<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15935
ALTRIS SOFTWARE, INC.
---------------------
formerly Alpharel, Inc.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3634089
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121
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(Address of principal executive offices and zip code)
(619) 625-3000
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(Registrants 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
----- -----
Number of shares of Common Stock outstanding
at October 25, 1996: 9,507,266
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Number of Sequentially Numbered Pages: 13
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Exhibit Index at Page 12
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<PAGE>
ALTRIS SOFTWARE, INC.
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to the Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
PART II. OTHER INFORMATION 11
2
<PAGE>
ALTRIS SOFTWARE, INC.
PART 1. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,423,000 $ 4,656,000
Short term investments 90,000 270,000
Receivables, net 8,430,000 4,207,000
Inventory, net 478,000 469,000
Other current assets 884,000 803,000
------------- -------------
Total current assets 11,305,000 10,405,000
Property and equipment, net 2,021,000 1,645,000
Computer software, net 2,024,000 1,549,000
Goodwill 4,797,000 4,945,000
Deposits and other assets 450,000 458,000
------------- -------------
Total assets $ 20,597,000 $ 19,002,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,272,000 $ 2,192,000
Accrued liabilities 2,075,000 3,211,000
Notes payable 200,000 1,834,000
Convertible note payable - 1,000,000
Deferred revenue 785,000 1,229,000
------------- -------------
Total current liabilities 5,332,000 9,466,000
Long term note payable 621,000 475,000
Other long term liabilities 620,000 945,000
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Total liabilities 6,573,000 10,886,000
Commitments
Shareholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized; 650,761
designated; 172,500 shares issued and
outstanding - 3,306,000
Common stock, no par, 20,000,000 shares
authorized; 9,465,444 and 8,475,451 issued
and outstanding, respectively 61,233,000 54,085,000
Foreign currency translation adjustment 22,000 -
Accumulated deficit (47,231,000) (49,275,000)
------------- -------------
Total shareholders' equity 14,024,000 8,116,000
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Total liabilities and shareholders' equity $ 20,597,000 $ 19,002,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to the consolidated financial statements
3
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ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 5,806 $ 3,127 $ 17,973 $ 9,629
Cost of revenues 2,395 1,276 7,041 4,390
-------- -------- -------- --------
Gross profit 3,411 1,851 10,932 5,239
-------- -------- -------- --------
Operating expenses:
Research and development 791 326 2,547 886
Marketing and sales 1,357 942 4,004 2,413
General and administrative 758 357 2,323 1,078
-------- -------- -------- --------
Total operating expenses 2,906 1,625 8,874 4,377
-------- -------- -------- --------
Income from operations 505 226 2,058 862
Interest and other income 18 31 64 101
Interest and other expense (31) (28) (78) (82)
-------- -------- -------- --------
Income before taxes 492 229 2,044 881
Provision for taxes - - - -
-------- -------- -------- --------
Net income $ 492 $ 229 $ 2,044 $ 881
-------- -------- -------- --------
Net income per share $ .05 $ .03 $ .22 $ .12
-------- -------- -------- --------
Weighted average shares outstanding 9,651 7,497 9,414 7,182
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,044,000 $ 881,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,506,000 508,000
Changes in assets and liabilities:
Receivables (4,223,000) (586,000)
Inventory (9,000) 321,000
Other assets (614,000) (593,000)
Accounts payable 80,000 73,000
Accrued liabilities (1,136,000) 65,000
Billings in excess of costs - 22,000
Deferred revenue (444,000) (164,000)
Other long term liabilities (325,000) -
------------ ----------
Net cash (used in) provided by operating activities (3,121,000) 527,000
------------ ----------
Cash flows from investing activities:
Short term investments maturing 180,000 1,354,000
Purchases of property and equipment (857,000) (448,000)
Proceeds from sale of property and equipment - 4,000
Purchases of software (20,000) (67,000)
Computer software capitalized (791,000) (720,000)
Cash paid to former Optigraphics shareholders - (171,000)
------------ ----------
Net cash (used in) provided by investing activities (1,488,000) (48,000)
------------ ----------
Cash flows from financing activities:
Principal payment under cash advanced by a bank related
to former Optigraphics shareholder notes payable (1,634,000) -
Principal payments under note payable (116,000) (59,000)
Proceeds from exercise of stock options 919,000 90,000
Net borrowings under revolving loan agreement 262,000 700,000
Net proceeds from issuance of preferred stock 1,923,000 -
------------ ----------
Net cash provided by financing activities 1,354,000 731,000
------------ ----------
Effects of exchange rate changes on cash 22,000 -
------------ ----------
Net (decrease) increase in cash and cash equivalents (3,233,000) 1,210,000
Cash and cash equivalents at beginning of period 4,656,000 1,036,000
------------ ----------
Cash and cash equivalents at end of period $ 1,423,000 $2,246,000
------------ ----------
------------ ----------
Supplemental cash flow information:
Interest paid $ 50,000 $ 83,000
------------ ----------
------------ ----------
Schedule of non-cash financing activity:
Conversion of Preferred Stock and note payable to
Common Stock $ 6,230,000 -
------------ ----------
------------ ----------
Indemnification obligations applied against notes
payable to former Optigraphics shareholders - $ 100,000
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Altris Software, Inc. (the
"Company") as of September 30, 1996 and the consolidated statement of
operations and of cash flows for the three and nine month periods ended
September 30, 1996 and 1995 are unaudited. The consolidated financial
statements and related notes have been prepared in accordance with generally
accepted accounting principles applicable to interim periods. In the opinion
of management, the consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the consolidated financial position, operating results and cash
flows for the periods presented.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
NOTE 2 - NET INCOME PER SHARE
Net income per share is computed on the basis of weighted average shares
and common stock equivalent shares outstanding for each period presented, if
dilutive.
NOTE 3 - INVENTORY
Inventory consists of parts, supplies, and subassemblies stated at the
lower of cost or market value. Cost is determined using the first-in,
first-out (FIFO) method. As of September 30, 1996 and December 31, 1995, the
Company's reserve against excess quantities totaled $2,119,000.
NOTE 4 - NOTE PAYABLE
In September 1995, the Company entered into a revolving loan and security
agreement, which provides for borrowings of up to $1,000,000. At September 30,
1996, $821,000 was outstanding on the revolving loan agreement. The maximum
credit available under this facility declines by $200,000 in September of each
year commencing in 1996. The loan balance is payable in monthly installments
of $16,667 with interest equal to the 30-day Commercial Paper Rate plus 2.95%
(8.37% at September 30, 1996). Total borrowings under the revolving loan
agreement are collateralized by the Company's assets. The revolving loan and
security agreement contains certain restrictive covenants including debt to
tangible net worth ratio.
At December 31, 1995, the Company had an outstanding payable for cash
advanced by a bank which acted as paying agent for the notes due to former
Optigraphics shareholders having a principal balance of $1,634,000 in which the
balance was paid in January 1996. The notes with an original maturity of
September 1995 provided for interest payable quarterly at 6% per annum and were
issued as part of the total consideration paid in connection with the
acquisition of Optigraphics Corporation.
At December 31, 1995, the Company had an outstanding convertible note in
connection with the acquisition of Trimco Group plc ("Trimco") having a
principal balance of $1,000,000 payable at 7% per annum, due on September 27,
1996. In February 1996, the note was converted into 125,000 shares of the
Company's common stock.
6
<PAGE>
NOTE 5 - PREFERRED STOCK
In April 1996, the Company issued 100,000 shares of a new series of
preferred stock, the Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), in a private placement to a purchaser who is not a resident
of the United States, in reliance on the exemption set forth in Regulation S of
the Securities and Exchange Commission. In consideration for the issuance and
sale of the Series C Preferred Stock, the Company received $2,000,000 in cash
proceeds before expenses. The Series C Preferred Stock bore a dividend of 8%
per annum, accruing quarterly, and was convertible into shares of the Company's
common stock after June 9, 1996, at the option of the holder, and after August
23, 1996, at the Company's option. The conversion ratio is a fraction, the
numerator of which is $20.00 plus accrued but unpaid dividends, and the
denominator of which is the lesser of $5.16 (the closing price on April 24,
1996, the date preceding the date of issuance), and 80% of the average closing
trading price on the three trading days immediately preceding the date of
conversion.
In June 1996, 37,500 shares of Series C Preferred Stock were converted
into 72,726 shares of common stock. In July 1996, the remaining 62,500 shares
of Series C Preferred Stock were converted into 163,274 shares of common stock.
In December 1995 the Company issued 172,500 shares of a new series of
preferred stock, the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") for total proceeds of $3,450,000 before expenses. In
February 1996, all of such shares of Series B Preferred Stock were converted
into 406,617 shares of common stock.
NOTE 6 - PURCHASE ACCOUNTING
During the third quarter 1996, the Company completed the allocation of
the purchase price initially made at the time of the Trimco acquisition
(December 1995) based on preliminary information, which resulted in an
increase in purchased technology of $120,000. The additional purchased
technology is being amortized over the greater of the ratio of current gross
revenues associated with such technology to the total of current and expected
gross revenues or the straight line method. In addition, in September 1996
the Company settled a contract dispute associated with certain claims on
Trimco projects performed in 1995. The settlement payment resulted in an
increase to goodwill of $432,000. The additional goodwill is being amortized
over the remaining useful life of the goodwill.
NOTE 7 - SUBSEQUENT EVENT
On October 24, 1996 the Company's shareholders approved a change in the
Company's name to Altris Software, Inc. and a 1-for-2 reverse stock split of
all of the Company's common stock. The reverse stock split was effective
October 25, 1996 and all references in the consolidated financial statements
and related notes have been restated to reflect the split.
Also in October 1996, the Company entered into an additional revolving
loan and security agreement, which provides for borrowings of up to $1,000,000,
to provide for the purchase of computer equipment. The loan balance is payable
in monthly installments with interest equal to the 30-day Commercial Paper Rate
plus 2.95%. Each installment payable prior to the first day of the second
calendar month following the final advance on the loan account, which is no
later than August 30, 1997, is an amount equal to accrued and unpaid interest
only. The revolving loan and security agreement contains certain restrictive
covenants including debt to tangible net worth ratio.
7
<PAGE>
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1995.
Revenues
Revenues for the three and nine months ended September 30, 1996 were
$5,806,000 and $17,973,000, respectively, as compared to $3,127,000 and
$9,629,000 for the three and nine months ended September 30, 1995. The increase
of 86% and 87%, respectively, in revenues for the three and nine months ended
September 30, 1996 is the result of the expansion of business opportunities and
resources in both international and domestic markets as a result of the
acquisition of Trimco in December of 1995. In addition, revenues increased due
to sales of new software product and version releases, including the Company's
new workflow product.
For the three and nine months ended September 30, 1996 revenues consisted
of new system revenues of $3,611,000 (62%) and $11,132,000 (62%), respectively,
and revenues related to system enhancements, expansion and maintenance of
$2,195,000 (38%) and $6,841,000 (38%), respectively. This compares to 1995
revenues of $1,683,000 (54%) and $5,249,000 (55%), respectively, in new system
revenues and revenues related to system enhancements, expansion and maintenance
of $1,444,000 (46%) and $4,380,000 (45%), respectively. The increase in new
system revenues in third quarter 1996 is primarily due to large orders from
several new customers.
A small number of customers have typically accounted for a large
percentage of the Company's annual revenue. In the first nine months of 1996,
one customer accounted for 11% of total revenue. For the first nine months of
1995, no customer accounted for over 10% of total revenue. One consequence of
the Company's dependence on a small number of customers has been that revenue
can fluctuate significantly on a quarterly basis. The Company's reliance on
relatively few customers could have a material adverse effect on the results of
its operations, particularly in light of the current prevailing adverse
conditions in certain industries, including aerospace and defense-related
manufacturing, in which many of the Company's principal customers operate.
Additionally, a significant portion of the Company's revenues have historically
been derived from the sale of systems to new customers.
Cost of Revenues
Gross profit was $3,411,000 or 59% and $10,932,000 or 61% for the three
and nine months ended September 30, 1996. For the comparable periods in 1995,
gross profit was $1,851,000 or 59% and $5,239,000 or 54%, respectively.
Software and services are sold at a significantly higher margin than third
party products which are resold at a lower gross profit percentage in order for
the Company to remain competitive in the marketplace. The increase in the
gross profit percentage was due primarily to the significant increase in
software license revenue, which typically has a gross profit of approximately
80%. Software license revenue was $2,765,000 (48%) and $10,564,000 (59%) for
the three and nine months ended September 30, 1996. This compares to
$1,477,000 (47%) and $3,531,000 (37%) for the same period in 1995. Gross
profit percentage can fluctuate quarterly based on the revenue mix of Company
software, services, proprietary hardware and third party software or hardware.
8
<PAGE>
Operating Expenses
Research and development expense for the three and nine months ended
September 30, 1996 was $791,000 and $2,547,000 versus $326,000 and $886,000 for
the same periods in the prior year. The significant increase is primarily due
to additional personnel from the acquisition of Trimco devoted to research and
development activities associated with new product version releases and the
next generation product suite. Research and development expense can vary year
to year based on the amount of engineering service contract work required for
customers versus purely internal development projects. Technical expenses on
customer-funded projects are included in cost of revenues, while expenses on
internal projects are included in research and development expense. For the
three and nine months ended September 30, 1996, technical expense included in
cost of revenues was $632,000 and $2,107,000, respectively, versus $512,000 and
$1,635,000, respectively, for the same period last year.
Marketing expense for the three and nine months ended September 30, 1996
was $1,357,000 and $4,004,000 as compared to $942,000 and $2,413,000 for the
three and nine months ended September 30, 1995. This increase is primarily due
to additional personnel and other costs resulting from the addition of Trimco's
operations.
General and administrative expense for the three and nine months ended
September 30, 1996 increased to $758,000 and $2,323,000 from $357,000 and
$1,078,000 for the three and nine months ended September 30, 1995. The
increase in general and administrative expense was due primarily to additional
personnel and other administrative costs resulting from the acquisition of
Trimco and related amortization of goodwill.
Interest and Other Income
Interest and other income was $18,000 and $64,000 for the three and nine
months ended September 30, 1996 as compared to $31,000 and $101,000 in the
prior year. The decrease is due primarily to reduced interest income resulting
from lower short term investment balances during the first nine months of 1996
versus 1995.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's cash and cash equivalents totaled
$1,423,000 as compared to $4,656,000 at December 31, 1995. Short term
investments were $90,000 at September 30, 1996 versus $270,000 at December 31,
1995. Short term investments are comprised primarily of certificates of
deposit and treasury bills. At September 30, 1996, the Company's current ratio
was 2 to 1.
For the first nine months of 1996, the Company used cash of $3,121,000 in
operating activities, $1,488,000 in investing activities, and generated cash of
$1,354,000 in financing activities. A substantial portion of the cash used in
financing activities was in connection with a $1,634,000 payment of cash
advanced by a bank which acted as paying agent for notes due to former
shareholders of Optigraphics Corporation which was acquired in 1993. During
the first nine months of 1995, the Company generated cash of $527,000 in
operating activities, used cash of $48,000 in investing activities, and
generated cash of $731,000 in financing activities.
In December 1995, the Company acquired Trimco. The cash portion of the
consideration paid to Trimco shareholders totaled $5,550,000. As part of the
transaction, the Company also issued a convertible note payable which was due
in September 1996, having a principal balance of $1,000,000 with interest
payable at 7% per annum. In February 1996, the note was converted into
125,000 shares of the Company's common stock.
The Company anticipates that its combination with Trimco and the
integration of the workforce and products of the combined companies will
continue to require a significant use of working capital. The Company believes
that current working capital and funds generated from operations will be
adequate to meet expected needs for working capital and capital expenditures
over at least the next twelve months; however, in order to continue to
accelerate the development, expansion, and enhancement of a new integrated
product line and the next generation product suite, the Company intends to
explore additional financing options. In October 1996 the Company entered into
an additional revolving loan and security agreement for $1,000,000 (see Note 7
to the consolidated financial statements).
9
<PAGE>
Net Operating Loss Tax Carryforwards
As of December 31, 1995, the Company had a net operating loss carryforward
("NOL") for Federal income tax purposes of approximately $34,000,000. In
addition, the Company generated but has not used research and investment tax
credits for Federal income tax purposes of approximately $600,000. The Company
has fully reserved the resultant deferred tax asset in as much as it has been
determined that it is more likely than not such deferred tax asset will not be
realized. Under the Internal Revenue Code of 1986, as amended (the "Code"),
the Company generally would be entitled to reduce its future Federal income tax
liabilities by carrying unused NOL forward for a period of 15 years to offset
future taxable income earned, and by carrying unused tax credits forward for a
period of 15 years to offset future income taxes. The Company's ability to
utilize any NOL and credit carryforwards in future years may be restricted,
however, in the event the Company undergoes an "ownership change," generally
defined as a change of ownership of more than 50 percentage points by one or
more statutorily defined "5-percent stockholders" of a corporation, as a result
of future issuances or transfers of equity securities of the Company within a
three-year testing period. In the event of an ownership change, the amount of
NOL attributable to the period prior to the ownership change that may be used
to offset taxable income in any year thereafter generally may not exceed the
fair market value of the Company immediately before the ownership change
(subject to certain adjustments) multiplied by the applicable long-term, tax-
exempt rate announced by the Internal Revenue Service in effect for the date of
the ownership change. A further limitation would apply to restrict the amount
of credit carryforwards that might be used in any year after the ownership
change. As a result of these limitations, in the event of an ownership change,
the Company's ability to use its NOL and credit carryforwards in future years
may be delayed and, to the extent the carryforward amounts cannot be fully
utilized under these limitations within the carryforward periods, these
carryforwards will be lost.
In addition to the NOL for Federal income tax purposes, the Company has a
NOL for state income tax purposes of approximately $14,000,000 as of December
31, 1995.
Over the past three years the Company has issued equity securities in
connection with the conversion of convertible preferred stock, the Trimco
acquisition in December 1995, the Optigraphics acquisition in September 1993,
and through traditional stock option grants to employees. Although there was
no "ownership change" in 1995, or in the first nine months of 1996, this
activity, combined with the liquidity available to stockholders as a result of
the Company's common stock trading on The Nasdaq National Market, increases the
potential for an "ownership change" for income tax purposes.
In connection with the acquisition of Trimco, the Company acquired
deferred tax assets of approximately $926,000. The Company has recorded a
$626,000 valuation allowance, offsetting the deferred tax assets. Any future
recognition of acquired tax benefits will be used first to reduce any
remaining goodwill and other intangible assets related to the acquisition;
once those assets are reduced to zero, the benefit will be included as a
reduction of the Company's income tax provision.
In connection with the acquisition of Optigraphics, the Company acquired
Optigraphics' NOL of $9,500,000 for federal income tax purposes. As a result
of the change in ownership of Optigraphics, approximately $8,000,000 of the NOL
is limited whereby the Company may only utilize approximately $500,000 annually
to offset future taxable income of Optigraphics. The remaining portion of
Optigraphics' NOL does not have any annual limitation.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
A Special Meeting of Shareholders was held October 24, 1996. At the
meeting, the shareholders approved a proposal to amend the Company's Articles
of Incorporation to change the name of the Company to "Altris Software, Inc."
The proposal was approved with 16,937,612 proxies voting for, 352,371 voting
against, and 51,720 abstaining. The shareholders also approved a proposal to
amend the Company's Articles of Incorporation to effectuate a 1-for-2 reverse
stock split of all outstanding shares of Common Stock of the Company. The
proposal was approved with 16,269,289 proxies voting for, 1,029,930 voting
against, and 41,984 abstaining.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits - See Exhibit Index on Page 12.
(b) There were no reports on Form 8-K filed for the nine months
ended September 30, 1996.
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.
ALTRIS SOFTWARE, INC.
By: /s/ Jay Tanna
---------------------------------------
Jay Tanna
President and Chief Executive Officer
By: /s/ John W. Low
---------------------------------------
John W. Low
Chief Financial Officer
Dated: November 12, 1996
------------------------------------
11
<PAGE>
EXHIBIT INDEX
Exhibit
- --------
3.7 Amendment to Registrant's Articles of Incorporation
adopted October 24, 1996
10.20 Term WCMA Note dated October 22, 1996 between the
Company and Merrill Lynch Business Financial Services Inc.
11 Statement Re Computation of Net Income Per Share
12
<PAGE>
[LOGO]
SECRETARY OF STATE
CORPORATION DIVISION
I, BILL JONES, Secretary of State of the State of California, hereby certify:
That the annexed transcript has been compared with the corporate record on file
in this office, of which it purports to be a copy, and that same is full, true
and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal of
the State of California this
OCT 29 1996
____________________________
BILL JONES
[SEAL] Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALPHAREL, INC.
The undersigned, Jay V. Tanna and John W. Low, certify that:
1. They are the President and Chief Executive Officer and Secretary,
respectively, of Alpharel, Inc., a California corporation (the "Corporation").
2. Article I of the Articles of Incorporation of this Corporation is
amended and restated to read in its entirety as follows:
"The name of the corporation is Altris Software, Inc."
3. Article III of the Articles of Incorporation of this Corporation is
amended by:
(i) Amending Paragraph (a) thereof to read in its entirety as
follows:
"(a) This corporation is authorized to issue two classes of
shares of stock, designated, respectively as "Common Stock" and
"Preferred Stock." The total number of shares of all classes of stock
that this Corporation is authorized to issue is Twenty One Million
(21,000,000), consisting of Twenty Million (20,000,000) shares of
Common Stock and One Million (1,000,000) shares of Preferred Stock. At
5:00 p.m., Pacific Standard Time, on October 25, 1996, each two shares
of Common Stock issued and outstanding immediately prior thereto,
automatically and without any action on the part of the holder
thereof, will be reclassified and changed into one share of Common
Stock."
<PAGE>
(ii) Amending the first paragraph of Paragraph (b) thereof to read
in its entirety as follows:
"(b) Shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is authorized to fix the
number of shares and to determine the designation of shares of any such series.
The Board of Directors is also authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock, including, without limitation, the dividend
rights (and whether dividends are cumulative), conversion rights, if any, voting
rights (including the number of votes, if any, per share, as well as the number
of members, if any, the Board of Directors or the percentage of members, if any,
of the Board of Directors that each series of Preferred Stock may be entitled to
elect), rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences, and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issuance of shares of
that series. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series."
4. The foregoing amendments of the Articles of Incorporation have
been duly approved by the Board of Directors.
5. The foregoing amendments of the Articles of Incorporation have been
duly approved by the required vote of shareholders in accordance with Section
902 of the California Corporations Code. The total number of outstanding shares
of the Corporation entitled to vote thereon is 18,928,407, all of which are
shares of Common Stock. There are
2
<PAGE>
presently no shares of Preferred Stock outstanding. The number of shares voting
in favor of the amendments equaled or exceeded the vote required. The percentage
vote required was greater than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
DATED: October 24, 1996
/s/ Jay v. Tanna
_________________________________________
Jay V. Tanna
President
/s/ John W. Low
_________________________________________
John W. Low
Secretary
3
<PAGE>
Merrill Lynch No. 9610552301
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$1,000,000.00 October 22, 1996
TERM WCMA-REGISTERED TRADEMARK- NOTE
FOR VALUE RECEIVED, ALTRIS SOFTWARE, INC. F/K/A ALPHAREL, INC., a corporation
organized and existing under the laws of the State of California ("Customer"),
hereby promises to pay to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware ("MLBFS"), in lawful money of the United States, the principal sum of
$1,000,000.00, or, if more or less, an amount equal to the sum of the balances
from time to time outstanding under the "Term Note" and "WCMA Note" included
herein, as follows:
DEFINITIONS
In addition to terms defined elsewhere in this Note, as used herein, the
following terms shall have the following meanings:
(i) "Closing Date" shall mean the date of the first advancement of funds
hereunder.
(ii) "Conversion Date" shall mean the first to occur of: (i) the date of
funding the final advance permitted under the terms of the Loan Agreement, or
(ii) August 30, 1997.
(iii) "Excess Interest" shall mean any amount of interest in excess of the
maximum amount of interest permitted to be charged by law.
(iv) "Interest Rate" shall mean a variable per annum rate equal to the sum of
(i) 2.95% per annum, and (ii) the interest rate from time to time published in
the "Money Rates" section of THE WALL STREET JOURNAL for 30-day high-grade
unsecured notes sold through dealers by major corporations (the "30-Day
Commercial Paper Rate"). The Interest Rate will change as of the date of
publication in THE WALL STREET JOURNAL of a 30-Day Commercial Paper Rate that is
different from that published on the preceding Business Day. In the event that
THE WALL STREET JOURNAL shall, for any reason, fail or cease to publish the
30-Day Commercial Paper Rate, MLBFS will choose a reasonably comparable index or
source to use as the basis for the Interest Rate.
(v) "Loan Agreement" shall mean that certain TERM WCMA LOAN AND SECURITY
AGREEMENT NO. 9610552301 between Customer and MLBFS, as the same may have been
or may hereafter be amended or supplemented.
(vi) "Note" shall mean this TERM WCMA NOTE.
Capitalized terms used herein and not defined herein shall have the meaning set
forth in the Loan Agreement. Without limiting the foregoing, the terms
"Additional Agreements", "Event of Default" and "WCMA Loan Balance" shall have
the respective meanings set forth in the Loan Agreement.
TERM NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, in
lawful money of the United States, an amount equal to the difference between (i)
the principal sum of $1,000,000.00 or, if more or less, the aggregate amount
advanced by MLBFS to Customer pursuant to the Loan Agreement (the "Loan
Amount"), and (ii) the sum of (x) the aggregate amount paid by Customer on
account of the principal hereof, and (y) the Maximum WCMA Line of Credit (said
difference being herein called the "Term Note Balance"); together with interest
on the Term Note Balance, from the date of advancement of funds hereunder until
payment, at the Interest Rate.
<PAGE>
Said indebtedness shall be payable in consecutive monthly installments
commencing on the first day of the second calendar month following the Closing
Date, and continuing on the first day of each calendar month thereafter until
this Note shall be paid in full. Each installment payable prior to the first day
of the second calendar month following the Conversion Date shall be in an amount
equal to accrued and unpaid interest at the Interest Rate. Commencing on the
first day of the second calendar month immediately following the Conversion
Date, Customer shall pay 60 consecutive monthly installments, each in an amount
equal to the sum of (i) accrued and unpaid interest at the Interest Rate, and
(ii) 1/60th of the Loan Amount. All sums payable hereunder shall be payable at
the office of MLBFS at 33 West Monroe Street, Chicago, Illinois 60603, or at
such other place or places as the holder hereof may from time to time appoint in
writing.
Customer may prepay this Term Note at any time in whole or in part without
premium or penalty. Any partial prepayment shall be applied to installments of
the Loan Amount in inverse order of maturity. Customer shall not have the right
to re-borrow amounts prepaid on account of this Term Note.
WCMA NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in the Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the WCMA Maturity Date, the then WCMA Loan Balance; and (b)
interest at the Interest Rate on the outstanding WCMA Loan Balance, from and
including the date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full. Interest shall be payable in the manner and
on the dates specified in, or determined in accordance with, the Loan Agreement.
PROVISIONS APPLICABLE TO BOTH TERM NOTE AND WCMA NOTE
Any part of the principal hereof or interest hereon not paid within 10 days of
the applicable due date shall be subject to a late charge equal to the lesser of
(i) 5% of the overdue amount, or (ii) the maximum amount permitted by law. All
interest shall be computed on the basis of actual days elapsed over a 360-day
year.
This Term WCMA Note constitutes and includes both the "Term Note" and the "WCMA
Note" referred to in, and is entitled to all of the benefits of the Loan
Agreement. The Loan Agreement is by this reference hereby incorporated as a part
hereof.
If Customer shall fail to pay when due any installment or other sum due
hereunder, and any such failure shall continue for more than 5 Business Days
after written notice thereof from the holder hereof to Customer, or if any other
Event of Default shall occur and be continuing, then at the option of the holder
hereof, and in addition to all other rights and remedies available to such
holder under the Loan Agreement and otherwise, an amount equal to the sum of the
WCMA Loan Balance and the Term Note Balance at such time remaining unpaid,
together with all accrued and unpaid interest thereon and all other sums then
owing by Customer under the Loan Agreement, may be declared to be and thereby
become immediately due and payable.
It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Term WCMA Note at or after maturity, whether by acceleration or otherwise, or
shall affect the obligation of Customer, which is also unconditional and
absolute, to pay the sums payable under this Term WCMA Note in accordance with
its terms. Except as otherwise expressly set forth herein or in the Loan
Agreement, Customer hereby waives presentment, demand for payment, protest and
notice of protest, notice of dishonor, notice of acceleration, notice of intent
to accelerate and all other notices and formalities in connection with this Term
WCMA Note.
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<PAGE>
Wherever possible each provision of this Term WCMA Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Term WCMA Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the
remaining provisions of this Term WCMA Note. Notwithstanding any provision to
the contrary in this Term WCMA Note, the Loan Agreement or any of the
Additional Agreements, no provision of this Term WCMA Note, the Loan
Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any Excess Interest. If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Term WCMA
Note, the Loan Agreement or any of the Additional Agreements, then: (a)
Customer shall not be obligated to pay any Excess Interest; and (b) any
Excess Interest that MLBFS may have received under this Term WCMA Note, the
Loan Agreement or any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a audit against the then unpaid principal balance
of this Term WCMA Note, or accrued and unpaid interest hereon not to exceed
the maximum amount permitted by law, or both, (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing.
This Term WCMA Note shall be construed in accordance with the laws of the State
of Illinois and may be enforced by the holder hereof in any jurisdiction in
which the Loan Agreement may be enforced.
IN WITNESS WHEREOF, this Term WCMA Note has been executed by Customer as of the
day and year first above written.
ALTRIS SOFTWARE, INC
By: /s/ John W. Low
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Signature (1) Signature (2)
John W. Low
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Printed Name Printed Name
Chief Financial Officer
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Title Title
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<PAGE>
Merrill Lynch No. 9610552301
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TERM WCMA-REGISTERED TRADEMARK- LOAN AND SECURITY AGREEMENT
TERM WCMA LOAN AND SECURITY AGREEMENT ("Loan Agreement") dated as of October 22,
1996, between ALTRIS SOFTWARE, INC. F/K/A ALPHAREL, INC., a corporation
organized and existing under the laws of the State of California having its
principal office at 9339 Carroll Park Drive, San Diego, CA 92121 ("Customer"),
and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT-REGISTERED TRADEMARK-
ACCOUNT AGREEMENT NO. 231-07009 ("WCMA Agreement") between Customer and MLBFS'
affiliate, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"),
Customer has subscribed to the WCMA Program described in the WCMA Agreement. The
WCMA Agreement is by this reference incorporated as a part hereof. In
conjunction therewith, Customer has requested that MLBFS make the Term WCMA Loan
hereinafter described (the "Loan"); and, subject to the terms and conditions
herein set forth, MLBFS has agreed to make the Loan to Customer.
The Loan combines the equivalent of five successive one-year term loans, each
equal to that portion of the Loan that will be fully amortized in the ensuing
year, with a line of credit under the WCMA Program ("WCMA Line of Credit") equal
to that portion of the Loan that will not be amortized in the ensuing year.
Subject to the terms hereof, each year after the initial funding there will be
an additional funding on account of the term portion of the Loan, with the
proceeds deposited into Customer's WCMA Account concurrently with a
corresponding reduction in the Maximum WCMA Line of Credit.
This structure provides Customer with substantially the same initial funding and
loan amortization as a conventional term loan. However, unlike most conventional
term loans, it permits both a prepayment in whole or in part at any time without
penalty, and, subject to the terms and conditions herein set forth, a
re-borrowing on a revolving basis of any such amounts prepaid on account of the
WCMA Line of Credit portion of the Loan. The structure of the Loan therefore
enables Customer at its option to use any free cash balances that it may have
from time to time to reduce interest expense on the line of credit portion of
the Loan without impairing its working capital.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(b) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations, and shall include, without limitation, the Term WCMA Note.
<PAGE>
(c) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly dosed.
(d) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the first advance on account of the Loan shall have
been met to the satisfaction of MLBFS.
(e) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all books and
records (including computer records) directly related thereto, all proceeds
thereof (including, without limitation, proceeds in the form of Accounts and
insurance proceeds), and the additional collateral described in Section 4.6 (b)
hereof.
(f) "Commitment Expiration Date" shall mean November 22, 1996.
(g) "Commitment Fee" shall mean a fee of $5,500.00 due to MLBFS in connection
with this Loan Agreement.
(h) "Conversion Date" shall mean the first to occur of the date of funding the
final advance on account of the Loan permitted under the terms hereof, or August
30, 1997.
(i) "General Funding Conditions" shall mean each of the following conditions to
any loan or advance by MLBFS hereunder. (i) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of such loan or advance hereunder by MLBFS; (ii) there shall not have
occurred and be continuing any material adverse change in the business or
financial condition of Customer, (iii) all representations and warranties of
Customer herein or in any Additional Agreements shall then be true and correct
in all material respects; (iv) MLBFS shall have received this Loan Agreement and
all Additional Agreements, duly executed and filed or recorded where applicable,
all of which shall be in form and substance reasonably satisfactory to MLBFS;
(v) the Commitment Fee shall have been paid in full; (vi) MLBFS shall have
received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (vii) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (viii) any
additional conditions specified in the "Term WCMA Approval" letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.
(j) "Interest Rate" shall mean a variable per annum rate equal to the sum of (i)
2.95%, and (ii) the 30-Day Commercial Paper Rate. The "30-Day Commercial Paper
Rate" shall mean, as of the date of any determination, the interest rate from
time to time published in the "Money Rates" section of THE WALL STREET JOURNAL
for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
WALL STREET JOURNAL of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that THE WALL STREET
JOURNAL shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.
(k) "Loan Amount" shall mean an amount equal to the lesser of (i) 100% of the
aggregate cost to Customer of satisfying or fulfilling the Loan Purpose as
evidenced by invoices, (ii) the principal balance of the Loan outstanding on the
Conversion Date, or (iii) $1,000,000.00.
(l) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit: The loan will be used to purchase computer equipment.
(m) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
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<PAGE>
(n) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be reduced from time to time in accordance with the
terms hereof.
(o) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and the Term
WCMA Note.
(p) "Permitted Liens" shall mean with respect to the Collateral: (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS; (iii) liens which will be discharged with the proceeds of the
initial WCMA Loan; and (iv) any other liens expressly permitted in writing by
MLBFS.
(q) "Term WCMA Note" shall mean and refer to the Term WCMA Note executed by
Customer and dated as of the date hereof which incorporates both a WCMA Note
evidencing amounts owing on account of the WCMA Line of Credit portion of the
Loan, and a Term Note evidencing amounts owing on account of the term portion of
the Loan.
(r) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 231-07009.
(s) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit.
(t) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.
ARTICLE II. THE LOAN
2.1 COMMITMENT. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. The Loan will be funded in up to four separate advances as requested by
Customer prior to the Conversion Date; provided, however, that Customer shall
not request funding of, and MLBFS shall not be obligated to fund, any advances
on account of the Loan in an amount less than $250,000.00. Unless otherwise
hereafter agreed by MLBFS, each such advance will be disbursed either directly
to the applicable third party or parties on account of the Loan Purpose or to
reimburse Customer for amounts directly expended by it; all as directed by
Customer in an Advance Certificate to be executed and delivered to MLBFS prior
to the date of funding.
2.2 OPERATION OF LOAN.
(a) Term WCMA Note. The Loan will be evidenced by and shall be repayable in
accordance with the terms of the Term WCMA Note and this Loan Agreement. The
Term WCMA Note combines two promissory notes, one evidencing the term portion of
the Loan (the "Term Note") and the other evidencing the WCMA Line of Credit
portion of the Loan (the "WCMA Note"). The balance owing by Customer on account
of the Loan at any time shall be an amount equal to the sum of the then
outstanding balances under the WCMA Note and
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<PAGE>
the Term Note included in the Term WCMA Note. The Term WCMA Note is hereby
incorporated as a part hereof.
(b) TERM NOTE PRINCIPAL. The principal balance owing under the Term Note at any
time shall be an amount equal to the difference between (i) the Loan Amount less
the aggregate principal paid by Customer on account of the Term Note; and (ii)
the Maximum WCMA Line of Credit. So long as there shall be any moneys owing by
Customer to MLBFS hereunder or there shall be a WCMA Line of Credit, no
reduction in the unpaid principal balance of the Term Note to zero shall be
deemed a payment of the Term Note in full or an extinguishment of any of the
obligations of Customer thereunder or hereunder.
(c) TERM NOTE FUNDING. All advances on account of the Loan funded poor to the
Conversion Date will be funded out of and evidenced by the Term Note. On or
about the Conversion Date, an amount equal to four-fifths of the Loan Amount
will be paid to MLBFS out of the WCMA Line of Credit and applied on account of
the outstanding principal balance of the Term Note; leaving a principal balance
of the Term Note equal to one-fifth of the Loan Amount. Subject to the terms
hereof, the Term Note will be funded again by MLBFS in four subsequent annual
installments, each equal to one-fifth of the Loan Amount. Such installments will
be funded on a date chosen by MLBFS in its sole discretion which will be on or
within two weeks BEFORE OR AFTER each subsequent anniversary of the Conversion
Date (each, a "Subsequent Funding Date"). Each Term Note funding after the first
shall be deposited into Customer s WCMA Account.
(d) ACTIVATION OF WCMA LINE. On the Conversion Date, MLBFS will activate and
make available as an integral part of the Loan a WCMA Line of Credit equal to
four-fifths of the Loan Amount, all of which will be immediately disbursed to
MLBFS on account of the then Term Note principal balance, as aforesaid.
(e) SUBSEQUENT FUNDINGS. On the first Subsequent Funding Date, concurrently with
MLBFS' funding of an additional installment of the debt evidenced by the Term
Note into the WCMA Account, the Maximum WCMA Line of Credit will be reduced to
an amount equal to three-fifths of the Loan Amount. On the second Subsequent
Funding Date, the Maximum WCMA Line of Credit will be reduced to an amount equal
to two- fifths of the Loan Amount; and on the third Subsequent Funding Date the
Maximum WCMA Line of Credit will be reduced to an amount equal to one-fifth of
the Loan Amount.
(f) WCMA MATURITY DATE. On the fourth Subsequent Funding Date (the "WCMA
Maturity Date"), the WCMA Line of Credit will be terminated and the WCMA
Account, at the option of Customer, will either be converted to a WCMA Cash
Account (subject to any requirements of MLPF&S) or terminated.
2.3 CONDITIONS OF MLBFS' OBLIGATION. The Closing Date and MLBFS' obligation to
make each advance on account of the Loan prior to the Conversion Date are
subject to the prior fulfillment of each of the following conditions: (a)MLBFS
shall have received a written request from Customer that an advance on account
of the Loan be funded in accordance with the terms hereof, together with a
written direction from Customer as to the method of payment and payee(s) of the
proceeds of the Loan, which request and direction shall have been received by
MLBFS not less than two Business Days prior to any requested funding date; (b)
MLBFS shall have received a copy of invoices, bills of sale, payoff letters or
other applicable evidence reasonably satisfactory to it that the proceeds of
such advance will be applied on account of the Loan Purpose; (c) the Commitment
Expiration Date shall not then have occurred; and (d) each of the General
Funding Conditions shall have been met or satisfied to the reasonable
satisfaction of MLBFS.
2.4 CONDITIONS OF SUBSEQUENT FUNDINGS. The obligation of MLBFS to fund
installments of the term portion of the Loan on any Subsequent Funding Date
shall be subject to each of the conditions specified in Section 2.3 hereof being
met at such date, and the further condition that all payments due under the Term
Note on or prior to any Subsequent Funding Date shall have been paid in full;
provided, however, that notwithstanding the failure of any such conditions to
have been met, MLBFS may in its sole discretion fund such installment and/or any
other installments, and no such funding shall constitute a waiver by MLBFS of
any of its rights hereunder or under any of the Additional Agreements. Without
limiting the foregoing, it is understood that no funding by MLBFS of any sum
hereunder while an Event of Default shall have occurred
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<PAGE>
and is continuing shall under any circumstances be deemed a waiver by MLBFS of
such Event of Default, or a waiver of any of MLBFS' rights hereunder.
2.5 COMMITMENT FEE. In consideration of the agreement by MLBFS to extend the
Loan to Customer in accordance with and subject to the terms hereof, Customer
has paid or shall, on or before the Closing Date pay, the Commitment Fee to
MLBFS. Customer acknowledges and agrees that the Commitment Fee has been fully
earned by MLBFS, and that it will not under any circumstances be refundable.
2.6 ACKNOWLEDGMENTS OF CUSTOMER. Customer acknowledges, covenants and agrees
that:
(a) PAYMENT OF WCMA INTEREST; ADDITIONAL DEPOSITS. Under the terms of this Loan
Agreement, interest accrued on amounts outstanding on the WCMA Line of Credit
each month will, subject to the terms hereof, ordinarily be paid from the
proceeds of a borrowing of an additional sum under the WCMA Line of Credit.
Because all or substantially all of the Maximum WCMA Line of Credit will
ordinarily be drawn on the Conversion Date, CUSTOMER AGREES THAT IT WILL,
WITHOUT DEMAND, INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE
SUFFICIENT DEPOSITS INTO THE WCMA ACCOUNT IN ORDER TO ASSURE THAT THE MAXIMUM
WCMA LINE OF CREDIT IS NOT EXCEEDED. Installments of principal and interest
under the Term Note shall be paid directly to MLBFS in accordance with the
terms of the Term Note.
(b) ADDITIONAL INTEREST CHARGES. SUBJECT TO THE TERMS HEREOF, ON EACH SUBSEQUENT
FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA ACCOUNT. DUE TO
POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN RECOGNITION OF DEPOSITS
INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE CREDIT FOR THE AMOUNT
DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN AN INTEREST CHARGE FOR
THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA ACCOUNT. ON THE OTHER HAND,
BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL OF THE FUNDS THAT IT LENDS ON THE
DATE OF FUNDING, IT MUST CHARGE INTEREST ON THE AMOUNT FUNDED ON EACH SUBSEQUENT
FUNDING DATE FROM THE DATE OF ITS DEPOSIT INTO THE WCMA ACCOUNT, WHETHER OR NOT
SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED. THE TIMING DIFFERENCES BETWEEN THE DATE
OF DEPOSIT AND DATE OF RECOGNITION OF THE DEPOSIT IN THE WCMA ACCOUNT WILL
THEREFORE RESULT IN EXTRA INTEREST CHARGES TO CUSTOMER, WHICH CUSTOMER
ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND HEREBY UNCONDITIONALLY
AGREES TO PAY.
ARTICLE III. THE WCMA LINE OF CREDIT
3.1 WCMA NOTE.
All amounts owing under the WCMA Line of Credit shall be deemed owing under and
evidenced by the WCMA Note included in the Term WCMA Note.
3.2 WCMA LOANS.
(a) LOAN COMMITMENT AND REQUESTS. Subject to the terms and conditions hereof:
(i) on the Conversion Date, MLBFS will make a WCMA Loan to Customer in an
amount equal to the Maximum WCMA Line of Credit, the entire proceeds of which
will be disbursed to MLBFS on account of the Term Note, as aforesaid; and
(ii) during the period from and after the Conversion Date to the WCMA
Maturity Date: (x) Customer may repay said WCMA Loan and any other WCMA Loans
in whole or in part at any time without premium or penalty, and request a
re-borrowing of amounts repaid on a revolving basis, and (y) MLBFS will make
such additional WCMA Loans as Customer may from time to time request in
accordance with the terms hereof. Customer may request WCMA Loans by use of
WCMA Checks, FTS, Visa charges-REGISTERED TRADEMARK-, wire transfers, or
such other means of access to the WCMA Line of Credit as may be permitted by
MLBFS from time to time; it being understood that so long as the WCMA Line of
Credit shall be in effect, any charge or debit to the WCMA Account which but
for the WCMA Line of Credit would under the terms of the WCMA Agreement
result in an overdraft, shall be deemed a request by Customer for a WCMA Loan.
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<PAGE>
(b) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) an event shall have occurred and is continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any Event
of Default, and shall not prevent MLBFS at any time thereafter while any
condition shall not have been met from refusing to honor any request by Customer
for a WCMA Loan.
(c) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(d) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any other provision in this Loan
Agreement or any Additional Agreements to the contrary, in no event shall the
Interest Rate exceed the highest rate permissible under any applicable law. In
the event that any court having jurisdiction determines that MLBFS has received
excess interest hereunder, MLBFS will promptly refund such excess interest to
Customer, without charge or penalty. Except as otherwise provided herein,
accrued and unpaid interest on the WCMA Loan Balance shall be payable monthly on
the last Business Day of each calendar month, commencing with the last Business
Day of the calendar month in which the Conversion Date shall occur. Customer
hereby irrevocably authorizes and directs MLPF&S to pay MLBFS such accrued
interest from any available free credit balances in the WCMA Account, and if
such available free credit balances are insufficient to satisfy any interest
payment due, to liquidate any investments in the Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve program) in an amount up to the balance of such accrued
interest, and pay to MLBFS the available proceeds on account thereof. If
available free credit balances in the WCMA Account and available proceeds of the
Money Accounts are insufficient to pay the entire balance of accrued interest,
and Customer otherwise fails to make such payment when due, MLBFS may, in its
sole discretion, make a WCMA Loan in an amount equal to the balance of such
accrued interest and pay the proceeds of such WCMA Loan to itself on account of
such interest. The amount of any such WCMA Loan will be added to the WCMA Loan
Balance. If MLBFS declines to extend a WCMA Loan to Customer under these
circumstances, Customer hereby authorizes and directs MLPF&S to make all such
interest payments to MLBFS from any Minimum Money Accounts Balance. If there is
no Minimum Money Accounts Balance, or it is insufficient to pay all such
interest, MLBFS will invoice Customer for payment of the balance of the accrued
interest, and Customer shall pay such interest as directed by MLBFS within 5
Business Days of receipt of such invoice.
(e) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. The acceptance by or on behalf of MLBFS of a check or other payment
for a lesser amount than shall be due from Customer, regardless of any
endorsement or statement thereon or
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transmitted therewith, shall not be deemed an accord and satisfaction or
anything other than a payment on account, and MLBFS or anyone acting on behalf
of MLBFS may accept such check or other payment without prejudice to the rights
of MLBFS to recover the balance actually due or to pursue any other remedy under
this Loan Agreement or applicable law for such balance. All checks accepted by
or on behalf of MLBFS in connection with the Loan and WCMA Line of Credit are
subject to final collection.
(f) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(g) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
ARTICLE IV. GENERAL PROVISIONS
4.1 REPRESENTATIONS AND WARRANTIES.
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of California and
is qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement, the Term WCMA Note and the other Additional Agreements to
which it is a party.
(d) ENFORCEABILITY. This Loan Agreement, the Term WCMA Note and such of the
other Additional Agreements to which it is a party are the legal, valid and
binding obligations of Customer, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.
(e) COLLATERAL. Subject to Permitted Liens: (i) Customer has good and marketable
title to the Collateral, (ii) none of the Collateral is subject to any lien,
encumbrance or security interest, and (iii) upon the filing of all Uniform
Commercial Code financing statements executed by Customer with respect to the
Collateral in the appropriate jurisdiction(s) and/or the completion of any other
action required by applicable law to perfect its liens and security interests,
MLBFS will have valid and perfected first liens and security interests upon all
of the Collateral.
(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of
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it as at such dates and the results of its operations for the periods then
ended; and since the most recent date covered by such financial statements,
there has been no material adverse change in any such financial condition or
operation.
(g) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.
(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).
(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a Location
of Tangible Collateral. Each of the foregoing representations and warranties
are continuing and shall be deemed remade by Customer on the Closing Date, on
the date of funding of each additional advance on account of the Loan, on the
Conversion Date, on each Subsequent Funding Date and concurrently with each
request for a WCMA Loan.
4.2 FINANCIAL AND OTHER INFORMATION.
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer consisting of at
least a balance sheet as at the dose of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.
(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the dose of such fiscal quarter, all in reasonable detail
and certified by its chief financial officer.
(c) OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.
4.3 OTHER COVENANTS. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and records.
(b) TAXES. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any
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agreement, instrument or document to which it is a party or by which it is
bound, if any such violation will materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, or the financial condition or the continued operations of Customer.
(d) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of the Loan
(including the initial WCMA Loan) shall be used by Customer solely for the Loan
Purpose, or, with the prior written consent of MLBFS, for other lawful business
purposes of Customer not prohibited hereby. The proceeds of each WCMA Loan other
than the initial WCMA Loan shall be used by Customer solely for working capital
in the ordinary course of Customer's business, or, with the prior written
consent of MLBFS, for other lawful business purposes of Customer not prohibited
hereby. CUSTOMER AGREES THAT UNDER NO CIRCUMSTANCES WILL THE LOAN OR FUNDS
BORROWED FROM MLBFS THROUGH THE WCMA LINE OF CREDIT BE USED: (i) FOR PERSONAL,
FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON WHATSOEVER, (ii) TO PURCHASE, CARRY
OR TRADE IN SECURITIES, INCLUDING SHARES OF THE MONEY ACCOUNTS, OR (iii) TO
REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES; NOR WILL ANY SUCH
FUNDS BE REMITTED, DIRECTLY OR INDIRECTLY, TO AN ACCOUNT OF CUSTOMER WITH MLPF&S
OR ANY OTHER BROKER OR DEALER IN SECURITIES, BY WCMA CHECK, CHECK, FTS, WIRE
TRANSFER, OR OTHERWISE.
(e) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer will not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease all
or any substantial part of its assets if any such action causes a material
change in its control or principal business, or a material adverse change in its
financial condition or operations; (ii) Customer will preserve its existence and
good standing in the jurisdictions of establishment and operation, and will not
operate in any material business other than a business substantially the same as
its business as of the date of application by Customer for credit from MLBFS;
and (iii) Customer will not cause or permit any material change in its
controlling ownership, controlling senior management or, except upon not less
than 30 days prior written notice to MLBFS, its name or principal place of
business.
(f) TANGIBLE NET WORTH. The "Tangible Net Worth" of Customer, consisting of
Customer's net worth as shown on Customer's regular financial statements
prepared in a manner consistent with the terms hereof, but excluding an
amount equal to: (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles
(including capitalized software), and (ii) any amounts now or hereafter
directly or indirectly owing to Customer by officers, shareholders or
affiliates of Customer, shall on and at all times after December 31, 1996
exceed $8,000,000.00.
(g) DEBT TO WORTH. The ratio of Customer's total debt to Customer's tangible net
worth shall not at any time exceed 1.5 to 1.
(h) ACQUISITIONS. Except upon the prior written consent of MLBFS neither
Customer nor any Guarantor shall directly or indirectly acquire all or
substantially all of the stock or assets of any other entity.
4.4 COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customers said
obligations.
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(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
each Location of Tangible Collateral, except for any such obligations being
contested by Customer in good faith by appropriate proceedings.
(g) LOCATION. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance shall provide that MLBFS will
receive not less than 10 days prior written notice of any cancellation, and
shall otherwise be in form and amount and with an insurer or insurers reasonably
acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of
each such policy or policies and, prior to any expiration or cancellation, each
renewal or replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
prepay the Loan by an amount equal to the actual cash value of such Collateral
as determined by either the insurance company's payment (plus any applicable
deductible) or, in absence of insurance company payment, as reasonably
determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence
of such Event of Loss or any time thereafter prior to replacement or prepayment,
as aforesaid, an Event of Default shall occur hereunder, then MLBFS may at its
sole option, exercisable at any time while such Event of Default shall be
continuing, require Customer to either replace such Collateral or prepay the
Loan, as aforesaid. Any prepayment of the Loan pursuant to this Section shall be
applied first to
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installments on account of the then "Term Note Balance" (as defined in the Term
WCMA Note) in inverse order of maturity; with any prepayment in excess of the
then Term Note Balance applied on account of the WCMA Note concurrently with:
(i) a like permanent reduction in the Maximum WCMA Line of Credit, and (ii) a
like reduction in the obligation of MLBFS to fund future installments on account
of the Term Note in inverse order of funding. No amount prepaid pursuant to this
Section may be re-borrowed by Customer.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder, excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
4.5 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be deposited by Customer under
this Loan Agreement or the Term WCMA Note, or shall fail to pay when due any
other Obligations, and any such failure shall continue for more than 5 Business
Days after written notice thereof shall have been given by MLBFS to Customer.
(b) FAILURE TO PERFORM. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Loan Agreement, the Term WCMA Note or any of the other Additional Agreements
(not constituting an Event of Default under any other clause of this Section),
and such default shall continue unremedied for 10 Business Days after written
notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer
contained in this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements shall at any time prove to have been incorrect in any
material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any
required notice shall have been given and required passage of time shall have
elapsed.
(e) BANKRUPTCY, ETC. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer, or any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within 60 days after filing, or
Customer shall make an assignment for the benefit of creditors, or Customer
shall become insolvent or generally fail to pay, or admit in writing its
inability to pay, its debts as they become due.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.
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(h) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within 10
Business Days.
4.6 REMEDIES.
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) TERMINATION. MLBFS may without notice terminate its obligation to make any
further advances on account of the Loan (if any portion of the Loan has not then
been funded),), or fund any further amount on account of the Term WCMA Note, or
make or continue to make the WCMA Line of Credit available to Customer, or
otherwise extend any credit to or for the benefit of Customer, and upon any such
termination MLBFS shall be relieved of all such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the Term
Note and WCMA Note included in the Term WCMA Note, and all other Obligations to
be forthwith due and payable, whereupon all such amounts shall be immediately
due and payable, without presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate or other notice or formality of any kind, all of which are hereby
expressly waived.
(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer remaining liable for any amount remaining unpaid after such
application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non- cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included in
the Collateral and endorse Customer's name on any item of payment on or proceeds
of the Collateral.
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(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash and securities therein or controlled
thereby, and all proceeds thereof. Customer hereby collaterally assigns and
grants to MLBFS a security interest in all such property as additional
Collateral.
(c) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Term WCMA Note, the other Additional Agreements, at
law or in equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively.
(d) NOTICES. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
4.7 MISCELLANEOUS.
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or
any of the other Additional Agreements shall operate as a waiver thereof, and no
single or partial exercise of any such right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement, the Term
WCMA Note or any of the other Additional Agreements, nor any consent to any
departure by Customer therefrom, shall be effective unless the same shall be in
writing and signed by MLBFS. Any waiver of any provision of this Loan Agreement,
the Term WCMA Note or any of the other Additional Agreements and any consent to
any departure by Customer from the terms thereof shall be effective only in the
specific instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on Customer shall in
any case entitle Customer to any other or further notice or demand in similar or
other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorize MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral
-13-
<PAGE>
for the Obligations; (ii) any and all stamp, transfer and other taxes and fees
payable or determined to be payable in connection with the execution, delivery
and/or recording of this Loan Agreement or any of the Additional Agreements; and
(iii) all reasonable fees and out-of-pocket expenses (including, but not limited
to, reasonable fees and expenses of outside counsel) incurred by MLBFS in
connection with the enforcement of this Loan Agreement or any of the Additional
Agreements and the protection of MLBFS' rights hereunder or thereunder,
excluding, however, salaries and expenses of MLBFS' employees. The obligations
of Customer under this paragraph shall survive the expiration or termination of
this Loan Agreement and the discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Event of Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement or any of the Additional Agreements not paid within 10 days of
the applicable due date shall be subject to a late charge in an amount equal to
the lesser of: (i) 54% of the overdue amount, or (ii) the maximum amount
permitted by applicable law. Such late charge shall be payable on demand, or,
without demand, may in the sole discretion of MLBFS be paid by a WCMA Loan and
added to the WCMA Loan Balance in the same manner as provided herein for accrued
interest with respect to the WCMA Line of Credit.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Term WCMA Note or any the other Additional
Agreements, or to establish, perfect and maintain MLBFS' security interests and
liens upon the Collateral, including, but not limited to: (i) executing
financing statements or amendments thereto when and as reasonably requested by
MLBFS; and (ii) if in the reasonable judgment of MLBFS it is required by local
law, causing the owners and/or mortgagees of the real property on which any
Collateral may be located to execute and deliver to MLBFS waivers or
subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(h) BINDING EFFECT. This Loan Agreement, the Term WCMA Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements without
the prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, the Term WCMA Note and, unless otherwise
expressly provided therein, each of the other Additional Agreements, shall be
governed in all respects by the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement, the Term WCMA Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction,
-14-
<PAGE>
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Loan Agreement, the Term
WCMA Note and the other Additional Agreements or affecting the validity or
enforceability of such provision in any other jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as either MLBFS shall be obligated
to make the Loan, or, after the Closing Date, there shall be any moneys
outstanding under the Term Note or WCMA Note included in the Term WCMA Note or
under this Loan Agreement, or there shall be any other Obligations outstanding.
(m) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS
THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT
LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES THAT: (i) NO PROMISE OR COMMITMENT
HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES,
AGENTS OR REPRESENTATIVES TO MAKE THE LOAN ON ANY TERMS OTHER THAN AS EXPRESSLY
SET FORTH HEREIN AND IN THE TERM WCMA NOTE, OR TO MAKE ANY OTHER LOAN OR
OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; AND (ii)
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES
AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND
COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN
ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF
THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS
IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN
ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER
WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER
FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY OTHER
ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT.
-15-
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
ALTRIS SOFTWARE INC.
By: /s/ John W. Low
----------------------------------------------------------------
Signature (1) Signature (2)
John W. Low
----------------------------------------------------------------
Printed Name Printed Name
Chief Financial Officer
----------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:
----------------------------------------------------------------
-16-
<PAGE>
Exhibit 11
ALTRIS SOFTWARE, INC.
STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income per consolidated
financial statements $ 492 $ 229 $2,044 $ 881
------ ------ ------ ------
Primary net income per share:
Weighted average common shares 9,420 7,029 8,967 6,946
Common stock equivalents:
Common stock options 200 398 295 212
Common stock warrants - 70 - 24
Convertible preferred stock and
convertible note 31 - 152 -
------ ------ ------ ------
Weighted average shares outstanding 9,651 7,497 9,414 7,182
------ ------ ------ ------
Fully diluted net income per share:
Weighted average common shares 9,420 7,029 8,967 6,946
Common stock equivalents:
Common stock options 200 398 295 212
Common stock warrants - 70 - 24
Convertible preferred stock and
convertible note 31 - 152 -
------ ------ ------ ------
Weighted average shares outstanding 9,651 7,497 9,414 7,182
------ ------ ------ ------
Net income per share:
Primary $ .05 $ .03 $ .22 $ .12
------ ------ ------ ------
Fully diluted $ .05 $ .03 $ .22 $ .12
------ ------ ------ ------
</TABLE>
Note - All share data has been restated to reflect the 1-for-2 reverse stock
split which was adopted by the shareholders on October 24, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATETD BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S 10-Q FOR THE YEAR-TO-DATE 9/30/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,423
<SECURITIES> 0
<RECEIVABLES> 8,430
<ALLOWANCES> 0
<INVENTORY> 478
<CURRENT-ASSETS> 11,305
<PP&E> 6,912
<DEPRECIATION> (4,891)
<TOTAL-ASSETS> 20,597
<CURRENT-LIABILITIES> 5,332
<BONDS> 0
0
0
<COMMON> 61,233
<OTHER-SE> (47,231)
<TOTAL-LIABILITY-AND-EQUITY> 14,024
<SALES> 5,806
<TOTAL-REVENUES> 5,806
<CGS> 2,395
<TOTAL-COSTS> 2,395
<OTHER-EXPENSES> 791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 492
<INCOME-TAX> 0
<INCOME-CONTINUING> 492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 492
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
