustained by the Bank in connection with
the matters referred to in the preceding sentence."
(dd) The following shall be added as Section 9.15 to the
Credit Agreement:
"9.15 Marshalling. The Bank shall be under no
obligation to marshall any assets in favor of the Borrower or
any other Person or against or in payment of any or all of
Borrower's or the Acceptable Subsidiaries' obligations
hereunder or under any other Credit Document."
(ee) Exhibit A to the Credit Agreement shall be amended and
restated in its entirety in the form of Exhibit A attached hereto.
(ff) Exhibit B to the Credit Agreement shall be amended and
restated in its entirety in the form of Exhibit B attached hereto.
4. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank as follows:
(a) Other than the Existing Defaults, no Default or Event
of Default has occurred and is continuing.
(b) The execution, delivery and performance by the
Borrower of this Waiver and Amendment have been duly
16
<PAGE> 17
authorized by all necessary corporate and other action and do not and
will not require any registration with, consent or approval of, notice
to or action by, any Person (including any governmental authority) in
order to be effective and enforceable. The Credit Agreement as
amended by this Waiver and Amendment constitutes the legal, valid and
binding obligations of the Borrower, enforceable against it in
accordance with its respective terms, without defense, counterclaim or
offset.
(c) Subject to the Existing Defaults, all representations
and warranties of the Borrower contained in the Credit Agreement are
true and correct.
(d) The Borrower is entering into this Waiver and
Amendment on the basis of its own investigation and for its own
reasons, without reliance upon the Bank or any other Person.
5. Effective Date. This Waiver and Amendment will become
effective as of the date first above written (the "Effective Date"), provided
that each of the following conditions precedent are satisfied:
(a) The Bank has received from the Borrower a duly
executed original (or, if elected by the Bank, an executed facsimile
copy) of this Waiver and Amendment.
(b) The Bank has received from the Borrower a copy of a
resolution passed by the board of directors of such corporation,
certified by the Secretary or an Assistant Secretary of such
corporation as being in full force and effect on the date hereof,
authorizing the execution, delivery and performance of this Waiver and
Amendment.
(c) All representations and warranties contained herein
are true and correct as of the Effective Date.
(d) The Bank has received the Security Agreement, in the
form of Exhibit C attached hereto, executed by the Borrower, together
with:
(i) executed copies of all UCC-l financing
statements required to be filed, registered or recorded to perfect the
security interests of the Bank in accordance with applicable law;
(ii) written advice relating to such lien, tax,
litigation and judgment searches as the Bank shall have
17
<PAGE> 18
requested, and such termination statements or other documents as may
be necessary to confirm that the Collateral is subject to no other
liens in favor of any Persons (other than liens permitted under
Section 7.02 of the Credit Agreement);
(iii) evidence that all other actions necessary or,
in the opinion of the Bank, desirable to perfect and protect the first
priority security interest, subject only to liens permitted under
Section 7.02 of the Credit Agreement, created by the Collateral
Documents have been taken;
(iv) such consents, estoppels, subordination
agreements and other documents and instruments executed by landlords,
tenants and other Persons party to material contracts relating to any
Collateral as to which the Bank shall be granted a lien, as requested
by the Bank; and
(vi) evidence that all other actions necessary or,
in the opinion of the Bank, desirable to perfect and protect the first
priority lien, subject only to liens permitted under Section 7.02 of
the Credit Agreement, created by the Collateral Documents, and to
enhance the Bank's ability to preserve and protect its interests in
and access to the Collateral, have been taken.
(e) The Bank has received standard lenders' payable
endorsements with respect to the insurance policies or other
instruments or documents evidencing insurance coverage on the
properties of the Borrower in accordance with Section 6.05 of the
Credit Agreement, as amended hereby.
(f) The Bank has received a legal opinion from Gibson Dunn &
Crutcher, counsel to the Borrower, in the form of Exhibit D attached
hereto.
(g) The Bank has received from the Borrower the amount of
$10,000, representing payment in full of a non-refundable amendment
fee which amount the Borrower hereby covenants to pay to the Bank on
demand.
6. Consent of Guarantor. The Borrower, as guarantor with respect to
the obligations of the Acceptable Subsidiaries to the Bank under the Credit
Agreement, as amended by this Waiver and Amendment, hereby reaffirms and agrees
that each Guaranty to which the Borrower is party, and all other documents and
agreements executed and delivered by the Borrower to the Bank in
18
<PAGE> 19
connection therewith, are in full force and effect, without defense, offset or
counterclaim.
7. Reservation of Rights. The Borrower acknowledges and agrees
that neither the Bank's forbearance in exercising its rights and remedies in
connection with the Existing Defaults, nor the execution and delivery by the
Bank of this Waiver and Amendment, shall be deemed to create a course of
dealing or otherwise obligate the Bank to forbear or execute similar waivers
under the same or similar circumstances in the future.
8. Miscellaneous.
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Credit Agreement are and shall remain
in full force and effect and all references therein to such Credit
Agreement shall henceforth refer to the Credit Agreement as amended by
this Waiver and Amendment. This Waiver and Amendment shall be deemed
incorporated into, and a part of, the Credit Agreement.
(b) This Waiver and Amendment shall be binding upon and
inure to the benefit of the parties hereto and thereto and their
respective successors and assigns. No third party beneficiaries are
intended in connection with this Waiver and Amendment.
(c) This Waiver and Amendment shall be governed by and
construed in accordance with the law of the State of California.
(d) This Waiver and Amendment may be executed in any
number of counterparts, each of which shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument. Each of the parties hereto understands and agrees that
this document (and any other document required herein) may be
delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be
followed promptly by mailing of a hard copy original, and that receipt
by the Bank of a facsimile transmitted document purportedly bearing
the signature of the Borrower shall bind the Borrower, with the same
force and effect as the delivery of a hard copy original. Any failure
by the Bank to receive the hard copy executed original of such
document shall not diminish the binding effect of receipt of the
facsimile transmitted executed original of such document which hard
copy page was not received by the Bank.
19
<PAGE> 20
(e) This Waiver and Amendment, together with the Credit
Agreement, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein.
This Waiver and Amendment supersedes all prior drafts and
communications with respect thereto. This Waiver and Amendment may
not be amended except in accordance with the provisions of Section
9.05 of the Credit Agreement.
(f) If any term or provision of this Waiver and Amendment
shall be deemed prohibited by or invalid under any applicable law,
such provision shall be invalidated without affecting the remaining
provisions of this Waiver and Amendment or the Credit Agreement,
respectively.
(g) The Borrower covenants to pay to or reimburse the
Bank, upon demand, for all reasonable costs and expenses (including
reasonable allocated costs of in-house counsel) incurred in connection
with the development, preparation, negotiation, execution and delivery
of this Waiver and Amendment and the administration of the Existing
Defaults, including without limitation appraisal, audit, search and
filing fees incurred in connection therewith.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Waiver and Amendment as of the date first above written.
QUARTERDECK CORPORATION
By: /s/ Frank R. Greico
--------------------------
Title: Chief Financial Officer
-----------------------
By: /s/ Bradley D. Schwartz
--------------------------
Title: Senior Vice President
-----------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ John Cinderey
-------------------------
Title: Managing Director
20
<PAGE> 21
EXHIBIT A
QUARTERDECK CORPORATION
BORROWING BASE CERTIFICATE
Date: ________________, 199_
Reference is made to that certain Credit Agreement dated as of
February 14, 1996 among Quarterdeck Corporation (the "Borrower") and Bank of
America National Trust and Savings Association, a national banking association,
as amended. Unless otherwise defined herein, capitalized terms used herein
have the respective meanings assigned to them in the Credit Agreement.
The undersigned hereby certifies as of the date hereof that he/she is
the [chief financial officer] [controller] of the Borrower, and that, as such,
he/she is authorized to execute and deliver this Certificate to the Bank on the
behalf of the Borrower, and not as an individual, and that:
1. The following computation of the Borrowing Base is true and
accurate on and as of _____________________ [last day of month immediately
preceding date of certificate].
A. Total Accounts(1): $__________________
Less the following:
<TABLE>
<S> <C> <C>
(a) Unpledged or Liened
Accounts (__________________)
(b) Contingent Accounts(2) (__________________)
(c) Contra Accounts
(offsetting obligations) (__________________)
</TABLE>
__________________________________
(1) Gross accounts receivable according to the Borrower's aging for the
period referred to in 1. above that represent all accounts resulting from the
sale of goods (including software) or the performance of services by the
Borrower in the normal course of the Borrower's business.
(2) Receivables upon which the Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatever (other
than receivables subject to "re-balancing" or exchange of inventory for updated
versions as provided in clause (d) of the definition of Eligible Receivables in
the Credit Agreement).
A-1
<PAGE> 22
<TABLE>
<S> <C> <C>
(d) Employee/Affiliate/
Intercompany Accounts (__________________)
(e) City/State Accounts (__________________)
(f) U.S. Government Accounts (__________________)
(g) Foreign Accounts (__________________)
(h) Over 10% Concentration
(other than Ingram Micro
and Tech Data) (__________________)
(i) Over 35% (or $6,000,000)
Concentration (Ingram Micro) (__________________)
(j) Over 25% Concentration
(Tech Data) (__________________)
(k) 90 Days Past Due Accounts (__________________)
(l) Bankrupt Accounts (__________________)
(b) Cross Aging (25% Past Due
over 90 Days) (__________________)
(n) Disputed or Uncollectible
Accounts/other (__________________)
(o) Bad Debt and Other Reserves (__________________)
B. Eligible Accounts (Net): $
-------------------
C. Eligible Accounts X 75% $
-------------------
D. Borrowing Base (Lesser of $15,000,000
or amount from C above) $
-------------------
E. Current outstandings under
line of credit (or Equivalent
Amount thereof) $( )
-------------------
F. Amount remaining available for credit
extensions as of
_____________, 199___ (D-E) $
===================
</TABLE>
2. The undersigned has not permitted, and will not permit, the total
credit extensions at any time outstanding under the Credit Agreement to exceed
the Borrowing Base then in effect.
3. Attached hereto is a detailed aging of all accounts receivable
outstanding as of _____________ [last day of month immediately preceding date
of certificate], which aging is true, correct and complete in all material
respects.
A-2
<PAGE> 23
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of __________________, 199__.
<TABLE>
<S> <C> <C>
QUARTERDECK CORPORATION
By:
------------------------------
Title:
---------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
Reviewed by:
------------------------------
Title:
------------------------------------
Dated , 19
------------------------------ ---
</TABLE>
A-3
<PAGE> 24
EXHIBIT B
QUARTERDECK CORPORATION
COMPLIANCE CERTIFICATE
Date: ____________, 199_
Pursuant to that Credit Agreement dated as of February 14, 1996 (as
amended, modified or supplemented from time to time, the "Credit Agreement";
capitalized terms not otherwise defined herein being used herein as defined in
the Credit Agreement) between Quarterdeck Corporation (the "Company") and Bank
of America National Trust and Savings Association (the "Bank"), the undersigned
certifies that he/she is the [chief financial officer] [controller] of the
Company, and that, as such, he/she is authorized to execute and deliver this
Certificate, and that:
[Use this 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 is a true and correct copy of the
Company's audited consolidated balance sheet as at the end of the fiscal year
ended _____________, 199_ and the related consolidated statements of income,
retained earnings and cash flow for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, and
accompanied by the unqualified opinion of ________________
[nationally-recognized independent public accounting firm].
or
[Use this 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 true and correct copy of the
unaudited consolidated balance sheet of the Company for the fiscal quarter
ended ______________, 199_ and the related consolidated statements of income,
retained earnings and cash flows for the period commencing on the first day and
ending on the last day of such quarter and for the portion of the fiscal year
ending on the last day of such quarter.
2. The attached financial statements are complete and correct and
fairly present, in accordance with GAAP, the financial position and results of
operations of the Company and the Company's consolidated Subsidiaries.
B-1
<PAGE> 25
3. 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 of the
Company during the accounting period covered by the attached financial
statements.
4. To the best of the undersigned's knowledge, the Company, during
such period, has observed, performed or satisfied all of its covenants and
other agreements, and satisfied every condition in the Credit Agreement to be
observed, performed or satisfied by the Company, and the undersigned has no
knowledge of any Default or Event of Default (both as defined in the Credit
Agreement).
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. All amounts and ratios in Schedule 2 refer to the
financial statements attached as Schedule 1 hereto and are determined in
accordance with the specifications set forth in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of ___________________, 199_.
QUARTERDECK CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
B-2
<PAGE> 26
Date: ______________, 199__
For the fiscal quarter/year
ended ______________, 199__
SCHEDULE 2
to the Compliance Certificate
($ in 000's)(1)
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C> <C>
1. Section 7.12 Quick Ratio.
------------------------
The ratio of:
A. the sum of:
(i) cash __________
plus
----
(ii) short-term cash investments
----------
plus
----
(iii) marketable securities not
classified as long-term investments
plus __________
----
(iv) current accounts receivable
(net of bad debt reserves)
__________
(i)+(ii)+(iii)+(iv) = __________
B. Current Liabilities(2) __________
A
---
B = Not less than 1.00 to 1.00.
==========
2. Section 7.13 Total Liabilities
------------------------------
to Tangible Net Worth.
---------------------
The ratio of:
A. Total Liabilities(3) __________
</TABLE>
__________________________________
(1) Determined on a consolidated basis, in accordance with GAAP.
(2) Including, without duplication, principal amount of Advances (or
Equivalent Amount thereof) and the L/C Outstanding Amount.
(3) Including, without duplication, principal amount of Advances (or
Equivalent Amount thereof) and the L/C Outstanding Amount, but
excluding the outstanding principal amount of the Subordinated Notes.
B-3
<PAGE> 27
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
B. Tangible Net Worth:
(i) Total Assets __________
less
----
(ii) goodwill, patents, trademarks,
trade names, organization expense,
treasury stock, unamortized
debt discount and expense,
deferred charges and other
like intangibles __________
less
----
(iii) Monies due from affiliates,
officers, directors or shareholders __________
less
----
(iv) reserves applicable to assets __________
less
----
(v) all liabilities
(including accrued and
deferred income taxes and
subordinated indebtedness) __________
plus
----
(vi) the outstanding principal
amount of the Subordinated Notes __________
(i)-(ii)-(iii)-(iv)-(v)+(vi) = __________
A
---
B Not greater than 1.15 to 1.00
==========
3. Section 7.14 Minimum Tangible
-----------------------------
Net Worth.
---------
(i) Tangible Net Worth (from 2B. above) __________ Not to be less than the sum of:
less A. Tangible Net Worth as of
---- 6/30/96:
(ii) The outstanding principal amount of the (i) Total Assets __________
Subordinated Notes (from 2B(vi) above) __________
less
----
(i) + (ii) =
========= (ii) goodwill, patents,
trademarks, trade
names, organization expense,
treasury stock, unamor-
tized debt discount
</TABLE>
B-4
<PAGE> 28
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C>
and expense, deferred
charges and other like
intangibles __________
less
----
(iii) Monies due from
affiliates, officers,
directors or share-
holders __________
less
----
(iv) reserves appli-
cable to assets __________
less
----
(v) all liabilities
(including accrued
and deferred income
taxes and subordi-
nated indebtedness) __________
(i)-(ii)-(iii)-
(iv)-(v) = __________
x 85%
__________
(4)
==========
plus
----
B. 100% of the net pro-
ceeds from the issu-
ance of equity
securities after
June 30, 1996 __________
plus
----
C. Increase in stockhold-
ers' equity arising
from the conversion
of debt securities to
equity securities after
February 14, 1996 __________
less
----
D. Permitted Acquisition
Charges __________
less
----
E. Goodwill or other
intangible assets
acquired in connection
</TABLE>
__________________________________
(4) Calculation will need to be done for first compliance certificate
only; thereafter, this number will be inserted.
B-5
<PAGE> 29
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
with a permitted acqui-
sion and acquired and
recognized in the
same fiscal quarter
as the related
acquisition __________
A + B + C - D - E =
==========
4. Section 7.15 Profitability.
--------------------------
A. (i) Operating income for fiscal quarter __________
plus
----
(ii) Permitted Acquisition Charges(5) __________
(i) + (ii) = For quarter ended 9/30/96 only, loss not to exceed
========== $2,000,000; thereafter, (i)+(ii) not to
be less than 0
B. (i) Net income for fiscal quarter __________
plus
----
(ii) Permitted Acquisition Charges(5) __________
(i) + (ii) = For quarter ended 9/30/96 only, loss not to exceed
========== $2,000,000; thereafter, (i)+(ii) not to
be less than 0
</TABLE>
__________________________________
(5) To the extent deducted in determining operating income or net income,
as applicable.
B-6
<PAGE> 30
EXHIBIT C
FORM OF
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of August
13, 1996, is made between QUARTERDECK CORPORATION, a Delaware corporation (the
"Borrower"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(together with any Offshore Credit Provider, the "Bank").
The Borrower and the Bank are parties to a Credit Agreement
dated as of February 14, 1996 (as amended by a First Amendment to Credit
Agreement dated as of March 28, 1996 and a Waiver and Second Amendment to
Credit Agreement dated as of August 13, 1996 (the "Waiver and Second
Amendment"), and as further amended, modified, renewed or extended from time to
time, the "Credit Agreement"). It is a condition precedent to the
effectiveness of the Waiver and Second Amendment that the Borrower enter into
this Agreement and grant to the Bank the security interests hereinafter
provided to secure the obligations of the Borrower and its Subsidiaries
described below.
Accordingly, the parties hereto agree as follows:
1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All
capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
(b) Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Accounts" means any and all accounts of the Borrower, whether
now existing or hereafter acquired or arising, and in any event includes all
accounts receivable, contract rights, rights to payment and other obligations
of any kind owed to the Borrower arising out of or in connection with the sale
or lease of merchandise, goods or commodities or the rendering of services,
however evidenced, and whether or not earned by performance, all guaranties,
indemnities and security with respect to the foregoing, and all letters of
credit relating thereto, in each case whether now existing or hereafter
acquired or arising.
"Books" means all books, records and other written, electronic
or other documentation in whatever form maintained now or hereafter by or for
the Borrower in connection with the ownership of, or evidencing or containing
information relating to, the Collateral, including, to the extent relating to
or
C-1
<PAGE> 31
evidencing the Collateral: (i) ledgers; (ii) records indicating, summarizing,
or evidencing the Collateral (including Inventory and Rights to Payment); (iii)
computer programs and software; (iv) computer discs, tapes, files, manuals,
spreadsheets; (v) computer printouts and output of whatever kind; (vi) any
other computer prepared or electronically stored, collected or reported
information and equipment of any kind; and (vii) any and all other rights now
or hereafter arising out of any contract or agreement between the Borrower and
any service bureau, computer or data processing company or other person or
entity charged with preparing or maintaining any of the Borrower's books or
records or with credit reporting, including with regard to the Borrower's
Accounts.
"Chattel Paper" means all writings of whatever sort which
evidence a monetary obligation and a security interest in or lease of specific
Inventory, whether now existing or hereafter arising.
"Collateral" has the meaning set forth in Section 2.
"Documents" means any and all documents of title, bills of
lading, dock warrants, dock receipts, warehouse receipts and other documents of
the Borrower relating to the Inventory, whether or not negotiable, and includes
all other documents which purport to be issued by a bailee or agent and purport
to cover Inventory in any bailee's or agent's possession which are either
identified or are fungible portions of an identified mass, including such
documents of title made available to the Borrower for the purpose of ultimate
sale or exchange of Inventory or for the purpose of loading, unloading,
storing, shipping, transshipping, manufacturing, processing or otherwise
dealing with Inventory in a manner preliminary to their sale or exchange, in
each case whether now existing or hereafter acquired or arising.
"Financing Statements" has the meaning set forth in Section 3.
"Instruments" means any and all negotiable instruments and
every other writing which evidences a right to the payment of money, in each
case arising from the sale or lease of Inventory or the rendering of services,
and in each case whether now existing or hereafter acquired.
"Inventory" means any and all of the Borrower's inventory in
all of its forms, wherever located, whether now owned or hereafter acquired,
and in any event includes all goods (including goods in transit) which are held
for sale, lease or other disposition, including those held for display or
demonstration or out on lease or consignment or to be furnished under a
contract of service, or which are raw materials, work in process, finished
C-2
<PAGE> 32
goods or materials used or consumed in the Borrower's business, and the
resulting product or mass, and all repossessed, returned, rejected, reclaimed
and replevied goods, together with all parts, components, supplies, packing and
other materials used or usable in connection with the manufacture, production,
packing, shipping, advertising, selling or furnishing of such goods; and all
other items hereafter acquired by the Borrower by way of substitution,
replacement, return, repossession or otherwise, and all additions and
accessions thereto, and any Document representing or relating to any of the
foregoing at any time.
"Proceeds" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Collateral, including "proceeds" as
defined at UCC Section 9306, any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to or for the account of the Borrower from time to
time with respect to any of the Collateral, any and all payments (in any form
whatsoever) made or due and payable to the Borrower from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person or entity acting under color of governmental authority), any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral or for or on account of any damage or injury to or
conversion of any Collateral by any person or entity, any and all other
tangible or intangible property received upon the sale or disposition of
Collateral, and all proceeds of proceeds.
"Rights to Payment" means all Accounts, and any and all rights
and claims to the payment or receipt of money or other forms of consideration
of any kind in, to and under all Chattel Paper, Documents, Instruments and
Proceeds.
"Secured Obligations" means the indebtedness, liabilities and
other obligations of the Borrower and its Subsidiaries to the Bank under or in
connection with the Credit Agreement and the other Credit Documents, all
interest accrued thereon, all fees due under the Credit Documents and all other
amounts payable by the Borrower and its Subsidiaries to the Bank thereunder or
in connection therewith, whether now existing or hereafter arising, and whether
due or to become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction
C-3
<PAGE> 33
other than the State of California, the term "UCC" shall mean the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
(c) Terms Defined in UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.
2 Security Interest.
(a) Grant of Security Interest. As security for the
payment and performance of the Secured Obligations, the Borrower hereby
pledges, assigns, transfers, hypothecates and sets over to the Bank, and hereby
grants to the Bank a security interest in, all of the Borrower's right, title
and interest in, to and under the following property, wherever located and
whether now existing or owned or hereafter acquired or arising (collectively,
the "Collateral"): (i) all Accounts; (ii) all Chattel Paper; (iii) all
Documents; (iv) all Instruments; (v) all Inventory; (vi) all Books; and (vii)
all products and Proceeds of any and all of the foregoing (but not including in
each case any Collateral that is or is related to the obligation of an account
debtor located outside the United States of America).
(b) Borrower Remains Liable. Anything herein to the
contrary notwithstanding, (i) the Borrower shall remain liable under any
contracts, agreements and other documents included in the Collateral, to the
extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (ii)
the exercise by the Bank of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under such contracts, agreements
and other documents included in the Collateral, and (iii) the Bank shall not
have any obligation or liability under any contracts, agreements and other
documents included in the Collateral by reason of this Agreement, nor shall the
Bank be obligated to perform any of the obligations or duties of the Borrower
thereunder or to take any action to collect or enforce any such contract,
agreement or other document included in the Collateral hereunder.
(c) Continuing Security Interest. The Borrower agrees
that this Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 22.
3 Financing Statements, Etc.
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The Borrower shall execute and deliver to the Bank
concurrently with the execution of this Agreement, and at any time and from
time to time thereafter, all financing statements, continuation financing
statements, termination statements, warehouse receipts, documents of title,
affidavits, reports, notices, schedules of account, letters of authority and
all other documents and instruments, in form reasonably satisfactory to the
Bank (the "Financing Statements"), and take all other action, as the Bank may
reasonably request, to perfect and continue perfected, maintain the priority of
or provide notice of the Bank's security interest in the Collateral and to
accomplish the purposes of this Agreement.
4 Representations and Warranties.
In addition to the representations and warranties of the
Borrower set forth in the Credit Agreement, which are incorporated herein by
this reference, the Borrower represents and warrants to the Bank that:
(a) Location of Chief Executive Office and Collateral.
As of the date hereof, the Borrower's chief executive office and principal
place of business is located at the address set forth in Schedule 1, and all
other locations where the Borrower conducts business in the United States or
Collateral is kept are set forth in Schedule 1.
(b) Locations of Books. As of the date hereof, all
locations where Books pertaining to the Rights to Payment are kept, including
all equipment necessary for accessing such Books and the names and addresses of
all service bureaus, computer or data processing companies and other persons or
entities keeping any Books or collecting Rights to Payment for the Borrower,
are set forth in Schedule 1.
(c) Trade Names and Trade Styles; Retail Merchant. As of
the date hereof, all trade names and trade styles under which the Borrower
presently conducts its business operations are set forth in Schedule 1, and,
except as set forth in Schedule 1, the Borrower has not, at any time during the
preceding five years: (i) been known as or used any other corporate, trade or
fictitious name; (ii) changed its name; (iii) been the surviving or resulting
corporation in a merger or consolidation; or (iv) acquired through asset
purchase or otherwise any business of any person or entity. The sales of the
Borrower for resale equaled or exceeded 75% in dollar volume of the total sales
of the Borrower during the twelve-month period preceding the date hereof.
(d) Ownership of Collateral. The Borrower is, and,
except as permitted by Section 5(i), will continue to be, the
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sole and complete owner of the Collateral (or, in the case of after-acquired
Collateral, at the time the Borrower acquires rights in such Collateral, will be
the sole and complete owner thereof), free from any lien other than liens
permitted under Section 7.02 of the Credit Agreement, but subject, in each case,
to any ownership interest any Subsidiary may have therein, provided such
Subsidiary has the right to a credit (in the form of an intercompany receivable
from the Borrower) for the amount of the cost-of-goods sold of Inventory to the
extent of such Subsidiary's input of labor or raw materials into such Inventory.
(e) Enforceability; Priority of Security Interest. (i)
This Agreement creates a security interest which is enforceable against the
Collateral in which the Borrower now has rights and will create a security
interest which is enforceable against the Collateral in which the Borrower
hereafter acquires rights at the time the Borrower acquires any such rights;
and (ii) the Bank has a perfected and first priority security interest in the
Collateral (subject only to liens permitted by Section 7.02 of the Credit
Agreement), in which the Borrower now has rights, and will have a perfected and
first priority security interest (subject only to liens permitted by Section
7.02 of the Credit Agreement) in the Collateral in which the Borrower hereafter
acquires rights at the time the Borrower acquires any such rights, in each case
securing the payment and performance of the Secured Obligations.
(f) Other Financing Statements. Other than (i) Financing
Statements disclosed to the Bank and (ii) Financing Statements in favor of the
Bank, no effective Financing Statement naming the Borrower as debtor, assignor,
grantor, mortgagor, pledgor or the like and covering all or any part of the
Collateral is on file in any filing or recording office in any jurisdiction.
(g) Rights to Payment.
(i) The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other persons or entities
obligated thereon, representing undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in any documents related
thereto, and are and will be genuine, free from liens (other than liens
permitted by Section 7.02 of the Credit Agreement), and not subject to any
adverse claims, counterclaims, setoffs, defaults, disputes, defenses,
discounts, retainages, holdbacks or conditions precedent of any kind of
character, except, in each case, to the extent reflected by the Borrower's
reserves for uncollectible Rights to Payment or to the extent, if any, that
such account debtors or other persons or entities may be entitled to normal and
ordinary course trade discounts, returns, adjustments and
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allowances in accordance with Section 5(m), or as otherwise disclosed to the
Bank in writing;
(ii) the Borrower has not assigned any of its rights
under the Rights to Payment except as provided in this Agreement or as set
forth in the other Credit Documents;
(iii) with respect to the Rights to Payment constituting
Eligible Accounts, except as disclosed in writing to the Bank, the Borrower has
no knowledge that any of the criteria for eligibility are not or are no longer
satisfied; and
(iv) all statements made, all unpaid balances and all
other information in the Books and other documentation relating to the Rights
to Payment are in all material respects true and correct and what they purport
to be.
(h) Inventory. As of the date hereof, no Inventory is
stored with any bailee, warehouseman or similar person or entity or on any
premises leased to the Borrower, nor has any Inventory been consigned to the
Borrower or consigned by the Borrower to any person or entity or is held by the
Borrower for any person or entity under any "bill and hold" or other
arrangement, except as set forth in Schedule 1. All Inventory has been
produced in compliance with the Federal Fair Labor Standards Act.
5 Covenants.
In addition to the covenants of the Borrower set forth in the
Credit Agreement, which are incorporated herein by this reference, so long as
any of the Secured Obligations remain unsatisfied or the Bank shall have any
commitment to extend credit under the Credit Agreement, the Borrower agrees
that:
(a) Defense of Collateral. The Borrower will appear in
and defend any action, suit or proceeding which may affect to a material extent
its title to, or right or interest in, or the Bank's right or interest in, the
Collateral.
(b) Preservation of Collateral. The Borrower will do and
perform all reasonable acts that may be necessary and appropriate to maintain,
preserve and protect the Collateral.
(c) Compliance with Laws, Etc. The Borrower will comply
in all material respects with all laws, regulations and ordinances, and all
policies of insurance, relating in a material way to the possession, operation,
maintenance and control of the Collateral.
(d) Location of Books and Chief Executive Office. The
Borrower will: give prior written notice to the Bank of (A) any
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changes in any location where Books pertaining to the Rights to Payment are
kept, including any change of name or address of any service bureau, computer
or data processing company or other person or entity preparing or maintaining
any Books or collecting Rights to Payment for the Borrower and (B) any changes
in the location of the Borrower's chief executive office or principal place of
business.
(e) Location of Collateral. The Borrower will: (i) keep
the Collateral at the locations set forth in Schedule 1 and not remove the
Collateral from such locations (other than disposals of Collateral permitted by
subsection (i) below) except upon prior written notice of any removal to the
Bank; and (ii) give the Bank prior written notice of any change in the
locations set forth in Schedule 1.
(f) Change in Name, Identity or Structure. The Borrower
will give prior written notice of (i) any change in name, (ii) any changes in,
additions to or other modifications of its trade names and trade styles set
forth in Schedule 1, and (iii) any changes in its identity or structure in any
manner which might make any Financing Statement filed hereunder incorrect or
misleading.
(g) Maintenance of Records. The Borrower will keep
accurate and complete Books with respect to the Collateral, disclosing the
Bank's security interest hereunder.
(h) Invoicing of Sales. The Borrower will invoice all of
its sales upon forms customary in the industry and to maintain customary proof
of delivery and customer acceptance of goods.
(i) Disposition of Collateral. The Borrower will not
surrender or lose possession of (other than to the Bank), sell, lease, rent, or
otherwise dispose of or transfer any of the Collateral or any right or interest
therein, except to the extent permitted by the Credit Agreement.
(j) Liens. Other than liens in favor of the Bank, the
Borrower will keep the Collateral free of all liens and security interests of
any kind, other than liens and security interests permitted under Section 7.02
of the Credit Agreement.
(k) Expenses. The Borrower will pay all expenses of
protecting, storing, warehousing, insuring, handling and shipping the
Collateral.
(l) Leased Premises. At the Bank's request, the Borrower
will obtain from each person or entity from whom the Borrower leases any
premises at which any Collateral is at any time present such subordination,
waiver, consent and estoppel
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agreements as the Bank may require, in form and substance reasonably
satisfactory to the Bank.
(m) Rights to Payment. The Borrower will:
(i) with such frequency as the Bank may reasonably
require, furnish to the Bank (A) customer listings, including all names and
addresses, together with copies of customer statements and repayment histories
relating to the Accounts; (B) accurate records and summaries of Accounts,
including detailed agings specifying the name, face value and date of each
invoice, and listings of Accounts that are disputed or have been cancelled; and
(C) such other matters and information relating to the Accounts as the Bank
shall reasonably request;
(ii) give only normal discounts, allowances and credits
as to Accounts and other Rights to Payment, in the ordinary course of business,
according to normal trade practices utilized by the Borrower in the past, and
enforce all Accounts and other Rights to Payment strictly in accordance with
their terms, except that the Borrower may, unless an Event of Default exists,
grant any extension of the time for payment consistent with commercially
reasonable practices, and, while an Event of Default Exists, will take all such
action to such end as may from time to time be reasonably requested by the
Bank;
(iii) in accordance with its sound business judgment
perform and comply in all material respects with its obligations in respect of
the Accounts and other Rights to Payment;
(iv) while an Event of Default exists, upon the request
of the Bank, (A) notify all or any designated portion of the account debtors
and other obligors on the Rights to Payment of the security interest hereunder,
and (B) notify the account debtors and other obligors on the Rights to Payment
or any designated portion thereof that payment shall be made directly to the
Bank or to such other person, entity or location as the Bank shall specify; and
(v) while an Event of Default exists, establish such
lockbox or similar arrangements for the payment of the Accounts and other
Rights to Payment as the Bank shall require.
(n) Documents, Etc. Upon the request of the Bank (which
shall not be made with respect to any Document, Instrument, Chattel Paper or
other instrument that has a face and fair market value of less than $100,000
unless the aggregate of all such items exceeds $100,000), the Borrower will (i)
immediately deliver to the Bank, or an agent designated by it, appropriately
endorsed or accompanied by appropriate instruments of transfer or assignment,
all Documents, Instruments
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and Chattel Paper, and all other Rights to Payment at any time evidenced by
promissory notes, trade acceptances or other instruments, and (ii) mark all
Documents and Chattel Paper with such legends as the Bank shall reasonably
specify.
(o) Inventory. The Borrower will:
(i) at such times as the Bank shall request, prepare
and deliver to the Bank a report of all Inventory, in form and substance
reasonably satisfactory to the Bank;
(ii) while an Event of Default exists, upon the request
of the Bank, take a physical listing of the Inventory and promptly deliver a
copy of such physical listing to the Bank; and
(iii) not store any Inventory with a bailee, warehouseman
or similar person or entity or on premises leased to the Borrower, nor dispose
of any Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment or similar basis, nor acquire any Inventory from any
person or entity on any such basis, without in each case giving the Bank prior
written notice thereof.
(r) Notices, Reports and Information. The Borrower will
(i) notify the Bank of any material claim made or asserted against the
Collateral by any person or entity and of any change in the composition of the
Collateral or other event which is likely to materially adversely affect the
value of the Collateral as a whole or the Bank's lien thereon; and (ii) upon
the reasonable request of the Bank make such demands and requests for
information and reports as the Borrower is entitled to make in respect of the
Collateral.
6 Collection of Rights to Payment.
Until the Bank exercises its rights hereunder to collect
Rights to Payment, the Borrower shall endeavor in the first instance diligently
to collect all amounts due or to become due on or with respect to the Rights to
Payment consistent with commercially reasonable practices. At the request of
the Bank, while any Event of Default exists, all remittances received by the
Borrower shall be held in trust for the Bank and, in accordance with the Bank's
instructions, remitted to the Bank or deposited to an account with the Bank in
the form received (with any necessary endorsements or instruments of assignment
or transfer).
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7 Authorization; Bank Appointed Attorney-in-Fact.
So long as an Event of Default exists or, in the case of
clause (i) below, if the Borrower shall have failed to do so for in excess of 5
Business Days following the Bank's written request therefor, the Bank shall
have the right to, in the name of the Borrower, or in the name of the Bank or
otherwise, without notice to or assent by the Borrower, and the Borrower hereby
constitutes and appoints the Bank (and any of the Bank's officers, employees or
agents designated by the Bank) as the Borrower's true and lawful
attorney-in-fact, with full power and authority to:
(i) sign any of the Financing Statements which must be
executed or filed to perfect or continue perfected, maintain the priority of or
provide notice of the Bank's security interest in the Collateral and file any
such Financing Statements by electronic means with or without a signature as
authorized or required by applicable law or filing procedures;
(ii) take possession of and endorse any notes,
acceptances, checks, drafts, money orders or other forms of payment or security
constituting Collateral and collect any Proceeds of any Collateral;
(iii) to the extent relating to any of the Collateral,
sign and endorse any invoice or bill of lading, warehouse or storage receipts,
drafts against customers or other obligors, assignments, notices of assignment,
verifications and notices to customers or other obligors;
(iv) notify the Postal Service authorities to change the
address for delivery of mail addressed to the Borrower to such address as the
Bank may designate and, without limiting the generality of the foregoing,
establish with any person or entity lockbox or similar arrangements for the
payment of the Rights to Payment;
(v) receive, open and return to the Borrower all mail
addressed to the Borrower;
(vi) send requests for verification of Rights to Payment
to the customers or other obligors of the Borrower;
(vii) contact, or direct the Borrower to contact, all
account debtors and other obligors on the Rights to Payment and instruct such
account debtors and other obligors to make all payments directly to the Bank;
(viii) assert, adjust, sue for, compromise or release any
claims under any policies of insurance of Collateral;
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(ix) notify each person or entity maintaining lockbox or
similar arrangements for the payment of the Rights to Payment to remit all
amounts representing collections on the Rights to Payment directly to the Bank;
(x) ask, demand, collect, receive and give acquittances
and receipts for any and all Rights to Payment, enforce payment or any other
rights in respect of the Rights to Payment and other Collateral, grant
consents, agree to any amendments, modifications or waivers of the agreements
and documents governing the Rights to Payment and other Collateral, and
otherwise file any claims, take any action or institute, defend, settle or
adjust any actions, suits or proceedings with respect to the Collateral, as the
Bank may deem necessary or desirable to maintain, preserve and protect the
Collateral, to collect the Collateral or to enforce the rights of the Bank with
respect to the Collateral;
(xi) execute any and all endorsements, assignments or
other documents and instruments necessary to sell, lease, assign, convey or
otherwise transfer title in or dispose of the Collateral; and
(xii) execute any and all such other documents and
instruments, and do any and all acts and things for and on behalf of the
Borrower, which the Bank may deem necessary to maintain, protect, realize upon
and preserve the Collateral and the Bank's security interest therein.
The foregoing power of attorney is coupled with an interest
and irrevocable so long as the Bank has any commitment to extend credit under
the Credit Agreement or the Secured Obligations have not been paid and
performed in full. The Borrower hereby ratifies, to the extent permitted by
law, all that the Bank shall lawfully and in good faith do or cause to be done
by virtue of and in compliance with this Section 7.
8 Bank Performance of Borrower Obligations.
If an Event of Default then exists or if the Borrower shall
have failed to perform or pay such obligation for an excess of 10 Business Days
following the Bank's written request therefor (unless the Bank in good faith
determines that immediate action is necessary for the preservation or
protection of the Collateral), the Bank may perform or pay any obligation which
the Borrower has agreed to perform or pay under or in connection with this
Agreement, and the Borrower shall reimburse the Bank on demand for any amounts
paid by the Bank pursuant to this Section 8.
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9 Bank's Duties.
Notwithstanding any provision contained in this Agreement, the
Bank shall have no duty to exercise any of the rights, privileges or powers
afforded to it and shall not be responsible to the Borrower or any other person
or entity for any failure to do so or delay in doing so. Beyond the exercise
of reasonable care to assure the safe custody of Collateral in the Bank's
possession and the accounting for moneys actually received by the Bank
hereunder, the Bank shall have no duty or liability to exercise or preserve any
rights, privileges or powers pertaining to the Collateral.
10 Remedies.
(a) Remedies. While an Event of Default exists,
the Bank shall have, in addition to all other rights and remedies granted to it
in this Agreement, the Credit Agreement or any other Loan Document, all rights
and remedies of a secured party under the UCC and other applicable laws.
Without limiting the generality of the foregoing, the Borrower agrees that:
(i) The Bank may peaceably and without notice enter any
premises of the Borrower, take possession of any the Collateral, remove or
dispose of all or part of the Collateral on any premises or elsewhere, and
otherwise collect, receive, appropriate and realize upon all or any part of the
Collateral, and demand, give receipt for, settle, renew, extend, exchange,
compromise, adjust, or sue for all or any part of the Collateral, as the Bank
may determine.
(ii) The Bank may require the Borrower to assemble all
or any part of the Collateral and make it available to the Bank at any place
and time designated by the Bank.
(iii) The Bank may secure the appointment of a receiver
of the Collateral or any part thereof to the extent and in the manner provided
by applicable law.
(iv) The Bank may sell, resell, lease, use, assign,
transfer or otherwise dispose of any or all of the Collateral in its then
condition or following any commercially reasonable preparation or processing
(utilizing in connection therewith any of the Borrower's assets, without charge
or liability to the Bank therefor) at public or private sale, by one or more
contracts, in one or more parcels, at the same or different times, for cash or
credit, or for future delivery without assumption of any credit risk, all as
the Bank deems advisable; provided, however, that the Borrower shall be
credited with the net proceeds of sale only when such proceeds are finally
collected by the Bank. The Bank
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shall have the right upon any such public sale, and, to the extent permitted by
law, upon any such private sale, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption, which right or
equity of redemption the Borrower hereby releases, to the extent permitted by
law. The Borrower hereby agrees that the sending of notice by ordinary mail,
postage prepaid, and by concurrent facsimile transmission, to the address of
the Borrower set forth in the Credit Agreement, of the place and time of any
public sale or of the time after which any private sale or other intended
disposition is to be made, shall be deemed reasonable notice thereof if such
notice is sent ten days prior to the date of such sale or other disposition or
the date on or after which such sale or other disposition may occur, provided
that the Bank may provide the Borrower shorter notice or no notice, to the
extent permitted by the UCC or other applicable law.
(b) Proceeds Account. To the extent that any of the
Secured Obligations may be contingent, unmatured or unliquidated (including
with respect to undrawn amounts under any letters of credit) at such time as
there may exist an Event of Default, the Bank may, at its election, (i) retain
the proceeds of any sale, collection, disposition or other realization upon the
Collateral (or any portion thereof) in a special purpose restricted deposit
account (the "Proceeds Account") created and maintained by the Bank for such
purpose (the Borrower hereby granting a lien in the Proceeds Account to the
Bank for the purposes of securing the Secured Obligations, and agreeing that
the Proceeds Account shall be included within the Collateral hereunder) until
such time as the contingent, unmatured or unliquidated Secured Obligations
become non-contingent, mature, or are liquidated, as the case may be, at which
time Bank shall apply such proceeds to such Secured Obligations pursuant to
subsection (c) below, and the Borrower agrees that such retention of such
proceeds by the Bank shall not be deemed strict foreclosure with respect
thereto; (ii) in any reasonable manner elected by the Bank, estimate the
liquidated amount of any such contingent, unmatured or unliquidated claims and
apply the proceeds of the Collateral against such amount; or (iii) otherwise
proceed in any manner permitted by applicable law. The Borrower agrees that
the Proceeds Account shall be a blocked account and that upon the irrevocable
deposit of funds into the Proceeds Account, the Borrower shall not have any
right of withdrawal with respect to such funds. Accordingly, the Borrower
irrevocably waives until the termination of this Agreement in accordance with
Section 22 the right to make any withdrawal from the Proceeds Account and the
right to instruct the Bank to honor drafts against the Proceeds Account.
(c) Application of Proceeds. Subject to subsection (b)
immediately above, the cash proceeds actually received from the sale or other
disposition or collection of Collateral, and
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any other amounts received in respect of the Collateral the application of
which is not otherwise provided for herein, shall be applied to the Secured
Obligations in the order as the Bank may determine in its sole discretion. Any
surplus thereof which exists after payment and performance in full of the
Secured Obligations shall be promptly paid over to the Borrower or otherwise
disposed of in accordance with the UCC or other applicable law. The Borrower
shall remain liable to the Bank for any deficiency which exists after any sale
or other disposition or collection of Collateral.
11 Certain Waivers.
The Borrower waives, to the fullest extent permitted by law,
(i) any right of redemption with respect to the Collateral, whether before or
after sale hereunder, and all rights, if any, of marshalling of the Collateral
or other collateral or security for the Secured Obligations; (ii) any right to
require the Bank (A) to proceed against any person or entity, (B) to exhaust
any other collateral or security for any of the Secured Obligations, (C) to
pursue any remedy in the Bank's power, or (D) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(iii) all claims, damages, and demands against the Bank arising out of the
repossession, retention, sale or application of the proceeds of any sale of the
Collateral
12 Notices.
(i) if delivered by hand, when delivered; (ii) if
sent by mail, upon the earlier of the date of receipt or five Business Days
after deposit in the mail, first class, postage prepaid; (iii) if sent by
telex, upon receipt by the sender of an appropriate answerback; and (iv) if
sent by facsimile transmission, when sent.
13 No Waiver; Cumulative Remedies.
No failure on the part of the Bank to exercise, and no delay
in exercising, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Bank.
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14 Costs and Expenses; Indemnification; Other Charges.
(a) Costs and Expenses. The Borrower agrees to pay
within 10 days after demand:
(i) the reasonable out-of-pocket costs and expenses of
the Bank and any of its affiliates, and the reasonable fees and disbursements
of counsel to the Bank (including allocated costs of internal counsel), in
connection with the negotiation, preparation, execution, delivery and
administration of this Agreement, and any amendments, modifications or waivers
of the terms thereof, and the custody of the Collateral;
(ii) all reasonable title, appraisal (including the
allocated costs of internal appraisal services), survey, audit (including the
allocated costs of internal audit services), consulting, search, recording,
filing and similar costs, fees and expenses incurred or sustained by the Bank
or any of its affiliates in connection with this Agreement or the Collateral;
and
(iii) all costs and expenses of the Bank and the fees and
disbursements of counsel (including the allocated costs of internal counsel),
in connection with the enforcement or attempted enforcement of, and
preservation of any rights or interests under, this Agreement, including in any
out-of-court workout or other refinancing or restructuring or in any bankruptcy
case, and the protection, sale or collection of, or other realization upon, any
of the Collateral, including all expenses of taking, collecting, holding,
sorting, handling, preparing for sale, selling, or the like, and other such
expenses of sales and collections of Collateral.
(b) Indemnification. The Borrower hereby agrees to
indemnify the Bank, any affiliate thereof, and their respective directors,
officers, employees, agents, counsel and other advisors (each an "Indemnified
Person") against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
the reasonable fees and disbursements of counsel to an Indemnified Person
(including allocated costs of internal counsel), which may be imposed on,
incurred by, or asserted against any Indemnified Person, in any way relating to
or arising out of this Agreement or the transactions contemplated hereby or any
action taken or omitted to be taken by it hereunder (the "Indemnified
Liabilities"); provided that the Borrower shall not be liable to any
Indemnified Person for any portion of such
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Indemnified Liabilities to the extent they are found by a final decision of a
court of competent jurisdiction to have resulted from such Indemnified Person's
gross negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held unenforceable, the Borrower
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
(c) Other Charges. The Borrower agrees to indemnify the
Bank against and hold it harmless from any and all present and future stamp,
transfer, documentary and other such taxes, levies, fees, assessments and other
charges made by any jurisdiction by reason of the execution, delivery,
performance and enforcement of this Agreement.
(d) Interest. Any amounts payable to the Bank under this
Section 14 or otherwise under this Agreement if not paid when due shall bear
interest from the date of such demand until paid in full, at the rate of
interest set forth in Section 3.06 of the Credit Agreement.
15 Binding Effect.
This Agreement shall be binding upon, inure to the benefit of
and be enforceable by the Borrower, the Bank and their respective successors
and assigns.
16 Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF THE
SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN RESPECT OF ANY
COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN CALIFORNIA.
17 Entire Agreement; Amendment.
This Agreement contains the entire agreement of the parties
with respect to the subject matter hereof and shall not be amended except by
the written agreement of the parties as provided in the Credit Agreement.
C-17
<PAGE> 47
18 Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement, or the validity or effectiveness of such provision in any other
jurisdiction.
19 Counterparts.
This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
20 Incorporation of Provisions of the Credit
Agreement.
To the extent the Credit Agreement contains provisions of
general applicability to the Credit Documents, including any such provisions
contained in Article IX thereof, such provisions are incorporated herein by
this reference.
21 No Inconsistent Requirements.
The Borrower acknowledges that this Agreement and the other
Credit Documents may contain covenants and other terms and provisions variously
stated regarding the same or similar matters, and agrees that all such
covenants, terms and provisions are cumulative and all shall be performed and
satisfied in accordance with their respective terms.
C-18
<PAGE> 48
22 Termination.
Upon termination of the commitments of the Bank under the
Credit Documents, the surrender of any letters of credit issued by the Bank for
the account of the Borrower or any Acceptable Subsidiaries and payment and
performance in full of all Secured Obligations, this Agreement shall terminate
and the Bank shall promptly execute and deliver to the Borrower such documents
and instruments reasonably requested by the Borrower as shall be necessary to
evidence termination of all security interests given by the Borrower to the
Bank hereunder; provided, however, that the obligations of the Borrower under
Section 14 shall survive such termination.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE BORROWER
------------
QUARTERDECK CORPORATION
By /s/ Frank Greico
_____________________________
Title: Chief Financial Officer
By /s/ Bradley Schwartz
____________________________
Title: Senior Vice President
THE BANK
--------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ John Cinderey
____________________________
Title: Managing Director
C-19
<PAGE> 49
SCHEDULE 1
to the Security Agreement
23 LOCATIONS OF CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS, INCLUDING OF
COLLATERAL
a. Chief Executive Office and Principal Place of Business:
b. Other locations where Borrower conducts business or Collateral
is kept:
24 LOCATIONS OF BOOKS PERTAINING TO RIGHTS TO PAYMENT
25 TRADE NAMES AND TRADE STYLES; OTHER CORPORATE, TRADE OR FICTITIOUS
NAMES, ETC.
26 INVENTORY STORED WITH WAREHOUSEMEN OR ON LEASED PREMISES, ETC.
S-1.
<PAGE> 1
EXHIBIT 10.2
FINAL FORM OF REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of July 18, 1996, by and among Quarterdeck Corporation, a
Delaware corporation (the "Company"), Anatoly Tikhman, an individual, Philip
Johnson, an individual, and Jacob Graudenz, an individual (Messrs. Tikhman,
Johnson and Graudenz are hereinafter referred to as the "Holders").
WHEREAS, each Holder is or will become the owner of Shares (as defined
below) in connection with the acquisition of Vertisoft Systems, Inc., California
corporation ("Vertisoft") and Vertisoft Direct, Inc., a California corporation
("Vertisoft Direct"), by the Company, by way of (i) the merger of Vertisoft
Direct and Vertisoft, Inc. into Vertisoft, and (ii) the subsequent merger (the
"Merger") of VSI Acquisition Corporation, a California corporation ("VSI"), into
Vertisoft, pursuant to the terms of the Agreement and Plan of Reorganization,
dated as of July 15, 1996 (the "Acquisition Agreement"), by and among the
Company, Vertisoft, Vertisoft Direct, VSI and the Holders; and
WHEREAS, pursuant to the terms of the Acquisition Agreement, the
Company has agreed to grant to the Holders the registration rights provided for
below.
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements set forth in the Acquisition Agreement and
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Common Shares" shall mean shares of common stock, par value $.001
per share, of the Company.
"Demand Registration Statement" shall mean a registration statement
filed by the Company pursuant to Section 2(c) of this Agreement.
"Person" shall mean an individual or a corporation, partnership,
limited liability company, association, trust, or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Piggyback Registration Statement" shall mean a registration
statement filed by the Company on its own behalf or on behalf of another
shareholder under which a Holder includes Shares pursuant to Section 2(b) of
this Agreement.
"Prospectus" shall mean any prospectus included in the Registration
Statement, including any resale prospectus and any preliminary prospectus, and
any amendment or supplement thereto, and in each case including all material
incorporated by reference therein.
"Registration Expenses" shall mean any and all expenses incident to
<PAGE> 2
performance of or compliance with this Agreement, including, without limitation:
(i) all applicable registration and filing fees imposed by the SEC and such
securities exchange or exchanges on which Common Shares are then listed or the
National Association of Securities Dealers, Inc. (the "NASD"); (ii) all fees and
expenses incurred in connection with compliance with state securities or "blue
sky" laws (including reasonable fees and disbursements of counsel for the
Company in connection with qualification of any of the Shares under any state
securities or blue sky laws and the preparation of a blue sky memorandum) and
compliance with the rules of the NASD; (iii) all expenses of any Persons in
preparing or assisting in preparing, printing and distributing the Registration
Statement, any Prospectus, certificates and other documents relating to the
performance of and compliance with this Agreement; (iv) all fees and expenses
incurred in connection with the listing, if any, of any of the Shares on any
securities exchange or exchanges pursuant to Section 3(i) hereof; and (v) the
fees and disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses relating to any special
audits or "cold comfort" letters required by or incident to such performance and
compliance. Registration Expenses shall specifically exclude underwriting
discounts and commissions, the fees and disbursements of counsel representing a
Holder and transfer taxes, if any, relating to the sale or disposition of Shares
by a Holder.
"Registration Statement" shall mean the Demand Registration
Statement, a Piggyback Registration Statement or a Shelf Registration Statement,
as applicable.
"SEC" shall mean the Securities and Exchange Commission or any
successor entity.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Shares" shall mean the Common Shares issued to the Holders in the
Merger and any equity securities issued or issuable directly or indirectly with
respect to the Common Shares issued to the Holders in the Merger by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Shelf Registration Statement" shall mean the registration statement
filed by the Company pursuant to Section 2(a) of this Agreement.
2. REGISTRATION UNDER THE SECURITIES ACT.
(a) Shelf Registration.
(i) Subject to Section 6(b) below, the Company shall file a
registration statement on Form S-3 or an amendment to an existing registration
statement on Form S-3 (the "Shelf Registration Statement"), within 30 days
following the closing of the Merger, registering the resale by the Holders of
any or all of the Shares, and shall use its best efforts to cause such Shelf
Registration Statement to be declared effective by the SEC as soon as
practicable thereafter. The Company agrees to use its best efforts to keep the
Registration
2
<PAGE> 3
Statement continuously effective (and to include a Prospectus at all times
meeting the requirements of the Securities Act) through the Shelf Period (as
defined below).
(ii) The Shelf Period shall be the period commencing on the
effective date of the Shelf Registration Statement and ending on July 18, 1998;
provided, however, that if the holding period referred to in Rule 144(d)(1) of
the rules and regulations promulgated under the Securities Act is reduced from
two years to one year (a "Rule 144 Change"), then the Company shall be required
to maintain such registration in effect only through July 18, 1997 or through
such later date as the Rule 144 Change becomes effective prior to the expiration
of the Shelf Period; provided, further, that if the four-week period described
in Rule 144(e)(1)(ii) would not have allowed the sale of at least 2,442,000
Common Shares (adjusted for stock splits, combinations and the like) (an
"Allowed Sale Under Rule 144") as of the later of July 18, 1997 and the date of
the Rule 144 Change, then the Shelf Period shall terminate on August 31, 1997
and not on July 18, 1997 (the "Shelf Period").
(iii) Notwithstanding the foregoing,
(A) if a Suspension Event or Events of the type described in
clause (ii) of the definition of Suspension Event in Section 6(b) has or have
occurred for a period of more than 60 days in the period from July 18, 1996
through July 18, 1997, and the Shelf Period would otherwise terminate on July
18, 1997, the date on which the Shelf Period terminates shall be extended by the
number of days that a Holder is disallowed from effecting any sales of Shares
pursuant to Section 6(a) hereof, but in any event not beyond August 31, 1997;
and
(B) if a Suspension Event of the type described in clause (i)
of Section 6(b) occurs during the Shelf Period, which Suspension Event ceases to
exist during the Shelf Period, the Company shall file a new Shelf Registration
Statement within 30 days of the date on which such Suspension Event ceases to
exist if there is a reasonable likelihood that Anatoly Tikhman would be entitled
to sell Common Shares under such Registration Statement for a period of at least
30 days prior to the expiration of the Shelf Period, taking into account the
Company's policies with respect to trading in the Common Shares.
(iv) If the Holders desire different methods of distribution of
the Shares included in the Registration Statement, the method of distribution
shall be determined by the Holders of a majority of the Shares to be included in
such Registration Statement.
(b) Piggyback Registration.
(i) If at any time during the four-year period following the
consummation of the Acquisition, the Company proposes to file a registration
statement under the Securities Act with respect to an offering of Common Shares
(i) for its own account (other than a registration statement (A) on Form S-8 or
any successor form to such Form or in connection with any employee or director
welfare, benefit or compensation plan, (B) on Form S-4 or any successor form to
such Form or in connection with an exchange offer or merger transaction, (C) in
connection with a rights offering exclusively to existing holders of Common
Shares, (D) in connection with an offering solely to employees of the Company or
its subsidiaries, (E) relating to
3
<PAGE> 4
a transaction pursuant to Rule 145 of the Securities Act, or (F) which is a
shelf registration pursuant to Rule 415 or any successor rule), or (ii) for the
account of any other shareholders of the Company (other than a shelf
registration pursuant to Rule 415 or any successor rule) pursuant to demand
registration rights that do not prohibit the inclusion of Common Shares held by
other shareholders in the registration, and the Holders continue to own Shares,
the Company shall give prompt written notice of such proposed filing to the
Holders. Subject to the limitations set forth below, the notice referred to in
the preceding sentence shall offer the Holders the opportunity to register such
amount of Shares as each may request (a "Piggyback Registration").
(ii) Subject to the limitations set forth below, the Company
shall include in such Piggyback Registration all Shares for which the Company
has received written requests for inclusion therein within fifteen (15) calendar
days after the notice referred to above has been received by the Holders.
Notwithstanding the foregoing, (A) if a Piggyback Registration is an
underwritten primary registration on behalf of the Company and the managing
underwriter advises the Company that the total number of Common Shares requested
to be included in such registration exceeds the number of Common Shares which
can be sold in such offering, the Company will include Common Shares in such
registration in the following priority: (1) first, Common Shares the Company
proposes to sell, and (2) second, the number of Shares requested to be included
in such registration by the Holders (and other holders of Common Shares with
similar rights) that in the opinion of such managing underwriter can be sold
without adversely affecting the price or probability of success of such
offering, pro rata among such persons on the basis of the aggregate number of
Common Shares requested to be registered by such persons subject to senior
rights granted to any holder of Common Shares on or prior to the date hereof,
and (B) if a Piggyback Registration is an underwritten registration demanded by
other shareholders (the "Demand Holders") pursuant to demand registration rights
and the managing underwriter advises the Demand Holders that the total number of
Common Shares requested to be included in such registration exceeds the number
of Common Shares which can be sold in such offering, the Common Shares will be
included in such registration in the following priority: (1) first, Common
Shares the Demand Holders propose to sell, and, (2) second, the number of Shares
requested to be included in such registration by the Holders (and other holders
of Common Shares with similar rights) that in the opinion of such managing
underwriter can be sold without adversely affecting the price or probability of
success of such offering, pro rata among such persons on the basis of the
aggregate number of Common Shares requested to be registered by such persons
subject to senior rights granted to any holder of Common Shares on or prior to
the date hereof.
(iii) The right of any Holder to registration pursuant to this
Section 2(b) if such is an underwritten public offering shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Shares in the underwriting to the extent provided herein. All
participating Holders and other persons proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Company, in the case of a Company
initiated offering, and by the Demand Holders, in the case of an underwriting
resulting from demand registration rights.
4
<PAGE> 5
(iv) The Holders acknowledge that they shall not be entitled to
participate in a registration requested pursuant to Section 10.3(a) of that
certain Note Agreement dated as of March 1, 1996 among the Company and the
purchasers named therein (the "Note Agreement") pursuant to which $25 million
principal amount of the Company's 6% Convertible Senior Subordinated Notes due
March 31, 2001 (the "Notes") were issued, but may participate in any
registration requested pursuant to Section 10.3(b) of the Note Agreement in the
manner set forth in (ii) above.
(c) Demand Registration. The Holders representing a majority of the
Shares ("Majority Holders") may on one occasion request through written
notification to the Company that the Company effect a registration with respect
to all or a part of the Shares (A) at any time after the Shelf Period but prior
to the July 18, 1999, provided, however, that the right to so request a
registration shall cease if the Holders are entitled to participate in a
Piggyback Registration under Section 2(b) hereof during such period without any
cutbacks and provided further that the Company shall not be required to honor
any such request unless it relates to the resale of at least an aggregate of
least $2,000,000 or more in fair market value in Shares (determined as provided
below), and (B) if a Suspension Event of the type described in clause (i) of the
definition thereof in Section 6(b) occurs during the Shelf Period, the Majority
Holders shall be entitled to exercise their right to request a single demand
registration prior to expiration of the Shelf Period and during the continuation
of such Suspension Event, provided, however, that the Company shall not be
required to honor any such request unless it relates to the resale of a number
of Common Shares that is equal to the greater of (X) the number of Common Shares
with a fair market value of at least $5,000,000, based on the average closing
sales price of the Common Shares as reported on the Nasdaq National Market
System during the five trading days prior to the date on which the Holders
request such registration statement, and (Y) 735,000 shares of Common Shares (or
such lesser number of Common Shares then held by the Holders). The Company will
promptly give written notice of the proposed registration to all other Holders
and as soon as practicable, use its best efforts to effect such registration
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Securities Act) as would permit or facilitate
the sale and distribution of all or such portion of such Shares as are specified
in such request, together with all or such portion of the Shares of any Holder
or Holders joining in such request as are specified in a written request
received by the Company within twenty (20) days after such written notice from
the Company is mailed or delivered. The Company shall file a registration
statement covering the Shares so requested to be registered as soon as
practicable after receipt of the request or requests of the Holders.
(i) The right of any Holder to registration pursuant to this
Section 2(c) if such is an underwritten public offering shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Shares in the underwriting to the extent provided herein. A Holder may
elect to include in such underwriting all or a part of the Shares he holds.
(ii) The Company shall (together with all Holders and other
persons proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or
5
<PAGE> 6
underwriters selected for such underwriting by a majority in interest of the
Holders, which underwriters shall be reasonably acceptable to the Company.
(iii) The Holders acknowledge that the holders of shares of
Common Stock issuable and issued upon conversion of the Notes shall be entitled
to participate in the registration requested pursuant to this Section 2(c),
subordinate to the rights of the Holders to participate therein, but pro rata
with all other holders of shares of Common Stock to be included in any such
Registration, if such registration statement relates to an underwritten offering
and if, in the opinion of the managing underwriter of any such underwritten
registration such shares may be included in such registration without having an
adverse effect on the marketability or the price of any shares of Common Stock
proposed to be offered by the Holders in such underwritten registration.
(d) Expenses. The Company shall pay all Registration Expenses in
connection with a registration pursuant to this Agreement. Each Holder shall pay
all underwriting discounts and commissions relating to such Holder's Shares, the
fees and disbursements of counsel representing such Holder and transfer taxes,
if any, relating to the sale or disposition of Shares by such Holder.
3. REGISTRATION PROCEDURES. In connection with the obligations of the
Company under Section 2 hereof, the Company shall:
(a) prepare and file with the SEC, within the time period set forth
in Section 2 hereof, and use its best efforts to have declared effective by the
SEC, the Registration Statement, which shall (i) be available for public resale
of the Shares by the selling Holders, and (ii) comply as to form in all material
respects with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith;
(b) (i) prepare and file with the SEC such amendments to the
Registration Statement as may be necessary to keep it effective for the
applicable period; (ii) cause any Prospectus to be amended or supplemented as
required and to be filed as required by Rule 424 or any similar rule that may be
adopted under the Securities Act; (iii) respond as promptly as practicable to
any comments received from the SEC with respect to the Registration Statement or
any amendment thereto; and (iv) comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by the Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the selling Holders;
(c) furnish to each Holder, upon request and without charge, as many
copies of any Prospectus and any amendment or supplement thereto as such Holder
may request in order to facilitate the public sale or other disposition of the
Shares;
(d) use its best efforts to register or qualify the Shares under all
applicable state securities or blue sky laws of such jurisdictions in the United
States and its territories and possessions as any Holder may reasonably request
in writing and keep such registration or qualification effective during the
period the Registration Statement is required to be kept effective; provided,
however, that in connection therewith, the Company shall not be
6
<PAGE> 7
required to (i) qualify as a foreign corporation to do business or to register
as a broker or dealer in any such jurisdiction where it would not otherwise be
required to qualify or register but for this Section 3(d), (ii) subject itself
to taxation in any such jurisdiction with respect to such registration or
qualification, or (iii) file a general consent to service of process in any such
jurisdiction;
(e) notify each Holder promptly and, if requested by a Holder,
confirm in writing, (i) when the Registration Statement and any post-effective
amendments thereto have become effective, (ii) when any amendment or supplement
to a Prospectus has been filed with the SEC, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
the Registration Statement or any part thereof or the initiation of any
proceedings for that purpose, (iv) if the Company receives any notification with
respect to the suspension of the qualification of the Shares for offer or sale
in any jurisdiction or the initiation of any proceeding for such purpose, and
(v) of the happening of any event during the period the Registration Statement
is effective as a result of which (A) the Registration Statement contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
or (B) a Prospectus as then amended or supplemented contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(f) use best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement by the SEC or any
state securities authority as promptly as possible;
(g) furnish to each Holder upon request, without charge, at least
one conformed copy of the Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Shares to be sold and not bearing any
Securities Act legend and enable certificates for such Shares to be issued for
such numbers of Shares and registered in such names as the Holders may
reasonably request; and
(i) use its best efforts to cause all Shares to be listed on any
securities exchange on which the Common Shares are then listed, or included on
the NASDAQ National Market if the Common Shares are then so included.
4. CERTAIN AGREEMENTS OF HOLDERS.
(a) Each Holder agrees to furnish to the Company in writing such
information regarding the Holder and his proposed distribution of Shares as the
Company may from time to time reasonably request in connection with the
preparation of the Registration Statement or the registration or qualification
of the Shares under state securities or blue sky laws, and report to the Company
within fifteen (15) days after the end of each month all sales or other
dispositions of Shares made by such Holder during such month.
7
<PAGE> 8
(b) Each Holder who executes this Agreement agrees, if requested by
the Company in the case of a Company initiated nonunderwritten offering or if
requested by the managing underwriter or underwriters in an underwritten
offering initiated by the Company or by a shareholder of the Company pursuant to
demand registration rights, not to effect any public sale or distribution of any
Shares (including a sale pursuant to Rule 144 under the Securities Act), except
as part of such Company initiated registration, during the ten (10) day period
prior to, and during the sixty (60) day period beginning on, the date of
effectiveness of each Company initiated offering made pursuant to a registration
statement, to the extent timely notified in writing by the Company or the
managing underwriters.
5. INDEMNIFICATION, CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Holder and its officers and directors and partners and
each Person, if any, who controls any Holder within the meaning of Section 15 of
the Securities Act, as follows:
(i) subject to Section 5(a)(iii), against any and all loss,
liability, claim, damage and expense whatsoever, as incurred, to which such
Holder, partner, officer, director or controlling Person may become subject
under the Securities Act or otherwise (A) that arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
a Registration Statement or any amendment thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) that arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) subject to Section 5(a)(iii), against any and all loss,
liability, claim, damage and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, investigation or
proceeding by any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon any such untrue statement or alleged untrue
statement, any omission or alleged omission, if such settlement is effected with
the written consent of the Company; and
(iii) subject to the limitations set forth in Section 5(c),
against any and all expense (including reasonable fees and disbursements of
counsel) reasonably incurred in investigating, preparing or defending against
any litigation, investigation or proceeding by any governmental agency or body,
commenced or threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or alleged untrue statement,
omission or alleged omission that relates to the sale by a Holder of Shares
under a Registration Statement, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 5(a)(i),
(ii) and (iii) shall not apply to any Holder with respect to any loss,
liability, claim, damage or expense that arises out
8
<PAGE> 9
of or is based upon (1) any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use in
the Registration Statement or any amendment thereto or a Prospectus or any
amendment or supplement thereto or (2) trades made by such Holder in violation
of Section 6(a) below.
(b) Indemnification by Holders. Each Holder severally, in proportion
of the number of Shares sold and to be sold by the Holder pursuant to such
Registration Statement, agrees to indemnify and hold harmless the Company and
the other Holders, and each of their respective directors, officers and partners
(including each director of the Company and each officer of the Company who
signed any Registration Statement), and each Person, if any, who controls the
Company or any other Holder within the meaning of Section 15 of the Securities
Act, to the same extent as the indemnity contained in Section 5(a) hereof, but
only insofar as such loss, liability, claim, damage or expense arises out of or
is based upon (i) any untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement or any amendment thereto
or a Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information prepared and furnished to the Company by the
indemnifying Holder expressly for use therein or (ii) trades made by the
indemnifying Holder in violation of Section 6(a) below; provided, that, in the
case of the indemnifying Holder's obligation set forth in this Section 5(b)
relating to Section 5(b)(ii) above, such settlement must be effected with the
written consent of such Holder.
(c) Conduct of Indemnification Proceedings. Each indemnified party
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party (i) shall not relieve
it from any liability that it may have under the indemnity agreement provided in
Section 5(a) or (b) above, unless and to the extent it did not otherwise learn
of such action and the lack of notice by the indemnified party materially
prejudices the indemnifying party or results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) shall not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided under Section 5(a) or
(b) above. After receipt of such notice, the indemnifying party shall be
entitled to participate in and, at its option, jointly with any other
indemnifying party so notified, to assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by such
indemnifying party and approved by the indemnified party or parties, which
approval shall not be unreasonably withheld; provided, however, that, if the
defendants in any such action or proceeding include both an indemnified party
and an indemnifying party and the indemnified party reasonably determines, upon
advice of counsel, that a conflict of interest exists or that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying parties, then the indemnified
parties shall be entitled to counsel (which shall be limited to a single law
firm for all indemnified parties) the reasonable fees and expenses of which
shall be paid by the indemnifying parties. If none of the indemnifying parties
assumes the defense of any such action or proceeding, after having received the
notice referred to in the first sentence of this paragraph, the indemnifying
parties will pay the reasonable fees and expenses of counsel (which shall be
limited to a single law firm for all indemnified parties) for the indemnified
parties. In such event, however, no indemnifying party will be liable
9
<PAGE> 10
for any settlement effected without the written consent of such indemnifying
party, which consent shall not be unreasonably withheld. If one or more of the
indemnifying parties assumes the defense of any such action or proceeding in
accordance with this paragraph, such indemnifying party shall not be liable for
any fees and expenses of counsel for the indemnified parties incurred thereafter
in connection with such action or proceeding except as set forth in the proviso
in the second sentence of this Section 5(c).
(d) Contribution.
(i) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 5 is
for any reason held to be unenforceable although applicable in accordance with
its terms, the indemnifying parties shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the indemnified party, in such proportion as is
appropriate to reflect the relative fault of and benefits to each indemnifying
party and each indemnified party in connection with the statements or omissions
that resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits to the
indemnifying parties and indemnified parties shall be determined by reference
to, among other things, the total proceeds received and to be received by each
indemnifying party and indemnified party in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The relative
fault of each indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified party, and the parties'
relative intent, access to information and opportunity to correct or prevent
such action.
(ii) The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in Section 5(d)(i) above.
(iii) Notwithstanding the foregoing, no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5(d),
each Person, if any, who controls a Holder within the meaning of Section 15 of
the Securities Act and directors, officers and partners of a Holder shall have
the same rights to contribution as such Holder, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act shall have the same rights to contribution as the Company.
(e) Notwithstanding any term or condition to the contrary, the
liability of any Holder pursuant to this Section 5 shall be limited to the gross
proceeds received by such Holder as a result of the sale giving rise to the
liability.
10
<PAGE> 11
(f) The obligations of the Company and the Holders under this
Section 5 shall survive the completion of any offering of the Shares pursuant to
any Registration Statement.
6. SUSPENSION OF REGISTRATION REQUIREMENT.
(a) Each Holder agrees that he, she or it will not effect any sales
of Shares pursuant to a Registration Statement after such Holder has received
notice from the Company to suspend sales as a result of the occurrence or
existence of any Suspension Event (as defined in Section 6(b) below) until the
Company provides notice to such Holder that all Suspension Events have ceased to
exist. In addition, each Holder agrees that he, she or it will not effect any
sales of Shares pursuant to the Registration Statement after such Holder has
received notice from the Company to suspend sales because the Registration
Statement, any Prospectus or any supplement thereto contains an untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, until the Company notifies such Holder that the
misstatement or omission has been corrected.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation to file a Registration Statement and make
any filings with any state securities authority, to use its best efforts to
cause a Registration Statement or any state securities filings to become
effective, or to amend or supplement a Registration Statement or any state
securities filings shall be temporarily suspended in the event of and during a
Suspension Event. A "Suspension Event" shall exist at such times (i) that the
Company is not eligible to use Form S-3 for the registration contemplated by
Section 2(a) hereof, (ii) as circumstances exist that the Company determines
make it impractical or inadvisable for the Company to file, amend or supplement
a Registration Statement or such filings or to cause a Registration Statement or
such filings to become effective (such circumstances to include, without
limitation, (A) the Company conducting an underwritten primary offering and
being advised by the underwriters that sale of Common Shares under the Shelf
Registration Statement would have a material adverse effect on the Company's
offering or (B) pending negotiations relating to, or consummation of, a
transaction or the occurrence of some other event (x) where any of the foregoing
would require disclosure under applicable securities laws of material
information in a Registration Statement (or any other document incorporated into
a Registration Statement by reference) or such state securities filings and (y)
as to which the Company has a bona fide business purpose for preserving
confidentiality or which renders the Company unable to comply with SEC
requirements). Suspension of the Company's obligations pursuant to this Section
6(b) shall continue only for so long as a Suspension Event or its effect is
continuing. The Company shall notify each Holder promptly after any Suspension
Event occurs or ceases to exist.
7. MISCELLANEOUS.
(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified,
supplemented or waived, nor may consent to departures therefrom be given,
without the written consent of the Company and the Holders of 50% of the Shares
then held by the Holders.
11
<PAGE> 12
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Holder, at such Holder's registered address appearing on
the share register of the Company or (ii) if to the Company, at 13160 Mindanao
Way, 3rd Floor, Marina del Rey, California, Attention: Law Department. All such
notices and communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five (5) business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt is acknowledged, if telecopied; or at the time delivered
if delivered by an air courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors, assigns and personal representatives. This Agreement and the
registration rights granted hereunder may not be assigned by a Holder without
the consent of the Company which consent shall not be unreasonably withheld and
unless the assignee agrees in writing to be bound by the provisions of this
Agreement. In particular, (A) the Company will be under no obligation to give
its consent to such an assignment by a Holder of any rights under Section 2(a)
unless the Company is otherwise filing an amendment to the Registration
Statement which provides it with an opportunity to modify the selling
stockholder information contained in the Registration Statement to reflect such
assignment in which case such consent to assignment, will not be unreasonably
withheld, and (B) the Company will not unreasonably withhold its consent to the
transfer by Anatoly Tikhman of the rights granted under Section 2(c) on one
occasion to one Person in which case such Person shall have the right to
participate with the Holders.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings and Interpretation. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof. In construing the meaning of this Agreement, no party hereto
shall be deemed the drafter of this Agreement and this Agreement shall be
construed according to its fair meaning and not strictly against any person as
the drafter hereof.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without giving effect to
the conflicts of law provisions thereof.
(g) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior oral
and written agreements and understandings and all contemporaneous written
agreements and understandings between the parties with respect to such subject
matter.
12
<PAGE> 13
(h) Attorneys' Fees. In the event of any suit or other proceeding to
construe or enforce any provision of this Agreement, or otherwise in connection
with this Agreement, the prevailing party's or parties' reasonable attorneys'
fees and costs (in addition to all other amounts and relief to which such party
or parties may be entitled) shall be paid by the other party or parties.
(i) Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder and will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Shares without registration under the Securities Act
pursuant to the exemption provided by Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Holder, Quarterdeck will
deliver to such holder a written statement as to whether it has complied with
such requirements.
(j) Default Specific Performance. The parties hereto acknowledge
that there would be no adequate remedy at law. If, because of the Company's
breach or default, the registration of the Shares is not completed and/or
continued pursuant to the provisions hereof and accordingly agree that the
Holders shall have all remedies at law or in equity, including, without
limitation, specific performance of the Company's obligations under this
Agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
QUARTERDECK CORPORATION
By: /s/ Bradley D. Schwartz
---------------------------------
HOLDERS:
/s/ Anatoly Tikhman
-------------------------------------
Anatoly Tikhman
/s/ Philip Johnson
-------------------------------------
Philip Johnson
/s/ Jacob Graudenz
-------------------------------------
Jacob Graudenz
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS AND THE CONSOLIDATED UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH (B) FINANCIAL STATEMENTS INCLUDING THE ACCOMPANYING FOOTNOTES.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 14,409
<SECURITIES> 0
<RECEIVABLES> 12,623
<ALLOWANCES> 594
<INVENTORY> 3,376
<CURRENT-ASSETS> 43,228
<PP&E> 20,617
<DEPRECIATION> 12,913
<TOTAL-ASSETS> 77,073
<CURRENT-LIABILITIES> 28,583
<BONDS> 25,114
0
0
<COMMON> 31
<OTHER-SE> 23,345
<TOTAL-LIABILITY-AND-EQUITY> 77,073
<SALES> 105,683
<TOTAL-REVENUES> 105,683
<CGS> 36,045
<TOTAL-COSTS> 36,045
<OTHER-EXPENSES> 85,035
<LOSS-PROVISION> 1,399
<INTEREST-EXPENSE> 1,718
<INCOME-PRETAX> (13,679)
<INCOME-TAX> (2,058)
<INCOME-CONTINUING> (11,621)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,757)
<CHANGES> 0
<NET-INCOME> (19,378)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
