<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 1, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13(D) OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______.
COMMISSION FILE NUMBER: 0-18690
RADIUS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0101300
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(408) 541-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------------
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 ON MAY 10,
1995 WAS 14,276,056.
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This report consists of __ sequentially numbered pages. The exhibit index on
this report is located on sequentially numbered page __.
<PAGE>
RADIUS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets at April 1,
1995 and September 30, 1994 3
Consolidated Statements of Operations for
the Three and Six Months Ended April 1, 1995
and 1994 4
Consolidated Statements of Cash Flows for the
Six Months Ended April 1, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
-2-
<PAGE>
PART 1. FINANCIAL INFORMATION
RADIUS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
APRIL 1, SEPTEMBER 30,
1995 1994 (1)
----------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,373 $ 15,997
Accounts receivable, net 88,545 62,145
Inventories 31,281 21,069
Prepaid expenses and other current assets 4,330 1,473
Income tax receivable 1,254 9,083
Deferred income taxes 8,400 8,400
-------- --------
Total current assets 138,183 118,167
Property and equipment, net 8,527 7,728
Deposits and other assets 1,117 964
-------- --------
$147,827 $126,859
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,777 $ 39,255
Accrued payroll and related expenses 3,325 4,024
Accrued warranty costs 2,383 2,255
Other accrued liabilities 10,174 6,650
Accrued income taxes 1,082 1,237
Accrued restructuring costs 3,493 15,148
Short-term borrowings 18,483 18,095
Obligation under capital leases -
current portion 1,468 1,647
-------- --------
Total current liabilities 107,185 88,311
Obligations under capital leases -
noncurrent portion 2,140 2,857
Commitments and contingencies
Shareholders' equity:
Common stock 88,463 87,017
Common stock to be issued 12,022 -
Accumulated deficit (61,996) (51,251)
Accumulated translation adjustment 13 (75)
-------- --------
Total shareholders' equity 38,502 35,691
-------- --------
$147,827 $126,859
-------- --------
-------- --------
<FN>
(1) The balance sheet at September 30, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
</TABLE>
See accompanying notes.
-3
<PAGE>
RADIUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 1, APRIL 1,
------------------ ------------------
1995 1994 1995 1994
------ ------ -------- -------
<S> <C> <C> <C> <C>
Net sales $84,447 $83,180 $163,682 $171,193
Cost of sales 62,913 57,279 119,671 130,336
------ ------ -------- -------
Gross profit 21,534 25,901 44,011 40,857
------ ------ -------- -------
Operating expenses:
Research and development 4,672 6,445 8,790 15,093
Selling, general and administrative 14,401 19,003 30,283 40,408
------ ------ -------- -------
Total operating expenses 19,073 25,448 39,073 55,501
------ ------ -------- -------
Income (loss) from operations 2,461 453 4,938 (14,644)
Interest expense, net (2,154) (121) (3,074) (280)
Settlement of litigation - - (12,422) -
------ ------ -------- -------
Income (loss) before income taxes 307 332 (10,558) (14,924)
Provision (benefit) for income taxes 31 688 187 (5,389)
------ ------ -------- -------
Net income (loss) $ 276 $ (356) $(10,745) $(9,535)
------ ------ -------- -------
------ ------ -------- -------
Income (loss) per share:
Net income (loss) per share $ 0.02 $(0.03) $ (0.76) $ (0.71)
------ ------ -------- -------
------ ------ -------- -------
Common and common equivalent shares used
in computing net income (loss) per share 15,429 13,496 14,183 13,433
------ ------ -------- -------
------ ------ -------- -------
</TABLE>
See accompanying notes.
-4-
<PAGE>
RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 1,
-------------------
1995 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(10,745) $(9,535)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 2,184 1,911
Elimination of SuperMac loss for three months - 9,914
Common stock to be issued 12,022 -
(Increase) decrease in assets:
Accounts receivable (26,312) (14,658)
Inventories (10,212) 1,619
Prepaid expenses and other current assets (2,857) (716)
Income tax receivable 7,829 9,551
Deferred income taxes - 1,012
Increase (decrease) in liabilities:
Accounts payable 27,522 4,928
Accrued payroll and related expenses (699) (731)
Accrued warranty costs 128 (1,622)
Other accrued liabilities 3,524 1,667
Accrued restructuring costs (11,655) (5,798)
Accrued income taxes (155) (348)
-------- -------
Net cash (used in) operating activities (21,448) (2,806)
Cash flows from investing activities:
Capital expenditures (2,983) (1,962)
Deposits and other assets (153) (352)
Proceeds from sale or maturity of short-term investments - 9,902
Purchase of short-term investments - (2,002)
-------- -------
Net cash provided by (used in) investing activities (3,136) 5,586
Cash flows from financing activities:
Principal payments of short-term borrowings, net 388 135
Principal payments of long-term debt and capital leases (896) (314)
Issuance of common stock 1,446 1,993
-------- -------
Net cash provided by (used in) financing activities 12,960 1,814
-------- -------
Net increase (decrease) in cash and cash equivalents (11,624) 4,594
Cash and cash equivalents, beginning of period 15,997 24,013
-------- -------
Cash and cash equivalents, end of period $ 4,373 $28,607
-------- -------
-------- -------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 1,082 $ 358
-------- -------
-------- -------
Income taxes paid $ - $ 6
-------- -------
-------- -------
</TABLE>
See accompanying notes.
-5-
<PAGE>
RADIUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Radius Inc. ("Radius" or the
"Company")) as of April 1, 1995 and for the three and six months ended April
1, 1995 and 1994 are unaudited. In the opinion of management, the
consolidated financial statements reflect all adjustments necessary for a fair
presentation of the financial position and results of operations for the
interim periods presented. These consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1994.
Radius and SuperMac Technology, Inc. ("SuperMac") merged into the combined
company ( the "Company") effective August 31, 1994 (the "Merger"), which was
accounted for as a pooling of interests. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to
adjust SuperMac's fiscal year end to that of Radius. Such periods include
Radius' results of operations and balance sheet data on a September 30 fiscal
year basis and SuperMac's on a December 31 calendar year basis. The Company's
fiscal year ends on the Saturday closest to September 30, which includes 52
weeks in fiscal 1995. The Company's 1994 fiscal year ended on the Sunday
closest to September 30, which included 52 weeks in fiscal 1994.
During the first quarter of fiscal 1995, the Company changed its fiscal year
end from the Sunday closest to September 30 to the Friday closest to September
30. During the second quarter of fiscal 1995, the Company changed its fiscal
year end to the Saturday closest to September 30 for operational efficiency
purposes. This change will be effective for all periods in fiscal year 1995.
NOTE 2. INVENTORIES
Inventories, stated at the lower of cost or market, consist of (in thousands):
<TABLE>
<CAPTION>
APRIL 1, SEPTEMBER 30,
1995 1994
----------- -------------
(unaudited)
<S> <C> <C>
Raw materials $ 423 $ 4,515
Work in process 5,084 6,852
Finished goods 25,774 9,702
------- -------
$31,281 $21,069
------- -------
------- -------
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company settled two securities class action lawsuits during the second
quarter of fiscal 1995. The settlements are subject to final approval by the
federal court in San Jose, California which is scheduled to occur in June
1995. The financial statements for the first quarter of fiscal 1995 include a
charge to other income of $12.4 million, reflecting settlement costs not
covered by insurance as well as related legal fees, resulting in a reduction
in net income from $1.4 million to a net loss of $11.0 million or $0.78 per
share for the quarter.
The first lawsuit was filed in September 1992 against Radius and certain of
its officers and directors relating to events occurring between January 1992
and early September 1992. The settlement provides for a cash payment of $3.7
million from the Company's insurance carrier and the issuance of 128,695
shares of the Company's Common stock valued as of the settlement date at $1.8
million, for a total of $5.5 million.
The second lawsuit was filed in July 1994 against SuperMac and certain of its
officers and directors relating to events occurring between September 1992 and
February 1994. Under the settlement, Radius has paid $250,000 in cash and
will issue between 707,609 and 807,609 shares of the Company's Common stock
depending on the value of stock when it is distributed to shareholders. The
aggregate value of the settlement as of the settlement date was $10.4 million.
-6-
<PAGE>
The settlements will result in dilution to existing shareholders of the
Company ranging from 5.9% to 6.6% depending on the number of shares of Radius
stock issued. The Company had 14,556,000 common and common shares equivalent
outstanding as of April 1, 1995.
NOTE 4. INCOME TAXES
For the three and six month periods ended April 1, 1995 and 1994, the
provision (benefit) for income taxes has been computed by applying the
estimated annual effective tax rate to income (loss) before income taxes and
charge for litigation settlement.
NOTE 5. CHANGE IN METHOD OF ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES
Effective October 1, 1994, the Company adopted FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Statement
115 addresses accounting and reporting for investments in marketable equity
securities and in debt securities. Currently the Company does not have any
investments that fall under Statement 115. Retroactive restatement is not
permitted with Statement 115.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report
on Form 10-K for the year ended September 30, 1994.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operational
data as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 1, APRIL 1,
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.5 68.9 73.1 76.1
----- ----- ----- -----
Gross profit 25.5 31.1 26.9 23.9
----- ----- ----- -----
Operating expenses:
Research and development 5.5 7.7 5.4 8.8
Selling, general and administrative 17.1 22.8 18.5 23.6
----- ----- ----- -----
Total operating expenses 22.6 30.6 23.9 32.4
----- ----- ----- -----
Income (loss) from operations 2.9 0.5 3.0 (8.6)
Interest expense, net (2.6) (0.1) (1.9) (0.2)
Settlement of litigation - - (7.6) -
----- ----- ----- -----
Income (loss) before income taxes 0.4 0.4 (6.5) (8.7)
Provision (benefit) for income taxes - 0.8 0.1 (3.1)
----- ----- ----- -----
Net income (loss) 0.3% (0.4)% (6.6)% (5.6)%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
-7-
<PAGE>
NET SALES
The Company's net sales increased 1.5% to $84.4 million in the second quarter
of fiscal 1995 from $83.2 million for the same quarter in fiscal 1994. This
increase was primarily due to revenue growth in the Company's digital video
product line as a result of volume shipments of Radius Telecast. In addition,
sales of the Company's raster imaging processor (RIP) technology significantly
improved and large color display revenues also increased. Although the on-
board capability of the Power Macintosh has led to reduced overall demand for
graphics cards compared to the prior year quarter, revenues from the newly
introduced Thunder IV line of graphic accelerator cards exceeded the
Company's expectations.
During the quarter, revenues were adversely affected by substantially higher
than normal product returns resulting primarily from the consolidation of the
Radius and SuperMac product lines. While the Company believes that returns
due to product consolidation will decline in the third fiscal quarter, there
can be no assurance that there will not be additional returns that would have
a material adverse impact on results of operations.
Net sales for the first half of fiscal 1995 decreased 4.4% to $163.7 million
from $171.2 million in the same period in fiscal 1994. This decrease was
primarily due to discontinuation of duplicative products and other factors
relating to the integration of SuperMac and Radius following the Merger.
One customer accounted for 19.7% and 15.1% of the Company's net sales for the
three and six months ended April 1, 1995, respectively. For the corresponding
periods of fiscal 1994, one customer accounted for 13.6% and 14.7% of the
Company's net sales.
The Company's second quarter export sales increased to 36.5% of net sales from
32.6% of net sales in the same quarter of fiscal 1994 as a result of improved
sales in the Asia Pacific region. Export sales were 31.6% of net sales for
the six month period in fiscal 1995 which was relatively unchanged from the
same period in the prior year.
GROSS PROFIT
The Company's gross profit margin was 25.5% and 26.9% for the three and six
month periods ending April 1, 1995, as compared with 31.1% and 23.9% for the
corresponding periods in fiscal 1994. The gross margin for the first six
months of fiscal 1994 excluding restructuring charges was 31.7%. Excluding
the restructuring charges, the decline in gross margin for the three and six
month periods was primarily due to lower sales of higher margin graphics
accelerator cards, costs incurred to process higher than expected product
returns resulting from the consolidation of the Radius and SuperMac product
lines, the sale of end of life products, and increased pricing pressures.
The Company anticipates continued price reductions and margin pressure within
its industry. The Company is responding to these trends by focusing on higher
margin products, taking further steps to reduce product costs and controlling
expenses. There can be no assurance that the Company's gross margins will
remain at current levels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $4.7 million or 5.5% of net
sales in the second quarter of fiscal 1995 from $6.4 million or 7.7% of net
sales in the same quarter of fiscal 1994. Research and development expenses
decreased from $15.1 million or 8.8% of net sales for the first six months of
fiscal 1994 to $8.8 million or 5.4% of net sales for the corresponding period
in fiscal 1995. The decrease in research and development expenses from year
to year was primarily due to the reduction of expenses as a result of the
Company's restructuring associated with the Merger. The merger-related
restructuring has primarily resulted in reduced costs related to headcount,
depreciation, and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $14.4 million or
17.1% of net sales in the second quarter of fiscal 1995 from $19.0 million or
22.8% of net sales in the same quarter of fiscal 1994. Selling, general and
administrative expenses decreased from $40.4 million or 23.6% of net sales for
the first six months of fiscal 1994 to $30.3 million or 18.5% of net sales for
the corresponding period in fiscal 1995.
Selling, general and administrative expenses declined primarily due to the
reduction of expenses as a result of the Company's restructuring associated
with the Merger. The merger-related restructuring has primarily resulted in
reduced
-8-
<PAGE>
costs related to headcount, depreciation, and facilities. In addition,
expenses in the second quarter of fiscal 1995 included a reduction of
approximately $2.1 million of merger-related restructuring reserves to reflect
current requirements.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1993 and 1994, three restructuring and other charges were
recorded. Radius recorded a $15.5 million restructuring charge during the
third quarter of fiscal 1993 in connection with the implementation of a new
business model. SuperMac recorded a $16.6 million restructuring charge during
December 1993 in connection with a program to realign its inventory and
facility and personnel resources. Subsequently, the two companies merged and
incurred a restructuring charge of $43.4 million, which was recorded in
September 1994. This Merger was initiated to provide substantial savings in
operating costs for the combined company, resulting from the reduction in the
number of employees, elimination of duplicative facilities and the
consolidation of the marketing, research and development, operations and
administration for the two companies. A discussion of each of these events
follows.
RADIUS FISCAL 1993 RESTRUCTURING AND OTHER CHARGES
In June 1993, Radius announced a restructuring program designed to reduce
costs and improve operating efficiencies. The program included, among other
things, the write-down of inventory following Radius' decision to phase out
its older generation of products, lease termination expenses, capital
equipment write-offs, severance payments and costs associated with the
discontinuation of Radius' minicomputer-class server product. The
restructuring program costs of $15.5 million resulted in an after-tax charge
of approximately $9.5 million during the third quarter of fiscal 1993. The
charges (in thousands) are included in: cost of sales ($10,993); research and
development ($411); and selling, general and administrative expenses ($4,096).
The elements of the total charge as of April 1, 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
Representing
-----------------------------
Cash Outlays
----------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C>
Inventory $ 8,319 $ 8,319 $ - $ -
Manufacturing reorganization 3,109 989 2,120 -
Domestic facilities closure 1,994 1,505 489 -
Germany office closure 860 - 860 -
Consulting related to product discontinuation
and company reorganization 500 - 500 -
Discontinuation of development projects 411 411 - -
Executive reorganization 307 - 307 -
------- ------- ------ ---
Total charges $15,500 $11,224 $4,276 $ -
</TABLE>
The Company completed this restructuring event by the end of calendar 1994.
There were no material changes in the restructuring plan or in the
estimates of the restructuring costs from the recognition of the charge in
June 1993 with to the completion of the restructuring program in December
1994. The Company believes the program generally fulfilled the Company's
expectations and that the program was successful. Cash expenditures of
$4.3 million were made between June 1993 and December 1994, to complete
this restructuring event.
-9-
<PAGE>
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection
with a program to adjust inventory levels, eliminate excess facilities,
terminate certain projects and contract arrangements and reduce the number of
employees. The charges (in thousands) are included in: cost of sales
($13,352); research and development ($2,000); and selling, general and
administrative expenses ($1,238). The elements of the total charge as of
April 1, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Representing
-----------------------------
Cash Outlays
-----------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $10,577 $ 9,718 $ 859 $ -
Excess facilities 1,619 - 1,619 -
Terminate projects and arrangements 2,494 1,294 819 381
Employee severance 1,900 - 1,803 97
------- ------- ------ ----
Total charges $16,590 $11,012 $5,100 $478
</TABLE>
There have been no material changes in the restructuring plan or in the
estimates of the restructuring costs. The Company has $619,000 remaining in
its restructuring reserve, the majority of the balance is expected to be
eliminated by the end of fiscal 1995. The Company expects that cash
expenditures that will be incurred to complete this restructuring event will
not have a material effect on the Company's liquidity. The consolidated
results for the Company in both the twelve months ended September 30, 1994 and
the fiscal period ended 1993 include SuperMac's $16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets,
elimination of duplicative facilities, property and equipment and other assets
and personnel severance costs as well as transaction fees and costs incidental
to the Merger. The charges (in thousands) are included in: net sales
($3,095); cost of sales ($25,270); research and development ($4,331); and
selling, general and administrative expenses ($10,710). The elements of the
total charge as of April 1, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------------
Cash Outlays
-----------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $19,200 $ 2,791 $ 305
Excess facilities 2,790 400 2,006 384
Revision of the operations business model 9,061 7,078 1,119 864
Employee severance 6,311 - 6,064 247
Merger related costs 2,949 - 1,735 1,214
------- ------- ------- ------
Total charges $43,407 $26,678 $13,715 $3,014
</TABLE>
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-
off of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and consolidation of sales offices.
The revision of the operations business model reflects the reorganization of
the combined Company's manufacturing operations to mirror Radius' previously
revised model implemented as part of the Radius 1993 restructuring. This
reorganization was designed to outsource a number of functions that previously
were performed internally, reduce product costs through increased efficiencies
and lower overhead, and focus the Company on a limited number of products.
Employee severance costs are related to employees who have been released due
to the revised business model, while related severance payments are expected
to be incurred throughout fiscal 1995. The provision for Merger related costs
is for the costs associated with the Merger transaction, such as legal,
investment banking and accounting fees. The Company has reduced its
restructuring reserves by $2.1 million to accurately reflect current
requirements. The Company expects to have substantially completed the
restructuring by September 1995. Anticipated results of the restructuring on
fiscal 1995 operations are estimated to include savings of $16.0 million from
reduced headcount, $1.5 million from reduced depreciation expense, and $0.2
million from reduced rent expense. There can be no
-10-
<PAGE>
assurance that these estimated savings will be realized during fiscal 1995.
These estimated savings could be affected by future changes in these and other
areas.
The cash requirements with respect to the Merger related restructuring and
other charges are estimated to be approximately $16.7 million, of which $13.7
million had been spent as of April 1, 1995. The Company used a line of credit
to help fund these cash requirements, and as of April 1, 1995, the Company had
a cash position of $4.4 million. There can be no assurance that the Company
will not incur additional charges to reflect costs associated with the Merger.
LITIGATION SETTLEMENT
The Company settled two securities class action lawsuits during the second
quarter of fiscal 1995. The settlements are subject to final approval by the
federal court in San Jose, California which is scheduled to occur in June
1995. The financial statements for the first quarter of fiscal 1995 include a
charge to other income of $12.4 million, reflecting settlement costs not
covered by insurance as well as related legal fees, resulting in a reduction
in net income from $1.4 million to a net loss of $11.0 million or $0.78 per
share for the quarter.
The first lawsuit was filed in September 1992 against Radius and certain of
its officers and directors relating to events occurring between January 1992
and early September 1992. The settlement provides for a cash payment of $3.7
million from the Company's insurance carrier and the issuance of 128,695
shares of the Company's Common stock valued as of the settlement date at $1.8
million, for a total of $5.5 million.
The second lawsuit was filed in July 1994 against SuperMac and certain of its
officers and directors relating to events occurring between September 1992 and
February 1994. Under the settlement, Radius has paid $250,000 in cash and
will issue between 707,609 and 807,609 shares of the Company's Common stock
depending on the value of stock when it is distributed to shareholders. The
aggregate value of the settlement as of the settlement date was $10.4 million.
The settlements will result in dilution to existing shareholders of the
Company ranging from 5.9% to 6.6% depending on the number of shares of Radius
stock issued. The Company had 14,556,221 weighted average common shares
outstanding as of April 1, 1995.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $31,000 for the second quarter of
fiscal 1995 as compared to a provision for taxes for the second quarter of
fiscal 1994 of $688,000. The lower effective tax rate in fiscal 1995 as
compared to fiscal 1994, is primarily the result of utilization of net
operating loss carryovers. The fiscal 1995 tax provision is primarily
comprised of foreign taxes.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduces the deferred tax asset to the amount realizable. Management
believes that as a result of the Merger and the related restructuring of the
Company's operations, it is more likely than not that the net deferred tax
assets will be realized in the ordinary course of operations based on
reversals of existing taxable temporary differences and income from operating
activities. However, there can be no assurance that future income will be
sufficient to realize this benefit. The Company will evaluate the
realizability of the deferred tax asset on a quarterly basis.
FINANCIAL CONDITION
The Company's cash and cash equivalents decreased approximately $11.6 million
in the first six months of fiscal 1995. The decrease in cash and cash
equivalents was primarily due to the increase in accounts receivable of $26.4
million, increase in inventory of $10.2 million, and cash outlays in
connection with merger-related restructuring and other charges accrued in the
fourth quarter of fiscal 1994. These cash requirements were partially offset
by an increase in accounts payable of $27.5 million and the receipt of $7.8
million from an income tax refund.
At April 1, 1995, the Company's principal sources of liquidity were
approximately $4.4 million of cash and cash equivalents. The Company has a
$30.0 million inventory and working capital financing agreement which was
fully utilized as of April 1, 1995. In addition, the Company has a $5.0
million line of credit which was partially utilized as of that date. The
Company was in compliance with all financial covenants in connection with its
lines of credit as of April 1,
-11-
<PAGE>
1995. Additionally, the Company's Japanese subsidiary has a revolving line of
credit with a bank in Japan with $3.4 million being utilized as of April 1,
1995. Recently, the Company's relatively low cash resources have restricted
the Company's ability to purchase inventory which in turn has limited its
ability to manufacture and sell products thereby adversely affecting the
Company's results of operations. This adverse effect on results of operations
can be expected to continue until such time as the Company is able to generate
additional cash from the collection of receivables or other sources.
Additional funds will be needed to finance the Company's planned development
of MacOS compatibles and other products, and for other purposes. The Company
is exploring a number of financing alternatives. There can be no assurance
that additional financing will be available when needed or, if available, that
the terms of such financing will not adversely affect the Company's results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, the ability to manage and
direct the Company following the Merger, the cost and availability of
components, the Company's ability to control costs, the rate and mix of Apple
computers sold and general economic conditions. In addition, new products,
product enhancements, aggressive marketing and pricing practices, and numerous
other competitive factors could have an impact on the Company's operating
results.
The expectation is that the Merger will result in beneficial synergistic
effects for the combined company, in addition to a substantial savings in
operating costs. To date, the Company has substantially completed the
integration of the two companies' businesses on an operational basis. The
remaining restructuring related activities are to be completed by the end of
fiscal 1995. There can be no assurance that the steps for restructuring the
two companies' operations will reduce costs to the extent, or as quickly, as
planned or that they will not adversely affect continuing net sales and
results of operations. Product returns resulting from the consolidation of
product lines adversely affected the Company's results of operations for the
first six months of fiscal 1995 and could have an adverse effect on future
results of operations. Even if the effects of the Merger prove to be as
anticipated, there can be no assurance that future earnings will not be
adversely affected by any number of economic, market or other factors that are
not related to the Merger.
The Company's success is highly dependent on its ability to develop innovative
and cost-competitive new products and to bring them to market in a timely
manner. Should the Company fail to introduce new products on a timely basis,
the Company's operating results could be adversely affected.
The Company's primary means of distribution is through a limited number of
third-party distributors and resellers. As a result, the Company's business
and financial results are highly dependent on the amount of the Company's
product ordered by these distributors and resellers which in turn depends on
their overall financial condition as well as on their ability to resell such
products and maintain appropriate inventory levels. The Company's operating
results could be adversely affected if such distributors and resellers are not
successful in these or other areas.
Historically, substantially all of the Company's products have been designed
for and sold to users of Apple computers. As a result of the Company's
dependency on Apple computer products, the Company's operations and financial
results could be significantly affected should Apple lose market share or
otherwise experience slower sales. New products anticipated from and
introduced by Apple could cause customers to defer or alter buying decisions
due to uncertainty in the marketplace, as well as presenting direct
competition to the Company. For example, sales of the Company's products
could be adversely affected by the uncertainties associated with Apple's
revamping of its entire product line from using the NuBus structure to using a
structure based on the Peripheral Component Interconnect Local Bus standard.
The MacOS compatible systems business will entail significant new challenges
for the Company in designing, developing, manufacturing and distributing
products and there can be no assurance that the Company will be successful in
this new business. As noted above, the Company's entry into the MacOS
compatible systems business also will require substantial additional cash
resources. In addition, the Company's MacOS compatible business is dependent
upon Apple's continued support of and commitment to MacOS licensing.
-12-
<PAGE>
Due to the foregoing, the dynamic nature of the Company's industry and other
factors, the Company's future operating results and stock price may be subject
to significant volatility. In addition, any change in net sales or operating
results from levels expected by securities analysts, and the timing of the
announcement of such shortfalls, could have an immediate and significant
adverse effect on the trading price of the Company's common stock in any given
period.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Radius and certain of its officers and directors are defendants in a
securities class action litigation brought in September 1992 in the United
States District Court for the Northern District of California and seeking
unspecified damages, prejudgment and postjudgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. SuperMac, certain of its
officers and directors, several venture capital firms and several of the
underwriters of SuperMac's May 1992 initial public offering and its February
1993 secondary offering are defendants in a class action litigation brought in
the same court in July 1994 and seeking unspecified damages, prejudgment and
postjudgment interest, attorneys' fees, experts' fees and costs, and equitable
relief (including the imposition of a constructive trust on the proceeds of
defendants' trading activities). These litigations are described in greater
detail in Radius' Annual Report on Form 10-K for the fiscal year ended
September 30, 1994.
In April 1995, the parties in both litigations entered into settlement
agreements. The settlements are subject to final approval of the court. The
court has given preliminary approval of the settlements, and hearing on the
fairness of the settlements is scheduled in June 1995. Under the settlements
of the litigation brought in 1992 against Radius, the Company's insurance
carrier is required to pay $3.7 million in cash (this amount has been
deposited in escrow) and the Company is required to issue 128,695 share of its
Common Stock to a class action settlement fund. In the settlement of the
litigation brought in 1994 against SuperMac, the Company is required to pay
$250,000 in cash and to issue into a class action settlement fund at least
707,609 shares of its Common Stock. The number of shares to be issued by the
Company will increase by up to 100,000 if the price of the Common Stock is
below $12 per share during the 60-day period following the initial issuance of
shares. If the settlements are not approved by the court, the Company intends
to contest the litigations vigorously.
In January 1995, a patent infringement lawsuit was filed in the United States
District Court for the Northern District of California by the alleged holder
of a patent involving video pixel data transfer claiming that the Company
infringes the patent and seeking injunctive relief and damages in an
unspecified amount. The complaint does not specify which products of the
Company allegedly infringe the plaintiff's patent. The Company has filed an
answer denying all the material allegations of the complaint. The Company
believes it has meritorious defenses to the action and intends to defend it
vigorously.
ITEM 5. OTHER INFORMATION
David R. Brodwin resigned as Vice President, Product and Strategic Marketing
effective as of April 21, 1995.
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See attached exhibit index.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the three months ended April 1, 1995.
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.
Dated: May 10, 1995 RADIUS INC.
By: /s/ Charles W. Berger
----------------------------------------
Charles W. Berger
Chairman, President, Chief Executive Officer
By: /s/ Robert W. Saltmarsh
----------------------------------------
Robert W. Saltmarsh
Chief Financial Officer
-14-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER TITLE NUMBERED PAGE
------- ----- -------------
<S> <C> <C>
10.08 A Credit Agreement by and among Radius Inc., the certain financial
institutions, and Silicon Valley Bank, dated March 20, 1995.
B Credit Agreement by and among Radius Inc., the certain financial institutions,
and International Business Machines Credit Corporation, dated
February 17, 1995.
11.01 Computation of per share earnings
</TABLE>
-15-
<PAGE>
Exhibit 1
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented
or otherwise modified from time to time, this "Agreement") is hereby made this
17th day of February, 1995, by and between IBM CREDIT CORPORATION with a place
of business at 5000 Executive Parkway, Suite 450, San Ramon, CA 94583 ("IBM
Credit"), and Radius Inc. with a place of business at 215 Moffett Park Drive,
Sunnyvale, CA 94089 ("Customer").
RECITALS
WHEREAS, Customer has requested that IBM Credit finance Customer's
acquisition of inventory and equipment;
WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products
manufactured or distributed by or bearing any trademark or trade name of such
Authorized Suppliers for distribution throughout the United States (the
"Products") (as of the date hereof the Authorized Suppliers are as set forth on
Attachment E hereto);
WHEREAS, Customer has requested that IBM Credit finance its purchase of
Products from such Authorized Suppliers and its working capital requirements,
and IBM Credit is willing to provide such financing to Customer subject to the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
Section 1. DEFINITIONS
1.1 Special Definitions. The following terms shall have the
following respective meaning in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit to Customer
pursuant to Section 2.3 of this Agreement, including, as the context may
require, a WCO Advance and a Takeout Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Advance Term": a WCO Advance Term.
"A/R Finance Charges": as defined on Attachment A.
<PAGE>
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit to Customer
pursuant to this Agreement including, without limitation, (i) Product Advances
and (ii) A/R Advances.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
"Average Daily Balance": the sum of the Outstanding Product Advances or
Outstanding A/R Advances, as the case may be, as of the end of each day during a
calendar month, divided by the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer, in the form of Attachment F hereto,
detailing and certifying, among other items: Customer's Eligible Accounts, the
amounts and aging of all of Customer's Accounts, the amounts and aging of
Customer's accounts payable as of a specified date, all of Customer's IBM Credit
borrowing activity during a specified period and the total amount of Customer's
Borrowing Base as well as Customer's Outstanding A/R Advances, Outstanding
Product Advances, Available Credit and any Shortfall Amount as of a specified
date.
"Common Due Date": (1) the fifth day of a calendar month if the Product Advance
Term or A/R Advance Term, whichever is applicable, expires on
<PAGE>
the first through tenth of such calendar month; (2) the fifteenth day of a
calendar month if the Product Advance Term or A/R Advance Term, whichever is
applicable, expires on the eleventh through twentieth of such calendar month;
and (3) the twenty-fifth day of a calendar month if the Product Advance Term or
A/R Advance Term, whichever is applicable, expires on the twenty-first through
the last day of such calendar month.
"Compliance Certificate": a certificate substantially in the form of Attachment
C.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Account": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or
any successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": the consolidated and consolidating balance sheets,
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customer a financing charge. IBM Credit shall
calculate the Customer's Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Customer understands that IBM Credit may not offer or may cease to
offer a Free Financing Period for the Customer's purchases of Products.
<PAGE>
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases, (3) all obligations of such Person in respect of letters of
credit, banker's acceptances or similar obligations issued or created for the
account of such Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or arrangement under
which such Person is a party or beneficiary, (5) all obligations under
guaranties of such Person and (6) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
"Investment": with respect to any Person (the "Investor"), (1) any investment
by the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Line of Credit": as defined in Section 2.1.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable costs of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.
<PAGE>
"Maximum Advance Amount": at any time, the lesser of (1) the Line of Credit and
(2) the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit, whether primary or secondary, joint or several, direct,
contingent, fixed or otherwise, secured or unsecured arising under this
Agreement and the Other Agreements.
"Other Agreements": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by Customer and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the
Outstanding Product Advances and (2) the Outstanding A/R Advances.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.
"Outstanding Product Advances": at any time of determination, the sum of (1)
the unpaid principal amount of all Product Advances made by IBM Credit under
this Agreement; and (2) any finance charge, fee, expense or other amount related
to Product Advances charged to Customer's account with IBM Credit.
"Payment Dates": the fifth, fifteenth and twenty-fifth day of each calendar
month.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) guaranties in favor of IBM Credit; and
(6) guaranty in favor of Sanwa Bank on behalf of Radius KK in the amount of
three million dollars ($3,000,000); and
<PAGE>
(7) guaranties on behalf of Subsidiaries of Customer in favor of other creditors
in an aggregate amount at any time not exceeding five hundred thousand dollars
($500,000), other than as set forth in (6) above; and
(8) Other Indebtedness consented to by IBM Credit in writing prior to the
incurrence thereof.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(5) attachment or judgment Liens individually or in the aggregate not in excess
of five hundred thousand dollars ($500,000) (exclusive of (A) any amounts that
are duly bonded to the satisfaction of IBM Credit or (B) any amount fully
covered by insurance as to which the insurance company has acknowledged its
obligation to pay such judgment in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(7) extensions and renewals of the foregoing permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness for which it secures, (B) such
Liens do not extend to any property other than property already previously
subject to the Lien and (C) such extended or renewed Liens are on terms and
conditions no more restrictive than the terms and conditions of the Liens being
extended or renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted if an adequate reserve or other
<PAGE>
appropriate provisions shall have been made therefor as required in order to be
in conformity with GAAP and an adverse determination in such proceedings could
not reasonably be expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to the incurrence
thereof.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Agreements.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of
America National Trust & Savings Association as their prime or base rate, as of
the last Business Day of the calendar month immediately preceding the date of
determination, whether or not such announced rates are the actual rates charged
by such banking institutions to their most creditworthy borrowers.
"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of Customer to an Authorized Supplier in respect of an
invoice delivered by such Authorized Supplier to IBM Credit describing Products
purchased by Customer.
"Product Advance Charge": as defined on Attachment A.
"Product Advance Term": for each Product Advance, a period of days equal to
that set forth in Attachment A from time to time, commencing on the invoice date
of such Product Advance.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Customer's business not to exceed the lesser of (1)
the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.3.
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental
<PAGE>
authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Takeout Advance": an A/R Advance made to existing creditors of Customer on
behalf of Customer, in an amount sufficient to discharge Customer's indebtedness
to such creditor.
"Termination Date": shall mean (i) the first anniversary of the date of this
Agreement or such other date as IBM Credit and Customer may agree to in writing
from time to time.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
"WCO Advance": an A/R Advance, with a WCO Advance Term.
"WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180)
days commencing on the A/R Advance Date for such WCO Advance.
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES
2.1. Line of Credit. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10.1 and (y) the date on which IBM Credit terminates the Line of Credit
pursuant to Section 9.2, IBM Credit agrees to extend to the Customer a line of
credit ("Line of Credit") in the amount set forth in Attachment A pursuant to
which IBM Credit will make to the Customer, from time to time, Advances in an
aggregate amount at any one time outstanding not to exceed the Maximum Advance
Amount.
2.2 Product Advances. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customer's
purchase of Products from Authorized Suppliers. Customer hereby authorizes and
directs IBM Credit to pay the proceeds of Product Advances directly to the
applicable Authorized Supplier in respect of invoices delivered to IBM Credit
for such Products by such Authorized Supplier and acknowledges that each such
Product Advance constitutes a loan by IBM Credit to Customer pursuant to this
Agreement as if the Customer received the proceeds of the Product Advance
directly from IBM Credit.
<PAGE>
(B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Customer shall
repay each Product Advance no later than the Common Due Date for such Product
Advance. Customer may, at its option, repay each Product Advance by requesting
IBM Credit to apply all or any part of the principal amount of an A/R Advance to
the Outstanding Product Advances. Customer's request for such application shall
be made in accordance with Section 2.3. When so requested and subject to the
terms and conditions of this Agreement, IBM Credit shall apply the amount so
requested to the amounts due in respect of the Outstanding Product Advances.
Nothing contained herein shall relieve Customer of its obligation to repay
Product Advances when due. Each Product Advance shall accrue a finance charge
on the Average Daily Balance thereof from the end of the Free Financing Period,
if any, for such Product Advance, or if no such Free Financing Period shall be
in effect, from the date of invoice for such Product Advance, in each case,
until such Product Advance shall become due and payable in accordance with the
terms of this Agreement, at a per annum rate equal to the lesser of (a) the
finance charge set forth in Attachment A to this Agreement as the "Product
Advance Charge" and (b) the highest rate from time to time permitted by
applicable law. In addition, for any Product Advance with respect to which a
Free Financing Period shall not be in effect, Customer shall pay a fee equal to
50 basis points of such Product Advance. Such fee shall be due and payable on
the Common Due Date for such Product Advance. If it is determined that amounts
received from Customer were in excess of the highest rate permitted by law, then
the amount representing such excess shall be considered reductions to principal
of Advances.
(C) Customer acknowledges that IBM Credit does not warrant the Collateral.
Customer shall be obligated to pay IBM Credit in full even if the Collateral is
defective or fails to conform to the warranties extended by the Authorized
Supplier. The Obligations of Customer shall not be affected by any dispute
Customer may have with any manufacturer, distributor or Authorized Supplier.
Customer will not assert any claim or defense which it may have against any
manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's
debt to IBM Credit in respect of the Outstanding Advances until such Supplier
Credits are applied by IBM Credit.
(E) IBM Credit may apply any payments and Supplier Credits received by IBM
Credit to reduce finance charges first and then to principal amounts of Advances
owed by Customer. IBM Credit may apply principal payments to the oldest
(earliest) invoices (and related Product Advances) first, but, in any case, all
principal payments will be applied in respect of the Outstanding Product
Advances made for Products which have been sold, lost, stolen, destroyed,
damaged or otherwise disposed of prior to any other application thereof.
<PAGE>
(F) Customer will indemnify and hold IBM Credit harmless from and against
any claims or demands asserted by any Person relating to or arising from the
Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the Collateral by
any representative of Customer, or any act or failure to act by Customer except
to the extent such claims or demands are directly attributable to IBM Credit's
gross negligence or willful misconduct. Nothing contained in the foregoing
shall impair any rights or claims which the Customer may have against any
manufacturer, distributor or Authorized Supplier.
2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide a
WCO Advance, Customer shall deliver to IBM Credit (i( written notice of
Customer's request for such an Advance ("Request for A/R Advance") and (ii) a
Collateral Management Report. For any requested A/R Advance pursuant to which
monies will be disbursed to Customer or any Person other than IBM Credit, a
Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00
p.m. (Stamford, CT time) one Business Day prior to the requested A/R Advance
Date. The Request for A/R Advance shall specify (i) the requested A/R Advance
Date; (ii) the amount of the requested A/R Advance; and (iii) if applicable, the
amount of the requested A/R Advance that should be applied to the Outstanding
Product Advances. Customer may deliver a Request for A/R Advance via facsimile.
Any Request for A/R Advance delivered to IBM Credit shall be irrevocable.
(B) Subject to the terms and conditions of this Agreement, on the A/R Advance
Date specified in a Request for A/R Advance, IBM Credit shall make the principal
amount of each A/R Advance available to the Customer in immediately available
funds to an account maintained by Customer (or in the case of a Takeout Advance,
as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a
day on which Customer is to repay all or any part of an Outstanding Advance (or
any other amount owing hereunder), IBM Credit shall apply the proceeds of the
A/R Advance to such repayment and only an amount equal to the difference, if
any, between the amount of the A/R Advance and the amount being repaid shall be
made available to Customer as provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "A/R
Finance Charge" for such type of A/R Advance, and (b) the highest rate from time
to time permitted by applicable law. If it is determined that amounts received
from the Customer were in excess of such highest rate, then the amount
representing such excess shall be considered reductions to principal of
Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance, other than a Takeout Advance, shall be due
and payable on the applicable Common Due Date. Unless otherwise notified by
Customer in writing prior to the day the principal amount of any Advance becomes
due and payable, the Customer shall be deemed to have provided IBM Credit with a
Request for A/R
<PAGE>
Advance requesting a WCO Advance on the day such principal amount is due and
payable in an amount equal to the unpaid principal amount of the WCO Advance so
due. Subject to the terms and conditions of this Agreement, the principal
amount of such Advance shall automatically renew for an additional WCO Advance
Term. Notwithstanding any other provision of this Agreement, a Takeout Advance
may only be requested on the closing date and such Takeout Advance shall be
limited to an amount sufficient to discharge the indebtedness that is the
subject of a Takeout Advance. Unless otherwise agreed in writing, a Takeout
Advance shall be due one hundred eighty (180) days from the date of the Takeout
Advance.
2.4. Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Product Advance Charge or A/R
Finance Charge provided for in this Agreement by Customer's applicable Average
Daily Balance. The Delinquency Fee Rate, the Product Advance Charge and the
various A/R Finance Charges provided for in this Agreement are each computed on
the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by Customer. The
Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, will be set forth in
IBM Credit's monthly billing statement to Customer and shall be payable on the
15th day of each month, or IBM Credit may, in its sole discretion, add unpaid
finance charges and Other Charges to the Customer's outstanding Advances.
(D) If any amount owed under this Agreement, including, without
limitation, any Advance, is not paid when due (whether at maturity, by
acceleration or otherwise), the unpaid amount thereof will bear a late charge
from and including its due date to but not including the date IBM Credit
receives payment thereof, at a per annum rate equal to the lesser of (a) the
amount set forth in Attachment A to this Agreement as the "Delinquency Fee Rate"
and (b) the highest rate from time to time permitted by applicable law. In
addition, if any Shortfall Amount shall not be paid when due pursuant to Section
2.6 hereof, Customer shall pay IBM Credit an additional late charge equal to the
product of the Shortfall Amount multiplied by thirty (30) basis points. If it
is determined that amounts received from Customer were in excess of such highest
rate, then the amount representing such excess shall be considered reductions to
principal of Advances.
2.5. Statements Regarding Customer's Account. IBM Credit will send statements
of each transaction hereunder as well as monthly billing statements to Customer
with respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within seven (7) calendar
<PAGE>
days after such statement of transaction or billing statement is received by
Customer, Customer provides IBM Credit written notice objecting that such amount
or transaction is incorrectly described therein and specifying the error(s), if
any, contained therein. IBM Credit may at any time adjust such statements of
transaction or billing statements to comply with applicable law and this
Agreement.
2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer
shall on such date prepay the Outstanding Advances in an amount equal to such
Shortfall Amount.
2.7. Application of Payments. The Customer hereby agrees that all checks and
other instruments delivered to IBM Credit on account of Customer's Obligations
shall constitute conditional payment until such items are actually collected by
IBM Credit. The Customer waives the right to direct the application of any and
all payments at any time or times hereafter received by IBM Credit on account of
the Customer's Obligations. Customer agrees that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such payments to
Customer's Obligations in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and records.
2.8. Prepayment and Reborrowing By Customer. (A) Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Customer or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Customer in accordance with the provisions of this Agreement.
Section 3. LINE OF CREDIT
ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account obligor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or performance of services
on non-standard terms or that allow for payment to be made more than forty-five
(45) days from the date of such sale or performance of services;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
<PAGE>
(C) Accounts payable by an account debtor if fifty percent (50%) or more
of the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;
(D) Accounts payable by an account debtor that is an Affiliate of Customer
or an officer, employee, agent, guarantor, stockholder or Affiliate of Customer
or is related to or has common shareholders, officers or directors with
Customer;
(E) Accounts arising from consignment sales;
(F) Except for state, local and United States government institutions and
public educational institutions, accounts with respect to which the payment by
the account debtor is conditional;
(G) Except for state, local and United States government institutions and
public educational institutions, accounts with respect to which:
(i) the account debtor is not a commercial entity, or
(ii) the account debtor is not a resident of the United
States, except to the extent that such account debtor is Ingram Micro,
Inc. (Canada) or Merisel Canada Inc.
(H) Accounts payable by any account debtor to which Customer is or may
become liable for goods sold or services rendered by such account debtor to
Customer;
(I) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods that has
been used for demonstration purposes or loaned or leased by the Customer to
another party;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected, first
priority security interest;
(M) Accounts payable by an account debtor that is or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other law
for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any account debtor that is a remarketer of
computer hardware and software products and whose purchases of such products
from Customer have been financed by another person who pays the proceeds of such
financing directly to Customer on behalf of such obligor;
<PAGE>
(P) Accounts arising from the sale or lease of goods which are billed to
any account debtor but have not yet been shipped by Customer;
(Q) Accounts with respect to which Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of any
kind or nature, including, but not limited to, any change or modification to the
terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified in
Customer's terms and conditions with its account debtors, or for any longer
period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that are billed
in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts, credits,
and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in its sole and
absolute discretion, to be ineligible.
The aggregate of all Accounts that are not ineligible Accounts shall hereinafter
be referred to as "Eligible Accounts".
3.2. Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3. Lockbox and Special Account. Customer shall establish and maintain
lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A
with the financial institution(s) listed in Attachment A (each, a "Bank")
pursuant to an agreement between the Customer and each Bank in form and
substance satisfactory to IBM Credit. Customer shall also establish and
maintain a deposit account which shall contain only proceeds of Customer's
Accounts ("Special Account") with each Bank. Customer shall enter into and
maintain a contingent blocked account agreement with each Bank for the benefit
of IBM Credit in form and substance satisfactory to IBM Credit pursuant to
which, among other things, such Bank shall agree that, upon notice from IBM
Credit, disbursements from the Special Account shall be made only as IBM Credit
shall direct.
3.4. Collections. Customer shall instruct all Account obligors to remit
payments directly to a Lockbox. In addition, Customer shall have
<PAGE>
such instruction printed in conspicuous type on all invoices. Customer shall
instruct such Bank to deposit all remittances to such Bank's Lockbox into its
Special Account. Customer further agrees that it shall not deposit or permit any
deposits of funds other than remittances paid in respect of the Accounts into
the Special Account(s) or permit any commingling of funds with such remittances
in any Lockbox or Special Account. Without limiting the Customer's foregoing
obligations, if, at any time, Customer receives a remittance directly from an
account obligor, then Customer shall make entries on its books and records in a
manner that shall reasonably identify such remittances and shall keep a separate
account on its record books of all remittances so received and deposit the same
into a Special Account. Until so deposited into the Special Account, Customer
shall keep all remittances received in respect of Accounts separate and apart
from Customer's other property so that they are capable of identification as the
proceeds of Accounts in which IBM Credit has a security interest.
3.5. Application of Remittances and Credits. Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no later
than the end of the Business Day on which such remittances are deposited into
the Special Account. Customer also agrees to apply each remittance against its
respective Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In addition, Customer shall
promptly apply any credits owing in respect to any Account when due.
3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Agreements;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligation; and
upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
<PAGE>
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account obligor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
(K) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligation;
(L) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account obligors;
(M) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies it
may have under this Agreement, at law or otherwise; and
(N) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and
(O) take control in any manner of any term of payment or proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and performance of
the Obligations when due (whether at the stated maturity, by acceleration or
otherwise), Customer hereby grants IBM Credit a security interest in all of
Customer's right, title and interest in and to the following property, whether
now owned or hereafter acquired or existing and wherever located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
<PAGE>
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to Customer, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
and all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;
(C) general intangibles, excluding patents, trademarks, trade names and
copyrights, but including the right of Customer to receive payment in respect of
patents, trademarks, trade names and copyrights;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral".
Customer covenants and agrees with IBM Credit that: (a) the security constituted
to by this Agreement is in addition to any other security from time to time held
by IBM Credit and (b) the security hereby created is a continuing security
interest and will cover and secure the payment of all Obligations both present
and future of Customer to IBM Credit pursuant to this Agreement and the Other
Agreements.
4.2. Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Agreements. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interests in the Collateral.
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of This Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(A) this Agreement executed and delivered by Customer and IBM Credit;
(B) (i) copies of the resolutions of the Board of Directors of Customer
certified by the secretary or assistant secretary of Customer authorizing the
execution, delivery and performance of this Agreement and each Other Agreement
executed and delivered in connection herewith, (ii) a certificate of the
secretary or an assistant secretary of
<PAGE>
Customer, in form and substance satisfactory to IBM Credit, certifying the names
and true signatures of the officers of Customer authorized to sign this
Agreement and the Other Agreements and (iii) copies of the articles of
incorporation and by-laws of Customer certified by the secretary or assistant
secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(D) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit, which are required to enable
Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Agreements, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Agreements;
(E) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and each
Bank in form and substance satisfactory to IBM Credit;
(G) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
Customer as set forth in Attachment A;
(H) a favorable opinion of counsel for Customer, satisfactory to IBM
Credit, in substantially the form of Attachment I;
(I) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by Customer and each guarantor whose guaranty to IBM
Credit is intended to be secured by a pledge of its assets;
(J) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(K) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2 Conditions to each Advance. No Advance will be required to be made or
renewed by IBM Credit under this Agreement unless, on and as of the date of such
Advance, the following statements shall be true to the satisfaction of IBM
Credit:
(A) The representations and warranties contained in this Agreement or in
any document, instrument or agreement executed in connection
<PAGE>
herewith, are true and correct in all material respects on and as of the date of
such Advance as though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result which would
constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.3 (D)) for
an Advance hereunder and the receipt (or deemed receipt) by the Customer of the
proceeds of any Advance hereunder shall be deemed to be a representation and
warranty by Customer that, as of and on the date of such Advance, the statements
set forth in (A) through (D) above are true statements. No such disclosures by
Customer to IBM Credit shall in any manner be deemed to satisfy the conditions
precedent to each Advance that are set forth in this Section 5.2.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
6.1. Organization and Qualifications. Customer and each of its Subsidiaries
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) has the power and
authority to own its properties and assets and to transact the businesses in
which it presently is engaged and (iii) except as otherwise disclosed in
Attachment B, is duly qualified and is authorized to do business and is in good
standing in each jurisdiction where it presently is engaged in business and is
required to be so qualified.
6.2. Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the
Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties
and the Other Agreements in the Collateral constitute the valid and enforceable
first, prior and perfected Liens on the Collateral, except to the extent any
Liens that are prior to IBM Credit's Liens are (i) the subject of an
Intercreditor Agreement or (ii) Purchase Money Security Interests in product of
a brand that is not financed by IBM Credit.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Agreements (i) are within its corporate power;
(ii) are duly authorized by all necessary corporate action; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other
<PAGE>
commitment to which it is a party or by which it or any of its properties are
bound; (iv) do not require the consent, registration or approval of any
Governmental Authority or any other Person (except such as have been duly
obtained, made or given, and are in full force and effect); and (v) will not,
except as contemplated herein, result in the imposition of any Liens upon any of
its properties.
6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
location. There is no jurisdiction in which Customer has any assets, equipment
or inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment
B, as amended from time to time by any notice provided by Customer to IBM Credit
in accordance with Section 7.7(C) of this Agreement, also contains a complete
list of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns.
6.6. Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
6.7. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. Except as set forth on Attachment B, the Customer is not in
default under any term of any indenture, contract, lease, agreement, instrument
or other commitment to which it is a party or by which it, or any of its
properties are bound. Customer has no knowledge of any dispute regarding any
such indenture, contract, lease, agreement,
<PAGE>
instrument or other commitment. No Default or Event of Default has occurred and
is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(F) of this Agreement, the Customer is not a
party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could reasonably
be expected to have a Material Adverse Effect.
6.11. Compliance with Law. Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan.
Customer has no "multi- employer benefit plan". As used in this Agreement the
terms "employee benefit plan", "employee pension benefit plan", "defined benefit
plan", and "multi-employer benefit plan" have the respective meanings assigned
to them in Section 3 of ERISA and any applicable rules and regulations
thereunder. The Customer has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or incurred any liability to the Pension Benefit
Guaranty Corporation (the "PBGC") in connection with a Plan (other than for
premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substance; (ii) the Customer is not currently generating, transporting
or disposing of any Hazardous Substance; (iii) the Customer has no knowledge
that (a) any of its real property (whether owned, leased, or otherwise directly
or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substance, or (b) any of its business operations
have contaminated lands or waters of others with any Hazardous Substance; (iv)
the Customer and its respective assets are not subject to any Environmental
Liability and, to the best of the Customer's knowledge, any threatened
Environmental Liability; (v) the Customer has not received any notice of or
otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substance for which the Customer may be liable; (vi) the Customer
is not in violation of any Environmental Law; (vii) there are no proceedings or
investigations pending against Customer with
<PAGE>
respect to any violation or alleged violation of any Environmental Law; provided
however, that the parties acknowledge that any generation, transportation, use,
storage and disposal of certain such Hazardous Substances in Customer's or its
Subsidiaries' business shall be excluded from representations (i) and (ii)
above, provided, further, that Customer is at all times generating,
transporting, utilizing, storing and disposing such Hazardous Substances in
accordance with all applicable Environmental Laws and in a manner designed to
minimize the risk of any spill, contamination, release or discharge of Hazardous
Substances other than as authorized by Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade names
and trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Agreements or to perform its
obligations hereunder or thereunder.
6.17. Taxes and Tax Returns. Except as otherwise disclosed on Attachment B,
Customer has timely filed all federal, state, and local tax returns and other
reports which it is required by law to file, and has either duly paid all taxes,
fees and other governmental charges indicated to be due on the basis of such
reports and returns or pursuant to any assessment received by the Customer, or
made provision for the payment thereof in accordance with GAAP. The charges and
reserves on the books of the Customer in respect of taxes or other governmental
charges are in accordance with GAAP. No tax liens have been filed against
Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide
sale and delivery of goods or rendition of services to customers, made by
Customer, in the ordinary course of its business; the goods and inventory being
sold and the Accounts created are its exclusive property and are not and shall
not be subject to any Lien, consignment arrangement, encumbrance, security
interest or financing statement whatsoever (other than Permitted Liens). The
Customer's customers have
<PAGE>
accepted goods or services and owe and are obligated to pay the full amounts
stated in the invoices according to their terms. There are no proceedings or
actions known to Customer which are pending or threatened against any Material
Account Obligor (as defined in Section 7.14(B) of this Agreement) of any of the
Accounts which could reasonably be expected to result in a material adverse
effect on the obligor's ability to pay the full amounts due to Customer.
6.19. Affiliate/Subsidiary Transactions. Except as set forth on Attachment B,
Customer is not a party to or bound by any agreement or arrangement (whether
oral or written) to which any Affiliate or Subsidiary of the Customer is a party
except (i) in the ordinary course of and pursuant to the reasonable requirements
of Customer's business and (ii) upon fair and reasonable terms no less favorable
to Customer than it could obtain in a comparable arm's-length transaction with
an unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Agreement, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Customer (i) audited Financial Statements
(provided that, to the extent not otherwise audited by the Auditors, the
consolidating Financial Statements may be unaudited) as of the close of the
fiscal year and for the fiscal year, together with a comparison to the Financial
Statements for the prior year, in each case accompanied by (a) either an opinion
of the Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which
<PAGE>
shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such
Auditors' "Management Letter" to Customer, if any, (c) a written statement
signed by the Auditors stating that in the course of the regular audit of the
business of Customer and its consolidated Subsidiaries, which audit was
conducted by the Auditors in accordance with generally accepted auditing
standards, the Auditors have not obtained any knowledge of the existence of any
Default under any provision of this Agreement, or, if such Auditors shall have
obtained from such examination any such knowledge, they shall disclose in such
written statement the existence of the Default and the nature thereof, it being
understood that such Auditors shall have no liability, directly or indirectly,
to anyone for failure to obtain knowledge of any such Default; (ii) if composed,
a narrative discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of Customer and
its Subsidiaries for such fiscal year prepared by the chief executive officer or
chief financial officer of Customer; and (iii) a Compliance Certificate along
with a schedule, in substantially the form of Attachment C hereto, of the
calculations used in determining, as of the end of such fiscal year, whether
Customer is in compliance with the financial covenants set forth in Attachment
A;
(B)(1) As soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of Customer (i) Financial Statements as of
the end of such period and for the fiscal year to date, together with a
comparison to the Financial Statements for the same periods in the prior year,
all in reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of Customer as having been prepared in
accordance with GAAP; (ii) if composed, a narrative discussion of the
consolidated financial condition and results of operations and the consolidated
liquidity and capital resources of Customer and its Subsidiaries for such period
and for the fiscal year to date prepared by the chief executive officer or chief
financial officer of Customer; and (iii) a Compliance Certificate along with a
schedule, in substantially the form of Attachment C hereto, of the calculations
used in determining, as of the end of such fiscal quarter, whether Customer is
in compliance with the financial covenants set forth in Attachment A;
(B)(2) As soon as available and in any event within twenty (20) days after
the end of each fiscal month of customer, Financial Statements as of the end of
such period and for the fiscal year to date, all in reasonable detail and duly
certified (subject to normal year-end audit adjustments and except for the
absence of footnotes) by the chief executive officer or chief financial officer
of customer as having been prepared in accordance with GAAP;
(C) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of the chief executive officer
or chief financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
<PAGE>
(D) promptly after Customer obtains knowledge of (i) any proceeding(s)
being instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
the chief executive officer or chief financial officer of Customer specifying
the nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
(E) promptly after Customer obtains knowledge that (i) any order, judgment
or decree in excess of five hundred thousand dollars ($500,000) shall have been
entered against Customer or any of its properties or assets, or (ii) it has
received any notification of a material violation of any Requirement of Law from
any Governmental Authority, a certificate of the chief executive officer or
chief financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(F) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of the chief
executive officer or chief financial officer of Customer specifying the nature
thereof and the Customer's proposed response thereto, each in reasonable detail;
(G) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the Customer's
or any guarantor's business affairs and financial condition;
(H) by the fifth (5th) day of each month, or as otherwise agreed in
writing, a Collateral Management Report as of a date no earlier than the last
day of the immediately preceding month;
(I) along with the Financial Statements set forth in Section 7.1(A) and
(B), the name, address and phone number of each of its account debtors' primary
contacts for each Account on the Accounts aging report contained in its most
recent Collateral Management Report; and
(J) within five (5) days after the same are sent, copies of all financial
statements and reports which Customer sends to its stockholders, and within five
(5) days after the same are filed, copies of all financial statements and
reports which Customer may make to, or file with, the Securities and Exchange
Commission or any successor or analogous governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an authorized officer of Customer, and which signature shall be
deemed a representation and warranty that the information contained in such
certificate, schedule or report is true and accurate in all material respects on
the date as of which such
<PAGE>
certificate, schedule or report is made and does not omit to state a material
fact necessary in order to make the statements contained therein not misleading
at such time. Each financial statement delivered pursuant to this Section 7.1
shall be prepared in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods.
7.2. Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
7.3. Changes in Customer. Customer shall provide 30 days prior written notice
to IBM Credit of any change in Customer's name, chief executive office and
principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
under this Agreement or any Other Agreement limiting actions of the type
described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC has instituted or will institute proceedings to terminate any
Plan. Notwithstanding the foregoing, the Customer shall have no obligation to
notify IBM Credit as to any "reportable event" as to which the 30-day notice
requirement of Section 4043(b) has been waived by the PBGC, until such time as
such Customer is required to notify the PBGC of such reportable event. Such
notification shall include a certificate of the chief financial officer of
Customer setting forth details as to such "reportable event" and the action
which Customer proposes to take with respect thereto, together with a copy of
any notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (i) comply with all Environmental Laws in all material respects,
and (ii) undertake to use commercially reasonable efforts to prevent any
unlawful release of any Hazardous Substance by Customer or such Person into,
upon, over or under any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer.
<PAGE>
(B) Customer shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any Governmental
Authority with respect to the presence of any Hazardous Substances on or in any
property now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customer's assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customer's
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, and (iv) any
occurrence or condition which could constitute a violation of any Environmental
Law.
7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Accounts.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any time at all
on and after the occurrence and during the continuance of an Event of Default
for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining thereto, (iii)
discussing the affairs, finances and business of Customer with any officers,
employees and directors of Customer or with the Auditors and (iv) verifying
Eligible Accounts and other Collateral. Customer also agrees to provide IBM
Credit with such reasonable information and documentation that IBM Credit deems
necessary to conduct the foregoing activities, including, without limitation,
reasonably requested samplings of purchase orders, invoices and evidences of
delivery or other performance. Upon the occurrence and during the continuance
of an Event of Default which has not been waived by IBM Credit in writing, IBM
Credit may conduct any of the foregoing activities in any manner that IBM Credit
deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice
of any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity or
quality of the Collateral, or any event which could reasonably be expected to
have a Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
<PAGE>
7.8. Insurance; Casualty Loss. (A) Customer will maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks with case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In
addition, all Policies so maintained with respect to this Section 7.8 (i) and
(ii) are to name IBM Credit as an additional insured as its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall keep
and maintain, at its sole expense, the Collateral insured for an amount not less
than the amount set forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an "all risk"
Policy in companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit. Upon
receipt of proceeds by IBM Credit the same shall be applied on account of the
Customer's Outstanding Product Advances first, then to the Outstanding A/R
Advances. Customer agrees to instruct each insurer to give IBM Credit, by
endorsement upon the Policy issued by it or by independent instruments furnished
to IBM Credit, at least ten (10) days written notice before any Policy shall be
altered or cancelled and that no act or default of Customer or any other person
shall affect the right of IBM Credit to recover under the Policies. Customer
hereby agrees to direct all insurers under the Policies to pay all proceeds with
respect to the Collateral directly to IBM Credit. If Customer fails to pay any
cost, charges or premiums, or if Customer fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit
hereunder shall be considered an additional debt owed by Customer to IBM Credit
and are due and payable immediately upon receipt of an invoice by IBM Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, or to the operation of its
business.
<PAGE>
7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year
ending December 31 unless Customer provides IBM Credit at least thirty (30) days
prior written notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.14. Collateral. Customer shall:
(A) if from time to time reasonably required by IBM Credit, provide IBM
Credit with access to copies of all invoices, delivery evidences and other such
documents relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account obligor whose outstanding obligations to Customer
constitute two percent (2%) or more of the Accounts at such time (a "Material
Account Obligor");
(C) promptly upon Customer's learning thereof, notify IBM Credit in
writing of any event which would cause any obligation of a Material Account
Obligor to become an Ineligible Account;
(D) keep all goods rejected or returned by any account debtor and all
goods repossessed or stopped in transit by Customer from any account debtor
segregated from other property of Customer, holding the same in trust for IBM
Credit until Customer applies a credit against such account debtor's outstanding
obligations to Customer or sells such goods in the ordinary course of business,
whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer
<PAGE>
shall, upon demand of IBM Credit, make, execute and deliver any assignments and
other instruments sufficient for the purpose of assigning any such award or
payment to IBM Credit, free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform
all matters and things necessary or expedient to be observed or performed under
or by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof; and
(J) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith.
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of any assets other than (i)
sales of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property,
other than patents, trademarks, trade names and copyrights, in the ordinary
course of business, provided, that the aggregate book value of all such assets
and property so sold or disposed of under this section 8.2 (ii) in any fiscal
year shall not exceed 5% of the consolidated assets of the Customer as of the
beginning of such fiscal year.
<PAGE>
8.3. Corporate Changes. The Customer will not, without the prior written
consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate,
dissolve or enter into or engage in any operation or activity materially
different from that presently being conducted by Customer; it being understood
that the manufacture and/or sale of "Apple clones" pursuant to the Macintosh
operating system license in favor of Customer shall not constitute an operation
or activity materially different from that presently being conducted by
Customer.
8.4. Guaranties. The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any other
Person, except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities in connection with the sale of inventory or other
asset dispositions permitted hereunder, (iii) for guaranties in favor of IBM
Credit, or (iv) for Permitted Indebtedness.
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any dividend (other than dividends payable solely in common stock
of Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Customer, provided, however that Customer may purchase for cash
from directors, officers and employees of Customer shares of capital stock in
connection with the termination of any such director's, officer's or employee's
service to Customer to the extent such purchases are consistent with past
practices (which may not be changed without IBM Credit's prior consent) and are
in an aggregate amount not exceeding five hundred thousand dollars ($500,000)
per annum; or (ii) make any optional payment or prepayment on or redemption
(including, without limitation, by making payments to a sinking or analogous
fund) or repurchase of any Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or indirectly, make,
maintain or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
(B) direct obligations of the government of the United States of America
or any agency or instrumentality thereof or obligations guaranteed as to
principal and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims
against others by reason of an event of bankruptcy or a
<PAGE>
composition or the readjustment of debt or a reorganization of any debtor of
Customer; and
(D) commercial paper of any corporation organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation.
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and pursuant to the reasonable requirements of
Customer's business upon fair and reasonable terms no less favorable to Customer
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited transactions"
under the Code or ERISA, (C) fail to pay to any Plan any contribution which they
are obligated to pay under the terms of such Plan, if such failure would result
in a material "accumulated funding deficiency", whether or not waived, (D) allow
or suffer to exist any occurrence and during the continuance of a "reportable
event" or any other event or condition, which presents a material risk of
termination by the PBGC of any Plan (other than a "multi-employer benefit
plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in
this Agreement, the terms "accumulated funding deficiency" and "reportable
event" shall have the respective meanings assigned to them in ERISA, and the
term "prohibited transaction" shall have the meaning assigned to it in the Code
and ERISA. For purposes of this Section 8.8, the terms material liability, tax,
penalty, accumulated funding deficiency and risk of termination shall mean a
liability, tax, penalty, accumulated funding deficiency or risk of termination
which could reasonably be expected to have a Material Adverse Effect.
8.9. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer will, concurrently with the delivery of
such Collateral to such party, (i) cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral, or
<PAGE>
(ii) cause such party to refrain from issuing any warehouse receipt evidencing
the storage of such Collateral.
8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds
of any Advances other than to acquire Products from Authorized Suppliers and for
its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would affect IBM Credit's ability to collect payment on any Account in
whole or in part, except for such extensions, compromises or settlements made by
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of the Customer's Accounts at any time.
8.13. Indebtedness. The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.
8.14. Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement, provided, however, that
Customer may make loans to its officers in an aggregate outstanding amount at
any time not exceeding seven hundred fifty thousand dollars ($750,000), and to
its Subsidiaries in an aggregate outstanding amount at any time not exceeding
five hundred thousand dollars ($500,000).
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall constitute
an Event of Default by the Customer under this Agreement and the Other
Agreements:
(A) The failure to make timely payment of the Obligations or any part
thereof, within the earlier of (i) one Business Day after receiving written
notice that such payment has not been made when due in accordance with the terms
of any documents evidencing the same and (ii) five days after such payment
becomes due in accordance with the terms of any documents evidencing the same;
(B) (x) the failure to comply with or observe any term, covenant or
agreement (other than pursuant to Sections 7.1 (C) (i), 8.1, 8.2 or 8.3)
contained in this Agreement that is capable of being remedied by Customer if
such failure shall remain unremedied for ten (10) days after written notice from
IBM Credit thereof; provided that during such 10-day period Customer is
diligently taking efforts necessary to remedy such failure or (y) Customer fails
to comply with or observe any term, covenant or agreement contained in Sections
8.1, 8.2 or 8.3 that is capable of being remedied by Customer if such failure
shall remain unremedied for 10 days; provided that during such 10-day period,
Customer is diligently taking efforts necessary to remedy such failure;
<PAGE>
(C) Customer fails to comply with or observe any term, covenant or agreement
contained in this Agreement other than as referred to in paragraphs (A) or (B);
(D) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any Guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
(E) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;
(F) Customer, any Subsidiary or any Guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer, any Subsidiary or any Guarantor or any of its respective properties or
have any of its respective properties seized or attached, or take any action to
authorize, or for the purpose of effectuating, the foregoing, provided, however,
that Customer, any Subsidiary or any Guarantor shall have a period of forty-five
(45) days within which to discharge any involuntary petition for bankruptcy or
similar proceeding;
(G) The use of any funds borrowed from IBM Credit under this Agreement for
any purpose other than as provided in this Agreement;
(H) The entry of any judgment against Customer or any Guarantor in an
amount in excess of five hundred thousand dollars ($500,00) and such judgment is
not satisfied, dismissed, stayed or superseded by bond within thirty (30) days
after the day of entry thereof (and in the event of a stay or supersedeas bond,
such judgment is not discharged within thirty (30) days after termination of any
such stay or bond) or such judgment is not fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such judgment
in full;
(I) The dissolution or liquidation of Customer or any Guarantor, or
Customer or any Guarantor or its directors or stockholders shall take any action
to dissolve or liquidate Customer or any Guarantor;
(J) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of his opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;
(K) There issues a warrant of distress for any rent or taxes with respect
to any premises occupied by Customer in or upon which the Collateral, or any
part thereof, may at any time be situated and such warrant shall continue for a
period of ten (10) Business Days from the date such warrant is issued;
(L) Customer suspends business;
<PAGE>
(M) The occurrence of any event or condition which enables the holder of
any Indebtedness arising in one or more related or unrelated transactions, in
aggregate principal amount exceeding five hundred thousand dollars ($500,00) to
accelerate the maturity thereof or the failure of Customer to pay when due any
such Indebtedness;
(N) Any guaranty of any or all of the Customer's Obligations executed by
any guarantor in favor of IBM Credit, shall at any time for any reason cease to
be in full force and effect or shall be declared to be null and void by a court
of competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor shall deny that
it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;
(O) Customer is in default under the material terms of any of the Other
Agreements after the expiration of any applicable cure periods;
(P) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;
(Q) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may,
in its sole discretion, take any or all of the following actions, without
prejudice to any other rights it may have at law or under this Agreement to
enforce its claims against the Customer: (a) declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 9.1(E) hereof, in which case all Obligations shall
automatically become immediately due and payable without the necessity of any
notice or other demand) without presentment, demand, protest or any other action
or obligation of IBM Credit; and
(b) immediately terminate the Line of Credit hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, IBM Credit
may exercise all rights and remedies of a secured party under the U.C.C.
Without limiting the generality of the foregoing, IBM Credit may: (i) remove
from any premises where same may be located any and all documents, instruments,
files and records (including the copying of any computer records), and any
receptacles or cabinets containing same, relating to the Accounts, or IBM Credit
may use (at the expense of the Customer) such of the supplies or space of the
Customer at Customer's place of business or otherwise, as may be necessary to
properly
<PAGE>
administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit
and generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at IBM Credit's sole option and discretion, and IBM
Credit may bid or become a purchaser at any such sale; and (iv) foreclose the
security interests created pursuant to this Agreement by any available judicial
procedure, or to take possession of any or all of the Collateral without
judicial process and to enter any premises where any Collateral may be located
for the purpose of taking possession of or removing the same.
(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale. If IBM Credit, in its sole discretion determines
that any of the Collateral requires rebuilding, repairing, maintenance or
preparation, IBM Credit shall have the right, at its option, to do such of the
aforesaid as it deems necessary for the purpose of putting such Collateral in
such saleable form as IBM Credit shall deem appropriate. The Customer hereby
agrees that any disposition by IBM Credit of any Collateral pursuant to and in
accordance with the terms of a repurchase agreement between IBM Credit and the
manufacturer or any supplier (including any Authorized Supplier) of such
Collateral constitutes a commercially reasonable sale. The Customer agrees, at
the request of IBM Credit, to assemble the Collateral and to make it available
to IBM Credit at places which IBM Credit shall select, whether at the premises
of the Customer or elsewhere, and to make available to IBM Credit the premises
and facilities of the Customer for the purpose of IBM Credit's taking possession
of, removing or putting such Collateral in saleable form. If notice of intended
disposition of any Collateral is required by law, it is agreed that ten (10)
Business Days notice shall constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM
Credit is hereby granted, upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, an
irrevocable, non-exclusive license to use, assign, license or sublicense all
computer software programs, data bases, processes and materials used by the
Customer in its businesses or in connection with any of the Collateral.
<PAGE>
(D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral
by any court process Customer hereby irrevocably waives to the extent permitted
by applicable law any bonds, surety and security relating thereto required by
any statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the
extent permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that they intend to terminate this Agreement which date shall be
no less than 90 days following the receipt by IBM Credit of such written notice,
and (iii) termination by IBM Credit after the occurrence and during the
continuance of an Event of Default. Upon the date that this Agreement is
terminated, all of Customer's Obligations shall be immediately due and payable
in their entirety, even if they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Agreements
shall in any way affect or impair the Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to such
termination, and IBM Credit's security interest in the Collateral.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person
<PAGE>
that shall be acquired by Customer or (iii) any Person that Customer may acquire
all or substantially all of the assets of, or (b) directly or indirectly,
relating to the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby or thereby or to any of the
Collateral or to any act or omission of the Customer in connection therewith.
Notwithstanding the foregoing, the Customer shall not be obligated to indemnify
IBM Credit for any Losses incurred by IBM Credit which are a result of IBM
Credit's gross negligence or willful misconduct. The indemnity provided herein
shall survive the termination of this Agreement. IBM Credit shall notify
Customer in writing promptly upon obtaining knowledge of any claim subject to
indemnification pursuant to this paragraph 10.2 and shall use reasonable efforts
to minimize the amount of any indemnified Loss.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM
Credit in performing in satisfaction or on account of the foregoing and any
expenses, including reasonable attorney's fees, court costs, and other charges
relating thereto, shall be a part of the Obligations, payable on demand and
secured by the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM
HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5. Alteration/Waiver. This Agreement and the Other Agreements may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Agreements, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Agreement shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Agreements shall not waive or affect
any other Default by the Customer under this Agreement or any of the Other
Agreements, whether such Default is prior or subsequent to such other Default
and whether of
<PAGE>
the same or a different type. None of the undertakings, agreements, warranties,
covenants, and representations of the Customer contained in this Agreement or
the Other Agreements and no Default by the Customer shall be deemed waived by
IBM Credit unless such waiver is in writing signed by an authorized
representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Agreements
or the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Agreements
being severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Agreements
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations; provided, however, IBM Credit may release to the
Customer such portions of such monies, reserves and proceeds as IBM Credit may
from time to time determine, in its sole discretion.
10.9. No Merger or Novations. Neither the obtaining of any judgment nor the
exercise of any power of seizure or sale shall operate to extinguish the
Obligations of the Customer to IBM Credit secured by this Agreement and shall
not operate as a merger of any covenant in this Agreement, and the acceptance of
any payment or alternate security shall not constitute or create a novation and
the obtaining of a judgment or judgments under a covenant herein contained shall
not operate as a merger of that covenant or affect IBM Credit's rights under
this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the
Other Agreements are for convenience only and do not define or limit the
contents of any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Agreements
shall be binding upon and inure to the benefit of IBM Credit and the Customer
and their respective successors and assigns; provided, that the Customer shall
have no right to assign this Agreement or any of the Other Agreements without
the prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in
<PAGE>
the United States mails, first class mail, with proper postage prepaid, (B) upon
receipt of confirmation or answerback if sent by telecopy, or other similar
facsimile transmission, (C) one Business Day after deposit with a reputable
overnight courier with all charges prepaid, or (D) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number indicated as follows:
(i) If to IBM Credit at:
IBM Credit Corporation
5000 Executive Parkway,Suite #450
San Ramon, CA 94583
Attention: Remarketer Finance Center Manager
Telecopy: (510) 277- 5675
(ii) If to Customer at:
Radius Inc.
215 Moffett Park Drive
Sunnyvale, CA 94089
Attention: David Pine
Telecopy: (408) 541-5838
or to such other address or number as each party designates to the other in the
manner prescribed herein.
10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Advance
Term set forth in Attachment A from time to time if on at least two occasions
during any three-month period a Shortfall Amount has become due and payable and
may modify the Collateral Insurance Amount set forth in Attachment A from time
to time, in each case, by providing Customer with a new Attachment A. Any such
new Attachment A shall be effective as of the date specified in the new
Attachment A.
10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
<PAGE>
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF
WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER
ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused
its authorized representatives to execute this Agreement and has caused its
corporate seal to be affixed hereto as of the date first written above.
RADIUS INC.
By: /s/ Robert W. Saltmarsh
-------------------------------
Print Name: Robert W. Saltmarsh
----------------------
Title: VP Finance/CFO
---------------------------
ACCEPTED this 17th day of February, 1995,
IBM CREDIT CORPORATION
By: /s/ Tracy M. Wyatt
-------------------------------
Print Name: Tracy M. Wyatt
-----------------------
Title: Account Operations Manager
----------------------------
<PAGE>
ATTACHMENT A, EFFECTIVE DATE JANUARY 26, 1995 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED February 17, 1995
Customer: Radius Inc.
I. Fees, Rates and Repayment Terms:
(A) Line of Credit: Thirty Million Dollars ($30,000,000.00)
(B) Borrowing Base:
75% of the amount of the Customer's Eligible Accounts as of the date of
determination as reflected in the Customer's most recent Collateral
Management Report;
(C) Product Advance Charge: Prime Rate plus 1.875%
(D) Product Advance Term: 45 days
(E) Collateral Insurance Amount: Twenty Five Million Dollars ($25,000,000.00)
(F) A/R Finance Charge:
(i) WCO Advance Charge: Prime Rate plus 1.875%
(iii) Takeout Advance Charge: Prime Rate plus 1.875%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(I) Other Charges:
(i) Application Processing Fee: $20,000.00
(ii) Monthly Service Fee: $2,000.00
(iii) Closing Fee: $ N/A
(iv) Commitment Fee: $ N/A
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: Silicon Valley Bank______________________________________________
Address: 3000 Lakeside Drive, Santa Clara, CA 95054___________________________
Phone: (408) 654 - 5586________________________________________________________
Lockbox Address: Dept. No. 05771, San Francisco, CA 94139 - 5711______________
Special Account #: 0351777270
------------------------------------------------------------
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability solely for purposes of determining compliance with the Financial
Covenants.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to creditors other
than IBM Credit which have been subordinated to IBM Credit by said other
creditors in a written and executed agreement between IBM Credit and said
other creditors.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus, to the extent included in Total Net Worth, the
following items:
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses, trademarks,
trade names, copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any thereof,
and other similar intangibles (but not including contract
rights) and other current and non-current assets;
(b) all accounts receivable from officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions, that
require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios and
amounts:
a) At all times from 12/31/94 to 03/30/95 revenue on an annual basis
(i.e., the current fiscal year-to-date Revenue annualized) to Working
Capital ratio greater than zero and equal to or less than 14.0:1.0;
b) Net Profit after Tax to Revenue ratio for the quarter ending 03/31/95
equal to or greater than 0.0% excluding the amount of any
extraordinary charge incurred by Customer on or prior to March 31,
1995 relating to the following Class Action complaints filed with the
United States District Court, Northern District of California, San
Jose Division:
Class Action No. C-92 20611, filed 9/18/92,
Class Action No. C-92 20597, filed 9/14/92,
Class Action No. C-94 20206, filed 3/25/94;
c) At all times from 12/31/94 to 03/30/95 Total Liabilities to Tangible
Net Worth ratio greater than zero and equal to or less than 6.0:1.0.
Customer will be required to maintain the following financial ratios and
amounts:
a) At all times from 03/31/95 to 06/29/95 revenue on an annual basis
(i.e., the current fiscal year-to-date Revenue annualized) to Working
Capital ratio greater than zero and equal to or less than 14.0:1.0;
b) Net Profit after Tax to Revenue ratio for the quarter ending 06/30/95
equal to or greater than 1.1% excluding the amount of any
extraordinary charge incurred by Customer on or prior to March 31,
1995 relating to the following Class Action complaints filed with the
United States District Court, Northern District of California, San
Jose Division:
Class Action No. C-92 20611, filed 9/18/92,
Class Action No. C-92 20597, filed 9/14/92,
Class Action No. C-94 20206, filed 3/25/94;
c) At all times from 03/31/95 to 06/29/95 total Liabilities to Tangible
Net Worth ratio greater than zero and equal to or less than 5.0:1.0.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios and
amounts:
a) From 06/30/95 and maintain at all times thereafter revenue on an
annual basis (i.e., the current fiscal year-to-date Revenue
annualized) to Working Capital ratio greater than zero and equal to or
less than 14.0:1.0;
b) Net Profit after Tax to Revenue ratio for the each quarter ending
subsequent to 06/30/95 equal to or greater than 2.0% excluding the
amount of any extraordinary charge incurred by Customer on or prior to
March 31, 1995 relating to the following Class Action complaints filed
with the United States District Court, Northern District of
California, San Jose Division:
Class Action No. C-92 20611, filed 9/18/92,
Class Action No. C-92 20597, filed 9/14/92,
Class Action No. C-94 20206, filed 3/25/94;
c) From 06/30/95 and maintain at all times thereafter Total Liabilities
to Tangible Net Worth ratio greater than zero and equal to or less
than 3.2:1.0.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (L) of the
Agreement:
. Executed Inventory and Working Capital Financing Agreement and applicable
attachments
. Executed Contingent Blocked Account Amendment:
. Fiscal year-end financial statements of Customer as of September 30, 1994
audited by an independent certified public accountant satisfactory to IBM
Credit and delivered to IBM Credit no later than January 31, 1995;
. Listing of all creditors providing accounts receivable financing to
Customer;
. A Compliance Certificate as to Customer's compliance with the financial
covenants set forth in Exhibit A as of the last fiscal month of Customer
for which Financial Statements have been published;
. A Certificate of Location of Collateral whereby the Customer certifies
where Customer presently keeps or sells inventory, equipment and other
tangible collateral;
. A favorable Opinion of Counsel;
. Intercreditor Agreements from all creditors having a lien which is superior
to IBM Credit in any assets that IBM Credit relies on to satisfy Customer's
obligations to IBM Credit;
. Termination or release of Uniform Commercial Code filing by other creditor
as required by IBM Credit;
. Executed Letter of Direction;
. Executed Letter of Notification;
. Executed Acknowledgement of Payment and Termination from Wells Fargo Bank
. A copy of an all-risk insurance certificate in a form and substance
satisfactory to IBM Credit.
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Other Requirements
. Copies of Resolutions of Board of Directors certified by Secretary
authorizing execution and delivery of the loan agreements;
. Certificate of the Secretary certifying names and signatures of authorized
officers;
. Copies of Certificate of Incorporation and by-laws of Customer
certified by Secretary;
. Copies of any approvals and consents required, if any, to enable Customer
to enter into loan;
. Certificates dates as of a recent date from SOS evidencing good standing of
Customer in all jurisdictions;
. The results of the initial on-site audit to be performed must be acceptable
to IBM Credit.
. A business plan in a form and substance acceptable to IBM Credit.
. Any and all other documents required by IBM Credit.
<PAGE>
IWCP ATTACHMENT TO INVENTORY AND WORKING
CAPITAL FINANCING AGREEMENT
The section numbers used herein correspond to the section of the Inventory
and Working Capital Financing Agreement (the "Financing Agreement") to which the
disclosures relate; however, all information shall be deemed disclosed under
and incorporated into any other section of the Financing Agreement where such
disclosure would be appropriate.
The inclusion of any information herein should not be interpreted as
indicating that Radius Inc. (the "Company") has determined information is
necessary material to the Company and its subsidiaries. In August, 1994, the
Company merged with SuperMac Technology, Inc. ("SuperMac") and assumed all
obligations relating to SuperMac. the following information includes
obligations relating to SuperMac, as appropriate.
6.1 ORGANIZATION AND QUALIFICATIONS.
1. The Company has offices in the following jurisdictions in which it
is qualified to do business: California; Georgia; New York; and Texas.
2. the Company has offices in the following jurisdictions in which it
is NOT qualified to do business: Colorado; Massachusetts; and Ohio. The
Company is in the process of obtaining qualification in each of these states.
The penalties provided by the laws of these three states have been explained to
the Company by counsel, but the Company believes that such penalties would not,
even if applicable, have a material adverse effect on the Company, its business,
or its properties, taken as a whole.
6.3 NO CONFLICTS
Upon the closing of the Credit Agreement, Radius will direct IBM to
pay off the obligations under the Credit Agreement dated August 29, 1994 between
Wells Fargo Bank and Radius Inc. ($15,000,000).
6.5 LOCATIONS OF OFFICES
Address of principal place of business and chief executive office:
Radius Inc.
215 Moffett Park Drive
Sunnyvale, California 94089
6.6 FICTITIOUS BUSINESS NAMES
Radius Inc.
SuperMac Technology, Inc.
6.8 NO JUDGMENTS OR LITIGATION
1. In September of 1992, the Company and certain of its officers and
directors were named in two securities class actions filed in the United States
District Court for the Northern District of California. The parties stipulated
to consolidate the two complaints into one class action in November 1992. The
parties have reached a settlement which is subject to formal approval by the
federal court in San Jose which is anticipated to occur in May, 1995. The
settlement provides for a cash payment of $3.65 million, and the issuance of
128,695 shares of stock valued at $14.375 per share, for a total of $5.5
million. Insurance will cover the entire cash
-1-
<PAGE>
portion of the settlement.
2. The Company entered into a Conciliation Agreement with the US
Department of Labor Office of Federal Contract Compliance Programs ("OFCCP")
dated July 12, 1993 which remained in effect until July 12, 1994. The
Conciliation Agreement was executed following a compliance review by the OFCCP
and alleges that the Company violated certain provisions of Executive Order
11246, as amended; Section 503 of the Rehabilitation Act of 1973, as amended;
the Vietnam Era Veteran's Readjustment Assistance Act of 1974, as amended; and
certain related implementing regulations. The Company has or will remedy the
violations described in the Conciliation Agreement.
3. The Company has been served with a complaint for patent
infringement by Mark Koz. The Company is currently assessing the merits of the
suit which pertains to certain of the Company's digital-video products.
4. SuperMac and certain of its present and former officers and
directors and venture capital firms and investment bankers were named as
defendants in a stockholder class action filed in February 1994 in the United
States District Court for the Northern District of California. The action
claimed that the defendants violated certain federal securities laws by
allegedly making misrepresentations or omissions regarding SuperMac and its
prospects and thereby causing the prices for SuperMac's stock to be artificially
high. The parties have come to a settlement which is subject to formal approval
by the federal court in San Jose which is anticipated to occur in May, 1995.
Under the settlement, the Company will pay $250,000 in cash and issue between
707,609 and 807,609 shares of stock, depending on the value of the stock when it
is distributed to shareholders. The aggregate value of the settlement as of the
settlement date was approximately $10.4 million.
5. Video Processing Technology ("VPT") has asserted in a dispute that
commenced in December of 1981 that the Company's complex video processing
circuits and products may infringe certain basic patents held by VPT covering
time-base corrector and video frame synchronizer technology. The VPR patents
which are the subject of the dispute have now expired in the United States. The
Company has requested that the VPT present a settlement proposal for
consideration by the Company. The Company has requested that VPT present a
settlement proposal for consideration by the Company. The Company believes that
it has numerous defenses to VPT's patent claims and that Phillips Electronics
N.V. is required to indemnify the Company with respect to certain products.
6. In correspondence dated September 29, 1992 counsel for Philips
Electronics N.V. of the Netherlands asserted that the Company's use of the term
SCREENPLAY in connection with its VideoSpigot product infringes Philips' rights
in the mark. The Company met with an attorney from Philips and provided
additional information with respect to the Company's use of the SCREENPLAY mark.
The Philips attorney verbally indicated that the Company's use of the mark was
not infringing.
7. On June 7, 1991 Danish counsel for Dansk Data Elektronic of Denmark
wrote to the Company's local Danish distributor, Torsana, asserting that use of
the Company name and mark in Denmark infringed upon Dansk Data's rights in the
mark Supermax. Through local counsel, the Company responded to this claim and
denied that its name and mark infringed upon any rights that Dansk Data might
have in its mark. Dansk Data again wrote to Company counsel in January 1992
asserting that the Company's use of its name and mark in the U.S. constituted
an infringement of Dansk Data's U.S. trademark rights in Supermax. The Company
responded to this correspondence denying the likelihood of confusion from the
two companies' use of their respective marks. The Company subsequently filed an
application to register the names SuperMac and SuperMatch in Germany which
application was opposed by Dansk Data.
-2-
<PAGE>
6.9 NO DEFAULTS
The Lease Agreement for the property at 215 Moffett Park Drive dated
November 13, 1992, as amended May 4, 1993, requires that the Company establish
an irrevocable line of credit for $500,000 with a bank. The Landlord could draw
on the Letter of Credit by providing the ________ with a statement that the
Company has not made one or more payments as due or that an event of default
under the lease has occurred. The Company assumed the lease in connection with
the merger with SuperMac. The letter of credit was never established and has
not been requested by the landlord.
6.10 LABOR MATTERS
The Company has terminated approximately 250 employees in connection
with the Merger. The terminated employees from both Radius and SuperMac, other
than executive officers, were generally given the following severance benefits:
Employees below the director level received a severance payment
consisting of the greater of (i) two months of salary, or (ii) one month for
every full year of service with the Company. A portion of each payment (equal
to one month of salary) was dependent on the employee meeting a set of
objectives established between the employee and his or her manager. Each
employee also received three months of COBRA coverage and an outplacement
assistance package.
Employees at the director level received a similar package except that
it included an additional month of salary as severance and more extensive
outplacement services.
6.12 ERISA
RADIUS INC.
The Company's prior plan administrator for the Company's Section 125
Flexible Benefit Plan has not yet located one Form 5500.
SUPERMAC TECHNOLOGY, INC.
The Form 5500 for the Company's Section 125 Plan Flexible Benefit Plan
for the 1992 Plan year has not been located.
With respect to each of the Forms 5500 mentioned above (the "Forms"),
the Company will determine as soon as practicable whether or not the Forms were
filed and if not filed, will file them as soon as practicable.
6.13 COMPLIANCE WITH ENVIRONMENTAL LAWS
1. The Company uses small amounts of Hazardous Materials in connection
with landscaping, maintenance and cleaning of its facilities.
-3-
<PAGE>
2. In or about April 1991, an air compressor located at the Company's
previous facilities at 1710 Fortune Drive in San Jose, California discharged a
small amount of water mixed with lubricating oil. Approximately eight cubic
feet of soil that may have been affected was removed.
3. On or about December 8, 1992. Joseph Sappiano was visiting the
Company's facilities and was allegedly exposed to fumes emanating from a
forklift battery which had apparently spilled or leaked. Mr. Sappiano's claim
for damages in the amount of $25,000 in connection with his alleged exposure
to fumes was settled in May of 1994 for $3,500 and was covered by the Company's
liability insurance.
6.19 AFFILIATE/SUBSIDIARY TRANSACTIONS
RADIUS INC.
1. In April 1994, the Company loaned J. Daniel Shaver, the Company's
Vice President of Sales and Marketing, a total of $150,000 to purchase a home.
The loan has a five year term, bears simple interest at the minimum rate to
avoid imputation of income, is secured by Mr. Shaver's shares of Radius stock as
well as by his residence, and accelerates and becomes due if Mr. Shaver ceases
to be employed by the Company.
2. On September 17, 1993, the Company loaned $100,000 to Charles
Berger, the Company's President and Chief Executive Officer, as required under
the terms of his Employment Agreement. The loan has a three-year term, accrues
simple interest at the rate of 3.9% per annum. The loan is secured by shares of
Common Stock subject to Mr. Berger's stock option, and fifty percent (50%) of
the proceeds from the sale of any such shares is payable to the Company until
such time as the loan is paid in full. One third of the principal amount,
together with all accrued interest, will be forgiven by the Company on each
anniversary of the date that Mr. Berger commenced employment with the Company,
which was March 22, 1993.
3. In August 1993, SuperMac loaned $100,000 to Laurin Herr, the
Company's Vice President of Business Development and Strategic Relations, to
purchase a home in the Bay Area. The Company assumed the loan in connection
with the merger with SuperMac in August 1994. The loan has a four year term,
bears simple interest at the rate of prime plus one percent per annum. Minimum
payments are due on an annual basis with the amount due each year equal to 100%
of Mr. Herr's bonus payments. The loan is secured by shares of Common Stock
subject to Mr. Herr's bonus payments. The loan is secured by shares of Common
Stock subject to Mr. Herr's stock options.
4. In April 1993, SuperMac loaned $300,064 to Michael A. McConnell,
the Company's former Vice Chairman of the Board of Directors and currently a
member of the Board, in connection with the payment of Mr. McConnell's
alternative minimum tax resulting from his exercise of a stock option in 1992.
The Company assumed the loan in connection with the merger with SuperMac in
August 1994. The loan is due on or before April 30, 2003 and is repayable in
amounts equal to the tax saving resulting from the minimum tax credit allowable
under the Internal Revenue Code. The loan bears interests at the rate of 3.75%.
Approximately $152,000 in principal and $50,000 in interest remains outstanding
under this loan.
5. On April 2, 1994, the Company entered into a Restated Pivot
Technology License Agreement with Portrait Display Labs, L.P., which agreement
was subsequently assigned in its entirety to Portrait Display Labs, Inc.
("PDLI"). Pursuant to that agreement, PDLI acquired the license to certain
pivot display technology in exchange for the payment of certain royalties.
-4-
<PAGE>
Concurrently with the grant of the license, the Company sold color pivot
displays to PDLI in accordance with an OEM Supply Agreement dated April 2, 1994.
On May 19, 1994, the Company canceled certain rights held by the
Company to purchase all of the outstanding equity securities or assets of a
predecessor entity to PDLI in exchange for: (i) 400,987 shares of PDLI Series A
Preferred Stock; (ii) contingent shares of PDLI Series A Preferred Stock so that
the Company would own a total number of shares of PDLI Series A Preferred shares
equal to ten percent (10%) of PDLI's capital stock on a fully diluted basis
determined as of the last date shares were sold in PDLI's Series B Preferred
Stock financing; and (iii) a warrant to purchase a number of shares of PDLI
Series B Preferred Stock equal to ten percent (10%) of PDLI's capital stock on a
fully diluted basis determined as of the last date shares were sold of PDLI's
Series B Preferred Stock financing at a price equal to the lowest price paid by
other investors in that financing. On or about July 5, 1994, PDLI closed a
Series B Preferred Stock financing and the Company received 273,339 shares of
PDLI Series A Preferred Stock and a warrant to purchase 675,326 shares of PDLI
Series B Preferred Stock at a price of $1.40 per share.
In connection with the sale of stock from PDLI to the Company, (i) J.
Daniel Dan Shaver, the Company's Vice President of Sales and Marketing, was
appointed to the Board of Directors of PDLI, and (ii) a majority of the then
existing shareholders of PDLI entered into a Voting Agreement to vote their
shares so as to ensure the election of one representative of the Company to the
PDLI Board of Directors.
On December 30, 1994, the Company exercised a warrant to purchase
667,582 shares of PDLI Series B Preferred Stock in exchange for the cancellation
of a receivable equal to $934,614.80.
6.22 INDEBTEDNESS
RADIUS INC.
1. The Company entered into a Credit Agreement dated August 29, 1994
with Wells Fargo Bank, for a $15.0 million secured loan. The Company has
borrowed $15.0 million under this Credit Agreement.
2. The Company is a party to the following personal property leases:
Loan and Security Agreement #2604492-003 with Metlife Capital
dated December 31, 1993.
Loan and Security Agreement #2604492-002 with Metlife Capital
dated March 1, 1993.
Loan and Security Agreement with Metlife Capital dated November
10, 1992
Loan and Security Agreement #2604492-001 with Metlife Capital
dated December 1992.
Master Security Agreement #64463-00001 with CIT Group, dated
June 1, 1993.
Master Security Agreement #64463-00002 with CIT Group, dated
July 1, 1993.
-5-
<PAGE>
IWCF ATTACHMENT C TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION
(INSERT RFC ADDRESS)
The undersigned authorized officers of Radius Inc. ("Radius"), hereby
certify on behalf of the Customer, with respect to the Inventory and Working
Capital Financing Agreement executed by and between Radius and IBM Credit
Corporation ("IBM Credit") on February 17, 1995, as amended from time to time
(the "Agreement"), that (A) Radius has been in compliance for the period from
September 30, 1994 to December 31, 1994 with the financial covenants set forth
in Attachment A to the Agreement, as demonstrated below, and (B) no Default has
occurred and is continuing as of the date hereof, except, in either case, as set
forth below. All capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Agreement.
I. Financial Covenants.
FINANCIAL COVENANTS REQUIRED ACTUAL
Annualized Revenue Greater than zero; 10.59:1.0
to Working Capital equal to or less
than 14.0:1.0
Net Profit After Equal to or greater 0.02%
Tax to Revenue than 0.0%
Total Liabilities Greater than zero; 4.0:1.0
to Tangible Net equal to or less
Worth than 6.0:1.0
<PAGE>
IWCF ATTACHMENT C TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Calculation of Tangible Net Worth.
<TABLE>
<S> <C>
Total Assets MINUS Total Liabilities 36,831
-----------------------
LESS:
goodwill
-----------------------
organizational expenses
-----------------------
pre-paid expenses 1,489
-----------------------
deferred charges, etc. 8,400
-----------------------
leasehold expenses 862
-----------------------
all other (Deposits and other) 1,234
-----------------------
callable/redeemable preferred stock
-----------------------
officer, director, stockholder 682
and affiliate receivables -----------------------
Total Tangible Net Worth 24,164
-----------------------
-----------------------
</TABLE>
Attached hereto are Financial Statements as of and for the end of the
fiscal quarter ended on the applicable date, as required by Section 7.1 of the
Inventory and Working Capital Financing Agreement.
Submitted by:
Radius Inc.
- -----------------------------------------
(Customer Name)
By: /s/ Robert W. Saltmarsh
--------------------------------------
Print Name: Robert W. Saltmarsh
------------------------------
Title: Chief Financial Officer
-----------------------------------
<PAGE>
IWCF ATTACHMENT D TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IWCF Takeout Advance Option
IWCF TAKEOUT ADVANCE Schedule of Repayments for Radius Inc. __
* . Number of payments will be nine (9) with the following
percents of the Takeout Advance amount due on the payment
dates indicated below:
<TABLE>
<CAPTION>
Percent of Takeout
Payment # Payment Date Advance Amount Due:
--------- ------------ -------------------
<S> <C> <C>
1. 02/05/xx xx.1%
2. 02/15/xx xx.1%
3. 02/25/xx xx.1%
4. 03/05/xx xx.1%
5. 03/15/xx xx.1%
6. 03/25/xx xx.1%
7. 04/05/xx xx.1%
8. 04/15/xx xx.1%
9. 04/25/xx xx.2%
10.
Total 100.0%
</TABLE>
*Assumes 9 payments and takeout takes place on 01/31/95
Fee Schedule
o IWCF Takeout Advance Financing Charge: Prime Rate plus 1.875%
o Delinquency Fee for late payment will be Prime Rate plus
6.500% on ADB.
<PAGE>
IWCF ATTACHMENT E TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
("IWCF AGREEMENT")
AUTHORIZED SUPPLIERS
SONY
<PAGE>
IWCF ATTACHMENT F TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
RADIUS
FPP FINANCING MONTHLY COLLATERAL RECONCILIATION REPORT
PERIOD
FOR THE MONTH ENDING FEBRUARY 14, 1995
GROSS NET
COLLATERAL ADVANCE COLLATERAL
VALUE RATE VALUE
__________ __________ __________
1. ELIGIBLE A/R Attach. B
- Gross Receivables 51,522,092
- Less Ineligibles:
A/R over 90 days 1,679,918
50% over 90 days 8,723,649
Other 21,015,153
----------
ELIGIBLE A/R 20,103,372 75% 15,077,529
Attach A/R Aging Report (B)
2. TOTAL IBMCC COLLATERAL 15,077,529
3. LESS NET IBMCC OUTSTANDINGS
(Obtain from IBM Credit) ----------
4. EXCESS COLLATERAL
(Total Coll. - Net O/S > 0)
5. SHORTFALL
(Total Coll. - Net O/S < 0)
(Attach Payment & Remittance Advice)
Signature /s/ Robert W. Saltmarsh Date Feb. 17, 1995
---------------------------------------- --------------
Title VICE PRESIDENT & CHIEF FINANCIAL OFFICER
----------------------------------------
<PAGE>
ATTACHMENT G TO
WORKING CAPITAL FINANCING AGREEMENT
CERTIFICATE OF LOCATION OF COLLATERAL
The undersigned, the Chief Financial Officer of Radius Inc. ("Radius"),
hereby certifies with reference to the Inventory and Working Capital Financing
Agreement, dated February 17, 1995, between Radius and IBM Credit Corporation
as follows:
(a) Other than with respect to no more than $70,000 worth of inventory, the
following are all the locations where Radius presently keeps or sells inventory,
equipment or other tangible Collateral:
LOCATION
*Radius Inc.
1383 Borregas
Sunnyvale, CA 94089
*Radius Inc.
215 Moffett Park Drive
Sunnyvale, CA 94089
Intexo
Hoeksteen 26
2132 MS Hoofdorp
The Netherlands
AVEX
760 Mission Ct
Fremont, CA 94539
Bayeux Packaging Inc.
822 E. Evelyn Ave.
Sunnyvale, CA 94086
Capetronic
42001 Christy St.
Fremont, CA 94538
Craftsman
1350 Dell Ave. Ste 108
Campbell, CA 95008
CRC
19 Thame Park Business Center
Wenman Thame
Oson OX93XA
<PAGE>
Computers Unlimited
Technology Park
Colin Deep Lane
London NW 96OU
Skyway Freight Systems
44051 Osgood Drive
Fremont CA 94538
Digital Equipment Corporation
18 Ang Mo Kiu Industrial Park
Singapore 2056
Display Technologies, Inc.
1355 Homes Road
Elgin, IL 60123
EAD Hayward
213 E. Maude St.
Suite 103
Sunnyvale, CA 94086
Encription Tech. Corp.
9351 Geronimo
Irvine, CA 92718
LMI Germany
Wasserweg-19
6080 Gross Gerau
Frankfurt, Germany
GSC Logistics
24 Cannery Ct.
Hayward, CA 94544
Hitachi America
19530 Cabot Blvd.
Hayward, CA 94545
International Business Electronics, Inc.
21130 Cabot Blvd.
Hayward, CA 94545
JACOM
2-7-1 Taito
Taito-ku
Tokyo, Japan 110
Kent H. Landsberg
2124 Bering Drive
San Jose, CA 95131
<PAGE>
LMI
6269 East Shelby Drive
Memphis, TN 38141
Logistics
48021 Warm Springs Blvd
Fremont, CA 94539
MacConnection
2870 Old State Route 73
Wilmington, OH 45177
MacWar
Periferico Sur 5323-A
Col. Istdro Fabela 14030
Mexico DF, Mexico
Micron
8455 WestPark
Boise, ID 83704
Pacific Rim Data
48531 Warm Springs Ste 415
Fremont, CA 94539
Direct Response
11 Mt. Pleasant Ave.
East Hanover NJ 07935
Restorr Technology
1507 Centre Pointe Drive
Milpitas, CA 95035
Service Industries
Pieter GoedKoopweg 26
2031 El Haarlem
The Netherlands
*San Jose Distribution
567 Cinnabar Street
San Jose, CA 94110
Select Marketing
9020-II Capital of Texas Highway North
Suite 400
Austin, TX 78759
Sony Electronics Inc.
3300 Zanker Road
San Jose, CA 95134-1940
<PAGE>
VanStar
7364 Marathon Drive Ste B
Livermore, CA 94550
* Leased by Radius
Sales Offices (all leased by Radius):
215 Moffett Park Drive
Sunnyvale, CA 94089
3 Woodfield Lakes
900 N. National Parkway, Ste. 205
Schaumburg, IL 60173
5690 Denver Tech Center Blvd., Ste. 130W
Englewood, CO 8011
1111 Alderman Dr., Suite 490
Alpharetta, GA 30202
Carnegie Hall Tower
152 W. 57th Street
32nd Floor
New York, NY 10019
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this day of
February 17, 1995 .
RADIUS INC.
BY: /s/ Robert W. Saltmarsh
---------------------------------
TITLE: VP Finance & CFO
------------------------------
<PAGE>
BUSINESS LOAN AGREEMENT
BORROWER: RADIUS INC.
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
LENDER:
SILICON VALLEY BANK
SANTA CLARA TECHNOLOGY
3000 LAKESIDE DRIVE
SANTA CLARA, CA 95054
- -------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT BETWEEN RADIUS INC. ("BORROWER") AND SILICON VALLEY
BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS.
BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO
LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS,
INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO
THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL
FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED
TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS."
BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING
ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND
AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR
EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE
JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN
SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of MARCH 20, 1995, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means RADIUS INC.. The word "Borrower" also
includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
1
<PAGE>
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's receivables.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
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BUSINESS LOAN AGREEMENT
CONTINUED
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as
of the date of this Agreement and as of the date of each disbursement of Loan
proceeds:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California.
Borrower has the full power and authority to own its properties and to
transact the businesses in which it is presently engaged or presently
proposes to engage. Borrower also is duly qualified as a foreign
corporation and is in good standing in all states in which the failure to
so qualify would have a material adverse effect on its businesses or
financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or
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BUSINESS LOAN AGREEMENT
CONTINUED
organization, or bylaws, or any agreement or other instrument binding upon
Borrower or (b) any law, governmental regulation, court decree, or order
applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance by any person on, under, or about any of
the properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste
or substance by any prior owners or occupants of any of the properties, or
(ii) any actual or threatened litigation or claims of any kind by any
person relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other authorized user of any of the properties shall
use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, or about any of the properties; and
any such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including
without limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the properties for
hazardous waste. Borrower hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event Borrower
becomes liable for
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BUSINESS LOAN AGREEMENT
CONTINUED
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note are
binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, and (iii) no steps have been taken to
terminate any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. The chief place of business of
Borrower and the office or offices where Borrower keeps its records
concerning the Collateral is located at 215 Moffett Park Drive, Sunnyvale,
CA 94089.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated
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BUSINESS LOAN AGREEMENT
CONTINUED
hereby is, and all information hereafter furnished by or on behalf of
Borrower to Lender will be, true and accurate in every material respect on
the date as of which such information is dated or certified; and none of
such information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understands and agrees
that Lender is relying upon the above representations and warranties in
extending Loan Advances to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as Borrower's Loan
and Note shall be paid in full, or until this Agreement shall be terminated
in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all litigation and
claims and all threatened litigation and claims affecting Borrower or any
Guarantor which could materially affect the financial condition of Borrower
or the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than thirty (30) days after the end of
each month, Borrower's balance sheet and profit and loss statement for the
period ended, prepared and certified as correct to the best knowledge and
belief by Borrower's chief financial officer or other officer or person
acceptable to Lender. Borrower shall also furnish Lender, as soon as
available, but in no event later than 5 days of filing with the Securities
and Exchange Commission, Borrower's 10Q and 10K reports. All financial
reports required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
Maintain on a quarterly basis, beginning March 31, 1995, a minimum quick
ratio of 0.75 to 1.00; a minimum tangible net worth plus subordinated debt
of $35,000,000.00; and a maximum total debt minus subordinated debt to
tangible net worth plus subordinated debt ratio of 3.00 to 1.00.
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BUSINESS LOAN AGREEMENT
CONTINUED
For purposes of this Agreement and to the extent the following terms are
utilized in this Agreement, the term "Tangible Net Worth" shall mean
Borrower's total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements) less
total Debt. The term "Debt" shall mean all of Borrower's liabilities
excluding Subordinated Debt. The term "Subordinated Debt" shall mean
indebtedness and liabilities of Borrower which have been subordinated by
written agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender. The term "Working Capital" shall mean
Borrower's current assets, excluding prepaid expenses, less Borrower's
current liabilities. The term "Liquid Assets" shall mean Borrower's cash
on hand plus Borrower's receivables. The term "Cash Flow" shall mean net
income after taxes, and exclusive of extraordinary gains and income, plus
depreciation and amortization. Except as provided above, all computations
made to determine compliance with the requirements contained in this
paragraph shall be made in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower as
being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance in form, amounts, coverages and with
insurance companies and of a type that are customary to businesses similar
to Borrower's, and maintain with respect to Borrower's properties and
operations, in such form, amounts, coverages and with insurance companies,
as ordinarily maintained by other owners in similar businesses conducted in
the locations where Borrower's business is conducted on the date hereof.
Borrower, upon request of Lender, will deliver to Lender from time to time
the policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender. Each
insurance policy also shall include an endorsement providing that coverage
in favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest for
the Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition,
upon request of Lender (however not more often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
OTHER AGREEMENTS. Comply with all material terms and conditions of all
other material agreements, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in writing of
any default in connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every
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BUSINESS LOAN AGREEMENT
CONTINUED
kind and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims that,
if unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as (a)
the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien, or
claim in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of the
assessments, taxes, charges, levies, liens and claims and will authorize the
appropriate governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims against
Borrower's properties, income, or profits.
LOCKBOX ACCOUNT. Borrower shall enter into and maintain a lockbox
agreement with Lender and a contingent blocked account amendment to the
lockbox agreement with Lender for the benefit of IBM Credit Corporation.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in all other instruments and agreements
between Borrower and Lender, including without limitation, an Intercreditor
Agreement between Borrower, Lender and IBM Credit Corp., in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement.
OPERATIONS. Notify Lender of substantial changes in its present executive
and management personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with
all minimum funding standards and other requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
NO LATER THAN 30 DAYS AFTER THE END OF EACH MONTH and at the time of each
disbursement of Loan proceeds with a certificate executed by Borrower's
chief financial officer, or other officer or person acceptable to Lender,
certifying that the representations and warranties set forth in this
Agreement are true and correct as of the date of the certificate and
further certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
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BUSINESS LOAN AGREEMENT
CONTINUED
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part or
on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. Provide to Lender not later than
15 days after and as of the end of each month, with a Borrowing Base
Certificate and aged lists of accounts receivable and accounts payable.
Initial and annual accounts receivable audits to be performed by Lender's
agent. Borrower's deposit account will be debited for the audit expense
and a notification will be mailed to Borrower.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases; provided, however, that Borrower may enter into
capital leases not to exceed an aggregate amount of $10,000,000.00 at any
one time, (b) sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encumber any of Borrower's assets (other than any
sale of obsolete inventory in the ordinary course of business and any
licenses of technology in the ordinary course of business), or (c) sell
with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
it being understood that the manufacture and/or sale of "Apple clones"
pursuant to the Macintosh operating system license in favor of Borrower
shall not constitute a business activity substantially different from that
presently being conducted by Borrower (b) cease operations, liquidate,
merge, transfer, acquire or consolidate with any other entity, change
ownership, dissolve or transfer or sell Collateral out of the ordinary
course of business, provided, however, that Borrower may sell obsolete
inventory in the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to
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BUSINESS LOAN AGREEMENT
CONTINUED
pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their
status as Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares, provided, however, that Borrower may
purchase for cash from directors, officers and employees of Borrower shares
of capital stock in connection with the termination of any such director's,
officer's or employee's service to Borrower to the extent such purchases
are consistent with past practices (which may not be changed without
Lender's prior consent) and are in an aggregate amount not exceeding five
hundred thousand dollars ($500,000.00) per annum, or alter or amend
Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower becomes insolvent, files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs
a material adverse change in Borrower's financial condition, in the financial
condition of any Guarantor, or in the value of any Collateral securing any Loan;
or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or
revoke such Guarantor's guaranty of the Loan or any other loan with Lender.
LOAN ADVANCES. Lender, in its discretion, will make loans to Borrower, in
amounts determined by Lender, up to the amounts as defined and permitted in the
Agreement and Related Documents, including but not limited to any Promissory
Notes, executed by Borrower (the "Credit Limit"). The Borrower is responsible
for monitoring the total amount of Loans and Indebtedness outstanding from time
to time, and Borrower shall not permit the same, at any time to exceed the
Credit Limit. If at any time the total of all outstanding Loans and
Indebtedness exceeds the Credit Limit, the Borrower shall immediately pay the
amount of the excess to Lender, without notice or demand.
DEFAULT RATE. Upon default, including failure to pay upon final maturity,
Lender, at its option, may do one or both of the following: (a) increase the
variable interest rate on the Note to five percentage points (5.000%) over the
Interest Rate otherwise payable thereunder, and (b) add any unpaid accrued
interest to principal and such sum will bear interest therefrom until paid at
the rate provided in the Note.
BORROWING BASE FORMULA. Funds shall be advanced under the Note according to a
borrowing base formula, as determined by Lender on a monthly basis, defined as
follows: the lesser of (i) $5,000,000.00 or (ii) the sum of forty percent (40%)
of eligible foreign accounts receivable minus (a) the aggregate outstanding face
amount of letters of credit issued under the Note, and (b) the aggregate
outstanding gross amount of all Exchange Contracts. Eligible foreign accounts
receivable shall include, but not be limited to, those accounts outstanding less
than 90 days from the date of invoice, excluding all Canadian, government,
contra and intercompany accounts; and exclude accounts wherein 50% or more of
the account is outstanding more than 90 days from the date of invoice. Any
account which alone exceeds 25% of total accounts will be ineligible to the
extent said account exceeds 25% of total accounts. Also exclude any credit
balances which are aged
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BUSINESS LOAN AGREEMENT
CONTINUED
past 90 days. Also ineligible are any accounts which Lender in its sole
judgment excludes for valid credit reasons.
LETTERS OF CREDIT. Subject to the terms of this Agreement, Lender shall issue
or cause to be issued under the Note standby and commercial letters of credit
for the account of Borrower for international sales. Each such letter of credit
shall have an expiry date of no later than March 19, 1996. All such letters of
credit shall be, in form and substance, acceptable to Lender in its sole
discretion and shall be subject to the terms and conditions of Lender's form
application and letter of credit agreement.
FOREIGN EXCHANGE. Subject to the terms of this Agreement, Borrower may utilize
up to $5,000,000.00 for spot and future foreign exchange contracts (the
"Exchange Contracts"). All Exchange Contracts must provide for delivery of
settlement on or before March 19, 1996. The limit available at any time shall
be reduced by the following amounts (the "Foreign Exchange Reserve") on each day
(the "Determination Date"): (i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two business days
from the Determination Date, 10% of the gross amount of the Exchange Contracts;
plus (ii) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed within two business days after the Determination
Date, 100% of the gross amount of the Exchange Contracts. In lieu of the
Foreign Exchange Reserve for 100% of the gross amount of any Exchange Contract,
the Borrower may request that Lender debit Borrower's bank account with Lender
for such amount, provided Borrower has immediately available funds in such
amounts in its bank account.
Lender may, in its discretion, terminate the Exchange Contracts at any time (a)
that an Event of Default occurs or (b) that there is no sufficient availability
under the Note and Borrower does not have available funds in its bank account to
satisfy the Foreign Exchange Reserve. If Lender terminates the Exchange
Contracts, and without limitation of the FX Indemnity Provisions (as referred to
below), Borrower agrees to reimburse Lender for any and all fees, costs and
expenses relating thereto or arising in connection therewith.
Borrower shall not permit the total gross amount of all Exchange Contracts on
which delivery is to be effected and settlement allowed in any two business day
period to be more than $5,000,000.00 nor shall Borrower permit the total gross
amount of all Exchange Contracts to which Borrower is a party, outstanding at
any one time, to exceed $5,000,000.00.
Borrower shall execute all standard form applications and agreements of Lender
in connection with the Exchange Contracts, and without limiting any of the terms
of such applications and agreements, Borrower will pay all standard fees and
charges of Lender in connection with the Exchange Contracts.
Without limiting any of the other terms of this Agreement or any such standard
form applications and agreement of Lender, Borrower agrees to indemnify Lender
and hold it harmless, from and against any and all claims, debts, liabilities,
demands, obligations, actions, costs and expenses (including, without
limitation, attorneys fees of counsel of Lender's choice), of every nature and
description which it may sustain or incur, based upon, arising out of, or in any
way relating to any of the Exchange Contracts or any transactions relating
thereto or contemplated thereby (collectively referred to as the "FX Indemnity
Provisions").
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
11
<PAGE>
BUSINESS LOAN AGREEMENT
CONTINUED
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents,
including, without limitation, any default by Borrower under any agreement
between Borrower and IBM Credit Corporation.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on
or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent or any Guarantor revokes any guaranty of the
Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Loans immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
12
<PAGE>
BUSINESS LOAN AGREEMENT
CONTINUED
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
SANTA CLARA COUNTY, THE STATE OF CALIFORNIA. (INITIAL HERE ______________)
Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower
against the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby consents to such
disclosure. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
13
<PAGE>
BUSINESS LOAN AGREEMENT
CONTINUED
NOTICES. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower
will constitute notice to all Borrowers. For notice purposes, Borrower
agrees to keep Lender informed at all times of Borrower's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
14
<PAGE>
BUSINESS LOAN AGREEMENT
CONTINUED
CONDITION. The effectiveness of this Business Loan Agreement is subject to (i)
a Subordination Agreement (ii) an Amendment to Contingent Blocked Account, and
(iii) an Amendment to Lockbox Agreement between Borrower, Lender and IBM Credit
Corporation.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
MARCH 20, 1995.
BORROWER:
RADIUS INC.
BY: /s/ Robert W. Saltmarsh /s/ David Pine
----------------------------------------------------------------
NAME: ROBERT W. SALTMARSH DAVID PINE
-------------------------------------------------------------
TITLE: VP FINANCE & CFO GENERAL COUNSEL & SECRETARY
-------------------------------------------------------------
LENDER:
SILICON VALLEY BANK
BY:______________________________________________
NAME: ___________________________________________
TITLE: _____________________________________________
BY:_______________________________________________
NAME:____________________________________________
TITLE:_____________________________________________
15
<PAGE>
<TABLE>
<CAPTION>
BORROWING BASE CERTIFICATE
COLLATERAL SCHEDULE
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------
BORROWER: RADIUS INC. LENDER: Silicon Valley Bank
45 William Street
Wellesley, MA 02181
Commitment Amount: $5,000,000.00
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN ACCOUNTS RECEIVABLE
1. Foreign Accounts Receivable Book Value of $
---------------- ----------
2. Additions (please explain on reverse) $
----------
3. TOTAL FOREIGN ACCOUNTS RECEIVABLE $
----------
FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days $
----------
5. Balance of 50% over 90 day accounts $
----------
6. Excess 25% concentration $
----------
7. Credit Balances over 90 days $
----------
8. Canadian Accounts $
----------
9. Governmental Accounts $
----------
10. Contra Accounts $
----------
11. Promotion of Demo Accounts $
----------
12. Intercompany/Employee Accounts $
----------
13. Other (please explain on reverse) $
----------
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
----------
15. Eligible Accounts (#3 - #14) $
----------
16. Loan Value of Accounts (40% Advance) $
----------
17. TOTAL AVAILABLE BASE $
----------
BALANCES
18. Maximum Loan Amount $5,000,000.00
19. Total Funds Available (Lesser of #18 or #17) $
----------
20. Present balance owing on Line of Credit $
----------
21. Outstanding under F/X and L/C Line $
----------
22. RESERVE POSITION (#19 - (#20 + #21)) $
----------
The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected
in this Collateral Schedule complies with the representations and warranties set forth in the Security Agreement and in the
Business Loan Agreement, as amended from time to time, between the undersigned and Silicon Valley Bank dated March
28, 1995
SINCERELY,
RADIUS INC.
By:
----------------------------
Name:
--------------------------
Title:
------------------------- --------------------------------------------------------------
--------------------------------------------------------------
BANK USE ONLY
RECEIVED BY:
------------------------
DATE:
-------------------
VERIFIED BY:
------------------------
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
<PAGE>
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
2202 North First Street
San Jose, CA 95131
FROM: RADIUS, INC.
Commitment amount $5,000,000.00
The undersigned authorized officer of RADIUS, INC. ("BORROWER"), hereby
certifies that in accordance with the terms and conditions of the Business Loan
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ____________________ of all required
conditions and terms except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true, accurate and complete
in all material respects as of the date hereof. Attached herewith are the
required documents supporting the above certification. The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistent from one period to the next
except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Interim Financial Statements + CC Monthly w/in 30 days YES/NO
Annual (CPA audited) FYE w/in 90 days YES/NO
A/R & A/P Agings Monthly w/in 15 days YES/NO
A/R Audit Annual YES/NO
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
MAINTAIN ON A QUARTERLY BASIS, UNLESS OTHERWISE NOTED:
<S> <C> <C> <C>
Min. Tang. Net Worth $35,000,000.00 $______________ YES/NO
Minimum Quick Ratio 0.75:1.00 _____:1.00 YES/NO
Max. Debt/TNW 3.00:1.00 _____:1.00 YES/NO
</TABLE>
COMMENTS REGARDING EXCEPTIONS: ---------------------------------------
---------------------------------------
BANK USE ONLY
RECEIVED BY:
--------------
DATE:
--------------
VERIFIED BY:
--------------
COMPLIANCE STATUS: YES/NO
---------------------------------------
---------------------------------------
Sincerely,
Radius, Inc.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
COMMERCIAL SECURITY AGREEMENT
BORROWER: RADIUS INC. LENDER: SILICON VALLEY BANK
215 MOFFETT PARK DRIVE SANTA CLARA TECHNOLOGY
SUNNYVALE, CA 94089 3000 LAKESIDE DRIVE
SANTA CLARA, CA 95054
===============================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN RADIUS INC. (REFERRED
TO BELOW AS "GRANTOR"); AND SILICON VALLEY BANK (REFERRED TO BELOW AS "LENDER").
FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE
COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE
RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO
ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
A) ALL INVENTORY AND EQUIPMENT, AND ALL PARTS THEREOF, ATTACHMENTS,
ACCESSORIES AND ACCESSIONS THERETO, PRODUCTS THEREOF AND DOCUMENTS
THEREFOR;
B) ALL ACCOUNTS, CONTRACT RIGHTS, CHATTEL PAPER, INSTRUMENTS, DEPOSIT
ACCOUNTS, OBLIGATIONS OF ANY KIND OWING TO GRANTOR, WHETHER OR NOT
ARISING OUT OF OR IN CONNECTION WITH THE SALE OR LEASE OF GOODS OR THE
RENDERING OF SERVICES AND ALL BOOKS, INVOICES, DOCUMENTS AND OTHER
RECORDS IN ANY FORM EVIDENCING OR RELATING TO ANY OF THE FOREGOING;
C) GENERAL INTANGIBLES, EXCLUDING PATENTS, TRADEMARKS, TRADE NAMES AND
COPYRIGHTS, BUT INCLUDING THE RIGHT OF GRANTOR TO RECEIVE PAYMENT IN
RESPECT OF PATENTS, TRADEMARKS, TRADE NAMES AND COPYRIGHTS;
D) ALL RIGHTS NOW OR HEREAFTER EXISTING IN AND TO ALL MORTGAGES,
SECURITY AGREEMENTS, LEASES OR OTHER CONTRACTS SECURING OR OTHERWISE
RELATING TO ANY OF THE FOREGOING; AND
E) ALL SUBSTITUTIONS AND REPLACEMENTS FOR ALL OF THE FOREGOING, ALL
PROCEEDS OF ALL OF THE FOREGOING AND, TO THE EXTENT NOT OTHERWISE
INCLUDED, ALL PAYMENTS UNDER INSURANCE OR ANY INDEMNITY, WARRANTY OR
GUARANTY, PAYABLE BY PAYMENTS UNDER INSURANCE OR ANY
In addition, the word "Collateral" includes all the following, whether now owned
or hereafter acquired, whether now existing or hereafter arising, and wherever
located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means RADIUS INC., its successors and assigns
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
NOTE. The word "Note" means the notes, credit agreements or letters of
credit in any principal amount from Borrower to Lender, together with all
renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the notes, credit agreements, or
letters of credit.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
<PAGE>
03-20-1995 COMMERCIAL SECURITY AGREEMENT PAGE 2
(CONTINUED)
===============================================================================
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, contract rights, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact
obligated as they appear to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor; (c)
all storage facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located. Except in
the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the storage, shipping sales of inventory,
Grantor shall not remove the Collateral from its existing locations without
the prior written consent of Lender; provided, however, that Grantor shall
not store any Collateral outside the State of California without obtaining
Lender's prior written consent. To the extent that the Collateral consists
of vehicles, or other titled property, Grantor shall not take or permit any
action which would require application for certificates of title for the
vehicles outside the State of California, without the prior written consent
of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall notify Lender within thirty
(30) days of all material cases involving the return, rejection,
repossession, loss or damage of or to any Collateral; of any material
request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all material happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
<PAGE>
03-20-1995 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
===============================================================================
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C.
Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
<PAGE>
03-20-1995 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
===============================================================================
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by state law,
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
Santa Clara County, State of California. (INITIAL HERE ______________ )
Lender and Grantor hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Grantor against the
other. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any Grantor
will constitute notice to all Grantors. For notice purposes, Grantor
agrees to keep Lender informed at all times of Grantor's current
address(es).
<PAGE>
03-20-1995 COMMERCIAL SECURITY AGREEMENT PAGE 5
(CONTINUED)
===============================================================================
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishs
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
ADDITIONAL PROVISION. If any law is passed that requires additional action on
the part of Lender, Grantor shall fully cooperate with Lender in complying with
the law and accordingly, shall reimburse Lender for all costs and expenses which
Lender incurs to comply with the law.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 20,
1995.
GRANTOR:
RADIUS INC.
BY: /s/ Robert W. Saltmarsh
---------------------------------------------
NAME: Robert W. Saltmarsh
------------------------------------------
TITLE: VP Finance & CFO
------------------------------------------
BY: /s/ David Pine
---------------------------------------------
NAME: David Pine
-------------------------------------------
TITLE: General Counsel & Secretary
-------------------------------------------
===============================================================================
<PAGE>
CORPORATE RESOLUTION TO BORROW
BORROWER: RADIUS INC. LENDER: SILICON VALLEY BANK
215 MOFFET PARK DRIVE 3000 LAKESIDE DRIVE
SUNNYVALE, CA 94089 SANTA CLARA, CA 95054
- -------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Radius Inc. (the
"Corporation"), hereby certify that the Corporation is organized and existing by
virtue of the laws of the State of California as a corporation for profit, with
its principal office at 215 Moffett Park Drive, Sunnyvale, CA 94089.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or by
duly authorized corporate action in lieu of a meeting), duly called and to be
held on April 25, 1995, at which a quorum will be present and voting, the
following resolutions will be adopted and ratified as of March 31, 1995:
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
Robert Saltmarsh CFO X /s/ Robert Saltmarsh
------------------ ----------------- ----------------------
X
------------------ ----------------- ----------------------
Cherrie Jurado Controller X /s/ Cherrie Jurado
------------------ ----------------- ----------------------
Kathy Lanterman Assistant Treasurer X /s/ Kathy Lanterman
------------------ ----------------- ----------------------
acting for and on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from SILICON VALLEY BANK
("Lender"), on such terms as may be agreed upon between the officers,
employees, or agents and Lender, such sum or sums of money as in their
judgement should be borrowed, without limitation.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes of the Corporation, on Lender's forms, at such rates of interest
and on such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of the Corporation to Lender, and also to
execute and deliver to Lender one or more renewals, extensions,
modifications, refinancings, consolidations, or substitutions for one or
more of the notes, or any portion of the notes.
GRANT SECURITY. To mortgage, pledge, hypothecate, or otherwise encumber
and deliver to Lender, as security for the payment of any loans so
obtained, any promissory notes so executed, or any other or further
indebtedness of the Corporation to Lender at any time owing, however the
same may be evidenced, any property now or hereafter belonging to the
Corporation or in which the Corporation now or hereafter may have an
interest, including without limitation, all real property and all
personal property of the Corporation. Such property may be mortgaged,
pledged, hypothecated, or encumbered at the time such loans are obtained
or such indebtedness is incurred, or at any other time or times, and may
be either in addition to or in lieu or any property theretofore
mortgaged, pledged, hypothecated, or encumbered.
H:\WPFILES\CORPRESO
1
<PAGE>
CORPORATE RESOLUTION TO BORROW
CONTINUED
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms
of mortgage, deed of trust, pledge agreement, hypothecation agreement,
and other security agreements and financing statements which may be
submitted by Lender, and which shall evidence the terms and conditions
under and pursuant to which such liens and encumbrances, or any of them,
are given; and also to execute and deliver to lender any other written
instruments, any chattel paper, or any other collateral, of any kind or
nature, which they may in their discretion deem reasonably necessary to
proper in connection with or pertaining to the giving of the liens and
encumbrances. Notwithstanding the foregoing, any one of the above
authorized officers, employees, or agents may execute, deliver, or
record financing statements.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation or in which the Corporation
may have an interest, and either to receive cash for the same or to
cause such proceeds to be credited to the account of the Corporation
with Lender, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
LETTER OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Lender's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as,
in the judgment of the officer or officers herein authorized.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, INCLUDING AGREEMENTS WAIVING THE
RIGHT TO A TRIAL BY JURY, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these resolutions shall remain in full force and
effect and Lender may rely on these resolutions until written notice of their
revocations shall have been delivered to and received by Lender. Any such
notice shall not affect any of the Corporation's agreements or commitments in
effect at the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
resolutions now stand or record on the books of the Corporation; and that the
resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever.
H:\WPFILES\CORPRESO
2
<PAGE>
CORPORATE RESOLUTION TO BORROW
CONTINUED
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the seal of the
Corporation on March 20, 1995 and attest that the signatures set opposite the
names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ David Pine
------------------------------------
*Secretary or Assistant Secretary
X David Pine
------------------------------------
*Note: In case the secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this certificate should
also be signed by a second Officer or Director of the Corporation.
H:WPFILES\CORPRESO
3
<PAGE>
<TABLE>
<CAPTION>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective, with certain exceptions, for
five years from the date of filing, pursuant to Section 8403 of the California Uniform Commercial Code.
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
1. DEBTOR 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
RADIUS, INC. 68-0101030
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1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
214 MOFFETT PARK DRIVE SUNNYVALE, CA 94089
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2. ADDITIONAL DEBTOR 2A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
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3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. FEDERAL TAX NO.
SILICON VALLEY BANK
SANTA CLARA TECHNOLOGY
3000 LAKESIDE DRIVE
SANTA CLARA, CA 95054
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5. ASSIGNEE OF SECURED PARTY 5A. FEDERAL TAX NO.
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6. This FINANCING STATEMENT covers the following type of property:
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF BY REFERENCE.
- ------------------------------------------------------------------------------------------------------------------------------------
7A. /X/ PRODUCTS OR COLLATERAL ARE ALSO COVERED 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
/ / (1) / / (2) / / (3) / / (4)
- ------------------------------------------------------------------------------------------------------------------------------------
8. / / DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC SECTION 9105 (1) (n)
- ------------------------------------------------------------------------------------------------------------------------------------
9. DATE: 03-20-1995 C 10. THIS SPACE FOR USE OF FILING
O OFFICER (DATE, TIME, FILE NUMBER
> /s/ /s/ D AND FILE OFFICER)
SIGNATURE(S) OR DEBTOR(S) E
- -----------------------------------------------------------------------------------------------
1
- ------------------------------------------------------------------------------------------ 2
3
>
SIGNATURE(S) OF SECURED PARTY(IES) 4
- ------------------------------------------------------------------------------------------
SILICON VALLEY BANK 5
- ------------------------------------------------------------------------------------------ 6
- ------------------------------------------------------------------------------------------
11. Return copy to:
7
SILICON VALLEY BANK 8
ATTN: LOAN SERVICES
2202 N. FIRST STREET 9
SAN JOSE, CA 96131
0
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
FORM UCC-1
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ATTACHMENT A
All of Debtor's right, title and interest in and to the following property,
whether now owned or hereafter acquired or existing and wherever located:
A) all inventory and equipment, and all parts thereof, attachments, accessories
and accession thereto, products thereof and documents therefor;
B) all accounts, contract rights, chattel paper, instruments, deposit accounts,
obligations of any kind owing to Debtor, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services and all
books, invoices, documents and other records in any form evidencing or relating
to any of the foregoing;
C) general intangibles, excluding patents, trademarks, trade names and
copyrights, but including the right of Debtor to receive payment in respect of
patents, trademarks, trade names and copyrights;
D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
E) all substitutions and replacements for all of the foregoing, all proceeds of
all of the foregoing and, to the extent not otherwise included, all payments
under insurance or any indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing.
<PAGE>
PROMISSORY NOTE
BORROWER: RADIUS INC. LENDER: SILICON VALLEY BANK
215 MOFFETT PARK DRIVE SANTA CLARA TECHNOLOGY
SUNNYVALE, CA 94089 3000 LAKESIDE DRIVE
SANTA CLARA, CA 95054
===============================================================================
PRINCIPAL AMOUNT: $5,000,000.00 INITIAL RATE: 10.250% DATE OF NOTE: MARCH 20,
1995
PROMISE TO PAY. RADIUS INC. ("BORROWER") PROMISES TO PAY TO SILICON VALLEY BANK
("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF FIVE MILLION & 00/100 DOLLARS ($5,000,000.00) OR SO MUCH AS
MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL
BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH
ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MARCH 19, 1996. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING
APRIL 19, 1995, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF
EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender will tell
Borrower the current Index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. THE INDEX CURRENTLY IS
9.000% PER ANNUM.
THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE
WILL BE AT A RATE OF 1.250 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN
INITIAL RATE OF 10.250% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect Borrower's property or Borrower's
ability to repay this Note or perform Borrower's obligations under this Note or
any of the Related Documents. (d) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any of the events described in this default section occurs
with respect to any guarantor of this Note.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate
on this Note to 6.250 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER
IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON
LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF SANTA CLARA
COUNTY, THE STATE OF CALIFORNIA. (INITIAL HERE ______________ )
Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against the
other. This Note shall be governed by and construed in accordance with the laws
of the State of California.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
<PAGE>
03-20-1995 PROMISSORY NOTE PAGE 2
(CONTINUED)
===============================================================================
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit all funds
received from its business activities in accounts maintained by Borrower at
SILICON VALLEY BANK. Borrower hereby requests and authorizes Lender to debit
any accounts maintained with Lender, including, without limitation, Account
Number 0271166471 for payments of interest and principal due on the loan and
any other obligations owing by Borrower to Lender. Lender will notify
Borrower of any debits which Lender makes against Borrower's accounts. Any
such debits against Borrower's accounts in no way shall be deemed a set-off.
LETTER OF CREDIT FACILITY. This Promissory Note evidences a letter of credit
facility to be used solely for the purpose of issuing stand-by and/or
commercial letters of credit.
BUSINESS LOAN AGREEMENT. This Note is subject to and shall be governed by all
the terms and conditions of the Business Loan Agreement dated March 20, 1995
between Lender and Borrower, which Business Loan Agreement is incorporated
herein by reference.
LOAN FEE. This Note is subject to a loan fee in the amount of Twenty Thousand
and 00/100 Dollars ($20,000.00) plus all out-of-pocket expenses.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
RADIUS INC.
BY: /s/ Robert W. Saltmarsh
---------------------------------------------
NAME: Robert W. Saltmarsh
------------------------------------------
TITLE: VP Finance & CFO
------------------------------------------
BY: /s/ David Pine
---------------------------------------------
NAME: David Pine
-------------------------------------------
TITLE: General Counsel & Secretary
-------------------------------------------
===============================================================================
<PAGE>
EXHIBIT 11.01
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 1, APRIL 1,
1995 1994 1995 1994
------- ------- -------- -------
<S> <C> <C> <C> <C>
Primary:
Average common shares outstanding 14,152 13,496 14,183 13,433
Net effect of dilutive stock
options - based on the modified treasury
stock method using average
market price 1,277 - - -
------- ------- -------- -------
Totals 15,429 13,496 14,183 13,433
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) $ 276 $(356) $(10,745) $(9,535)
------- ------- -------- -------
------- ------- -------- -------
Per share amount $ 0.02 $(0.03) $ (0.76) $ (0.71)
------- ------- -------- -------
------- ------- -------- -------
Fully diluted:
Average common shares outstanding 14,152 13,496 14,183 13,433
Net effect of dilutive stock
options - based on the modified treasury stock
method using quarter end market price which is
greater than average market price 1,667 - - -
------- ------- -------- -------
Totals 15,819 13,496 14,183 13,433
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) $ 276 $ (356) $(10,745) $(9,535)
------- ------- -------- -------
------- ------- -------- -------
Per share amount* $ 0.02 $ (0.03) $ (0.76) $ (0.71)
------- ------- -------- -------
------- ------- -------- -------
<FN>
* The primary net income (loss) per share is shown in the statements of
operations. Net income (loss) per share under the primary and fully diluted
calculations are equivalent.
</TABLE>
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-01-1995
<CASH> 4,373
<SECURITIES> 0
<RECEIVABLES> 88,545
<ALLOWANCES> 0
<INVENTORY> 31,281
<CURRENT-ASSETS> 138,183
<PP&E> 8,527
<DEPRECIATION> 0
<TOTAL-ASSETS> 147,827
<CURRENT-LIABILITIES> 107,185
<BONDS> 0
<COMMON> 88,463
0
0
<OTHER-SE> 49,961
<TOTAL-LIABILITY-AND-EQUITY> 147,827
<SALES> 84,447
<TOTAL-REVENUES> 84,447
<CGS> 62,913
<TOTAL-COSTS> 62,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,154
<INCOME-PRETAX> 307
<INCOME-TAX> 31
<INCOME-CONTINUING> 276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
