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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934. For the Quarterly Period ended JUNE 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ___________ to ___________.
Commission file number 0-13381
MYLEX CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2291597
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(State or other jurisdiction of (IRS Employer Identification No.
incorporation or organization)
34551 Ardenwood Blvd., Fremont, California 94555
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(Address of principal executive offices) ZIP Code
Registrant's telephone number (including area code): (510) 796-6100
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 shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 20,783,148 shares
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Class Outstanding at June 30,1996
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MYLEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN $000'S)
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UNAUDITED
JUNE 30 DEC 31
ASSETS 1996 1995
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<S> <C> <C>
CURRENT ASSETS:
CASH AND EQUIVALENTS $ 4,835 $ 11,733
SHORT-TERM MARKETABLE INVESTMENTS 23,175 25,708
ACCOUNTS RECEIVABLE 31,601 23,788
ALLOWANCE FOR DOUBTFUL ACCOUNTS (741) (707)
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ACCOUNTS RECEIVABLE, NET 30,860 23,081
INVENTORIES 53,831 26,521
PREPAID EXPENSES & OTHER CURRENT ASSETS 7,026 4,444
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TOTAL CURRENT ASSETS $ 119,727 $ 91,487
PROPERTY AND EQUIPMENT, NET 4,403 3,021
OTHER ASSETS 134 112
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TOTAL ASSETS $ 124,264 $ 94,620
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 25,067 $ 12,243
ACCRUED LIABILITIES 4,143 5,969
CURRENT PORTION OF LONG-TERM
CAPITAL LEASE OBLIGATIONS 261 308
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TOTAL CURRENT LIABILITIES $ 29,471 $ 18,520
LONG-TERM CAPITAL LEASE OBLIGATIONS 72 203
STOCKHOLDERS' EQUITY
COMMON STOCK 204 196
ADDITIONAL PAID-IN CAPITAL 61,400 52,310
RETAINED EARNINGS 33,117 23,391
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TOTAL STOCKHOLDERS' EQUITY $ 94,721 $ 75,897
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 124,264 $ 94,620
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MYLEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS, THREE MONTHS ENDED
UNAUDITED
(IN $000'S, EXCEPT FOR PER SHARE DATA)
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JUNE 30 JUNE 30
1996 1995
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NET SALES $ 45,411 $ 28,601
COST OF SALES 28,449 17,120
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GROSS PROFIT 16,962 11,481
OPERATING EXPENSES:
SELLING AND MARKETING 3,559 3,020
RESEARCH AND DEVELOPMENT 4,118 2,099
GENERAL AND ADMINISTRATION 1,914 1,993
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TOTAL OPERATING EXPENSES $ 9,591 $ 7,112
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OPERATING PROFIT $ 7,373 $ 4,369
INTEREST INCOME 323 67
INTEREST EXPENSE (8) (27)
OTHER EXPENSE (12) (24)
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INCOME BEFORE TAXES $ 7,674 $ 4,385
INCOME TAX EXPENSE 3,073 1,534
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NET INCOME $ 4,601 $ 2,851
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EARNINGS PER COMMON SHARE:
PRIMARY $ 0.21 $ 0.15
FULLY DILUTED $ 0.21 $ 0.15
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (in thousands of shares):
PRIMARY 21,725 18,808
FULLY DILUTED 21,725 18,980
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MYLEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS, SIX MONTHS ENDED
UNAUDITED
(IN $000'S, EXCEPT FOR PER SHARE DATA)
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JUNE 30 JUNE 30
1996 1995
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<S> <C> <C>
NET SALES $ 93,908 $ 52,532
COST OF SALES 58,416 31,740
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GROSS PROFIT 35,492 20,792
OPERATING EXPENSES:
SELLING AND MARKETING 7,316 5,790
RESEARCH AND DEVELOPMENT 7,287 4,061
GENERAL AND ADMINISTRATION 5,340 3,316
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TOTAL OPERATING EXPENSES $ 19,943 $ 13,167
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OPERATING PROFIT $ 15,549 $ 7,625
INTEREST INCOME 753 109
INTEREST EXPENSE (14) (85)
OTHER EXPENSE (72) (27)
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INCOME BEFORE TAXES $ 16,216 $ 7,622
INCOME TAX EXPENSE 6,490 2,667
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NET INCOME $ 9,726 $ 4,955
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EARNINGS PER COMMON SHARE:
PRIMARY $ 0.45 $ 0.27
FULLY DILUTED $ 0.45 $ 0.26
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (in thousands of shares):
PRIMARY $21,640 $18,685
FULLY DILUTED $21,652 $18,974
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MYLEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, SIX MONTHS ENDED
UNAUDITED
(IN $000'S)
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JUNE 30 JUNE 30
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 9,724 $ 4,955
DEPRECIATION AND AMORTIZATION 946 664
AMORTIZATION OF DISCOUNT/PREMIUM ON SHORT-TERM
MARKETABLE INVESTMENTS (67) -
CHANGES IN OPERATING ASSETS & LIABILITIES
ACCOUNTS RECEIVABLE, NET (7,779) (4,586)
INVENTORIES (27,310) (9,313)
PREPAID EXPENSES AND
OTHER CURRENT ASSETS 430 (685)
ACCOUNTS PAYABLE 12,824 5,600
ACCRUED LIABILITIES 779 659
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NET CASH USED BY OPERATING ACTIVITIES $ (10,451) $ (2,706)
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (2,328) (616)
REDEMPTION OF SHORT TERM INVESTMENTS 2,600 -
DECREASE(INCREASE) IN OTHER ASSETS (22) 35
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES $ 250 $ (581)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS AGAINST LINE OF CREDIT - 150
REPAYMENT OF CAPITAL LEASE OBLIGATIONS (178) (208)
EXERCISE OF STOCK OPTIONS 3,274 788
EMPLOYEE STOCK PURCHASE 207 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES $ 3,303 $ 730
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NET DECREASE IN CASH $ (6,898) $(2,557)
CASH AND CASH EQUIVALENTS: AT BEGINNING OF PERIOD $ 11,733 $ 8,792
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CASH AND CASH EQUIVALENTS: AT END OF PERIOD $ 4,835 $ 6,235
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NON-CASH FINANCING AND INVESTMENT ACTIVITIES:
TAX BENEFITS RELATED TO DISQUALIFYING
DISPOSITION OF STOCK OPTIONS $ 5,617 $ 375
CASH PAID DURING THE PERIOD:
CASH PAID FOR INTEREST $ 14 $ 84
CASH PAID FOR INCOME TAXES $ 5,297 $ 2,675
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MYLEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present the Company's financial position and its results of
operations and cash flows as of the dates and for the periods indicated.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These condensed financial statements should be
read in conjunction with the financial statements incorporated by reference in
the Company's Form 10-K for the year ended December 31, 1995. The results of
operations for the three months ended June 30, 1996, are not necessarily
indicative of the operating results for the full year.
PER SHARE DATA
Primary earnings per share is based on the weighted average common and,
when dilutive, common equivalent shares outstanding during each period. Common
equivalent shares consist of dilutive shares issuable upon the exercise of stock
options.
NOTE B. INVENTORIES (in $000's)
June 30, December 31,
1996 1995
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Raw Material $34,345 $17,665
Work-in-process 9,676 6,588
Finished Goods 9,760 2,268
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Total $53,831 $26,521
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NOTE C. MERGER WITH BUSLOGIC
In February 1996, the Company closed a business combination pursuant to
which it issued 2,710,738 shares of its common stock for all of the capital
stock of BusLogic Inc. (BusLogic), a supplier of storage input/output
solutions for use in network file servers, personal computers, and
workstations. This business combination has been accounted for as a pooling
of interests, and, accordingly, the consolidated financial statements for
periods prior to the combination have been restated to include the results of
operations, financial position and cash flows of BusLogic. There were no
significant transactions between the Company and BusLogic prior to the
combination, which required elimination, and no adjustments were required to
conform accounting policies.
NOTE D. CONTINGENCIES
In October 1994, the former Chief Executive Officer of the Company, Dr.
M.A. Chowdry, filed a complaint against the Company and its outside directors,
claiming breach of an employment agreement that he entered into with the Company
approximately three months prior to his termination as the Company's Chief
Executive Officer. The complaint alleges compensatory and consequential damages
of over $6 million (which would vary based on the price of the Company's Common
Stock) and unspecified punitive damages. The Company believes it has meritorious
defenses and will vigorously defend this lawsuit. Nonetheless, given the
unpredictable nature of legal proceedings, there can be no assurance that the
Company will prevail.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATION
Mylex designs, manufactures and markets RAID controllers that provide high
performance, capacity enhancing fault tolerant storage and input/output
solutions for client/server computer networks. Mylex controllers integrate the
Company's proprietary ASICs, firmware and software with standard industry
components. More than twenty leading network file server and storage subsystem
OEMs, including IBM, Hewlett-Packard Company, Digital Equipment Corporation, and
NEC, have designed Mylex RAID controllers into their server and storage
subsystem products. The Company was incorporated under the laws of the State of
Florida in May 1983. The Company also designs, manufactures and markets
through Bus Logic, Inc., its wholly-owned subsidiary high performance SCSI
(Small Computer System Interface) I/O solutions (i.e. Host Bus Adapters)
used in network file servers, personal computers and work stations. The
shareholders of the Company have approved the reincorporation of the Company
to Delaware.
During the late 1980s and early 1990s, the Company's principal business
involved the production and sale of system boards (so-called "mother boards")
for personal computers. In the early 1990s, Mylex responded to changes in the
computer industry by undertaking a series of product development initiatives
designed to reposition the Company to address the storage and input/output, or
"I/O," challenges facing the emerging client/server computing environment. In
1992, the Company introduced its first RAID controller product into the personal
computer network market. Sales of RAID controller products have grown rapidly
since 1992, and represented 88% of the Company's net sales during the first six
months of 1996. Host bus adapter products produced by Bus Logic
attributed 10% of net sales in the first six months of 1996.
The trend toward client/server computing that began in the mid-1980's has
placed particular demands on network storage systems and related I/O functions.
The development of faster microprocessors and more robust computer bus
architectures in network systems has often outstripped the capabilities of data
storage and I/O technologies, leading to systems "bottlenecks." To alleviate or
avoid such bottlenecks, networks require continual improvements in stored data
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retrieval speed. In addition, the development of more complex applications and
operating systems has created the need for increased network storage capacity.
Meanwhile, the mission critical, enterprise-wide nature of networked computing
often requires a high level of "fault tolerance," or the ability to preserve
data from loss and to provide uninterrupted system service even if an individual
data storage device fails. The emergence of data-intensive applications such as
multimedia and video-on-demand are further driving the demands for speed,
capacity and reliability in network storage devices.
RAID controllers enable increased speed, greater capacity, and a high
degree of fault tolerance in network storage and I/O functions. RAID, which
stands for redundant array of independent disks, is a method for distributing
data across several disk drives and allowing the server microprocessor to
access those drives simultaneously, thus increasing system storage I/O
performance. MYLEX RAID controllers support all major operating systems and
bus types, and the Company endeavors to rapidly develop products for new bus,
operating system, and platform standards as they are defined. RAID controller
products based on the recently introduced PCI bus standard represented a
majority of the Company's disk array product sales in 1996. Along with the
technology that the Company has developed for the RAID market, the Company
believes that its acquisition of BusLogic should strengthen the Company by
adding significant SCSI technology and ASIC (Application Specific Integrated
Circuit) development capabilities.
As of August 1, 1996, the Company had approximately 400 employees. None
of the employees are represented by a labor union or employed under any
collective bargaining agreement.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1996 the Company financed its operations
primarily from existing cash balances, cash generated from the exercise of stock
options by the Company's employees and cash generated from operations.
As of June 30, 1996, the Company's working capital increased to $90.3
million from $73.0 million at December 31, 1995. This increase in working
capital was due primarily to a $27.3 million increase in inventories, a $7.8
million growth in accounts receivable and a $1.8 million reduction in accrued
liabilities. This was offset by decreases in cash of $6.9 million or in
short term marketable securities of $2.5 million and a $12.9 million increase
in accounts payable, for a net increase in working capital of $17.3 million.
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Cash balances decreased by $6.9 million from $11.7 million at December
31, 1995, to $4.8 million at June 30, 1996. This decline in the cash balance
is due primarily to the funding of operations, primarily to purchase
inventory, and capital expenditures. Short term marketable investments are
$23.2 million, a decrease of $2.5 million from December 31, 1995. This
decrease was due to the maturing of an investment.
The Company has signed an agreement with Comerica Bank for an unsecured
revolving line of credit which expires June 30, 1998. The line of credit
bears interest at either the Bank's prime rate, or Eurodollar or Libor option
rate plus 1 3/4%, which is decided at the time of the advance to the Company.
The line of credit is subject to an overall limit of $20,000,000. The Bank's
agreement with the Company contains covenants that relate to profitability,
maintenance of specific finance ratios and limits on indebtedness without
prior consent of the Bank.
The Company presently expects to finance near-term and long-term
operations and capital requirements through cash provided by continuing
operations, existing cash balances, short term investments and borrowings
under the revolving bank line of credit. However, there can be no assurance
that the Company will not require additional financing over the long term,
or, if required, that such financing will be available on terms favorable to
the Company.
Accounts payable increased to $25.1 million at June 30, 1996, compared
to $12.2 million at December 31, 1995, an increase of $12.9 million, or 106%.
This increase in accounts payable was principally due to increased inventory
levels to meet customer needs while the Company's transitions to a turnkey
manufacturing strategy. The Company built approximately one month of finished
goods to better service our distribution customers as well as respond to
increases in demand. Additionally there were changes in inventory planning,
which resulted in the increase of key components such as ASIC chips.
Net accounts receivable increased to $30.9 million at June 30, 1996,
compared to $23.1 million at December 31, 1995, an increase of $7.8 million
or 34%. This increase was attributable to a 12% increase in sales from the
fourth quarter of 1995 to the second quarter of 1996.
RESULTS OF OPERATIONS
SALES AND GROSS PROFITS. The Company's net sales for the three months
ended June 30, 1996, totaled $45.4 million, compared to $28.6 million for the
corresponding period of fiscal year 1995, an increase of approximately 59%.
Sales increased primarily due to increased shipments of the Company's PCI bus
disk array products, which more than offset the decline in sales of the
Company's older EISA bus disk array controllers, 486 and pentium based system
boards, older non-PCI host bus adapters and other peripheral products during
the second quarter of 1996, as compared to the second quarter of 1995. Sales
have not been significantly impacted by inflation over the last three fiscal
years.
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Gross profit for the three months ended June 30, 1996, was $17.0 million
or 37% of net sales, compared to $11.5 million or 40% of net sales for the
same period in 1995. The increase in gross profit was attributable to the
59% increased in sales volume over the three months ended June 30, 1995. The
gross margin percentage declined due to the higher margin host adapter
products of BusLogic representing lower sales volumes and a decreased
percentage of the product mix. Gross profit margin on the RAID products
decreased in the second quarter of 1996 as compared to the quarter one year
ago, due to incremental turnkey manufacturing related expenses of
approximately $800 thousand which occurred during the quarter. The Company
expects additional price competition for its products which will create
pressure on the Company's gross margin. The Company is taking steps to
introduce feature and performance improved disk array and host adapter
products and to further reduce production and material costs in its effort to
offer competitive prices for its products without significantly affecting its
gross margin. However, there can be no assurance that the Company will be
able to develop and introduce such products in a timely manner or that such
products will gain or sustain market acceptance or that it will be able to
further reduce production or material costs.
The Company's two largest customers during the second quarter of 1996
were Hewlett Packard ("HP") and Digital Equipment Corporation ("DEC"), which
each respectively accounted for $8.4 million or 18% of the Company's net
sales during that period. The Company's third largest customer during the
quarter was IBM which accounted for $6.8 million or 15% of the net sales.
While there are OEM agreements in place that define the terms of the sales
and support services with some of the Company's largest customers, these
agreements do not include specific quantity commitments. The Company sells
products to its customers on a purchase order basis. As a result, historical
sales cannot be relied upon as an accurate indicator of future sales.
The Company's backlog as of June 30, 1996 totaled $19.9 million. This
ending backlog represents a $7.6 million increase from the corresponding
period of 1995, but a decline of $20.1 million from the first quarter of
1996. The Company attributes the increase in the backlog from the
corresponding period of 1995 to the industry wide acceptance of the PCI bus
as well as the Company's introduction of its PCI bus RAID controller at least
one year earlier than its competition. The decline from the previous quarter
of 1996 is attributed to server shipments growth flattening during the first
quarter of 1996. This flattened growth is in comparison to server shipments
during the previous three quarters which experienced growth of 10% or more
per quarter. Consequently, many of the Company's customers adjusted their
inventory levels and changed their ordering patterns during the second
quarter of 1996. The Company's backlog has increased since the end of the
second quarter, though there can be no assurance as to the level of the backlog
at the end of the third quarter or there after. Due to industry practice with
respect to customer changes in delivery schedules and cancellation of orders,
the Company believes that backlog as of any particular date may not be
indicative of actual net revenues for any succeeding period. Of the total
$19.9 million backlog at June 30, 1996, all but $2.8 million of the orders
would have been scheduled for delivery within the three months ended
September 30, 1996.
During the last half of 1993, the Company shifted its principal activity
from the supply of system board products to the manufacture of intelligent I/O
devices
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and storage management enhancing computer peripheral products. Mylex designs its
products to provide solutions for all popular operating systems, including
Novell Netware, Windows NT, SCO UNIX, Solaris, Unixware and Banyan. Mylex
products also work with all popular platforms. These include personal computer
platforms that use PCI, EISA, and Micro Channel bus architectures and
workstation platforms, including Sun Microsystems, Silicon Graphics and IBM
RS-6000 workstations that use the Company's SCSI to SCSI products.
Raid Controllers
Each bus-based Mylex RAID controller includes a proprietary application
specific integrated circuit, or "ASIC," that serves as an interface with the
host computer, an Intel i960 RISC processor, up to five SCSI channels to manage
the transfer of data to and from the disk drives in the array and a dynamic
cache memory ranging in size from 2 to 64 MB, depending on the product, to
buffer the transfer of information to and from the disks. The controller also
includes Mylex firmware residing on an EEPROM that implements the RAID
algorithms and the algorithms necessary for the cache and supporting software,
including I/O drivers, configuration utilities and system monitoring programs.
Mylex disk array controllers DAC960E, DAC960 Micro Channel, DAC960P,
DAC960PD and DAC960PL provide high performance, fault tolerant data storage
solutions for EISA, Micro Channel and PCI bus platforms. The Mylex SCSI-to-SCSI
disk array controllers (DAC960S/SI) bring the performance of RAID technology to
virtually any hardware platform without requiring special host software. The
Mylex disk array products are designed for both internal and external storage
options and are compatible with most commonly used operating systems.
Disk array products currently under development include new SCSI to SCSI
controllers, a controller optimized for multimedia and video imaging,
controllers that will provide for high speed serial interfaces to disk drives, a
low-cost RAID solution and a RAID implementation for the system board. There can
be no assurance that the Company will introduce its products under development.
If these products are introduced, there can be no assurance that they will gain
market acceptance or that their sales will produce adequate gross margins.
Host Adapters
Through the acquisition of BusLogic in February, 1996, the Company has
gained a broad family of SCSI host adapter products. These products provide a
common interface to all of today's PC bus architectures, including PCI, VESA,
EISA, ISA and Micro Channel. Along with these products, the BusLogic
acquisition gives the Company significant SCSI technology and ASIC development
capabilities that could lead to future sales of SCSI chips. However,
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there can be no assurances that any such chips will be introduced as separate
products or that, if introduced, they will gain market acceptance.
The markets for the Company's products are characterized by rapidly
changing technology, evolving industry standards and relatively short product
life cycles. The Company's ability to compete successfully will depend on its
ability, on a timely and cost-effective basis, to enhance its existing products
and to introduce new products, such as its PCI and SCSI to SCSI disk array
product families, with features that meet changing customer requirements and
with competitive prices. There can be no assurance that the Company will be
successful in doing so. Delays in product enhancement and development or the
failure of the Company's new products or enhancements to gain market acceptance
could have a material adverse effect on the Company's business and operating
results.
Despite testing, new products may be affected by quality, reliability or
interoperability problems, which could result in returns, delays in
collecting accounts receivable, unexpected service or warranty expenses,
reduced orders and a decline in the Company's competitive position. In
addition, there can be no assurance that new products or technologies
developed by others, or the emergence of new industry standards, will not
render the Company's products or technologies noncompetitive or obsolete. For
example, efforts by the Company's OEM customers and other manufacturers to
integrate additional functions into system boards, to use chip sets that
incorporate additional functionality, or to design their own controllers,
host adapters and other devices, rather than purchase the Company's products,
could have a material adverse effect on the Company's business and operating
results.
All of the Company's RAID controller products are based on the Intel i960
processor. If another company develops a processor for RAID applications which
renders the i960 processor noncompetitive, whether as a result of cost,
specifications or other advantages of the new processor, or if Intel ceases to
produce the i960 processor or support the Company's efforts to develop products
based on the i960 processor, the Company will be forced to develop new products
based on another processor. Such development efforts will be costly, and there
can be no assurance that the Company will be able to timely complete such
development efforts or that such products, if developed, will have the same
degree of market acceptance or the same gross margin as the Company's present
RAID products.
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three months ended June 30, 1996,
totaled $3.6 million, an increase of $539 thousand or 18% from the corresponding
period in 1995. Sales and marketing expenses represented 8% of net sales for
the three months ended June 30, 1996, compared to 11%
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incurred during the three months ended June 30, 1995. Increases in sales and
marketing expenditures resulted from increased head count and higher
compensation and commission expenses, as well as increased advertising,
promotional and travel expenses. The decrease in the sales and marketing
expenses as a percent of sales is attributable to the 59% increase in sales from
the comparable period last year.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three months ended June 30,
1996, totaled $4.1 million, an increase of 95% from the $2.1 million incurred
during the corresponding period in 1995. Research and development expenses
represented 9% of net sales for the three months ended June 30, 1996, as
compared to 7% in the comparable 1995 quarter. Research and development
expenses increased during the second quarter of 1996 due, in part, to the
establishment of an R&D facility in Boulder, Colorado and to increased
staffing expense resulting from higher salaries and increased head count at
the Company's Fremont and Santa Clara locations. The Company has increased
its investment in research and development activities during the first half
of 1996 in an effort to continue its strategy of maintaining leadership in
the RAID market, to take advantage of its existing and prospective SCSI host
adapter technology and to diversify its future product offerings. However, no
assurance can be given that such leadership will be maintained, that the
Company will take advantage of its SCSI host adapter technology or that the
Company will be able to diversify with new product offerings.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30,
1996, totaled $1.9 million, a decrease of $79 thousand or 4% from the
corresponding period of 1995. General and administrative expenses totaled
4% of net sales for the three months ended June 30, 1996, compared to 7%
incurred during the three months ended June 30, 1995. General and
administrative expenses decreased due to lower legal costs in the second
quarter of 1996. These expenses may vary as a percentage of net sales in
future periods as expenses related to litigation matters are incurred.
INCOME TAXES
The Company's effective tax rate during the quarter ended June 30, 1996,
was 40%, as compared to 35% in the corresponding period of the prior year.
The tax rate for the first half of 1996 reflects the impact in the reduction
of available tax benefits.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1994, the former Chief Executive Officer of the Company, Dr.
M.A. Chowdry, filed a complaint against the Company and its outside directors,
claiming breach of an employment agreement that he entered into with the Company
approximately three months prior to his termination as the Company's Chief
Executive Officer. The complaint alleges compensatory and consequential damages
of over $6 million (which would vary based on the price of the Company's Common
Stock) and unspecified punitive damages. The Company believes it has meritorious
defenses and will vigorously defend this lawsuit. Nonetheless, given the
unpredictable nature of legal proceedings, there can be no assurance that the
Company will prevail.
The Company has incurred and expects to continue to incur substantial legal
expenses in defending against Dr. Chowdry's suit. Those expenses may fluctuate
from quarter to quarter and are likely to increase. Although there can be no
assurance given with respect to the results of legal proceedings, based on
information currently available to the Company, it believes that it does not
have potential liability with respect to these proceedings that would have a
material adverse effect on the Company.
In addition to matters discussed above, the Company is a party to routine
suits and claims arising in the ordinary course of its business which the
Company does not believe will have a material adverse effect on its business.
14
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1996 annual meeting of the shareholders was held on April 30, 1996.
The results of the shareholder vote are listed below.
Election of Directors:
Mr. Ismael Dudhia vote for 15,861,477
vote withheld 216,342
Dr. M. Yaqub Mirza vote for 15,790,782
vote withheld 287,037
Dr. Inder M. Singh vote for 15,796,974
vote withheld 280,845
Mr. Richard Love vote for 15,790,333
vote withheld 287,486
Mr. Al Montross vote for 15,800,489
vote withheld 277,330
Mr. Stephen McKenzie vote for 15,799,438
vote withheld 278,381
Proposal to amend the Company's Articles of Incorporation to increase the
authorized shares of the Company's Common Stock from 25,000,000 to 40,000,000 -
votes for 15,532,049, votes against 385,909 and votes abstaining 36,380. Shares
not voted were 123,481.
Proposal to adopt the Company's 1995 Employee Stock Purchase Plan - votes for
15,440,200, votes against 314,393 and votes abstaining 42,295. Shares not voted
were 280,931.
Proposal to approve the Company's changing the state of incorporation from
Florida to Delaware - votes for 11,203,314, votes against 461,807 and votes
abstaining 21,714. Shares not voted were 4,390,984.
Proposal to amend the 1993 Stock Option Plan to increase the number of shares
subject thereto by 850,000 - votes for 11,940,184, votes against 3,807,924
and votes abstaining 48,780. Shares not voted were 280,931.
Proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
public accountants of the Company for the fiscal year ending December 31, 1996 -
votes for 15,925,791, votes against 9,517 and votes abstaining 19,030. Shares
not voted were 123,481.
15
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Fremont, California, on
the 9th day of August 1996.
MYLEX CORPORATION
By /s/ Colleen Gray
-------------------------------
Colleen Gray
Vice President of Finance and
Chief Financial Officer
16
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INDEX TO EXHIBITS
Mylex Corporation
Quarterly Report on Form 10-Q
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
11.1 Statement re Computation
of Per Share Earnings 19-20
10.21.1 Revolving Credit Loan Agreement with
Comerica Bank, dated June 28, 1996
17
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REVOLVING CREDIT LOAN AGREEMENT
BETWEEN
MYLEX CORPORATION AND COMERICA BANK-CALIFORNIA
<PAGE>
TABLE OF CONTENTS
Page No.
RECITALS.................................................................... 1
SECTION 1. DEFINITIONS................................................... 1
1.1 Defined Terms...................................................... 1
1.2 Accounting Terms................................................... 9
1.3 Singular and Plural................................................ 9
SECTION 2. COMMITMENT, INTEREST AND FEES............................ 9
2.1 Revolving Credit Commitment........................................ 9
2.2 Borrowing Procedures............................................... 9
2.2.1 Notice...................................................... 9
2.2.2 Bank Obligations............................................ 9
2.3 Borrower's Obligation to Repay..................................... 9
2.4 Selection of Interest Rate Options................................. 10
2.5 LIBOR Option Advances and Eurodollar Option Advances............... 10
2.5.1 Minimum Amount of Advance................................... 10
2.5.2 Payment of LIBOR Option Advances and Eurodollar Option
Advances........................................................... 10
2.5.3 Bank's Records Re: LIBOR Option Advances and Eurodollar
Option Advances.................................................... 10
2.5.4 Conversion of Interest Rate Options......................... 10
2.5.5 Hold Harmless and Indemnification........................... 11
2.5.6 Regulatory Developments or Other Circumstances Relating to
Illegality or Impracticality of LIBOR or Eurodollar................ 12
2.5.7 Additional Costs............................................ 12
2.6 Default Interest................................................... 13
2.7 Prepayment......................................................... 13
2.8 Letters of Credit.................................................. 13
2.8.1 Letter of Credit Procedures................................. 14
2.8.2 Borrower's Agreement to Repay Letter of Credit Drawings..... 14
2.8.3 Records..................................................... 14
2.8.4 Examination................................................. 15
2.8.5 Acceptance of Items......................................... 15
2.9 Fees............................................................... 15
2.9.1 Commitment Fee.............................................. 15
2.9.2 Preparation Fees............................................ 15
2.9.3 Letter of Credit Fees........................................ 15
2.10 Basis of Computation............................................... 16
2.11 Changes in Commitment and Mandatory Payments....................... 16
2.11.1 Termination of Reduction in Commitment..................... 16
2.11.2 Mandatory Payments......................................... 16
2.12 Deposit Accounts and Compensating Balances......................... 17
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2.13 Basis of Payments.................................................. 17
2.14 Receipt of Payments................................................ 17
2.15 Maximum Rate....................................................... 18
SECTION 3. CONDITIONS PRECEDENT.............................................18
3.1 Conditions to First Advance........................................ 18
3.1.1 Documents Executed and Filed................................ 18
3.1.2 Certified Resolutions....................................... 18
3.1.3 Certified Articles.......................................... 18
3.1.4 Certified Bylaws............................................ 18
3.1.5 Certificates of Good Standing............................... 18
3.1.6 UCC Lien Search............................................. 18
3.1.7 Approval of Bank Counsel.................................... 19
3.2 Conditions to Disbursements........................................ 19
3.2.1 Certificate................................................. 19
3.2.2 Bank Satisfaction........................................... 19
SECTION 4. WARRANTIES AND REPRESENTATIONS...................................19
4.1 Corporate Existence and Power...................................... 20
4.2 Authorization and Approvals........................................ 20
4.3 Valid and Binding Agreement........................................ 20
4.4 Actions, Suits or Proceedings...................................... 20
4.5 No Liens, Pledges, Mortgages or Security Interests................. 21
4.6 Accounting Principles.............................................. 21
4.7 Financial Condition................................................ 21
4.8 Conditions Precedent............................................... 21
4.9 Taxes.............................................................. 21
4.10 Compliance with Laws............................................... 21
4.11 Indebtedness....................................................... 22
4.12 Material Agreements................................................ 22
4.13 Margin Stock....................................................... 22
4.14 Pension Funding.................................................... 22
4.15 Misrepresentation.................................................. 22
4.16 No Conflicting Agreements.......................................... 23
4.17 Hazardous Materials................................................ 23
SECTION 5. AFFIRMATIVE COVENANTS............................................24
5.1 Financial and Other Information.................................... 25
5.1.1 Annual Financial Reports.................................... 25
5.1.2 Quarterly Financial Statements.............................. 25
5.1.3 Certificate................................................. 25
5.1.4 Adverse Events.............................................. 25
5.1.5 Shareholder Reports......................................... 25
5.1.6 Management Letters.......................................... 26
5.1.7 Other Information As Requested.............................. 26
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5.2 Insurance.......................................................... 26
5.3 Taxes.............................................................. 26
5.4 Maintain Corporation and Business.................................. 26
5.5 Maintain Tangible Net Worth........................................ 27
5.6 Maintain Quick Asset to Current Liability Ratio.................... 27
5.7 Maintain Profitability............................................. 27
5.8 ERISA.............................................................. 27
5.9 Use of Loan Proceeds............................................... 27
SECTION 6. NEGATIVE COVENANTS.............................................. 28
6.1 Dividends.......................................................... 28
6.2 Stock Acquisition.................................................. 28
6.3 Liens and Encumbrances............................................. 28
6.4 Indebtedness....................................................... 28
6.5 Extension of Credit................................................ 28
6.6 Guarantee Obligations.............................................. 28
6.7 Subordinate Indebtedness........................................... 29
6.8 Property Transfer, Merger or Lease-Back............................ 29
6.9 Acquisitions....................................................... 29
6.10 Acquire Fixed Assets............................................... 29
6.11 Pension Plan....................................................... 29
6.12 Misrepresentation.................................................. 30
6.13 Margin Stock....................................................... 30
SECTION 7. EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF
PROCEEDS........................................................ 30
7.1 Events of Default.................................................. 30
7.1.1 Failure to Pay Monies Due.................................. 30
7.1.2 Misrepresentation.......................................... 30
7.1.3 Noncompliance with This or Other Bank Agreement............ 30
7.1.4 Other Defaults............................................. 30
7.1.5 Judgments.................................................. 31
7.1.6 Business Suspension, Bankruptcy, Etc....................... 31
7.1.7 Change of Management or Ownership.......................... 31
7.1.8 Inadequate Funding or Termination of Employee Benefit
Plan(s).................................................... 31
7.1.9 Occurrence of Certain Reportable Events.................... 32
7.2 Acceleration of Indebtedness; Remedies............................. 32
7.3 Application of Proceeds............................................ 32
7.4 Cumulative Remedies................................................ 33
7.5 Payable Upon Demand................................................ 33
SECTION 8. MISCELLANEOUS.................................................. 33
8.1 Independent Rights................................................. 33
8.2 Covenant Independence.............................................. 33
8.3 Waivers and Amendments............................................. 33
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8.4 Governing Law...................................................... 33
8.5 Survival of Warranties, Etc........................................ 34
8.6 Costs and Expenses................................................. 34
8.7 Payments on Saturdays, Etc......................................... 34
8.8 Binding Effect..................................................... 34
8.9 Maintenance of Records............................................. 34
8.10 Notices............................................................ 34
8.11 Counterparts....................................................... 35
8.12 Headings........................................................... 35
8.13 Waiver of Jury Trial............................................... 35
8.14 Further Assurances................................................. 35
8.15 Integrated Agreement............................................... 35
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REVOLVING CREDIT LOAN AGREEMENT
THIS REVOLVING CREDIT LOAN AGREEMENT made and delivered this 23th day of
June, 1996, by and between MYLEX CORPORATION and COMERICA BANK-CALIFORNIA.
RECITALS
WHEREAS, the Borrower desires to borrow up to Twenty Million and No/100
Dollars ($20,000,000) from the Bank from time to time for the working capital
needs of the Borrower; which amount shall include up to Ten Million and No/100
Dollars ($10,000,000) for standby and documentary letters of credit.
WHEREAS, the Bank is willing to supply such financing subject to the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, the Borrower and the Bank agree as follows:
SECTION
1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following respective meanings:
"ADVANCE" shall mean a borrowing requested by Borrower and made by
Bank under this Agreement, including a LIBOR Option Advance, a Eurodollar Option
Advance, and/or a Base Rate Option Advance (and including all Letter of Credit
Advances).
"AFFILIATE" shall mean, when used with respect to any person, any
other person which, directly or indirectly, controls or is controlled by or is
under common control with such person. For purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"AGREEMENT" shall mean this Revolving Credit Loan Agreement.
"AVERAGE INVESTABLE BORROWER FUNDS" shall mean the average collected
non-interest bearing demand deposit account balances of the Borrower (or any
other person deemed by the Bank to be affiliated with the Borrower), according
to the Bank's records on a quarterly
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basis, less the applicable required reserves and amounts needed to offset the
account activity costs, as determined by the Bank, and less amounts maintained
with the Bank pursuant to any other agreement with the Bank.
"BANK" shall mean Comerica Bank-California, a California banking
corporation.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as
amended, or any successor act or code.
"BASE RATE" shall mean that annual rate of interest designated by the
Bank as its base rate, which rate may not be the lowest rate of interest charged
by the Bank to any of its customers, and which rate is changed by the Bank from
time to time.
"BORROWER" shall mean Mylex Corporation, a Florida corporation.
"BUSINESS DAY" shall mean any day except a Saturday, Sunday or any
other day designated as a holiday under Federal or California statute or
regulation.
"CASH FLOW" of any person shall mean, for any applicable period of
determination, the Net Income (after deduction for income taxes and other taxes
of such person determined by reference to income or profits of such person) for
such period, plus, to the extent deducted in computation of such Net Income, the
amount of depreciation and amortization expense and the amount of deferred tax
liability during such period, all as determined in accordance with GAAP.
"CLOSING DATE" shall mean the date of this Agreement.
"COMMITMENT AMOUNT" shall mean, as of any applicable date of
determination, Twenty Million and No/100 Dollars ($20,000,000), which shall
include the sum of Ten Million Dollars ($10,000,000) to be used for standby and
documentary letters of credit.
"CONSOLIDATED" OR "CONSOLIDATED" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for two or more persons
of the amounts signified by such term for all such persons determined on a
consolidated basis in accordance with GAAP. Unless otherwise specified herein,
references to "consolidated" financial statements or data of the Borrower
includes consolidation with its Subsidiaries in accordance with GAAP.
"CONTRACT RATE" shall mean, as of any applicable date of
determination, the interest rate applicable to the then outstanding Advances,
determined in accordance with Section 2.4 of this Agreement.
"CURRENT ASSETS" shall mean, as of any applicable date of
determination, assets of Borrower consisting of cash, cash equivalent
instruments, long term cash investments, non-affiliated customer receivables net
of applicable reserves therefor, and inventories.
2
<PAGE>
"CURRENT LIABILITIES" shall mean, as of any applicable date of
determination, (i) all liabilities of a person that should be classified as
current in accordance with GAAP, including without limitation any portion of the
principal of the Indebtedness classified as current, plus (ii) to the extent not
otherwise included, all liabilities of the Borrower to any of its Affiliates
whether or not classified as current in accordance with GAAP.
"DEBT" shall mean, as of any applicable date of determination, all
items of indebtedness, obligation or liability of a person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP.
"DEFAULT" shall mean a condition or event which, with the giving of
notice or the passage of time, or both, would become an Event of Default.
"DISBURSEMENT DATE" shall mean the date upon which the Bank makes an
Advance to the Borrower under Section 2.1 of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, or any successor act or code.
"EURODOLLAR" shall mean the rate per annum (rounded upward, if
necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the
following formula:
Base Eurodollar
-------------------------------------
Eurodollar = 100%- Eurodollar Reserve Percentage
(a) "BASE EURODOLLAR" shall mean the rate per annum determined
by the Bank at which deposits for the relevant Eurodollar Period
would be offered to the Bank in the approximate amount of the
relevant Eurodollar Option Advance in the interbank Eurodollar
market selected by the Bank, upon request of the Bank at
10:00 a.m., California time, on the day that is the first day of
such Eurodollar Period.
(b) "EURODOLLAR RESERVE PERCENTAGE" shall mean the reserve
percentage prescribed by the Board of Governors of the Federal
Reserved System (or any successor) for "Eurocurrency Liabilities"
(as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Eurodollar Period.
"EURODOLLAR BUSINESS DAY" shall mean a Business Day on which dealings
in Dollar deposits may be carried out in the interbank Eurodollar market.
"EURODOLLAR PERIOD" shall mean, with respect to a Eurodollar Option
Advance:
3
<PAGE>
(a) initially, the period commencing on, as the case may be, the
date the Advance is made or the date on which the Advance is
converted to a Eurodollar Option Advance, and ending at least one
(1) day and not more than one (1) year thereafter so long as the
Eurodollar Option is quoted for such period in the applicable
interbank Eurodollar market, as such period is selected by
Borrower in the notice of Advance or in the notice of conversion
as provided in this Agreement; and
(b) thereafter, each period commencing on the last day of the
next preceding Eurodollar Period applicable to such Eurodollar
Option Advance and ending at least one (1) day and not more than
one (1) year thereafter so long as the Eurodollar Option is
quoted for such period in the applicable interbank Eurodollar
market, as such period is selected by Borrower in the notice of
continuation as provided in this Agreement.
"EVENT OF DEFAULT" shall mean any of those conditions or events listed
in Section 8.1 of this Agreement.
"FINANCIAL STATEMENTS" shall mean all those balance sheets, earnings
statements and other financial data (whether of the Borrower, any of its
Subsidiaries, or otherwise) which have been furnished to the Bank for the
purposes of, or in connection with, this Agreement and the transactions
contemplated hereby, including accounts receivable agings and accounts payable
agings.
"GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied.
"INDEBTEDNESS" shall mean all loans, advances, indebtedness,
obligations and liabilities of the Borrower to the Bank under this Agreement,
together with all other indebtedness, obligations and liabilities whatsoever of
the Borrower to the Bank, whether matured or unmatured, liquidated or
unliquidated, direct or indirect, absolute or contingent, joint or several, due
or to become due, now existing or hereafter arising.
"INTEREST PERIOD" shall mean a Eurodollar Period or a LIBOR Period, as
the context may imply, provided that all Eurodollar Periods and LIBOR Periods
are subject to the following:
(a) if any Eurodollar Period would otherwise end on a day that
is not a Eurodollar Business Day, that Eurodollar Period shall be
extended to the next succeeding Eurodollar Business Day;
(b) if any LIBOR Period would otherwise end on a day that is not
a LIBOR Business Day, that LIBOR Period shall be extended to the
next succeeding LIBOR Business Day;
4
<PAGE>
(c) there shall be no more than four (4) Interest Periods
outstanding any one time; and
(d) no Interest Period shall extend beyond the Termination Date.
"INTEREST RATE OPTION" shall have the meaning specified in Section 2.4
of this Agreement.
"ITEM" shall mean each notice, document, bill of lading, invoice,
insurance certificate, purchase order and similar document that may be presented
in connection with a request for a draw under a Letter of Credit.
"LEGAL RATE" shall mean the maximum interest rate permitted to be paid
by the Borrower or received by the Bank with respect to the Indebtedness under
applicable law.
"LETTER OF CREDIT" shall mean a letter of credit issued by Bank at the
request of Borrower pursuant to Section 2.8.
"LETTER OF CREDIT ADVANCE" shall mean the Borrower's obligation to
reimburse the Bank under Section 2.8.3 of this Agreement for all payments and
disbursements made by Bank under any Letter of Credit.
"LETTER OF CREDIT APPLICATION" shall mean an application and agreement
for issuance of letter of credit on the Bank's standard form.
"LIBOR BUSINESS DAY" shall mean a Business Day on which dealings in
Dollar deposits may be carried out in the London interbank market.
"LIBOR" shall mean the rate per annum (rounded upward, if necessary,
to the nearest whole 1/8 of 1%) and determined pursuant to the following
formula:
Base
-------------------------------
LIBOR = 100% - LIBOR Reserve Percentage
(a) "BASE LIBOR" shall mean the rate per annum determined by the
Bank at which Dollar deposits for the relevant LIBOR Period would
be offered to the Bank in the approximate amount of the relevant
LIBOR Option Advance in the London interbank market, upon request
of the Bank at 10:00 a.m., California time, on the day that is
two (2) LIBOR Business Days prior to the first day of such LIBOR
Period.
(b) "LIBOR RESERVE PERCENTAGE" shall mean the reserve percentage
prescribed by the Board of Governors of the Federal Reserved
System (or any successor) for "Eurocurrency Liabilities" (as
defined in Regulation D
5
<PAGE>
of the Federal Reserve Board, as amended), adjusted by Bank for
expected changes in such reserve percentage during the applicable
LIBOR Period.
"LIBOR PERIOD" shall mean, with respect to a LIBOR Option Advance:
(a) initially, the period commencing on, as the case may be, the
date the Advance is made or the date on which the Advance is
converted to a LIBOR Option Advance, and ending 30, 60, 90, 120,
150 or 180 days thereafter so long as the LIBOR Option is quoted
for such period in the London interbank market, as such period is
selected by Borrower in the notice of Advance or in the notice of
conversion as provided in this Agreement; and
(b) thereafter, each period commencing on the last day of the
next preceding LIBOR Period applicable to such LIBOR Option
Advance and ending 30, 60, 90, 120, 150 or 180 days thereafter so
long as the LIBOR Option is quoted for such period in the London
interbank market, as such period is selected by Borrower in the
notice of continuation as provided in this Agreement.
"NET INCOME" shall mean the net income (or loss) of a person for any period
determined in accordance with GAAP but excluding in any event:
(i) any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or capital assets, and
any taxes on the excluded gains and any tax deductions or credits on account on
any excluded losses; and
(ii) in the case of the Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any person
succeeding to the present powers and functions of the Pension Benefit Guaranty
Corporation.
"PERMITTED LIENS" shall mean:
(a) Any liens existing on the Closing Date and disclosed in
writing to the Bank;
(b) Liens for taxes, assessments or other governmental charges
incurred in the ordinary course of business and for which no interest, late
charge or penalty is attaching or which is being contested in good faith by
appropriate proceedings and, if requested by the Bank, bonded in an amount and
manner satisfactory to the Bank;
6
<PAGE>
(c) Liens, not delinquent, created by statute in connection with
worker's compensation, unemployment insurance, social security and similar
statutory obligations;
(d) Liens of mechanics, materialmen, carriers, warehousemen or
other like statutory or common law liens securing obligations incurred in good
faith in the ordinary course of business that are not yet due and payable;
(e) Encumbrances consisting of existing or future zoning
restrictions, existing recorded rights-of-way, existing recorded easements,
existing recorded private restrictions or existing or future public restrictions
on the use of real property, none of which materially impairs the use of such
property in the operation of the business for which it is used and none of which
is violated in any material respect by any existing or proposed structure or
land use; and
(f) Liens arising under leases or purchase money transactions as
allowed in Section 6.10, provided that the lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment.
"PERSON" or "PERSON" shall mean any individual, corporation,
partnership, joint venture, association, trust, unincorporated association,
joint stock company, government, municipality, political subdivision or agency,
or other entity.
"QUICK ASSETS" shall mean, as of any applicable date of determination,
assets of Borrower consisting of cash, cash equivalent investments, long term
cash investments and non-affiliated customer receivables net of applicable
reserves therefor.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as amended or supplemented from time to time.
"REGULATORY DEVELOPMENT" shall mean any or all of the following:
(i) any change in any law, regulation or interpretation thereof by any public
authority (whether or not having the force of law); (ii) the application of any
existing law, regulation or the interpretation thereof by any public authority
(whether or not having the force of law); and (iii) compliance by Bank with any
request or directive (whether or not having the force of law) of any public
authority.
"SUBORDINATED DEBT" shall mean indebtedness of the Borrower to third
parties which has been subordinated to the Indebtedness pursuant to a
subordination agreement in form and content satisfactory to the Bank.
"SUBSIDIARY" shall mean any corporation (whether now existing or
hereafter organized or acquired) in which more than fifty percent (50%) of the
outstanding securities having ordinary voting power for the election of
directors, as of any applicable date of determination, shall be owned directly,
or indirectly through one or more Subsidiaries, by the
7
<PAGE>
Borrower.
"TANGIBLE EFFECTIVE NET WORTH" shall mean, as of any applicable date
of determination, Tangible Net Worth plus Subordinated Debt.
"TANGIBLE NET WORTH" shall mean, as of any applicable date of
determination, the excess of the net book value of all assets of Borrower and
Borrower's subsidiaries over all Liabilities of Borrower and its subsidiaries;
EXCLUDING HOWEVER, for purposes of making such calculation, (i) all intangible
assets, including without limitation goodwill (whether representing the excess
cost over book value of assets acquired or otherwise), patents, patent rights,
trademarks, trade names, franchises, copyrights, licenses, and deferred charges
including, without limitation, unamortized debt discount and expense
reorganization and research and product development costs, (ii) treasury stock,
(iii) cash set apart in a sinking or other analogous fund established for the
purpose of redemption or other retirement of capital stock, and (iv) to the
extent not already deducted from total assets, reserves for depreciation,
depletion, obsolescence and/or amortization of properties and all other reserves
or appropriation of retained earnings which, in accordance with GAAP, should be
established in accordance with the business conducted by the Borrower and its
subsidiaries.
"TAX REFUNDS" shall mean refunds or claims for refunds of any taxes at
any time paid by Borrower to the United States of America or any state, city,
county or other governmental entity.
"TERMINATION DATE" shall mean June 30, 1998 (or such earlier date on
which the Borrower shall permanently terminate the Bank's commitment under
Section 2.12.1 of this Agreement).
"WORKING CAPITAL" shall mean, as of any applicable date of
determination, Current Assets less Current Liabilities.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with GAAP.
1.3 SINGULAR AND PLURAL. Where the context herein requires, the singular
number shall be deemed to include the plural, the masculine gender shall include
the feminine and neuter genders, and vice versa.
SECTION 2. COMMITMENT, INTEREST AND FEES
2.1 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions of
this Agreement, the Bank agrees to make Advances to the Borrower on a revolving
basis in such amount as the Borrower shall request pursuant to Section 2.2 of
this Agreement at any time from the date of this Agreement until the Termination
Date, up to an aggregate principal amount outstanding at any time not to exceed
the Commitment Amount, PROVIDED that each Disbursement Date under this Agreement
must be a Business Day.
8
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2.2 BORROWING PROCEDURES.
2.2.1 NOTICE. The Borrower shall by telephone give the Bank
notice of the Borrower's desire for Advance no later than 1:00 p.m. San Jose,
California time in order to have the date of notice be the Disbursement Date,
otherwise the following Business Day shall be the Disbursement Date. Such
notice shall specify (i) the principal amount of the proposed Advance, (ii) the
Interest Rate Option to be applied to the proposed Advance and (iii) if such
Advance is a Eurodollar Option Advance or a LIBOR Option Advance, the initial
Interest Period therefor.
2.2.2 BANK OBLIGATIONS. The Bank agrees to make the Advance on
the Disbursement Date established by notice to the Bank from the Borrower
conforming to the requirements of Section 2.2.1 by crediting the deposit account
of the Borrower with the Bank in the amount of such Advance, PROVIDED, HOWEVER,
that the Bank shall not be obligated if:
(a) Any of the conditions precedent set forth in Section 4
of this Agreement shall not have been satisfied or waived by the Bank in
accordance with Section 9.3 of this Agreement, or
(b) Such proposed Advance would cause the aggregate unpaid
principal amount of all Advances made under this Agreement to exceed the
Commitment Amount on the Disbursement Date.
2.3 BORROWER'S OBLIGATION TO REPAY. The date and amount of each Advance
made by the Bank and of each repayment of principal thereon received by the Bank
shall be recorded by the Bank in its records. The aggregate unpaid principal
amount so recorded by the Bank shall constitute the best evidence of the
principal amount owing and unpaid under this Agreement, PROVIDED, HOWEVER, that
the failure by the Bank so to record any such amount or any error in so
recording any such amount shall not limit or otherwise affect the obligations of
the Borrower under this Agreement to repay the principal amount of all Advances
together with all interest accrued or accruing thereon.
Event of Default is continuing. Borrower may elect from time to time to
continue its outstanding Eurodollar Option Advances or LIBOR Option Advances
upon the expiration of the Interest Period applicable thereto if Borrower gives
to the Bank irrevocable notice of continuation of such Eurodollar Option or
LIBOR Option, as the case may be, on a Eurodollar Business Day or at least two
(2) LIBOR Business Days' prior to the expiration thereof, and so long as no
Default or Event of Default is then continuing. Each notice of an election to
convert or continue an Advance shall specify (a) the proposed
conversion/continuation date; (b) the amount of the Advance to be
converted/continued; (c) the nature of the proposed conversion/continuation; and
(d) in the case of a conversion to, or a continuation of a Eurodollar Option
Advance or LIBOR Option Advance, the requested Interest Period, and shall
certify that no Default or Event of Default is continuing. On the date on which
such conversion or continuation is effective, the Bank shall take such action as
is necessary to effect such conversion or continuation. In the event that no
notice of continuation or conversion is received by the Bank with respect to
outstanding Eurodollar Option Advances and LIBOR Option Advances, upon
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expiration of the Interest Period applicable thereto, such Advances shall
convert to Base Rate Option Advances. Any notice of conversion or continuation
may be given by telephone so long as (I) with respect to each LIBOR Option
selected by Borrower, Bank receives written confirmation from Borrower not later
than two (2) LIBOR Business Days after such telephone notice is given, and
(II) with respect to each Eurodollar Option selected by Borrower, Bank receives
written confirmation from Borrower not later than the Eurodollar Business Day
that such telephone notice is given, and (III) with respect to each LIBOR Option
and Eurodollar Option selected by Borrower, Bank receives written confirmation
thereof not later than 10:00 a.m., California time, on the first day of the
Interest Period selected by Borrower.
2.3.1 HOLD HARMLESS AND INDEMNIFICATION. Borrower agrees to
indemnify Bank and to hold Bank harmless from, and to reimburse Bank on demand
for, all losses and expenses which Bank sustains or incurs as a result of
(i) any payment of a LIBOR Option Advance or a Eurodollar Option Advance prior
to the last day of the Interest Period applicable to such Advance for any
reason, including the occurrence of an Event of Default; (ii) any termination of
an Interest Period; or (iii) any failure by Borrower, for any reason, to borrow
any portion of a LIBOR Option Advance or a Eurodollar Option Advance. The
losses and expenses covered by this indemnity shall include, without limitation,
all losses and expenses arising from interest and fees that Bank pays to lenders
of funds it obtained in order to fund the loans to Borrower on the basis of the
LIBOR Options and Eurodollar Options and all losses incurred in liquidating or
re-deploying deposits from which such funds were obtained and loss of profit for
the period after termination. A written statement by Bank to Borrower of such
losses and expenses shall be conclusive and binding, absent manifest error, for
all purposes. This obligation shall survive the termination of this Agreement
and the payment of the Indebtedness.
2.3.2 REGULATORY DEVELOPMENTS OR OTHER CIRCUMSTANCES RELATING TO
ILLEGALITY OR IMPRACTICALITY OF LIBOR OR EURODOLLAR. If any Regulatory
Development or other circumstances relating to the interbank Eurodollar markets
shall, at any time, in Bank's reasonable determination, make it unlawful or
impractical for Bank to fund or maintain, during any Interest Period, to
determine or charge interest rates based upon LIBOR or Eurodollar, Bank shall
give notice of such circumstances to Borrower and:
(a) In the case of an Interest Period in progress, Borrower
shall, if requested by Bank, promptly pay any interest which had accrued
prior to such request and the date of such request shall be deemed to be
the last day of the term of such Interest Period; and
(b) No Interest Period may be designated thereafter until Bank
determines that such would be practical.
2.3.3 ADDITIONAL COSTS. Borrower shall pay to Bank from time to
time, upon Bank's request, such amounts as Bank determines are needed to
compensate Bank for any costs it incurred which are attributable to Bank's
having made or maintained a LIBOR Option Advance or a Eurodollar Option Advance
or to Bank's obligation to make a LIBOR Option Advance or a Eurodollar Option
Advance, or any reduction in any amount receivable by Bank hereunder
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with respect to any LIBOR Option or Eurodollar Option or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), resulting from any Regulatory Developments, which
(i) change the basis of taxation of any amounts payable to Bank hereunder with
respect to any LIBOR Option Advance or Eurodollar Option Advance (other than
taxes imposed on the overall net income of Bank for any LIBOR Option Advance or
Eurodollar Option Advance by the jurisdiction where Bank is headquartered or the
jurisdiction where Bank extends the LIBOR Option Advance or Eurodollar Option
Advance); (ii) impose or modify any reserve, special deposit, or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, Bank (including any LIBOR Option Advance
or Eurodollar Option Advance or any deposits referred to in the definition of
LIBOR or Eurodollar); or (iii) impose any other condition affecting this
Agreement (or any of such extension of credit or liabilities). Bank shall
notify Borrower of any event occurring after the date hereof which entitles Bank
to compensation pursuant to this paragraph as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation.
Determinations by Bank for purposes of this paragraph, shall be conclusive,
provided that such determinations are made on a reasonable basis.
2.4 DEFAULT INTEREST. From and after the occurrence of an Event of
Default, the outstanding Indebtedness shall bear interest until paid in full at
an increased rate per annum (computed on the basis of a 360-day year, actual
days elapsed) equal to three percent (3.00%) above the Base Rate.
2.5 PREPAYMENT. Subject to the terms and conditions of this Agreement,
Advances may be repaid, prepaid and reborrowed.
2.6 LETTERS OF CREDIT. Subject to the terms and conditions of this
Agreement, the Bank agrees, whether directly or through an Affiliate of Bank, to
issue or cause to be issued Letters of Credit for the account of the Borrower,
which shall be Standby and/or Documentary Letters of Credit, in such Letter of
Credit face amounts as the Borrower may from time to time request, provided,
that:
(a) after the issuance of any such requested Letter of Credit,
the sum of (i) the aggregate outstanding Letter of Credit face amounts of all
outstanding Letters of Credit, PLUS (ii) the aggregate outstanding principal
amount of all Letter of Credit Advances outstanding, shall not at any time
exceed Ten Million Dollars ($10,000,000);
(b) after the issuance of any such requested Letter of Credit,
the sum of (i) the aggregate outstanding Letter of Credit face amounts of all
outstanding Letters of Credit, PLUS (ii) the aggregate outstanding principal
amount of all Letter of Credit Advances outstanding, PLUS (iii) the aggregate
outstanding principal amount of all outstanding Advances, shall not at any time
exceed the Commitment Amount;
(c) each Standby Letter of Credit shall expire no later than
twelve (12) months after its date of issuance, unless otherwise specified and
approved by Bank;
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(d) each Letter of Credit, including each Standby Letter of
Credit and each Documentary (commercial) Letter of Credit, shall expire by no
later than 120 days from the Termination Date;
(e) each Letter of Credit shall be issued by no later than the
Termination Date;
(h) each Letter of Credit shall require drafts payable at sight;
(i) each Letter of Credit shall be issued for lawful purposes
acceptable to the Bank; and
(j) the terms and provisions of each Letter of Credit and the
Application therefor shall be satisfactory to the Bank in its sole discretion.
2.6.1 LETTER OF CREDIT PROCEDURES. The Bank shall receive at
least five (5) Business Days' prior written notice from an Authorized Officer of
the Borrower of each proposed Letter of Credit to be issued hereunder. Each
such notice shall consist of an executed Letter of Credit Application pertaining
to such Letter of Credit, suitably completed in a manner satisfactory to the
Bank. In the event of any conflict between the terms and conditions contained
therein or herein, the terms and conditions contained herein shall control.
2.6.2 BORROWER'S AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS.
The Borrower hereby agrees to reimburse the Bank, immediately without the
necessity of demand, the amount equal to the payment or disbursement made by the
Bank to settle its obligation under any Item drawn or presented under any Letter
of Credit issued for the account of the Borrower with interest on the amount so
paid or disbursed by the Bank from and including the date of payment or
disbursement to, but not including, the date the Bank is reimbursed by the
Borrower therefor, at a rate per annum (computed on the basis of a year
consisting of 360 days) equal to the Base Rate plus two percent (2%) per annum,
but subject, however, to the provisions of Section 2.6. The Borrower shall
repay all Letter of Credit Advances immediately upon payment or disbursement by
Bank. Borrower's obligation to reimburse the Bank under this Section for all
payments and disbursements made by the Bank under any Letter of Credit (i) shall
immediately and automatically constitute, without necessity of further act or
evidence, an Advance (herein collectively called "Letter of Credit Advances" and
individually called a "Letter of Credit Advance") made by the Bank to the
Borrower on the date of such payment or disbursement, and (ii) shall be absolute
and unconditional under any and all circumstances and irrespective of any
setoff, counterclaim or defense to payment which the Borrower may have or have
had against the Bank, including, without limitation, any defense based on the
failure of the demand for payment under such Letter of Credit to conform to the
terms of such Letter of Credit or the legality, validity, regularity or
enforceability of such Letter of Credit or any defense based on the identity of
the transferee of such Letter of Credit or the sufficiency of the transfer if
such Letter of Credit is transferable.
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2.6.3 RECORDS. The date and amount of each Letter of Credit Loan
and of each repayment of principal thereon received by the Bank shall be
recorded by the Bank in its records or, at the option of the Bank, on a schedule
maintained for such purposes. The aggregate unpaid principal amount so recorded
by the Bank shall constitute the best evidence of the principal amount owing and
unpaid under this Agreement, and shall be presumptively deemed correct in the
absence of manifest error; PROVIDED, HOWEVER, that the failure by the Bank to so
record any such amount (whether in its records, on a schedule maintained for
such purposes shall not limit or otherwise affect the obligations of the
Borrower under this Agreement to repay the Indebtedness.
2.6.4 EXAMINATION. The Borrower agrees that it will promptly
examine the copy of each Letter of Credit (and any amendments thereto) sent to
the Borrower by the Bank, as well as any and all Items delivered to the Bank
from time to time, and in the event that the Borrower has any claim of non-
compliance with its instructions or of discrepancies or other irregularity, the
Borrower will immediately notify the Bank thereof in writing so that the Bank
may have sufficient time to evaluate the Borrower's statements, and the Borrower
shall be deemed to have waived any such claim against the Bank unless such
notice is given.
2.6.5 ACCEPTANCE OF ITEMS. Unless specified to the contrary in
the relevant Application for a Letter of Credit, or any amendment to a Letter of
Credit, the Borrower agrees that the Bank and its correspondents may receive and
accept (i) any Item drawn or presented under such Letter of Credit or other
document otherwise in order, issued or purportedly issued by an agent, executor,
trustee in bankruptcy, receiver or other representative of the party who is
authorized under such Letter of Credit to issue such Item or other document, as
complying with the terms of such Letter of Credit, and (ii) documents which
comply with the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 400.
2.7 FEES.
2.7.1 COMMITMENT FEE. The Borrower shall pay to the Bank a
commitment fee for the period from the date of this Agreement to and including
the Termination Date equal to Ten Thousand Dollars ($10,000.00) plus one eighth
of one percent (.125%) per annum on the Commitment Amount. Such commitment fee
has been paid by Borrower.
2.7.2 PREPARATION FEES. Upon demand of the Bank from time to
time, the Borrower shall pay to the Bank the amount of the expenses (including
without limit attorneys' fees, whether of inside or outside counsel, and
disbursements) incurred by the Bank from time to time in connection with the
preparation of this Agreement and related instruments and/or the making (or
preparation for the making) of Advances hereunder. Notwithstanding the
foregoing, the Bank has agreed that it will absorb the attorneys' fees and costs
incurred in preparing this Agreement.
2.7.3 LETTER OF CREDIT FEES.
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(a) STANDBY LETTER OF CREDIT FEES. Prior to the issuance of any
Standby Letters of Credit, the Borrower shall pay to the Bank the standard
letter of credit fees as established by the Bank from time to time. With
respect to any Standby Letter of Credit, the Borrower also agrees to pay to the
Bank on demand, (i) the out-of-pocket costs and expenses paid or incurred by the
Bank (including, without limitation, fees and expenses of counsel to the Bank),
whether for preparation, execution, delivery, filing, interpretation or
administration of such Letter of Credit, the related Application or otherwise,
and (ii) commissions, insurance fees and usual handling charges, expenses and
fees which shall be at the rates customarily charged by the Bank at the time in
like circumstances.
(b) DOCUMENTARY LETTER OF CREDIT FEES. Prior to the issuance of
any Documentary Letters of Credit, the Borrower shall pay to the Bank the Bank's
standard letter of credit fees as established by the Bank from time to time.
With respect to any Documentary Letter of Credit, the Borrower shall pay to the
Bank on demand, (i) the out-of-pocket costs and expenses paid or incurred by the
Bank (including, without limitation, fees and expenses of counsel to the Bank),
whether for preparation, execution, delivery, filing, interpretation or
administration of such Letter of Credit, the related Application or otherwise,
and (ii) commissions, insurance fees, negotiation fees and usual handling
charges, expenses and fees which shall be at the rates customarily charged by
the Bank at the time in like circumstances.
2.8 BASIS OF COMPUTATION. The amount of all interest and fees hereunder
shall be computed for the actual number of days elapsed on the basis of a year
consisting of three hundred sixty (360) days.
2.9 CHANGES IN COMMITMENT AND MANDATORY PAYMENTS.
2.9.1 TERMINATION OF REDUCTION IN COMMITMENT. The Borrower, at
any time and from time to time, (except as may hereinafter be provided), upon at
least five (5) Business Day's prior written notice received by the Bank, may
permanently terminate the Bank's commitment to make Advances under this
Agreement or permanently reduce the Commitment Amount by an integral multiple of
One Hundred Thousand Dollars ($100,000), PROVIDED, HOWEVER, that the Borrower,
on the effective date of such termination or reduction, shall pay to the Bank,
in the case of a termination, the aggregate unpaid principal amount of all
Advances, or, in the case of a reduction, the amount, if any, by which the
aggregate unpaid principal amount of all Advances exceeds the then reduced
Commitment Amount, together in either case with all interest accrued and unpaid
on the principal amounts so prepaid, but without other premium. The notice
shall specify the Termination Date or the reduced Commitment Amount and the
effective date of the reduction, as the case may be. The Borrower may not
revoke any such notice of termination or reduction without the prior written
consent of the Bank. After such reduction, the commitment fee provided under
Section 2.9.1 of this Agreement shall be calculated on the Commitment Amount as
so reduced and the Commitment Amount may not be increased or otherwise
reinstated without the express written agreement of the Bank.
2.9.2 MANDATORY PAYMENTS. The Borrower shall pay to the Bank the
amount, if any, by which the aggregate unpaid principal amount of all Advances
and all issued and
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outstanding Letters of Credit, from time to time exceeds the Commitment Amount
together with all interest accrued and unpaid on the amount of such excess.
Such payment shall be immediately due and owing without notice or demand upon
the occurrence of any such excess, PROVIDED, HOWEVER, that any mandatory payment
made under this Section 2.11.2 shall not reduce the Commitment Amount.
2.10 DEPOSIT ACCOUNTS AND COMPENSATING BALANCES. Borrower shall maintain
its primary depository bank accounts with Bank. Borrower agrees to maintain at
all times a minimum free collected balance of not less than $1,500,000 in its
primary deposit accounts with Bank.
2.11 BASIS OF PAYMENTS. All sums payable by the Borrower to the Bank under
this Agreement or the other documents contemplated hereby shall be paid directly
to the Bank at its principal office set forth Section 8.10 hereof in immediately
available United States funds, without set off, deduction or counterclaim. In
its sole discretion, the Bank may charge any and all deposit or other accounts
(including without limit an account evidenced by a certificate of deposit) of
the Borrower with the Bank for all or a part of any Indebtedness then due;
provided, however, that this authorization shall not affect the Borrower's
obligation to pay, when due, any Indebtedness whether or not account balances
are sufficient to pay amounts due.
2.12 RECEIPT OF PAYMENTS. Any payment of the Indebtedness made by mail
will be deemed tendered and received only upon actual receipt by the Bank at the
address designated for such payment, whether or not the Bank has authorized
payment by mail or any other manner, and shall not be deemed to have been made
in a timely manner unless received on the date due for such payment, time being
of the essence. The Borrower expressly assumes all risks of loss or liability
resulting from non-delivery or delay of delivery of any item of payment
transmitted by mail or in any other manner. Acceptance by the Bank of any
payment in an amount less than the amount then due shall be deemed an acceptance
on account only, and the failure to pay the entire amount then due shall be and
continue to be an Event of Default, and at any time thereafter and until the
entire amount then due has been paid, the Bank shall be entitled to exercise any
and all rights conferred upon it herein upon the occurrence of an Event of
Default. The Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by the Bank from or on behalf
of the Borrower. The Borrower agrees that the Bank shall have the continuing
exclusive right to apply and to reapply any and all payments received at any
time or times hereafter against the Indebtedness in such manner as the Bank may
deem advisable, notwithstanding any entry by the Bank upon any of its books and
records. The Borrower expressly agrees that to the extent that the Bank
receives any payment of benefit and such payment or benefit, or any part
thereof, is subsequently invalidated, declared to be fraudulent or preferential,
set aside or is required to be repaid to a trustee, receiver, or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then to the extent of such payment or benefit, the Indebtedness or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or benefit had not been made and, further, any such repayment
by the Bank, to the extent that the Bank did not directly receive a
corresponding cash payment, shall be added to and be additional Indebtedness
payable upon demand by the Bank.
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2.13 MAXIMUM RATE. At no time shall the Contract Rate payable on any
Advance exceed the Legal Rate. If at any time the Contract Rate payable on a
any Advance exceeds the Legal Rate, interest payable on such Advance shall be
reduced to the Legal Rate. Any amount paid in excess of the Legal Rate is
acknowledged by the Borrower to have been the result of an accidental and bona
fide error and shall be applied to future principal payments as designated by
the Borrower. If the Contract Rate declines below the Legal Rate, interest
shall again accrue and be payable at the lesser of the Contract Rate or the
Legal Rate.
SECTION 3. CONDITIONS PRECEDENT
3.1 CONDITIONS TO FIRST ADVANCE. The obligations of the Bank under this
Agreement are subject to the occurrence, prior to or simultaneously with the
Disbursement Date first occurring, of each of the following conditions:
3.1.1 DOCUMENTS EXECUTED AND FILED. The Borrower shall have
executed (or caused to be executed) and delivered to the Bank and, as
appropriate, all loan documents including this Agreement;
3.1.2 CERTIFIED RESOLUTIONS. The Borrower shall have furnished to
the Bank a copy of resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Agreement, the
borrowings hereunder, and any other documents contemplated by this Agreement,
which shall have been certified by the Secretary or Assistant Secretary of the
Borrower as of the initial Disbursement Date as being complete, accurate and in
effect.
3.1.3 CERTIFIED ARTICLES. The Borrower shall have furnished to
the Bank a copy of the Articles of Incorporation including all amendments
thereto and restatements thereof, and all other charter documents of the
Borrower, all of which shall have been certified by the Florida Secretary of
State as of a date within thirty days of the initial Disbursement Date.
3.1.4 CERTIFIED BYLAWS. The Borrower shall have furnished to the
Bank a copy of the Bylaws of the Borrower, including all amendments thereto and
restatements thereof, which shall have been certified by the Secretary or
Assistant Secretary of the Borrower as of the initial Disbursement Date as being
complete, accurate and in effect.
3.1.5 CERTIFICATES OF GOOD STANDING. The Borrower shall have
furnished to the Bank a certificate of good standing with respect to the
Borrower, which shall have been certified by the Florida Secretary of State and
the California Secretary of State as of a date within thirty days of the initial
Disbursement Date.
3.1.6 UCC LIEN SEARCH. The Bank shall have received UCC record
and copy searches, evidencing the appropriate filing and recording of the
Financing Statements and disclosing no notice of any liens or encumbrances other
than the Permitted Liens.
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3.1.7 APPROVAL OF BANK COUNSEL. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal matters shall
have been satisfactory to and approved by legal counsel for the Bank, and said
counsel shall have been furnished with such certified copies of actions and
proceedings and such other instruments and documents as they shall have
reasonably requested. Notwithstanding the foregoing, Bank agrees that nothing
in this provision shall in any way be construed to provide that Bank's counsel
has the right to exercise control over the legal affairs or operations of the
Borrower.
3.2 CONDITIONS TO DISBURSEMENTS. The obligations of the Bank to make any
Advance on the Disbursement Date, are subject to the occurrence, prior to or on
the Disbursement Date related to such Advance, of each of the following
conditions and as otherwise required in this Agreement:
3.2.1 CERTIFICATE. The Bank shall have received a certificate,
executed by the chief executive or chief financial officer of the Borrower,
certified as of such Disbursement Date, and confirming that, as of the
Disbursement Date:
(a) No Default or Event of Default has occurred and is
continuing; and
(b) The warranties and representations set forth in
Section 4 of this Agreement are true and correct on and as of such Disbursement
Date.
3.2.2 BANK SATISFACTION. The Bank shall not know or have any
reason to believe that, as of the Disbursement Date:
(a) Any Default or Event of Default has occurred and is
continuing;
(b) Any warranty or representation set forth in Section 4
of this Agreement shall not be true and correct; or
(c) Any provision of law, any order of any court or other
agency of government on any regulation, rule or interpretation thereof shall
have had any material adverse effect on the validity or enforceability of this
Agreement or the other documents contemplated hereby.
SECTION 4. WARRANTIES AND REPRESENTATIONS
On a continuing basis from the date of this Agreement until the later of
the Termination Date or when the Indebtedness is paid in full and the Borrower
has performed all of its other obligations hereunder, the Borrower represents
and warrants to the Bank that:
4.1 CORPORATE EXISTENCE AND POWER. (a) The Borrower and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, (b) the Borrower and its
Subsidiaries each has the power and authority to own its
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properties and assets and to carry out its business as now being conducted and
is qualified to do business and in good standing in every jurisdiction wherein
such qualification is necessary and (c) the Borrower has the power and authority
to execute, deliver and perform this Agreement, to borrow money in accordance
with its terms, to execute, deliver and perform this Agreement and other
documents contemplated hereby, and do any and all other things required of it
hereunder.
4.2 AUTHORIZATION AND APPROVALS. The execution, delivery and performance
of this Agreement, the borrowings hereunder and the execution, delivery and
performance of the other documents contemplated hereby (a) have been duly
authorized by all requisite corporate action of the Borrower, (b) except for UCC
filings and the recording of any mortgages, do not require registration with or
consent or approval of, or other action by, any federal, state or other
governmental authority or regulatory body, or, if such registration, consent or
approval is required, the same has been obtained and disclosed in writing to the
Bank, (c) will not violate any provision of law, any order of any court or other
agency of government, the Articles of Incorporation or Bylaws of the Borrower,
any provision of any indenture, note, agreement or other instrument to which the
Borrower is a party, or by which it or any of its properties or assets are
bound, (d) will not be in conflict with, result in a breach of or constitute
(with or without notice or passage of time) a default under any such indenture,
note, agreement or other instrument, and (e) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Borrower other than as contemplated hereby.
4.3 VALID AND BINDING AGREEMENT. This Agreement is, and the other
documents contemplated hereby will be, when delivered, valid and binding
obligations of the Borrower.
4.4 ACTIONS, SUITS OR PROCEEDINGS. There are no actions, suits or
proceedings, at law or in equity, and no proceedings before any arbitrator or by
or before any governmental commission, board, bureau, or other administrative
agency, pending, or, to the best knowledge of the Borrower, threatened against
or affecting the Borrower or any of its Subsidiaries or any properties or rights
of the Borrower or any of its Subsidiaries, which, if adversely determined,
could materially impair the right of the Borrower or any of its Subsidiaries to
carry on business substantially as now conducted or could have a material
adverse effect upon the financial condition of the Borrower or any of its
Subsidiaries.
4.5 NO LIENS, PLEDGES, MORTGAGES OR SECURITY INTERESTS. Except for
Permitted Liens, none of the Borrower's or its Subsidiaries assets and
properties, are subject to any mortgage, pledge, lien, security interest or
other encumbrance of any kind or character.
4.6 ACCOUNTING PRINCIPLES. All consolidated and consolidating balance
sheets, earnings statements and other financial data furnished to the Bank for
the purposes of, or in connection with, this Agreement and the transactions
contemplated by this Agreement, have been prepared in accordance with GAAP, and
do or will fairly present the financial condition of the Borrower and its
Subsidiaries, as of the dates, and the results of their operations for the
periods, for which the same are furnished to the Bank. Without limiting the
generality of the foregoing, the Financial Statements have been prepared in
accordance with GAAP and fairly present
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the financial condition of the Borrower and its Subsidiaries as of the dates,
and the results of its operations for the fiscal periods, for which the same are
furnished to the Bank. The Borrower has no material contingent obligations,
liabilities for taxes, long-term leases or unusual forward or long-term
commitments not disclosed by, or reserved against in, the Financial Statements.
4.7 FINANCIAL CONDITION. The Borrower is solvent, able to pay its debts
as they mature, has capital sufficient to carry on its business and has assets
the fair market value of which exceed its liabilities, and the Borrower will not
be rendered insolvent, under-capitalized or unable to pay maturing debts by the
execution or performance of this Agreement, or the other documents contemplated
hereby. There has been no material adverse change in the business, properties
or condition (financial or otherwise) of the Borrower or any of its Subsidiaries
since the date of the latest of the Financial Statements.
4.8 CONDITIONS PRECEDENT. As of each Disbursement Date, all appropriate
conditions precedent referred to in Section 3 hereof shall have been satisfied
or waived in writing by the Bank.
4.9 TAXES. The Borrower and its Subsidiaries have each filed by the due
date therefor all federal, state and local tax returns and other reports it is
required by law to file, have paid or caused to be paid all taxes, assessments
and other governmental charges that are shown to be due and payable under such
returns, and have made adequate provision for the payment of such taxes,
assessments or other governmental charges which have accrued but are not yet
payable. The Borrower has no knowledge of any deficiency or assessment in
connection with any taxes, assessments or other governmental charges not
adequately disclosed in the Financial Statements.
4.10 COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have each
complied with all applicable laws, to the extent that failure to comply would
materially interfere with the conduct of the business of the Borrower or any of
its Subsidiaries.
4.11 INDEBTEDNESS. Except as disclosed, neither the Borrower nor any of
its Subsidiaries has any indebtedness for money borrowed or any direct or
indirect obligations under any leases (whether or not required to be capitalized
under GAAP) or any agreements of guarantee or surety except for the endorsement
of negotiable instruments by the Borrower or its Subsidiaries in the ordinary
course of business for deposit or collection.
4.12 MATERIAL AGREEMENTS. If requested by Bank, Borrower or any of its
Subsidiaries shall disclose any material leases, contracts or commitments of any
kind (including, without limitation, employment agreements, collective
bargaining agreements, powers of attorney, distribution contracts, patent or
trademark licenses, contracts for future purchase or delivery of goods or
rendering of services, bonus, pension and retirement plans, or accrued vacation
pay, insurance and welfare agreements); to the best knowledge of Borrower, all
parties to such agreements have complied with the provisions of such leases,
contracts or commitments; and to the best knowledge of the Borrower, no party to
such agreements is in default thereunder, nor has there occurred any event which
with notice or the passage of time, or both, would constitute such a default.
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4.13 MARGIN STOCK. Neither the Borrower nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, and no part of the proceeds of any Loan hereunder will be used,
directly or indirectly, to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock or
for any other purpose which might violate the provisions of Regulation G, T, U
or X of the said Board of Governors. The Borrower does not own any margin
stock.
4.14 PENSION FUNDING. Neither the Borrower nor any of its Subsidiaries has
incurred any accumulated funding deficiency within the meaning of ERISA or
incurred any liability to the PBGC in connection with any employee benefit plan
established or maintained by the Borrower or any of its Subsidiaries and no
reportable event or prohibited transaction, as defined in ERISA, has occurred
with respect to such plans.
4.15 MISREPRESENTATION. No warranty or representation by the Borrower
contained herein or in any certificate or other document furnished by the
Borrower pursuant hereto contains any untrue statement of material fact or omits
to state a material fact necessary to make such warranty or representation not
misleading in light of the circumstances under which it was made. There is no
fact which the Borrower has not disclosed to the Bank in writing which
materially and adversely affects nor, so far as the Borrower can now foresee, is
likely to prove to affect materially and adversely the business, operations,
properties, prospects, profits or condition (financial or otherwise) of the
Borrower or any of its Subsidiaries or ability of the Borrower to perform this
Agreement or the ability of the Guarantor to perform the Guaranty.
4.16 NO CONFLICTING AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is in default under any shareholder agreement, preferred stock
agreement or any other agreement to which it is a party or by which it or any of
its property is bound, the effect of which might have a material adverse effect
on the business or operations of the Borrower or any of its Subsidiaries. No
provision of the Certificate of Incorporation, By-Laws or preferred stock, if
any, of the Borrower, and no provision of any existing mortgage, indenture,
note, contract, agreement, statute (including, without limitation, any
applicable usury or similar law), rule, regulation, judgment, decree or order
binding on the Borrower or affecting the property of the Borrower conflicts
with, or requires any consent under, or would in any way prevent the execution,
delivery or carrying out of the terms of, this Agreement and the documents
contemplated hereby, and the taking of any such action will not constitute a
default under, or result in the creation or imposition of, or obligation to
create any lien upon the property of the Borrower pursuant to the terms of any
such mortgage, indenture, note, contract or agreement.
4.17 HAZARDOUS MATERIALS.
(a) The Borrower has not used Hazardous Materials (as defined
hereinafter) on or affecting the premises at which the Borrower has a place of
business (collectively and singly the "premises") in any manner which violates
federal, state or local laws, ordinances, statutes, rules, regulations or
judgments governing the use, storage, treatment, handling,
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manufacture, transportation, or disposal of Hazardous Materials ("Environmental
Laws"), and that, to the best of the Borrower's knowledge, no prior owner of the
premises or any current or prior occupant has used Hazardous Materials on or
affecting the premises in any manner which violates Environmental Laws. The
Borrower covenants and agrees that neither it nor any occupant shall use,
introduce or maintain Hazardous Materials on the premises in any manner unless
done in strict compliance with all Environmental Laws.
(b) The Borrower shall conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and other actions
necessary to clean up and remove all Hazardous Materials on or affecting the
premises, whether caused by the Borrower or a third party, in accordance with
all Environmental Laws to the satisfaction of the Bank, and in accordance with
the orders and directives of all federal, state, and local governmental
authorities. Additionally, the Borrower shall defend, indemnify and hold
harmless the Bank, its employees, agents, officers and directors, from and
against any and all claims, demands, penalties, fines, liabilities, settlements,
damages, costs or expenses of whatever kind or nature arising out of or related
to (1) the presence, disposal, release or threatened release of any Hazardous
Materials on, from or affecting the premises or the soil, water, vegetation,
buildings, personal property, persons or animals thereon, (2) any personal
injury (including wrongful death) or property damage (real or personal) arising
out of or related to such Hazardous Materials, (3) any lawsuit brought or
threatened, settlement reached or governmental order relating to such Hazardous
Materials, (4) the cost of removal of all such Hazardous Materials from all or
any portions of the premises, (5) taking necessary precautions to protect
against the release of Hazardous Materials on or affecting the premises,
(6) complying with all Environmental Laws and/or (7) any violation of
Environmental Laws or requirements of the Bank, which are based upon or in any
way related to such Hazardous Materials including, without limitation,
attorney's and consultant's fees (said attorneys and consultants to be selected
by the Bank), investigation and laboratory fees, environmental studies required
by the Bank (whether prior to foreclosure or otherwise), court costs and
litigation expenses. Upon request of the Bank, the Borrower shall execute a
separate indemnity covering the same matters.
(c) The Borrower has never received any notice ("Environmental
Complaint") of any violations of Environmental Laws (and, within five days of
receipt of any Environmental Complaint the Borrower shall give the Bank a copy
thereof), and to the best of the Borrower's knowledge, there have been no
actions commenced or threatened by any party for noncompliance with any
Environmental Laws.
(d) The provisions of this section shall be in addition to any and
all other obligations and liabilities the Borrower may have to the Bank at
common law or pursuant to any other agreement and, notwithstanding anything in
Section 9.13 hereof to the contrary, shall survive (i) the repayment of all sums
due hereunder and the other loan documents executed in connection herewith and
the repayment of all other Indebtedness, and (ii) the satisfaction of all of the
other obligations of the Borrower hereunder and under the other loan documents.
(e) "Hazardous Materials" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic
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substances or related materials defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. Section 1801, et seq.), the Resource Conservation and Recovery Act,
as amended (42 U.S.C. Section 6901, et seq.) and in the regulations adopted and
publications promulgated pursuant thereto, or any other federal, state or local
governmental law, ordinance, rule, or regulation.
SECTION 5. AFFIRMATIVE COVENANTS
On a continuing basis from the date of this Agreement until the later of
the Termination Date or when the Indebtedness is paid in full and the Borrower
has performed all of its other obligations hereunder, the Borrower covenants and
agrees that it will:
5.1 FINANCIAL AND OTHER INFORMATION.
5.1.1 ANNUAL FINANCIAL REPORTS. Furnish to the Bank, in form and
reporting basis satisfactory to the Bank, not later than ninety (90) days after
the close of each fiscal year of the Borrower, beginning with the fiscal year
ending December 31, 1996, 10K and financial statements of the Borrower on a
consolidated basis containing the balance sheet of the Borrower as of the close
of each such fiscal year, statements of income and retained earnings and a
statement of cash flows for each such fiscal year, and such other comments and
financial details as are usually included in similar reports. Such reports
shall be prepared in accordance with GAAP by independent certified public
accountants of recognized standing selected by the Borrower and acceptable to
the Bank and shall contain unqualified opinions as to the fairness of the
statements therein contained.
5.1.2 QUARTERLY FINANCIAL STATEMENTS. Furnish to the Bank not
later than forty-five (45) days after the close of each quarter of each fiscal
year of the Borrower, beginning with the fiscal quarter ending June 30, 1996,
10Q and financial statements on a consolidated basis containing the balance
sheet of the Borrower as of the end of each such period, statements of income
and retained earnings of the Borrower and a statement of cash flows of the
Borrower for the portion of the fiscal year up to the end of such period, and
such other comments and financial details as are usually included in similar
reports. These statements shall be prepared on the same accounting basis as the
statements required in Section 6.1.1 of this Agreement and shall be in such
detail as the Bank may reasonably require, and the accuracy of the statements
shall be certified by the chief executive or financial officer of the Borrower.
5.1.3 CERTIFICATE. Furnish to the Bank quarterly, within forty
five (45) days of each quarter end a certificate, executed by the chief
executive, chief financial officer or treasurer of the Borrower, certified as of
such date, and confirming that, as of such date:
(a) No Default or Event of Default has occurred and is
continuing; and
(b) The warranties and representations set forth in Section 4 of
this Agreement are true and correct on and as of such date.
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5.1.4 ADVERSE EVENTS. Promptly inform the Bank of the occurrence
of any Default or Event of Default, or of any other occurrence which has or
could reasonably be expected to have a materially adverse effect upon the
Borrower's or any of its Subsidiaries' business, properties, or financial
condition or upon the Borrower's ability to comply with its obligations
hereunder.
5.1.5 SHAREHOLDER REPORTS. Promptly furnish to the Bank upon
becoming available a copy of all financial statements, reports, notices, proxy
statements and other communications sent by the Borrower or any of its
Subsidiaries to their stockholders, and all regular and periodic reports filed
by the Borrower or any of its Subsidiaries with any securities exchange, the
Securities and Exchange Commission, the Department of Corporation of the State
of California or any governmental authorities succeeding to any or all of the
functions of said Commission or Bureau.
5.1.6 MANAGEMENT LETTERS. At the request of the Bank, Borrower is
to furnish to the Bank, promptly upon receipt thereof, copies of all management
letters and other reports of substance submitted to the Borrower or any of its
Subsidiaries by independent certified public accountants in connection with any
annual or interim audit of the books of the Borrower or any of its Subsidiaries.
5.1.7 OTHER INFORMATION AS REQUESTED. Promptly furnish to the
Bank such other information regarding the operations, business affairs and
financial condition of the Borrower and its Subsidiaries as the Bank may
reasonably request from time to time and permit the Bank, its employees,
attorneys and agents, to inspect all of the books, records and properties of the
Borrower and its Subsidiaries at any reasonable time.
5.2 INSURANCE. Keep its insurable properties and the insurable properties
of its Subsidiaries adequately insured and maintain (a) insurance against fire
and other risks customarily insured against under an "all-risk" policy and such
additional risks customarily insured against by companies engaged in the same or
a similar business to that of the Borrower or its Subsidiaries, as the case may
be, (b) necessary worker's compensation insurance, (c) public liability and
product liability insurance, and (d) such other insurance as may be required by
law or as may be reasonably required in writing by the Bank, all of which
insurance shall be in such amounts, containing such terms, in such form, for
such purposes, prepaid for such time period, and written by such companies as
may be satisfactory to the Bank. The Borrower will promptly deliver to the
Bank, at the Bank's request, evidence satisfactory to the Bank that such
insurance has been so procured.
5.3 TAXES. Pay promptly and within the time that they can be paid without
late charge, penalty or interest all taxes, assessments and similar imposts and
charges of every kind and nature lawfully levied, assessed or imposed upon the
Borrower or its Subsidiaries, and their property, except to the extent being
contested in good faith and, if requested by the Bank, bonded in an amount and
manner satisfactory to the Bank. If the Borrower shall fail to pay such taxes
and assessments within the time they can be paid without penalty, late charge or
interest the
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Bank shall have the option to do so, and the Borrower agrees to repay the Bank
upon demand, with interest at the Contract Rate, all amounts so expended by the
Bank.
5.4 MAINTAIN CORPORATION AND BUSINESS. Do or cause to be done all things
necessary to preserve and keep in full force and effect the Borrower's and each
of its Subsidiaries' corporate existence, rights and franchises and comply with
all applicable laws; continue to conduct and operate its and each of its
Subsidiaries' business substantially as conducted and operated during the
present and preceding calendar year; at all times maintain, preserve and protect
all franchises and trade names and preserve all the remainder of its and its
Subsidiaries' property and keep the same in good repair, working order and
condition; and from time to time make, or cause to be made, all needed and
proper repairs, renewals, replacements, betterments and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
5.5 MAINTAIN TANGIBLE NET WORTH. On a consolidated basis, maintain a
Tangible Net Worth for it of not less than Seventy Million and No/100 Dollars
($70,000,000) plus eighty percent (80%) of quarterly net income (without
deductions for any quarterly loss) and one hundred percent (100%) of any new
equity and subordinated debt raised by Borrower or its Subsidiaries beginning
with the fiscal quarter ending March 31, 1996.
5.6 MAINTAIN QUICK ASSET TO CURRENT LIABILITY RATIO. On a consolidated
basis, Borrower shall maintain a ratio of Quick Assets to Current Liabilities of
not less than 1.35 to 1.0.
5.7 MAINTAIN PROFITABILITY. On a consolidated basis, maintain annual
fiscal profitability on an operating and after tax basis with the exception of a
non-operating loss incurred due to the write-off of certain assets or in-process
technology resulting from a merger or acquisition. Bank will allow one
operating loss quarter per fiscal year for an amount not to exceed Three Million
Dollars ($3,000,000).
5.8 ERISA. (a) At all times meet and cause each of the Subsidiaries to
meet the minimum funding requirements of ERISA with respect to the Borrower's
and Subsidiaries' employee benefit plans subject to ERISA; (b) promptly after
the Borrower knows or has reason to know (i) of the occurrence of any event,
which would constitute a reportable event or prohibited transaction under ERISA,
or (ii) that the PBGC or the Borrower has instituted or will institute
proceedings to terminate an employee pension plan, deliver to the Bank a
certificate of the chief financial officer of the Borrower setting forth details
as to such event or proceedings and the action which the Borrower proposes to
take with respect thereto, together with a copy of any notice of such event
which may be required to be filed with the PBGC; and (c) furnish to the Bank (or
cause the plan administrator to furnish the Bank) a copy of the annual return
(including all schedules and attachments) for each plan covered by ERISA, and
filed with the Internal Revenue Service by the Borrower not later than ten (10)
days after such report has been so filed.
5.9 USE OF LOAN PROCEEDS. Use the proceeds of the Loan hereunder only for
the purposes set forth in the recitals to this Agreement.
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SECTION 6. NEGATIVE COVENANTS
On a continuing basis from the date of this Agreement until the later of
the Termination Date or when the Indebtedness is paid in full and the Borrower
has performed all of its other obligations hereunder, the Borrower covenants and
agrees that it will not, and will not permit any Subsidiary to:
6.1 DIVIDENDS. Declare or pay any cash dividends on, or make any other
distribution (whether by reduction of capital or otherwise) with respect to any
shares of its capital stock, except for dividends from a Subsidiary to the
Borrower.
6.2 STOCK ACQUISITION. Purchase, redeem, retire or otherwise acquire any
of the shares of its capital stock, or make any commitment to do so except to
purchase stock from employees in excess of an aggregate amount of Two Million
Dollars ($2,000,000) per fiscal year.
6.3 LIENS AND ENCUMBRANCES. Create, incur, assume or suffer to exist any
mortgage, pledge, encumbrance, security interest, lien or charge of any kind
upon any of its property or assets (including without limit any charge upon
property purchased or acquired under a conditional sales or other title
retaining agreement or lease required to be capitalized under GAAP) whether now
owned or hereafter acquired other than Permitted Liens.
6.4 INDEBTEDNESS. Incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any indebtedness
or liability for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, or any other
indebtedness whatsoever, except for (a) the Indebtedness, (b) indebtedness
subordinated to the prior payment in full of the Indebtedness upon terms and
conditions approved in writing by the Bank, (c) existing indebtedness listed on
the schedule to this Agreement , (d) trade indebtedness incurred and paid in the
ordinary course of business, (e) contingent indebtedness to the extent permitted
by Section 6.6 of this Agreement, (f) indebtedness secured by Permitted Liens,
and (g) indebtedness related to acquisitions permitted by Section 6.10 of this
Agreement in an aggregate amount not to exceed Four Million Dollars
($4,000,000).
6.5 EXTENSION OF CREDIT. Make loans, advances or extensions of credit to
any Person, except for sales on open account, to employees not to exceed an
aggregate of Two Million and No/100 Dollars ($2,000,000) and otherwise in the
ordinary course of business.
6.6 GUARANTEE OBLIGATIONS. Guarantee or otherwise, directly or
indirectly, in any way be or become responsible for obligations of any other
Person, whether by agreement to purchase the indebtedness of any other Person,
agreement for the furnishing of funds to any other Person through the furnishing
of goods, supplies or services, by way of stock purchase, capital contribution,
advance or loan, for the purpose of paying or discharging (or causing the
payment or discharge of) the indebtedness of any other Person, or otherwise,
except for the endorsement of negotiable instruments by the Borrower in the
ordinary course of business for deposit or
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collection with the exception of guaranties of subsidiaries up an aggregate
amount of Four Million and No/100 Dollars ($4,000,000).
6.7 SUBORDINATE INDEBTEDNESS. Subordinate any indebtedness due to it from
a Person to indebtedness of other creditors of such Person.
6.8 PROPERTY TRANSFER, MERGER OR LEASE-BACK. (a) Sell, lease, transfer or
otherwise dispose of properties and intangible assets having an aggregate book
value of more than Two Hundred and Fifty Thousand Dollars ($250,000) (whether in
one transaction or in a series of transactions) except as to the sale of
inventory in the ordinary course of business; (b) change its name, consolidate
with or merge into any other corporation, permit another corporation to merge
into it, acquire all or substantially all the properties or assets of any other
Person, enter into any reorganization or recapitalization or reclassify its
capital stock, or (c) enter into any sale-leaseback transaction other than for
equipment purchased with the intent to lease in which the equipment is
subsequently sold for leaseback within one hundred and eighty (180) days of
purchase.
6.9 ACQUISITIONS. Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any interest whatsoever in, any
other Person, except for (i) the common stock of the Subsidiaries owned by the
Borrower on the date of this Agreement; (ii) certificates of deposit, standard
money market instruments, direct obligations of the United States Government and
securities listed in Borrower's Cash Investment Policy, which shall be
acceptable to the Bank; and (iii) all or substantially all of the capital stock
or property of another Person in an aggregate amount of not greater than
$15,000,000 PROVIDED, HOWEVER, that such acquisition causes no fault in this
Agreement, the surviving entity is Borrower, and the surviving management is
Borrower's management.
6.10 ACQUIRE FIXED ASSETS. Acquire or expend for, or commit itself to
acquire or expend for fixed assets by lease, purchase or otherwise in an
aggregate amount that exceeds Five Million Dollars ($5,000,000) in any fiscal
year.
6.11 PENSION PLAN. (a) Allow any fact, condition or event to occur or
exist with respect to any employee pension or profit sharing plans established
or maintained by it which might constitute grounds for termination of any such
plan or for the court appointment of a trustee to administer any such plan, or
(b) permit any such plan to be the subject of termination proceedings (whether
voluntary or involuntary) from which termination proceedings there may result a
liability of the Borrower or any of its Subsidiaries to the PBGC which, in the
opinion of the Bank, will have a materially adverse effect upon the operations,
business, property, assets, financial condition or credit of the Borrower or any
of its Subsidiaries.
6.12 MISREPRESENTATION. Furnish the Bank with any certificate or other
document that contains any untrue statement of a material fact or omits to state
a material fact necessary to make such certificate or document not misleading in
light of the circumstances under which it was furnished.
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6.13 MARGIN STOCK. Apply any of the proceeds of the Advances to the
purchase or carrying of any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, or any regulations,
interpretations or rulings thereunder.
6.14 SEPARATE AGREEMENTS. Enter into any agreement with a third party
that contains affirmative or negative covenants applicable to Borrower that are
more restrictive to Borrower than are the covenants in this Agreement, without
prior approval of the Bank.
SECTION 7. EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
7.1.1 FAILURE TO PAY MONIES DUE. If the Borrower shall fail to
pay, when due, any principal or interest on the Advances or any taxes, insurance
or other amount payable by the Borrower under this Agreement or if the Borrower,
any of its Subsidiaries shall fail to pay, when due, any indebtedness,
obligation or liability whatsoever of the Borrower, any of its Subsidiaries to
the Bank.
7.1.2 MISREPRESENTATION. If any warranty or representation of the
Borrower in connection with or contained in this Agreement, or if any financial
data or other information now or hereafter furnished to the Bank by or on behalf
of the Borrower, shall prove to be false or misleading in any material respect.
7.1.3 NONCOMPLIANCE WITH THIS OR OTHER BANK AGREEMENT. If the
Borrower or any of its Subsidiaries shall fail to perform in the time and manner
required any of its obligations or covenants under, or shall fail to comply with
any of the provisions of, this Agreement or any other present or future
agreement with the Bank to which it may be a party, which does not involve the
failure to make a payment when due (be it principal, interest, taxes, insurance
or otherwise) and which is not cured by the Borrower within thirty (30) days
after the earlier of the date of notice to the Borrower by the Bank of such
Default or the date the Bank is notified, or should have been notified pursuant
to the Borrower's obligation under Section 6.1.6 hereof, of such Default.
7.1.4 OTHER DEFAULTS. If the Borrower or any of its Subsidiaries
shall default in the payment when due of any of its indebtedness (other than to
the Bank) or in the observance or performance of any term, covenant or condition
in any agreement or instrument evidencing, securing or relating to such
indebtedness, and such default be continued for a period sufficient to permit
acceleration of the indebtedness, irrespective of whether any such default shall
be forgiven or waived or there has been acceleration by the holder thereof.
7.1.5 JUDGMENTS. If there shall be rendered against the Borrower
or any of its Subsidiaries one or more judgments or decrees involving an
aggregate liability of One Million
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Dollars ($1,000,000) or more, which has or have become non-appealable and shall
remain undischarged, unsatisfied by insurance and unstayed for more than thirty
(30) days, whether or not consecutive; or if a writ of attachment or garnishment
against the property of the Borrower or any of its Subsidiaries shall be issued
and levied in an action claiming One Million Dollars ($1,000,000) or more and
not released or appealed and bonded in an amount and manner satisfactory to the
Bank within thirty (30) days after such issuance and levy.
7.1.6 BUSINESS SUSPENSION, BANKRUPTCY, ETC. If the Borrower or
any of its Subsidiaries shall voluntarily suspend transaction of its business;
or if the Borrower or any of its Subsidiaries shall not pay its debts as they
mature or shall make a general assignment for the benefit of creditors; or
proceedings in bankruptcy, or for reorganization or liquidation of the Borrower,
any of its Subsidiaries under the Bankruptcy Code or under any other state or
federal law for the relief of debtors shall be commenced or shall be commenced
against the Borrower or any of its Subsidiaries and shall not be discharged
within thirty (30) days of commencement; or a receiver, trustee or custodian
shall be appointed for the Borrower or any of its Subsidiaries or for any
substantial portion of their respective properties or assets.
7.1.7 CHANGE OF MANAGEMENT OR OWNERSHIP. If the Borrower or a
controlling portion of its voting stock or a substantial portion of its assets
comes under the practical, beneficial or effective control of one or more
persons other than the present shareholders of Borrower, whether by reason of
death, merger, consolidation, sale or purchase of stock or assets or otherwise;
or the individuals who are the directors or officers of the Borrower, at the
date of this Agreement, shall no longer remain in office, whether by reason of
death, resignation or otherwise; and any such change of control or office holder
may adversely affect, in the sole judgment of the Bank, the ability of the
Borrower to carry on its business as conducted before such change.
7.1.8 INADEQUATE FUNDING OR TERMINATION OF EMPLOYEE BENEFIT
Plan(s). If the Borrower or any of its Subsidiaries shall fail to meet its
minimum funding requirements under ERISA with respect to any employee benefit
plan established or maintained by it, or if any such plan shall be subject of
termination proceedings (whether voluntary or involuntary) and there shall
result from such termination proceedings a liability of Borrower or any of its
Subsidiaries to the PBGC which in the opinion of the Bank will have a materially
adverse effect upon the operations, business, property, assets, financial
condition or credit of the Borrower, any of its Subsidiaries, as the case may
be.
7.1.9 OCCURRENCE OF CERTAIN REPORTABLE EVENTS. If there shall
occur, with respect to any pension plan maintained by the Borrower or any of its
Subsidiaries any reportable event (within the meaning of Section 4043(b) of
ERISA) which the Bank shall determine constitutes a ground for the termination
of any such plan, and if such event continues for thirty (30) days after the
Bank gives written notice to the Borrower, provided that termination of such
plan or appointment of such trustee would, in the opinion of the Bank, have a
materially adverse effect upon the operations, business, property, assets,
financial condition or credit of the Borrower or any of its Subsidiaries, as the
case may be.
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7.2 ACCELERATION OF INDEBTEDNESS; REMEDIES. Upon the occurrence of an
Event of Default, all Indebtedness shall be due and payable in full immediately
at the option of the Bank without presentation, demand, protest, notice of
dishonor or other notice of any kind, all of which are hereby expressly waived.
Unless all of the Indebtedness is then immediately fully paid, the Bank shall
have and may exercise any one or more of the rights and remedies for which
provision is made for a secured party under the UCC, under the Security
Agreements, or under any other document contemplated hereby or for which
provision is provided by law or in equity, including, without limitation, the
right to take possession and sell, lease or otherwise dispose of any or all of
the Collateral and to set off against the Indebtedness any amount owing by the
Bank to the Borrower and/or any property of the Borrower in possession of the
Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral
and make it available to the Bank at any place designated by the Bank which is
reasonably convenient to the Bank and the Borrower.
7.3 APPLICATION OF PROCEEDS. All of the Indebtedness shall constitute one
loan secured by the Bank's security interest in the Collateral and by all other
security interests, mortgages, liens, claims, and encumbrances now and from time
to time hereafter granted from the Borrower to the Bank. Upon the occurrence of
an Event of Default which is not cured within the cure period, if any, provided
under Section 8.2, the Bank may in its sole discretion apply the Collateral to
any portion of the Indebtedness. The proceeds of any sale or other disposition
of the Collateral authorized by this Agreement shall be applied by the Bank,
first upon all expenses authorized by the UCC or otherwise in connection with
the sale and all reasonable attorneys' fees and legal expenses incurred by the
Bank; the balance of the proceeds of such sale or other disposition shall be
applied in the payment of the Indebtedness, first to interest, then to
principal, then to other Indebtedness and the surplus, if any, shall be paid
over to the Borrower or to such other Person or Persons as may be entitled
thereto under applicable law. The Borrower shall remain liable for any
deficiency, which the Borrower shall pay to the Bank immediately upon demand.
7.4 CUMULATIVE REMEDIES. The remedies provided for herein are cumulative
to the remedies for collection of the Indebtedness as provided by law, in equity
or by any mortgage, security agreement or other document contemplated hereby.
Nothing herein contained is intended, nor shall it be construed, to preclude the
Bank from pursuing any other remedy for the recovery of any other sum to which
the Bank may be or become entitled for the breach of this Agreement by the
Borrower.
7.5 PAYABLE UPON DEMAND. To the extent that any of the Indebtedness is
payable upon demand, nothing contained in this Agreement or any document
contemplated hereby shall be construed to prevent the Bank from making demand,
without notice and with or without reason, for immediate payment of all or any
part of such Indebtedness at any time or times, whether or not a Default or an
Event of Default has occurred.
29
<PAGE>
SECTION 8. MISCELLANEOUS.
8.1 INDEPENDENT RIGHTS. No single or partial exercise of any right, power
or privilege hereunder, or any delay in the exercise thereof, shall preclude
other or further exercise of the rights of the parties to this Agreement.
8.2 COVENANT INDEPENDENCE. Each covenant in this Agreement shall be
deemed to be independent of any other covenant, and an exception or illegality
in one covenant shall not create an exception or illegality in another covenant.
8.3 WAIVERS AND AMENDMENTS. No forbearance on the part of the Bank in
enforcing any of its rights under this Agreement, nor any renewal, extension or
rearrangement of any payment or covenant to be made or performed by the Borrower
hereunder, shall constitute a waiver of any of the terms of this Agreement or of
any such right. No Default or Event of Default shall be waived by the Bank
except in a writing signed and delivered by an officer of the Bank, and no
waiver of any other Default or Event of Default shall operate as a waiver of any
Default or Event of Default or of the same Default or Event of Default on a
future occasion. No other amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement or other documents contemplated
hereby shall be effective unless the same shall be in writing and signed and
delivered by an officer of the Bank.
8.4 GOVERNING LAW. This Agreement, and each and every term and provision
hereof, shall be governed by and construed in accordance with the internal law
of the State of California. If any provisions of this Agreement shall for any
reason be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereof, but this Agreement shall be
construed as if such invalid or unenforceable provisions had never been
contained herein.
8.5 SURVIVAL OF WARRANTIES, ETC. All of the Borrower's covenants,
agreements, representations and warranties made in connection with this
Agreement and any document contemplated hereby shall survive the borrowings
hereunder and shall be deemed to have been relied upon by the Bank,
notwithstanding any investigation heretofore or hereafter made by the Bank. All
statements contained in any certificate or other document delivered to the Bank
at any time by or on behalf of the Borrower pursuant hereto or in connection
with the transactions contemplated hereby shall constitute representations and
warranties by the Borrower in connection with this Agreement.
8.6 COSTS AND EXPENSES. The Borrower agrees that it will reimburse the
Bank, upon demand, for all costs and expenses incurred by the Bank in connection
with (i) collecting or attempting to collect the Indebtedness or any part
thereof, (ii) the enforcement of the Bank's rights or remedies under this
Agreement or the other documents contemplated hereby, (iii) the preparation or
making of any amendments, modifications, waivers or consents with respect to
this Agreement or the other documents contemplated hereby, and/or (iv) any other
matters or proceedings arising out of or in connection with any lending
arrangement between the Bank and the Borrower, which costs and expenses include
without limit payments made by the Bank for
30
<PAGE>
taxes, insurance, assessments, or other costs or expenses which the Borrower is
required to pay under this Agreement or the other documents contemplated hereby;
audit expenses; court costs and reasonable attorneys' fees (whether in-house or
outside counsel is used, whether legal assistants are used, and whether such
costs are incurred in formal or informal collection actions, federal bankruptcy
proceedings, probate proceedings, on appeal or otherwise); and all other costs
and expenses of the Bank incurred in connection with any of the foregoing.
8.7 PAYMENTS ON SATURDAYS, ETC. Whenever any payment to be made hereunder
shall be stated to be due on a Saturday, Sunday or any other day which is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension, if any, shall be included in computing interest in connection
with such payment.
8.8 BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon the parties hereto and their respective successors and
assigns; provided, however, that the Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of the Bank.
8.9 MAINTENANCE OF RECORDS. The Borrower will keep all of its records
concerning its business operations and accounting at its principal place of
business. The Borrower will give the Bank prompt written notice of any change
in its principal place of business, or in the location of its records.
8.10 NOTICES. All notices and communications provided for herein or in any
document contemplated hereby or required by law to be given shall be in writing
(unless expressly provided to the contrary) and, if personally delivered,
effective when delivered at the address below or, in the case of mailing,
effective two (2) days after sending by first class mail, postage prepaid,
addressed as follows: (a) If to the Borrower, to:
Mylex Corporation
34551 Ardenwood Boulevard
Fremont, CA 94537
Attn: Colleen Gray, Chief Financial Officer
and (b) if to the Bank, to:
Comerica Bank-California
1299 Oakmead Parkway
Sunnyvale, CA 94086
Attn: Mary Beth Suhr
or to such other address as a party shall have designated to the other in
writing in accordance with this section. The giving of at least five (5) days'
notice before the Bank shall take any action described in any notice shall
conclusively be deemed reasonable for all purposes; provided, that this shall
not be deemed to require the Bank to give five day notice or any notice if not
specifically required in this Agreement.
31
<PAGE>
8.11 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures were upon the same
instrument.
8.12 HEADINGS. Article and section headings in this Agreement are included
for the convenience of reference only and shall not constitute a part of this
Agreement for any purpose.
8.13 WAIVER OF JURY TRIAL. The Borrower and the Bank hereby irrevocably
waive the right to trial by jury with respect to any and all actions or
proceedings at any time in which the Borrower and the Bank are parties arising
out of this Agreement or the other documents contemplated hereby.
8.14 FURTHER ASSURANCES. Immediately following request by Bank, the
Borrower shall provide to Bank such further documents, instruments, opinions and
assurances as may be requested from time to time by Bank in connection with this
Agreement.
8.15 INTEGRATED AGREEMENT. This is an integrated agreement. Except as
otherwise specifically stated herein, this Agreement and the documents executed
herewith supersede all prior negotiations, discussions and agreements, whether
written or oral.
32
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to
be executed by their duly authorized officers as of the day and year first
written above.
MYLEX CORPORATION
By:--------------------------
Colleen Gray
Its: Chief Financial Officer
COMERICA BANK-CALIFORNIA
By:--------------------------
Mary Beth Suhr
Its: Vice President
S-1
<PAGE>
[LOGO]
MATER REVOLVING NOTE
Variable Rate-Maturity Date-Obligatory Advances
(Business and Commercial Loans Only)
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION
$20,000,000.00 June 25, 1996 June 25, 1998 59-2291597
On the Maturity Date, as stated above, for value received, the undersigned
promise(s) to pay to the order of COMERICA BANK-CALIFORNIA ("Bank"), at any
office of the Bank in the State of California, TWENTY MILLION AN NO/100 Dollars
(U.S.) (or that portion of it advanced by the Bank and not repaid as later
provided) with interest until maturity, whether by acceleration or otherwise, or
an Event of Default, as later defined, at a per annum rate equal to the Bank's
base rate from time to time in effect PLUS 0.000% per annum and after that at a
rate equal to the rate of interest otherwise prevailing under this Note plus 3%
per annum (but in no event in excess of the maximum rate permitted by law). The
Bank's "base rate" is that annual rate of interest so designated by the Bank and
which is changed by the Bank form time to time. Interest rate changes will be
effective for interest computation purposes as and when the Bank's base rate
changes. Interest shall be calculated on the basis of a 360-day year for the
actual number of days the principal is outstanding. Accrued interest on this
Note shall be payable on the 25th day of each MONTH commencing JULY 25, 1996,
until the Maturity Date when all amounts outstanding under this Note shall be
due and payable in full. If the frequency of interest payments is not otherwise
specified, accrued interest on this Note shall be payable monthly on the first
day of each month. If any payment of principal or interest under this Note
shall be payable on a day other than a day on which the Bank is open for
business, this payment shall be extended to the next succeeding business day and
inters shall be payable at the rate specified in this Note during this
extension. A late payment charge equal to 5% of each late payment may be
charged on any payment not received by the Bank within 10 calendar days after
the payment due date, but acceptance of payment of this charge shall not waive
any Default under this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error. No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"indebtedness") are secured by the Bank is granted security interest in all
items deposited in any account of any of the undersigned with the Bank and by
all proceeds of these items (cash or otherwise), all accounts balances of any of
the undersigned from time to time with the Bank, by all property of any of the
undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge assignment and other security or collateral
agreement which has been, or will at any time(s) later be, executed by an (or
all) of the undersigned to or for the benefit of the Bank (collectively
"Collateral"). Notwithstanding the above, (i) to the extent that any portion of
the indebtedness is a consumer loan, that portion shall not be secured by any
deed of trust or mortgage on or other security interest in any of the
undersigned's principal dwelling or any of the undersigned's real property which
is not a purchase money security interest as to that portion, unless expressly
provided to the contrary in another place, or (ii) of the undersigned (or any of
them) has(have) given or gives(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure this Note or any other
indebtedness of the undersigned (or any of them), unless expressly provided to
the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (i) fail(s) to pay any of the
indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any indebtedness owing on a demand basis upon demand; or (ii) fail(s) to copy
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any such guarantor and the Bank; or (iii) become(s) insolvent
or the subject of a voluntary or involuntary proceeding in bankruptcy, or a
reorganization, arrangement or creditor composition proceeding, (if a business
entity) cease(s) doing business as a going concern, (if a natural person) die(s)
or become(s) incompetent, (if a partnership) dissolve(s) or any general partner
of it dies, becomes incompetent or becomes the subject of a bankruptcy
proceeding or (if a corporation of a limited liability company) is the subject
of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination; or
breach of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; (c) if there is any failure by
any of the undersigned or any guarantor to pay when due any of its indebtedness
(other than to be the Bank) or in the observance or performance of any term,
covenant or condition in any document evidencing, securing or relation to such
indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the indebtedness any amount owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
morgage, shall become due and payalbe immediately, without notice, at the option
of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge the
mortgaged premises for any other indebtedness or obligations or shall convey,
assign or transfer the mortgaged premises by deed, installment sale contract
instrument, or (b) if the title to the mortgaged premises shall become vested in
any other person or party in any manner whatsoever, or (c) if there is any
disposition (through one or more transactions) of legal or beneficial title to a
controlling interest of said trustor or mortgagor. All payments under this Note
shall be in immediately available United States funds, without setoff or
counterclaim.
If the Note is signed by two or more parties (whether by all as makers or by one
or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, an all other notices and agree(s) that no extension or indulgence to
the undersigned (or any of them) or release, substitution or nonenforcement of
any security, or release or substitiuion of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or tight to
discharge. The undersigned agree(s) that the Bank has the right to sell,
assign, or grant participation or any interest, in any or all of the
indebtedness, and that, in connection with this right, but without limiting its
ability to make other disclosures to the full extent allowable. The undersigned
agree(s) that the Bank may provide information relating to the Note or to the
undersigned to the Bank's parent affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collection or attempting to collect this Note or incurred
in any other matter or proceeding relating this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USUARY
CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRAIL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
THIS NOTE IS SUBJECT TO THE TERMS OF A LOAN AGREEMENT DATED JUNE 28, 1996
For Corporations, Partnerships, Trust or Estates
MYLEX CORPORATION By: /s/Colleen Graz Its: VP Finance CFO
- ----------------------------- --------------------- --------------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
34551 ARDENWOOD BLVD. BY: Its:
- ------------------------------- ---------------------- --------------------
STREET ADDRESS SIGNATURE OF TITLE
FREMONT BY: Its:
- ------------------------------- ----------------------- --------------------
CITY SIGNATURE OF TITLE
CA 94555-3607 BY: Its:
- ------------------------------- ----------------------- --------------------
STATE ZIP CODE SIGNATURE OF TITLE
For Individuals or Sole Proprietorships
Name(s) of Obligor(s) Signature of Obligor(s)
(Type or Print)
----------------------- -------------------------
- --------------------- ----------------------- -------------------------
STREET ADDRESS
- --------------------- ----------------------- -------------------------
CITY
- --------------------- ----------------------- -------------------------
STATE ZIP CODE
FOR BANK USE ONLY CCAR #
Loan Officer Initial Loan Group Name Obligor(s) Name
MARY BETH SUHR HIGH TECH MYLEX CORPORATION
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48703 $20,000,000.00
<PAGE>
MYLEX CORPORATION EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATION
THREE MONTHS and SIX MONTHS ENDED June 30, 1996 AND 1995
The basis for computing net income per common share is described in Note A to
the financial statements, beginning on page 5 of the Company's Quarterly Report
on Form 10-Q for the three months ended June 30, 1996.
The computation of primary and fully diluted earnings per share is as follows:
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE THREE MONTHS ENDED
(in $000's except for per share data)
JUN 30 JUN 30
1996 1995
---------- ----------
<S> <C> <C>
NET EARNINGS $4,601 $2,851
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,197 17,507
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,528 1,301
---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 21,725 18,808
---------- ----------
PRIMARY EARNINGS PER SHARE $0.21 $0.15
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE THREE MONTHS ENDED
(in $000's except for per share data)
JUN 30 JUN 30
1996 1995
---------- ----------
<S> <C> <C>
NET EARNINGS $4,601 $2,851
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,197 17,507
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,528 1,473
---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUSTANDING 21,725 18,980
---------- ----------
FULLY DILUTED EARNINGS PER SHARE $0.21 $0.15
---------- ----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE SIX MONTHS ENDED
(in $000's except for per share data)
JUN 30 JUN 30
1996 1995
---------- ----------
<S> <C> <C>
NET EARNINGS $9,726 $4,955
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 19,936 17,441
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,704 1,244
---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 21,640 18,685
---------- ----------
PRIMARY EARNINGS PER SHARE $0.45 $0.27
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE SIX MONTHS ENDED
(in $000's except for per share data)
JUN 30 JUN 30
1996 1995
---------- ----------
<S> <C> <C>
NET EARNINGS $9,726 $4,955
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 19,936 17,436
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,716 1,538
---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 21,652 18,974
---------- ----------
FULLY DILUTED EARNINGS PER SHARE $0.45 $0.26
---------- ----------
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,835
<SECURITIES> 23,175
<RECEIVABLES> 31,601
<ALLOWANCES> (741)
<INVENTORY> 53,831
<CURRENT-ASSETS> 119,727
<PP&E> 9,692
<DEPRECIATION> (5,289)
<TOTAL-ASSETS> 124,264
<CURRENT-LIABILITIES> 29,471
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 94,721
<TOTAL-LIABILITY-AND-EQUITY> 124,264
<SALES> 45,411
<TOTAL-REVENUES> 46,733
<CGS> 28,447
<TOTAL-COSTS> 38,038
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (317)<F1>
<INCOME-PRETAX> 7,674
<INCOME-TAX> 3,073
<INCOME-CONTINUING> 4,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,601
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<FN>
<F1>NET OF $325 IF INTEREST INCOME AND $8 OF INTEREST EXPENSE
</FN>
</TABLE>
