FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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.: 0-15641
AMPLICON, INC.
(Exact name of registrant as specified in charter)
California 95-3162444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Hutton Centre Dr., Ste. 500
Santa Ana, California 92707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 751-7551
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
The number of shares outstanding of the registrant's Common Stock,
par value $.005 per share, as of January 30, 1998 was 11,806,318.
<PAGE>
AMPLICON, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets - December 31, 1997
(unaudited) and June 30, 1997 3
Statements of Earnings - Three months
and six months ended December 31, 1997 and 1996
(unaudited) 4
Statements of Cash Flows - Six months
ended December 31, 1997 and 1996 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
<PAGE>
AMPLICON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
December 31, June 30,
ASSETS 1997 1997
- ------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 16,781,000 $ 5,780,000
Investment securities 1,247,000 -0-
Net receivables 75,635,000 87,743,000
Inventories, primarily customer
deliveries in process 801,000 1,558,000
Net investment in capital leases 105,728,000 103,961,000
Net equipment on operating leases -0- 2,000
Other assets 1,226,000 1,189,000
Discounted lease rentals assigned
to lenders 291,112,000 291,222,000
------------ ------------
$492,530,000 $491,455,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ -0- $ 10,000,000
Accounts payable 22,593,000 27,609,000
Accrued liabilities 7,382,000 5,929,000
Customer deposits 10,391,000 7,872,000
Nonrecourse debt 256,584,000 258,577,000
Deferred interest income 34,528,000 32,645,000
Net deferred income 5,989,000 4,019,000
Income taxes payable, including
deferred taxes 28,879,000 27,050,000
------------ ------------
366,346,000 373,701,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock 2,500,000 shares
authorized; none issued -0- -0-
Common stock; $.005 par value;
40,000,000 shares authorized;
11,802,718 and 11,752,518 issued
and outstanding, as of
December 31, 1997 and
June 30, 1997, respectively 59,000 59,000
Additional paid in capital 6,517,000 6,110,000
Retained earnings 119,608,000 111,585,000
Investment securities valuation
adjustment -0- -0-
------------ ------------
126,184,000 117,754,000
------------ ------------
$492,530,000 $491,455,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AMPLICON, INC.
STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales of equipment $ 71,072 $ 65,026 $140,823 $122,163
Interest income 10,879 8,989 20,930 17,764
Investment income 89 184 179 301
Rental income 146 233 292 661
-------- -------- -------- --------
82,186 74,432 162,224 140,889
-------- -------- -------- --------
Costs:
Cost of equipment sold 63,959 57,884 127,667 109,499
Interest expense on
nonrecourse debt 5,116 4,769 10,290 9,405
Depreciation of equipment
on operating leases 2 59 5 93
-------- -------- -------- --------
69,077 62,712 137,962 118,997
-------- -------- -------- --------
Gross profit 13,109 11,720 24,262 21,892
Selling, general and
administrative expenses 4,826 5,308 9,387 10,211
Interest expense-other 18 69 56 96
-------- -------- -------- --------
Earnings before income taxes 8,265 6,343 14,819 11,585
Income taxes 3,264 2,506 5,853 4,576
-------- -------- -------- --------
Net earnings $ 5,001 $ 3,837 $ 8,966 $ 7,009
======== ======== ======== ========
Basic earnings per common
share $ .42 $ .33 $ .76 $ .60
======== ======== ======== ========
Diluted earnings per common
share $ .40 $ .32 $ .73 $ .59
======== ======== ======== ========
Weighted average number of
common shares outstanding 11,799 11,669 11,783 11,670
======== ======== ======== ========
Diluted number of common
shares outstanding 12,360 11,982 12,311 11,951
======== ======== ======== ========
Dividends declared per
common share outstanding $ .04 $ .025 $ .08 $ .05
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AMPLICON, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,966,000 $ 7,009,000
Adjustments to reconcile net earnings
to cash flows (used for) provided by
operating activities:
Depreciation 5,000 73,000
Sales or lease of equipment previously
on operating leases, net -0- 20,000
Interest accretion of estimated
unguaranteed residual values ( 2,806,000) ( 2,207,000)
Estimated unguaranteed residual values
recorded on leases ( 5,605,000) ( 5,163,000)
Interest accretion of net deferred
income ( 1,934,000) ( 1,908,000)
Increase in net deferred income 3,904,000 2,232,000
Net increase in income taxes payable,
including deferred taxes 1,829,000 4,385,000
Net decrease (increase) in net
receivables 12,108,000 ( 16,710,000)
Net decrease in inventories 757,000 1,530,000
Net (decrease) increase in accounts
payable and accrued liabilities ( 3,563,000) 11,329,000
------------ ------------
Net cash provided by operating
activities 13,661,000 590,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale
securities ( 75,066,000) ( 130,079,000)
Proceeds from sale of
available-for-sale securities 73,819,000 130,263,000
Net decrease (increase) in minimum
lease payments receivable 1,254,000 ( 5,111,000)
Purchase of equipment on operating
leases ( 3,000) ( 58,000)
Net increase in other assets ( 37,000) ( 16,000)
Decrease in estimated unguaranteed
residual values 5,390,000 5,287,000
------------ ------------
Net cash provided by investing
activities 5,357,000 286,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable to bank ( 10,000,000) -0-
Increase in customer deposits 2,519,000 1,332,000
Purchase of common stock -0- ( 82,000)
Dividends to stockholders ( 943,000) ( 583,000)
Proceeds from exercise of stock options 407,000 37,000
------------ ------------
Net cash (used for) provided by financing
activities ( 8,017,000) 704,000
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 11,001,000 1,580,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 5,780,000 8,614,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 16,781,000 $ 10,194,000
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Decrease) increase in lease rentals
assigned to lenders and related
nonrecourse debt ($ 1,993,000) $ 1,008,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 56,000 $ 96,000
============ ============
Income taxes $ 4,024,000 $ 191,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1- BASIS OF PRESENTATION
- -----------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest Annual Report on
Form 10-K.
In the opinion of management, the unaudited financial statements contain
all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the balance sheet as of December 31,
1997 and the statements of earnings and cash flows for the three and six
month periods ended December 31, 1997 and 1996. The results of operations
for the six month period ended December 31, 1997 are not necessarily
indicative of the results of operations to be expected for the entire
fiscal year ending June 30, 1998.
Leases
------
Effective January 1, 1997, the Company has adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125").
Under the requirements set forth in SFAS No. 125, the Company has
accounted for qualifying transfers of financial assets occurring on or
after January 1, 1997 by derecognizing all assets sold.
Common Stock
------------
On September 12, 1997, the Company's Board of Directors announced a
2-for-1 Common Stock split to be effected on October 17, 1997, to
stockholders of record as of September 26, 1997. These financial
statements have been adjusted to reflect this stock split.
NOTE 2- BALANCE SHEET
- ---------------------
At December 31, 1997, deferred interest income of $34,528,000 is offset
by deferred interest expense related to the Company's discounted lease
rentals assigned to lenders of $34,528,000.
NOTE 3- EARNINGS PER SHARE
- --------------------------
Effective with the interim period ending December 31, 1997, the Company
has adopted Statement of Financial Accounting Standards No. 128 "Earnings
per Share" ("SFAS No. 128"). SFAS No. 128 adopts a simpler calculation
methodology for determining the number of shares outstanding.
Accordingly, the earnings per share calculations for the three and six
months ended December 31, 1996 were restated to the current standard. The
difference between weighted and diluted number of common shares
outstanding is the dilutive effect of stock options. Net income remains
the same in both calculations of earnings per share.
6
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Three Months Ended December 31, 1997 and 1996
- ---------------------------------------------
REVENUES. Total revenues for the three months ended December 31,
1997 were $82,186,000, an increase of $7,754,000 or 10% as compared to
the three months ended December 31, 1996. The increase from the prior
year was primarily the result of increases in sales of equipment. Sales
of equipment increased by $6,046,000 or 9% to $71,072,000 in the quarter
ended December 31, 1997 as compared to $65,026,000 in the quarter ended
December 31, 1996. The increase in sales of equipment was primarily due
to the increased volume of new lease transactions. Interest income for
the quarter ended December 31, 1997 increased by $1,890,000 or 21% to
$10,879,000 as compared to $8,989,000 in the same quarter in the prior
year. The three months ended December 31, 1997 and 1996 included amounts
of $5,116,000 and $4,769,000, respectively, of interest income on
discounted lease rentals assigned to lenders (which is offset by interest
expense on nonrecourse debt). For the three months ended December 31,
1997, interest income, net of interest expense on discounted lease
rentals assigned to lenders, increased by $1,543,000 or 37% to
$5,763,000 as compared to $4,220,000 for the three months ended December
31, 1996. This increase is primarily the result of increased accretion of
deferred income and higher interest income realized from a larger
investment in lease receivables and residual values during the period.
Investment income decreased by $95,000, or 52%, to $89,000 as compared to
$184,000 for the same period in the prior year. This decrease can be
attributed to lower cash balances invested in securities during the three
months ended December 31, 1997. Rental income decreased by $87,000 to
$146,000 in the three months ended December 31, 1997, compared to
$233,000 for the three months ended December 31, 1996.
GROSS PROFIT. Gross profit for the quarter ended December 31, 1997
of $13,109,000 increased by $1,389,000 or 12% as compared to $11,720,000
for the quarter ended December 31, 1996. As a percent of total revenues,
gross margin increased to 16.0% in the three months ended December 31,
1997 as compared to 15.7% in the same period in the prior year. The
principal factors which contributed to increased gross profit were higher
net interest income, offset somewhat by a decrease in income recognized
from lease extensions and sales of lease property.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of total revenues were 5.9% and
7.1% for the quarters ended December 31, 1997 and 1996, respectively.
Selling, general and administrative expenses decreased by $482,000 or 9%
primarily due to reduction in legal and general office expenses as well
as no increases in salaries and benefits.
TAXES. The Company's tax rate was 39.5% for the quarters ended
December 31, 1997 and 1996, representing its estimated annual tax rate
for the years ending June 30, 1998 and 1997.
Six Months Ended December 31, 1997 and 1996
- -------------------------------------------
REVENUES. Total revenues for the six months ended December 31, 1997
were $162,224,000, an increase of $21,335,000 or 15% as compared to the
six months ended December 31, 1996. The increase from the prior year was
primarily the result of increases in sales of equipment. Sales of
equipment increased by $18,660,000 or 15% to $140,823,000 in the six
months ended December 31, 1997 as compared to $122,163,000 in the same
period ended December 31, 1996. The increase in sales of equipment was
primarily due to the increased volume of new lease transactions.
Interest income for the six months ended December 31,1997 increased by
$3,166,000 or 18% to $20,930,000 as compared to $17,764,000 in the same
period in the prior year. The six months ended December 31, 1997 and
1996 included amounts of $10,290,000 and $9,405,000, respectively, of
interest income on discounted lease rentals assigned to lenders (which is
offset by interest expense on nonrecourse debt). For the six months
ended December 31, 1997, interest income, net of interest expense on
discounted lease rentals assigned to lenders, increased by $2,281,000 or
27% to $10,640,000 as compared to $8,359,000 for the six months ended
December 31, 1996. This increase is the result of increased interest
income earned from lease receivables, greater accretion of deferred
income and higher interest income realized from a larger investment in
residual values.
(continued)
7
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUES (continued). Investment income decreased by $122,000 or 41%
to $179,000 as compared to $301,000 for the same period in the prior
year. This decrease can be attributed to a lower investment in securities
during the six months ended December 31, 1997. Rental income decreased by
$369,000 or 56% to $292,000 in the six months ended December 31, 1997 as
compared to $661,000 for the six months ended December 31, 1996 due to a
decrease in the number of short-term lease renewals.
GROSS PROFIT. Gross profit for the six months ended December 31,
1997 of $24,262,000 increased by $2,370,000 or 11% as compared to
$21,892,000 for the six months ended December 31, 1996. The improvement
is attributable to the strong increase in net interest income.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, as a percentage of total revenues, were 5.8% and
7.2% for the six months ended December 31, 1997 and 1996, respectively.
Selling, general and administrative expenses decreased by $824,000 or 8%
primarily due to a reduction in legal and general office expenses as well
as no increase in salary and benefits.
TAXES. The Company`s tax rate was 39.5% for the six months ended
December 31, 1997 and 1996, respectively, representing its estimated
annual tax rate for the years ending June 30, 1998 and 1997.
Financial and Capital Resources
- -------------------------------
The Company funds its operating activities through nonrecourse debt
and internally generated funds. Capital expenditures for equipment
purchases are primarily financed by assigning the lease payments to banks
or other financial institutions which are discounted at fixed rates such
that the lease payments are sufficient to fully amortize the aggregate
outstanding debt. The Company generally does not purchase property until
it has received a noncancelable lease from its customer and has
determined that the lease can be discounted on a nonrecourse basis. At
December 31, 1997, the Company had outstanding nonrecourse debt
aggregating $256,584,000 relating to property under capital and operating
leases. In the past, the Company has been able to obtain adequate
nonrecourse funding commitments, and the Company believes it will be able
to do so in the future.
From time to time, the Company retains leases in its own portfolio
rather than assigning the leases to financial institutions. During the
six months ended December 31, 1997, the Company's net investment in
leases held in its own portfolio decreased by $1,254,000 from June 30,
1997. This decrease was primarily due to fewer new lease transactions
being held in its own portfolio.
The Company generally funds its equity investments in leased
equipment and interim equipment purchases with internally generated
funds, and if necessary, borrowings under a $20,000,000 general line of
credit. At December 31, 1997, the Company did not have any borrowings
outstanding on this line of credit.
In November 1990, the Board of Directors authorized management, at
its discretion to repurchase up to 300,000 shares of the Company's Common
Stock. Under this authorization 55,678 shares remain available for
repurchase.
The need for cash used for operating activities will continue to
grow as the Company expands. The Company believes that existing cash
balances, cash flows from operations, cash flows from its financing
activities, available borrowings under its existing credit facility, and
assignments (on a nonrecourse basis) of anticipated lease payments will
be sufficient to meet its foreseeable financing needs.
Inflation has not had a significant impact upon the operations of
the Company.
8
<PAGE>
AMPLICON, INC.
PAGE
PART II - OTHER INFORMATION NUMBER
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.19 Business Loan Agreement, dated as of December 23, 1997,
between the Company and Bank of America. 11-26
(b) 8-K Reports
-----------
There were no reports on Form 8-K for the three months ended
December 31, 1997.
9
<PAGE>
AMPLICON, INC.
SIGNATURE
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.
AMPLICON, INC.
Registrant
DATE: February 6, 1998 BY: S. Leslie Jewett/s/
-------------------
S. Leslie Jewett
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000803016
<NAME> AMPLICON, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 16,781
<SECURITIES> 1,247
<RECEIVABLES> 139,443
<ALLOWANCES> 1,695
<INVENTORY> 801
<CURRENT-ASSETS> 0
<PP&E> 2,331
<DEPRECIATION> 1,361
<TOTAL-ASSETS> 492,530
<CURRENT-LIABILITIES> 69,245
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 126,125
<TOTAL-LIABILITY-AND-EQUITY> 492,530
<SALES> 140,823
<TOTAL-REVENUES> 162,224
<CGS> 127,667
<TOTAL-COSTS> 137,962
<OTHER-EXPENSES> 9,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 14,819
<INCOME-TAX> 5,853
<INCOME-CONTINUING> 8,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,966
<EPS-PRIMARY> .76
<EPS-DILUTED> .73
</TABLE>
Bank of America Business Loan Agreement
National Trust and Savings Association
- ----------------------------------------------------------------
This Agreement dated as of __December 23___, 1997, is between
Bank of America National Trust and Savings Association (the
"Bank") and Amplicon, Inc. (the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount
of the line of credit (the "Commitment") is Twenty Million
Dollars ($20,000,000).
(b) This is a revolving line of credit with a term repayment
option and with a within line facility for letters of credit.
During the availability period, the Borrower may repay
principal amounts and reborrow them.
(c) Each advance must be for at least One Hundred Thousand
Dollars ($100,000), or for the amount of the remaining
available line of credit, if less.
(d) The Borrower agrees not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts
of any letters of credit, including amounts drawn on letters
of credit and not yet reimbursed, to exceed the Commitment.
1.2 Availability Period. The line of credit is available between
the date of this Agreement and December 31, 1999 (the "Expiration
Date") unless the Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference
Rate plus the percentage points indicated for each period
specified below:
Period Percentage Points
------ -----------------
During the
availability period zero (0)
During the term
repayment period defined one-quarter
in Paragraph 1.4(c) below of one (.25)
(b) The Reference Rate is the rate of interest publicly
announced from time to time by the Bank in San Francisco,
California, as its Reference Rate. The Reference Rate is
set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions
and other factors, and is used as a reference point for
pricing some loans. The 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 Bank's Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on January 1, 1998, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
-11-
<PAGE>
(b) Subject to Paragraph 1.4(c) below, the Borrower will repay
in full all principal and any interest and other charges
outstanding under this line of credit no later than the
Expiration Date.
(c) If on or before the Expiration Date the Borrower provides
the Bank with a first-priority perfected security interest
in the collateral described in Paragraph 3 of this Agreement
under documentation in form and substance reasonably
satisfactory to the Bank as security for the obligations
under this Agreement, the Borrower will have the option to
repay the principal amount outstanding on the Expiration
Date in three (3) successive equal quarterly installments
starting April 1, 2000, each in an amount equal to one-
eighth of the principal amount due outstanding on the
Expiration Date, and an additional installment equal to the
then outstanding principal balance payable on December 31,
2000, at which time all principal and interest remaining
unpaid will be due and payable.
(d) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote
payment of principal due under this Agreement.
1.5 Mandatory Prepayments. The Borrower shall prepay outstandings
under the line of credit with the proceeds of any refinancings
of debt permitted under Paragraph 7.7(e) below as and when such
proceeds are received by the Borrower.
1.6 Optional Interest Rates. Instead of the interest rate based
on the Bank's Reference Rate, the Borrower may elect to have all
or portions of the line of credit (during the availability
period and during the term repayment period) bear interest at the
rate(s) described below during an interest period agreed to by
the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period,
and if the interest period is longer than 30, then on the first
day each month during the interest period. At the end of any
interest period, the interest rate will revert to the rate based
on the Reference Rate, unless the Borrower has designated another
optional interest rate for the portion.
1.7 Offshore Rate. The Borrower may elect to have all or
portions of the principal balance of the line of credit bear
interest at the Offshore Rate plus the number of percentage
points indicated for each period specified below:
Period Percentage Points
------ -----------------
During the
availability period one (1.00)
During the term one and three-
repayment period quarters (1.75)
Designation of an Offshore Rate portion is subject to the
following requirements:
(a) The interest period during which the Offshore Rate will be
in effect will be no shorter than 30 days and no longer than
180 days. The last day of the interest period will be
determined by the Bank using the practices of the offshore
dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less
than Five Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100
of one percent. (All amounts in the calculation will be
determined by the Bank as of the first day of the interest
period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
-12-
<PAGE>
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at which
the Bank's Grand Cayman Branch, Grand Cayman, British
West Indies, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the
offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System
for Eurocurrency Liabilities, as defined in the Federal
Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be
expressed as a decimal, and will include, but not be
limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to
any portion of the principal balance of the line of credit
which is scheduled to be repaid before the last day of the
applicable interest period.
(e) Any portion of the principal balance of the line of credit
already bearing interest at the Offshore Rate will not be
converted to a different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether
voluntary, by reason of acceleration or otherwise, will be
accompanied by the amount of accrued interest on the amount
prepaid, and a prepayment fee equal to the amount (if any)
by which
(i) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last
day of the interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
offshore dollar market for a period starting on the date
on which it was prepaid and ending on the last day of
the interest period for such portion.
(g) The Bank will have no obligation to accept an election for
an Offshore Rate portion if any of the following described
events has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of an Offshore Rate
portion are not available in the offshore dollar inter-
bank markets; or
(ii) the Offshore Rate does not accurately reflect the cost
of an Offshore Rate portion.
1.8 Letters of Credit. This line of credit may be used for
financing:
(i) commercial letters of credit with a maximum maturity
of 365 days but not to extend more than 180 days beyond
the Expiration Date. Each commercial letter of credit
will require drafts payable at sight.
(ii) standby letters of credit with a maximum maturity of
365 days but not to extend more than 180 days beyond
the Expiration Date.
(iii) The amount of the letters of credit outstanding at any
one time, (including amounts drawn on the letters of
credit and not yet reimbursed), may not exceed Two
Million Five Hundred Thousand Dollars ($2,500,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under
this Agreement. The amount will bear interest and be due as
described elsewhere in this Agreement.
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(b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters
of credit.
(c) the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval
and must be in form and content satisfactory to the Bank and
in favor of a beneficiary acceptable to the Bank. Without
limiting the foregoing, no letter of credit may be issued
to support any obligation of the Borrower in connection with
workers' compensation insurance or for credit enhancement.
(d) to sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for
Standby Letter of Credit.
(e) to pay any issuance and/or other fees that the Bank notifies
the Borrower will be charged for issuing and processing
letters of credit for the Borrower.
2. FEES AND ]EXPENSES
2.1 Unused Commitment Fee. The Borrower agrees to pay a fee of
3/8% per annum on any difference between the Commitment and the
amount of credit it actually uses, determined by the weighted
average loan balance maintained during the prior fiscal quarter.
The fee will be calculated as of the end of each fiscal quarter.
This fee is due on January 10, 1998, and on the 10th day of each
following fiscal quarter until the expiration of the availability
period.
2.2 Expenses.
(a) The Borrower agrees to reimburse the Bank for any expenses
it incurs in the preparation of this Agreement and any
agreement or instrument required by this Agreement. Expenses
include, but are not limited to, reasonable attorneys' fees,
including any allocated costs of the Bank's in-house counsel.
(b) The Borrower agrees to reimburse the Bank for the cost of
periodic audits and appraisals of the personal property
collateral securing this Agreement during the term repayment
option, if any, at such intervals as the Bank may reasonably
require. The audits and appraisals may be performed by
employees of the Bank or by independent appraisers.
3. COLLATERAL.
The Borrower's obligations to the Bank during the term repayment
option period, if any, will be secured by leases on the
Borrower's balance sheet identified as net investment in capital
leases and in the equipment leased thereunder in form, substance
and amounts satisfactory to the Bank. The collateral will be
further defined in the security agreements to be executed by the
Borrower.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit. Each request for an extension of credit
will be made in writing in a manner acceptable to the Bank, or by
another means acceptable to the Bank.
4.2 Disbursements and Payments. Each disbursement by the Bank and
each payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by
the Bank from time to time;
(b) made for the account of the Bank's branch selected by the
Bank from time to time;
(c) made in immediately available funds, or such other type of
funds selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the
Bank may, at its discretion, require the Borrower to sign
one or more promissory notes.
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4.3 Telephone Authorization and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for
advances or repayments or for the designation of optional
interest rates and telefax requests for the issuance of
letters of credit given by any one of the individuals
authorized to sign loan agreements on behalf of the
Borrower, or any other individual designated by any one of
such authorized signers.
(b) Advances will be deposited in and repayments will be
withdrawn from the Borrower's account number 12331-56071,
or such other of the Borrower's accounts with the Bank as
designated in writing by the Borrower.
(c) The Borrower will provide written confirmation to the Bank
of any telephone or telefax instructions within 10 days. If
there is a discrepancy and the Bank has already acted on the
telephone or telefax instructions, the telephone
instructions will prevail over the written confirmation.
(d) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss,
and costs in connection with any act resulting from
telephone or telefax instructions it reasonably believes are
made by any individual authorized by the Borrower to give
such instructions. This indemnity and excuse will survive
this Agreement's termination.
4.4 Banking Days. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which
the Bank is open for business in California. For amounts
bearing interest at an offshore rate (if any), a banking day is a
day other than a Saturday or a Sunday on which the Bank is open
for business in California and dealing in offshore dollars. All
payments and disbursements which would be due on a day which is
not a banking day will be due on the next banking day. All
payments received on a day which is not a banking day will be
applied to the credit on the next banking day.
4.5 Taxes. The Borrower will not deduct any taxes from any
payments it makes to the Bank. If any government authority
imposes any taxes on any payments made by the Borrower, the
Borrower will pay the taxes and will also pay to the Bank, at the
time interest is paid, any additional amount which the Bank
specifies as necessary to preserve the after-tax yield the Bank
would have received if such taxes had not been imposed. Upon
request by the Bank, the Borrower will confirm that it has paid
the taxes by giving the Bank official tax receipts (or notarized
copies) within 30 days after the due date. However, the Borrower
will not pay the Bank's net income taxes.
4.6 Additional Costs. The Borrower will pay the Bank, on demand,
for the Bank's costs or losses arising from any statute or
regulation, or any request or requirement of a regulatory agency
which is applicable to all national banks or a class of all
national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable
method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
The Borrower will have 60 days from the receipt of notice of
increased costs from the Bank to determine if it would elect to
terminate this Agreement. During such 60 day period, the
Borrower will not be required to pay any such additional amounts.
If the Borrower terminates this Agreement as a result of such
additional costs, all amounts owing under this Agreement will be
due and payable at the end of such 60 day period, including
principal, interest, fees and any prepayment fees required.
4.7 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the
basis of a 365-day year and the actual number of days elapsed,
provided that computation of interest and fees on all Offshore
Rate portions shall be computed on the basis of a 360-day year
and the actual number of days elapsed. Instalments of principal
which are not paid when due under this Agreement shall continue
to bear interest until paid.
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4.8 Default Rate. Upon the occurrence and during the
continuation of any default under this Agreement, principal
amounts outstanding under this Agreement will at the option of
the Bank bear interest at a rate per annum which is 2.00
percentage point(s) higher than the rate of interest otherwise
provided under this Agreement. This will not constitute a waiver
of any default.
5. CONDITIONS
5.1 Conditions Prior to Any Extension of Credit. The Bank must
receive the following items, in form and content acceptable to
the Bank, before it is required to extend any credit to the
Borrower under this Agreement:
(a) Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
(b) A copy of the Borrower's articles of incorporation.
(c) Any other items that the Bank reasonably requires.
5.2 Conditions to the Borrower's Term Repayment Option. The
Bank must receive the following items, in form and content
acceptable to the Bank, before the effectiveness of the term
repayment option provided in Paragraph 1.4(c) of this
Agreement:
(a) Signed original security agreements between the Bank and the
Borrower, assignments to the Bank of the documents between
the Borrower and its lessees, financing statements and other
documents (together with collateral, if any, in which the
Bank requires a possessory security interest), which the
Bank reasonably requires to obtain and perfect the security
interest described in Paragraph 1.4(c).
(b) Evidence that security interests and liens in favor of the
Bank are valid, enforceable, and prior to all others' rights
and interests, except those the Bank consents to in writing
and except for those interests in equipment that are in
favor of the Borrower's lessees or purchasers of leases
mentioned in Paragraph 6.8 of this Agreement.
6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is
repaid in full, the Borrower makes the following representations
and warranties. Each request for an extension of credit
constitutes a renewed representation.
6.1 Organization of Borrower. The Borrower is a corporation duly
formed and existing under the laws of the state where organized.
6.2 Authorization. This Agreement, and any instrument or
agreement required hereunder, are within the Borrower's powers,
have been duly authorized, and do not conflict with any of its
organizational papers.
6.3 Enforceable Agreement. This Agreement is a legal, valid and
binding agreement of the Borrower, enforceable against the
Borrower in accordance with its terms, and any instrument or
agreement required hereunder, when executed and delivered, will
be similarly legal, valid, binding and enforceable.
6.4 Good Standing. In each state in which the Borrower does
business to the best of Borrower's knowledge, it is properly
licensed, in good standing, and, where required, in compliance
with fictitious name statutes.
6.5 No Conflicts. To the best of Borrower's knowledge, this
Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
6.6 Financial Information. All financial and other information
that has been or will be supplied to the Bank, including the
Borrower's financial statement dated as of September 30, 1997,
is:
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<PAGE>
(a) sufficiently complete to give the Bank accurate knowledge of
the Borrower's financial condition, including all material
contingent liabilities.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there
has been no material adverse change in the assets or the
financial condition of the Borrower.
6.7 Lawsuits. To the best of Borrower's knowledge, there is no
lawsuit, tax claim or other dispute pending or threatened against
the Borrower, which, if lost, would have a material adverse
effect on the Borrower's financial condition or ability to repay
the loan, except as have been disclosed in writing to the Bank.
6.8 Collateral. All collateral required during the term
repayment option of this Agreement is owned by the grantor of the
security interest free of any title defects or any liens or
interests of others other than interests of lessees in equipment
pursuant to the lease agreements between the Borrower and the
Borrower's lessees and interests of purchasers of leases from the
Borrower.
6.9 Permits, Franchises. To the best of Borrower's knowledge,
the Borrower possesses all permits, memberships, franchises,
contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary
to enable it to conduct the business in which it is now engaged.
6.10 Other Obligations. The Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or
obligation, except as have been disclosed in writing to the Bank.
6.11 Income Tax Returns. The Borrower has no knowledge of any
pending assessments or adjustments of its income tax for any
year, except as have been disclosed in writing to the Bank.
6.12 No Event of Default. To the best of Borrower's knowledge,
there is no event which is, or with notice or lapse of time or
both would be, a default under this Agreement.
6.13 ERISA Plans.
(a) The Borrower has fulfilled its obligations, if any, under
the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA
and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any
Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan
under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the
commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes
of this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income Act
of 1974, as amended from time to time.
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<PAGE>
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of
ERISA.
(iv) "Plan" means any employee pension benefit plan
maintained or contributed to by the Borrower and insured
by the Pension Benefit Guaranty Corporation under
Title IV of ERISA.
6.14 Location of Borrower. The Borrower's place of business (or,
if the Borrower has more than one place of business, its chief
executive office) is located at the address listed under the
Borrower's signature on this Agreement.
7. COVENANTS
The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full:
7.1 Use of Proceeds. To use the proceeds of the credit only for
working capital, including the funding of leases.
7.2 Financial Information. To provide the following financial
information and statements and such additional information as
reasonably requested by the Bank from time to time:
(a) Within 100 days of the Borrower's fiscal year end, the
Borrower's annual financial statements. These financial
statements must be audited (with an opinion not qualified
due to possible failure to take all appropriate steps to
successfully address year 2000 system issues) by a
Certified Public Accountant ("CPA") acceptable to the Bank.
The statements shall be prepared on a consolidated basis.
(b) Within 50 days of the period's end, the Borrower's
quarterly financial statements. These financial statements
may be Borrower prepared. The statements shall be prepared
on a consolidated basis.
(c) Copies of the Borrower's Form 10-K Annual Report within 100
days of the fiscal year end, Form 10-Q Quarterly Report and
Form 8-K Current Report within 50 days of the fiscal quarter
end.
(d) Concurrently with delivery of the documents provided for in
Paragraphs 7.2(a) and 7.2(b) above, a certificate of the
chief financial officer of the Borrower stating that, to the
best of his or her knowledge, the Borrower has performed and
observed each and every covenant contained in this Agreement
to be performed by it and that no event of default as
specified in Article 8 of this Agreement has occurred and no
condition exists which constitutes an event of default upon
the giving of notice, the lapse of time, or both, specified
herein; or, if any such event has occurred or any such
condition exists, specifying the nature thereof.
(e) Within 50 days of the end of the first three quarters and
within 100 days of the end of the fourth quarter, a summary
delinquency report as of the end of the quarter.
(f) Within 100 days of the Borrower's fiscal year end, a
financial forecast for the next two fiscal years to include
a balance sheet, income and expense information, and cash
flow, along with the underlying assumptions in the format
previously provided to the Bank.
(g) Promptly after the receipt thereof by the Borrower, copies
of any detailed audit reports submitted to the Borrower by
independent accountants in connection with each annual or
interim audit of the accounts of the Borrower made by such
accountants.
(h) Promptly after the same are available, copies of all proxy
statements, financial statements and reports as the Borrower
shall send to its stockholders, and copies of all reports
which the Borrower may file with the Securities and Exchange
Commission or any governmental authority at any time
substituted therefor.
7.3 Tangible Net Worth. To maintain on a consolidated basis
tangible net worth equal to at least One Hundred Million Dollars
($100,000,000) from June 30, 1997, increasing on a cumulative
basis on the first day of
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each calendar quarter, commencing October 1, 1997 by an amount
equal to 50% of the positive net income for previous calendar
quarter.
"Tangible net worth" means the gross book value of the Borrower's
assets (excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, deferred and other like
intangibles) less total liabilities, including but not limited
to accrued and deferred income taxes, and any reserves against
assets.
7.4 Adjusted Consolidated Total Debt. To maintain on a
consolidated basis a ratio of adjusted consolidated total debt to
tangible net worth not exceeding 1.25:1.0.
"Adjusted consolidated total debt" means on a consolidated basis,
the total of all items of indebtedness, obligation, or liability
which in accordance with generally accepted accounting principles
would be included in determining total liabilities as shown on
the liability side of a consolidated balance sheet, plus
contingent liabilities arising from financing of accounts
receivables or receivables securitizations, less nonrecourse debt
and deferred interest income related to the discounting of
capital and operating lease receivables wherein the lenders with
respect to such nonrecourse debt have no recourse against the
Borrower.
7.5 Ratio of Net Receivables to Advances and Other Liabilities.
To maintain a ratio of (i) net receivables (net of reserves) plus
net investment in capital leases to (ii) amounts owing under this
Agreement, plus other long-term indebtedness (other than non-
recourse debt), plus contingent liabilities arising from
financing of accounts receivables or receivables securitization
of not less than 2.50 to 1.00.
7.6 Limitation on Losses. Not incur on a consolidated basis a
net loss before taxes and extraordinary items for two (2)
consecutive quarterly accounting periods after the quarterly
accounting period ending September 30, 1997.
7.7 Other Debts. Not to have outstanding or incur any direct or
contingent debts or lease obligations (other than those to the
Bank), or become liable for the debts of others without the
Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit.
(b) Endorsing negotiable instruments received in the usual
course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional debts and lease obligations for the acquisition of
fixed or capital assets, to the extent permitted elsewhere in
this Agreement.
(e) Additional debts and lease obligations for business purposes
which, after giving effect thereto, would not result in a
default under Article 8 of this Agreement.
(f) Obligations arising in connection with sales of the
Borrower's accounts receivable and receivables
securitization where recourse to the Borrower is not greater
than 15% of the total balance due of such receivables sold
or securitized.
(g) Nonrecourse debt related to the discounting of operating and
capital leases.
7.8 Other Liens. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property the
Borrower now or later owns, except:
(a) Security agreements in favor of the Bank.
(b) Liens for taxes not yet due or being contested in good faith
in appropriate proceedings.
(c) Liens outstanding on the date of this Agreement disclosed in
writing to the Bank.
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(d) Liens which are made in connection with and as a part of
nonrecourse debt transactions relating to discounting of
operating and capital leases.
(e) mechanic's, workmen's, materialmen's, landlords', carriers',
or other like liens arising in the ordinary and normal
course of business with respect to obligations which are not
due or which are being contested in good faith.
(f) minor encumbrances which do not in the aggregate materially
detract from the value of its property or assets or
materially impair their use in the operation of the business
of the Borrower or any of its subsidiaries, if any.
7.9 Capital Expenditures. Not to spend or incur obligations
(including the total amount of any capital leases) for more than
Two Million Dollars ($2,000,000) in any single fiscal year to
acquire fixed or capital assets.
7.10 Leases. Not to permit the aggregate payments due in any
fiscal year under all leases (including capital and operating
leases for real or personal property) to exceed Two Million
Dollars ($2,000,000).
7.11 Dividends. Not to declare or pay any dividends on any of
its shares, or redeem, retire or repurchase common stock except:
(a) dividends payable in its common stock;
(b) other dividends, redemptions, retirements and repurchases
from earnings available for dividends and earned during the
immediately preceding fiscal year and in any event not to
exceed fifty percent (50%) of the net profit of the Borrower
in any one fiscal year and provided any such distribution,
redemption, retirement or repurchase does not create a
default under Article 8 of this Agreement.
7.12 Change of Ownership. Not to cause, permit, or suffer any
change, direct or indirect, in the Borrower's capital ownership
in excess of 50%.
7.13 Loans and Investments. Not to lend money or extend credit
other than in the ordinary and normal course of its business as
presently conducted and not to invest other than in (a) direct
obligations of the United States and Untied States governmental
agencies, (b) interest-bearing certificates of deposit issued by
domestic and foreign commercial banks issuing short-term
obligations rated Prime-1 or higher by Moody's Investors
Services, Inc. ("Moody's"), or A-1 or higher by Standard and
Poor's Rating Group ("Standard and Poor's"), (c) domestic or
foreign commercial paper rated A-1 or higher by Standard and
Poor's, Prime-1 or higher by Moody's, (d) bankers' acceptances
issued by domestic or foreign banks issuing short-term
obligations rated Prime-1 or higher by Moody's, or A-1 or
higher by Standard and Poor's, (e) repurchase agreements which
are collateralized with collateral with value at least 102% of
the face value of the obligations which is the subject of such
repurchase agreement, which are fully collateralized by United
States Treasury obligations of a term of 12 months or less, and
(e) California municipal floating rate paper with a rating of
MIG-1 or higher by Moody's or a rating of AA or higher by
Standard and Poor's.
7.14 Out of Debt Period. To repay any advances in full, and not
to draw any additional advances on its revolving line of credit,
for a period of at least 30 consecutive days in each line-year.
"Line-year" means the period between the date of this Agreement
and December 31, 1998, and each subsequent one-year period
(if any). For the purposes of this paragraph, "advances" does
not include undrawn amounts of outstanding letters of credit.
7.15 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Million Dollars ($2,000,000) against
the Borrower.
(b) any material dispute between the Borrower and any government
authority.
(c) any failure to comply with this Agreement.
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(d) any material adverse change in the Borrower's business
condition (financial or otherwise), operations, properties
or prospects, or ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more
than one place of business.
7.16 Books and Records. To maintain adequate books and records.
7.17 Audits. To allow the Bank and its agents to inspect the
Borrower's properties and examine, audit and make copies of books
and records at any reasonable time. If any of the Borrower's
properties, books or records are in the possession of a third
party, the Borrower authorizes that third party to permit the
Bank or its agents to have access to perform inspections or
audits and to respond to the Bank's requests for information
concerning such properties, books and records. The Bank has no
duty to inspect the Borrower's properties or to examine, audit,
appraise or copy books and records and the Bank shall not incur
any obligation or liability by reason of not making any such
inspection or inquiry. In the event that the Bank inspects the
Borrower's properties or examines, audits, appraises, or copies
books and records, the Bank will be acting solely for the
purposes of protecting the Bank's security and preserving the
Bank's rights under this Agreement. Neither the Borrower nor
any other party is entitled to rely on any inspection or other
inquiry by the Bank. The Bank owes no duty of care to protect
the Borrower or any other party against, or to inform the
Borrower or any other party of, any adverse condition that may
be observed as affecting the Borrower's properties or premises,
or the Borrower's business. The Bank may in its discretion
disclose to the Borrower or any other party any findings made
as a result of, or in connection with, any inspection of the
Borrower's properties.
7.18 Compliance with Laws. To comply with the laws (including
any fictitious name statute), regulations, and orders of any
government body with authority over the Borrower's business.
7.19 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
7.20 Perfection of Liens. To help the Bank perfect and protect
its security interests and liens, and reimburse it for related
costs it incurs to protect its security interests and liens
during the term repayment period.
7.21 Cooperation. To take any action reasonably requested by the
Bank to carry out the intent of this Agreement.
7.22 Insurance.
(a) General Business Insurance. To maintain insurance as is
usual for the business it is in.
(b) Evidence of Insurance. Upon the request of the Bank, to
deliver to the Bank a copy of each insurance policy, or, if
permitted by the Bank, a certificate of insurance listing
all insurance in force.
7.23 Additional Negative Covenants. Not to, without the Bank's
written consent:
(a) engage in any business activities substantially different
from the Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, or other combination,
or become a partner in a partnership, a member of a joint
venture, or a member of a limited liability company.
(d) sell, assign, lease, transfer or otherwise dispose of any
assets for less than fair market value, or enter into any
agreement to do so.
(e) sell, assign, lease, transfer or otherwise dispose of all or
a substantial part of the Borrower's business or the
Borrower's assets except in the ordinary course of the
Borrower's business.
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(f) enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
(g) acquire or purchase a business or its assets.
(h) purchase or enter into any agreement for the bulk purchase
of leases.
7.24 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b)
of ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a
Plan or the filing of any notice of intent to terminate
under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan
under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA.
8. DEFAULT
If any of the following events occur, the Bank may do one or more
of the following: declare the Borrower in default, stop making
any additional credit available to the Borrower, and require the
Borrower to repay its entire debt immediately and without prior
notice. If an event of default occurs under the paragraph
entitled "Bankruptcy," below, with respect to the Borrower, then
the entire debt outstanding under this Agreement will
automatically be due immediately.
8.1 Failure to Pay. The Borrower fails to make a payment under
this Agreement when due.
8.2 Lien Priority. The Bank fails to have an enforceable first
lien (except for any prior liens to which the Bank has consented
in writing or except for those liens allowed pursuant to
Paragraph 7.8 of this Agreement) on or security interest in any
property given as security for this Agreement.
8.3 False Information. The Borrower has given the Bank false or
misleading information or representations in any material
respect.
8.4 Bankruptcy. The Borrower files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower, or the
Borrower makes a general assignment for the benefit of creditors.
8.5 Receivers. A receiver or similar official is appointed for
the Borrower's business, or the business is terminated.
8.6 Judgments.
(a) Any judgments or arbitration awards are entered against the
Borrower, any subsidiary of the Borrower, and shall remain
unvacated, unbonded or unstayed for a period of thirty (30)
days or in any event later than five (5) days prior to the
date of any proposed sale thereunder, or
(b) The Borrower, any subsidiary of the Borrower, enters into
any settlement agreements with respect to any litigation or
arbitration which results in the occurrence of an Event of
Default hereunder.
8.7 Government Action. Any government authority takes action
that the Bank believes materially adversely affects the
Borrower's financial condition or ability to repay.
8.8 Cross-default. Any default occurs under any agreement in
connection with any credit the Borrower (or any of the Borrower's
related entities or affiliates) has obtained from anyone else or
which the Borrower (or any of the Borrower's related entities or
affiliates) has guaranteed in the amount of Five Hundred
Thousand Dollars ($500,000) or more in the aggregate.
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8.9 Default Under Related Documents. Any guaranty, subordination
agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
8.10 Other Bank Agreements. The Borrower fails to meet the
conditions of, or fails to perform any obligation under any other
agreement the Borrower has with the Bank or any affiliate of the
Bank.
8.11 ERISA Plans. The occurrence of any one or more of the
following events with respect to the Borrower, provided such
event or events could reasonably be expected, in the judgment of
the Bank, to subject the Borrower to any tax, penalty or
liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial
condition of the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which
is, in the reasonable judgment of the Bank likely to result
in the termination of such Plan for purposes of Title IV of
ERISA.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the Borrower's full or partial
withdrawal from a Plan.
8.12 Other Breach Under Agreement. The Borrower fails to meet
the conditions of, or fails to perform any obligation under, any
term of this Agreement not specifically referred to in this
Article. This includes any failure or anticipated failure by the
Borrower to comply with any financial covenants set forth in this
Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the
Borrower or the Bank.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial
covenants will be made under generally accepted accounting
principles, consistently applied.
9.2 California Law. This Agreement is governed by California law.
9.3 Successors and Assigns. This Agreement is binding on the
Borrower's and the Bank's successors and assignees. The Borrower
agrees that it may not assign this Agreement without the Bank's
prior consent. The Bank may sell participations in or assign
this loan, and may exchange financial information about the
Borrower with actual or potential participants or assignees;
provided that such actual or potential participants or assignees
shall agree to treat all financial information exchanged as
confidential. If a participation is sold or the loan is
assigned, the purchaser will have the right of set-off against
the Borrower.
9.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies
or claims between the Borrower and the Bank, including but
not limited to those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Borrower and the Bank, including
claims for injury to persons, property or business
interests (torts).
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in
accordance with the United States Arbitration Act. The
United States Arbitration Act will apply even though this
Agreement provides that it is governed by California law.
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(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its
commercial rules of arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this
paragraph is the equivalent of the filing of a lawsuit, and
any claim or controversy which may be arbitrated under this
paragraph is subject to any applicable statute of
limitations. The arbitrators 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.
(e) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such
dispute.
(f) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed
and enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission
to arbitration, arises from or relates to an obligation to
the Bank secured by real property located in California. In
this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If
both parties do not consent to arbitration, the controversy
or claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or
a panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored
proceedings;
(ii) The designated referee (or the panel of referees) will
be appointed by a court as provided in California Code
of Civil Procedure Section 638 and the following
related sections;
(iii) The referee (or the presiding referee of the panel)
will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the referee
(or the panel) will be entered as a judgment in the
court that appointed the referee, in accordance with
the provisions of California Code of Civil Procedure
Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or
the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a
court action, does not constitute a waiver of the right of
the Borrower or the Bank, including the suing party, to
submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank
which is secured by real property located in California at
the time of the proposed submission to arbitration, this
right is limited according to the provision above requiring
the consent of both the Borrower and the Bank to seek
resolution through arbitration.
(j) If the Bank forecloses against any real property securing
this Agreement, the Bank has the option to exercise the
power of sale under the deed of trust or mortgage, or to
proceed by judicial foreclosure.
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9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If
the Bank waives a default, it may enforce a later default. Any
consent or waiver under this Agreement must be in writing.
9.6 Waiver Fee. If the Bank, at its discretion, agrees to waive
or amend any terms of this Agreement, then the Borrower will pay
the Bank a reasonable fee determined by the Bank, plus Bank's
costs, for each waiver or amendment. Nothing in this paragraph
shall imply that the Bank is obligated to agree to any waiver or
amendment requested by the Borrower. The Bank may impose
additional requirements as a condition to any waiver or
amendment.
9.7 Attorneys' Fees. The Borrower shall reimburse the Bank for
any reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or
remedies under this Agreement and any other documents executed in
connection with this Agreement, and in connection with any
amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable
attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator.
In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code)
or any similar or successor statute, the Bank is entitled to
recover costs and reasonable attorneys' fees incurred by the Bank
related to the preservation, protection, or enforcement of any
rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-
house counsel.
9.8 One Agreement. This Agreement and any related security or
other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements
between the Bank and the Borrower concerning this credit;
and
(b) replace any prior oral or written agreements between the
Bank and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final,
complete and exclusive statement of the terms agreed to by
them.
In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will
prevail.
9.9 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage
prepaid, to the addresses on the signature page of this
Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
9.10 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any
provisions of this Agreement.
9.11 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different
parties on separate counterparts each of which, when so executed,
shall be deemed an original but all such counterparts shall
constitute but one and the same agreement.
9.12 Prior Agreement Superseded. This Agreement supersedes the
Business Loan Agreement entered into as of August 12, 1993,
between the Bank and the Borrower, and any credit outstanding
thereunder shall be deemed to be outstanding under this
Agreement.
This Agreement is executed as of the date stated at the top of
the first page.
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Bank of America
National Trust and Savings
Association Amplicon, Inc.
Deborah L. Miller/s/ Patrick E. Paddon/s/
X ------------------- X --------------------
By: Deborah L. Miller By: Patrick E. Paddon
Title: Vice President Title: Chief Executive Officer
Glen T. Tsuma/s/
X ----------------
By: Glen T. Tsuma
Title: Chief Operating Officer
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
South Orange County RCBO #1458 5 Hutton Centre Drive, Suite 500
675 Anton Blvd., Second Floor Santa Ana, California 92707
Costa Mesa, California 92626
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