UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB (Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number: 1-13088
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
(Name of small business issuer in its charter)
Delaware 65-0014636
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16910 Dallas Parkway, Suite 100, Dallas, Texas 75248
(Address of principal executive offices; telephone number)
(972) 248-1922
(Issuer's telephone number)
------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed since last report)
Check whether issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X ] No [ ]
The number of shares outstanding of the common stock of the registrant
on January 31, 1997, the latest practicable date, was 7,240,046.
<PAGE>
TABLE OF CONTENTS
Item Numbered
Number Page
- ------ --------
Part I
1. Financial Statements..................................... 1
2. Management's Discussion and Analysis or
Plan of Operation........................................ 6
Part II
1. Legal Proceedings........................................ N/A
2. Changes in Securities.................................... N/A
3. Defaults Upon Senior Securities.......................... N/A
4. Submission of Matters to a Vote of Security
Holders.................................................. 9
5. Other Information........................................ N/A
6. Exhibits and Reports on Form 8-K......................... 10
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, June 30,
1996 1996
(Unaudited) (Audited)
-------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 465,177 $ 615,037
Marketable securities 936,833 1,900,050
Accounts receivable, net of allowance for doubtful accounts
of $475,000 at December 31, 1996 and $414,000 at June 30, 1996 6,946,653 3,719,265
Inventories 2,351,964 2,862,911
Prepaid expenses and other current assets 673,884 614,210
--------------- ---------------
Total current assets 11,374,511 9,711,473
--------------- ---------------
Property, plant and equipment, net 5,694,061 5,469,304
Other assets 165,663 81,343
Loans receivable, related parties 414,698 413,369
--------------- ---------------
Total assets $ 17,648,933 $ 15,675,489
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 2,709,602 $ 1,625,325
Current portion, long-term debt 425,130 935,127
Accounts payable 3,477,304 3,032,236
Accrued liabilities 557,360 362,520
--------------- ---------------
Total current liabilities 7,169,396 5,955,208
--------------- ---------------
Long-term debt, less current portion 1,987,078 1,666,063
Deferred tax liability 417,672 157,216
Commitments and contingencies
Stockholders' Equity:
Series A convertible preferred stock, 10,000,000 shares of
$.0001 par value per share authorized; 10,000 and 100,000 shares
issued and outstanding as of December 31, 1996 and June 30, 1996,
respectively, $100,000 liquidation preference 1 10
Common stock, 25,000,000 shares of $.0002 par value per share
authorized; 7,190,426 and 6,332,116 issued and 6,953,504
and 6,125,162 shares outstanding as of December 31, 1996 and
June 30, 1996, respectively 1,438 1,266
Additional paid-in capital 8,479,155 8,479,318
Retained earnings 1,327,405 1,030,152
Investment in Millennia, Inc. (1,084,983) (1,084,983)
Net unrealized holding loss on investment securities (648,229) (528,761)
--------------- ---------------
Total stockholders' equity 8,074,787 7,897,002
--------------- ---------------
Total liabilities and stockholders' equity $ 17,648,933 $ 15,675,489
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the three months ended For the six months ended
December 31, December 31,
------------ ------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales $ 8,794,479 $ 7,895,511 $ 15,814,416 $ 13,281,982
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of goods sold (exclusive of depreciation
and amortization, shown separately below) 7,073,707 6,278,412 12,650,843 10,462,738
Selling expenses (exclusive of depreciation
and amortization, shown separately below) 335,282 310,573 641,160 564,152
General and administrative expenses
(exclusive of depreciation and amortization,
shown separately below) 564,167 484,562 1,187,712 844,471
Depreciation and amortization 375,168 307,549 720,409 605,620
----------- ----------- ----------- -----------
Total costs and expenses 8,348,324 7,381,096 15,200,124 12,476,981
----------- ----------- ----------- -----------
Operating profit 446,155 514,415 614,292 805,001
----------- ---------- ----------- -----------
Other income (expense):
Realized gains (losses) from investment
transactions 20,963 (43,573) 92,082 72,438
Interest and other income 0 10,182 0 21,612
Interest expense (103,184) (203,566) (211,692) (379,929)
----------- ----------- ----------- -----------
(82,221) (236,957) (119,610) (285,879)
----------- ----------- ----------- -----------
Income from continuing operations
before provision for income taxes 363,934 277,458 494,682 519,122
Provision for income taxes 127,411 107,436 192,742 201,000
----------- ----------- ----------- -----------
Income from continuing operations 236,523 170,022 301,940 318,122
Discontinued operations:
(Loss) gain from operations of
discontinued operation, net of related income
taxes of $0, $21,900, $0 and $60,500, respectively (4,935) 36,359 (4,685) 95,360
----------- ----------- ----------- -----------
Net income $ 231,588 $ 206,381 $ 297,255 $ 413,482
=========== =========== =========== ===========
Weighted average shares of common stock
outstanding 6,548,604 5,677,443 6,310,890 5,411,957
=========== =========== =========== ============
Earnings per share:
Continuing operations $ 0.04 $ 0.03 $ 0.05 $ 0.06
Discontinued operations 0.00 0.01 0.00 0.02
----------- ----------- ----------- ------------
Net income $ 0.04 $ 0.04 $ 0.05 $ 0.08
========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the six months ended
December 31,
1996 1995
---------------- ----------------
Cash flows from operating activities:
Net income $ 297,255 $ 413,482
--------------- ----------------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 720,409 605,620
Gain on sale of marketable securities (92,082) (72,438)
Provision for bad debts 60,833 112,495
Increase in accounts receivable (3,288,221) (1,331,822)
Decrease (increase) in inventories 510,947 (147,497)
Increase in prepaid expenses and other (143,994) 162,226
Increase (decrease) in accounts payable 445,068 (576,943)
Increase in accrued liabilities 194,840 264,920
Increase in deferred tax liability 260,456 0
--------------- ----------------
Net cash used in operating activities (1,034,489) (569,957)
--------------- ----------------
Cash flows from investing activities:
(Increase) decrease in loans receivable, related parties (1,329) 148,678
Change in marketable securities - available for sale 935,829 1,014,367
Increase in other assets and other liabilities 0 (21,892)
Capital expenditures (945,166) (457,482)
--------------- ----------------
Net cash (used in) provided by investing activities (10,666) 683,671
--------------- ----------------
Cash flows from financing activities:
Net long-term repayments (188,982) (356,568)
Net short-term borrowings 1,084,277 360,000
--------------- ----------------
Net cash provided by financing activities 895,295 3,432
--------------- ----------------
(Decrease) increase in cash and cash equivalents (149,860) 117,146
Cash and cash equivalents at beginning of period 615,037 284,837
--------------- ----------------
Cash and cash equivalents at end of period $ 465,177 $ 401,983
=============== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 173,631 $ 379,550
=============== ================
Income taxes $ $
- -
=============== ================
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying consolidated financial statements include the accounts
of Digital Communications Technology Corporation, (D/B/A MagneTech
Corporation) and its wholly-owned subsidiaries, Tapes Unlimited, Inc.
and DCT - Internet Corporation. The operations of Tapes Unlimited, Inc.
which were formerly consolidated with the operations of the Company,
have been segregated as discontinued operations. All significant
intercompany transactions have been eliminated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these
unaudited internal financial statements. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's annual audited financial statements.
Certain amounts in the prior period financial statements have been
reclassified to conform with current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, (consisting of only normal
recurring accruals) necessary to conform with generally accepted
accounting principles. The results of operations for the periods
presented are not necessarily indicative of the results to be expected
for the full year.
2. Marketable Securities
---------------------
Marketable securities consist of equity securities with an aggregate
cost, based on specific identification, of $1,585,062 as of December
31, 1996. The marketable securities portfolio contains unrealized
losses of $648,229, resulting in a carrying value of $936,833 at
December 31, 1996. The unrealized losses are reported as a separate
component of stockholders' equity. All of the Company's securities are
classified as available for sale securities.
3. Inventory
---------
Inventories are valued at the lower of cost (weighted average) or
market and consisted of the following:
December 31, June 30,
1996 1996
----------------- ----------------
Raw materials $ 1,510,108 $ 1,891,393
Work-in-process 673,485 769,254
Finished goods 168,371 202,264
----------------- ----------------
$ 2,351,964 $ 2,862,911
================= ================
4
<PAGE>
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
4. Property, Plant and Equipment
-----------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
December 31, June 30,
1996 1996
----------------- ----------------
Land $ 73,000 $ 73,000
Buildings and improvements 727,529 546,703
Machinery and equipment 10,377,207 9,612,867
----------------- ----------------
11,177,736 10,232,570
Less accumulated depreciation (5,483,675) (4,763,266)
================= ================
Net property, plant and equipment $ 5,694,061 $ 5,469,304
================= ================
</TABLE>
5. Revolving Lines of Credit
-------------------------
The Company has a revolving line of credit agreement for aggregate
borrowings of up to $5,000,000. Interest is payable on all outstanding
cash advances at the bank's base lending rate (closely related to the
bank's prime interest rate) plus 1/2%. At December 31, 1996 the
interest rate was 8.75%. Any unpaid principal and accrued interest is
due on demand, but no later than October 31, 1998. The line of credit
is collateralized by accounts receivable, inventory and equipment. The
terms of the agreement require, among other provisions, that the
Company comply with requirements for maintaining certain cash flow and
other financial ratios and restricts the payment of cash dividends. As
of December 31, 1996, $2,710,000 has been drawn upon the Company's
line of credit.
6. Long Term Debt
--------------
Long term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C>
December 31, June 30,
1996 1996
------------------ -----------------
Various mortgages and notes payable with
interest rates ranging from 7.63% to 1% over
prime. Monthly payments range from $3,198
to $29,000 and expiration dates range from
1997 to 2007. $ 612,208 $ 2,601,190
Loan payable to bank in monthly installments
of $30,000 plus interest at the bank's base rate
(prime) plus 1/2%, maturing October 1998;
collateralized by accounts receivables,
inventory and equipment. The terms of the
agreement require, among other provisions,
that the Company comply with certain ratios
and covenants. 1,800,000 0
----------------- ----------------
2,412,208 2,601,190
Less current portion (425,130) (935,127)
================= ================
$ 1,987,078 $ 1,666,063
================= ================
</TABLE>
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
- --------
Digital Communications Technology Corporation ("the Company") continued
to enjoy significant sales growth for the quarter and six month period ended
December 31, 1996. Net sales for the three months ended December 31, 1996
increased approximately 11% to an all-time quarterly record. Net sales for the
six month period ended December 31, 1996 increased approximately 19% and were
also the highest six months' sales in the Company's history. The Company,
however, experienced a decline in operating profits, both in real terms and as a
percentage of net sales. Increases in cost of goods sold and general and
administrative expenses, particularly legal fees associated with the shareholder
derivative lawsuit (approximately $100,000), contributed to the lower operating
profits.
Liquidity
- ---------
The Company utilized approximately $1,034,000 and $570,000 in cash from
operating activities for the six months ended December 31, 1996 and 1995,
respectively. The Company's operating cash position is due primarily to the
large increase in accounts receivable which was partially offset by an increase
in accounts payable and a decrease in the level of inventory.
Accounts receivable increased approximately $3,288,000 from the balance
at June 30, 1996. The increase is due to the corresponding increase in net sales
for the current six month period. The Company's accounts receivable collection
period (measuring how quickly, on average, the Company collects its accounts
receivable) increased from approximately 61 days at June 30, 1996 to
approximately 86 days at December, 1996. The increase is due to the significant
amount of billings that occurred during the last quarter. These billings
negatively affected the average days in collection by increasing the balance of
accounts receivable at the end of the period. The Company continues to receive
competitive pressures from its customers to grant longer payment terms.
Management will continue to focus on this area to improve credit and collections
efforts.
Accounts payable increased approximately $445,000 for the six months
ended December 31, 1996 as compared to a decrease of approximately $577,000 for
the same period ended December 31, 1995. The increase in accounts payable in the
current period is due primarily to the growth in sales volume that has dictated
additional purchases. In addition, efforts to maintain a low outstanding balance
on the revolving line of credit have contributed to the increase.
Overall inventory levels declined by $511,000 from June 30, 1996 to
December 31, 1996. The reduction is primarily due to the decrease in the amount
of raw materials on hand. Management has been successful in its efforts to
ensure that the least amount of operating cash is invested in inventory by
insisting that shipments of raw materials are made on a just-in-time basis.
Inventory levels, particularly in the work-in-process and finished goods
categories, will fluctuate somewhat depending on the size and number of video
tape duplicating orders processed at any given time. Typically, the Company does
not stock significant quantities of finished products, shipping orders
immediately upon completion.
Approximately $11,000 in net cash was used in investing activities for
the six month period ended December 31, 1996 as compared to approximately
$684,000 in cash provided by investing activities for the corresponding period
of the prior year. The primary reason for this change in position is the
increase in capital expenditures in the current period (see Capital Resources
below).
6
<PAGE>
The Company utilized its line of credit to provide approximately
$1,084,000 for working capital needs during the six months ended December 31,
1996 and repaid approximately $189,000 in long-term debt. Management intends to
selectively utilize its line of credit to fund working capital requirements when
needed, and expects to reduce the amount outstanding on the line of credit as
collections on accounts receivable are received.
During the six month period ended December 31, 1996, the Company's cash
needs were met primarily through operations. Long-term liquidity needs are
anticipated to be met through sales growth and separate financing arrangements.
Management anticipates that it will continue to meet most obligations as they
come due, and no vendor/supplier problems are expected.
Capital Resources
- -----------------
The Company invested approximately $945,000 in equipment and leasehold
improvements for the six month period ended December 31, 1996. These larger
capital outlays related primarily to expenditures for duplication, loading,
packaging, and leasehold improvements at both the Company's Indianapolis and Ft.
Lauderdale facilities. The Company plans to continue to expand current operating
facilities in order to fully meet the high volume demands of the
retail-sell-through market. The Company intends to finance these expenditures
through operations and through separate financing arrangements.
Results of Operations
- ---------------------
Overall growth in the Company's target markets led to continued sales
growth of approximately 19% in the current fiscal year to date. Net sales for
the three months ended December 31, 1996 increased approximately 11% to an
all-time quarterly record of $8,794,000, up from $7,896,000 for the same period
ended December 31, 1995. Net sales of $15,814,000 for the six month period ended
December 31, 1996 were also the highest in the Company's history, compared with
$13,282,000 for the same period last year. Significant sales increases were
experienced in the last quarter as orders were filled to meet the holiday buying
season demands. As in prior periods, management's focus on the
retail-sell-through market resulted in this sales surge. This market centers on
sales of pre-recorded video tapes which are sold at the retail level. The
Company's customer base has become increasingly dominated by the companies which
distribute these pre-recorded videos to the retail sell-through market, and
management has positioned the Company to capitalize on this portion of the video
industry.
Operating profit did not match the increased sales, declining from
approximately $514,000 (6.5% of net sales) to $446,000 (5.1% of net sales) for
the three months ended December 31, 1995 and 1996, respectively. A similar
decline was experienced for the six months ended December 31, 1996. Operating
profit for this period declined from approximately $805,000 (6.1% of net sales)
in the prior year to $614,000 (3.9% of net sales). The decline in operating
profit is due to increases in cost of goods sold and general and administrative
expenses, particularly legal fees associated with the shareholder derivative
lawsuit (approximately $100,000).
Cost of goods sold, as a percentage of sales, increased to 80% for the
six months ended December 31, 1996 as compared to 79% for the six months ended
December 31, 1995. The increased cost of goods sold is directly attributable to
increased usage of temporary labor and the cost of offloading excess production
volumes to other duplicators. Use of these outside sources was unavoidable in
order to complete customer orders that exceeded existing capacity at both
facilities. The lack of sufficient capacity was due to unexpected delays in the
installation of new capacity. Management has already taken the steps necessary
to provide for the increase in sales volume by providing for new duplication and
packaging equipment. In addition, increased consultant fees were incurred in the
current period as hands-on outside experts were utilized to accelerate the
7
<PAGE>
implementation of expanded capacity and new management methods in the
Indianapolis facility. Management recognizes that cost containment through
efficiency gains and productivity improvements is essential to the Company's
continued profitable growth and will continue to analyze and monitor the
Company's performance in this area.
Selling expenses increased in relative proportion to the increase in
net sales for the three months ended December 31, 1996. As a percentage of net
sales, selling expenses remained relatively consistent, decreasing from 4.2% to
4.1% for the six months ended December 31, 1995 and 1996, respectively.
General and administrative expenses increased for the six months ended
December 31, 1996 to approximately $1,188,000 (7.5% of net sales) as compared to
approximately $844,000 (6.4%) for the corresponding period of the prior year.
The increase in the percentage of net sales is attributable to salary increases
and additional legal fees incurred in connection with the shareholder derivative
lawsuit. See discussion of this matter in the Company's Form 10-KSB.
The Company realized income from securities transactions of
approximately $92,000 for the six months ended December 31, 1996 as compared to
approximately $72,000 for the corresponding period of the prior year. The gains
were from investment transactions associated with the Company's marketable
securities portfolio. The Company invests funds in equity securities, mainly
listed on the New York and American Stock Exchanges, and by policy, limits the
amount of exposure in any one equity investment. Such investments are
continually monitored to reduce the risk of any adverse stock market volatility.
Cash not invested in securities is placed on account with brokerage firms, which
is swept daily into a federally insured money market account, or placed on
account with a federally insured national bank.
Interest expense decreased sharply from approximately $380,000 to
$212,000 for the six months ended December 31, 1995 and 1996, respectively and
from approximately $204,000 to $103,000 for the three months ended December 31,
1995 and 1996, respectively. This decrease is due to decreased borrowings on the
Company's line of credit.
During June 1995, the Company's management decided to discontinue the
operations of Tapes Unlimited, Inc. (TU). Management believed that the cost of
maintaining the TU subsidiary outweighed the benefits provided to the Company.
The effect on net income of the operations of TU is segregated on the face of
the income statement as discontinued operations, and totaled approximately
$95,000 net of income taxes, for the six months ended December 31, 1995.
Although all operations at TU have ceased, certain collection efforts are still
conducted by the Company on behalf of TU. These efforts, along with debt
forgiveness resulting from settlements with TU creditors, resulted in recoveries
which is reflected in the income from discontinued operations for the six months
ended December 31, 1995. Such efforts are still ongoing, but did not produce
significant recoveries for the six months ended December 31, 1996.
Other Items
- -----------
The costs of the Company's products are subject to inflationary
pressures and commodity price fluctuations. In addition, the Company from time
to time experiences increases in cost of materials and labor, as well as other
manufacturing and operating expenses. The Company's ability to pass along such
increased costs through increased prices has been difficult due to competitive
pressures. The Company attempts to minimize the effects of inflation on its
operations by controlling these costs.
The Company's sales levels generally follow the retail-sell-through
markets, which typically peak in the fall and early winter months as retail
demand and holiday orders are met. The Company has attempted to mitigate this
seasonality by increasing sales efforts to lower volume, but higher margin
customers such as those involved with corporate training video duplication and
the video rental market. Finally, management intends to focus its marketing
efforts toward the mass marketing advertising industry to help mitigate the
seasonality of the retail-sell-through markets. Even by utilizing these
techniques, sales levels are still expected to be lower in the spring and summer
months.
8
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders of the Company was held on December
17, 1996 at the Company's corporate offices in Dallas, Texas.
A proposal to elect Kevin B. Halter to hold office as director until
the next annual election of directors by stockholders was approved as follows:
4,974,245 shares, or 99.49% of the outstanding shares represented at
the meeting voted in favor of the proposal. 9,264 shares, or 0.18% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect Kevin B.Halter, Jr.to hold office as director until
the next annual election of directors by stockholders was approved as follows:
4,974,245 shares, or 99.49% of the outstanding shares represented at
the meeting voted in favor of the proposal. 9,264 shares, or 0.18% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect Gary C. Evans to hold office as director until the
next annual election of directors by stockholders was approved as follows:
4,973,245 shares, or 99.47% of the outstanding shares represented at
the meeting voted in favor of the proposal. 10,124 shares, or 0.20% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect James Smith to hold office as director until the
next annual election of directors by stockholders was approved as follows:
4,972,070 shares, or 99.44% of the outstanding shares represented at
the meeting voted in favor of the proposal. 11,439 shares, or 0.23% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect Don R. Benton to hold office as director until the
next annual election of directors by stockholders was approved as follows:
4,966,990 shares, or 99.34% of the outstanding shares represented at
the meeting voted in favor of the proposal. 16,519 shares, or 0.33% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
A proposal to elect Hugh C. Coppen to hold office as director until the
next annual election of directors by stockholders was approved as follows:
4,978,535 shares, or 99.57% of the outstanding shares represented at
the meeting voted in favor of the proposal. 4,974 shares, or 0.10% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
9
<PAGE>
A proposal to ratify the appointment of Coopers & Lybrand L.L.P. as
independent auditors was approved as follows:
4,947,635 shares, or 98.78% of the outstanding shares represented at
the meeting voted in favor of the proposal. 9,832 shares, or 0.71% of
the outstanding shares represented at the meeting voted against the
proposal. 16,455 shares, or 0.33% of the outstanding shares represented
at the meeting abstained from voting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Loan and Security Agreement, together with Promissory Notes with Bank
One, Texas, N.A.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended December 31, 1996.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
By: /s/ Douglas L. Miller Date: February 14, 1997
-------------------------------------------
Douglas L. Miller, Vice-President and
Chief Financial Officer
<PAGE>
Exhibit 10.1
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") made and entered into as
of the day of acceptance by and between the undersigned Debtor and BANK ONE,
TEXAS, NATIONAL ASSOCIATION:
W I T N E S S E T H
1. Definitions. The following definitions shall apply:
(a) "Accounts Advance Rate" shall mean the percentage of
Debtor's Eligible Accounts that may be used in determining the
Borrowing Base. The Accounts Advance Rate for any month shall be the
percentage set forth below opposite the applicable Dilution Percentage
as determined by Bank from time to time:
Dilution Percentage Accounts Advance Rate
0 - 5.0 % up to 85 %
5.1 % - 8.0 % up to 80 %
8.1 % - 10.0 % up to 75 %
10.1 % and higher to be determined in Bank's
sole discretion
(b) "Adjusted Net Income" means, with respect to any period,
consolidated net earnings (before reduction for federal income taxes
but after reduction for any gain or loss on the sale of extraordinary
items) of Debtor for such period, determined in accordance with GAAP.
(c) "Affiliate" shall mean any individual or entity directly
or indirectly controlling, controlled by, or under common control with,
or otherwise related to Debtor or any Obligated Party and shall include
but not be limited to any partnership, joint venture, joint stock
company, corporation, parent company or subsidiary or other company or
person in which any Obligated Party or any person related to any
Obligated Party by blood, adoption or marriage no more remotely than
two degrees of relationship shall own, directly or indirectly, of
record or beneficially, or hold, directly or indirectly, the power to
control the vote of, more than 10% of the voting stock of, or other
equity interest in, such entity.
(d) "Average Monthly Availability" shall mean the amount
obtained by adding the average daily availability for each month in a
calendar year and dividing by twelve, and "average daily availability"
for a month shall be the amount obtained by adding the difference
between (i) the Borrowing Base, and (ii) the unpaid balance of
Revolving Loans owing by Debtor to Lender at the end of each day during
a calendar month in question and by dividing such sum by the number of
days in such a calendar month.
(e) "Bank" shall mean BANK ONE, TEXAS, NATIONAL ASSOCIATION,
of Dallas, Texas, whose mailing address is 1717 Main Street, Dallas,
Texas 75201.
(f) "Borrower" shall mean Debtor and any person or entity
specified in Addendum I attached hereto and incorporated herein by
reference, or any of them.
<PAGE>
(g) "Borrowing Base" shall mean, as of any date of
determination, the lesser of (i) $5,000,000.00, or (ii) the sum of (1)
the product of (A) the Accounts Advance Rate, and (B) Eligible
Accounts, plus (2) the product of (A) the Inventory Advance Rate, and
(B) Eligible Inventory; provided, however, that the product of the
Inventory Advance Rate and Eligible Inventory shall not exceed 50% of
the Borrowing Base and "speculative inventory" (hereinafter defined)
shall not exceed 10% of total inventory, less (3) the Reserve, and less
(4) the unpaid balance on that certain loan to Debtor from the U.S.
Small Business Administration in the original principal amount of
$515,000.00, all determined as of such date of determination. The
reserve for the loan to Debtor from the U.S. Small Business
Administration shall be deleted upon the execution between Bank and the
U.S. Small Business Administration of an intercreditor agreement in
form and substance acceptable to Bank. As used herein "speculative
inventory" means finished goods inventory that is not subject to a
purchase order.
(h) "Business Day"shall mean any calendar day except Saturday,
Sunday and those legal public holidays specified in 5 U.S.C.
ss.6103(a), as may be amended from time to time.
(i) "Capital Expenditure Loan" shall have the meaning assigned
to such term in Section 2 (d).
(j) "Code" shall mean the Uniform Commercial Code as in effect
in the State of Texas on the date of this Agreement or as it may
hereafter be amended from time to time.
(k) "Collateral" shall mean all that certain property
described in Addendum II attached hereto and incorporated herein by
reference.
(l) "Contract Rate" shall mean a rate calculated on the basis
of actual days elapsed but computed as if each year consisted of 360
days, equal to the sum of (i) the Base Rate (the "Base Rate") of
interest as established from time to time by the Bank (which may not be
the lowest, best or most favorable rate of interest which Bank may
charge on loans to its customers), plus (ii) one half percent (0.50 %)
per annum. With respect to the Revolving Loan only, if (A) the
Shareholder Suit is resolved in a manner satisfactory to Bank, and (B)
no Default or Event of Default has occurred hereunder, such rate shall
be reduced after the final resolution of the Shareholder Suit to the
sum of (1) the Base Rate, plus (2) one quarter percent (0.25%).
(m) "Debtor" shall mean Digital Communications Technology
Corporation, a Delaware corporation, whose chief executive office is
located at 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.
(n) "Default" means any of the events specified in Section 14,
regardless of whether there shall have occurred any passage of time or
giving of notice or both that would be necessary in order to constitute
such event an Event of Default.
(o) "Default Rate" shall mean at the time in question a per
annum rate equal to the lesser of (i) the Base Rate then in effect plus
four percent (4.0%), or (ii) the Maximum Rate.
(p) "Dilution Percentage" means, as of any date of
determination, the ratio of (i) the sum of (a) all non-cash credits
given by Debtor to account debtors or obtained by account debtors
during the 12-month period ending on the date of determination, plus
(b) bad debt expense incurred or accrued by Debtor during such period
to (ii) the aggregate face amount of all accounts receivable generated
by Debtor during such 12-month period.
<PAGE>
(q) "Distributions" means, in respect of any corporation, cash
distributions or dividends or any other distributions of property on,
or in respect of, any class of capital stock of such corporation,
except for distributions made solely in shares of stock of the same
class, and means, in respect of any partnership or other unincorporated
entity, cash distributions or any other distributions of property on,
or in respect of, any capital or profits interest in such partnership
or other entity.
(r) "Eligible Accounts" means, as of any date, all accounts
receivable of Debtor arising from the sale of goods or rendering of
services by Debtor other than the following: (a) accounts which remain
unpaid more than the lesser of one hundred twenty (120) days past their
respective invoice dates or sixty (60) days past their respective due
dates; (b) accounts which are not due and payable within sixty (60)
days after their respective invoice dates; (c) all accounts owing by a
single account debtor if twenty percent (20%) or more of the then
balance owing by said account debtor is ineligible pursuant to clause
(a) and/or (b) above; (d) accounts with respect to which the account
debtor is a shareholder, partner, director, officer, employee, agent or
Affiliate of Debtor, (e) accounts with respect to which payment by the
account debtor is or may be conditional and accounts commonly known as
"bill and hold" or accounts of a similar or like arrangement; (f)
accounts with respect to which the account debtor is not a resident or
citizen of or otherwise located in the continental United States of
America, or with respect to which the account debtor is not subject to
service of process in the continental United States of America, unless
such accounts are backed in full by irrevocable letters of credit in
the form and substance satisfactory to the Bank issued by domestic
commercial banks acceptable to the Bank, or backed by an Export/Import
Bank guaranteed financing program acceptable to Bank, but in the event
of such credit enhancement, such accounts rendered Eligible Accounts
thereby shall not exceed an aggregate of One Million Dollars
($1,000,000.00); provided, however, Eligible Accounts may include
unbacked accounts otherwise eligible hereunder that are denominated in
U.S. dollars and are owed by account debtors located in Canada up to a
maximum of $750,000.00, which Canadian accounts are not counted in
calculating the foregoing $1,000,000.00 limitation; (g) accounts in
excess of a total amount of One Hundred Thousand Dollars ($100,000.00)
(for all government accounts) with respect to which the account debtor
is the United States of America, any state of the United States or any
other governmental body or any department, agency or instrumentality of
any of the foregoing unless such accounts are duly assigned to the Bank
in compliance with all applicable governmental requirements (including,
without limitation, the Federal Assignment of Claims Act of 1940, as
amended, if applicable) so that the Bank is recognized by the account
debtor to have all of the rights of an assignee of such accounts; (h)
accounts with respect to which Debtor is or may become liable to the
account debtor for goods sold or services rendered by such account
debtor to Debtor, but only to the extent of Debtor's then aggregate
liability to such account debtor (i.e. the excess of the aggregate face
amount of accounts of such account debtor to the Debtor over the
aggregate liability of Debtor to such account debtor shall constitute
an Eligible Account unless otherwise excepted under the terms of this
<PAGE>
section); (i) accounts with respect to which the goods giving rise
thereto have not been shipped and delivered to and accepted as
satisfactory by the account debtor thereof or with respect to which the
services performed giving rise thereto have not been completed and
accepted as satisfactory by the account debtor thereof; (j) accounts
which are not invoiced (and dated as of such date) and sent to the
account debtor thereof concurrently with or not later than five (5)
days after shipment or delivery to or acceptance by the account debtor
of goods giving rise thereto or the performance of the services or sale
of goods giving rise thereto; (k) accounts arising from a consignment
sale, a "sale on approval" or a "sale or return", (l) accounts with
respect to which possession and/or control of the goods sold giving
rise thereto is held, maintained or retained by Debtor (or any agent or
custodian of Debtor) for the account of or subject to further and/or
future direction from the account debtor thereof ; (m) accounts as to
which the Bank, at any time or times hereafter, determines, in good
faith, that the prospect of payment or performance by the account
debtor is or will be impaired in any material respect; (n) accounts of
an account debtor to the extent, but only to the extent, that the same
exceed a credit limit determined by the Bank in its reasonable
discretion, at any time or times hereafter; (o) accounts with respect
to which the account debtor is located in the State of New Jersey, the
State of Minnesota or the State of Indiana; provided, however, that
such restriction shall not apply if Debtor (i) has filed and has
effective (A) in respect of account debtors located in the State of New
Jersey, a Notice of Business Activity Report with the New Jersey
division of Taxation for the then current year, (B) in respect of
account debtors located in the State of Minnesota, a Minnesota Business
Activity Report with the Minnesota Department of Revenue for the then
current year or (C) in respect of account debtors located in the State
of Indiana, a Business activities Report with the Indiana Department of
Revenue for the then current year, as applicable, or (ii) is otherwise
exempt from such reporting requirements under the laws of such
State(s); (p) accounts which are not subject to a first priority
perfected security interest in favor of Bank; and (q) that portion of
an account balance owed by a single account debtor which exceeds
twenty-five percent (25%) of total accounts receivable otherwise deemed
eligible here under, unless waived in writing by Bank.
(s) "Eligible Inventory" means, as of any date of
determination (the value determined at the lower of cost or market on a
GAAP average cost basis) of all inventory owned by and in the
possession of Debtor and located in the United States of America that
Bank, in its sole credit judgment, deems to be eligible for borrowing
purposes. Without limiting the generality of the foregoing, unless
otherwise agreed by Bank, the following is not Eligible Inventory: (a)
work-in-process; (b) finished goods which do not meet the
specifications of the purchase order for such goods; (c) inventory
which Bank determines, in the exercise of reasonable discretion and in
accordance with Bank's or Debtor's customary business practices, to be
unacceptable for borrowing purposes due to age, quality, type,
category, category margin deterioration and/or quantity; (d) inventory
with respect to which Bank does not have a valid, first priority and
fully perfected security interest; (e) inventory with respect to which
there exists any Lien in favor of any Person other than Bank; (f)
inventory produced in violation of the Fair Labor Standards Act, in
particular provisions contained in Title 29 U.S.C. 215(a)(i); (g)
inventory located at any location other than those listed on Addendum
<PAGE>
VI , (h) inventory situated at a location for which there is no valid
landlord waiver or mortgagee waiver, as appropriate, in each instance
in form and substance acceptable to Secured Party in its sole
discretion, and (i) inventory that is "reworkable" or "seconds"
inventory.
(t) "Fixed Charge Coverage Ratio" means, as of any date, the
ratio of the following items on a consolidated basis (i) year to date
after tax earnings, plus depreciation, amortization and interest
expense, less Distributions and less 66% of gains on financial assets,
to (ii) current maturities of Funded Debt, plus the current portion of
capital leases, plus interest expense, plus Unfunded Capital
Expenditures.
(u) "Funded Debt" means, as of any date, the sum of the
following (without duplication) for Debtor on a consolidated basis: (i)
the aggregate of all indebtedness for borrowed money of Debtor as of
such date, other than current liabilities, (ii) all indebtedness which
would be classified as "funded indebtedness" or "long-term
indebtedness" (or other similar classification) on a balance sheet of
Debtor prepared as of such date in accordance with GAAP, (iii) the
aggregate of all indebtedness of Debtor outstanding under any revolving
credit or similar agreement providing for borrowing (and renewals and
extensions thereof) over a period of more than one year,
notwithstanding the fact that any such indebtedness is created within
one year of the expiration of such agreement and (iv) the amount of all
obligations in respect of capital leases of Debtor booked in accordance
with GAAP.
(v)"GAAP" means generally accepted accounting principles and
practices, consistently applied.
(w) "Indemnified Persons" means, collectively, Secured Party
and its officers, directors, shareholders, employees, agents, attorneys
and representatives, and any Person owned or controlled by, or which
owns or controls or is under common control or is otherwise affiliated
with, Secured Party, and any other Person, if any, who acquires a
portion of the Collateral in any manner through Secured Party's
exercise of rights and remedies under the Loan Documents.
(x) "Inventory Advance Rate" means the percentage of Debtor's
Eligible Inventory that may be used in determining the Borrowing Base.
Such percentage shall equal up to 45% of Eligible Inventory consisting
of finished goods and up to 40% of Eligible Inventory consisting of raw
materials. Six months after the date of the initial advance hereunder
the Inventory Advance Rates shall increase to up to 55% of Eligible
Inventory consisting of finished goods and up to 50% of Eligible
Inventory consisting of raw materials provided that (i) no Default or
Event of Default has occurred hereunder, (ii) Bank has performed two
quarterly field exams that were satisfactory to Bank, (iii) Debtor's
inventory and perpetual inventory accounting system are satisfactory to
Bank, and (iv) Debtor has a positive fiscal year to date Adjusted Net
Income.
(y) "Investment" in any Person means any investment, whether
by means of share purchase, loan, advance, purchase of debt instrument,
extension of credit (other than accounts receivable arising from the
sale of goods or services in the ordinary course of business), capital
contribution or otherwise, in or to such Person, the guaranty of any
indebtedness of such Person or the subordination of any claim against
such Person to other indebtedness of such person or entity.
(z) "Letter of Credit" means, individually, any letter of
credit issued by Secured Party for the account of Debtor, and any
renewal or extension of any of the foregoing, and "Letters of Credit"
means all such letters of credit collectively.
(aa) "Letter of Credit Exposure" means, as of any date, the
aggregate undrawn maximum face amount of all Letters of Credit on such
date.
<PAGE>
(bb) "Letter of Credit Obligations" means any obligations of
Debtor under this Agreement in connection with the Letters of Credit.
(cc) "Loan Documents" shall mean this Agreement and all other
documents and instruments executed in connection herewith (including
without limitation, all notes, documents, agreements and instruments
evidencing, securing, governing, guaranteeing and/or pertaining to the
indebtedness created or arising hereunder and all documents and
agreements relating to any Letter of Credit), as the same may be
amended, restated, renewed, extended, or otherwise modified.
(dd) "Maturity Date" shall mean October 31, 1998.
(ee) "Maximum Rate" shall mean at any particular time in
question the maximum rate of interest which, under applicable law
(including federal laws), may then be charged on the sums advanced
hereunder.
(ff) "Obligated Party" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay
all or any portion of the Obligations.
(gg) "Obligations" shall mean (i) all loans or other advances
made by Secured Party to Borrower pursuant to this Agreement or
otherwise (including without limitation, all notes, documents,
agreements and instruments evidencing, securing, governing,
guaranteeing and/or pertaining to the indebtedness created or arising
hereunder and all documents and agreements relating to any Letter of
Credit), (ii) all future advances or other value, of whatever class or
for whatever purpose, at any time hereafter made or given by Secured
Party to Borrower, whether or not the advances or value are given
pursuant to commitment and whether or not Borrower is indebted to
Secured Party at the time of such advance; (iii) any and all other
debts, liabilities and duties of every kind and character of Borrower
to Secured Party, whether now or hereafter existing, and regardless of
whether such present or future debts, liabilities or duties are direct
or indirect, primary or secondary, joint, several, or joint and
several, fixed or contingent, and regardless of whether such present or
future debts, liabilities or duties may, prior to their acquisition by
Secured Party, be or have been payable to, or be or have been in favor
of, some other person or have been acquired by Secured Party in a
transaction with one other than Borrower (it being contemplated that
Secured Party may make such acquisitions from others), howsoever such
indebtedness shall arise or be incurred or evidenced; (iv) interest on
all of the debts, liabilities and duties set forth in (i), (ii) and
(iii) above; and (v) any and all renewals and extensions of such debts,
liabilities and duties set forth in (i), (ii), (iii) and (iv) above, or
any part thereof.
(hh) "Person" means an individual, corporation, partnership,
joint venture, association, governmental entity, court or any other
entity.
(ii) "Permitted Liens" means the security interests held by
Mid-City Pioneer Corporation in certain listed equipment of Debtor,
which lien shall be subordinated to the Obligations upon terms and
conditions acceptable to Bank in its sole discretion.
<PAGE>
(jj) "Reserve" at any time shall mean an amount from time to
time established by Secured Party in its discretion as a reserve in
reduction of the Borrowing Base in respect of contingencies or other
potential factors which, in the event they should occur, could
adversely affect or otherwise reduce the anticipated amount of timely
collections in payment of Eligible Accounts or the anticipated amount
of proceeds which could be realized upon liquidation of Eligible
Inventory. The "Reserve," if any from time to time, does not represent
cash funds.
(kk)"Revolving Line" means Five Million and No/100 Dollars
($5,000,000.00).
(ll) "Revolving Loans" means all loans and advances made by
Secured Party to Debtor pursuant to Section 2 herein.
(mm) "Secured Party" means the Bank, and its successors and
assigns, including specifically, any party to whom the Bank, or its
successors or assigns, may assign its rights and interests under this
Agreement.
(nn)"Shareholder Suit"means the lawsuit styled Richard Abrons,
on behalf of Digital Communications Technology Corporation and Adrian
Jacoby, on behalf of S.O.I. Industries, Inc., Derivative Plaintiffs,
vs. Kevin B. Halter, et al, Cause No. 96-02169-G.
(oo) "Subsidiary" means any corporation more than 50% of the
voting shares of which is at the time owned by Debtor directly or
indirectly through Subsidiaries.
(pp) "Tangible Leverage Ratio" means the ratio of Total
Liabilities to Tangible Net Worth.
(qq) "Tangible Net Worth" means, as of any date, the total
shareholders' equity (including additional paid-in capital and retained
earnings) which would appear on a consolidated balance sheet of Debtor
prepared as of such date in accordance with GAAP plus subordinated
debt, less the aggregate book value of Intangible Assets shown on such
balance sheet, provided that, for purposes of Section 12(p), Tangible
Net Worth shall be determined using total shareholders' equity
(including additional paid in capital and retained earnings),
subordinated debt, and Intangible Assets which would appear on an
unconsolidated balance sheet of Debtor prepared in accordance with
GAAP. For this purpose, "Intangible Assets" means assets which are
treated as intangible pursuant to GAAP, including without limitation
(i) obligations owing from any persons that are officers, directors,
shareholders, employees, subsidiaries, any entity in which any such
person owns any interest, or any other Affiliate, (ii) any asset which
is intangible or lacks intrinsic and marketable value or
collectibility, including without limitation, goodwill, noncompetition
agreements, patents, copyrights, trademarks, franchises or organization
or research and development costs.
<PAGE>
(rr)"Term Loan" shall have the meaning assigned to such term
in Section 2(c).
(ss) "Total Liabilities" means, as of any date, Funded Debt,
plus consolidated current liabilities, plus all other consolidated
liabilities which would be reflected on a consolidated balance sheet
prepared in accordance with GAAP, of Debtor.
(tt) "Unfunded Capital Expenditures" means the annual amount
of consolidated capital expenditures that are not financed by either
(i) loans, or (ii) capital leases. All words and phrases used herein
which are expressly defined in Section 1.201 or in Chapter 9 of the
Code shall have the meaning provided for therein. Other such words
and phrases defined elsewhere in the Code shall have the meanings
specified therein except to the extent such meaning is inconsistent
with a definition in Section 1.201 or Chapter 9.
For purposes of defining financial terms used in calculating Debtor's
compliance with financial covenants contained herein, all "realized" trading
profits from Debtor's financial assets shall be excluded from income and all
"realized" losses from such items shall be included in income.
The term "consolidated", when used in connection with any accounting
terms, financial covenants or defined terms used in any financial covenants,
shall refer to Debtor and its Subsidiaries.
2. Loans and Letters of Credit.
(a) Revolving Loans. Subject to the terms and provisions hereof and
provided that the aggregate principal outstanding on the Revolving Loans plus
the Letter of Credit Exposure does not then exceed the Borrowing Base, Secured
Party shall, from time to time, make loans to Borrower secured by the Collateral
and evidenced by one or more promissory notes in the form of Exhibit A hereto.
The maximum aggregate principal balance outstanding at any one time under this
Section 2(a) plus the Letter of Credit Exposure shall not exceed the Borrowing
Base as then determined by the Bank in its sole discretion. Unless accelerated
in accordance with the terms hereof, all outstanding principal and unpaid
accrued interest constituting Revolving Loans shall be due and payable in full
on the Maturity Date.
(b) Letters of Credit. Subject to the terms hereof, Secured Party will,
from time to time, upon request by Borrower, issue Letters of Credit for the
account of Borrower provided that (i) the maximum undrawn face amount of all
Letters of Credit outstanding at any time (including the amount of the requested
Letter of Credit) does not exceed $500,000.00, (ii) Borrower would be entitled
to an advance under Section 2(a) in the amount of the requested Letter of
Credit, (iii) the Letter of Credit is for a business purpose, and (iv) any
Letter of Credit issued hereunder shall terminate on or before the Maturity
Date. As a condition to the issuance of any Letter of Credit, Borrower shall
execute and deliver to Secured Party its customary Letter of Credit application
and shall pay to Secured Party, in addition to clerical issuance and transaction
costs charged by Secured Party, a Letter of Credit fee as provided therein, in
an amount equal to one sixth (1/6) of one percent (1%) per month of the unfunded
face amount thereof. Each Letter of Credit shall be issued in form satisfactory
to Secured Party. The amount, if any, from time to time funded by Secured Party
for the account of Borrower under any Letter of Credit shall be reimbursed and
paid by Borrower to Secured Party on demand, or, at Secured Party's option,
charged to Borrower as a Revolving Loan, whether or not Borrower would be
entitled to an advance for such amount pursuant to Section 2(a).
<PAGE>
(c) Term Loan.Subject to the terms and conditions hereof, Secured Party
agrees to lend to Debtor in a single advance the amount of $1,800,000.00 (the
"Term Loan"). The Term Loan shall be secured by the Collateral and evidenced by
a promissory note in the form of Exhibit B hereto. Unless accelerated in
accordance with the terms hereof, the principal of the
Term Loan shall be due and payable in equal, consecutive monthly payments in the
amount of $30,000.00 each on the first business day of each month, commencing on
December 1, 1996, and continuing each month thereafter, and in one final payment
of all outstanding principal on the earlier of (i) the Maturity Date, or (ii)
the termination of this Agreement pursuant to Section 17 hereof.
(d) Capital Expenditure Loan. Subject to the terms and conditions
hereof, Secured Party shall make loans to Debtor, from time to time, up to an
aggregate amount equal to the lesser of (i) $1,950,000.00 or (ii) 80% of the
"hard acquisition cost" of newly acquired Equipment in which Secured Party has
been granted a first priority, perfected security interest (the "Capital
Expenditure Loan"). As used herein the term "hard acquisition cost" shall mean
the total cost of an item less related freight, installation costs, sales taxes
and other expenses. The Capital Expenditure Loan shall be secured by the
Collateral and evidenced by a promissory note in the form of Exhibit C hereto.
Requests for advances under the Capital Expenditure Loan shall be made by
submitting to Secured Party (i) a completed request for Capital Expenditure Loan
advance, and (ii) the original invoice for the Equipment to be purchased with
the proceeds of such advance. Unless accelerated in accordance with the terms
hereof, each advance under the Capital Expenditure Loan shall be amortized over
a sixty (60) month period with payments due and payable commencing on the first
day of the month after the initial advance under the Capital Expenditure Loan,
and continuing on the first day of each month thereafter, and in one final
payment of all outstanding principal on the earlier of (i) the Maturity Date, or
(ii) the termination of this Agreement pursuant to Section 17 hereof. Advances
under the Capital Expenditure Loan shall be in a minimum amount of $100,000.00.
3. Security Interest. As security for all Obligations, Debtor, for
value received, hereby grants to Secured Party a continuing security interest
in, and assigns and pledges to Secured Party, the Collateral which it now owns
or holds or hereafter owns, holds or acquires. Secured Party may hold for
security any property, securities, guaranties or monies of Debtor which may at
any time come into the possession of Secured Party and may apply same or the
proceeds thereof to payment of any Obligations, as the Secured Party shall
elect, which at any time then or thereafter are owing to Secured Party. To the
extent that a security interest in the inventory and/or the equipment of Debtor
is granted to Secured Party hereunder, such security interest shall continue
through all stages of manufacture and shall, without further act, attach to the
accounts or other proceeds resulting from the sale or other disposition thereof
and to all such Collateral as may be returned to Debtor by its account debtors.
The designation of proceeds does not authorize Debtor to sell, transfer or
otherwise convey any of the Collateral except finished goods inventory intended
for sale in the ordinary course of Debtor's business.
4. Interest.(a) Contract Rate. Debtor agrees to pay, in addition to all
other amounts payable hereunder, interest on the principal amount of all sums
now or hereafter loaned or advanced by Secured Party to Debtor hereunder,
irrespective of whether such indebtedness of Debtor to Secured Party be
evidenced by promissory notes, drafts, acceptances or otherwise, at a
fluctuating rate per annum from the date any such indebtedness is created in
favor of Secured Party until maturity, which shall from day to day be equal to
the lesser of (i) the Maximum Rate, or (ii) the Contract Rate, each change in
the rate to be charged hereunder to be effective without notice to Debtor on the
effective date of each change in the Maximum Rate, the Base Rate, or the
Contract Rate, as the case may be; provided, however, that if at any time the
Contract Rate shall exceed the Maximum Rate, thereby causing the interest on the
Revolving Loans to be limited to the Maximum Rate as provided in (i) preceding,
then any subsequent reduction in the Contract Rate shall not reduce the rate of
interest on the Revolving Loans below the Maximum Rate until the total amount of
interest accrued on the Revolving Loans equals the amount of interest which
would have accrued thereon if the rate specified in (ii) preceding had at all
times been in effect.
<PAGE>
(b) General. If applicable law ceases to provide for such a maximum
rate of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum. Interest accrued hereunder shall be payable monthly on the first day of
each calendar month. To the extent that any interest due by Debtor is not paid
on the first day of each month, Secured Party may, at its option, add such
accrued interest to the principal indebtedness due by Debtor under the Revolving
Loans. After the occurrence and during the continuance of an Event of Default,
the outstanding principal balance of the Revolving Loans shall bear interest at
a rate of interest equal to the Default Rate. Notwithstanding any provisions
contained in this Agreement or in any of the other Loan Documents, the Secured
Party shall never be entitled to receive, collect or apply, as interest on the
indebtedness arising hereunder, any amount in excess of the Maximum Rate and, in
the event the Secured Party ever receives, collects or applies as interest any
such excess, such amount which could be excessive interest shall be applied to
the reduction of the unpaid principal balance of the indebtedness arising
hereunder, and, if the principal balance of such indebtedness is paid in full,
any remaining excess shall forthwith be paid to the Debtor. In determining
whether or not the interest paid or payable under any specific contingency
exceeds the Maximum Rate, Debtor and the Secured Party shall, to the maximum
extent permitted under applicable law, (i) characterize any non-principal
payment as a standby fee, commitment fee, prepayment charge, delinquency charge
or reimbursement for a third party expense, (ii) exclude voluntary prepayments
and the effect thereof, and (iii) amortize, prorate, allocate and spread in
equal parts throughout the entire period during which the indebtedness was
outstanding the total amount of interest at any time contracted for, charged or
received. Subject to the terms of this section, all checks and other items
received by Secured Party in payment of the Obligations shall be subject to a
charge for two (2) Business Days clearance.
5. Conditions to Closing. Prior to or simultaneous with the execution
and delivery hereof and as conditions precedent to the obligation of Bank to
make any loan hereunder, Debtor shall deliver, or cause to be delivered, to
Bank, the following, all in form and substance satisfactory to Bank and its
counsel or the following shall be fulfilled to the satisfaction of Bank, as the
case may be:
(a) A Revolving Loan note in the form of Exhibit A; a Term
Loan note in the form of Exhibit B and a Capital Expenditure Loan note
in the form of Exhibit C;
(b) An opinion of legal counsel for Debtor satisfactorily
addressing such matters as may be required by Bank and its counsel;
(c) A copy of the articles of incorporation, and all
amendments thereto, of Debtor, accompanied by the certificate of the
Secretary of State of the state of incorporation of Debtor, bearing a
date no more than thirty (30) days prior to the date hereof, to the
effect that each such copy is correct and complete and that Debtor is a
corporation duly incorporated and validly existing in such state, and
certified by the corporate secretary of Debtor dated the date hereof,
as being correct and complete as of the date hereof;
(d) A copy of the bylaws, and all amendments thereto, of
Debtor accompanied by a certificate from Debtor's corporate secretary,
dated the date hereof, to the effect that such copy is correct and
complete as of the date hereof;
(e) Certification of incumbency of all officers of Debtor
executed by the president or vice president and by the corporate
secretary of Debtor, as of the date hereof, certifying the name and
signature of each such officer;
<PAGE>
(f) A copy of corporate resolutions of Debtor approving this
Agreement, authorizing the transactions contemplated hereby, and
authorizing and directing a named officer or officers of Debtor to sign
and deliver all Loan Documents to be executed by Debtor, duly adopted
by Debtor's board of directors, accompanied by the certificate of the
corporate secretary, dated the date hereof, that such copy is a true
and complete copy of resolutions duly adopted by the board of
directors, and that such resolutions have not been amended, modified,
or revoked in any respect and are in full force and effect as of the
date hereof;
(g) Certification by the Comptroller of the States of Texas,
Indiana and Florida bearing dates no more than thirty (30) days prior
to the date hereof, to the effect that Debtor is in good standing with
respect to payment of franchise and similar taxes in such states;
(h) All financing statements and hypothecs required by Secured
Party in connection with perfection of Secured Party's security
interests in the Collateral and all termination statements and other
amendments to financing statements required by Secured Party to make
Secured Party's security interest in the Collateral a first priority
(and only) security interest therein subject, however, to the Permitted
Liens;
(i) Evidence of insurance in compliance with the requirements
of Section 11(g) and such loss payable endorsements as may be required
by Secured Party;
(j) Executed landlord's waivers and consents for each location
leased by Debtor and mortgagee waiver's from each location owned by
Debtor;
(k) Debtor shall have implemented administrative procedures
satisfactory to Secured Party, including, but not limited to, matters
relating to financial statements, receivable agings, inventory
summaries, collections, borrowing base reporting, projections, and
eligibility determination;
(l) Evidence that the difference between (i) the Borrowing
Base, and (ii) the unpaid balance of the Revolving Loans immediately
after closing will be at least $300,000.00;
(m) No material adverse change has occurred in the financial
condition of Debtor since the date of the most recent financial
statements delivered to Bank prior to closing;
(n)Debtor shall not have defaulted on any of its obligations
to any third parties;
(o) No litigation or other legal proceedings shall be pending
or threatened against Debtor (other than the Shareholder Suit) which
Bank in its sole discretion believes might adversely affect the
financial condition of Debtor;
(p) Satisfactory review by Bank and its legal counsel of the
Shareholder Suit;
(q) Satisfactory review of the audited financial statements of
Debtor for the fiscal year ended June 30, 1996;
(r) Satisfactory review of the company prepared interim
financial statements of Debtor for the period ended August 31, 1996 and
Debtor's chief financial officer's "flash estimate" for September
sales, margins and results;
(s) Payment to Bank of $6,513.29 for the initial field
examination by Bank and $8,238.00 for the ATEC equipment appraisal fee
and all out of pocket expenses of Bank including, without limitation,
attorneys' fees and expenses, examination expenses, appraisal costs,
and filing, search and recording fees;
<PAGE>
(t) Satisfactory review by Bank and its legal counsel of all
licenses, contracts and contingent liabilities of Debtor;
(u) Satisfactory subordination and inter-creditor agreements
with Mid-City Pioneer Corporation and the U.S. Small Business
Administration regarding their second lien on certain equipment;
(v) Satisfactory review and approval by Bank of trade checks
on Debtor's top five customers;
(w) Satisfactory review and approval by Bank of (i) Debtor's
pre-funding inventory and inventory records, and (ii) a sales backlog
analysis for the coming October through January period; and
(x) Such other agreements, instruments, certificates and
financing statements as Secured Party may request in order to perfect
or protect its interests and rights in the Collateral and under the
Loan Documents.
6. Unused Facility Fee. Debtor agrees to pay to Secured Party an unused
facility fee equal to one quarter percent (.25%) per annum of the average daily
unused portion of the Revolving Line in effect from time to time, payable
quarterly in arrears, beginning December 31, 1996 and continuing on each March
31, June 30, September 30 and December 31 thereafter during the term of this
Agreement and upon the termination hereof.
7. Assignment of Accounts. The execution and delivery of this Agreement
shall constitute, with respect to the accounts hereby assigned and pledged, an
agreement, representation and warranty by Debtor to Secured Party that, except
for the security interest of Secured Party therein:
(a) Debtor is the sole owner of and has full unrestricted
power and right to assign and pledge such accounts free from any lien,
security interest or encumbrance.
(b) Each account is in existence, unconditional and valid, and
arose from a bona fide outright sale of personal property usually sold
by Debtor, or for services usually performed by Debtor, in the ordinary
course of its business, for liquidated amounts and maturing as set
forth on its face and that such personal property has been shipped to
respective account debtors or such services have been performed for
respective account debtors.
(c) No account is subject to any sale, assignment, claim or
security interest of any character and Debtor will not make any sale or
other assignment thereof or create any other security interest therein.
(d) No account is subject to any claim for credit, deduction,
allowance or adjustment by an account debtor, or to any defense,
dispute, set-off or counterclaim, and there is no extension or
indulgence with respect thereto.
(e) Each account will be paid in full at maturity and if not
paid, Debtor will, upon demand, promptly pay the amount represented to
be owing thereon to Secured Party for application against the
Obligations in such manner as Secured Party may elect, or at Secured
Party's option such unpaid amount may be deducted from any payment then
or thereafter due from Secured Party to Debtor, and Secured Party may
retain such account as collateral for any of the Obligations.
<PAGE>
8. Establishment of Lock Box. So long as this Agreement shall be in
effect or any Obligations shall be outstanding, Borrower agrees that all sums
payable by any account debtor to Borrower in payment or on account of any of
Borrower's accounts shall be deposited in a payment account (the "Payment
Account") established pursuant to Secured Party's standard form of Lock Box
Agreement ("Lock Box Agreement") and maintained with Secured Party in the name
of Borrower, marked "Payment Account," over which Secured Party alone has power
of withdrawal. Such sums shall be deposited in the form received, except for the
endorsement of Borrower where necessary to permit collection of items, which
endorsement Borrower agrees to make, and which Secured Party is also hereby
authorized to make on Borrower's behalf. Borrower hereby agrees, at the request
of Secured Party, immediately upon receipt of checks, drafts, cash and other
remittances and payment of or on account of any of Borrower's accounts, to
immediately deposit all of the same into the Payment Account. Borrower hereby
also agrees, upon request by Secured Party, to notify all of Borrower's present
and future account debtors to send all amounts payable to Borrower to the
address indicated in the Lock Box Agreement. Secured Party is authorized,
empowered and directed to apply any and all funds in the Payment Account (i)
toward the payment of the outstanding principal amount of, and accrued interest
on, the Revolving Loans and any other amounts then due and payable to Secured
Party, at any time when no Event of Default has occurred and is continuing, and
(ii), after the occurrence and during the continuance of an Event of Default,
toward, in Secured Party's sole and absolute discretion, the payment of the
outstanding principal amount of, and accrued interest on, any of the
Obligations, with any balance remaining after payment in full of the Obligations
to be deposited into an account maintained with Secured Party in the name of
Borrower, marked "Operating Account" and over which Borrower has the right of
withdrawal. All amounts received by Secured Party in payment of the Obligations
shall be subject to a charge for two (2) Business Days clearance.
9. Establishment of Blocked Account; Collection Account.
(a) Blocked Account. So long as this Agreement shall be in
effect or any of the Obligations shall be outstanding, Borrower agrees
that, at the request of Secured Party, all funds payable by any account
debtor to Borrower shall be deposited in special deposit accounts (each
a "Blocked Account") of Borrower set up in one or more banks acceptable
to Secured Party. Each Blocked Account shall be established pursuant to
a tri-party agreement among Borrower, Secured Party, and such bank
(each a "Blocked Account Agreement"), in form and substance
satisfactory to Secured Party, which Blocked Account Agreements shall
include the following provisions:
(1) Agreement by Borrower that it has no power
of withdrawal over the funds in the Blocked Account;
(2) Agreement by the bank that it shall neither claim
nor exercise any right of off-set or banker's lien against the
funds in the Blocked Account;
(3) Waiver and release by the bank to Secured Party
of any right or claim which such bank may have in or to the
funds in the Blocked Account;
(4) Agreement by the bank to forward daily to Secured
Party by wire transfer (or by such other manner of transfer
acceptable to Secured Party) all funds in the Blocked Account
to the Collections Account (hereinafter defined) maintained by
Borrower with Secured Party;
<PAGE>
(5) Assignment and pledge by Borrower to Secured
Party, as additional collateral security for the Obligations,
of all funds in each Blocked Account, and direction by
Borrower to each bank maintaining a Blocked Account (i) to
hold such funds as bailee for Secured Party, and (ii) to
distribute the funds daily to Secured Party in the manner
specified by Secured Party from time to time;
(6)Agreement by Borrower to pay directly to each bank
maintaining a Blocked Account all costs and expenses associated
with such Blocked Account; and
(7) Agreement by Borrower that it may not unilaterally
terminate any Blocked Account or the Blocked Account Agreement.
All funds forwarded to Secured Party from a Blocked Account pursuant to
this Section shall be deposited in the Collections Account and applied
as set forth in Section 9(b). The provisions of this Section are in
addition to and not in limitation of the provisions of Section 8.
(b) Collection Account. So long as this Agreement shall be in
effect or any Obligations shall be outstanding, all funds in each
Blocked Account shall be wire transferred to (or transferred by other
manner of transfer acceptable to Secured Party), and all collections
and proceeds of Collateral shall be deposited in, a special account
(the "Collections Account") maintained with Secured Party in the name
of Borrower, marked "Collections Account," over which Secured Party
alone has power of withdrawal. Such sums shall be deposited in the form
received, except for the endorsement of Borrower where necessary to
permit collection of items, which endorsement Borrower agrees to make,
and which Secured Party is also hereby authorized to make on Borrower's
behalf. Borrower hereby agrees immediately upon receipt of checks,
drafts, cash and other remittances and payment of or on account of any
of Borrower's accounts, to immediately deposit all of the same into the
Collections Account. Borrower hereby also agrees, upon request by
Secured Party, to notify all of Borrower's present and future account
debtors to send to Secured Party any and all amounts payable to
Borrower for deposit in the Collections Account. Secured Party is
authorized, empowered and directed to apply any and all funds in the
Collections Account (i) toward the payment of the outstanding principal
amount of, and accrued interest on, the Revolving Loans and any other
amounts then due and payable to Secured Party, at any time when no
Event of Default has occurred and is continuing, and (ii), after the
occurrence and during the continuance of an Event of Default, toward,
in Secured Party's sole and absolute discretion, the payment of the
outstanding principal amount of, and accrued interest on, any of the
Obligations, with any balance remaining after payment in full of the
Obligations to be deposited into an account maintained with Secured
Party in the name of Borrower, marked "Operating Account" and over
which Borrower has the right of withdrawal. All amounts received by
Secured Party in payment of the Obligations shall be subject to a
charge for two (2) Business Days clearance.
<PAGE>
10. Other Representations and Warranties of Debtor. Debtor represents
and warrants to Secured Party that:
(a) Debtor is conducting, transacting, and carrying on its
business under the name shown above, or such other names as may be
specified in Addendum III attached hereto and incorporated herein by
reference, and is not engaged in business under any other name; and
Debtor's chief executive office is that set forth in Section 1(m)
above, at which office Debtor keeps, and will continue to keep, its
records concerning accounts. Debtor will promptly notify Secured Party
in writing of any change in (i) the name of Debtor or any of the names
under which it is carrying on its business as specified on Addendum III
attached hereto, (ii) the address of Debtor, (iii) Debtor's primary
place of business, (iv) the location of the office where records
concerning accounts are kept, (v) the opening of any new place of
business, or (vi) the closing of any of its existing places of
business.
(b) Debtor is duly organized and validly existing under the
laws of the state set forth in Section 1(m) above, is duly qualified
and is in good standing in each and every state in which it is doing
business, and has all the requisite power and authority to execute this
Agreement and the other Loan Documents to be executed by Debtor.
(c) The execution, delivery and performance of this Agreement
and all of the other Loan Documents by Debtor have been duly authorized
by all necessary corporate action by such Debtor, and constitute legal,
valid and binding obligations on Debtor, enforceable in accordance with
their respective terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of
creditors' rights and except to the extent specific remedies may
generally be limited by equitable principles.
(d) The execution, delivery and performance of this Agreement
and the other Loan Documents, and the consummation of the transactions
contemplated hereby and thereby, do not (i) conflict with, result in a
violation of, or constitute a default under any provision of Debtor's
Articles of Incorporation or Bylaws, or any agreement or other
instrument binding upon Debtor, or any law, governmental regulation,
court decree, or order applicable to Debtor, or (ii) require the
consent, approval or authorization of any third party.
(e) There are no actions, suits or proceedings, pending or, to
the knowledge of Debtor, threatened against or affecting Debtor or the
properties of Debtor, before any court or governmental department,
commission or board, which, if determined adversely to Debtor, would
have a material adverse effect on the financial condition, properties,
or operations of Debtor.
<PAGE>
(f) Debtor has not executed any other security agreement
currently affecting the Collateral or any financing statement regarding
the Collateral, and no financing statement executed by such Debtor
regarding the Collateral is now on file.
(g) All Collateral is and will be owned by Debtor, free and
clear of all other liens, encumbrances, security interests or claims
(subject, however, to the Permitted Liens), shall be kept at Debtor's
address noted above and such other addresses as may be listed in
Addendum IV attached hereto and incorporated hereby by reference, and
Debtor shall not (without the prior written approval of Secured Party)
remove the Collateral therefrom except for the purpose of sale or use
in the ordinary course of business.
(h) Debtor owns all of the assets reflected on its most recent
balance sheet delivered to Secured Party, free and clear of all liens,
security interests or other encumbrances, except for the Permitted
Liens.
(i) As of the date hereof, and after giving effect to this
Agreement and the completion of all other transactions contemplated by
Debtor at the time of its execution, (i) Debtor is and will be solvent,
(ii) the fair saleable value of Debtor's assets exceeds and will
continue to exceed Debtor's liabilities (both fixed and contingent),
(iii) Debtor is and will continue to be able to pay its debts as they
mature, and (iv) Debtor has and will have sufficient capital to carry
on its business and all businesses in which it is about to engage.
(j) Debtor has filed all federal, state and local tax reports
and returns required by any law or regulation to be filed by it and has
either duly paid all taxes, duties and charges indicated due on the
basis of such returns and reports, or made adequate provision for the
payment thereof, and the assessment of any material amount of
additional taxes in excess of those paid and reported is not reasonably
expected. There is no tax lien notice against Debtor presently on file,
judgment entered against Debtor or levy on or attachment of its
property outstanding.
(k) Debtor (i) does not maintain or contribute to any defined
benefit pension plan ("Plan") under the Employee Retirement Income
Security Act of 1974, as amended from time to time ("ERISA"), or (ii)
is not in violation of any provisions of ERISA, or any other applicable
state or federal law with respect to any Plan that it contributes to or
maintains.
<PAGE>
(l) Except as disclosed in writing to Secured Party: (i)
Debtor is conducting Debtor's businesses in material compliance with
all applicable federal, state and local laws, statutes, ordinances,
rules, regulations, orders, determinations and court decisions,
including without limitation, (A) those pertaining to the protection of
intellectual property and (B) those pertaining to health or
environmental matters such as the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (collectively, together with
any subsequent amendments, hereinafter called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980,
and the Hazardous Substance Waste Amendments of 1984 (collectively,
together with any subsequent amendments, hereinafter called "RCRA"),
the Texas Water Code and the Texas Solid Waste Disposal Act; (ii) none
of the operations of Debtor is the subject of a federal, state or local
investigation evaluating whether any material remedial action is needed
to respond to a release or disposal of any toxic or hazardous substance
or solid waste into the environment; (iii) Debtor has not filed any
notice under any federal, state or local law indicating that Debtor is
responsible for the release into the environment, the disposal on any
premises in which Debtor is conducting its businesses or the improper
storage, of any material amount of any toxic or hazardous substance or
solid waste or that any such toxic or hazardous substance or solid
waste has been released, disposed of or is improperly stored, upon any
premise on which Debtor is conducting its businesses; and (iv) Debtor
otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the
improper storage, of any such toxic or hazardous substance or solid
waste. The terms "hazardous substance" and "release", as used herein,
shall have the meanings specified in CERCLA, and the terms "solid
waste" and "disposal", as used herein, shall have the meanings
specified in RCRA; provided, however, that to the extent that the laws
of the State of Texas establish meanings for such terms which are
broader than that specified in either CERCLA or RCRA, such broader
meanings shall apply.
(m) There is no fact known to Debtor that Debtor has not
disclosed to Secured Party in writing which may result in any material
adverse change in Debtor's business, properties or operations.
(n) No certificate or statement herewith or heretofore
delivered by Debtor to Secured Party in connection herewith, or in
connection with any transaction contemplated hereby, contains any
untrue statement of a material fact or fails to state any material fact
necessary to keep the statements contained therein from being
misleading.
(o) The representations, warranties, and covenants of Debtor
set forth in this Agreement are true and correct as of the time of the
making of this Agreement, and each request by Debtor for a loan or
advance hereunder shall constitute, without the necessity of a written
certificate or agreement, a representation and warranty by Debtor that,
as of the date of such request and at and as of the time of the making
of each loan or advance hereunder, (i) all of the representations and
warranties of Debtor contained in this Agreement are true and correct,
(ii) no material adverse change in Debtor's financial condition since
the effective date of the most recent financial statements furnished to
Secured Party by Debtor shall have occurred and be continuing, and
(iii) no event has occurred and is continuing, or would result from the
requested advance, which constitutes an Event of Default under this
Agreement.
<PAGE>
(p) Each financial statement of Debtor previously supplied to
Secured Party was prepared in accordance with GAAP in effect on the
date of such statements were prepared and truly discloses and fairly
presents Debtor's financial condition as of the date of each statement,
and there has been no material adverse change in such financial
condition or results of operations of Debtor subsequent to August 31,
1996, which is the date of the most recent financial statements of
Debtor supplied to Secured Party.
(q) The only Subsidiary of Debtor is DCT Internet, Inc.
(r) All of Debtor's Affiliates and their respective
relationships to Debtor are set forth on Addendum VII attached hereto
and made a part hereof.
11. Affirmative Covenants. So long as this Agreement shall be in effect or
any of the Obligations shall be outstanding, Debtor agrees and covenants that,
unless the Secured Party shall otherwise consent in writing:
(a) Debtor shall promptly inform Secured Party of (i) any and
all material adverse changes in Debtor's financial condition, (ii) all
contingent liabilities, litigation and other claims affecting Debtor
which could materially affect the financial condition of Debtor.
(b) Debtor shall maintain its books and records in accordance
with GAAP, applied on a consistent basis.
(c) Debtor shall execute and deliver to Secured Party such
financing statement or statements, PPSA financing statements, and
hypothecs, in form satisfactory to Secured Party, which Secured Party
may at any time desire to file in order to perfect and preserve its
security interest in the Collateral and shall reimburse Secured Party
for the costs of filing the same; and Debtor shall take any action
and/or execute and deliver to Secured Party any instrument, document,
assignment or other writing which Secured Party in its sole discretion
may deem necessary or appropriate (i) to carry out the terms of this
Agreement, (ii) to perfect Secured Party's security interest in the
Collateral, (iii) to comply with the Federal Assignment of Claims Act,
as amended, and/or (iv) to facilitate the collection of Debtor's
accounts.
(d) Debtor shall, at its sole cost and expense, defend any
action which might affect Secured Party's security interest in or
Debtor's title to the Collateral.
(e) If sales of Collateral are made by Debtor in the ordinary
course of its business for cash, Debtor shall immediately deliver to
Secured Party the identical checks, cash or the forms of payment which
Debtor receives.
<PAGE>
(f) Debtor shall perform, at its sole cost and expense, any
and all steps requested by Secured Party to protect Secured Party's
security interest in the Collateral, such as leasing warehouses to
Secured Party or its designee, placing and maintaining signs,
appointing custodians, executing and filing financing or continuation
statements in form and substance satisfactory to Secured Party,
maintaining stock records and transferring Collateral to warehouses. If
any Collateral is in the possession or control of any of Debtor's
agents or processors, Debtor shall notify such agent or processors of
Secured Party's security interest therein, and upon request instruct
them to hold all such Collateral for the account of Secured Party and
subject to Secured Party's instructions. A physical listing of all
Collateral, wherever located, shall be taken by Debtor whenever
requested by Secured Party, and a copy of each such physical listing
shall be supplied to Secured Party. Secured Party may examine and
inspect the Collateral at any time.
(g) Debtor shall keep or cause to be kept adequately insured
by financially sound and reputable insurers all of its property usually
insured by persons or entities engaged in the same or similar
businesses. Without limiting the foregoing, Debtor shall insure the
Collateral in Secured Party's name against loss or damage by fire,
theft, burglary, pilferage, loss in transit, and such other hazards as
Secured Party may specify in amounts and under policies by insurers
acceptable to Secured Party, and all premiums thereon shall be paid by
Debtor and the policies delivered to Secured Party. If Debtor fails to
do so, Secured Party may procure such insurance and charge the cost to
Debtor's account. Each policy of insurance covering the Collateral
shall provide that at least ten (10) days prior written notice of
cancellation or notice of lapse must be given to Secured Party by the
insurer.
(h) Debtor shall keep the Collateral in good order and repair
and will not waste or destroy the Collateral or any part thereof and
shall not use the Collateral in violation of any statute or ordinance.
(i) Debtor shall cause each mortgagee of real property owned
by Debtor and each landlord of real property leased by Debtor to
execute and deliver agreements satisfactory in form and substance to
Secured Party by which such mortgagee or landlord waives or
subordinates any rights it may have in the Collateral.
(j) If any account debtor rejects, returns or refuses to
accept or receive property represented by any account, Debtor shall
notify Secured Party, and at the request of Secured Party, hold such
property separate and apart from Debtor's property in trust for Secured
Party and subject to its order or immediately deliver such property to
Secured Party. Secured Party may accept a return of property
represented by any account without discharging or affecting Debtor's
Obligations. Secured Party may take and sell such property for such
prices and upon such terms at public or private sale in the manner
provided in the Code. At Secured Party's option, Debtor shall forthwith
pay Secured Party the original invoice price of such property for
application against the Obligations in such manner as Secured Party may
elect. In the event such property is resold, any account created
thereby shall be deemed assigned and pledged to Secured Party
hereunder.
<PAGE>
(k) Debtor shall give Secured Party or any persons designated
by it, at any time and from time to time, full access to all records
available to Debtor from any credit reporting service, bureau or other
similar agency and Secured Party and any persons designated by it shall
have the right to inspect and make and take away copies of any such
records.
(l) Debtor shall furnish such additional information and
statements, lists of assets and liabilities, tax returns, and other
reports with respect to Debtor's financial condition and business
operations as Secured Party may request from time to time. Secured
Party shall have the right without hindrance or delay to conduct field
examinations, to inspect the Collateral and to inspect, audit and copy
Debtor's books, records, journals, correspondence and other records and
data relating to the Collateral or Debtor's business. Secured Party is
authorized to discuss Debtor's affairs with any Person, including
without limitation employees of Debtor, as Secured Party may deem
necessary in relation to the Collateral, Debtor's financial condition
or Secured Party's rights under the Loan Documents.
(m) Debtor shall pay and discharge when due all of its
indebtedness and obligations, including without limitation, all
assessments, taxes, governmental charges and levies, of every kind and
nature, imposed upon Debtor or its properties (including, without
limitation, the Collateral), income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid,
might become a lien or charge upon any of Debtor's properties, income,
or profits; provided, however, Debtor will not be required to pay and
discharge any such assessment, tax charge, levy or claim so long as (i)
the legality of the same shall be contested in good faith by
appropriate proceedings, and (ii) Debtor shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy or claim in accordance with GAAP. Debtor, upon demand of
Secured Party, will furnish to Secured Party evidence of payment of all
assessments, taxes, charges, levies and claims against Debtor or its
properties, income or profits and will authorize the appropriate
governmental official to deliver to Secured Party at any time a written
statement of any assessments, taxes, charges, levies and claims against
Debtor or its properties, income or profits.
(n) Debtor shall conduct its business in an orderly and
efficient manner consistent with good business practices, and perform
and comply with all statutes, rules, regulations and/or ordinances
imposed by any governmental unit upon Debtor and its businesses and
operations, including, without limitation, those pertaining to
environmental matters and those pertaining to the protection of
intellectual property.
(o) Debtor shall execute and deliver, or cause to be executed
and delivered, any and all other agreements, instruments or documents
which Secured Party may reasonably request in order to give effect to
the transactions contemplated under this Agreement and the other Loan
Documents.
(p) Debtor shall do and perform all acts required of it under
this Agreement and the other Loan Documents and furnish to Secured
Party such other information respecting the business, properties or
condition, or the operations, financial or otherwise, of Debtor as
Secured Party may from time to time reasonably request.
(q) Debtor shall maintain, as of each date set forth below, a
Tangible Leverage Ratio not greater than the ratio set forth opposite
such date:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Date Tangible Leverage Ratio
September 30, 1996 and December 31, 1996 1.50 to 1.0
March 31, 1997 and each fiscal quarter end
thereafter 1.25 to 1.0
</TABLE>
(r) Debtor shall maintain, as of each date set forth below, a
Tangible Net Worth equal to or greater than that set forth opposite
such date below:
<TABLE>
<CAPTION>
<S> <C>
Date Tangible Net Worth
September 30, 1996 $7,400,000.00
December 31, 1996 $7,700,000.00
March 31, 1997 $7,800,000.00
June 30, 1997 $7,900,000.00
September 30, 1997 $8,100,000.00
December 31, 1997 $8,400,000.00
March 31, 1998 $8,600,000.00
June 30, 1998 and thereafter $8,700,000.00
</TABLE>
(s) Debtor shall maintain, as of each date set forth below, a
Fixed Charge Coverage Ratio determined on a fiscal year to date basis
of not less than the ratio set forth opposite such date below:
<TABLE>
<CAPTION>
<S> <C>
Date Fixed Charge Coverage Ratio
September 30, 1996 1.30 to 1.0
December 31, 1996, March 31, 1997
and June 30, 1997 1.40 to 1.0
September 30, 1997 and each fiscal quarter
end thereafter 1.50 to 1.0
</TABLE>
(t) Debtor will furnish to Secured Party:
(1) As soon as possible and in any event
within ten (10) days after the occurrence of each Event of
Default or Default continuing on the date of such statement,
the statement of the President or the Chief Financial Officer
of Debtor setting forth the details of such Event of Default
or Default and the action which Debtor proposes to take with
respect thereto.
<PAGE>
(2) As soon as available, and in any event
within thirty (30) days after the end of each calendar month,
a consolidated and consolidating balance sheet and income
statement and statement of cash flow of Debtor as of the end
of such month, all in form and substance and in reasonable
detail satisfactory to Secured Party and duly certified
(subject to year-end audit adjustments) by the Chief Financial
Officer of Debtor (A) as being true and correct in all
material aspects to the best of his or her knowledge and (B)
as having been prepared in accordance with GAAP, provided,
that if the end of the calendar month coincides with the end
of a fiscal quarter, such financial statements shall be
delivered as soon as available and in any event within
forty-five (45) days after the end of such fiscal quarter,
provided, further, that if the end of the calendar month
coincides with the end of the fiscal year, such financial
statements shall be delivered as soon as available and in any
event within sixty (60) days after the end of such fiscal
year.
(3) As soon as available and in any event
within one hundred twenty (120) days after the end of each
fiscal year of Debtor, a copy of Debtor's 10-KSB together with
a certified consolidated and consolidating balance sheet,
income statement and statement of cash flow of Debtor as of
the end of such fiscal year, together with a certificate of
independent public accountants of recognized standing
acceptable to Secured Party stating that in the course of
their audit of Debtor, such accountants obtained no knowledge
that an Event of Default or Default, has occurred and is
continuing, or if, in the opinion of such accountants, an
Event of Default or Default has occurred and is continuing, a
statement as to the nature thereof.
(4)As soon as the same is received by Debtor,
a copy of any management letter delivered to Debtor by its
independent accountants;
(5) (A) Within forty-five (45) days of the
date hereof, the following financial consolidated and
consolidating statements of Debtor on a one (1) year pro forma
basis for fiscal year 1997: (i) balance sheet and income
statement, and (ii) cash flow statement, and (B) prior to the
commencement of each fiscal year of Debtor, the following
financial consolidated and consolidating statements of Debtor
on a one (1) year pro forma basis: (i) balance sheet and
income statement, and (ii) cash flow statement, all in form
and substance and in reasonable detail satisfactory to Secured
Party.
(6) Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court
or any governmental department, commission or board involving
Debtor.
<PAGE>
(7) Within forty-five (45) days after the
end of each fiscal quarter, a certificate from the Chief
Financial Officer of Debtor stating such entity is in full
compliance with all of its obligations under this Agreement
and the other Loan Documents, and is not in default of any
term or provision hereof or thereof and demonstrating
compliance with all financial ratios and covenants set forth
in this Agreement and calculating the Tangible Leverage Ratio,
the Interest Coverage Ratio, and the Fixed Charge Coverage
Ratio for Debtor, provided that, if the end of such fiscal
quarter coincides with the end of the fiscal year, such
certificate calculated from preliminary financial statements
shall be delivered within sixty (60) days after the end of
such fiscal year and such certificate calculated from final
financial statements shall be delivered within one hundred and
twenty (120) days after the end of such fiscal year. Such
certificate shall be substantially in the form of Exhibit D
attached hereto and otherwise in form and substance acceptable
to Secured Party.
(8) Within forty-five (45) days after the end of each
fiscal quarter, Debtor's 10-QSB and consolidating schedules.
(9) Promptly upon Debtor's receipt of the monthly
statements respecting each of Debtor's securities accounts, a
copy of such monthly statements.
(10) Within fifteen (15) days after the end
of each month for Debtor (i) an analysis of its accounts
showing an aging of accounts as follows: accounts 30 days old
and less; accounts over 30 days and less than 61 days old;
accounts over 60 days old and less than 91 days old; accounts
over 90 days old and less than 120 days old; and accounts 120
days old and older, (ii) an aging of Debtor's payables, and
(iii) a listing of Borrower's inventory and an inventory
analysis in such form as Secured Party may request.
(11) Upon request of the Secured Party, but not less
often than once each week, a borrowing base certificate signed
by the President, Chief Financial Officer, or controller of
Debtor, along with supporting documentation, in form and
substance satisfactory to Secured Party.
(u) Debtor will deliver to its independent public accountants
contemporaneously with the execution hereof the irrevocable
instructions, in the form attached as Addendum V, that such accountants
are to send to Secured Party copies of all financial statements
(whether preliminary or final) and reports which are prepared as a
result of any audit or other review of the operations, business,
finances or internal controls of Debtor, including, without limitation,
any management reports and any reports concerning improper accounting
practices, defalcations, financial reporting errors or misstatements or
fraud.
(v)Debtor will use all advances made by Secured Party pursuant
hereto for working capital purposes only.
(w) Within thirty (30) days after closing such margin
positions, Debtor shall provide evidence reasonably satisfactory to
Bank that all margin positions respecting Debtor's investment accounts
have been closed.
12. Negative Covenants. So long as this Agreement shall be in effect
or any of the Obligations shall be outstanding, Debtor agrees that, without the
prior written consent of Secured Party:
(a) Debtor shall not permit any financing statement regarding
the Collateral to be filed other than a financing statement or
statements in favor of Secured Party and other than a financing
statement filed in connection with the Permitted Liens.
<PAGE>
(b) Debtor shall not, and shall not permit any Subsidiary to,
liquidate, merge or consolidate with or into any other entity.
(c) Debtor shall not, and shall not permit any Subsidiary to,
hereafter permit any tax lien notice to be filed, a judgment to be
entered against it or its property or a levy on or attachment of its
property to be made.
(d) Debtor shall not, and shall not permit any Subsidiary to,
sell, transfer or otherwise dispose of any of its assets or properties,
other than sales of inventory in the ordinary course of its business.
(e) Except for the Permitted Liens, Debtor shall not, and
shall not permit any Subsidiary to, grant, create, incur, assume,
permit or suffer to exist any security interest, lien or encumbrance on
any of its assets or properties, including the Collateral, and no
financing statements shall remain on file except for financing
statements naming Bank as secured party; provided, however, Debtor may
grant purchase money security interests covering the property purchased
not to exceed $750,000.00 in the aggregate on a consolidated basis in
any fiscal year.
(f) Debtor shall not, and shall not permit any Subsidiary to,
create, incur or assume any indebtedness for borrowed money or issue or
assume any other note, debenture, bond or other evidences of
indebtedness, or enter into any capital leases, or guarantee any such
indebtedness or such evidences of indebtedness of others, other than
(i) borrowing from Secured Party, (ii) borrowing secured by the
Permitted Liens, and (iii) capital leases or purchase money
indebtedness secured by the property purchased with the proceeds
thereof not to exceed $750,000.00 in the aggregate on a consolidated
basis in any fiscal year.
(g) Debtor shall not change its primary line of business.
(h) Debtor shall not declare or pay any Distributions, make
any other distribution with respect to any payment on account of the
purchase, redemption, or other acquisition or retirement of any capital
stock of Debtor, or make any other distribution, sale, transfer or
lease of any of Debtor's assets other than the sale of inventory in the
ordinary course of business; provided, however, Debtor may pay cash
dividends to shareholders so long as prior to any such dividend and
after giving effect thereto Debtor is in compliance with all financial
covenants set forth herein and no Default or Event of Default has
occurred and is continuing.
(i) Debtor shall not, and shall not permit any Subsidiary to,
(A) make or permit to exist any loans or advances to any Person except
for (i) advances for business expenses in the ordinary course of
business which do not exceed the sum of $25,000.00 in the aggregate
outstanding at any time, and (ii) advances by Debtor to DCT-Internet,
Inc. that do not exceed $250,000.00 in any fiscal year and do not
exceed $500,000.00 in the aggregate outstanding at any time, or (B)
make any Investment in any Subsidiary other than Investments permitted
under the preceding clause (A) and Investments outstanding on the date
hereof.
(j) Debtor shall not, and shall not permit any Subsidiary to,
pay or cause to be paid any advance rentals for any leased property,
real or personal, utilized in the conduct and operation of its
business.
(k) Debtor shall not, and shall not permit any Subsidiary to,
enter into any transaction with an Affiliate except on arms-length
terms that are as favorable as could have been obtained from a
non-Affiliate.
<PAGE>
(l)Debtor shall not permit any change in the senior management
(Chairman of the Board, President/CEO and CFO) of Debtor.
(m) Debtor shall not, and shall not permit any Subsidiary to,
make capital expenditures or enter into capital leases that in the
aggregate on a consolidated basis exceed the sum of $2,600,000.00 for
the fiscal year ending June 30, 1997, or $2,500,000.00 for any fiscal
year thereafter.
(n) Debtor shall not, and shall not permit any Subsidiary to,
permit the aggregate amount of compensation paid to its officers and
directors to exceed one hundred twenty-five percent (125%) of the
aggregate amount of such compensation paid for the month of July, 1996,
annualized for the entire fiscal year, plus the amount of the annual
incentive bonuses paid to each of the Chief Executive Officer and the
Chief Operating Officer of Debtor, which bonuses may not exceed 5% of
net income of Debtor before taxes for each of the Chief Executive
Officer and the Chief Operating Officer.
(o) Debtor shall not, and shall not permit any Subsidiary to,
enter into, permit or acquiesce in, any change in any subordinated
indebtedness.
(p) (i) Debtor shall not purchase any financial assets that
exceed in the aggregate the lesser of 30% of Debtor's Tangible Net
Worth or 30% of Debtor's total assets determined in accordance with
GAAP, (ii) advances hereunder and cash receipts by Debtor shall not be
used to purchase or trade in financial assets, (iii) from and after
November 23, 1996, Debtor shall not invest in any margin stocks, buy
any financial assets on margin or invest in any uncovered options, (iv)
Debtor shall not make any investments in financial assets unless such
financial assets are traded on the New York Stock Exchange or the
American Stock Exchange, and (v) Debtor shall not permit any Subsidiary
to purchase any or make any investments in financial assets.
(q) Debtor shall not, and shall not permit any Subsidiary to,
transfer any funds or any financial assets out of any securities
accounts unless such funds are to be used in the ordinary course of
business of Debtor and for a valid business purpose.
(r)Debtor and each of its Subsidiaries shall cease all trading
in, or funding of, covered options if for any reason whatsoever Kevin
Halter, Sr. is no longer active in the management of the Debtor.
(s) Unrealized losses in all financial assets of Debtor and
its Subsidiaries shall not (i) exceed 10% of Tangible Net Worth as of
September 30, 1996, and the date hereof or (ii) exceed 8% of Tangible
Net Worth on December 31, 1996 and thereafter.
(t) Debtor shall not, directly or indirectly through any
Subsidiaries, own, create or acquire any Subsidiaries other than DCT
Internet, Inc.
(u) Debtor shall not, and shall not permit any Subsidiary to,
pay or cause to be paid, by Debtor and all Subsidiaries, aggregate
defense costs for any or all of the parties to the Shareholder Suit in
excess of $250,000 in any fiscal year.
(v) Debtor shall not, and shall not permit any Subsidiary to,
pay or cause to be paid, directly or indirectly, damages suffered in
the Shareholder Suit, provided that proceeds of directors' and
officers' insurance shall not be included in such limitation.
<PAGE>
13. Rights of Secured Party. Secured Party shall have the rights
contained in this Section at all times during the period of time this Agreement
is effective.
(a) Debtor hereby authorizes Secured Party to file, without
the signature of Debtor, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral. Debtor
further agrees that a carbon, photographic or other reproduction of
this Agreement or any financing statement describing any Collateral is
sufficient as a financing statement and may be filed in any
jurisdiction Secured Party may deem appropriate.
(b) Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact and proxy, with full authority in the place
and stead of Debtor and in the name of Debtor or otherwise, from time
to time in Secured Party's discretion, to take any action and to
execute any instrument which Secured Party may deem necessary or
appropriate to accomplish the purposes of this Agreement, including
without limitation: (i) to obtain and adjust insurance required by
Secured Party hereunder; (ii) to demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of the Collateral; (iii) to receive,
endorse and collect any checks, drafts or other instruments, documents
and chattel paper in connection with clause (i) or (ii) above; and (iv)
to file any claims or take any action or institute any proceedings
which Secured Party may deem necessary or appropriate for the
collection and/or preservation of the Collateral or otherwise to
enforce the rights of Secured Party with respect to the Collateral.
(c) If Debtor fails to perform any agreement or obligation
provided herein (including without limitation, the payment and
discharge of any taxes, liens or encumbrances affecting the
Collateral), Secured Party may itself perform, or cause performance of,
such agreement or obligation, and the expenses of Secured Party
incurred in connection therewith shall be a part of the Obligations,
secured by the Collateral and payable by Debtor on demand.
(d) Secured Party or any persons designated by it shall have
the right to call at Debtor's place or places of business during normal
business hours to inspect, audit, check and make and take away copies
or extracts from Debtor's books, records, journals, orders, receipts
and any correspondence and other data relating to Debtor's business or
to any other transactions between the parties hereto, without hindrance
or delay.
(e) All amounts and proceeds (including instruments and
writings) received by Debtor in respect of Debtor's accounts or general
intangibles shall be received in trust for the benefit of Secured Party
hereunder and, upon request of Secured Party, shall be segregated from
other property of Debtor and shall be forthwith delivered to Secured
Party in the same form as so received (with any necessary endorsement)
and applied to the Obligations in such manner as Secured Party deems
appropriate in its sole discretion.
<PAGE>
(f) Notwithstanding the existence of any Lock Box Agreement
between Debtor and Second Party, Secured Party may at its discretion
from time to time notify any or all obligors under any accounts or
general intangibles (i) of Secured Party's security interest in such
accounts or general intangibles and direct such obligors to make
payment of all amounts due or to become due to Debtor thereunder
directly to Secured Party, and (ii) to verify the accounts or general
intangibles with such obligors. Secured Party shall have the right, at
the expense of Debtor (i) after the occurrence and during the
continuance of a Default or an Event of Default (A) to enforce
collection of any such accounts or general intangibles, (B) to adjust,
settle or compromise the amount or payment thereof, and (C) to demand,
collect, receive, receipt for, sue for, compound and give acquittance
for any and all amounts due or to become due on the accounts, and (ii)
at any time, (A) to take control of cash and other proceeds of any
accounts, (B) to endorse the name of Debtor on any notes, acceptances,
checks, drafts, money orders or other evidences of payment or
collateral that may come into possession of Secured Party, (C) to sign
the name of Debtor on any invoice or bill of lading relating to any
account, on any drafts against account debtors, on assignments and
verifications of accounts and on notices to account debtors, and (D) to
do all other acts and things necessary to carry out the purposes of
this Agreement. Subject to the terms and provisions of any Lock Box
Agreement or Blocked Account Agreement, until such time as Secured
Party elects to exercise the rights hereinabove set forth in this
Section, Secured Party authorizes Debtor to collect and enforce all
accounts. Costs of collection and enforcement of accounts, including
payment of attorneys' fees and out-of-pocket expenses, shall be borne
solely by Debtor, whether same are incurred by Secured Party or by
Debtor. Debtor agrees that the collection and enforcement of all
accounts by Debtor shall be for the account of Secured Party, and all
collections and proceeds thereof shall be promptly turned over by
Debtor to Secured Party in the form in which they are received by
Debtor, either by mailing or delivering the same to Secured Party not
later than the banking business day following receipt thereof by
Debtor. All checks, drafts and other instruments shall be endorsed by
Debtor to Secured Party, and in the event of failure of Debtor to make
such endorsement, Secured Party is hereby irrevocably authorized to
endorse the same on Debtor's behalf. Debtor agrees that it will not
compromise accounts and will not use or dispose of proceeds of accounts
or commingle collections or proceeds with any of Debtor's other funds
or property or otherwise exercise any dominion over the same but will
hold them separate and apart and upon an express trust for Secured
Party. All payments received by Secured Party on accounts or other
proceeds or on account of cash sales of Collateral shall be subject to
a charge for two (2) Business Days clearance.
<PAGE>
(g) Secured Party will at all times have the right to take
physical possession in the Collateral and to maintain such possession
on the premises of Debtor or to remove the Collateral or any part
thereof to such other places as Secured Party may desire. If Secured
Party exercises its right to take possession of the Collateral, Debtor
shall, upon demand by Secured Party, assemble the Collateral and make
it available to Secured Party at a place reasonably convenient to
Secured Party. In addition, with respect to all Collateral, as well as
all accounts and other security, Secured Party shall have all the
rights and remedies set forth hereafter in this Agreement.
(h) Secured Party shall have the right of set-off against
Debtor at any and all times and in any and all proceedings and
instances including, but not limited to, bankruptcy, reorganization,
receivership or insolvency of Debtor.
14. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
(a) The failure, refusal or neglect of Debtor to make
payment of the Obligations or any portion thereof, as the same shall
become due and payable;
(b) The failure of Debtor or any Obligated Party to timely and
properly observe, keep or perform any covenant, agreement, warranty or
condition required (i) in this Agreement, (ii) in any of the other Loan
Documents, or (iii) in any of the Agreements (as defined hereinbelow);
(c) The occurrence of an event of default under (i) any of the
other Loan Documents, or (ii) any of the Agreements;
(d) Any representation made by Debtor or any Obligated Party
contained herein or contained in any of the other Loan Documents or the
Agreements is false or misleading in any material respect;
(e) Debtor or any Obligated Party shall (i) apply for or
consent to the appointment of a receiver, trustee, custodian,
intervenor or liquidator of such Person or of all or a substantial part
of such Person's assets, (ii) file a voluntary petition in bankruptcy,
admit in writing that such Person is unable to pay such Person's debts
as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency proceeding, or (vi) take corporate or partnership action for
the purpose of effecting any of the foregoing;
(f) An involuntary petition or complaint shall be filed
against Debtor or any Obligated Party seeking bankruptcy or
reorganization of such Person or the appointment of a receiver,
custodian, trustee, intervenor or liquidator of such Person, or of all
or substantially all of such Person's assets, and such petition or
complaint shall not have been dismissed within sixty (60) days of the
filing thereof; or an order, order for relief, judgment or decree shall
be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of
such intervenor or liquidator of such Person, or of all or
substantially all of such Person's assets;
(g) the failure of Debtor or any Obligated Party to pay any
money judgment against such Person at least thirty (30) days prior to
the date on which such Person's assets may be sold to satisfy such
judgment;
<PAGE>
(h) the failure, within a period of ten (10) days after the
commencement thereof, to have discharged any attachment, sequestration,
or similar proceedings against Debtor's or any Obligated Party's
assets;
(i) The filing of a tax lien notice by the United States, any
state or any governmental subdivision thereof against any of the
property of a Borrower;
(j)The Collateral or any portion thereof is taken on execution
or other process of law in any action against Debtor;
(k) Debtor abandons the Collateral or any portion thereof;
(l) The holder of any lien or security interest on any of the
assets of Debtor, including without limitation, the Collateral (without
hereby implying the consent of Secured Party to the existence or
creation of any such lien or security interest on the Collateral),
institutes foreclosure or other proceedings for the enforcement of its
remedies thereunder;
(m) The occurrence of a default or event of default under any
other indebtedness of Debtor which indebtedness exceeds $10,000 or the
occurrence of any event or condition which, with the giving of notice
or lapse of time or both, could become a default or event of default
under such other indebtedness;
(n)the occurrence of a default or event of default under any
agreements, leases, indebtedness or other obligations between Debtor
and Banc One Leasing Corporation; or
(o) If a Borrower or any Obligated Party is an entity, the
liquidation, dissolution, merger or consolidation of any such entity.
15. Remedies. Upon the occurrence of any Event of Default, and at any
time thereafter, Secured Party shall have, in addition to all other rights and
remedies provided herein, in any other agreement between Secured Party and
Debtor or by law, the remedies of a secured party under the Code, including, but
not limited to, the right to take possession of the Collateral, and for that
purpose, Secured Party may, so far as Debtor can give authority therefor, enter
upon any premises on which the Collateral may be situated and remove the same
therefrom. The rights and remedies referred to in this Agreement are cumulative,
and in addition to the general remedies set forth above, Secured Party shall
have the following specific remedies upon the occurrence of an Event of Default:
(a) At its option, Secured Party may terminate any further
loans or advances to Debtor hereunder and may refuse to issue any
Letters of Credit. Further, Secured Party may require that Borrower
deposit with Secured Party in cash an amount equal to the aggregate
undrawn face amount of all outstanding Letters of Credit.
(b) The entire unpaid balance of the Obligations then owing by
Debtor to Secured Party (including, without limitation, the Revolving
Loans, the Term Loan and the Capital Expenditure Loan) shall, at the
option of Secured Party, become immediately due and payable without
notice of default, presentment, demand for payment, notice of intent to
accelerate, notice of acceleration or dishonor, protest or notice of
protest or non-payment, or any other notice of any kind whatsoever, all
of which are expressly waived by Debtor and each Obligated Party;
provided, however, upon the occurrence of any of the Events of Default
described in Section 14 (e) or (f), the entire unpaid balance of the
Obligations shall, without any action by Secured Party, immediately
become due and payable without notice of default, presentment, demand
for payment, notice of intent to accelerate, notice of acceleration or
dishonor, protest or notice of protest or non-payment, or any other
notice of any kind whatsoever, all of which are expressly waived,
jointly and severally, by Borrower and each Obligated Party.
<PAGE>
(c) At its option, Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient
to Secured Party and Debtor. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold
on a recognized market, Secured Party will give Debtor reasonable
notice of the time and place of any public sale thereof or of the time
after which any private sale or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be met if
such notice is mailed, postage prepaid, to Debtor at least five (5)
days before the time of sale or other intended disposition of the
Collateral.
(d) Secured Party may at any time in its discretion transfer
any other property constituting the Collateral into its own name or
that of its nominee and receive the income thereon and hold the same as
security for the Obligations or apply it to the principal or interest
due on the Obligations, as the Secured Party may elect. Secured Party
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize upon the Collateral as Secured Party may
determine, whether or not any of the Obligations are then due; and for
the purpose of asserting, protecting or enforcing any of Secured
Party's rights therein, Secured Party may receive, open, and dispose of
mail addressed to Debtor and endorse notes, checks, drafts, money
orders, documents of title, or other evidences of payment, shipment, or
storage of any part of the Collateral on behalf of and in the name of
Debtor.
(e) Debtor shall pay to Secured Party on demand any and all
expenses, including legal expenses, attorneys' fees, court costs,
collection costs, and traveling expenses, incurred or paid by Secured
Party in protecting or enforcing any of its rights hereunder, including
its right to take possession of the Collateral, to hold, store, prepare
for sale, sell, or otherwise dispose of the Collateral, and in
collecting the proceeds thereof. After deducting all of such expenses,
the residue of any proceeds of collection or sale of the Collateral
shall be applied to the payment of the Obligations in such order of
preference as Secured Party may determine, proper allowance for
interest on Obligations not then due being made, and any excess shall
be returned to Debtor, and Debtor shall remain liable for any
deficiency. Secured Party is hereby authorized to add, from time to
time, all such expenses to the balance of indebtedness due by Debtor to
Secured Party, and such expenses shall become a part of the
Obligations.
(f) In the event that Debtor or any other party seeks to
redeem the Collateral, to the extent that any such right of redemption
may exist, Debtor shall pay to Secured Party, in addition to
fulfillment of all the Obligations secured by the Collateral, any and
all expenses incurred or paid by Secured Party in retaking, holding,
storing, and preparing the Collateral for sale or other disposition,
including legal expenses, attorneys' fees, court costs, collection
costs, and traveling expenses.
<PAGE>
16. Other Agreements. If at any time Debtor and Secured Party or Banc
One Leasing Corporation are parties to any other financing agreements (all of
such agreements, whether one or more, being hereinafter referred to as the
"Agreements"), and if the Agreements (or any of them, if more than one) should
be breached in whole or in part by Debtor or should terminate for any reason
whatsoever without the consent of Secured Party, such event shall constitute an
Event of Default hereunder. Any sums due hereunder or under the Agreements, or
any one or more of them, may be collected by Secured Party out of sums or
credits due Secured Party under the terms of this Agreement or the Agreements,
or any one or more of them, and any collateral or security for the performance
of this Agreement or any of the Agreements may be realized upon by Secured Party
for the satisfaction of any indebtedness arising with respect to this Agreement
or any of the Agreements. Debtor and Secured Party hereby agree that all
indebtedness, securities and remedies available to Secured Party under this
Agreement or the Agreements may be utilized by Secured Party for the enforcement
of its rights and the collection of any indebtedness due it under the terms of
this Agreement or the Agreements, the rights and remedies of Secured Party
hereunder being cumulative of all other rights and remedies of Secured Party,
and not in substitution thereof or as an alternative thereto.
17. Term.
(a) This Agreement shall become effective upon acceptance by
Secured Party, as of the date hereinafter set forth, and shall continue
in full force and effect until the Maturity Date unless earlier
terminated by Secured Party in connection with the exercise of its
rights and remedies under this Agreement upon the occurrence of an
Event of Default.
(b) If Debtor terminates this Agreement after the first (1st)
anniversary of the date hereof but prior to the Maturity Date, Debtor
acknowledges that (i) such termination would result in the loss to
Secured Party of the benefits of this Agreement and that the damages
incurred by Secured Party as a result of such termination are and would
be difficult of ascertainment, and (ii) no such termination shall be
effective until Debtor has paid to Secured Party all of the Obligations
in immediately available funds, together with a sum certain as
liquidated damages, being Debtor's and Secured Party's best and fairest
estimate of Secured Party's damages caused by such termination, equal
to one percent (1.0%) of the average aggregate loan balance of the
Revolving Loan, the Term Loan and the Capital Expenditure Loan for the
twelve consecutive months ending on the date such loans are paid in
full. The foregoing fees shall be waived by Bank if the loans made
hereunder are repaid with the proceeds of conventional, non-asset based
credit facilities provided by Bank.
(c) Notwithstanding anything to the contrary, any proposed
termination of this Agreement shall not be effective, and shall not
release or affect the Collateral already assigned to Secured Party or
any Obligations incurred or rights accrued hereunder, unless and until
all Obligations, whether incurred pursuant to this Agreement or
otherwise, have been paid in full.
18. Miscellaneous.
(a) Waiver of Rights. Debtor waives notice of nonpayment,
presentment, notice of demand, demand, notice of intention to
accelerate, notice of acceleration, protest or notice thereof as to the
Obligations or as to any of the Collateral.
<PAGE>
(b) Entire Agreement. This Agreement contains the entire
agreement of Secured Party and Debtor with respect to the Collateral.
If the parties hereto are parties to any prior agreement, either
written or oral, relating to the Collateral, the terms of this
Agreement shall amend and supersede the terms of such prior agreements
as to transactions on or after the effective date of this Agreement,
but all security agreements, financing statements, guaranties, other
contracts and notices for the benefit of Secured Party shall continue
in full force and effect to secure all Obligations of Debtor to Secured
Party under the terms hereof or thereof unless Secured Party
specifically releases its rights thereunder by separate release.
(c) Fees and Expenses. Debtor agrees that all fees and
expenses, including, without limitation, legal, accounting, audit and
field examination fees and expenses, incurred by Secured Party in
connection with the preparation of this Agreement and the other Loan
Documents, the closing of any loan secured hereby, and in administering
this Agreement and the matters referenced herein shall be paid and
borne by Debtor, and Secured Party is hereby authorized by Debtor to
deduct all such fees and expenses from the proceeds of any loan secured
hereby or to add, from time to time, all such fees and expenses to the
balance of Revolving Loan due by Debtor to Secured Party hereunder,
with such fees and expenses becoming a part of the Obligations. Field
examination expenses for examinations will be charged to Debtor as
follows: actual out of pocket expenses for examiner's travel, lodging
and meals plus $500.00 per day per examiner (separate and in addition
to reimbursement of the $6,513.29 actual cost for the initial field
examination by Secured Party and the $8,238.00 ATEC equipment appraisal
fee which amounts shall be paid at closing). Secured Party will have
the right to conduct such field examinations as it deems necessary in
its sole discretion, and Debtor will reimburse Secured Party for all
costs and expenses incurred by Secured Party in connection therewith.
Actual costs for the initial field examination conducted prior to the
date hereof shall be reimbursed to Secured Party by Debtor at closing.
Notwithstanding the foregoing, Bank will limit total examination fees
to a cap of $20,000.00 in year one and $10,000.00 in year two provided
that no Default or Event of Default has occurred.
(d) Account Debtor Notification. Debtor will immediately
notify Secured Party in the event (i) that any account debtor fails to
accept, refuses to accept, returns, offers to return or revokes the
acceptance of any personal property which is the subject of any
account, (ii) of the bankruptcy, insolvency or financial embarrassment
of any account debtor, and (iii) of any claim asserted by any account
debtor for credit, allowance, adjustment, dispute, set-off or
counterclaim. Debtor will immediately, upon receipt thereof, endorse
and deliver to Secured Party any and all checks, notes, trade
acceptances, drafts or other instruments with respect to or in payment
of any account or any chattel paper with respect to personal property
or services performed giving rise to any account.
(e) Effectiveness of Agreement. This Agreement shall become
effective only upon acceptance by Secured Party at its offices in
Dallas, Texas. All transactions hereunder shall take place at Secured
Party's offices in Dallas, Texas.
<PAGE>
(f) Waiver. Neither the failure nor any delay on the part of
Secured Party to exercise any right, power or privilege herein or under
any of the Loan Documents shall operate as a waiver thereof, nor shall
any single or partial exercise of such right, power or privilege
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No waiver of any provision in this
Agreement or in any of the other Loan Documents and no departure by
Debtor therefrom shall be effective unless the same shall be in writing
and signed by Secured Party, and then shall be effective only in the
specific instance and for the purpose for which given and to the extent
specified in such writing.
(g) Amendment. No modification or amendment to this Agreement
or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be
enforced.
(h) Parties In Interest. This Agreement shall be binding upon
the parties and their successors or assigns, and shall inure to the
benefit of the parties and the successors or assigns of Secured Party,
but shall not inure to the benefit of any heirs, representatives,
successors or assigns of Debtor.
(i) Venue. All warranties and representations of Debtor
contained herein and any payment on any indebtedness secured hereby
have been or shall be made in Dallas County, Texas, and all parties
hereto agree that venue is proper only in such county, that such county
is a convenient forum in which to decide any dispute arising hereunder
and to submit themselves to the personal jurisdiction of the courts
located in such county.
(j) Governing Law. The laws of Texas shall govern the
construction of this Agreement and the rights, remedies, duties and
obligations of the parties hereto with respect to all transactions
hereunder and any and all Collateral, to the extent that federal law is
not applicable.
(k) Cumulative Rights. All rights of Secured Party under the
terms of this Agreement shall be cumulative of, and in addition to, the
rights of Secured Party under any and all other agreements between
Debtor and Secured Party (including, but not limited to, the other Loan
Documents and any other agreements referenced herein), and not in
substitution or diminution of any rights now or hereafter held by
Secured Party under the terms of any other agreement.
(l) Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have
been given when personally delivered or when deposited in the United
States mail, registered or certified, postage prepaid, and addressed as
follows:
If to Debtor: Digital Communications Technology Corporation
16910 Dallas Parkway
Suite 100
Dallas, Texas 75248
If to Secured Party: BANK ONE, TEXAS, NATIONAL ASSOCIATION
P.O. Box 660094
Dallas, Texas 75266-0094
Attn: Asset Based Lending Group
<PAGE>
Each of the parties hereto shall be entitled to specify a different
address by giving written notice to the other party hereto in
accordance with this Subsection.
(m) Indemnification. Debtor hereby indemnifies and agrees to
hold harmless and defend all Indemnified Persons from and against any
and all Indemnified Claims. Upon notification and demand, Debtor agrees
to provide defense of any Indemnified Claim and pay all costs and
reasonable expenses of counsel selected by any Indemnified Person in
respect thereof. The indemnification provided for in this paragraph
shall survive any termination of this Agreement and shall continue for
the benefit of all Indemnified Persons. Except as specifically provided
in this paragraph, Debtor waives all notices from any Indemnified
Person with respect to such indemnification. As used herein,
"Indemnified Claims" means any and all claims, demands, actions, causes
of action, judgments, obligations, liabilities, losses, damages and
consequential damages, penalties, fines, costs, fees, expenses and
disbursements (including without limitation, reasonable fees and
expenses of attorneys and other professional consultants and experts in
connection with investigation or defense) of every kind, known or
unknown, existing or hereafter arising, foreseeable or unforeseeable,
which may be imposed upon, threatened or asserted against, or incurred
or paid by, any Indemnified Person at any time and from time to time,
because of, resulting from, in connection with, or arising out of any
transaction, act, omission, event or circumstance in any way connected
with the Collateral or the Loan Documents (including enforcement of
Secured Party's rights thereunder or defense of Secured Party's actions
thereunder and specifically including any and all Indemnified Claims
arising from Secured Party's ordinary negligence, but in any event
excluding Secured Party's gross negligence or intentional misconduct or
breach of any Loan Document) or any breach by a Borrower or any
Obligated Party of any representation, warranty, covenant, agreement or
condition contained in any Loan Documents or any Event of Default as
defined in this Agreement.
(n) Descriptive Headings. The captions in this Agreement are
for convenience only and shall not define or limit the provisions
hereof.
(o) Participation of Obligations. Debtor agrees that Secured
Party may, at its option, sell interests in the Obligations and its
rights under this Agreement to a financial institution or institutions
and, in connection with each such sale, Secured Party may disclose any
financial and other information available to Secured Party concerning
Debtor to each prospective purchaser.
(p) Invalid Provisions. If any provision of this Agreement or
any of the other Loan Documents is held to be illegal, invalid or
unenforceable under present or future laws, such provision shall be
fully severable and the remaining provisions of this Agreement or any
of the other Loan Documents shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable
provision or by its severance.
<PAGE>
(q) Power of Attorney. On the date hereof Debtor has provided
to Bank a Power of Attorney with regard to an investment account held
by Debtor with Andrew Peck Associates Inc. Bank agrees not to exercise
such Power of Attorney until after (i) the occurrence and during the
continuation of an Event of Default, and (ii) notice from Bank to
Debtor.
IN WITNESS THEREOF, this Agreement is executed, to be effective as of
the date of acceptance by Secured Party.
DEBTOR:
DIGITAL COMMUNICATIONS
TECHNOLOGY CORPORATION
By: _____________________________________
Kevin B. Halter, Chairman of the Board
ACCEPTED at Dallas, Texas,
this 6th day of November, 1996
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By: _______________________________
Mark Champion, Vice President
<PAGE>
PROMISSORY NOTE
$1,950,000.00 Dallas, Texas November 6, 1996
FOR VALUE RECEIVED, on or before October 31, 1998 ("Maturity Date"), the
undersigned Digital Communications Technology Corporation, a Delaware
corporation ("Borrower"), promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("Bank") at its offices in Dallas County, Texas, at 1717
Main, Dallas, Texas 75208 the principal amount of ONE MILLION NINE HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($1,950,000.00) ("Total Principal Amount"), or such
amount less than the Total Principal Amount which is outstanding from time to
time if the total amount outstanding under this Promissory Note ("Note") is less
than the Total Principal Amount, together with interest on such portion of the
Total Principal Amount which has been advanced to Borrower from the date
advanced until paid at a fluctuating rate per annum which shall from day to day
be equal to the lesser of (a) the Maximum Rate (as hereinafter defined), or (b)
a rate (the "Contract Rate"), calculated on the basis of the actual days elapsed
but computed as if each year consisted of 360 days, equal to the sum of (i) the
Base Rate (the "Base Rate") of interest as established from time to time by the
Bank (which may not be the lowest, best or most favorable rate of interest which
Bank may charge on loans to its customers), plus (ii) one half of one percent
(0.50%) per annum; provided, however, that if at any time the Contract Rate
shall exceed the Maximum Rate, thereby causing the interest on this Note to be
limited to the Maximum Rate, then any subsequent reduction in the Base Rate
shall not reduce the rate of interest on this Note below the Maximum Rate until
the total amount of interest accrued on this Note equals the amount of interest
which would have accrued on this Note if the Contract Rate had at all times been
in effect.
The term "Maximum Rate," as used herein, shall mean at the particular time
in question the maximum rate of interest which, under applicable law, may then
be charged on this Note. If such maximum rate of interest changes after the date
hereof and this Note provides for a fluctuating rate of interest, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective date of each change in
such maximum rate. If applicable law ceases to provide for such a maximum rate
of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum.
Capitalized terms used but not defined herein have the meaning given to
them in that certain Loan and Security Agreement dated of even date herewith
executed by and among Borrower and Bank (as the same may be amended, restated,
renewed, extended, or modified from time to time, "Loan Agreement").
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
(a) Interest shall be due and payable monthly as it accrues, commencing on
the first (1st) day of the month following the initial advance hereunder and
continuing on the first (1st) day of each successive month thereafter during the
term of this Note and on the Maturity Date.
(b) (A) The outstanding principal balance of this Note shall be due and
payable monthly commencing on the first (1st) day of the month following the
initial advance hereunder and continuing on the first (1st) day of each
successive month thereafter.
<PAGE>
(B) The amount of each monthly principal payment due hereunder shall equal
the sum of the amounts required to amortize each advance made hereunder
calculated as if such advance were being amortized over 60 months from the
date of advance. The amount of monthly principal payments due hereunder shall
be increased as additional advances are made hereunder.
(C) The unpaid principal balance of this Note shall be due and payable in
full on the Maturity Date.
To the extent that any interest is not paid on or before the fifth (5th)
day after it becomes due and payable, Bank may, at its option, add such accrued
interest to the principal of this Note. Notwithstanding anything herein to the
contrary, upon an Event of Default (as hereinafter defined) or at maturity
whether by acceleration or otherwise, all principal of this Note shall, at the
option of Bank, bear interest at the Maximum Rate until paid.
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to the Loan Agreement and is secured by the
security interests and liens set forth therein.
This Note, the Loan Agreement and all other documents evidencing,
securing, governing, guaranteeing and/or pertaining to this Note, including but
not limited to those documents described above, are hereinafter collectively
referred to as the "Loan Documents." The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the
aggregate principal amount outstanding from time to time hereunder shall not at
any time exceed the Total Principal Amount. The unpaid balance of this Note
shall increase and decrease with each new advance or payment hereunder, as the
case may be. This Note shall not be deemed terminated or canceled prior to the
Maturity Date, although the entire principal balance hereof may from time to
time be paid in full. Borrower may borrow, repay and reborrow hereunder. All
regularly scheduled payments of the indebtedness evidenced by this Note and by
any of the other Loan Documents shall be applied first to any accrued but unpaid
interest then due and payable hereunder or thereunder and then to the principal
amount then due and payable. All non-regularly scheduled payments shall be
applied to such indebtedness in such order and manner as the holder of this Note
may from time to time determine in its sole discretion. All payments and
prepayments of principal of or interest on this Note shall be made in lawful
money of the United States of America in immediately available funds, at the
address of Bank indicated above, or such other place as the holder of this Note
shall designate in writing to Borrower. If any payment of principal of or
interest on this Note shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment. The books and records of Bank shall be prima facie evidence of all
outstanding principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment or other similar purposes.
<PAGE>
Borrower agrees that upon the occurrence of an Event of Default the holder
of this Note may, at its option, without further notice or demand, (i) declare
the outstanding principal balance of and accrued but unpaid interest on this
Note at once due and payable, (ii) refuse to advance any additional amounts
under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue
any and all other rights, remedies and recourse available to the holder hereof,
including but not limited to any such rights, remedies or recourse under the
Loan Documents, at law or in equity, or (v) pursue any combination of the
foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourse of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render usurious
any amount called for under this Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if Bank's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by law, then it
is the express intent of Borrower and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of this Note (or, if this
Note and all other indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to Borrower), and the provisions of
this Note and the other Loan Documents immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be paid, by
Borrower for the use, forbearance, detention, taking, charging, receiving or
reserving of the indebtedness of Borrower to Bank under this Note or arising
under or pursuant to the other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
<PAGE>
rate or amount of interest on account of such indebtedness does not exceed the
usury ceiling from time to time in effect and applicable to such indebtedness
for so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge or receive a greater amount of interest,
Bank will rely on federal law instead of TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended, for the purpose of determining the Maximum Rate.
Additionally, to the maximum extent permitted by applicable law now or hereafter
in effect, Bank may, at its option and from time to time, implement any other
method of computing the Maximum Rate under such Article 5069-1.04, as amended,
or under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Bank to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art. 5069-1.04,
as amended, is applicable to this Note, the "indicated rate ceiling" specified
in such article is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
Digital Communications Technology Corporation
By:___________________________________
Kevin B. Halter, Chairman of the Board
<PAGE>
PROMISSORY NOTE
$5,000,000.00 Dallas, Texas November 6, 1996
FOR VALUE RECEIVED, on or before October 31, 1998 ("Maturity Date"), the
undersigned Digital Communications Technology Corporation, a Delaware
corporation ("Borrower"), promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("Bank") at its offices in Dallas County, Texas, at 1717
Main, Dallas, Texas 75208 the principal amount of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) ("Total Principal Amount"), or such amount less than the
Total Principal Amount which is outstanding from time to time if the total
amount outstanding under this Promissory Note ("Note") is less than the Total
Principal Amount, together with interest on such portion of the Total Principal
Amount which has been advanced to Borrower from the date advanced until paid at
a fluctuating rate per annum which shall from day to day be equal to the lesser
of (a) the Maximum Rate (as hereinafter defined), or (b) a rate (the "Contract
Rate"), calculated on the basis of the actual days elapsed but computed as if
each year consisted of 360 days, equal to the sum of (i) the Base Rate (the
"Base Rate") of interest as established from time to time by the Bank (which may
not be the lowest, best or most favorable rate of interest which Bank may charge
on loans to its customers), plus (ii) one-half percent (0.50 %) per annum;
provided, however, the Contract Rate is subject to reduction as provided in the
Loan Agreement (hereinafter defined). If at any time the Contract Rate shall
exceed the Maximum Rate, thereby causing the interest on this Note to be limited
to the Maximum Rate, then any subsequent reduction in the Base Rate shall not
reduce the rate of interest on this Note below the Maximum Rate until the total
amount of interest accrued on this Note equals the amount of interest which
would have accrued on this Note if the Contract Rate had at all times been in
effect.
The term "Maximum Rate," as used herein, shall mean at the particular time
in question the maximum rate of interest which, under applicable law, may then
be charged on this Note. If such maximum rate of interest changes after the date
hereof and this Note provides for a fluctuating rate of interest, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective date of each change in
such maximum rate. If applicable law ceases to provide for such a maximum rate
of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum.
Capitalized terms used but not defined herein have the meaning given to
them in that certain Loan and Security Agreement dated of even date herewith
executed by and among Borrower and Bank (as the same may be amended, restated,
renewed, extended, or modified from time to time, "Loan Agreement").
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
(a) interest shall be due and payable monthly as it accrues, commencing on
the first (1st) day of December, 1996 and continuing on the first (1st) day of
each successive month thereafter during the term of this Note; and
(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
<PAGE>
To the extent that any interest is not paid on or before the fifth (5th)
day after it becomes due and payable, Bank may, at its option, add such accrued
interest to the principal of this Note. Notwithstanding anything herein to the
contrary, upon an Event of Default (as hereinafter defined) or at maturity
whether by acceleration or otherwise, all principal of this Note shall, at the
option of Bank, bear interest at the Maximum Rate until paid.
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to the Loan Agreement and is secured by the
security interests and liens set forth therein.
This Note, the Loan Agreement and all other documents evidencing,
securing, governing, guaranteeing and/or pertaining to this Note, including but
not limited to those documents described above, are hereinafter collectively
referred to as the "Loan Documents." The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the
aggregate principal amount outstanding from time to time hereunder shall not at
any time exceed the Total Principal Amount. The unpaid balance of this Note
shall increase and decrease with each new advance or payment hereunder, as the
case may be. This Note shall not be deemed terminated or canceled prior to the
Maturity Date, although the entire principal balance hereof may from time to
time be paid in full. Borrower may borrow, repay and reborrow hereunder. All
regularly scheduled payments of the indebtedness evidenced by this Note and by
any of the other Loan Documents shall be applied first to any accrued but unpaid
interest then due and payable hereunder or thereunder and then to the principal
amount then due and payable. All non-regularly scheduled payments shall be
applied to such indebtedness in such order and manner as the holder of this Note
may from time to time determine in its sole discretion. All payments and
prepayments of principal of or interest on this Note shall be made in lawful
money of the United States of America in immediately available funds, at the
address of Bank indicated above, or such other place as the holder of this Note
shall designate in writing to Borrower. If any payment of principal of or
interest on this Note shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment. The books and records of Bank shall be prima facie evidence of all
outstanding principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of an Event of Default the holder
of this Note may, at its option, without further notice or demand, (i) declare
the outstanding principal balance of and accrued but unpaid interest on this
Note at once due and payable, (ii) refuse to advance any additional amounts
under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue
any and all other rights, remedies and recourse available to the holder hereof,
including but not limited to any such rights, remedies or recourse under the
Loan Documents, at law or in equity, or (v) pursue any combination of the
foregoing.
<PAGE>
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourse of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render usurious
any amount called for under this Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if Bank's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by law, then it
is the express intent of Borrower and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of this Note (or, if this
Note and all other indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to Borrower), and the provisions of
this Note and the other Loan Documents immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be paid, by
Borrower for the use, forbearance, detention, taking, charging, receiving or
reserving of the indebtedness of Borrower to Bank under this Note or arising
under or pursuant to the other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
usury ceiling from time to time in effect and applicable to such indebtedness
for so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge or receive a greater amount of interest,
Bank will rely on federal law instead of TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended, for the purpose of determining the Maximum Rate.
Additionally, to the maximum extent permitted by applicable law now or hereafter
in effect, Bank may, at its option and from time to time, implement any other
method of computing the Maximum Rate under such Article 5069-1.04, as amended,
or under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Bank to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.
<PAGE>
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art. 5069-1.04,
as amended, is applicable to this Note, the "indicated rate ceiling" specified
in such article is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
Digital Communications Technology Corporation
By:___________________________________
Kevin B. Halter, Chairman of the Board
<PAGE>
PROMISSORY NOTE
$1,800,000.00 Dallas, Texas November 6, 1996
FOR VALUE RECEIVED, on or before October 31, 1998 ("Maturity Date"), the
undersigned Digital Communications Technology Corporation, a Delaware
corporation ("Borrower"), promises to pay to the order of BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("Bank") at its offices in Dallas County, Texas, at 1717
Main, Dallas, Texas 75208 the principal amount of ONE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,800,000.00) ("Total Principal Amount"), or such
amount less than the Total Principal Amount which is outstanding from time to
time if the total amount outstanding under this Promissory Note ("Note") is less
than the Total Principal Amount, together with interest on such portion of the
Total Principal Amount which has been advanced to Borrower from the date
advanced until paid at a fluctuating rate per annum which shall from day to day
be equal to the lesser of (a) the Maximum Rate (as hereinafter defined), or (b)
a rate (the "Contract Rate"), calculated on the basis of the actual days elapsed
but computed as if each year consisted of 360 days, equal to the sum of (i) the
Base Rate (the "Base Rate") of interest as established from time to time by the
Bank (which may not be the lowest, best or most favorable rate of interest which
Bank may charge on loans to its customers), plus (ii) one half of one percent
(0.50 %) per annum; provided, however, that if at any time the Contract Rate
shall exceed the Maximum Rate, thereby causing the interest on this Note to be
limited to the Maximum Rate, then any subsequent reduction in the Base Rate
shall not reduce the rate of interest on this Note below the Maximum Rate until
the total amount of interest accrued on this Note equals the amount of interest
which would have accrued on this Note if the Contract Rate had at all times been
in effect.
The term "Maximum Rate," as used herein, shall mean at the particular time
in question the maximum rate of interest which, under applicable law, may then
be charged on this Note. If such maximum rate of interest changes after the date
hereof and this Note provides for a fluctuating rate of interest, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective date of each change in
such maximum rate. If applicable law ceases to provide for such a maximum rate
of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum.
Capitalized terms used but not defined herein have the meaning given to
them in that certain Loan and Security Agreement dated of even date herewith
executed by and among Borrower and Bank (as the same may be amended, restated,
renewed, extended, or modified from time to time, "Loan Agreement").
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
(a) interest shall be due and payable monthly as it accrues, commencing on
the first (1st) day of December, 1996, and continuing on the first (1st) day of
each successive month thereafter during the term of this Note; and
(b) the outstanding principal balance of this Note shall be due and
payable in equal monthly installments in the amount of $30,000.00 each
commencing on the first (1st) day of December, 1996, and continuing on the first
day of each successive month thereafter until the Maturity Date when the unpaid
principal balance shall be due and payable in full.
To the extent that any interest is not paid on or before the fifth (5th)
day after it becomes due and payable, Bank may, at its option, add such accrued
interest to the principal of this Note. Notwithstanding anything herein to the
contrary, upon an Event of Default (as hereinafter defined) or at maturity
whether by acceleration or otherwise, all principal of this Note shall, at the
option of Bank, bear interest at the Maximum Rate until paid.
<PAGE>
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to the Loan Agreement and is secured by the
security interests and liens set forth therein.
This Note, the Loan Agreement and all other documents evidencing,
securing, governing, guaranteeing and/or pertaining to this Note, including but
not limited to those documents described above, are hereinafter collectively
referred to as the "Loan Documents." The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the
aggregate principal amount outstanding from time to time hereunder shall not at
any time exceed the Total Principal Amount. The unpaid balance of this Note
shall increase and decrease with each new advance or payment hereunder, as the
case may be. This Note shall not be deemed terminated or canceled prior to the
Maturity Date, although the entire principal balance hereof may from time to
time be paid in full. Borrower may borrow, repay and reborrow hereunder. All
regularly scheduled payments of the indebtedness evidenced by this Note and by
any of the other Loan Documents shall be applied first to any accrued but unpaid
interest then due and payable hereunder or thereunder and then to the principal
amount then due and payable. All non-regularly scheduled payments shall be
applied to such indebtedness in such order and manner as the holder of this Note
may from time to time determine in its sole discretion. All payments and
prepayments of principal of or interest on this Note shall be made in lawful
money of the United States of America in immediately available funds, at the
address of Bank indicated above, or such other place as the holder of this Note
shall designate in writing to Borrower. If any payment of principal of or
interest on this Note shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment. The books and records of Bank shall be prima facie evidence of all
outstanding principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of an Event of Default the holder
of this Note may, at its option, without further notice or demand, (i) declare
the outstanding principal balance of and accrued but unpaid interest on this
Note at once due and payable, (ii) refuse to advance any additional amounts
under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue
any and all other rights, remedies and recourse available to the holder hereof,
including but not limited to any such rights, remedies or recourse under the
Loan Documents, at law or in equity, or (v) pursue any combination of the
foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourse of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
<PAGE>
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render usurious
any amount called for under this Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if Bank's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by law, then it
is the express intent of Borrower and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of this Note (or, if this
Note and all other indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to Borrower), and the provisions of
this Note and the other Loan Documents immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be paid, by
Borrower for the use, forbearance, detention, taking, charging, receiving or
reserving of the indebtedness of Borrower to Bank under this Note or arising
under or pursuant to the other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
usury ceiling from time to time in effect and applicable to such indebtedness
for so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge or receive a greater amount of interest,
Bank will rely on federal law instead of TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended, for the purpose of determining the Maximum Rate.
Additionally, to the maximum extent permitted by applicable law now or hereafter
in effect, Bank may, at its option and from time to time, implement any other
method of computing the Maximum Rate under such Article 5069-1.04, as amended,
or under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect. Notwithstanding anything
to the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Bank to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest at
the time of such acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art. 5069-1.04,
as amended, is applicable to this Note, the "indicated rate ceiling" specified
in such article is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
<PAGE>
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
Digital Communications Technology Corporation
By:___________________________________
Kevin B. Halter, Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 465,177
<SECURITIES> 936,833
<RECEIVABLES> 7,421,653
<ALLOWANCES> 475,000
<INVENTORY> 2,351,964
<CURRENT-ASSETS> 11,374,511
<PP&E> 11,177,736
<DEPRECIATION> 5,483,675
<TOTAL-ASSETS> 17,648,933
<CURRENT-LIABILITIES> 7,169,396
<BONDS> 1,987,078
1
0
<COMMON> 1,438
<OTHER-SE> 8,073,348
<TOTAL-LIABILITY-AND-EQUITY> 17,648,933
<SALES> 8,794,479
<TOTAL-REVENUES> 8,794,479
<CGS> 7,073,707
<TOTAL-COSTS> 7,073,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60,833
<INTEREST-EXPENSE> 103,184
<INCOME-PRETAX> 363,934
<INCOME-TAX> 127,411
<INCOME-CONTINUING> 236,523
<DISCONTINUED> 4,935
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,588
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
