<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-21103
ADVANCED DIGITAL INFORMATION CORPORATION
Incorporated under the laws I.R.S. Identification
of the State of Washington No. 91-1618616
11431 Willows Road
P.O. Box 97057
Redmond, Washington 98073-9757
(425) 881-8004
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.
[X] Yes [ ] No
The total shares of common stock without par value outstanding at the end of the
quarter reported is 9,761,812.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND OCTOBER 31, 1997
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 22,290,922 $ 32,806,822
Marketable securities ................................... 2,135,449 --
Accounts receivable, net of allowances of $482,000 in
1998 and $324,000 in 1997 ............................. 20,261,718 18,078,302
Inventories, net ........................................ 20,915,766 16,074,787
Prepaid expenses and other .............................. 574,328 714,979
Deferred income taxes ................................... 767,688 767,688
------------ ------------
Total current assets .................................. 66,945,871 68,442,578
------------ ------------
Property, plant and equipment, at cost:
Machinery and equipment ................................. 5,966,579 4,366,343
Office equipment ........................................ 882,643 417,116
Leasehold improvements .................................. 570,719 415,493
------------ ------------
7,419,941 5,198,952
Less: accumulated depreciation and amortization ......... (3,283,184) (2,689,685)
------------ ------------
Net property, plant and equipment ..................... 4,136,757 2,509,267
------------ ------------
Deferred income taxes ...................................... 89,414 89,414
------------ ------------
Investment in Crossroads Holding Corp. and other
assets ................................................. 4,194,288 4,152,634
------------ ------------
$ 75,366,330 $ 75,193,893
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 7,229,770 $ 11,237,131
Accrued liabilities ..................................... 2,003,077 2,594,831
Income taxes payable .................................... 638,828 1,252,324
------------ ------------
Total current liabilities ........................... 9,871,675 15,084,286
------------ ------------
Commitments ................................................ -- --
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares
authorized; none issued and outstanding ............... -- --
Common stock, no par value; 40,000,000 shares
authorized, 9,761,812 issued and outstanding (9,699,824
in 1997) .............................................. 46,236,776 45,808,291
Retained earnings ....................................... 19,526,469 14,479,104
Cumulative translation adjustment ....................... (268,590) (177,788)
------------ ------------
Total shareholders' equity .......................... 65,494,655 60,109,607
------------ ------------
$ 75,366,330 $ 75,193,893
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
2
<PAGE>
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 25,314,025 $ 24,463,001 $ 72,985,581 $ 66,604,997
Cost of sales .................................. 18,544,302 17,397,206 51,790,825 47,057,154
------------ ------------ ------------ ------------
Gross profit ................................ 6,769,723 7,065,795 21,194,756 19,547,843
------------ ------------ ------------ ------------
Operating expenses:
Selling and administrative .................. 4,978,269 3,467,050 12,943,609 9,762,777
Research and development .................... 817,687 732,596 2,062,765 2,055,560
------------ ------------ ------------ ------------
5,795,956 4,199,646 15,006,374 11,818,337
------------ ------------ ------------ ------------
Operating profit ............................... 973,767 2,866,149 6,188,382 7,729,506
------------ ------------ ------------ ------------
Other income:
Interest income ............................. 222,679 382,753 789,959 758,975
Gain on sale of marketable securities ....... -- -- 247,814 --
Foreign currency transaction gains (losses),
net ....................................... (63,317) 159,255 200,409 376,846
------------ ------------ ------------ ------------
159,362 542,008 1,238,182 1,135,821
------------ ------------ ------------ ------------
Income before provision for income taxes ....... 1,133,129 3,408,157 7,426,564 8,865,327
Provision for income taxes ..................... 380,967 1,145,866 2,379,199 3,041,963
------------ ------------ ------------ ------------
Net income ..................................... $ 752,162 $ 2,262,291 $ 5,047,365 $ 5,823,364
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic net income per share ..................... $ 0.08 $ 0.23 $ 0.52 $ 0.66
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted net income per share ................... $ 0.08 $ 0.23 $ 0.51 $ 0.64
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
3
<PAGE>
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 5,047,365 $ 5,823,364
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ......................... 874,807 435,914
Gain on sale of marketable securities ............... (247,814) --
Change in assets and liabilities:
Accounts receivable ................................... (2,167,387) (3,976,694)
Inventories ........................................... (4,916,788) (2,980,485)
Prepaid expenses and other ............................ 138,836 52,430
Other assets .......................................... (46,267) 44,571
Accounts payable ...................................... (3,986,130) (486,964)
Accrued liabilities ................................... (565,452) 523,381
Income taxes payable .................................. (296,074) 896,475
------------ ------------
Net cash provided by (used in) operating activities .......... (6,164,904) 331,992
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ............... (2,511,984) (1,050,968)
Investment in marketable securities ...................... (3,003,908) --
Proceeds from sale of marketable securities .............. 1,116,273 --
------------ ------------
Net cash used in investing activities ........................ (4,399,619) (1,050,968)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock for stock
options, including tax benefit ...................... 140,420 1,300,053
Proceeds from issuance of common stock, net .............. -- 23,708,784
------------ ------------
Net cash provided by financing activities .................... 140,420 25,008,837
------------ ------------
Effect of exchange rate changes on cash ...................... (91,797) (128,917)
------------ ------------
Net (decrease) increase in cash and cash equivalents ......... (10,515,900) 24,160,944
Cash and cash equivalents at beginning of period ............. 32,806,822 10,436,783
------------ ------------
Cash and cash equivalents at end of period ................... $ 22,290,922 $ 34,597,727
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
4
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1998
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed financial statements are unaudited and should be
read in conjunction with the Advanced Digital Information Corporation financial
statements included in the Company's Annual Report on Form 10-K for the year
ended October 31, 1997. In the opinion of management, all normal recurring
adjustments which are necessary for the fair presentation of the results for the
interim periods are reflected herein. Operating results for the nine-month
period ended July 31, 1998, are not necessarily indicative of results to be
expected for a full year.
NOTE 2. EARNINGS PER SHARE
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS128") which changed the
Company's presentation and calculation of earnings per share. Basic net income
per share represents net income divided by the weighted average number of shares
outstanding during the period. Diluted net income per share represents net
income divided by the weighted average number of shares outstanding including
the potentially dilutive impact of stock options. Common stock options are
converted using the treasury stock method. Earnings per share for 1997 have been
restated to conform to the requirements of FAS 128. The adoption of FAS 128 did
not have a material impact on the Company's earnings per share.
The following table sets forth the computation of basic and diluted net
income per share for the three months and nine months ended July 31, 1998 and
1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net income ............................... $ 752,162 $2,262,291 $5,047,365 $5,823,364
Denominator:
Denominator for basic net income per share
- weighted average shares .............. 9,755,866 9,676,021 9,730,086 8,881,196
Dilutive potential common shares from
Team Member (employee) stock
options ................................ 149,196 208,141 174,811 203,147
---------- ---------- ---------- ----------
Denominator for diluted net income per
share - adjusted weighted average shares
and assumed conversions ................ 9,905,062 9,884,162 9,904,897 9,084,343
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net income per share .................. $ 0.08 $ 0.23 $ 0.52 $ 0.66
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net income per share ................ $ 0.08 $ 0.23 $ 0.51 $ 0.64
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
5
<PAGE>
NOTE 3. INVENTORIES
Inventory is comprised as follows:
<TABLE>
<CAPTION>
July 31, 1998 October 31, 1997
------------- ----------------
<S> <C> <C>
Finished Goods $ 11,110,289 $ 8,231,656
Work-in-process 2,310,562 1,416,067
Raw materials 9,095,044 7,557,748
------------ ------------
22,515,895 17,205,471
Allowance for inventory obsolescence (1,600,129) (1,130,684)
------------ ------------
$ 20,915,766 $ 16,074,787
------------ ------------
------------ ------------
</TABLE>
NOTE 4. INVESTMENT IN MARKETABLE SECURITIES
In January 1998, the Company began investing in certain equity securities.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115")
these investments are classified as available-for-sale. Under FAS 115,
unrealized holding gains and losses are reflected as a net amount in a separate
component of shareholders' equity until realized. For the purpose of computing
realized gains and losses, costs are identified on a specific identification
basis. There is no significant difference between the cost basis and fair value
of these securities at July 31, 1998. During April 1998, the Company sold
certain of these securities and realized a gain of $248,000.
NOTE 5. STOCK PURCHASE AGREEMENT
In July 1998, the Company entered into a Stock Purchase Agreement
("Agreement") with Raytheon E-Systems, Inc. ("Raytheon") to purchase all of the
outstanding stock of EMASS, Inc. ("EMASS") a wholly-owned subsidiary of
Raytheon. EMASS is a provider of large-scale libraries and open systems storage
software. The acquisition of EMASS was finalized August 19, 1998 and will be
accounted for by the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations". Accordingly, the
operating results of EMASS will be included in the consolidated operating
results from the date of acquisition. Pursuant to the terms of the Agreement,
ADIC made a cash payment of $24,766,000 to Raytheon and assumed approximately
$2,000,000 in mortgage indebtedness. The acquisition was funded through a
combination of cash and debt. ADIC expects to incur certain restructuring costs
associated with the transaction as well as a significant one-time expense for
the write-off of in-process research and development.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis may contain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The Company's actual
results could differ materially from those discussed here. Such risks are
detailed in the Company's Annual Report on Form 10-K filed with the SEC in
January 1998 and are incorporated herein by reference. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
NET SALES. Net sales for the three months ended July 31, 1998 increased 3%
to $25.3 million from $24.5 million for the same period in fiscal 1997. Net
sales for the nine months ended July 31, 1998 were $73.0 million, an increase of
10% versus the nine months ended July 31, 1997. The increase in net sales for
the quarter and nine months was due to strong unit sales volume of the Company's
automated tape libraries, including the Scalar and FastStor products. The
FastStor products were introduced in the final quarter of fiscal 1997, and an
agreement to provide an OEM version of the FastStor tape library for resale by
Dell Computer Corporation was announced in April 1998. The growth in sales
related to library products was offset by lower sales of standalone tape drives
and media products from the comparable periods of 1997 and price reductions for
selected parts. In addition, over the nine-month period, certain large
distributors, which are significant customers of the Company, have been reducing
the amount of inventory that they are holding. This inventory contraction also
contributed to net sales being lower than the Company's expectations. There can
be no assurance that the Company can improve upon the level of net sales
achieved due to the risk of increasing competition, the reliance on certain
customers and suppliers and other factors.
GROSS PROFIT. Gross profit was $6.8 million or 27% of net sales for the
three months ended July 31, 1998 compared to $7.1 million or 29% of net sales
for the same period in fiscal 1997. Gross profit as a percentage of net sales
was 29% for both of the nine-month periods ended July 31, 1998 and 1997. While
the shift in product mix toward higher-margin libraries and the reduction in
sales of the lower-margin standalone products benefited gross margin, this
benefit was offset for both the quarter and nine-month periods by certain
product price reductions and increased overhead costs. Most significant during
the quarter was the effect of manufacturing overhead costs associated with the
move to larger facilities in April 1998. Gross profit margins are dependent on a
number of factors, including customer and product mix, price competition and
tape drive costs. There can be no assurance that the Company can improve upon or
maintain the current gross margin levels for any of its product lines.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
were $5.0 million or 20% of net sales for the three months ended July 31, 1998
compared to $3.5 million or 14% of net sales for the same period in fiscal 1997.
The dollar increase in selling and administrative expenses in the three months
ended July 31, 1998 over the comparable period in fiscal 1997 was due to
increased sales personnel both in the headquarters office and in regional
offices throughout the United States and to increased expenditures for
advertising and promotion.
7
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$818,000 or 3% of net sales for the three months ended July 31, 1998 compared to
$733,000 or 3% of net sales for the same period in fiscal 1997. Research and
development expenses are associated primarily with modifications and
enhancements to the existing product lines.
OTHER INCOME. Interest income for the three months ended July 31, 1998 was
$223,000 compared to $383,000 for the same period in fiscal 1997. This decrease
is the result of investing in equity securities which reduced the interest
bearing balance of cash and cash equivalents as well as increases in working
capital requirements which also reduced the amount of cash available for
interest bearing investments. Net foreign currency transaction gains decreased
approximately $223,000 between the comparison periods. Foreign currency gains or
losses arise as a result of the operation of ADIC Europe, the functional
currency of which is French francs. ADIC Europe buys products from ADIC in U.S.
dollars and resells a significant majority of such products in U.S. dollars.
However, because francs are used as the functional accounting currency, all
monetary assets and liabilities are translated into francs on ADIC Europe's
financial statements. To the extent that these monetary assets and liabilities
do not fully offset each other and the franc-to-U.S.-dollar exchange rate
changes, transaction gains or losses may result. For large sales denominated in
other currencies, the Company attempts to implement appropriate hedging
strategies.
PROVISION FOR INCOME TAXES. Income tax expense for the three months ended
July 31, 1998 was $381,000 compared to $1,146,000 for the same period in fiscal
1997. The tax rate fluctuates in part based upon the taxable or non-taxable
nature of the Company's investments.
YEAR 2000 ISSUE. The Company, like most owners of computer software, will
be required to modify portions of its software so that it will function properly
in the year 2000. Any of the Company's computer programs that have date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. Based on its analysis to date, the Company believes that the impact
of year 2000 issues will not be material to the Company's business. The Company
is actively assessing the impact of the upcoming change and does not, as of yet,
have determinable estimates of the costs to be incurred. The Company expects to
incur primarily internal staff cost and other expenses related to infrastructure
and facilities enhancements necessary to prepare the systems for the year 2000.
ADIC believes that its critical internal software is year 2000 compliant and
that its complete line of products are year 2000 compliant. The Company expects
its year 2000 readiness project to be completed on a timely basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $6.2 million of cash in the first
nine months of fiscal 1998. Such cash was used to fund increases both in
inventories and receivables as well as decreases in accounts payable and other
accrued liabilities. These changes are partially due to timing of receipt or
payment of certain large checks both to our large suppliers and from a specific
few large customers. The Company does not believe that the timing of these
payments or receipts is indicative of any change in credit or collection risks.
Additionally, the Company used funds of $2.5 million to purchase property, plant
and equipment, much of which was associated with the move to a new headquarters
and manufacturing facility.
8
<PAGE>
At July 31, 1998, the Company had cash and cash equivalents of $22.3
million. In addition, the Company has a $10.0 million bank line of credit that
expires February 28, 2001. Any borrowings under this line of credit would bear
interest at the bank's Reference Rate or adjusted LIBOR rate. No borrowings have
been made under this line of credit.
In August 1998, the Company finalized a Credit Agreement with Seafirst Bank
and a Term Note for $20 million that was used to fund the acquisition of EMASS,
Inc. from Raytheon E-Systems, Inc. The note is payable in equal monthly
principal payments plus interest, based on a seven year amortization schedule,
with a final payment due August 1, 2003.
The Company believes that its existing cash and cash equivalents and bank
line of credit, together with the results of operations, will be sufficient to
fund its working capital and capital expenditure needs for at least the next
twelve months. The Company may utilize cash to acquire or invest in businesses,
products or technologies that it believes are strategic. From time to time, in
the ordinary course of business, the Company evaluates potential acquisitions of
such businesses, products or technologies. However, the Company has no present
understanding, commitments or agreements with respect to any material
acquisition of other businesses, products or technologies.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
2.1 Stock Purchase Agreement by and between Raytheon
E-Systems, Inc. and Advanced Digital Information
Corporation, dated July 21, 1998*
2.2 Amendment No. 1 to Stock Purchase Agreement by and
between Raytheon E-Systems, Inc. and Advanced
Digital Information Corporation, dated July 21,
1998**
2.3 Letter agreement between Raytheon E-Systems, Inc.
and the Company, dated August 19, 1998**
10.1 Credit Agreement between Advanced Digital
Information Corporation and Seafirst Bank dated
August 17, 1998
</TABLE>
* Incorporated by reference to the Company's Current Report on Form
8-K dated July 21, 1998
** Incorporated by reference to the Company's Current Report on Form
8-K dated August 19, 1998
10
<PAGE>
(b) Reports on Form 8-K
On August 3, 1998, the Company filed a report under Item 5 of Form 8-K
relating to the Stock Purchase Agreement between Raytheon E-Systems,
Inc. and the Company under which the Company would acquire the stock
of EMASS, Inc. This report was dated July 21, 1998.
On September 3, 1998, the Company filed a report under Item 2 of Form
8-K announcing the acquisition of EMASS, Inc. from Raytheon E-Systems,
Inc. This report was dated August 19, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED DIGITAL INFORMATION
CORPORATION
Dated: September 14, 1998 /s/ Peter H. van Oppen
------------------------------------
Peter H. van Oppen, Chairman
and Chief Executive Officer
Dated: September 14, 1998 /s/ Leslie S. Rock
------------------------------------
Leslie S. Rock, Treasurer
and Chief Accounting Officer
12
<PAGE>
CREDIT AGREEMENT
BETWEEN
ADVANCED DIGITAL INFORMATION CORPORATION
AND
SEAFIRST BANK
DATED AUGUST 17, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
ARTICLE 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . 1
1.1 ADJUSTED LIBOR RATE . . . . . . . . . . . . . . . 1
1.2 ADVANCES. . . . . . . . . . . . . . . . . . . . . 1
1.3 ASSESSMENT RATE . . . . . . . . . . . . . . . . . 1
1.4 AVAILABLE AMOUNT. . . . . . . . . . . . . . . . . 1
1.5 BUSINESS DAY. . . . . . . . . . . . . . . . . . . 1
1.6 COMMENCEMENT DATE . . . . . . . . . . . . . . . . 1
1.7 CONVERSION DATE . . . . . . . . . . . . . . . . . 1
1.8 CREDIT LIMIT. . . . . . . . . . . . . . . . . . . 2
1.9 CURRENT LIABILITIES . . . . . . . . . . . . . . . 2
1.10 DEBT . . . . . . . . . . . . . . . . . . . . . . 2
1.11 DEBT RATIO. . . . . . . . . . . . . . . . . . . . 2
1.12 EMASS ACQUISITION . . . . . . . . . . . . . . . . 2
1.13 ERISA . . . . . . . . . . . . . . . . . . . . . . 2
1.14 DOMESTIC SUBSIDIARY . . . . . . . . . . . . . . . 2
1.15 FIXED CHARGE COVERAGE RATIO . . . . . . . . . . . 2
1.16 FLOATING RATE . . . . . . . . . . . . . . . . . . 2
1.17 FLOATING RATE LOANS . . . . . . . . . . . . . . . 2
1.18 FOREIGN SUBSIDIARY. . . . . . . . . . . . . . . . 2
1.19 FUNDED DEBT RATIO . . . . . . . . . . . . . . . . 2
1.20 GAAP. . . . . . . . . . . . . . . . . . . . . . . 2
1.21 INTEREST PAYMENT DATES. . . . . . . . . . . . . . 2
1.22 INTEREST PERIOD . . . . . . . . . . . . . . . . . 2
1.23 LIBOR MARGIN. . . . . . . . . . . . . . . . . . . 3
1.24 LIBOR RATE. . . . . . . . . . . . . . . . . . . . 3
1.25 LIBOR RATE LOANS. . . . . . . . . . . . . . . . . 3
1.26 LOAN DOCUMENTS. . . . . . . . . . . . . . . . . . 3
1.27 LONDON BANKING DAY. . . . . . . . . . . . . . . . 3
1.28 NOTES . . . . . . . . . . . . . . . . . . . . . . 3
1.29 OBLIGATIONS . . . . . . . . . . . . . . . . . . . 3
1.30 PERSON. . . . . . . . . . . . . . . . . . . . . . 3
1.31 PLAN. . . . . . . . . . . . . . . . . . . . . . . 4
1.32 REFERENCE RATE. . . . . . . . . . . . . . . . . . 4
1.33 RESERVE ADJUSTMENT. . . . . . . . . . . . . . . . 4
1.34 REVOLVING NOTE. . . . . . . . . . . . . . . . . . 4
1.35 SIGNIFICANT SUBSIDIARY. . . . . . . . . . . . . . 4
1.36 SUBSIDIARY(IES) . . . . . . . . . . . . . . . . . 4
1.37 SWAP OBLIGATIONS. . . . . . . . . . . . . . . . . 5
1.38 TANGIBLE NET WORTH. . . . . . . . . . . . . . . . 5
1.39 TERMINATION DATE. . . . . . . . . . . . . . . . . 5
1.40 TERM NOTE . . . . . . . . . . . . . . . . . . . . 5
1.41 UNSECURED TRADE CREDIT. . . . . . . . . . . . . . 5
ARTICLE 2
REVOLVING LOAN. . . . . . . . . . . . . . . . . . . 5
2.1 REVOLVING LOAN FACILITY . . . . . . . . . . . . . 5
2.2 REVOLVING NOTE. . . . . . . . . . . . . . . . . . 5
2.3 PROCEDURE FOR ADVANCES. . . . . . . . . . . . . . 5
2.4 FACILITY FEE. . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
TERM LOAN FACILITY. . . . . . . . . . . . . . . . . . 6
3.1 TERM LOAN . . . . . . . . . . . . . . . . . . . . 6
3.2 TERM NOTE . . . . . . . . . . . . . . . . . . . . 6
3.3 REPAYMENT OF PRINCIPAL. . . . . . . . . . . . . . 6
3.4 FEE . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4
INTEREST RATE OPTIONS . . . . . . . . . . . . . . . . . 6
4.1 INTEREST RATES AND PAYMENT DATE . . . . . . . . . 6
4.2 PROCEDURE . . . . . . . . . . . . . . . . . . . . 6
4.3 OPTION RESTRICTIONS . . . . . . . . . . . . . . . 6
4.4 PREPAYMENTS . . . . . . . . . . . . . . . . . . . 6
4.5 REVERSION TO FLOATING . . . . . . . . . . . . . . 6
4.6 INABILITY TO PARTICIPATE IN MARKET. . . . . . . . 6
4.7 COSTS . . . . . . . . . . . . . . . . . . . . . . 7
4.8 BASIS OF QUOTES . . . . . . . . . . . . . . . . . 7
ARTICLE 5
CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . 7
5.1 AUTHORIZATION . . . . . . . . . . . . . . . . . . 7
5.2 DOCUMENTATION . . . . . . . . . . . . . . . . . . 7
5.3 FINANCIAL COVENANTS . . . . . . . . . . . . . . . 7
5.4 PROOF OF INSURANCE. . . . . . . . . . . . . . . . 7
5.5 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 7
5.6 COMPLIANCE. . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 7
6.1 EXISTENCE . . . . . . . . . . . . . . . . . . . . 7
6.2 ENFORCEABILITY. . . . . . . . . . . . . . . . . . 8
6.3 NO LEGAL BAR. . . . . . . . . . . . . . . . . . . 8
6.4 FINANCIAL INFORMATION . . . . . . . . . . . . . . 8
6.5 LIENS AND ENCUMBRANCES. . . . . . . . . . . . . . 8
6.6 LITIGATION. . . . . . . . . . . . . . . . . . . . 8
6.7 PAYMENT OF TAXES. . . . . . . . . . . . . . . . . 8
6.8 EMPLOYMENT BENEFIT PLAN . . . . . . . . . . . . . 8
6.9 MISREPRESENTATIONS. . . . . . . . . . . . . . . . 8
6.10 NO DEFAULT. . . . . . . . . . . . . . . . . . . . 8
6.11 NO BURDENSOME RESTRICTIONS. . . . . . . . . . . . 8
6.12 YEAR 2000 COMPLIANCE. . . . . . . . . . . . . . . 9
ARTICLE 7
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . 9
7.1 USE OF PROCEEDS . . . . . . . . . . . . . . . . . 9
7.2 TANGIBLE NET WORTH. . . . . . . . . . . . . . . . 9
7.3 FIXED CHARGE COVERAGE RATIO . . . . . . . . . . . 9
7.4 FUNDED DEBT RATIO . . . . . . . . . . . . . . . . 9
7.5 DEBT RATIO. . . . . . . . . . . . . . . . . . . . 9
7.6 QUICK RATIO . . . . . . . . . . . . . . . . . . . 9
7.7 FINANCIAL INFORMATION . . . . . . . . . . . . . . 9
7.8 MAINTENANCE OF EXISTENCE. . . . . . . . . . . . . 10
7.9 BOOKS AND RECORDS . . . . . . . . . . . . . . . . 10
7.10 ACCESS TO PREMISES AND RECORDS. . . . . . . . . . 10
7.11 NOTICE OF EVENTS. . . . . . . . . . . . . . . . . 10
7.12 PAYMENT OF DEBTS AND TAXES. . . . . . . . . . . . 11
7.13 INSURANCE . . . . . . . . . . . . . . . . . . . . 11
7.14 SUBSIDIARY GUARANTEES . . . . . . . . . . . . . . 11
- i -
<PAGE>
ARTICLE 8
NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . 12
8.1 DEBT. . . . . . . . . . . . . . . . . . . . . . . 12
8.2 LIENS AND ENCUMBRANCES. . . . . . . . . . . . . . 12
8.3 GUARANTIES. . . . . . . . . . . . . . . . . . . . 12
8.4 NET LOSSES. . . . . . . . . . . . . . . . . . . . 12
8.5 DISPOSITION OF ASSETS . . . . . . . . . . . . . . 13
8.6 MERGERS . . . . . . . . . . . . . . . . . . . . . 13
8.7 WAGE AND HOUR LAWS. . . . . . . . . . . . . . . . 13
8.8 ERISA . . . . . . . . . . . . . . . . . . . . . . 13
8.9 DISSOLUTION . . . . . . . . . . . . . . . . . . . 13
8.10 BUSINESS ACTIVITIES . . . . . . . . . . . . . . . 13
8.11 PERMITTED INVESTMENTS . . . . . . . . . . . . . . 13
ARTICLE 9
EVENTS AND CONSEQUENCES OF DEFAULT. . . . . . . . . . . 13
9.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 13
9.2 REMEDIES UPON DEFAULT . . . . . . . . . . . . . . 14
ARTICLE 10
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 15
10.1 MANNER OF PAYMENTS. . . . . . . . . . . . . . . . 15
10.2 NOTICES . . . . . . . . . . . . . . . . . . . . . 15
10.3 DOCUMENTATION AND ADMINISTRATION EXPENSES . . . . 16
10.4 COLLECTION EXPENSES . . . . . . . . . . . . . . . 16
10.5 WAIVER. . . . . . . . . . . . . . . . . . . . . . 16
10.6 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . 16
10.7 MERGER. . . . . . . . . . . . . . . . . . . . . . 16
10.8 AMENDMENTS. . . . . . . . . . . . . . . . . . . . 16
10.9 MANDATORY ARBITRATION . . . . . . . . . . . . . . 16
10.10 CONSTRUCTION. . . . . . . . . . . . . . . . . . . 17
</TABLE>
EXHIBITS:
- ---------
Exhibit A - Form of Revolving Note
Exhibit B - Form of Term Note
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Subsidiary Guaranty
- ii -
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made between Advanced Digital
Information Corporation, a Washington corporation ("Borrower"), and Bank of
America National Trust and Savings Association, doing business as Seafirst
Bank, a national banking association (including its successors and/or
assigns, "Bank"), and amends, restates, and supersedes the Credit Agreement
dated October 28, 1996, between Borrower and Bank's predecessor by merger,
Bank of America NW, N.A. The parties agree as follows:
ARTICLE 1
DEFINITIONS
All terms defined below shall have the meaning indicated. All
references in this Agreement to:
(a) "dollars" or "$" shall mean U.S. dollars;
(b) "Article," "Section," or "Subsection" shall mean articles,
sections, and subsections of this Agreement, unless otherwise indicated;
(c) terms defined in the Washington version of the Uniform
Commercial Code, R.C.W. Section 62A.9-101, ET SEQ. ("UCC"), and not
otherwise defined in this Agreement, shall have the meaning given in the
UCC; and
(d) an accounting term not otherwise defined in this Agreement shall
have the meaning assigned to it under GAAP.
1.1 ADJUSTED LIBOR RATE shall mean for any day that per annum rate
equal to the sum of (a) the LIBOR Margin, (b) the Assessment Rate, and (c)
the quotient of (i) the LIBOR Rate as determined for such day, divided by
(ii) the Reserve Adjustment. The Adjusted LIBOR Rate shall change with any
change in the LIBOR Rate on the first day of each Interest Period and on the
effective date of any change in the Assessment Rate or Reserve Adjustment.
1.2 ADVANCES shall mean the disbursement of loan proceeds under the
Revolving Loan. An Advance shall not constitute a "payment order" under
R.C.W. Section 62A.4A-103.
1.3 ASSESSMENT RATE shall mean as of any day the minimum annual
percentage rate established by the Federal Deposit Insurance Corporation (or
any successor) for the assessment due from members of the Bank Insurance Fund
(or any successor) in effect for the assessment period during which said day
occurs based on deposits maintained at such members' offices located outside
of the United States. In the event of a retroactive reduction in the
Assessment Rate after a commencement of any Interest Period, Bank shall not
retroactively adjust as to such Interest Period any interest rate calculated
using the Assessment Rate.
1.4 AVAILABLE AMOUNT shall mean at any time the amount of the Credit
Limit, minus the unpaid balance of the Revolving Note.
1.5 BUSINESS DAY shall mean any day other than a Saturday, Sunday,
or other day on which commercial banks in Seattle, Washington, are authorized
or required by law to close.
1.6 COMMENCEMENT DATE shall mean the first day of any Interest
Period as requested by Borrower.
1.7 CONVERSION DATE shall mean December 1, 1998.
- 1 -
<PAGE>
1.8 CREDIT LIMIT shall mean $10,000,000.
1.9 CURRENT LIABILITIES shall mean all consolidated indebtedness of
Borrower, on a GAAP basis, which may be properly classified as current
liabilities in accordance with GAAP.
1.10 DEBT shall mean all consolidated obligations, on a GAAP basis,
included in the liability section of a balance sheet of Borrower.
1.11 DEBT RATIO shall mean the ratio of Debt to Tangible Net Worth.
1.12 EMASS ACQUISITION shall mean the acquisition by Borrower of 100%
of the capital stock of EMASS, Inc.
1.13 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.14 DOMESTIC SUBSIDIARY shall mean each Subsidiary which is not a
Foreign Subsidiary.
1.15 FIXED CHARGE COVERAGE RATIO shall mean, as of the date of
determination, the ratio, measured on a four-quarter trailing basis, of (a)
net income after taxes, plus interest expense, plus depreciation, plus
amortization, minus dividends, to (b) interest expense, plus the current
portion of long-term Debt and capital leases.
1.16 FLOATING RATE shall mean the Reference Rate plus 0% per annum.
1.17 FLOATING RATE LOANS shall mean those portions of principal of the
Revolving Note or the Term Note accruing interest at the Floating Rate.
1.18 FOREIGN SUBSIDIARY shall mean each Subsidiary the majority of the
assets of which are located outside of the United States and its territories.
1.19 FUNDED DEBT RATIO shall mean, as of the date of determination, the
ratio, measured on a four-quarter trailing basis, of (a) the aggregate principal
amount of all interest-bearing Debt and capital leases to (b) earnings before
interest expense, taxes, depreciation, and amortization (adjusted, for the four
quarters following the EMASS Acquisition, by the amount of noncash writeoff of
research and development expense relating to the EMASS Acquisition, with such
adjustment to be identified as a separate item in Borrower's financial
statements, and to be determined within 120 days of the execution of this
Agreement).
1.20 GAAP shall mean generally accepted accounting principles as in
effect from time to time in the United States and as consistently applied by
Borrower.
1.21 INTEREST PAYMENT DATES shall mean the first Business Day of each
month, and upon maturity of each Note, including upon maturity by acceleration.
1.22 INTEREST PERIOD shall mean the period commencing on the date of
any Advance at (or advance under the Term Loan) or conversion to an Adjusted
LIBOR Rate and ending on any date thereafter as selected by Borrower, subject to
the restrictions of Section 4.3. If any Interest Period would end on a day which
is not a Business Day, the Interest Period shall be extended to the next
succeeding Business Day, unless the next succeeding Business Day falls in the
next month, in which case the Interest Period shall be shortened to the
preceding Business Day.
- 2 -
<PAGE>
1.23 LIBOR MARGIN shall mean the "LIBOR Margin" as determined by the
following chart:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Funded Debt Ratio* LIBOR Margin
- -------------------------------------------------------------------------------
<S> <C>
< .75 to 1 1.25%
- -------------------------------------------------------------------------------
< 1.50 to 1
but >= .75 to 1 1.35%
- -------------------------------------------------------------------------------
< 2.25 to 1
but >= 1.50 to 1 1.50%
- -------------------------------------------------------------------------------
>= 2.25 to 1 1.75%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
* AS DETERMINED BASED ON THE MOST RECENTLY DELIVERED QUARTERLY FINANCIAL
STATEMENT OF BORROWER.
Upon receipt of a quarterly financial statement showing a decrease or increase
in the Funded Debt Ratio which places Borrower in a new pricing category, all
LIBOR Rate Loans shall begin being calculated at the higher or lower margin, as
the case may be, for the period beginning on the Business Day after such
statement is received by Bank; provided that if such statement is not delivered
in a timely manner, Bank may at its option, apply a LIBOR Margin of 1.75% until
such statement is delivered or Bank declares a Default.
1.24 LIBOR RATE shall mean for any Interest Period the per annum rate,
calculated on the basis of actual number of days elapsed over a year of 360
days, for U.S. Dollar deposits for a period equal to the Interest Period
appearing on the display designated as "Page 3750" on the Telerate Service (or
such other page on that service or such other service designated by the British
Banker's Association for the display of that Association's Interest Settlement
Rates for U.S. Dollar deposits) as of 11:00 a.m., London time, on the day which
is two London Banking Days prior to the first day of the Interest Period. If
there is no period equal to the Interest Period on the display, the LIBOR Rate
shall be determined by straight-line interpolation to the nearest month (or week
or day if expressed in weeks or days) corresponding to the Interest Period
between the two nearest neighboring periods on the display.
1.25 LIBOR RATE LOANS shall mean those portions of principal of the
Notes accruing interest at the Adjusted LIBOR Rate.
1.26 LOAN DOCUMENTS shall mean collectively this Agreement, the Notes,
all documents representing Swap Obligations, and all other documents,
instruments, and other agreements now or later executed in connection with this
Agreement.
1.27 LONDON BANKING DAY shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks in London, England, are
authorized or required by law to close.
1.28 NOTES shall mean the Revolving Note and the Term Note.
1.29 OBLIGATIONS shall mean the Notes, all Swap Obligations, and all
fees, costs, expenses, and indemnifications due to Bank under this Agreement.
1.30 PERSON shall mean any individual, partnership, corporation,
business trust, unincorporated organization, joint venture, or any governmental
entity, department, agency, or political subdivision.
- 3 -
<PAGE>
1.31 PLAN shall mean any employee benefit plan or other plan maintained
for Borrower's employees and covered by Title IV of ERISA, excluding any plan
created or operated by or for any labor union.
1.32 REFERENCE RATE shall mean the rate of interest publicly announced
from time to time by Bank in San Francisco, California, as its "Reference Rate."
The Reference Rate is set based on various factors, including Bank's costs and
desired return, general economic conditions, and other factors, and is used as a
reference point for pricing some loans. Bank may price loans to its customers
at, above, or below the Reference Rate. Any change in the Reference Rate shall
take effect at the opening of business on the day specified in the public
announcement of a change in the Reference Rate.
1.33 RESERVE ADJUSTMENT shall mean as of any day the remainder of one
minus that percentage (expressed as a decimal) which is the highest of any such
percentages established by the Board of Governors of the Federal Reserve System
(or any successor) for required reserves (including any emergency, marginal, or
supplemental reserve requirement) regardless of the aggregate amount of deposits
with said member bank and without benefit of any possible credit, proration,
exemptions, or offsets for time deposits established at offices of member banks
located outside of the United States or for eurocurrency liabilities, if any.
1.34 REVOLVING NOTE shall have the meaning given in Section 2.2.
1.35 SIGNIFICANT SUBSIDIARY shall mean, at any date, each Domestic
Subsidiary that:
(a) accounted for (or, for a newly-acquired Subsidiary, would
have accounted for if it had been a Subsidiary during the reporting period)
at least 10% of consolidated revenues of Borrower and its Subsidiaries (or,
for a newly-acquired Subsidiary, would have accounted for if it had been a
Subsidiary during the reporting period) or accounted for (or would have
accounted for) 10% of consolidated earnings of Borrower and its
Subsidiaries before interest and taxes, in each case for the fiscal quarter
of Borrower most recently ended on or prior to such date; or
(b) has assets which represent at least 10% of the consolidated
assets of Borrower and its Subsidiaries as of the last day of the last
fiscal quarter of Borrower most recently ended on or prior to such date
(or, for a newly-acquired Subsidiary, would have represented if it had been
a Subsidiary during the reporting period); and
shall mean, at any date, each Foreign Subsidiary that:
(c) accounted for (or, for a newly-acquired Subsidiary, would
have accounted for if it had been a Subsidiary during the reporting period)
at least 25% of consolidated revenues of Borrower and its Subsidiaries (or,
for a newly-acquired Subsidiary, would have accounted for if it had been a
Subsidiary during the reporting period) or accounted for (or would have
accounted for) 25% of consolidated earnings of Borrower and its
Subsidiaries before interest and taxes, in each case for the fiscal quarter
of Borrower most recently ended on or prior to such date; or
(d) has assets which represent at least 25% of the consolidated
assets of Borrower and its Subsidiaries as of the last day of the last
fiscal quarter of Borrower most recently ended on or prior to such date
(or, for a newly-acquired Subsidiary, would have represented if it had been
a Subsidiary during the reporting period).
1.36 SUBSIDIARY(IES) shall mean a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by Borrower
or by one or more other Subsidiaries, or by Borrower together with one or more
other Subsidiaries.
- 4 -
<PAGE>
1.37 SWAP OBLIGATIONS shall mean all indebtedness and obligations of
Borrower to Bank under any ISDA (or successor) Master Agreement, or equivalent
interest rate swap agreement, including all schedules thereto, confirmations of
transactions thereunder, and documents, definitions, and agreements incorporated
therein by reference or relating thereto (and including, without limitation, any
interest due thereon, fees, costs, and expenses connected therewith, and
termination payments and indemnifications relating thereto).
1.38 TANGIBLE NET WORTH shall mean Borrower's total shareholders
equity, but excluding any intangible assets or goodwill associated with
subsequent operations or acquisitions.
1.39 TERMINATION DATE shall mean February 28, 2001, or such earlier
date upon which Bank's commitment to lend is terminated pursuant to
Subsection 9.2(a).
1.40 TERM NOTE shall have the meaning given in Section 3.2.
1.41 UNSECURED TRADE CREDIT shall mean unsecured, short-term Debt
arising from current operations by purchasing on credit goods, services,
supplies, or merchandise and not constituting borrowings.
ARTICLE 2
REVOLVING LOAN
2.1 REVOLVING LOAN FACILITY. Subject to the terms and conditions of
this Agreement, Bank shall make Advances to Borrower from time to time, until
the Termination Date ("Revolving Loan"), with the aggregate principal amount at
any one time outstanding not to exceed the Credit Limit. Borrower may use the
Revolving Loan by borrowing, prepaying, and reborrowing the Available Amount, in
whole or in part.
2.2 REVOLVING NOTE. The obligation of Borrower to repay the
Revolving Loan shall be evidenced by a promissory note (including all
renewals, modifications, and extensions thereof, the "Revolving Note") made
by Borrower to the order of Bank, and shall bear interest as provided in
Article 4. The Revolving Note shall be unsecured and shall be in
substantially the same form as Exhibit A attached.
2.3 PROCEDURE FOR ADVANCES. Borrower may borrow under the Revolving
Loan on any Business Day. Borrower shall give Bank irrevocable notice (written
or oral) specifying the amount to be borrowed and the requested borrowing date.
Bank must receive such notice on or before 3:30 p.m., Seattle time, on the day
borrowing is requested, or by such earlier time as may be required under
Article 4. All Advances shall be discretionary to the extent notification by
Borrower is given subsequent to that time.
2.4 FACILITY FEE. Borrower shall pay to Bank upon execution of this
Agreement a facility fee of $12,500. In addition, on February 28, 2000,
Borrower shall pay to Bank an additional facility fee of $10,000.
- 5 -
<PAGE>
ARTICLE 3
TERM LOAN FACILITY
3.1 TERM LOAN. Subject to the terms and conditions of this Agreement,
Bank shall make a term loan to Borrower of up to $20,000,000, available in a
single advance on or before the Conversion Date ("Term Loan").
3.2 TERM NOTE. The obligation of Borrower to repay the Term Loan
shall be evidenced by a promissory note (including all renewals, modifications,
and extensions thereof, the "Term Note") made by Borrower to the order of Bank,
and shall bear interest as provided in Article 4, payable in arrears on each
Interest Payment Date occurring after advance of the Term Loan. The Term Note
shall be unsecured and shall be in substantially the same form as Exhibit B
attached.
3.3 REPAYMENT OF PRINCIPAL. On the first Business Day of each month,
beginning on the first Business Day of the month following the month in which
the Term Loan is advanced, Borrower shall pay to Bank, as installments of
principal under the Term Note, 1/84 of original amount advanced under the Term
Loan. All principal and accrued interest of the Term Note shall be due and
payable in full on August 1, 2003.
3.4 FEE. Upon disbursement of the Term Loan, Borrower shall pay Bank
a facility fee of equal to 0.20% of the amount disbursed under the Term Loan,
which shall be nonrefundable.
ARTICLE 4
INTEREST RATE OPTIONS
4.1 INTEREST RATES AND PAYMENT DATE. The Notes shall each bear
interest from the date of Advance on the unpaid principal balance outstanding
from time to time at the Floating Rate or Adjusted LIBOR Rate as selected by
Borrower and all accrued interest shall be payable in arrears on each Interest
Payment Date.
4.2 PROCEDURE. Borrower may, on any London Banking Day two London
Banking Days before a Commencement Date, request Bank to give an Adjusted LIBOR
Rate quote for a specified Note, loan amount, and Interest Period. Bank will
then quote to Borrower the available Adjusted LIBOR Rate. Borrower shall have
two hours from the time of the quote to elect an Adjusted LIBOR Rate by giving
Bank irrevocable notice of such election.
4.3 OPTION RESTRICTIONS. Each Interest Period shall be one, two, or
three months. In no event shall the Interest Period extend beyond the
Termination Date. The minimum amount of a LIBOR Rate Loan shall be $500,000.
4.4 PREPAYMENTS. If Borrower prepays all or any portion of a LIBOR
Rate Loan prior to the end of an Interest Period, there shall be due at the time
of any such prepayment the Prepayment Fee, determined in accordance with
Form 51-6325, which shall be attached as Exhibit 1 to each Note. Borrower may
prepay Floating Rate Loans on any Business Day without premium or penalty.
4.5 REVERSION TO FLOATING. Each Note shall bear interest at the
Floating Rate unless an Adjusted LIBOR Rate is specifically selected. At the
termination of any Interest Period, each LIBOR Rate Loan shall revert to a
Floating Rate Loan unless Borrower directs otherwise pursuant to Section 4.2.
4.6 INABILITY TO PARTICIPATE IN MARKET. If Bank in good faith cannot
participate in the Eurodollar market for legal or practical reasons, the
Adjusted LIBOR Rate shall cease to be an interest rate option. Bank shall
notify Borrower if and when it again becomes legal or practical to participate
in the Eurodollar market, at which time the Adjusted LIBOR Rate shall resume
being an interest rate option.
- 6 -
<PAGE>
4.7 COSTS. Borrower shall, as to LIBOR Rate Loans, reimburse Bank for
all costs, taxes, and expenses, and defend and hold Bank harmless for any
liabilities, which Bank may incur as a consequence of any changes in the cost of
participating in, or in the laws or regulations affecting, the Eurodollar
market, including any additional reserve requirements, except to the extent such
costs are already calculated into the Adjusted LIBOR Rate. This covenant shall
survive this Agreement and the payment of the Notes.
4.8 BASIS OF QUOTES. Borrower acknowledges that Bank may or may not
in any particular case actually match-fund a LIBOR Rate Loan. FDIC assessments,
and Federal Reserve Board reserve requirements, if any are assessed, will be
based on Bank's best estimates of its marginal cost for each of these items.
Whether such estimates in fact represent the actual cost to Bank for any
particular dollar or Eurodollar deposit or any LIBOR Rate Loan will depend upon
how Bank actually chooses to fund the LIBOR Rate Loan. By electing an Adjusted
LIBOR Rate, Borrower waives any right to object to Bank's means of calculating
the Adjusted LIBOR Rate quote accepted by Borrower.
ARTICLE 5
CONDITIONS OF LENDING
Bank's obligation to make the initial Advance is subject to the conditions
precedent listed in Sections 5.1 through 5.4, and to make subsequent Advances is
subject to the conditions precedent listed in Sections 5.5 and 5.6, unless
waived by Bank in writing:
5.1 AUTHORIZATION. Borrower shall have delivered to Bank a copy of
minutes of a meeting of Borrower's board of directors authorizing the
transactions contemplated by this Agreement and the execution, delivery, and
performance of all Loan Documents, together with appropriate certificates of
incumbency.
5.2 DOCUMENTATION. Borrower shall have executed and delivered to Bank
all documents to reflect the existence of the Obligations.
5.3 FINANCIAL COVENANTS. Borrower shall be in compliance with
Sections 7.2 through 7.6.
5.4 PROOF OF INSURANCE. Proof of insurance as required by
Section 7.13 shall have been provided to Bank.
5.5 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Borrower in the Loan Documents and in any certificate,
document, or financial statement furnished at any time shall continue to be true
and correct, except to the extent that such representations and warranties
expressly relate to an earlier date.
5.6 COMPLIANCE. No Default or other event which, upon notice or lapse
of time or both would constitute a Default, shall have occurred and be
continuing, or shall exist after giving effect to the advance of credit to be
made.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement, Borrower represents, warrants,
and covenants to Bank as follows:
6.1 EXISTENCE. Borrower is in good standing as a corporation under
the laws of the state of Washington, has the power, authority, and legal right
to own and operate its property or lease the property it operates and to conduct
its current business; and is qualified to do business and is in good
- 7 -
<PAGE>
standing in all other jurisdictions where the ownership, lease, or operation
of its property or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse
effect on Borrower.
6.2 ENFORCEABILITY. The Loan Documents, when executed and delivered
by Borrower, shall be enforceable against Borrower in accordance with their
respective terms.
6.3 NO LEGAL BAR. The execution, delivery, and performance by
Borrower of the Loan Documents, and the use of the loan proceeds, shall not
violate any existing law or regulation applicable to Borrower; any ruling
applicable to Borrower of any court, arbitrator, or governmental agency or body
of any kind; Borrower's organizational documents; any security issued by
Borrower; or any mortgage, indenture, lease, contract, undertaking, or other
agreement to which Borrower is a party or by which Borrower or any of its
property may be bound.
6.4 FINANCIAL INFORMATION. By submitting each of the financial
statements required by Subsection 7.7(c) and (b), Borrower is deemed to
represent and warrant that: (a) such statement is complete and correct and
fairly presents the financial condition of Borrower as of the date of such
statement; (b) such statement discloses all liabilities of Borrower that are
required to be reflected or reserved against under GAAP, whether liquidated or
unliquidated, fixed or contingent; and (c) such statement has been prepared in
accordance with GAAP. As of this date, there has been no adverse change in
Borrower's financial condition since preparation of the last such financial
statements delivered to Bank which would materially impair Borrower's ability to
repay the Obligations.
6.5 LIENS AND ENCUMBRANCES. As of this date, Borrower has good and
marketable title to its property free and clear of all security interests,
liens, encumbrances, or rights of others, except for taxes which are not yet
delinquent and for conditions, restrictions, easements, and rights of way of
record which do not materially affect the use of any of Borrower's property.
6.6 LITIGATION. Except as disclosed in writing to Bank, there is no
threatened (to Borrower's knowledge) or pending litigation, investigation,
arbitration, or administrative action which may materially adversely affect
Borrower's business, property, operations, or financial condition.
6.7 PAYMENT OF TAXES. Borrower has filed or caused to be filed all
tax returns when required to be filed; and has paid all taxes, assessments,
fees, licenses, excise taxes, franchise taxes, governmental liens, penalties,
and other charges levied or assessed against Borrower or any of its property
imposed on it by any governmental authority, agency, or instrumentality that are
due and payable (other than those returns or payments of which the amount,
enforceability, or validity are contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP are
provided on Borrower's books).
6.8 EMPLOYEE BENEFIT PLAN. Borrower is in compliance in all respects
with the provisions of ERISA and the regulations and published interpretations
thereunder. Borrower has not engaged in any acts or omissions which would make
Borrower liable to the Plan, to any of its participants, or to the Internal
Revenue Service, under ERISA.
6.9 MISREPRESENTATIONS. No information, exhibits, data, or reports
furnished by Borrower or delivered to Bank in connection with Borrower's
application for credit misstates any material fact, or omits any fact necessary
to make such information, exhibits, data, or reports not misleading.
6.10 NO DEFAULT. Borrower is not in default in any Loan Document, or
in any contract, agreement, or instrument to which it is a party.
6.11 NO BURDENSOME RESTRICTIONS. No contract or other instrument to
which Borrower is a party, or order, award, or decree of any court, arbitrator,
or governmental agency, materially impairs Borrower's ability to repay the
Obligations.
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<PAGE>
6.12 YEAR 2000 COMPLIANCE. Borrower is in the process of conducting a
comprehensive review and assessment of Borrower's computer applications and
making inquiry of Borrower's key suppliers, vendors, and customers with respect
to the "year 2000 problem" (that is, the risk that computer applications may not
be able to properly perform date-sensitive functions after December 31, 1999)
and warrants that, once that review and inquiry has been completed, the year
2000 problem will not result in a material adverse change in Borrower's business
condition (financial or otherwise), operations, properties, or prospects, or
ability to repay the Obligations.
ARTICLE 7
AFFIRMATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability exists
under the Loan Documents, Borrower shall:
7.1 USE OF PROCEEDS. Use the proceeds of the Revolving Loan or the
Term Loan for working capital, for capital expenditures, for financing the EMASS
Acquisition, or for other general corporate purposes.
7.2 TANGIBLE NET WORTH. Maintain as of each quarter end a Tangible
Net Worth of not less than $63,385,000, increasing as of each fiscal quarter
end, beginning quarter ending July 31, 1998, by 50% of net income during the
quarter then ending, with no adjustment for net losses; PROVIDED, that the
required minimum Tangible Net Worth shall be adjusted downward by the amount of
the noncash writeoff of research and development expense relating to the EMASS
Acquisition, as determined within 120 days of the execution of this Agreement.
7.3 FIXED CHARGE COVERAGE RATIO. Maintain as of each quarter end a
Fixed Charge Coverage Ratio of at least 1.5 to 1.
7.4 FUNDED DEBT RATIO. Maintain as of each quarter end a Funded Debt
Ratio of not more than 2.50 to 1.
7.5 DEBT RATIO. Maintain as of each quarter end a Debt Ratio of no
more than 1.0 to 1.
7.6 QUICK RATIO. Maintain the following totals in a ratio of at least
1.25 to 1:
(a) the sum of (i) cash plus (ii) accounts receivable; to
(b) the sum of (i) Current Liabilities, plus (ii) the
outstanding principal amount of all Obligations (excluding any Obligations
classified as Current Liabilities).
7.7 FINANCIAL INFORMATION. Maintain a standard system of accounting
in accordance with GAAP and furnish to Bank the following:
(a) SEC REPORTING. As soon as made available to the Securities
and Exchange Commission or Borrower's shareholders, but no later than 45
days after each quarter end as to 10-Qs and 90 days after each fiscal year
end as to 10-Ks, copies of all 10-Q and 10-K filings;
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and, in
any event, within 90 days after the end of each fiscal year, a copy of the
consolidated balance sheet, consolidated statement of income, consolidated
statement of shareholders' equity, and consolidated statement of cash flow
of Borrower for such year, setting forth in each case, in comparative form,
corresponding figures from the preceding annual statements, each audited by
independent certified public accountants of recognized standing selected by
Borrower and satisfactory to
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<PAGE>
Bank certifying that such statement is complete and correct, fairly
presents without qualification the financial condition of Borrower for
such period, is prepared in accordance with GAAP, and has been audited
in conformity with generally accepted auditing standards;
(c) QUARTERLY FINANCIAL STATEMENTS. As soon as available and,
in any event, within 45 days after the end of each except the last fiscal
quarter of each fiscal year, a copy of the consolidated statement of income
of Borrower for the quarter and for the current fiscal year through such
quarter, identifying as a separate item (through the fourth quarter
following the EMASS Acquisition) the amount of noncash writeoff of research
and development expense relating to the EMASS Acquisition, as determined
within 120 days of the execution of this Agreement, and for each such
quarter a copy of the consolidated balance sheet, consolidated statement of
shareholders' equity, and consolidated statement of cash flow of Borrower
as of the end of such quarter, setting forth, in each case, in comparative
form, figures for the corresponding period of the preceding fiscal year,
all in reasonable detail and satisfactory in scope to Bank, prepared under
the supervision of the chief accounting officer of Borrower, and in form
and substance satisfactory to Bank;
(d) OTHER CERTIFICATES. Together with the delivery of the
financial statements required by Subsections 7.7(c) and7.7(b), a
certificate of the chief accounting officer of Borrower, in the form of
Exhibit C attached;
(e) PROJECTIONS. Annually, within 90 days of each fiscal year
end, consolidated financial projections of Borrower for the fiscal year
then beginning, in form satisfactory to Bank; and
(f) ADDITIONAL FINANCIAL INFORMATION. As soon as available and,
in any event, within ten days after request, such other data, information,
or documentation as Bank may reasonably request.
7.8 MAINTENANCE OF EXISTENCE. Preserve and maintain its existence,
powers, and privileges in the jurisdiction of its formation, and qualify and
remain qualified in each jurisdiction in which its presence is necessary or
desirable in view of its business, operations, or ownership of its property.
Borrower shall also maintain and preserve all of its property which is necessary
or useful in the proper course of its business, in good working order and
condition, ordinary wear and tear excepted.
7.9 BOOKS AND RECORDS. Keep accurate and complete books, accounts,
and records in which complete entries shall be made in accordance with GAAP,
reflecting all financial transactions of Borrower.
7.10 ACCESS TO PREMISES AND RECORDS. At all reasonable times and as
often as Bank may reasonably request, permit any authorized representative
designated by Bank to have access to the premises, property, and financial
records of Borrower, including all records relating to the finances, operations,
and procedures of Borrower, and to make copies of or abstracts from such
records. Borrower shall specifically permit Bank to make a full collateral
examination of Borrower within 90 days of the execution of this Agreement.
7.11 NOTICE OF EVENTS. Furnish Bank prompt written notice of:
(a) PROCEEDINGS. Any proceeding instituted by or against
Borrower in any court or before any commission or regulatory body, or any
proceeding threatened against it in writing by any governmental agency
which if adversely determined would have a material adverse effect on
Borrower's business, property, or financial condition, or where the amount
involved is $250,000 or more and not covered by insurance;
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<PAGE>
(b) MATERIAL DEVELOPMENT. Any material development in any such
proceeding referred to in Subsection 7.11(a);
(c) DEFAULTS. Any accident, event, or condition which is or,
with notice or lapse of time or both, would constitute a Default, or a
default under any other agreement to which Borrower is a party; and
(d) ADVERSE EFFECT. Any other action, event, or condition of
any nature which could result in a material adverse effect on the business,
property, or financial condition of Borrower.
7.12 PAYMENT OF DEBTS AND TAXES. Pay each Debt greater than $100,000
and perform all material obligations promptly and in accordance with their
terms, and pay and discharge promptly all taxes, assessments, and governmental
charges or levies imposed upon Borrower, its property, or revenues prior to the
date on which penalties attach thereto, as well as all lawful claims for labor,
material, supplies, or otherwise which, if unpaid, might become a lien or charge
upon Borrower's property. Borrower shall not, however, be required to pay or
discharge any such tax, assessment, charge, levy, or claim so long as its
enforceability, amount, or validity is contested in good faith by appropriate
proceedings.
7.13 INSURANCE. Maintain commercially adequate levels of coverage with
financially sound and reputable insurers, including, without limitation:
(a) PROPERTY INSURANCE. Insurance on all property of a
character usually insured by organizations engaged in the same or similar
type of business as Borrower against all risks, casualties, and losses
through extended coverage or otherwise and of the kind customarily insured
against by such organizations, with such policy or policies covering
tangible collateral to name Bank as loss payee, as its interests may
appear;
(b) LIABILITY INSURANCE. Public liability insurance against
tort claims which may be asserted against Borrower; and
(c) ADDITIONAL INSURANCE. Such other insurance as may be
required by law.
7.14 SUBSIDIARY GUARANTIES. Upon creation or acquisition of any
Significant Subsidiary (including but not limited to EMASS, Inc., but excluding
all subsidiaries of EMASS, Inc., whether or not such subsidiary would otherwise
be deemed a Significant Subsidiary pursuant to Section 1.35), such Significant
Subsidiary shall immediately provide Bank with a guaranty of the Obligations, in
substantially the form of Exhibit D attached, together with an acceptable
resolution of such Significant Subsidiary's board of directors authorizing such
guaranty. A Foreign Subsidiary which becomes a Significant Subsidiary shall
only be required to provide such a guaranty and resolution if Bank so requests,
in writing. Borrower authorizes Bank to release to any present or future
guarantor all information Bank possesses concerning Borrower or any loans,
credits, or other financial accommodations made to Borrower by Bank. If at any
time a Subsidiary which has provided a guaranty to Bank of the Obligations
ceases to be a Subsidiary or a Significant Subsidiary, Bank shall release the
guaranty of such Subsidiary upon Borrower's request if (a) no Default has
occurred and is continuing, and (b) upon removal of such Subsidiary's financial
results on a pro forma basis from the most recent consolidated financial
statement provided by Borrower to Bank, no Default would have occurred under
Sections 7.2 through 7.6.
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<PAGE>
ARTICLE 8
NEGATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability shall
exist under the Loan Documents, Borrower shall not, without prior written
consent of Bank, which consent shall not be unreasonably withheld:
8.1 DEBT. Create, incur, assume, permit to exist, or otherwise become
committed for any Debt except any:
(a) UNSECURED TRADE CREDIT. Unsecured Trade Credit;
(b) EXISTING OBLIGATIONS. Debt owing to Bank, or in existence
as of this date and disclosed to Bank, and all renewals, modifications, and
extensions thereof;
(c) PURCHASE MONEY FINANCE. Debt incurred to finance the
acquisition of fixed assets, subject to other restrictions of this
Agreement;
(d) LEASE AGREEMENTS. Debt incurred in connection with capital
leases calling for payments in the aggregate not exceeding $250,000 in any
one fiscal year; and
(e) ORDINARY COURSE. Debt incurred in the ordinary course of
business and appearing on the liability section of the balance sheet of
Borrower, prepared in accordance with GAAP, including, without limitation,
accrued liabilities and taxes payable.
8.2 LIENS AND ENCUMBRANCES. Create, incur, or assume, or agree to
create, incur, or assume any lien, whether consensual or nonconsensual, on any
of its property, or to enter into any lease with respect to any of its property
except:
(a) EXISTING LIENS. Liens in effect as of this date;
(b) PURCHASE MONEY LIENS. Liens securing purchase money finance
of fixed assets, as permitted under Subsection 8.1(c);
(c) LIENS OF BANK. Liens in favor of Bank;
(d) TAX LIENS. Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings; and
(e) INCIDENTAL LIENS. Other liens incidental to the conduct of
its business or the ownership of its property which are not incurred in
connection with the borrowing of money or the obtaining of credit, and
which do not in the aggregate materially impair the value or use of
property.
8.3 GUARANTIES. Assume, guaranty, endorse, become a surety for,
indemnify, or otherwise in any fashion become responsible for, directly or
indirectly, any obligation of any Person, except:
(a) NEGOTIABLE INSTRUMENTS. Endorsements on negotiable
instruments for deposit or collection in the ordinary course of business;
and
(b) PERFORMANCE BONDS. Performance bonds as required in the
ordinary course of Borrower's business.
8.4 NET LOSSES. Incur a net loss for two consecutive fiscal quarters.
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8.5 DISPOSITION OF ASSETS. Sell, transfer, lease, or otherwise assign
or dispose of a substantial portion of its property to any Person, outside the
ordinary course of business.
8.6 MERGERS. Become a party to any merger, consolidation, or like
corporate change, or make any substantial transfer or contribution to, or
material investment in, stock, shares, or licenses of any Person, if any such
merger, investment, or the like is in an amount of $1,000,000 or more.
8.7 WAGE AND HOUR LAWS. Engage in any material violation of the
federal Fair Labor Standards Act or any comparable state wage and hour law.
8.8 ERISA. Engage in any act or omission which would make Borrower
materially liable under ERISA to the Plan, to any of its participants, or to the
Internal Revenue Service.
8.9 DISSOLUTION. Adopt any agreement or resolution for dissolving,
terminating, or substantially altering Borrower's present business activities.
8.10 BUSINESS ACTIVITIES. Engage or enter into any activity which is
unusual to Borrower's existing business.
8.11 PERMITTED INVESTMENTS. Make any investment outside the ordinary
course of Borrower's business, except:
(a) the EMASS Acquisition; and
(b) cash acquisitions of businesses if (i) both before and after
such acquisition no Default has occurred or shall occur as a result
thereof, (ii) Borrower provides to Bank notice of such acquisition no later
than five days after the closing of such acquisition, and (iii) such
acquisition(s), together with all other acquisitions made during the 12
calendar months then ending (excluding the EMASS Acquisition), do not
exceed 10% of Borrower's Tangible Net Worth as reported on Borrower's most
recent quarterly or annual financial statement.
ARTICLE 9
EVENTS AND CONSEQUENCES OF DEFAULT
9.1 EVENTS OF DEFAULT. Any of the following events shall, at the
option of Bank and at any time without regard to any previous knowledge on the
part of Bank, constitute a default by Borrower under the terms of this
Agreement, the Notes, and all other Loan Documents ("Default"):
(a) NONPAYMENT. Any payment or reimbursement due or demanded
under this Agreement or any Loan Document is not made within five days of
the date when due;
(b) BREACH OF WARRANTY. Any representation or warranty made in
connection with this Agreement or any other Loan Document, or any
certificate, notice, or report furnished pursuant hereto, is determined by
Bank to be false in any material respect when made, and is relied upon by
Bank to its detriment, or any of Borrower's representations regarding the
"year 2000 problem" cease to be true, whether or not true when made, and as
a result Bank reasonably believes that Borrower's financial condition or
its ability to pay its debts as they come due will thereby be materially
impaired;
(c) FAILURE TO PERFORM. Any other term, covenant, or agreement
contained in any Loan Document is not performed or satisfied, and, if
remediable, such failure continues unremedied for 30 days after written
notice thereof has been given to Borrower by Bank;
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<PAGE>
(d) DEFAULTS ON OTHER OBLIGATIONS. There exists a default in
the performance of any other agreement or obligation for the payment of
borrowed money, for the deferred purchase price of property or services, or
for the payment of rent under any lease, whether by acceleration or
otherwise, which obligation exceeds $100,000, and which would permit such
obligation to be declared due and payable prior to its stated maturity; and
such default continues for 30 days after Borrower receives written notice
thereof from the creditor so affected;
(e) GUARANTIES. Any guarantor of all or any portion of the
Obligations revokes or attempts to revoke such guaranty, whether with
respect to future transactions or outstanding Obligations, or otherwise
breaches the terms and conditions of such guaranty;
(f) LOSS, DESTRUCTION, OR CONDEMNATION OF PROPERTY. A portion
of Borrower's property is affected by any uninsured loss, damage,
destruction, theft, sale, or encumbrance other than created herein or is
condemned, seized, or appropriated, the effect of which materially impairs
Borrower's financial condition or its ability to pay its debts as they come
due;
(g) ATTACHMENT PROCEEDINGS AND INSOLVENCY. Borrower or any of
Borrower's property is affected by any:
(i) Judgment lien, execution, attachment, garnishment,
general assignment for the benefit of creditors, sequestration, or
forfeiture, to the extent Borrower's financial condition or its
ability to pay its debts as they come due is thereby materially
impaired; or
(ii) Proceeding under the laws of any jurisdiction
relating to receivership, insolvency, or bankruptcy, whether
brought voluntarily or involuntarily by or against Borrower,
including, without limitation, any reorganization of assets,
deferment or arrangement of debts, or any similar proceeding,
and, if such proceeding is involuntarily brought against
Borrower, it is not dismissed within 60 days;
(h) JUDGMENTS. Final judgment on claims not covered by
insurance which, together with other outstanding final judgments against
Borrower, exceeds $250,000, and which materially impairs Borrower's
financial condition or its ability to pay its debts as they come due, is
rendered against Borrower and is not discharged, vacated, or reversed, or
its execution stayed pending appeal, within 60 days after entry, or is not
discharged within 60 days after the expiration of such stay; or
(i) GOVERNMENT APPROVALS. Any governmental approval,
registration, or filing with any governmental authority, now or later
required in connection with the performance by Borrower of its obligations
under the Loan Documents, is revoked, withdrawn, or withheld, or fails to
remain in full force and effect, except Borrower shall have 60 days after
notice of any such event to take whatever action is necessary to obtain all
necessary approvals, registrations, and filings.
9.2 REMEDIES UPON DEFAULT. If any Default occurs and is continuing,
Bank may at its option, by notice to Borrower:
(a) TERMINATE COMMITMENTS. Terminate Bank's commitment to make
Advances and to advance the Term Loan;
(b) SUSPEND COMMITMENTS. Refuse to make further Advances or to
advance the Term Loan until any Default has been cured;
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<PAGE>
(c) ACCELERATE. Declare any one or more of the Notes, together
with all accrued interest, to be immediately due and payable without
presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived by Borrower;
(d) SETOFF. Exercise its right of setoff against deposit
accounts of Borrower with Bank; and/or
(e) ALL REMEDIES. Pursue any other available legal and
equitable remedies.
All of Bank's rights and remedies in all Loan Documents shall be cumulative and
can be exercised separately or concurrently.
ARTICLE 10
MISCELLANEOUS
10.1 MANNER OF PAYMENTS.
(a) PAYMENTS ON NONBUSINESS DAYS. Whenever any event is to
occur or any payment is to be made under any Loan Document on any day other
than a Business Day, such event may occur or such payment may be made on
the next succeeding Business Day and such extension of time shall be
included in computation of interest in connection with any such payment.
(b) PAYMENTS. All payments and prepayments to be made by
Borrower shall be made to Bank when due, at Bank's office as may be
designated by Bank, without offsets or counterclaims for any amounts
claimed by Borrower to be due from Bank, in U.S. dollars and in immediately
available funds.
(c) APPLICATION OF PAYMENTS. All payments made by Borrower
shall be applied first against fees, expenses, and indemnities due; second,
against interest due; and third, against principal, with Bank having the
right, after a Default which is continuing, to apply any payments or
collections received against any one or more of the Obligations in any
manner which Bank may choose.
(d) RECORDING OF PAYMENTS. Bank is authorized to record on a
schedule or computer-generated statement the date and amount of each
Advance, all conversions between interest rate options, and all payments of
principal and interest. All such schedules or statements, absent manifest
error, shall constitute PRIMA FACIE evidence of the accuracy of the
information so recorded.
10.2 NOTICES. Bank may make Advances and conversions between interest
rates based on telephonic, telex, and oral requests made by any Person whom Bank
in good faith believes to be authorized to act on behalf of Borrower. All other
notices, demands, and other communications to be given pursuant to any of the
Loan Documents shall be in writing and shall be deemed received the earlier of
when actually received, or two days after being mailed, postage prepaid and
addressed as follows, or as later designated in writing:
BANK: BORROWER:
SEAFIRST BANK ADVANCED DIGITAL INFORMATION
Western Wholesale Team 2 CORPORATION
10500 N.E. 8th Street, 5th Floor 11431 Willows Road N.E.
Bellevue, WA 98004 Redmond, WA 98052
Attention: William P. Stivers Attention: Leslie S. Rock
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<PAGE>
10.3 DOCUMENTATION AND ADMINISTRATION EXPENSES. Borrower shall pay,
reimburse, and indemnify Bank for all of Bank's reasonable costs and expenses,
including, without limitation, all accounting, appraisal, and report preparation
fees or expenses, all reasonable attorneys' fees (including the allocated cost
of in-house counsel), legal expenses, and recording or filing fees, incurred in
connection with the negotiation, preparation, execution, and administration of
this Agreement and all other Loan Documents, and all amendments, supplements, or
modifications thereto, and the perfection of all security interests, liens, or
encumbrances that may be granted to Bank; PROVIDED, that Borrower shall not be
required to reimburse Bank for more than $1,000 of Bank's legal fees and other
documentation fees for initial documentation of the facility represented by this
Agreement. Borrower acknowledges that any legal counsel retained or employed by
Bank acts solely on the Bank's behalf and not on Borrower's behalf, despite
Borrower's obligation to reimburse Bank for the cost of such legal counsel, and
that Borrower has had sufficient opportunity to seek the advice of its own legal
counsel with regard to this Agreement.
10.4 COLLECTION EXPENSES. The nonprevailing party shall, upon demand
by the prevailing party, reimburse the prevailing party for all of its costs,
expenses, and reasonable attorneys' fees (including the allocated cost of
in-house counsel) incurred in connection with any controversy or claim
between said parties relating to this Agreement or any of the other Loan
Documents, or to an alleged tort arising out of the transactions evidenced by
this Agreement, including those incurred in any action, bankruptcy
proceeding, arbitration or other alternative dispute resolution proceeding,
or appeal, or in the course of exercising any judicial or nonjudicial
remedies.
10.5 WAIVER. No failure to exercise and no delay in exercising, on the
part of Bank, any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power, or privilege. Further, no waiver or
indulgence by Bank of any Default shall constitute a waiver of Bank's right to
declare a subsequent similar failure or event to be a Default.
10.6 ASSIGNMENT. This Agreement is made expressly for the sole benefit
of Borrower and for the protection of Bank and its successors and assigns. The
rights of Borrower hereunder shall not be assignable by operation of law or
otherwise, without the prior written consent of Bank.
10.7 MERGER. The rights and obligations set forth in this Agreement
shall not merge into or be extinguished by any of the Loan Documents, but shall
continue and remain valid and enforceable. This Agreement and the other Loan
Documents constitute Bank's entire agreement with Borrower with regard to the
Revolving Loan and the Term Loan, and supersede all prior writings and oral
negotiations. No oral or written representation, covenant, commitment, waiver,
or promise of either Bank or Borrower shall have any effect, whether made before
or after the date of this Agreement, unless contained in this Agreement or
another Loan Document, or in an amendment complying with Section 10.8. ORAL
AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
10.8 AMENDMENTS. Any amendment or waiver of, or consent to any
departure by Borrower from any provision of, this Agreement shall be in writing
signed by each party to be bound thereby, and shall be effective only in the
specific instance and for the specific purpose for which given.
10.9 MANDATORY ARBITRATION.
(a) At the request of either Bank or Borrower, any controversy
or claim between Bank and Borrower, arising from or relating to this
Agreement or any of the other Loan Documents, or arising from an alleged
tort, shall be settled by arbitration in Seattle, Washington. The United
States Arbitration Act shall apply even though this Agreement is otherwise
governed by Washington law. The proceedings shall be administered by the
American Arbitration Association under its commercial rules of arbitration.
Any controversy
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<PAGE>
over whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in
any court having jurisdiction over the parties. The institution and
maintenance of an action for judicial relief or pursuit of an ancillary
or provisional remedy shall not constitute a waiver of the right of
either party, including the plaintiff, to submit the controversy or
claim to arbitration if such action for judicial relief is contested.
For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this subsection is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this subsection is subject to any applicable statute of
limitations. The arbitrator(s) will have the authority to decide
whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis. The
parties consent to the joinder of any guarantor, hypothecator, or other
party having an interest relating to the claim or controversy being
arbitrated in any proceedings under this Section.
(b) No provision of this subsection shall limit the right of
Borrower or Bank to exercise self-help remedies such as set-off,
foreclosure, retention or sale of any collateral, or obtaining any
ancillary, provisional, or interim remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration
proceeding. The exercise of any such remedy does not waive the right of
either party to request arbitration.
10.10 CONSTRUCTION. Each term of this Agreement and each Loan Document
shall be binding to the extent permitted by law and shall be governed by the
laws of the State of Washington, excluding its conflict of laws rules. If one
or more of the provisions of this Agreement should be invalid, illegal, or
unenforceable in any respect, the remaining provisions of this Agreement shall
remain effective and enforceable. If there is a conflict among the provisions
of any Loan Documents, the provisions of this Agreement shall be controlling.
The captions and organization of this Agreement are for convenience only, and
shall not be construed to affect any provision of this Agreement.
DATED August 17, 1998.
BORROWER: BANK:
ADVANCED DIGITAL INFORMATION SEAFIRST BANK
CORPORATION
By /s/ Leslie S. Rock By /s/ William P. Stivers
-------------------------------- --------------------------------
Title Treasurer Title Vice President
----------------------------- -----------------------------
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 22,291
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0
0
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</TABLE>
