SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1998
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from ____ to ____
Commission File No. 0-13150
_____________
CONCURRENT COMPUTER CORPORATION
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
2101 West Cypress Creek Road, Ft. Lauderdale, FL 33309
Telephone: (954) 974-1700
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
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Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of May 13, 1998 were 47,605,024.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 29, MARCH 31, MARCH 29,
1998 1997 1998 1997
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Net sales
Computer systems. . . . . . . . . . $ 9,544 $ 16,440 $ 28,169 $ 42,196
Service and other . . . . . . . . . 10,850 12,215 33,846 40,841
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . 20,394 28,655 62,015 83,037
Cost of sales
Computer systems. . . . . . . . . . 5,123 8,529 13,916 22,199
Service and other . . . . . . . . . 5,670 6,593 17,852 21,742
Transition. . . . . . . . . . . . . - 171 - 973
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . 10,793 15,293 31,768 44,914
----------- ----------- ----------- -----------
Gross margin. . . . . . . . . . . . . 9,601 13,362 30,247 38,123
Operating expenses:
Research and development. . . . . . 2,739 3,439 8,253 10,238
Selling, general and administrative 5,845 6,732 17,739 21,760
Transition/restructuring. . . . . . - 71 (607) 2,177
Post-retirement benefit reversal. . - (300) - (2,481)
----------- ----------- ----------- -----------
Total operating expenses. . . . . . . 8,584 9,942 25,385 31,694
Operating income. . . . . . . . . . . 1,017 3,420 4,862 6,429
Interest expense. . . . . . . . . . . (159) (549) (609) (1,740)
Interest income . . . . . . . . . . . 51 71 109 152
Other non-recurring charge. . . . . . - 64 420 (1,867)
Other income (expense) - net. . . . . 120 (325) (122) (690)
----------- ----------- ----------- -----------
Income before provision . . . . . . . 1,029 2,681 4,660 2,284
for income taxes
Provision for income taxes. . . . . . 24 401 932 1,371
----------- ----------- ----------- -----------
Net income. . . . . . . . . . . . . . $ 1,005 $ 2,280 $ 3,728 $ 913
Preferred stock dividends and
accretion of preferred shares . . . - - (18) -
----------- ----------- ----------- -----------
Net income available to
common shareholders . . . . . . . . $ 1,005 $ 2,280 $ 3,710 $ 913
=========== =========== =========== ===========
Basic income per share. . . . . . . . $ 0.02 $ 0.05 $ 0.08 $ 0.02
=========== =========== =========== ===========
Diluted income per share. . . . . . . $ 0.02 $ 0.05 $ 0.08 $ 0.02
=========== =========== =========== ===========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
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CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
1998 1997
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ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 4,877 $ 4,024
Trading securities . . . . . . . . . . . . . . . . . . . . . - 2,718
Accounts receivable - net. . . . . . . . . . . . . . . . . . 21,531 25,720
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 6,475 8,399
Prepaid expenses and other current assets. . . . . . . . . . 2,171 2,286
----------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 35,054 43,147
Property, plant and equipment - net. . . . . . . . . . . . . . 12,589 14,207
Facilities held for disposal . . . . . . . . . . . . . . . . . - 4,700
Other long-term assets . . . . . . . . . . . . . . . . . . . . 1,350 1,474
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,993 $ 63,528
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . $ 4,224 $ 5,399
Current portion of long-term debt. . . . . . . . . . . . . . - 1,668
Revolving credit facility. . . . . . . . . . . . . . . . . . - 3,118
Accounts payable and accrued expenses. . . . . . . . . . . . 14,339 23,866
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . 4,748 4,402
----------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . 23,311 38,453
Long term debt . . . . . . . . . . . . . . . . . . . . . . . . - 4,493
Other long-term liabilities. . . . . . . . . . . . . . . . . . 1,516 1,219
Total liabilities. . . . . . . . . . . . . . . . . . . . . 24,827 44,165
----------- ----------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . - 1,243
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 474 461
Capital in excess of par value . . . . . . . . . . . . . . . 95,118 92,650
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (70,877) (74,587)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . (58) (58)
Cumulative translation adjustment. . . . . . . . . . . . . . (491) (346)
Total stockholders' equity . . . . . . . . . . . . . . . . 24,166 18,120
----------- ----------
Total liabilities and stockholders' equity . . . . . . . . . . $ 48,993 $ 63,528
=========== ==========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
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CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
MARCH 31, MARCH 29,
1998 1997
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Cash flows provided by (used by) operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,728 $ 913
Adjustments to reconcile net income
to net cash provided by operating activities:
Unrealized loss on CyberGuard Stock. . . . . . . . . . . . . - 2,622
Realized loss on CyberGuard Stock. . . . . . . . . . . . . . (420) (755)
Gain on sale of facility . . . . . . . . . . . . . . . . . . (706) -
Depreciation, amortization and other . . . . . . . . . . . . 4,317 4,102
Other non-cash expenses. . . . . . . . . . . . . . . . . . . 1,027 2,537
Decrease (increase) in current assets:
Accounts receivable. . . . . . . . . . . . . . . . . . . . 4,189 (2,480)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 1,703 883
Prepaid expenses and other current assets. . . . . . . . . (775) 260
Decrease in current liabilities other than debt obligations. (9,197) (10,054)
Decrease in other long-term assets . . . . . . . . . . . . . 83 1,898
Increase (decrease) in other long-term liabilities . . . . . 297 (2,823)
----------- -----------
Total adjustments to net income. . . . . . . . . . . . . . . . 518 (3,810)
----------- -----------
Net cash provided by (used by) operating activities. . . . . . . 4,246 (2,897)
----------- -----------
Cash flows provided by investing activities:
Net additions to property, plant and equipment . . . . . . . . (1,977) (2,566)
Net proceeds from sale of trading securities . . . . . . . . . 2,668 4,590
Proceeds from sale of facility . . . . . . . . . . . . . . . . 5,406 -
Net cash provided by investing activities. . . . . . . . . . . . 6,097 2,024
----------- -----------
Cash flows provided by (used by) financing activities:
Net payments of notes payable. . . . . . . . . . . . . . . . . (462) (143)
Net proceeds (payments) of revolving credit facility . . . . . (3,118) 224
Repayment of long-term debt. . . . . . . . . . . . . . . . . . (6,161) (1,159)
Net proceeds from sale and
issuance of common stock . . . . . . . . . . . . . . . . . . 679 1,236
----------- -----------
Net cash provided by (used by) financing activities. . . . . . . (9,062) 158
----------- -----------
Effect of exchange rates on cash
and cash equivalents . . . . . . . . . . . . . . . . . . . . . (428) (138)
----------- -----------
Increase (decrease) in cash and cash equivalents . . . . . . . . $ 853 $ (853)
=========== ===========
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 594 $ 1,948
=========== ===========
Income taxes (net of refunds). . . . . . . . . . . . . . . . $ 891 $ 1,079
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<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The foregoing financial information
reflects all adjustments which are, in the opinion of management, necessary for
a fair presentation of the results for the periods presented. All such
adjustments are of a normal recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes included in the Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. CHANGES IN ACCOUNTING POLICY
Post-retirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" ("FAS No. 106"). This standard
requires companies to accrue post-retirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
The transition obligation (the accumulated post-retirement benefit obligation at
the date of adoption) may be recognized either immediately or by amortization
over the longer of the average remaining service period of active employees or
20 years.
In connection with the adoption of this standard in fiscal year 1994, the
Company recorded a non-cash charge of $3.0 million representing the immediate
recognition of the accumulated post-retirement benefit obligation at the date of
the adoption.
As a result of the Acquisition as defined in Management's Discussion and
Analysis, the Company terminated the retirement benefits of current employees
and former employees who are not yet retired. In the quarter and nine months
ended March 29,1997, curtailment gains of $0.3 million and $2.5 million,
respectively, were recognized. The Company believes there will be no material
expenses in connection with this Plan.
Stock-Based Compensation
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
During fiscal year 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"),
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share disclosures
(which for the Company would include employee stock option grants made in fiscal
year 1996 and future years) as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
3. EARNINGS PER SHARE
In the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS No. 128"),
which supersedes APB Opinion No. 15, "Earnings Per Share", and specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
FAS No. 128 replaces primary and fully diluted EPS with basic and diluted EPS,
respectively. It also requires dual presentation of Basic EPS and Diluted EPS
on the face of the income statement and requires a reconciliation of the
numerator and denominator of the Basic EPS computation to the numerator and
denominator of the Diluted EPS computation.
Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS,
like Fully Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
The number of shares used in computing basic and fully diluted earnings per
share for the three months ended March 31, 1998 was 47,260,000 and 49,058,000,
respectively. The number of shares used in computing basic and diluted earnings
per share for the three months ended March 29, 1997 was 45,439,000 and
46,162,000, respectively. The number of shares used in computing basic and
fully diluted earnings per share for the nine months ended March 31, 1998 was
46,816,000 and 48,641,000, respectively. The number of shares used in computing
basic and diluted earnings per share for the nine months ended March 29, 1997
was 43,930,000 and 44,653,000, respectively.
4. TRADING SECURITIES
As of June 30, 1996, the Company held 683,173 shares of CyberGuard
Corporation ("CyberGuard") stock with a market value of $14.75 per share.
During the quarter ended September 27, 1996 the Company sold 91,500 shares at
$10.645 per share, resulting in a realized loss of $376 thousand. The value of
the stock as of September 27, 1996 was $8.50 per share, resulting in an
unrealized loss of $3.7 million for the quarter then ended. During the quarter
ended December 28, 1996, the Company sold 261,500 shares at an average price of
$12.748 per share resulting in a realized gain of $1.1 million, and sold a call
option on an additional 300,000 shares. As of December 28, 1996, the value of
the stock was $11.625, resulting in an unrealized gain for the quarter of $1.0
million. During the quarter ended March 29, 1997, the Company sold 22,500 shares
at $12.514 per share, resulting in a realized gain of $20,000. As of March 29,
the Company held 307,678 shares, including the 300,000 shares subject to the
call option. The market value of these shares was $2,730,642 or $8.875 per
share at March 29, 1997. The unrealized loss was netted against the earned
proceeds of the call option, leaving a balance of $279 thousand deferred
revenue. During the remainder of fiscal year 1997, the Company sold 2,495
shares leaving 305,178 shares at June 30, 1997, valued at $2.7 million or $8.91
per share.
During the quarter ended September 30, 1997, 259,352 shares of CyberGuard
stock were sold, resulting in a realized gain for the period of $358 thousand.
On September 4, 1997, the remaining 45,826 shares valued at $10.25 per share
were issued as bonuses to Company employees. This resulted in a realized gain
of $62 thousand.
<PAGE>
5. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
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MARCH 31, JUNE 30,
1998 1997
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Raw Materials . $ 4,570 $ 5,823
Work-in-process 1,332 2,191
Finished Goods. 573 385
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$ 6,475 $ 8,399
========== =========
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6. ACCUMULATED DEPRECIATION
Accumulated depreciation for property, plant and equipment at March 31,
1998 and June 30, 1997 was $22,607,000 and $23,062,000 respectively. The
decrease primarily reflects exchange rate fluctuations and asset write off's.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
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Accounts payable, trade . . . $ 4,875 $ 7,451
Accrued payroll, vacation and
other employee expenses . . 4,461 5,891
Restructuring reserve . . . . 563 2,876
Other accrued expenses. . . . 4,440 7,648
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$ 14,339 $ 23,866
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8. SALE OF FACILITY
During fiscal year 1996, in connection with the Acquisition (as hereinafter
defined) the Company's Oceanport, New Jersey facility was written down by $6.8
million to its estimated fair value of $4.7 million, based on a valuation by
independent appraisers, and classified as a facility held for sale. In the
quarter ended September 30, 1997, the sale of this facility was finalized. $5.5
million less closing costs of $0.1 million was received by the Company and
applied against the Company's debt. The Company realized a gain of $0.7 million
that is reflected in the statement of operations in the nine months ended March
31, 1998.
9. PROVISION FOR RESTRUCTURING
The Company recorded a restructuring provision of $24.5 million during the
year ended June 30, 1996. This charge included the estimated costs related to
the rationalization of facilities, workforce reductions, asset writedowns and
other costs. The balance of the restructuring reserve at June 30, 1996 was
$13.0 million. During fiscal year 1997, expenditures related to this
restructuring amounted to approximately $10.1 million leaving a balance $2.9
million at June 30, 1997.
During the quarter and nine months ended March 31, 1998, restructuring
expenditures amounted to $0.2 million and $2.3 million, respectively,
representing workforce reductions and lease terminations. The balance of the
restructuring reserve at March 31, 1998 was $0.6 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 27, 1996, the Company acquired the Real-Time Division of Harris
Computer Systems Corporation ("HCSC"), along with 683,178 shares of newly issued
shares of HCSC, which was renamed CyberGuard Corporation ("CyberGuard"), in
exchange for 10,000,000 shares of Concurrent common stock, 1,000,000 shares of
convertible exchangeable preferred stock of Concurrent with a 9% cumulative
annual dividend payable quarterly in arrears and a mandatory redemption value of
$6,263,000 and the assumption of certain liabilities related to the HCSC
Real-Time Division ("Acquisition"). The aggregate purchase price of the
Acquisition was approximately $18.7 million. The Acquisition has been accounted
for as a purchase effective June 30, 1996.
RESULTS OF OPERATIONS
THE QUARTER ENDED MARCH 31, 1998 COMPARED WITH THE QUARTER ENDED MARCH 29, 1997.
Net Sales. Net sales decreased to $20.4 million for the quarter ended March
31, 1998 from $28.7 million in the comparable period a year ago. The Company
considers its computer systems and service business to be one class of products.
Net product sales were $9.5 million for the quarter ended March 31, 1998 as
compared with $16.4 million for the quarter ended March 29, 1997. Sales of
proprietary systems continue to decline, and the selling price of open systems
is significantly lower than that of proprietary products. As the Company
increasingly moves to a software value-added business, the price of computers
decreases as the Company utilizes commercial products from Motorola which have a
significantly lower price than the Company's open systems product. Maintenance
sales decreased from $12.2 million in the quarter ended March 29, 1997 to $10.9
million in the quarter ended March 31, 1998 continuing the decline experienced
over the past years as customers move from proprietary systems to open systems
which require less maintenance.
Gross Margin. Gross margin decreased $3.8 million during the current
quarter to $9.6 million (47.1% as a percentage of sales) compared with $13.4
million (46.6%) for the three months ended March 29, 1997. The improved margin
resulted from increased efficiencies and economies of scale brought about by
combining the Company's manufacturing and maintenance facilities with those of
HCSC. The overall decrease in gross margin reflects the Company's lower sales
this quarter.
Operating Income. Operating income decreased $2.4 million to $1.0 million
in the current quarter compared with an income of $3.4 million in the quarter
ended March 29, 1997. Expenses decreased $1.4 million in the current quarter
compared with the quarter ended March 29, 1997, which is primarily due to
continued cost reduction efforts. This was partially offset by an increase
resulting from the reversal of a $0.3 million post-retirement benefit accrual
that occurred in the quarter ended March 29, 1997.
Net Income. Net income decreased from $2.3 million in the quarter ended
March 29, 1997 to $1.0 million in the current quarter. The decrease of $1.3
million is due to the decreased gross margin discussed above. This was offset
by the reduction of operating expenses discussed above, a decline in interest
expense due to decreased borrowings, and an international income tax credit
recorded in the current quarter.
<PAGE>
THE NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THE NINE MONTHS ENDED MARCH
29, 1997.
Net Sales. Net sales decreased to $62.0 million for the nine months ended
March 31, 1998 from $83.0 million in the comparable period a year ago. The
Company considers its computer systems and service business to be one class of
products.
Net product sales were $28.2 million for the nine months ended March 31, 1998 as
compared with $42.2 million for the nine months ended March 29, 1997. Sales of
proprietary systems continue to decline, while open system products are
increasing. As the Company increasingly moves to a software value-added
business, the price of computers decreases as the Company utilizes commercial
products from Motorola which have a significantly lower price than the Company's
open systems product. Maintenance sales decreased from $40.8 million in the
nine months ended March 29, 1997 to $33.8 million for the comparable nine months
of fiscal year 1998, continuing the decline experienced over the past years as
customers move from proprietary to open systems which require less maintenance.
Gross Margin. Gross margin as a percentage of sales increased to 48.8% in
the current nine month period from 45.9% for the nine months ended March 29,
1997. This increase reflects the Company's increased efficiencies and cost
improvement efforts.
Operating Income. Operating income decreased $1.6 million to a profit of
$4.9 million compared with an income of $6.4 million in the nine months ended
March 29, 1997. Expenses decreased $6.3 million in the current nine months
compared with the nine months ended March 29, 1997 which is primarily due to
continued cost reduction efforts, the reduction of transition costs as the
transition process relating to the Acquisition has been completed and a gain on
the sale of the building recorded as an offset to restructuring expense in the
current nine months. This was partially offset by an increase resulting from
the reversal of a $2.5 million post-retirement benefit accrual that occurred in
the nine months ended March 29, 1997.
Net Income. Net income increased from $0.9 million in the nine months
ended March 29, 1997 to $3.7 million in the current nine months. This increase
of $2.8 million is due to a $0.4 million gain on CyberGuard stock in the current
nine months as compared to the $1.9 million loss on CyberGuard stock in the
prior year, a significant decrease in interest expense resulting from decreased
borrowings and an international income tax credit recorded in the current
quarter. This was offset by the $1.6 million decrease in operating income
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company sold its Oceanport, New Jersey facility in July 1997 for $5.5
million. The net proceeds for the sale ($5.4 million) were used to reduce debt.
During the first quarter of fiscal year 1998, the Company sold 259,352 shares of
CyberGuard stock for $2.7 million which was used in operations. The Company's
liquidity is dependent on many factors, including sales volume, operating profit
ratio, debt service and the efficiency of asset use and turnover. The future
liquidity of the Company depends to a significant extent on (i) the actual
versus anticipated decline in sales of proprietary systems and service
maintenance revenue; (ii) revenue growth from open systems and the move from the
Company's open systems to Motorola boards and the Company's software; and (iii)
ongoing cost control actions. Liquidity will also be affected by: (i) timing of
shipments which predominately occur during the last month of the quarter; (ii)
the percentage of sales derived from outside the United States where there are
generally longer accounts receivable collection cycles and which receivables are
not included in the Company's borrowing base under its revolving credit
facility; (iii) the sales level in the United States where related accounts
receivable are included in the borrowing base of the Company's revolving credit
facility; (iv) the number of countries in which the Company will operate, which
may require maintenance of minimum cash levels in each country and, in certain
cases, may restrict the repatriation of cash, such as cash held on deposit to
secure office leases. The Company believes that it will be able to fund fiscal
year 1998 operations through its operating results and existing financing
facilities. There is no assurance that the Company's plans will be achieved.
During the quarter ended March 31, the Company paid the $1.8 million
remaining balance on the term loan under its then existing loan agreement with
Foothill Capital Corporation. On March 1, 1998, the Company entered into a new
agreement with Foothill, which replaced its existing credit facilities. The
agreement runs through June 30, 2000, and provides for an $8 million revolving
credit facility, subject to certain restrictions, and up to a $5 million letter
of credit to support the Company's obligation for its Japanese joint venture.
The revolver may be repaid and re-borrowed, subject to certain collateral
requirements, at any time during the term. The Company has pledged
substantially all of its domestic assets as collateral for the facility.
At March 31, 1998, the outstanding balance under the credit facility was
$0. The interest rate on outstanding balances is prime plus .75%. This rate is
a substantial improvement over the prime plus 2% rate under the previous credit
facility, and reflects the Company's stronger financial position and credit
worthiness.
The Company's joint venture agreement regarding its Japanese subsidiary has
been renewed through June, 1998. Currently the joint venture has $4.2 million
of debt. The Company's obligation is 60% of the debt. The Company has obtained
a letter of credit for up to $5 million to cover its obligation. If the joint
venture agreement is not renewed, the Company's intention is to continue the
operation and therefore may have to guarantee all the notes.
The Company had cash and cash equivalents on hand of $4.9 million
representing an increase from $4.0 million as of June 30, 1997 primarily due to
the profitability of the Company and its continuing cash management efforts.
Accounts receivable decreased by $4.2 million due to improved collections.
Accounts payable and accrued expenses decreased by $9.5 million primarily due to
reductions in spending, timely vendor payments, and a reduction of the
restructure reserve.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Form 10-Q contains forward-looking statements that are subject to
risks and uncertainties. Statements indicating that the Company "expects,"
"estimates" or "believes" are forward-looking as are all other statements
concerning future financial results, product offerings or other events that have
not yet occurred. There are several important factors that could cause actual
results or events to differ materially from those anticipated by the
forward-looking statements contained herein. Such factors include, but are not
limited to: the growth rates of the Company's market segments; the positioning
of the Company's products in those segments; the Company's ability to
effectively manage its business, and the growth of its business in a rapidly
changing environment; the timing of new product introductions; inventory risks
due to changes in market conditions; the competitive environment in the computer
industry; the Company's ability to establish successful strategic relationships;
and general economic conditions.
<PAGE>
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 29, MARCH 31, MARCH 29,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales
Computer systems . . . . . . . . . . 46.8% 57.4% 45.4% 50.8%
Service and other. . . . . . . . . . 53.2% 42.6% 54.6% 49.2%
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales
Computer systems . . . . . . . . . . 53.7% 51.9% 49.4% 52.6%
Service and other. . . . . . . . . . 52.3% 54.0% 52.7% 53.2%
Transition . . . . . . . . . . . . . 0.0% 0.6% 0.0% 1.2%
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . 52.9% 53.4% 51.2% 54.1%
---------- ---------- ---------- ----------
Gross margin . . . . . . . . . . . . . 47.1% 46.6% 48.8% 45.9%
Operating expenses:
Research and development . . . . . . 13.4% 12.0% 13.3% 12.3%
Selling, general and administrative. 28.7% 23.5% 28.6% 26.2%
Transition/restructuring . . . . . . 0.0% 0.2% (1.0%) 2.6%
Post-retirement benefit reversal . . 0.0% (1.0%) 0.0% (3.0%)
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . 42.1% 34.7% 40.9% 38.2%
Operating income (loss). . . . . . . . 5.0% 11.9% 7.8% 7.7%
Interest expense . . . . . . . . . . . (0.8%) (1.9%) (1.0%) (2.1%)
Interest income. . . . . . . . . . . . 0.3% 0.2% 0.2% 0.2%
Other non-recurring charge . . . . . . 0.0% 0.2% 0.7% (2.2%)
Other income (expense) - net . . . . . 0.6% (1.1%) (0.2%) (0.8%)
---------- ---------- ---------- ----------
Income before provision. . . . . . . . 5.0% 9.4% 7.5% 2.8%
for income taxes
Provision for income taxes . . . . . . 0.1% 1.4% 1.5% 1.7%
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . 4.9% 8.0% 6.0% 1.1%
========== ========== ========== ==========
</TABLE>
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(10) Amended and Restated Loan and Security Agreement by and between
Concurrent Computer Corporation and Foothill Capital Corporation dated as of
March 1, 1998
(12) Statement on computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On January 6, 1998, the Company filed a Current Report on Form 8-K
with respect to the lawsuit described in Part II, Item 1 of its Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended March 31,
1998 to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 14, 1998 CONCURRENT COMPUTER CORPORATION
By: /s/ Daniel S. Dunleavy
---------------------------
DANIEL S. DUNLEAVY
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT 10
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONCURRENT COMPUTER CORPORATION
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF MARCH 1, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page(s)
-------
<S> <C>
1. DEFINITIONS AND CONSTRUCTION. 1
1.1 Definitions 1
1.2 Accounting Terms 19
1.3 Code 19
1.4 Construction 19
1.5 Schedules and Exhibits. 19
2. LOAN AND TERMS OF PAYMENT 20
2.1 Revolving Advances. 20
2.2 Letters of Credit. 20
2.3 [Intentionally Omitted] 23
2.4 [Intentionally Omitted] 23
2.5 Overadvances 23
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations 23
2.7 Collection of Accounts 25
2.8 Crediting Payments; Application of Collections 25
2.9 Designated Account. 26
2.10 Maintenance of Loan Account; Statements of Obligations. 26
2.11 Fees. 26
3. CONDITIONS; TERM OF AGREEMENT 27
3.1 Conditions Precedent to the Initial Advance and Letter of
Credit. 27
3.2 Conditions Precedent to all Advances and Letters of
Credit. 28
3.3 Condition Subsequent 29
3.4 Term; Automatic Renewal. 29
3.5 Effect of Termination. 29
3.6 Early Termination by Borrower. 30
3.7 Termination Upon Event of Default. 30
4. CREATION OF SECURITY INTEREST 30
4.1 Grant of Security Interest. 30
4.2 Negotiable Collateral. 30
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral. 31
4.4 Delivery of Additional Documentation Required. 31
4.5 Power of Attorney. 31
4.6 Right to Inspect. 32
5. REPRESENTATIONS AND WARRANTIES. 32
5.1 No Encumbrances. 32
5.2 Eligible Accounts. 32
5.3 Eligible Inventory. 33
5.4 Equipment 33
5.5 Location of Inventory and Equipment. 33
5.6 Inventory Records. 33
5.7 Location of Chief Executive Office; FEIN. 33
5.8 Due Organization and Qualification; Subsidiaries. 33
5.9 Due Authorization; No Conflict. 34
5.10 Litigation. 35
5.11 No Material Adverse Change. 35
5.12 Solvency. 35
5.13 Employee Benefits. 35
5.14 Environmental Condition. 35
5.15 Brokerage Fees. 36
6. AFFIRMATIVE COVENANTS. 36
6.1 Accounting System. 36
6.2 Collateral Reporting. 36
6.3 Financial Statements, Reports, Certificates. 37
6.4 Tax Returns. 38
6.5 Designation of Inventory. 38
6.6 Returns. 38
6.7 Title to Equipment. 39
6.8 Maintenance of Equipment. 39
6.9 Taxes. 39
6.10 Insurance. 39
6.11 No Setoffs or Counterclaims. 40
6.12 Location of Inventory and Equipment. 41
6.13 Compliance with Laws. 41
6.14 Employee Benefits. 41
6.15 Leases. 42
6.16 Repatriation of Foreign Earnings and Profits. 42
6.17 Brokerage Commissions. 42
6.18 Subsidiary Financing. 42
7. NEGATIVE COVENANTS. 42
7.1 Indebtedness. 43
7.2 Liens. 43
7.3 Restrictions on Fundamental Changes. 44
7.4 Extraordinary Transactions and Disposal of Assets. 44
7.5 Change Name. 44
7.6 Guarantee. 44
7.7 Nature of Business. 45
7.8 Prepayments and Amendments. 45
7.9 Change of Control. 45
7.10 Consignments. 45
7.11 Distributions. 45
7.12 Accounting Methods. 45
7.13 Investments. 46
7.14 Transactions with Affiliates. 46
7.15 Inactive Subsidiaries. 47
7.16 Suspension. 47
7.17 Compensation. 47
7.18 Use of Proceeds. 47
7.19 Change in Location of Chief Executive Office; Inventory
and Equipment with Bailees. 47
7.20 No Prohibited Transactions Under ERISA 47
7.21 Financial Covenants. 48
7.22 Capital Expenditures. 49
8. EVENTS OF DEFAULT. 49
9. FOOTHILL'S RIGHTS AND REMEDIES. 51
9.1 Rights and Remedies. 51
9.2 Remedies Cumulative. 53
10. TAXES AND EXPENSES 54
11. WAIVERS; INDEMNIFICATION 54
11.1 Demand; Protest; etc. 54
11.2 Foothill's Liability for Collateral. 54
11.3 Indemnification. 54
12. NOTICES 55
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 56
14. DESTRUCTION OF BORROWER'S DOCUMENTS 57
15. GENERAL PROVISIONS 57
15.1 Effectiveness. 57
15.2 Successors and Assigns. 57
15.3 Section Headings. 58
15.4 Interpretation. 58
15.5 Severability of Provisions. 58
15.6 Amendments in Writing. 58
15.7 Counterparts; Telefacsimile Execution. 58
15.8 Revival and Reinstatement of Obligations. 58
15.9 Integration. 59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES AND EXHIBITS
----------------------
<S> <C>
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Environmental Matters
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Indebtedness
Exhibit A-1 Form of Acknowledgement Agreement
Exhibit C-1 Form of Compliance Certificate
Exhibit L-1 Form of LIBOR Supplement
</TABLE>
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"),
is entered into as of March 1, 1998, between FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), with a place of business located at 11111
Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 and
CONCURRENT COMPUTER CORPORATION, a Delaware corporation ("Borrower"), with its
chief executive office located at 2101 W. Cypress Creek Road, Fort Lauderdale,
Florida 33309
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
---------------
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
--------
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or software or the rendition of
services by Borrower, or arising out of the sale, license, or lease of goods or
software or the rendition of services by a Person other than Borrower and
acquired by Borrower from such Person by assignment or purchase, irrespective of
whether earned by performance, and any and all credit insurance, guaranties, or
security therefor.
"Acknowledgement Agreement" means that certain Amended and
--------------------------
Restated Acknowledgement Agreement, dated as of even date herewith, between
Borrower and each Subsidiary of Borrower, entered into for the benefit of
Foothill, which agreement shall be substantially in the form of Exhibit A-1
-----------
attached hereto.
"Adjusted Reference Rate" means, (i) the Initial Reference Rate
-------------------------
or, (ii) if Borrower achieves the required minimum EBITDA for the applicable
fiscal year end as set forth in the table below (each a "Pricing Benchmark"),
from and after the date on which Borrower delivers financial statements to
Foothill pursuant to Section 6.3(b) evidencing its achievement of the applicable
--------------
Pricing Benchmark, then the Adjusted Reference Rate set forth opposite the
applicable Pricing Benchmark set forth in the table below. In the event that
Borrower fails to achieve any one or more Pricing Benchmarks, then the
Applicable Reference Rate in effect shall remain unchanged. In the event that
Borrower achieves any one or more subsequent Pricing Benchmarks, then the
applicable Adjusted Interest Rate that Borrower shall be eligible to receive for
achievement such subsequent Pricing Benchmarks shall be the applicable Adjusted
Reference Rate for the achievement of that Pricing Benchmark plus .25 percentage
----
points for each previous Pricing Benchmark that Borrower has failed to achieve.
<TABLE>
<CAPTION>
Fiscal Year End Minimum EBITDA Adjusted Reference Rate
<S> <C> <C>
June 30, 1998 $ 9,135,000 Reference Rate plus 0.75%
-------------------------
June 30, 1999 $ 8,553,000 Reference Rate plus 0.50%
-------------------------
June 30, 2000 $ 9,321,000 Reference Rate plus 0.25%
- --------------- --------------- -------------------------
</TABLE>
"Advances" has the meaning set forth in Section 2.1(a).
-------- ---------------
"Affiliate" means, as applied to any Person, any other Person
---------
who, directly or indirectly, controls, is controlled by, is under common control
with, or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 5% or more of the Stock having ordinary voting power for the election of
directors (or comparable managers) or the direct or indirect power to direct the
management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
---------
"Annualized Service Revenues" means, with respect to the last day
---------------------------
of any fiscal quarter of Borrower, aggregate total revenues of Borrower and its
Subsidiaries that are derived from Service Contracts for the four most recent
fiscal quarters of Borrower (including such fiscal quarter).
"Authorized Person" means any officer or other employee of
------------------
Borrower.
"Availability" means, as of any date of determination, the result
------------
(so long as such result is a positive number) of (a) the lesser of the Borrowing
Base or the Maximum Revolving Amount, minus (b) the outstanding amount of all
-----
Advances.
"Average Unused Portion of Maximum Revolving Amount" means, as of
--------------------------------------------------
any date of determination, (a) the Maximum Revolving Amount, less (b) the
----
average Daily Balance of Advances that were outstanding during the immediately
preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
----------------
U.S.C. 101 et seq.), as amended, and any successor statute.
-------
"Benefit Plan" means a "defined benefit plan" (as defined in
-------------
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Borrower" has the meaning set forth in the preamble to this
--------
Agreement.
"Borrower's Books" means all of Borrower's books and records
-----------------
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's or its Subsidiaries' business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
--------------- --------------
"Business Day" means any day that is not a Saturday, Sunday, or
-------------
other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time
-----------------
as (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 20% of the total voting power of all classes of Stock
then outstanding of Borrower entitled to vote in the election of directors, or
(b) Borrower shall fail to own free and clear of any Liens of any Person (other
than Foothill) and control (without being subject to any voting trust, voting
agreement, shareholders agreement, or any other agreement or arrangement
limiting or affecting the voting of such stock) at any time not less than 100.0%
of the outstanding voting stock of each of Borrower's Subsidiaries reflected as
being owned by it as of the Closing Date on Schedule 5.8 hereto, and that such
------------
outstanding voting stock retains the same percentage of voting control as exists
on the Closing Date; provided, however, that anything in the forgoing to the
-------- -------
contrary notwithstanding, a Change of Control shall be deemed to have occurred
with respect to Borrower's interest in Concurrent Nippon at such time as
Borrower shall fail to own free and clear of any Liens of any Person (other than
Foothill) and control (without being subject to any voting trust, voting
agreement, shareholders agreement, or any other agreement or arrangement
limiting or affecting the voting of such stock) at any time not less than 60.0%
of the outstanding voting stock of Concurrent Nippon, and that such outstanding
voting stock retains the same percentage of voting control as exists on the
Closing Date.
"Closing Date" means the date on which each of the conditions
-------------
precedent in Section 3.1 of the Agreement is satisfied.
------------
"Code" means the California Uniform Commercial Code.
----
"Collateral" means each of the following:
----------
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(h) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General Intangibles, Inventory, Negotiable Collateral, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
----------------------------
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Equipment or Inventory, in each case,
in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and
-----------
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in
-----------------------
the form of Exhibit C-1 and delivered by the chief accounting officer of
------------
Borrower to Foothill.
"Concurrent Nippon" means Concurrent Nippon Corporation, a
------------------
company organized under the laws of Japan.
"Consolidated Current Assets" means, as of any date of
-----------------------------
determination, the aggregate amount of all current assets of Borrower and its
Subsidiaries calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
----------------------------------
determination, the aggregate amount of all current liabilities of Borrower and
its Subsidiaries calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For
purposes of this definition, all Obligations outstanding under this Agreement
shall be deemed to be current liabilities without regard to whether they would
be deemed to be so under GAAP.
"Copyright Security Agreement" means that certain security
------------------------------
agreement, dated as of June 29, 1995, as such may from time to time thereafter
amended, between Borrower and Foothill.
"Daily Balance" means the amount of an Obligation owed at the end
-------------
of a given day.
"deems itself insecure" means that the Person deems itself
-----------------------
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the
-------
giving of notice, the passage of time, or both, would be an Event of Default.
"Deferred Revenue" means with respect to Annualized Service
-----------------
Revenues for any period of four fiscal quarters of Borrower, an amount equal to
the total amount, if any, of deferred payments or any other deferred amounts
receivable with respect to any Service Contracts included in Annualized Service
Revenues during such four fiscal quarters.
"Designated Account" means account number 1296198683 of Borrower
-------------------
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) that has been designated,
in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means NationsBank, whose office is
-------------------------
located at 1401 Elm Street, Dallas, Texas 75202, and whose ABA number is
111-000-625.
"Dilution" means, in each case based upon the experience of the
--------
immediately prior 12 months, the result of dividing the Dollar amount of (a) bad
debt write-downs, discounts, advertising, returns, promotions, credits, or other
dilution with respect to the Accounts, by (b) Borrower's Collections (excluding
extraordinary items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, a
-----------------
Dollar amount sufficient to reduce Foothill's advance rate against Eligible
Accounts by one (1) percentage point for each percentage point by which Dilution
is in excess of 6%.
"Dollars or $" means United States dollars.
--------------
"Early Termination Premium" has the meaning set forth in Section
-------------------------- -------
3.6.
- ---
"EBITDA" means, as of any date of determination, the aggregate
------
net income of Borrower and its Subsidiaries for the applicable period, plus the
----
aggregate amount of all charges for interest expense, taxes, depreciation and
amortization for the applicable period, in each instance calculated on a
consolidated basis in accordance with GAAP.
"Eligible Accounts" means those Accounts created by Borrower in
------------------
the ordinary course of business, that arise out of Borrower's sale of goods or
software, or rendition of services, that strictly comply with each and all of
the representations and warranties respecting Accounts made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however, that standards of
-------- -------
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within
90 days of invoice date or Accounts with selling terms of more than 30 days (or,
on a case by case basis, up to 60 days with Foothill's prior consent);
(b) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional; provided, however, that bill and hold Accounts shall not be
-------- -------
excluded by reason of this clause (d) if they are subject to documentation, in
form and substance satisfactory to Foothill, clearly evidencing that the
obligation of the Account Debtor is absolute and unconditional notwithstanding
the failure of Borrower to deliver the subject goods or software;
(e) Accounts that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Foothill (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Foothill and is directly
drawable by Foothill, or (z) the Account is covered by credit insurance in form
and amount, and by an insurer, satisfactory to Foothill;
(f) Accounts, in excess of $1,000,000, with respect to which
the Account Debtor is either (i) the United States or any department, agency, or
instrumentality of the United States (exclusive, however, of Accounts with
respect to which Borrower has complied, to the satisfaction of Foothill, with
the Assignment of Claims Act, 31 U.S.C. 3727), or (ii) any State of the United
States (exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is or
may become a creditor of Borrower, has or has asserted a right of setoff, has
disputed its liability, or has made any claim with respect to the Account;
(h) Accounts with respect to (i) Lockheed Martin Marietta
Corp. that exceed 40% of all Eligible Accounts, and (ii) any other Account
Debtor whose total obligations owing to Borrower exceed 10% of all Eligible
Accounts, in each case to the extent of the obligations owing by such Account
Debtor in excess of such percentage; provided, however, accounts owed by the
-------- -------
Boeing Co., Northrop-Grumman Corporation, and other accounts that may be
approved from time to time by Foothill may be eligible up to a maximum, per
Account Debtor, of 15% of all Eligible Accounts, so long as they are otherwise
eligible hereunder;
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
(m) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods, software, or services; and
(n) Accounts in which any Person other than Borrower owns any
interest, to the extent of such interest, or in which any Person other than
Foothill holds a lien, security interest, or charge.
"Eligible Inventory" means Inventory consisting of raw materials
-------------------
and spare parts held for use in the ordinary course of Borrower's business, that
are located at or in-transit between Borrower's premises identified on Schedule
--------
E-1, strictly comply with each and all of the representations and warranties
- ---
respecting Inventory made by Borrower to Foothill in the Loan Documents, and are
and at all times continue to be acceptable to Foothill in all respects;
provided, however, that standards of eligibility may be fixed and revised from
-------
time to time by Foothill in Foothill's reasonable credit judgment. In
determining the amount to be so included, Inventory shall be valued at the lower
of cost or market on a basis consistent with Borrower's current and historical
accounting practices. An item of Inventory shall not be included in Eligible
Inventory if:
(a) it is used in connection with Borrower's proprietary
computer system or that is expected to be returned from customers;
(b) it is not owned solely by Borrower or Borrower does not
have good, valid, and marketable title thereto;
(c) it is not located at one of the locations set forth on
Schedule E-1;
- -------------
(d) it is not located on property owned or leased by Borrower
or in a contract warehouse, in each case, subject to a Collateral Access
Agreement executed by the mortgagee, lessor, the warehouseman, or other third
party, as the case may be, and segregated or otherwise separately identifiable
from goods of others, if any, stored on the premises;
(e) it is not subject to a valid and perfected first priority
security interest in favor of Foothill;
(f) it consists of goods returned or rejected by Borrower's
customers or goods in transit; and
(g) it is finished goods, obsolete or slow moving, a
restrictive or custom item, work-in-process, packaging and shipping materials,
supplies used or consumed in Borrower's business, Inventory subject to a Lien in
favor of any third Person, bill and hold goods, returned or defective goods,
"seconds," or Inventory acquired on consignment.
Anything contained herein to the contrary notwithstanding, Borrower shall be
entitled, from time to time upon reasonable prior notice to Foothill, to amend
Schedule E-1 in order to add one or more additional locations to Schedule E-1
------------ ------------
that are set forth on Schedule 6.12, so long as in connection with such
- --------------
amendment Borrower provides to Foothill a landlord waiver, bailee letter, or a
-
similar acknowledgement agreement of any warehouseman in possession of
Inventory, in each case, in form and substance satisfactory to Foothill.
"Eligible Raw Materials Inventory" means Eligible Inventory
-----------------------------------
consisting of raw materials. Eligible Raw Materials Inventory shall be valued,
on a first in, first out basis, at the lower of Borrower's cost or market value.
"Eligible Spare Parts Inventory" means Eligible Inventory
---------------------------------
consisting of spare parts. Eligible Spare Parts Inventory shall be valued, on a
first in, first out basis, at Borrower's net book value.
"Eligible Unearned Service Accounts" means Accounts created by
-------------------------------------
Borrower in the ordinary course of business that qualify as Eligible Accounts
except for the fact that they arise under Service Contracts and that the right
to payment therefor has not yet accrued, provided, however, that only the rights
-------- -------
to payment under such Service Contracts that will accrue within one (1) month
from the date of determination shall constitute Eligible Unearned Service
Accounts.
"Environmental Indemnity" means that certain environmental
------------------------
indemnity, dated as of June 29, 1995, as such may from time to time thereafter
amended, executed by Borrower in favor of Foothill.
"Equipment" means all of Borrower's present and hereafter
---------
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any interest of Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, 29 U.S.C. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA
----------------
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
------------
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
------------------ ---------
"FEIN" means Federal Employer Identification Number.
----
"Foothill" has the meaning set forth in the preamble to this
--------
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
----------------- -----------
"Foothill Expenses" means all: reasonable, documented, costs or
------------------
expenses (including taxes, and insurance premiums) required to be paid by
Borrower under any of the Loan Documents that are paid or incurred by Foothill;
fees or charges paid or incurred by Foothill in connection with Foothill's
transactions with Borrower, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record searches
(including tax lien, litigation, and UCC searches and including searches with
the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
Collateral appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; costs and expenses incurred by Foothill
in the disbursement of funds to Borrower (by wire transfer or otherwise);
charges paid or incurred by Foothill resulting from the dishonor of checks;
costs and expenses paid or incurred by Foothill to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; costs and expenses paid or
incurred by Foothill in examining Borrower's Books; costs and expenses of third
party claims or any other suit paid or incurred by Foothill in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Foothill's relationship with Borrower or any guarantor;
and Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
----
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
--------------------
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
--------------------
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Hazardous Materials" means (a) substances that are defined or
--------------------
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Inactive Subsidiaries" means those subsidiaries of Borrower
----------------------
identified on Schedule I-1 attached hereto.
-------------
"Indebtedness" means: (a) all obligations of Borrower or any
------------
Subsidiary of Borrower for borrowed money, (b) all obligations of Borrower or
any Subsidiary of Borrower evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of Borrower or
any Subsidiary of Borrower in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations of
Borrower or any Subsidiary of Borrower under capital leases, (d) all obligations
or liabilities of others secured by a Lien on any property or asset of Borrower
or any Subsidiary of Borrower, irrespective of whether such obligation or
liability is assumed, and (e) any obligation of Borrower or any Subsidiary of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower or any Subsidiary of
Borrower) any indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Initial Reference Rate" means a rate equal to 1.25 percentage
------------------------
points above the Reference Rate.
"Insolvency Proceeding" means any proceeding commenced by or
----------------------
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
------------------
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Inventory" means all present and future inventory in which
---------
Borrower has any interest, including goods and software held for sale, license,
or lease or to be furnished under a contract of service and all of Borrower's
present and future raw materials, work in process, finished goods, and packing
and shipping materials, wherever located, and any document of title representing
any of the above.
"Inventory Reserve" means a reserve in an amount equal to,
------------------
without duplication (a) an amount calculated to eliminate overhead allocated to
the Eligible Raw Materials Inventory and Eligible Spare Parts Inventory, and (b)
the amount of the inventory reserve set forth in Borrower's general ledger and
calculated in accordance with its historical practices.
"Investment Property" means "investment property" as that term is
-------------------
defined in Section 9115 of the Code (including the shares of stock of domestic
subsidiaries of Borrower, exclusive, however, of Borrower's interest in
Concurrent Nippon and exclusive, however, of 34% of the stock of each of
Borrower's controlled foreign subsidiaries).
"IRC" means the Internal Revenue Code of 1986, as amended, and
---
the regulations thereunder.
"LIBOR Supplement" means that certain LIBOR Supplement, dated as
-----------------
of the date hereof, between Borrower and Foothill, which supplement shall be
substantially in the form of Exhibit L-1 attached hereto.
------------
"L/C" has the meaning set forth in Section 2.2(a).
--- ---------------
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
------------- --------------
"Letter of Credit" means an L/C or an L/C Guaranty, as the
------------------
context requires.
"Letter of Credit Usage" means the sum of (a) the undrawn amount
-----------------------
of outstanding Letters of Credit plus (b) the amount of unreimbursed drawings
----
under Letters of Credit.
"Lien" means any interest in property securing an obligation owed
----
to, or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Liquidity" means, as of any date of determination, the aggregate
---------
amount of Borrower's unrestricted cash, cash equivalents, and Availability.
"Liquidity Conditions" means, as of any date of determination,
---------------------
that: (a) Borrower's Liquidity is not less than $2,500,000; and (b) no Event of
Default has occurred and is continuing.
"Loan Account" has the meaning set forth in Section 2.10.
------------- ------------
"Loan Documents" means this Agreement, the Letters of Credit, the
--------------
Lockbox Agreements, the Stock Pledge Agreement, the Copyright Security
Agreement, the Patent Security Agreement, the Trademark Security Agreement, the
Source Code Escrow Agreement, the Acknowledgement Agreement, any note or notes
executed by Borrower and payable to Foothill, and any other agreement entered
into, now or in the future, in connection with this Agreement, in each case as
such may be amended from time to time.
"Lockbox Account" shall mean a depositary account established
----------------
pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
-------------------
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means Wells Fargo Bank and Chemical Bank.
--------------
"Lockboxes" has the meaning set forth in Section 2.7.
--------- ------------
"Material Adverse Change" means (a) a material adverse change in
------------------------
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower, (b) the material impairment
of Borrower's ability to perform its obligations under the Loan Documents to
which it is a party or of Foothill to enforce the Obligations or realize upon
the Collateral, (c) a material adverse effect on the value of the Collateral or
the amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Maximum Revolving Amount" means $8,000,000.
--------------------------
"Maximum Amount" means $13,000,000.
---------------
"Multiemployer Plan" means a "multiemployer plan" (as defined in
-------------------
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
"Negotiable Collateral" means all of a Person's present and
----------------------
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein such Person is the lessor), chattel
paper, and Borrower's Books relating to any of the foregoing.
"Obligations" means all loans, Advances, debts, principal,
-----------
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Overadvance" has the meaning set forth in Section 2.5.
----------- ------------
"Participant" means any Person to which Foothill has sold a
-----------
participation interest in its rights under the Loan Documents.
"Patent Security Agreement" means that certain security
---------------------------
agreement, dated as of June 29, 1995, as such may be amended from time to time,
between Borrower and Foothill.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
----
in Title IV of ERISA, or any successor thereto.
Nippon Steel lien on all of Borrower's assets sheduled on Schedule P-1.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
---------------
unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on Schedule P-1 attached hereto, (d)
------------
(i) the interests of lessors under operating leases, and (ii) purchase money
Liens and the interests of lessors under capital leases to the extent that the
acquisition or lease of the underlying asset is permitted under Section 7.22 and
------------
so long as the Lien only attaches to the asset purchased or acquired and only
secures the purchase price of the asset, (e) Liens arising by operation of law
in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers,
or suppliers, incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, (h) Liens arising by reason of security
for surety or appeal bonds in the ordinary course of business of Borrower, (i)
Liens of or resulting from any judgment or award that reasonably could not be
expected to result in a Material Adverse Change and as to which the time for the
appeal or petition for rehearing of which has not yet expired, or in respect of
which Borrower is in good faith prosecuting an appeal or proceeding for a review
and in respect of which a stay of execution pending such appeal or proceeding
for review has been secured, and (j) with respect to any Real Property,
easements, rights of way, zoning and similar covenants and restrictions, and
similar encumbrances that customarily exist on properties of Persons engaged in
similar activities and similarly situated and that in any event do not
materially interfere with or impair the use or operation of the Collateral by
Borrower or the value of Foothill's Lien thereon or therein, or materially
interfere with the ordinary conduct of the business of Borrower.
"Permitted Protest" means the right of Borrower or any Subsidiary
-----------------
of Borrower to protest any Lien other than any such Lien that secures the
Obligations, tax (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment, pro-vided that (a) a reserve
with respect to such obligation is established on the books of Borrower or such
Subsidiary in an amount that is reasonably satisfactory to Foothill, (b) any
such protest is instituted and diligently prosecuted by Borrower or such
Subsidiary in good faith, and (c) Foothill is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Liens of Foothill in and to the Collateral.
"Person" means and includes natural persons, corporations,
------
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
"Qualified Transaction" means a sale of all or substantially all
----------------------
of the assets of Borrower, a merger wherein Borrower is not the surviving
entity, or a sale of all or substantially all of the issued and outstanding
capital stock of Borrower.
"Real Property" means any estates or interests in real property
--------------
now owned or hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per annum,
---------------
most recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
------------- ------------
"Reportable Event" means any of the events described in Section
-----------------
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Retiree Health Plan" means an "employee welfare benefit plan"
---------------------
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Service Contract" means a contract relative to Borrower's
-----------------
provision of maintenance (full maintenance, software only, or hardware only),
consulting (professional advice, skill enhancement, or training), or repair
services.
"Solvent" means, with respect to any Person on a particular date,
-------
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in light
of all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Source Code Escrow Agreement" means that certain Source Code
-------------------------------
Escrow Agreement, dated as of September 20, 1995, as such may be amended from
time to time, among Borrower, Foothill and a third party escrowholder, in form
and substance satisfactory to Foothill.
"Stock" means all shares, options, warrants, interests,
-----
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"Stock Pledge Agreement" means that certain Stock Pledge
------------------------
Agreement, dated as of June 29, 1995, as such may be amended from time to time,
between Borrower and Foothill.
"Subsidiary" of a Person means a corporation, partnership, or
----------
other entity in which that Person directly or indirectly owns or controls the
shares of Stock having ordinary voting power to elect a majority of the board of
directors (or appoint other comparable managers) of such corpora-tion,
partnership, limited liability company, or other entity. The foregoing to the
contrary notwithstanding, neither the Inactive Subsidiaries nor Concurrent
Nippon shall be "Subsidiaries" for purposes of this Agreement or the other Loan
Documents, other than for purposes of financial reporting covenants and
financial performance covenants.
"Tangible Net Worth" means, as of any date of determination, the
-------------------
difference of (a) Borrower's total stockholder's equity, prior to the effect of
cumulative translation adjustments, minus (b) the sum of: (i) all Intangible
-----
Assets of Borrower, (ii) all of Borrower's prepaid expenses, and (iii) all
amounts due to Borrower from Affiliates, in each case calculated on a
consolidated basis in accordance with GAAP.
"Target EBITDA" has the meaning set forth in Section 2.11(c).
-------------- ---------------
"Trademark Security Agreement" means that certain security
------------------------------
agreement, dated as of June 29, 1995, as such may be amended from time to time,
between Borrower and Foothill.
"Voidable Transfer" has the meaning set forth in Section 15.8.
------------------ ------------
"Working Capital" means the result of subtracting Consolidated
----------------
Current Liabilities from Consolidated Current Assets.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise. If any changes in
accounting principles from those used in the preparation of the financial
statements referred to in this Agreement are hereafter occasioned by the
promulgation of rules, regulations, pronouncements, or opinions of, or required
by, the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants (or successors thereto or agencies with similar
functions), or there shall occur any change in Borrower's fiscal periods
permitted hereunder and, as a result of any such changes, there shall result a
change in the method of calculating any of the financial covenants, negative
covenants, standards, or other terms or conditions found in this Agreement, then
the parties hereto agree to enter into negotiations in order to amend such
provisions and the definition of "GAAP" set forth in Section 1.1 so as to
-----------
equitably reflect such changes with the desired result that the criteria for
evaluating the financial condition of Borrower and its Subsidiaries shall be the
same after such changes as if such changes had not been made.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of
Default shall "continue" or be "continuing" until such Event of Default has been
waived in writing by Foothill. Section, subsection, clause, schedule, and
exhibit references are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the Loan Documents to this Agreement or any of
the Loan Documents shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make revolving advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount, or (ii) the Borrowing Base less the aggregate amount of the
----
Inventory Reserves. For purposes of this Agreement, "Borrowing Base," as of any
date of determination, shall mean the result of:
(w) the lower of (i) 80% of the amount of Eligible Accounts,
less the amount, if any, of the Dilution Reserve, and (ii) an amount equal to
- ----
75% of Borrower's domestic Collections with respect to Accounts for the
- --
immediately preceding 90 day period; plus
(x) the lower of (i) $1,500,000, and (ii) 80% of Eligible
Unearned Service Accounts; plus
----
(y) the lowest of (i) the sum of (1) the value of Eligible
Raw Materials Inventory plus the value of Eligible Spare Parts Inventory less
---- ----
the amount of the Inventory Reserve, times (2) 25%, (ii) 133% of the amount of
-----
credit availability created by clauses (w) and (x) above, and (iii) $500,000;
-------------------
less
(z) the aggregate amount of reserves, if any,
established by Foothill under Section 2.1(b).
---------------
(b) Anything to the contrary in Section 2.1(a) above
---------------
notwith-standing, Foothill may create reserves against or reduce its advance
rates based upon Eligible Accounts or Eligible Inventory without declaring an
Event of Default if it determines that there has occurred a Material Adverse
Change.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would (i) cause the outstanding Advances under this
Section to exceed the Maximum Revolving Amount, or (ii) cause the outstanding
Obligations to exceed the Maximum Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may be
-----------
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to provide a $5,000,000 facility for the issuance of letters of
credit for the account of Borrower (each, an "L/C") or to issue guarantees of
payment (each such guaranty, an "L/C Guaranty") with respect to letters of
credit issued by an issuing bank for the account of Borrower. Foothill shall
have no obligation to issue a Letter of Credit if any of the following would
result:
(i) Letter of Credit Usage would exceed the 20% of the
amount of Annualized Service Revenues less Deferred Revenue; or
----
(ii) the aggregate amount of all undrawn or unreimbursed
Letters of Credit would exceed $5,000,000; or
(iii) the outstanding Obligations would exceed the
Maximum Amount.
Borrower expressly understands and agrees that Foothill shall have no obligation
to arrange for the issuance by issuing banks of the letters of credit that are
to be the subject of L/C Guarantees. Borrower and Foothill acknowledge and
agree that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each Letter of Credit shall
have an expiry date no later than 60 days prior to the date on which this
Agreement is scheduled to terminate under Section 3.4 (without regard to any
-----------
potential renewal term) and all such Letters of Credit shall be in form and
substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6.
------------
(b) Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred by
Foothill arising out of or in connection with any Letter of Credit. Borrower
agrees to be bound by the issuing bank's regulations and interpretations of any
Letters of Credit guarantied by Foothill and opened to or for Borrower's account
or by Foothill's interpretations of any L/C issued by Foothill to or for
Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto. Borrower understands
that the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application. Borrower may or may not
be the "applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit guaranteed by Foothill
shall be considered Foothill Expenses for purposes of this Agreement and
immediately shall be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by Foothill in
an amount equal to 105% of the maximum amount of Foothill's obligations under
Letters of Credit, or (ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under outstanding Letters of Credit. At Foothill's
discretion, any proceeds of Collateral received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as the cash
collateral required by this Section 2.2(e).
---------------
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(1) any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(2) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i), as applicable. The determination by the issuing
-----------------------------
bank or Foothill, as the case may be, of any amount due pursuant to this Section
- -------
2.2(f), as set forth in a certificate setting forth the calculation thereof in
- ------
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
2.3 [INTENTIONALLY OMITTED]
2.4 [INTENTIONALLY OMITTED]
2.5 OVERADVANCES. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Foothill pursuant to Section 2.1 and 2.2 is
-------------------
greater than either the Dollar or percentage limitations set forth in Section
-------
2.1 and 2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
- -------------
cash, the amount of such excess to be used by Foothill to repay Advances
outstanding under Section 2.1, and, thereafter, to be held by Foothill as cash
-----------
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to Letters of Credit.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate.
(i) Reference Rate. Except as provided in clause (c)
---------------
below, all Obligations (except for undrawn Letters of Credit) shall bear
interest at a per annum rate equal to the Adjusted Reference Rate.
(ii) LIBOR Rate. With respect to all Obligations and in
----------
lieu of having interest charged at the Adjusted Reference Rate, Borrower shall
have the "LIBOR Option", as defined in, and subject to the terms and conditions
of, the LIBOR Supplement, which by this reference hereby is incorporated herein
in full and made a part hereof.
(b) Letter of Credit Fee. Borrower shall pay Foothill a fee
(in addition to the charges, commissions, fees, and costs set forth in Section
-------
2.2(d)) equal to 1.50% per annum times the aggregate undrawn amount of all
- ------
outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest at a per annum rate equal to 5.00
percentage points above (1) the Adjusted Reference Rate, or (2) in the case of
any "LIBOR Rate Loan" (as defined in the LIBOR Supplement), the then extant
"Adjusted LIBOR Rate" (as defined in the LIBOR Supplement), and (ii) the Letter
of Credit fee provided in Section 2.6(b) shall be increased to 6.5% per annum
--------------
times the amount of the undrawn Letters of Credit that were outstanding during
the immediately preceding month.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7.00% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less than
the foregoing minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate. To the
extent that interest accrued hereunder at the rate set forth herein (including
the minimum interest rate) would yield less than the foregoing minimum amount,
the interest rate chargeable hereunder for the period in question automatically
shall be deemed increased to that rate that would result in the minimum amount
of interest being accrued and payable hereunder.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Borrower hereby authorizes Foothill, at its option,
without prior notice to Borrower, to charge such interest and Letter of Credit
fees, all Foothill Expenses (as and when incurred), the fees and charges
provided for in Section 2.11 (as and when accrued or incurred), and all
-------------
installments or other payments due under any Loan Document to Borrower's Loan
Account, which amounts thereafter shall accrue interest at the rate then
applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.50% per annum. In the event the Reference Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and Foothill, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
-------- -------
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto as
---- -----
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS. Borrower shall at all times maintain
lockboxes (the "Lockboxes") and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower to remit all Collections in respect
---
thereof to such Lockboxes. Borrower, Foothill, and the Lockbox Banks shall
enter into the Lockbox Agreements, which among other things shall provide for
the opening of a Lockbox Account for the deposit of Collections at a Lockbox
Bank. Borrower agrees that all Collections and other amounts received by
Borrower from any Account Debtor or any other source immediately upon receipt
shall be deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the prior written
consent of Foothill. Upon the terms and subject to the conditions set forth in
the Lockbox Agreements, all amounts received in each Lockbox Account shall be
wired each Business Day into an account (the "Foothill Account") maintained by
Foothill at a depositary selected by Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any Collections by Foothill (whether from transfers to Foothill by the
Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately shall
be applied provisionally to reduce the Obligations outstanding under Section
-------
2.1, but shall not be considered a payment on account unless such Collection
item is a wire transfer of immediately available federal funds and is made to
the Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for 2 Business Days of `clearance' or `float' at the
rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as applicable, on all
----------------- -----------------
Collections that are received by Foothill (regardless of whether forwarded by
the Lockbox Banks to Foothill, whether provisionally applied to reduce the
Obligations under Section 2.1, or otherwise). This across-the-board 2 Business
-----------
Day clearance or float charge on all Collections is acknowledged by the parties
to constitute an integral aspect of the pricing of Foothill's financing of
Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Foothill, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging 2 Business Days of interest on such Collections. Should
any Collection item not be honored when presented for payment, then Borrower
shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill only
if it is received into the Foothill Account on a Business Day on or before 11:00
a.m. California time. If any Collection item is received into the Foothill
Account on a non-Business Day or after 11:00 a.m. California time on a Business
Day, it shall be deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances and the Letters of Credit under this Agreement based upon telephonic or
other instructions received from anyone purporting to be an Authorized Person,
or without instructions if pursuant to Section 2.6(e). Borrower agrees to
--------------
establish and maintain the Designated Account with the Designated Account Bank
for the purpose of receiving the proceeds of the Advances requested by Borrower
and made by Foothill hereunder. Unless otherwise agreed by Foothill and
Borrower, any Advance requested by Borrower and made by Foothill hereunder shall
be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's account, including, accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower. In accordance
with Section 2.8, the Loan Account will be credited with all payments received
------------
by Foothill from Borrower or for Borrower's account, including all amounts
received in the Foothill Account from any Lockbox Bank. Foothill shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Foothill unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Foothill written objection thereto describing the
error or errors contained in any such statements.
2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) Unused Line Fee. On the first day of each month during
the term of this Agreement, an unused line fee in an amount equal to 0.25% per
annum times the Average Unused Portion of the Maximum Revolving Amount.
(b) Financial Examination, Appraisal, and Documentation Fees;
(i) Foothill's customary fee of $650 per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel employed by
Foothill plus all actual charges paid or incurred by Foothill if it elects to
----
employ the services of one or more third Persons to perform such audits of
Borrower; provided, however, that so long as no Event of Default has occurred
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and is continuing, Foothill's audit fees and charges shall not exceed $20,000 in
the aggregate in each fiscal year of Borrower during which this Agreement
remains in effect;
(ii) Foothill's customary appraisal fee of $1,500 per
day per appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral performed by personnel employed by Foothill plus all actual charges
----
paid or incurred by Foothill if it elects to employ the services of one or more
third Persons to perform such appraisals of the Collateral; provided, however,
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that so long as no Event of Default has occurred and is continuing, Foothill's
appraisal fees and charges shall not exceed $20,000 in the aggregate in each
fiscal year of Borrower during which this Agreement remains in effect; and
(c) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $5,000; provided, however,
-------- -------
that in the event that Borrower shall achieve EBITDA in an amount equal to or
greater than $9,135,000 for Borrower's fiscal year ended June 30, 1998, (the
"Target EBITDA") then the servicing fee shall be reduced to an amount equal to
$2,000 for each month during the remaining term of this Agreement from and after
the date on which Borrower delivers financial statements to Foothill pursuant to
Section 6.3(b) evidencing its achievement of the Target EBITDA.
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3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND LETTER OF
CREDIT. The obligation of Foothill to make the initial Advance or to issue the
initial Letter of Credit is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before the
Closing Date:
(a) the Closing Date shall occur on or before March 31, 1998;
(b) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Acknowledgement Agreement; and
ii) the LIBOR Supplement;
(c) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(d) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(e) Foothill shall have received a certificate of status with
respect to Borrower, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(f) Foothill shall have received certificates of status with
respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(g) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.10, the
------------
form and substance of which shall be satisfactory to Foothill and its counsel;
(h) Foothill shall have received such Collateral Access
Agreements from lessors, warehousemen, bailees, and other third persons as
Foothill may require;
(i) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(j) Foothill shall have received satisfactory evidence that
all tax returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
real property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest; and
(k) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT.
The following shall be conditions precedent to all Advances and all Letters of
Credit hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such represen-ta-tions and warranties
relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill
the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
------------
which shall be satisfactory to Foothill and its counsel.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the August 1, 2000
(the "Renewal Date") and automatically shall be renewed for successive 1 year
periods thereafter, unless sooner terminated pursuant to the terms hereof.
Either party may terminate this Agreement effective on the Renewal Date or on
any subsequent anniversary of the Renewal Date by giving the other party at
least 90 days prior written notice. The foregoing notwithstanding, Foothill
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated. If Borrower has sent a notice of
termination pursuant to the provisions of Section 3.4, but fails to pay the
-----------
Obligations in full on the date set forth in said notice, then Foothill may, but
shall not be required to, renew this Agreement for an additional term of 1 year.
3.6 EARLY TERMINATION BY BORROWER. The provisions of Section 3.4
-----------
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option, at
any time upon 90 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations (including an amount
equal to 105% of the undrawn amount of the Letters of Credit), in full, together
with a premium (the "Early Termination Premium") equal to (a) $200,000 during
period from the Closing Date through June 30, 1998, (b) $85,000 during period
from July 1, 1998 through June 30, 1999, and (c) $0 thereafter. The foregoing
notwithstanding, in the event Borrower terminates this Agreement in connection
with the consummation of a Qualified Transaction, the Early Termination Premium
payable shall be equal to 1/2 of the applicable amount otherwise payable
hereunder.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
-----------
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Foothill's security
interests in the Collateral shall attach to all Collateral without further act
on the part of Foothill or Borrower. Anything contained in this Agreement or
any other Loan Document to the contrary notwithstanding, except for the sale of
Inventory to buyers in the ordinary course of business, Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time that an Event of Default has occurred and is continuing
or Foothill deems itself insecure, Foothill or Foothill's designee may (a)
notify customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to the Loan Account. Borrower agrees that it will hold in trust
for Foothill, as Foothill's trustee, any Collections that it receives and
immediately will deliver said Collections to Foothill in their original form as
received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4, sign the name of Borrower on any of
-----------
the documents described in Section 4.4, (b) at any time that an Event of Default
-----------
has occurred and is continuing or Foothill deems itself insecure, sign
Borrower's name on any invoice or bill of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse Borrower's name on any Collection item that may come into
Foothill's possession, (e) at any time that an Event of Default has occurred and
is continuing or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all determinations and
decisions with respect to such policies of insurance, and (g) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as Borrower's attorney, and each and every one of Foothill's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid and performed and Foothill's
obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. (a) prior to the time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure with
respect to Foothill's good faith belief or suspicion that Borrower has engaged
in defalcation, intentional misrepresentation, or other fraud, Foothill (through
any of its officers, employees, or agents) shall have the right, from time to
time hereafter during normal business hours to inspect Borrower's Books and to
check, test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral; and (b) after the time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure with respect to
Foothill's good faith belief or suspicion that Borrower has engaged in
defalcation, intentional misrepresentation, or other fraud, Foothill (through
any of its officers, employees, or agents) shall have the right, from time to
time thereafter and at any time or times determined by Foothill in its sole and
absolute discretion, to inspect Borrower's Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance and each Letter of Credit made thereafter, as
though made on and as of the date of such Advance or Letter of Credit (except to
the extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale or license and delivery of Inventory or
software or the rendition of services to Account Debtors in the ordinary course
of Borrower's business, unconditionally owed to Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation; provided,
--------
however, that in the case of Eligible Unearned Service Accounts the right to
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payment therefor has not yet accrued. The property giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance by the Account
Debtor. Borrower has not received notice of actual or imminent bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equip-ment is used or held for use in
Borrower's busi-ness and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section 6.12.
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5.6 INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 04-2735766.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower and each Subsidiary is duly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified reasonably could
be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate
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list of Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class of
common and preferred Stock authorized for each of such Subsidiaries; and (iii)
the number and the percentage of the outstanding shares of each such class owned
directly or indirectly by Borrower. All of the outstanding Stock of each such
Subsidiary, none of which stock has been classified as preferred stock, has been
validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no Stock (or any
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securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for Stock) of any direct or indirect Subsidiary of Borrower is
subject to the issuance of any security, instrument, warrant, option, purchase
right, conversion or exchange right, call, commitment or claim of any right,
title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower and
its Subsidiaries of this Agreement and the Loan Documents to which they are a
party have been duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower and
its Subsidiaries of this Agreement and the Loan Documents to which they are a
party do not and will not (i) violate any provision of federal, state, or local
law or regulation applicable to Borrower or any such Subsidiary, the Governing
Documents of Borrower or any such Subsidiary, or any order, judgment, or decree
of any court or other Governmental Authority binding on Borrower or any such
Subsidiary, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation or material lease of Borrower or any such Subsidiary, (iii) result in
or require the creation or imposition of any Lien of any nature whatsoever upon
any properties or assets of Borrower or any such Subsidiary, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of Borrower or
any such Subsidiary.
(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution, delivery, and
performance by Borrower and its Subsidiaries of this Agreement and the Loan
Documents to which they are a party do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower
and its Subsidiaries are a party, and all other documents contemplated hereby
and thereby, when executed and delivered by Borrower and its Subsidiaries will
be the legally valid and binding obligations of Borrower and its Subsidiaries
party thereto, enforceable against Borrower and its Subsidiaries as applicable
in accordance with their respective terms, except as enforcement may be limited
by equitable principles or by bankruptcy, insolvency, reorganiza-tion,
moratorium, or similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower and any of its Subsidiaries
to Foothill in and to its properties and assets pursuant to this Agreement and
the other Loan Documents are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending by
or against Borrower or its Subsidiaries before any court or administrative
agency and Borrower does not have knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving Borrower, its Subsidiaries, or
any guarantor of the Obligations, except for: (a) ongoing collection matters in
which Borrower or its Subsidiaries are the plaintiffs; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if decided
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adversely to Borrower or its Subsidiaries, reasonably could not be expected to
result in a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or any guarantor of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.12 SOLVENCY. Borrower and each Subsidiary of Borrower is
Solvent. No transfer of property is being made by Borrower or any Subsidiary of
Borrower and no obligation is being incurred by Borrower or any Subsidiary of
Borrower in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrower or any Subsidiary of Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan, other than those listed on Schedule 5.13. Borrower, each of its
-------------
Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any other event
occurred that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of Borrower or its Subsidiaries, any
ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law, treaty,
rule, regulation, or agreement. None of Borrower or its Subsidiaries or any
ERISA Affiliate is required to provide security to any Plan under Section
401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule
--------
5.14, none of Borrower's properties or assets has ever been used by Borrower or,
- ----
to the best of Borrower's knowledge, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
Hazardous Materials. None of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate for closure
pursuant to any environmental protection statute. No Lien arising under any
environmental protection statute has attached to any revenues or to any real or
personal property owned or operated by Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 BROKERAGE FEES. No brokerage commission or finders fees has
or shall be incurred or payable in connection with or as a result of Borrower's
obtaining financing from Foothill under this Agreement, and neither Borrower or
any Subsidiary of Borrower has utilized the services of any broker or finder in
connection with Borrower's obtaining financing from Foothill under this
Agreement.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following, and shall cause each of its Subsidiaries, as applicable, to all of
the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower and each of its Subsidiaries to produce
financial statements in accordance with GAAP, and maintain records pertaining to
the Collateral that contain information as from time to time may be requested by
Foothill. Borrower also shall keep, and shall cause each of its Subsidiaries to
keep, a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the fol-lowing times in form satisfactory to Foothill: (a) on a
monthly basis and, in any event, by no later than the 10th day of each month
during the term of this Agreement, (i) a detailed calculation of the Borrowing
Base, and (ii) a detailed aging, by total, of the Accounts, (iii) a summary
aging, by vendor, of Borrower's accounts payable and any book overdraft, and
(iv) Inventory reports specifying Borrower's cost and the wholesale market value
of its Inventory by category; (b) upon request, copies of invoices in connection
with the Accounts, customer statements, credit memos, remittance advices and
reports, deposit slips, shipping and delivery documents in connection with the
Accounts and for Inventory and Equipment acquired by Borrower, purchase orders
and invoices; (c) upon request, a detailed list of Borrower's customers; and (d)
such other (including any additional) reports as to the Collateral or the
financial condition of Borrower as Foothill may request from time to time. On
Foothill's request, original sales or licensing invoices evidencing daily sales
or licenses shall be mailed by Borrower to each Account Debtor with at
Foothill's request, a copy to Foothill, and, at Foothill's direction, at any
time an Event of Default has occurred and is continuing or Foothill deems itself
insecure, the invoices shall indicate on their face that the Account has been
assigned to Foothill and that all payments are to be made directly to Foothill.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 50 days after the
end of each quarter during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering Borrower's
operations during such period; and (b) as soon as available, but in any event
within 100 days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants do not have knowledge of the existence
of any Default or Event of Default. Such audited financial statements shall
include a balance sheet, profit and loss statement, and statement of cash flow
and, if prepared, such accountants' letter to management. If Borrower is a
parent company of one or more Subsidiaries, or Affiliates, or is a Subsidiary or
Affiliate of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the financial condition of
Borrower.
Each quarter and year-end, together with the financial statements
provided pursuant to Section 6.3(a) and 6.3(b), Borrower shall deliver to
----------------------------
Foothill (a) a certificate signed by its chief financial officer to the effect
that: (i) all financial statements delivered or caused to be delivered to
Foothill hereunder have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present the financial
condition of Borrower, (ii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such represen-ta-tions and
warranties relate solely to an earlier date), (b) a Compliance Certificate
demonstrating in reasonable detail compliance at the end of such period with the
applicable financial covenants contained in Section 7.21, and (c) on the date of
------------
delivery of such certificate to Foothill there does not exist any condition or
event that constitutes a Default or Event of Default (or, in the case of
subclauses (a)(i), (ii), or (iii), to the extent of any non-compliance,
describing such non-compliance as to which he or she may have knowledge and what
action Borrower has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, at Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill any information they may have regarding
Borrower's business affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 DESIGNATION OF INVENTORY. Borrower shall execute and deliver
to Foothill, no later than the tenth (10th) day of each month during the term of
this Agreement, a designation of Inventory specifying Borrower's net book value
of Eligible Spare Parts Inventory, the lesser of Borrower's cost and market
value of Borrower's Eligible Raw Materials Inventory, and the lesser of the cost
and market value of all remaining Inventory, specifying which Inventory is
proprietary and which is open-system, and further specifying such other
information as Foothill may reasonably request.
6.6 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower, Borrower promptly shall determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with a copy to be
sent to Foothill) in the appropriate amount to such Account Debtor. If, at a
time when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor. With such
regularity as Foothill may require, but not less frequently than weekly,
Borrower shall notify Foothill of all returns and recoveries and of all disputes
and claims.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrower and its Subsidiaries or any of their property to be paid in
full, before delinquency or before the expiration of any extension period,
except to the extent that the validity of such assessment or tax shall be the
subject of a Permitted Protest. Borrower and its Subsidiaries shall make due
and timely payment or deposit of all such federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment thereof or deposit with respect thereto. Borrower and its Subsidiaries
shall make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Foothill with proof satisfactory to Foothill
indicating that Borrower and its Subsidiaries have made such payments or
deposits.
6.10 INSURANCE.
(a) At its expense, keep the Collateral insured against loss
or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which are
authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
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such policy except after 10 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of any Real Property for purposes more hazardous than permitted
by the terms of such policy, or (ii) any change in title or ownership of any
Real Property. Borrower shall deliver to Foothill certified copies of such
policies of insurance and evidence of the payment of all premiums therefor.
(c) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Borrower
shall give Foothill notice within 5 business days of any loss covered by such
insurance in an amount in excess of $250,000. Borrower diligently shall file
and prosecute its claim or claims for any awards, payments, or other recoveries
in connection with any such loss covered by the insurance policies mentioned
above. Any monies received as payment for any loss under any insurance policy
including the insurance policies mentioned above, shall promptly be paid over to
Foothill by the applicable insurer or, in the event that any such payment is
received by Borrower, Borrower shall promptly pay any such monies over to
Foothill, to be applied at the option of Foothill either to the prepayment of
the Obligations without premium, in such order or manner as Foothill may elect,
or shall be disbursed to Borrower under stage payment terms satisfactory to
Foothill for application to the cost of repairs, replacements, or restorations.
All repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction. Upon the occurrence of
an Event of Default, (i) Foothill shall have the exclusive right to adjust any
and all losses payable under any such insurance policies without any liability
to Borrower whatsoever in respect of such adjustments, and (ii) Foothill shall
have the right to apply all prepaid premiums to the payment of the Obligations
in such order or form as Foothill shall determine.
(d) Borrower shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be maintained
under this Section 6.10, unless Foothill is included thereon as named insured
-------------
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local equivalent. Borrower immediately shall
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies immediately shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
------------- -------- -------
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
--------------
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill, each of the following:
(i) promptly, and in any event within 10 Business Days after Borrower or any of
its Subsidiaries knows or has reason to know that an ERISA Event has occurred
that reasonably could be expected to result in a Material Adverse Change, a
written statement of the chief financial officer of Borrower describing such
ERISA Event and any action that is being taking with respect thereto by
Borrower, any such Subsidiary or ERISA Affiliate, and any action taken or
threatened by the IRS, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within 3 Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any Benefit
Plan and all communications received by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate with respect to such request, and
(iii) promptly, and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate, of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of Borrower or its
Subsidiaries; (ii) the most recent determination letter issued by the IRS with
respect to each Benefit Plan; (iii) for the three most recent plan years, annual
reports on Form 5500 Series required to be filed with any governmental agency
for each Benefit Plan; (iv) all actuarial reports prepared for the last three
plan years for each Benefit Plan; (v) a listing of all Multiemployer Plans, with
the aggregate amount of the most recent annual contributions required to be made
by Borrower or any ERISA Affiliate to each such plan and copies of the
collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to Borrower or any ERISA Affiliate regarding
withdrawal liability under any Multiemployer Plan; and (vii) the aggregate
amount of the most recent annual payments made to former employees of Borrower
or its Subsidiaries under any Retiree Health Plan.
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest. To the extent that Borrower fails timely to make payment of such rents
and other amounts payable when due under its leases, Foothill shall be entitled,
in its discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16 REPATRIATION OF FOREIGN EARNINGS AND PROFITS. Borrower shall
continue at all times after the Closing Date to cause its foreign Subsidiaries
to repatriate their surplus earnings and profits to Borrower in a manner
consistent with the historical practices of Borrower and its Subsidiaries prior
to the Closing Date.
6.17 BROKERAGE COMMISSIONS. Pay any and all brokerage commission
or finders fees incurred by in connection with or as a result of Borrower's
obtaining financing from Foothill under this Agreement.
6.18 SUBSIDIARY FINANCING. If and to the extent that during the
term of this Agreement, any letters of credit, alternative financing, or
guaranties are required in connection with the Indebtedness of Concurrent Nippon
owing to Sumitomo Bank, Ltd., Mitsubishi Bank, Ltd., and Industrial Bank of
Japan, then, Borrower shall obtain such letters of credit, alternative
financing, or guaranties in lieu thereof, in each case in accordance with
Sections 7.1 and 7.6 hereof; such alternative financing or guaranties to be in
- ----------------------
form and amount satisfactory to Foothill in its sole discretion.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do any of the following, and will not permit any of its Subsidiaries to
do any of the following, without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in Schedule 7.1 other than
-------------
Indebtedness of foreign Subsidiaries of Borrower with respect to overdraft
lines, factoring arrangements, and similar short-term working capital credit
facilities of such foreign Subsidiaries of Borrower (which Indebtedness is
intended to be provided for under Section 7.1(d));
---------------
(c) Indebtedness secured by Permitted Liens; and
(d) Indebtedness of foreign Subsidiaries of Borrower with
respect to overdraft lines, factoring arrangements, and similar short-term
working capital credit facilities of such foreign Subsidiaries of Borrower;
provided, however, that the aggregate amount of all such Indebtedness together
- -------- -------
with the amount of all guarantees issued and outstanding under Section 7.6(a)
--------------
shall not exceed, at any one time, $2,500,000;
(e) guaranties permitted under Section 7.6 hereof;
------------
(f) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), and (d) of this Section 7.1 (and continuance
-----------
or renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(f) and so long as the replacement Liens only encumber those assets
- ---------------
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its Stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Sell,
lease, assign, transfer, or otherwise dispose of any of Borrower's or its
Subsidiaries properties or assets other than sales of Inventory to buyers in the
ordinary course of Borrower's or its Subsidiaries business as currently
conducted. After the Closing Date, Borrower and its Subsidiaries shall not
enter into any contract, lease, license, or agreement (other than product
agreements containing general restrictions on assignment that do not
specifically prohibit the creation of security interests by Borrower or its
Subsidiaries in their rights to payment, if any, thereunder), or any
modification or amendment of any contract, lease, license, or agreement, that
prohibits Borrower or its Subsidiaries from pledging, assigning, or encumbering
their rights under such contract, lease, license, or agreement.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name; provided, however, that if (a) Borrower has given
-------- -------
at lease 30 days prior notice of any such change, and (b) Foothill, in its
reasonable credit judgement, could not reasonably be expected any such change to
result in a Material Adverse Change, then Foothill shall not unreasonably
withhold its consent to any such change.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill. The foregoing notwithstanding, (a)
Borrower may guarantee the Indebtedness of its foreign Subsidiaries with respect
to overdraft lines, factoring arrangements, and similar short-term working
capital credit facilities of such foreign Subsidiaries of Borrower; provided,
--------
however, that the aggregate amount of all such guaranties together with the
- -------
amount of all Indebtedness outstanding under Section 7.1(d) shall not exceed, at
--------------
any one time, $2,500,000, (b) Borrower may guarantee the Indebtedness of one or
more joint ventures as to which it is a venturer so long as such joint ventures
are formed for the purpose of the same business as Borrower or businesses
reasonably incidental thereto; provided, however, that the aggregate amount of
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all such guarantees and all investments (as described in Section 7.13(a)) in
---------------
such joint ventures during the term of this Agreement shall not exceed One
Million Dollars ($1,000,000), and (c) so long as the Liquidity Conditions are
satisfied after giving effect to each such proposed guaranty, Borrower may
guaranty the Indebtedness of Concurrent Nippon; provided, however, that the
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aggregate amount of all such guarantees and all other investments (as described
in Section 7.13(d)) in Concurrent Nippon shall not exceed the amount permitted
----------------
by Section 7.13(d).
----------------
7.7 NATURE OF BUSINESS. Make any change in Borrower's financial
structure, the principal nature of Borrower's or its Subsidiaries' business
operations, or the date of their fiscal year; provided, however, that if (a)
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Borrower has given at lease 30 days prior notice of any such change, and (b)
Foothill, in its reasonable credit judgement, could not reasonably be expected
any such change to result in a Material Adverse Change, then Foothill shall not
unreasonably withhold its consent to any such change.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
Section 7.1(f), prepay, redeem, retire, defease, purchase, or otherwise acquire
- ---------------
any Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase,
or change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), (d), or (f).
--------------------------------------
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale; provided, however, that bill and hold Accounts shall not be prohibited by
-------- -------
reason of this Section if they are subject to documentation, in form and
substance satisfactory to Foothill, clearly evidencing that the obligation of
the Account Debtor is absolute and unconditional notwithstanding the failure of
Borrower to deliver the subject goods or software.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding.
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or Borrower's financial condition.
Borrower waives the right to assert a confidential relationship, if any, it may
have with any accounting firm or service bureau in connection with any
information requested by Foothill pursuant to or in accordance with this
Agreement, and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or incur
any liabilities (including contingent obligations) for or in connection with (a)
the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or transfers
of property to a Person, or (c) the acquisition of all or substantially all of
the properties or assets of a Person; provided, however, that, so long as no
-------- -------
Event of Default has occurred and is continuing, Borrower shall be entitled to
make the following investments: (a) the making or acquisition of beneficial
interests in, or the making of loans, advances, or capital contributions to, one
or more joint ventures as to which it is a venturer so long as such joint
ventures are formed for the purpose of engaging in the same business as Borrower
or businesses reasonably incidental thereto; provided, however, that the
-------- -------
aggregate amount of all such investments made during the term of this Agreement
and all guarantees (as described in Section 7.6(b)) made by Borrower during the
--------------
term of this Agreement in connection with such joint ventures shall not exceed
One Million Dollars ($1,000,000) and prior to making any such investment
Borrower shall hypothecate to Foothill, pursuant to agreements in form and
substance satisfactory to Foothill, the investment to be acquired, (b) the
acquisition by Borrower of beneficial interests in, or the making of loans,
advances, or capital contributions by Borrower as a result of the performance by
it of its obligations under the guarantees permitted under Section 7.6(b)
--------------
hereof, (c) the making or acquisition of beneficial interests in, or the making
of loans, advances, or capital contributions to foreign Subsidiaries of Borrower
(it being understood that this does not include the Inactive Subsidiaries and
Concurrent Nippon) in an aggregate amount not to exceed One Million Dollars
($1,000,000); provided, however, that the sole purpose for making such
-------- -------
investments must be to satisfy a mandatory statutory obligation imposed upon
Borrower or such foreign Subsidiary, and (d) so long as the Liquidity Conditions
are satisfied after giving effect to each such proposed investment, investments
in Concurrent Nippon equal to an aggregate amount not to exceed, as of any date
of determination, (i) Five Hundred Forty Million Yen ( 540,000,000), minus (ii)
-----
the sum of (1) then Yen equivalent of the aggregate amount of Accounts owed by
Concurrent Nippon to Borrower outstanding in excess of ninety (90) days, plus
----
(2) the maximum amount that Borrower may be required to pay under guaranties of
lines of credit made available by third party lenders to Concurrent Nippon.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 INACTIVE SUBSIDIARIES. Permit any Inactive Subsidiary to own
assets that have a value in excess of Twenty-Five Thousand Dollars ($25,000) or
to conduct any business operations.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.17 COMPENSATION. Increase the annual fee or per-meeting fees
paid to directors during any year by more than 15% over the prior year.
7.18 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than (a) on the Closing Date, to pay
transactional costs and expenses incurred in connection with this Agreement, and
(b) thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory
and Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.20 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage,
in any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to
pay timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to
pay any required installment or any other payment required under Section 412 of
the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $1,500,000.
7.21 FINANCIAL COVENANTS.
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least 1.10 : 1.0, measured on
a fiscal quarter-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A ratio
of Borrower's total liabilities divided by Tangible Net Worth of not more than
5.0 : 1.0, measured on a fiscal quarter-end basis;
(c) Tangible Net Worth. Tangible Net Worth of at least
$16,000,000, measured on a fiscal quarter-end basis;
(d) Total Obligations to Annualized Service Revenues. A
ratio of the total amount outstanding under Section 2.1 divided by the
------------
Annualized Service Revenues of not more than 0.25 : 1, as measured on a fiscal
quarter-end basis; and
(e) EBITDA. EBITDA, measured on a fiscal year-end basis, of
at least;
<TABLE>
<CAPTION>
Period Minimum EBITDA
<S> <C>
June 30, 1998 $ 5,710,000
June 30, 1999 $ 5,346,000
June 30, 2000 $ 5,826,000
- ------------- ---------------
</TABLE>
7.22 CAPITAL EXPENDITURES. Make capital expenditures in any
fiscal year in excess of $9,000,000; provided, however that if the aggregate
-------- -------
amount of capital expenditures made or committed by Borrower during any fiscal
year is less than the maximum amount permitted hereby for such fiscal year, the
amount of capital expenditures permitted for the succeeding fiscal year shall be
increased by such difference, but in no event shall the amount of such capital
expenditures for any fiscal year exceed $10,000,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 (a) If Borrower or any Subsidiary of Borrower fails or
neglects to perform, keep, or observe any term, provision, condition, covenant,
or agreement contained in Sections 6.2 (Collateral Reports) or 6.5 (Designation
-----------------------------------------------------
of Inventory) of this Agreement and such failure continues for a period of five
- --------------
(5) days from the date of such failure or neglect; (b) If Borrower or any
Subsidiary of Borrower fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in Sections 6.3
-------------
(Financial Statements), 6.4 (Tax Returns), 6.7 (Title to Equipment), 6.12
-----------------------------------------------------------------------
(Location of Inventory and Equipment), 6.13 (Compliance with Laws), or 6.15
--------------------------------------------------------------------------
(Leases) of this Agreement and such failure continues for a period of ten (10)
- --------
days from the date of such failure or neglect; (c) If Borrower or any Subsidiary
of Borrower fails or neglects to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in Section 6.8 (Maintenance of
---------------------------
Equipment) of this Agreement and such failure continues for a period of fifteen
- ----------
(15) days from the date Foothill sends Borrower written notice of such failure
or neglect; (d) If Borrower or any Subsidiary of Borrower fails or neglects to
perform, keep, or observe, in any material respect, any other term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between any Debtor
and Foothill (other than any such term, provision, condition, covenant, or
agreement that is the subject of another provision of this Section 8);
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower or
any Subsidiary of Borrower and any of the following events occur: (a) Borrower
- -or any Subsidiary of Borrower consents to the institution of the Insolvency
Proceeding against it; (b) the petition commencing the Insolvency Proceeding is
not timely controverted; (c) the petition commencing the Insolvency Proceeding
is not dismissed within 45 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period, Foothill shall be
- -------- -------
relieved of its obli-ga-tion to extend credit hereunder; (d) an interim trustee
is appointed to take possession of all or a substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, Borrower- or any Subsidiary of Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's properties or assets and the
same (a) is not paid on the payment date thereof, (b) is not the subject of a
Permitted Protest, or (c) relates to an amount in excess of One Hundred Thousand
Dollars ($100,000);
8.9 If a judgment or other claim becomes a Lien or encumbrance
upon any material portion of Borrower's properties or assets;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons and (a) such default (i)
occurs at the final maturity of the obligations thereunder, or (ii) results in a
right by such third Person(s), irrespective of whether exercised, to accelerate
the maturity of Borrower's obligations thereunder, and (b) such default relates
to an obligation in an amount in excess of Thirty Thousand Dollars ($30,000);
8.11 If Borrower makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If (a) any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any Subsidiary of Borrower, or any officer, employee,
agent, or director of Borrower or any Subsidiary of Borrower, except with
respect to those warranties, representations, statements, or reports that are
limited by their express terms to a specific time or date, or (b) any such
warranty or representation is withdrawn; or
8.13 If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by operation
of law or by the guarantor or other third Person thereunder, or any such
guarantor or other third Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's Loan Account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower authorizes
Foothill to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or Lien that in Foothill's
determination appears to conflict with its security interests and to pay all
expenses incurred in connection therewith. With respect to any of Borrower's
owned or leased premises, Borrower hereby grants Foothill a license to enter
into possession of such premises and to occupy the same, without charge, for up
to 120 days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least 5 days before
----------
the date fixed for the sale, or at least 5 days before the date on or after
which the private sale or other disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale;
and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Foothill may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrower's Loan Account as Foothill deems necessary
to protect Foothill from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in Section 6.10, and take any
------------
action with respect to such policies as Foothill deems prudent. Any such
amounts paid by Foothill shall constitute Foothill Expenses. Any such payments
made by Foothill shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction of
the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
-------------
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
IF TO BORROWER: CONCURRENT COMPUTER CORPORATION
2101 W. Cypress Creek Road
Fort Lauderdale, Florida 33309
Attn: Mr. Daniel S. Dunleavy
Fax No. 954.973.5253
WITH COPIES TO: CONCURRENT COMPUTER CORPORATION
2101 W. Cypress Creek Road
Fort Lauderdale, Florida 33309
Attn: Karen Fink, Esq.
Fax No. 954.973.5253
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
WITH COPIES TO: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
----------
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
----------
BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill 4 months after
they are delivered to or received by Foothill, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
- -------- -------
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person. Anything to the contrary
contained herein notwithstanding, Foothill agrees that (a) so long as no Event
of Default has occurred and is continuing, Foothill will not assign any of its
rights and obligations hereunder to a third Person known to be engaged in a
business that is directly competitive with the business of Borrower or to a
third Person known to have a significant investment, directly or indirectly, in
a Person that is engaged in a business that is directly competitive with the
business of Borrower, and (b) the costs and expenses of any participant of
Foothill shall not be for the account of Borrower.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by
a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence
or payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
CONCURRENT COMPUTER CORPORATION,
a Delaware corporation
By /s/ Daniel S. Dunleavy
-------------------------------
Title:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Todd Colpitts
-----------------------
Title: A.V.P.
------
<PAGE>
<TABLE>
<CAPTION>
CONCURRENT COMPUTER CORPORATION
EXHIBIT 12
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998
----------------- -------------------
FULLY FULLY
BASIC DILUTED BASIC DILUTED
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Average outstanding shares: . . . . 47,260 47,260 46,817 46,817
Fully diluted options outstanding . - 1,798 - 1,824
------- -------- -------- ---------
Equivalent Shares . . . . . . . . . 47,260 49,058 46,817 48,641
======= ======== ======== =========
Net income. . . . . . . . . . . . . $ 1,005 $ 1,005 $ 3,728 $ 3,728
Preferred stock dividends
and accretion of preferred shares - - (18) (18)
------- -------- -------- ---------
Net income available to common
stockholders. . . . . . . . . . . $ 1,005 $ 1,005 $ 3,710 $ 3,710
======= ======== ======== =========
Earnings per share. . . . . . . . . $ 0.02 $ 0.02 $ 0.08 $ 0.08
======= ======== ======== =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Companys
consolidated balance sheet at March 31, 1998 and Consolidated Statement of
Operations for the nine months ended March 31, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4877
<SECURITIES> 0
<RECEIVABLES> 22076
<ALLOWANCES> 545
<INVENTORY> 6475
<CURRENT-ASSETS> 35054
<PP&E> 35196
<DEPRECIATION> 22607
<TOTAL-ASSETS> 48993
<CURRENT-LIABILITIES> 23311
<BONDS> 0
<COMMON> 474
0
0
<OTHER-SE> 23692
<TOTAL-LIABILITY-AND-EQUITY> 48993
<SALES> 28169
<TOTAL-REVENUES> 62015
<CGS> 13916
<TOTAL-COSTS> 31768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> 4660
<INCOME-TAX> 932
<INCOME-CONTINUING> 3728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3728
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
