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SECURITIES AND EXCHANGE COMMISSION The following item
WASHINGTON, D.C. 20549 was the subject of
a Form 12b-25 and
FORM 10-Q/A is included herein:
AMENDMENT NO. 1 Item 6
TO
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
June 30, 1996 0-18217
TRANSCEND SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0378756
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3353 Peachtree Road, N.E., Suite 1000, Atlanta, Georgia 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 364-8000
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Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, par value $.01 per share 18,753,172 shares
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Class Outstanding at August 14, 1996
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996:
(List all such items, financial statements, exhibits or other portions amended)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4.1 Loan and Security Agreement, $5,000,000 Working Capital Line and
$750,000 Equipment Line, provided by Silicon Valley Bank to
Transcend Services, Inc .
4.2 Working Capital Note
4.3 Equipment Term Note
4.4 Warrant to Purchase Common Stock
4.5 Silicon Valley Bank Antidilution Agreement
4.6 Silicon Valley Bank Registration Rights Agreement
11 Statement Re Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter ended
June 30, 1996:
1. Amendment No. 2 on Form 8-K/A dated May 30, 1996 to Current
Report on Form 8-K dated May 2, 1995, filing certain financial
statements related to 1995 acquisitions.
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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 hereunto duly authorized.
TRANSCEND SERVICES, INC.
Dated: August 16, 1996 By: /s/ David W. Murphy
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David W. Murphy
Chief Financial Officer
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EXHIBIT 4.1
LOAN AND SECURITY AGREEMENT
$5,000,000 WORKING CAPITAL LINE
$750,000 EQUIPMENT LINE
PROVIDED BY
SILICON VALLEY BANK
TO
TRANSCEND SERVICES, INC.
APRIL 30, 1996
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This LOAN AND SECURITY AGREEMENT is entered into as of APRIL 30, 1996, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name Silicon Valley East
("Bank"), and TRANSCEND SERVICES, INC., a Delaware corporation with its
principal place of business at 3353 PEACHTREE ROAD, NE, SUITE 1000, ATLANTA, GA
03026 ("Borrower").
RECITALS
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Borrower wishes to obtain credit from time to time from Bank, and Bank
desiresto extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
AGREEMENT
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
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1.1 Definitions. As used in this Agreement, the following terms
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shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a Revolving Advance or
Advances under the Committed Revolving line and an Equipment Advance
or Advances under the Committed Equipment Line.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such
Person, and each of such Person's senior executive officers, directors,
and partners.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection
with the preparation, negotiation, administration, and enforcement of the
Loan Documents and Bank's reasonable attorneys' fees and expenses incurred
in amending, enforcing or defending the Loan Documents, whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1
hereof.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
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attached hereto.
"Committed Revolving Line" means THREE MILLION Dollars
($3,000,000); provided, however, that if Borrower meets its Profitability
covenant for the calendar quarter ended June 30, 1996, as set
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forth in Section 6.11 of this Agreement, the Committed Revolving Line shall
increase to FIVE MILLION AND NO/100THS Dollars ($5,000,000).
"Committed Equipment Line" means TWO HUNDRED FIFTY THOUSAND AND
NO/100THS Dollars ($250,000); provided, however, that so long as Borrower
maintains compliance with its Minimum Debt Service covenant as set forth in
Section 6.12(ii) of this Agreement, the Committed Equipment Line shall increase
to SEVEN HUNDRED FIFTY THOUSAND AND NO/100THS Dollars ($750,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit issued
for the account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endoresments for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Borrower or any Subsidiary to a
date more than one year from the date of determination, but excluding
Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the end of a
given day.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
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eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by bank, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an Affiliate
(other than by virtue of being directly or indirectly under common ownership or
control with Borrower) of Borrower;
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(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or office located in the United States of any account
debtor that does not have its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is a
federal, governmental entity or any federal department, agency, or
instrumentality thereof;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such obligations exceed
the aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines to
be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a
case-by-case basis.
"Eligible Inventory" means that portion of Borrower's Inventory that
is located at Borrower's principal place of business or such other location s as
are permitted under Section 7.10 and that complies with the representations and
warranties set forth in Section 5.5.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including
3
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any returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership (including stock,
partnership interest or other securities) of any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, an amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest of other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) or Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing, excluding that which is already pledged or secured
elsewhere.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
any Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Payment Date" means the FIFTH (5TH) calendar day of each month.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt; and
(d) Indebtedness to trade creditors incurred in the ordinary
course of business.
(e) Indebtedness securing the purchase price of any asset
acquired by Borrower, provided the aggregate amount of such
purchase money indebtedness at any one time is not in
excess of $400,000.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
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(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one(1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one(1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
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security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
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acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
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replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; and
(e) Liens securing Permitted Indebtedness.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer the
Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means one year from date of closing
documents.
"Schedule" means the schedule of exceptions attached hereto.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is
being made, be owned by Borrower, either directly or through an Affiliate.
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"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of the Borrower
and its Subsidiaries minus, without duplication, (i) the sum of any amounts
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attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c) all reserves
not already deducted from assets, and (ii) Total Liabilities.
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"Total Liabilities" means any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
1.2 Accounting Terms. All accounting terms not specifically defined herein
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shall be construed in accordance with GAAP and all calculations made hereunder
shall be made in accordance with GAAP. When used herein, the terms "financial
statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
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2.1 Revolving Advances. Subject to and upon the terms and conditions of
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this Agreement, Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the Committed Revolving Line or the Borrowing
Base, whichever is less. For purposes of this Agreement, "Borrowing Base" shall
mean an amount equal to EIGHTY percent (80%) of Eligible Accounts. Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time during the term of this
Agreement.
Whenever Borrower desires a Revolving Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Revolving Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Revolving
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Advances under this Agreement under this Agreement, based upon instructions
received from a Responsible Officer, or without instructions if in Bank's
discretion such Revolving Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Revolving Advances made under this Section 2.1 to Borrower's deposit account.
The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Revolving Advances under this Section 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) and shall be immediately due and payable.
2.1.1 Equipment Advances
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(a) At any time for the date hereof through DECEMBER 31, 1996 (the
"Equipment Availability End Date"), Borrower may from time to time request
advances (each an "Equipment Advance" and collectively, the "Equipment
Advances")from Bank in an aggregate amount not to exceed the Committed
Equipment Line. To evidence the Equipment Advance or the Equipment Advances,
Borrower shall deliver to Bank, at the time of each Equipment Advance request,
a Payment/Advance Form in substantially the form of Exhibit B hereto
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accompanied by an invoice for the Equipment to be financed. the Equipment
Advances shall be used only to finance Equipment and each Equipment Advance
shall not exceed NINETY Percent (90%) of the invoice amount of equipment
purchased after the date of this Agreement, plus FIFTY Percent (50%) of the
invoice amount of equipment purchased prior to the date of this Agreement, all
as approved from time to time by Bank, excluding taxes, shipping, warranty
charges, freight discounts and installation expense.
(b) Interest shall accrue from the date of each Equipment Advance at
the rate specified in Section 2.3(a), and shall be payable monthly for each
month through the month in which the Equipment Availability End Date falls. Any
Equipment Advances that are outstanding on the Equipment Availability End Date
will be payable in THIRTY (30) equal monthly installments of principal, plus all
accrued interest, beginning on the Payment Date of each month following the
Equipment Availability End Date.
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(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Equipment Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer and include a copy of the invoice for the
Equipment to be financed.
2.2 Overadvances. If, at any time or for any reason, the amount of
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Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments and Calculations.
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(a) Interest Rate. Except as set forth in Section 2.3(b), any
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Revolving Advances shall bear interest on the average Daily Balance at a rate
equal to ONE-HALF (.50) percentage points above the Prime Rate reducing to the
Prime Rate upon the Company reporting two quarters of profits, and Equipment
Advances shall bear interest on the average Daily Balance at a rate equal to ONE
(1.0) percentage point above the Prime Rate, reducing to three quarters (.75)
percentage points above the Prime Rate upon reporting two quarters of profits.
(b) Default Rate. All Obligations shall bear interest, from
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and after the occurrence of an Event of Default, at a rate equal to three
and one-half (3.5) percentage points above the interest rate applicable under
Section 2.3(a).
(c) Payments. Interest hereunder shall be due and payable on the
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Payment Date of each month during the term hereof. Borrower hereby authorizes
Bank to debit any accounts with Bank, including, without limitation, Account
Number ______________ for payments of principal and interest due on the
Obligations and any other amounts owing by Borrower to Bank. Bank will notify
Borrower of all debits which Bank makes against Borrower's accounts. Any such
debits against Borrower's accounts in no way shall be deemed a set-off. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
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time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate
is changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
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Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After
the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment on account unless such payment is of immediately available federal
funds or unless and until such check or other item of payment is honored when
presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon
Pacific time shall be deemed to have been received by bank as of the opening
of business on the immediately following Business Day. Whenever any payment
to Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
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(a) Facility Fee. A Facility Fee equal to $11,250.00, which fee
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shall be due on or before the Closing Date and shall be fully earned and
non-refundable; a further increase in the committed amount of the revolving
line facility will require an additional 3/8% per annum fee on the incremental
change.
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(b) Financial Examination and Appraisal Fees. Bank's
-----------------------------------------
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Banks or its agents; the
fee for each individual exam is capped at $750.00.
(c) Bank Expenses. Upon demand from Bank, all Bank
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expenses incurred following closing, provided however that Borrower shall be
responsible for all Bank expenses incurred prior to closing involved with the
UCC searches and subsequent filing fees.
2.6 Additional Costs. In case any law, regulation, treaty or official
-----------------
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law);
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement,
and the result of any of the foregoing is to increase the
cost to Bank, reduce the income receivable by Bank or impose any expense upon
Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower
agrees to pay to Bank the amount of such increase in cost, reduction in income
or additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by Bank of a statement of the amount and
setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
-----
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Advances under this Agreement immediately and without notice
upon the occurrence, and during the continuance, of an Event of Default.
Notwithstanding termination, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance. The obligation of Bank
----------------------------------------
to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement, the Working Capital Note and the
Equipment Term Note each duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) subordination agreements by certain Persons;
(d) WARRANTS
(e) financing statements (Forms UCC-1);
8
<PAGE>
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof; and
(h) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to
------------------------------------
make each Advance, including the Initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have occurred
and be continuing, or would result from such Advance. The making of each Advance
shall be deemed to be a representation and warranty by Borrower on the date of
such Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that following and during the continuance of any Event of
Default. Bank may place a "hold" on any Deposit Account pledged as Collateral to
secure the Obligations.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
----------------
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
----------------------------------
Subsidiary is a corporation duly existing and in good standing and under the
laws of its state of incorporation and qualified and licensed to do business in,
and is in good standing in, any state in which the conduct of its business or
its ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound.
9
<PAGE>
Borrower is not in default under any agreement to which it is a party or by
which it is bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended.
There has not been a material adverse change in the consolidated financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its debts
--------
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiaries
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrowers knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection stature as a hazardous waste or hazardous substance disposal site,
or a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other government agency concerning any
10
<PAGE>
action or omission by Borrower or any Subsidiary resulting in the releasing, or
otherwise disposing of hazardous waste or hazardous substances into the
environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has
-------------------
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
--------------
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain in force, and shall cause each of its Subsidiaries to maintain in
force, to the extent consistent with prudent management of Borrower's business,
all licenses, approvals and agreements, loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
---------------------
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank;
(a) as soon as available, but in any event within TWENTY
FIVE(25) days after the end of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during such period, certified by an officer of Borrower reasonably acceptable to
Bank;
(b) as soon as available, but in any event within NINETY (90)
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission:
(d) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary in excess of
amounts of insurance for such actions; and
11
<PAGE>
(e)such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within TWENTY FIVE (25) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
---------
listings of accounts receivable and accounts payable.
Within TWENTY FIVE (25) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
Exhibit D hereto.
- ---------
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense subject to a cap of $750 per audit, provided that
such will be conducted no more often than every six (6) months unless an Event
of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all inventory in good and
------------------
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practice of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
-----
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Bank, on demand, appropriate certificates attesting to the
payment or deposit thereof, and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state,and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least 0.8
to 1.0 through NOVEMBER 30, 1996, and of at least 1.0 to 1.0 at
DECEMBER 31, 1996 and thereafter.
12
<PAGE>
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the last
--------------------
day of each calendar month, a ratio of Total Liabilities less Subordinated Debt
to Tangible Net Worth plus Subordinated Debt of not more than 2.0 to 1.0 through
NOVEMBER 30, 1996, and not more than 1.7 to 1.0 at DECEMBER 31, 1996 and
thereafter.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each calendar month, a Tangible Net Worth of not less than FIVE MILLION FIVE
HUNDRED THOUSAND Dollars ($5,500,00).
6.11 Profitability. Borrower shall not incur net losses greater than
-------------
EIGHT HUNDRED THOUSAND Dollars ($800,000) for the fiscal quarter ended MARCH 31,
1996. Borrower shall have net income of at least FIFTY THOUSAND Dollars
($50,000) for the fiscal quarter ended JUNE 30, 1996, and shall have net income
of at least TWO HUNDRED FIFTY THOUSAND Dollars ($250,000) for the fiscal quarter
ended SEPTEMBER 30, 1996, and for each fiscal quarter thereafter.
6.12 Minimum Liquidity or Minimum Debt Service. Borrower shall
-----------------------------------------
maintain, as of the last calendar day of each month, either (i) a Liquidity
Ratio of at least 2.0:1.0, where "Liquidity Ratio" is defined as the ratio of
cash on hand (and cash equivalents) plus Eligible Accounts divided by the
total outstanding Equipment Advances under this Agreement, or (ii) a Debt
Service ratio of at least 1.5 to 1.0, where "Debt Service" is defined as
earnings before interest and taxes plus depreciation and amortization, divided
by total interest plus current portion of long term debt.
6.13 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following, unless the Bank has given Borrower its consent
otherwise:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
------------
dispose of (collectively, a "Transfer"), or permit any of its subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of
------------------
its Subsidiaries to engage in any business, other than the business currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or undergo a material change in Borrower's ownership,
management or directors. Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person provided
that any Subsidiaries may be merged with Borrower.
7.4 Indebtedness. Create, incur, assume or be or remain liable
-----------
with respect to any indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrance. Create, incur, assume or suffer to exist any Lien
-----------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock.
13
<PAGE>
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" controlled by an
----------
"investment company", within the meaning of the investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
---------------
Obligations.
8.2 Covenant Default.
----------------
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12, or violates any of the
covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse
-----------------------
change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the value or priority of Bank's
security interests in the Collateral;
14
<PAGE>
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or government agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure periods);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within ten (10) days (provided
that in the case of an involuntary Insolvency Proceeding Borrower shall have 60
days to cause the dismissal or stay thereof);
8.6 Other Agreements. If there is a default in any agreement to
----------------
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
---------
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the earlier of the satisfaction or stay such
judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement or under any other agreement between Borrower
and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateralavailable to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain
15
<PAGE>
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security Interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, services marks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
-----------------
during thecontinuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank's designated officers, or
employees) as Borrower's true and lawful attorney to: (a) send requests
for verification of Accounts or notify account debtors of Bank's
security interest in the Accounts; (b) endorse Borrower's name on any
checks or other forms of payment or security that may come into Bank's
possession; (c) sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notice to
account debtors; (d) make, settle, and adjust all claims under and
decisions with respect to Borrower's policies of insurance; and (e)
settle and adjust disputes and claims respecting the accounts directly
with account debtors, for amounts and upon terms which Bank determines
to be reasonable; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section
4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every
one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provided advances hereunder is
terminated.
9.3 Accounts Collection. At any time after and during the
-------------------
continuance of an Event of Default, Bank may notify any Person owing
funds to Borrower of Bank's security interest in such funds and verify
the amount of such Account. Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and
immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements of deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all
of the following: (a) make payment of the same or any part thereof; (b)
set up such reserves under the Committed Revolving Line as Bank deems
necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in
Section 6.6 of this Agreement, and take any action with respect to such
policies as Bank deems prudent. Any amounts so paid or deposited by Bank
shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by
Bank shall
16
<PAGE>
not constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Transcend Services, Inc.
3353 Peachtree Road, NE, Suite 1000
Atlanta, GA 30326
Attn: David Murphy
FAX: (404) 364-8009
If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
Attn: David B. Fischer
FAX: 617-431-9906
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER
------------------------------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE
17
<PAGE>
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure
----------------------
to the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made
--------
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run,
provided that so long as the obligations set forth in the first sentence of this
Section 12.7 have been satisfied, and Bank has no commitment to make any
Advances or to make any other loans to Borrower, Bank shall release all security
interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
12.8 Confidentiality. In handling any confidential information Bank
---------------
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of
18
<PAGE>
Borrower and have delivered a copy to Borrower, (iii) as required by law,
regulations, rule or order, subpoena, judicial order or similar order and (iv)
as may be required in connection with the examination, audit or similar
investigation of Bank. Confidential information hereunder shall not include
information that either (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information.
12.9 Effectiveness. This Agreement shall become effective only when
-------------
it shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
TRANSCEND SERVICES, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ David W. Murphy By: /s/ Mark Pasculano
------------------------------- -------------------------------
Mark Pasculano
By: CFO, Secretary & Treasurer SILICON VALLEY BANK
-------------------------------
By: /s/ Julie Haga
-------------------------------
Title: VP - Loan Processing
----------------------------
/s/ Jennifer Kirk (Signed in Santa Clara County,
Asst. Secretary California)
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts supplies, packing and shipping
materials, work in process and finished products including such inventory as is
temporarily out of Borrower's custody or possession or in transit and including
any returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, securities, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired, and all cash and
deposit accounts of Borrower maintained with or in the possession of the Bank,
and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
20
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
The undersigned hereby certifies as follows:
I, _______, am the duly elected and acting _______ of TRANSCEND SERVICES,
INC. ("Borrower").
This certificate is delivered pursuant to Section 2.1 of that certain Loan
and Security Agreement dated APRIL __, 1996 by and between Borrower and Silicon
Valley Bank ("Bank") (the "Loan Agreement"). The terms used in this Borrowing
Request which are defined in the Loan Agreement have the same meaning herein as
ascribed to them therein.
Borrower is confirming its telephone request made on ______, 199__ for an
Advance as follows:
(a) The date on which the Advance is to be made is ________, 199__.
(b) The amount of the Advance is to be $___________.
All representations and warranties of Borrower stated in the Loan Agreement
are true, accurate and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Request; provided,
however, that those representations and warranties expressly referring to
another date shall be true, accurate and complete in all material respects as of
such date.
IN WITNESS WHEREOF, this borrowing Request is executed by the undersigned
as of this _________ day of _____________, 199__.
TRANSCEND SERVICES, INC.
By:
--------------------------------
Title:
-----------------------------
21
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Transcend Services, Inc. Lender: Silicon Valley Bank
3353 Peachtree Road, Suite 1000 3003 Tasman Drive
Atlanta, GA 30326 Santa Clara, CA 95054
Commitment Amount:
------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of__________ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $__________
5. Credit Balances Applied to Over 90-Day Accounts $__________
6. Balance of 50% over 90 day accounts $__________
7. Concentration Limits $__________
8. Ineligible Foreign Accounts $__________
9. Government Accounts $__________
10. Contra Accounts $__________
11. Promotion or Demo Accounts $__________
12. Intercompany/Employee Accounts $__________
13. Other (please explain on reverse) $__________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
15. Eligible Accounts (#3 - #14) $__________
16. LOAN VALUE OF ACCOUNTS (__% of #15) $__________
BALANCES
17. Maximum Loan Amount $__________
18. Total Funds Available (Lesser of #17 or #16) $__________
19. Present balance owing on Line of Credit $__________
20. Outstanding under Submits ( ) $__________
21. RESERVE POSITIVE (#18 - #19 + #20) $__________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated APRIL 30, 1996, as may be amended from time to time,
between the undersigned and Silicon Valley Bank.
COMMENTS: --------------------------
BANK USE ONLY
Rec'd By:
----------------
Auth. Signer
Date:
-------------------
TRANSCEND SERVICES, INC. Verified:
----------------
Auth. Signer
By: Date:
------------------------- -------------------
Authorized Signer --------------------------
22
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Transcend Services, Inc. Lender: Silicon Valley Bank
3353 Peachtree Road, Suite 1000 3003 Tasman Drive
Atlanta, GA 30326 Santa Clara, CA 95054
The undersigned authorized officer of TRANSCEND SERVICES, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated APRIL 30, 1996 between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_____________ of all required conditions and terms except as noted below and
(ii) all representations and warranties of Borrower stated in the Agreement are
true, accurate and complete in all material respects as of the date hereof.
Attached herewith are the required documents supporting the above certification.
The Officer further certifies that these are prepared in accordance with
Generally Accepted Accounting Principals (GAAP) and are consistent from one
period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 25 days Yes No
A/R Audit Initial and Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio through 11/30/96 0.8:1.0 _______:1.0 Yes No
Minimum Quick Ratio 12/31/96 and 1.0:1.0 _______:1.0 Yes No
thereafter
Minimum TNW $5,500,000 $___________ Yes No
Maximum Debt/TNW through 11/30/96 2.0:1.0 _______:1.0 Yes No
Maximum Debt/TNW 12/31/96 and 1.7:1.0 _______:1.0 Yes No
thereafter
Minimum Liquidity* 2.0:1.0 _______:1.0 Yes No
Minimum Debt Service* 1.5:1.0 _______:1.0 Yes No
Maintain on a Quarterly Basis:
Profitability - FQE 3/31/96 ($800,000) _____________ Yes No
Profitability - FQE 6/30/96 $50,000 _____________ Yes No
Profitability - FQE 9/30/96 and thereafter $250,000 _____________ Yes No
</TABLE>
*Borrower must meet only one of these two covenants.
Comments Regarding Exceptions:
On behalf of Borrower, the Officer further acknowledges that at any such time as
Borrower is out of compliance with any of the terms set forth in the Agreement,
including, without limitation, any of the financial covenants, Borrower cannot
receive any advances.
BANK USE ONLY
- ------------------------------- Received by:____________________
Signature Date:___________________________
- ------------------------------- Verified:_______________________
TITLE Date:___________________________
- ------------------------------- Compliance Status: Yes No
DATE
23
<PAGE>
SCHEDULE
TO
LOAN AND SECURITY AGREEMENT
---------------------------
Additional Permitted Investments:
- -- Borrower owns the capital stock of Sullivan Health and Rehabilitation
Services, Inc., a wholly-owned subsidiary
- -- Borrower maintains an investment account with Merrill Lynch through which
excess cash of Borrower is invested
Additional Permitted Indebtedness:
- -- Note, dated April 19, 1995, payable to the former shareholders of Medical
Transcription of Atlanta, Inc. ("MTA"), with current outstanding principal
of approximately $457,804
- -- Indebtedness payable to the former shareholders of IDS for noncompete
payments, with current outstanding principal of approximately $50,000
- -- Other notes payable reflected on financial statements in the amount of
approximately $10,000
- -- Indebtedness in the amount of $2,000,000 in the form of Subordinated
Convertible Debt, dated as of August 15, 1995
Additional Permitted Liens:
- -- NationsBank has a lien in $360,000 maintained in a segregated cash
collateral account securing a letter of credit issued by NationsBank for
certain hospital bonding purposes.
- -- In connection with the acquisition of MTA, the Borrower granted a lien and
security interest in certain equipment acquired from MTA. The approximate
value of the assets so pledged is less than $100,000.
- -- In October 1995, Borrower sold to Medical Receivables Finance LLC certain
receivables associated with worker's compensation claims arising from
discontinued operations of the Borrower. In connection therewith Borrower
granted a security interest in those receivables.
Disclosure Concerning Litigation:
- -- Litigation as disclosed in Borrower's Form 10-K for the fiscal year ended
December 31, 1995, as filed with the U.S. Securities and Exchange
Commission
<PAGE>
Disclosure Concerning Names:
- -- Borrower has used the following names in connections with its business
in the past five years: TriCare (no longer used), First Western Health
Corporation (no longer used), Veritas Healthcare Management (no longer
used), Occu-Care (no longer used), and Sullivan Health and
Rehabilitation Services (still used by subsidiary), Transcend Services
(still used as Borrower's corporate name) and Bottomley & Associates (no
longer used)
<PAGE>
EXHIBIT 4.2
Working Capital Note
--------------------
$5,000,000 Atlanta, Georgia
April 30, 1996
FOR VALUE RECEIVED, the undersigned, TRANSCEND SERVICES, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of Silicon
Valley Bank, a California-chartered bank ("Bank"), at such place as the holder
hereof may designate, in lawful money of the United States of America, the
aggregate unpaid principal amount of all advances ("Advances") made by Bank to
Borrower in accordance with the terms of the Loan and Security Agreement between
Borrower and Bank of even date herewith, as amended from time to time (the "Loan
Agreement"), up to a maximum principal amount of FIVE MILLION AND NO/100THS
Dollars ($5,000,000), until paid in full. Borrower shall also pay interest on
the aggregate unpaid principal amount of such Advances at the rates and in
accordance with the terms of the Loan Agreement. The entire principal amount and
all accrued interest shall be due and payable on April 5, 1997.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank deems advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses;
(b) then due and payable interest payments and mandatory prepayments; and
(c) then due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not effect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of
this Note and to pay all reasonable attorney's fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrower and Bank with respect to all obligations
hereunder.
This note shall be deemed to be made under, and shall be construed in
accordance with and governed by the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws and principles.
Executed as an instrument under seal.
TRANSCEND SERVICES, INC.
By: /s/ David W. Murphy
----------------------------
Title: CFO
--------------------------
ATTEST
---------------------------
Secretary
<PAGE>
EXHIBIT 4.3
Equipment Term Note
----------------------
$750,000 Atlanta, Georgia
April 30, 1996
FOR VALUE RECEIVED, the undersigned, TRANSCEND SERVICES, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of Silicon
Valley Bank, a California-chartered bank ("Bank"), at such place as the holder
hereof may designate, in lawful money of the United States of America, the
aggregate unpaid principal amount of all advances ("Advances") made by Bank to
Borrower in accordance with the terms of the Loan and Security Agreement between
Borrower and Bank of even date herewith, as amended from time to time (the "Loan
Agreement"), up to a maximum principal amount of SEVEN HUNDRED FIFTY THOUSAND
AND NO/100THS Dollars ($750,000), until paid in full. Borrower shall also pay
interest on the aggregate unpaid principal amount of such Advances at the rates
and in accordance with the terms of the Loan Agreement. The entire principal
amount and all accrued interest shall be due and payable on June 5, 1997.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank deems advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses;
(b) then due and payable interest payments and mandatory prepayments; and
(c) then due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not effect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of
this Note and to pay all reasonable attorney's fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrower and Bank with respect to all obligations
hereunder.
This note shall be deemed to be made under, and shall be construed in
accordance with and governed by the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws and principles.
Executed as an instrument under seal.
TRANSCEND SERVICES, INC.
By: /s/ David W. Murphy
----------------------------
Title: CFO
--------------------------
ATTEST
---------------------------
Secretary
<PAGE>
EXHIBIT 4.4
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Transcend Services, Inc., a Delaware corporation
Number of Shares: 25,000
Class of Stock: Common
Initial Exercise Price: the closing market price as of April 30, 1996, which
--------------
shall equal $____________ per share
Issue Date: April 30, 1996
Expiration Date: April 30, 2001
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
------------------
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 Intentionally Omitted.
---------------------
1.4 Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's Stock into which the Shares are convertible)
reported for the business day immediately before the date on which Holder
delivers its Notice of Exercise to the Company. If the Shares are not traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has
10
<PAGE>
not been fully exercised or converted and has not expired, a new warrant
representing the Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.7.1. "Acquisition". for the purpose of this Warrant,
-------------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. If upon the closing of any
---------------------
Acquisition the successor entity assumes the obligations of this Warrant shall
be exercisable for the same securities, cash, and property as would be payable
for the Shares issuable upon exercise of the unexercised portion of this Warrant
as if such shares were outstanding on the record date for the Acquisition and
subsequent closing. The Warrant Price shall be adjusted accordingly.
1.7.3. Nonassumption. If upon the closing of any Acquisition the
-------------
successor entity does not assume the obligation of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange, or Substitution. Upon any
-------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, the number and kind of securities and property that
Holder would have received for the Shares if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event. Such an event shall include any automatic conversion of the outstanding
or issuable securities of the Company of the same class or series as the Shares
to common
11
<PAGE>
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for
such new securities or other property. The new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
---------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
----------------------------------
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit
A).
2.5 No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares of its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:
(a) The initial Exercise Price referenced on the first page
of this Warrant is not greater than (ii) the fair market value of the Shares as
of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restriction on transfer provided for herein or under applicable
federal and state securities laws.
12
<PAGE>
3.2 Notice of Certain Events. If the Company proposes at any time
------------------------
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights in
the case of matters referred to in (a) and (b) above (and specifying the date on
which the holders of common stock will be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (c) and (d)
above; (2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to
exchange their common stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred to in
(e) above, the same notice as is given to the holders of such registration
rights.
3.3 Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within one hundred twenty (120) days after the
end of each fiscal year of the Company, the annual audited financial statements
of the Company certified by independent public accountants of recognized
standing and (c) such other financial statements required under and in
accordance with any loan documents between Holder and the Company (or if there
are no such requirements [or if the subject loan(s) no longer are outstanding]),
then within fifty (50) days after the end of each of the first three quarters of
each fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The
-----------------------------------------------------
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 Term: Notice of Expiration. This Warrant is exercisable, in
--------------------------
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 30 days before the Expiration Date. If the notice is
not so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
13
<PAGE>
4.2 Legends. This Warrant and the Shares (and the securities
--------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
--------------------------------------------
Shares issuable upon the exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2,
-------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the Securities and
Exchange Commission ("SEC") pursuant to the Securities Act of 1934, the Company
shall have the right to refuse to transfer any portion of this Warrant to any
person who directly competes with the Company.
4.5 Notices. All notices and other communications from the Company to
--------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
-------
discharged, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
----------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
14
<PAGE>
4.8 Governing Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware, without giving effect to its
principles regarding conflicts of law. Borrower accepts for itself and in
connection with its properties, unconditionally, the non-exclusive jurisdiction
of any state or federal court of competent jurisdiction in the Commonwealth of
Massachusetts in any action, suit, or proceeding of any kind against which
arises out of or by reason of this Warrant to Purchase Stock; provided, however,
that if for any reason Lender cannot avail itself of the courts of the
Commonwealth of Massachusetts, then venue shall lie in Santa Clara County,
California.
"COMPANY"
TRANSCEND SERVICES, INC.
By: /s/ David W. Murphy
-------------------------
Name: David W. Murphy
-------------------------
Title: CFO
-------------------------
By: /s/ Jennifer Kirk
-------------------------
Name: Jennifer Kirk
-------------------------
Title: Asst. Secretary
-------------------------
15
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase ________ shares of the
Common/Series _______ Preferred [strike one] Stock of ____________________
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ______________________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
- --------------------------
(Name)
- --------------------------
(Address)
- --------------------------
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
- -----------------------------------
(Signature)
- --------------------
(Date)
16
<PAGE>
APPENDIX 2
Notice that Warrant is About to Expire
--------------------------------------
______________, ______
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear:
This is to advise you that the Warrant issued to you described below
will expire on
________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
- --------------------------------
(Name of Issuer)
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
17
<PAGE>
EXHIBIT 4.5
EXHIBIT "A"
SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of April 30, 1996, by and
between Silicon Valley Bank ("Purchaser") and the Company whose name appears on
the last page of this Antidilution Agreement.
RECITALS
--------
A. Concurrently with the execution of this Antidilution Agreement,
the Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company
desire to set forth the adjustment in the number of Shares issuable upon
exercise of the Warrant as a result of a Diluting Issuance (as defined in
Exhibit A to the Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants
and conditions hereinafter set forth, the parties hereto mutually agree as
follows:
1. Definitions. As used in this Antidilution Agreement, the
-----------
following terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to
subscribe for, purchase, or otherwise acquire common stock or Convertible
Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock
(including reissued shares) issued (or deemed to be issued pursuant to
Section 2) after the date of the Warrant. Additional Common Shares does not
include, however, any common stock issued in a transaction described in
Sections 2.1 and 2.2 of the Warrant; any common stock issued upon conversion of
preferred stock outstanding on the date of the Warrant; the
1
<PAGE>
Shares; or common stock issued as incentive (such as pursuant to a company stock
option plan) or in a nonfinancing transaction to employees, officers, directors,
or consultants to the Company, including options.
2. Deemed Issuance of Additional Common Shares. The shares of common
-------------------------------------------
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon the conversion or exercise of a
Convertible Security Issuable pursuant to an Option) are deemed to be Issued
when the Option is Issued. The shares of common stock ultimately Issuable upon
conversion or exercise of a Convertible Security (other than a Convertible
Security Issued pursuant to an Option) shall be deemed Issued upon Issuance of
the Convertible Security. The maximum amount of common stock Issuable is
determined without regard to any future adjustments permitted under the
instrument creating the Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
---------------------------------------------------
3.1 Weighted Average Adjustment. If the Company issues Additional
----------------------------
Common Shares after the date of the Warrant and the consideration per Additional
Common Share (determined pursuant to Section 9) is less than the Warrant Price
in effect immediately before such Issue, the Warrant Price immediately before
such issue shall be reduced, concurrently with such Issue, to a price
(calculated to the nearest hundredth of a cent) determined by multiplying the
Warrant Price by a fraction:
(a) the numerator of which is the amount of such common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the Additional Common
Shares would purchase at the Warrant Price in effect immediately before such
Issue, and
(b) the denominator of which is the amount of common stock
outstanding immediately before such Issue plus the number of such Additional
Common Shares.
3.2 Adjustment of Number of Shares. Upon each adjustment of the
-------------------------------
Warrant Price, the number of Shares issuable upon exercise of the Warrant shall
be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjustment Warrant Price.
2
<PAGE>
3.3 Securities Deemed Outstanding. For the purpose of this Section 3,
------------------------------
all securities issuable upon exercise of any outstanding Convertible Securities
or Options, warrants, or other rights to acquire securities of the Company shall
be deemed to be outstanding.
4. No adjustment for Issuances Following Deemed Issuances. No adjustment
------------------------------------------------------
to the Warrant Price shall be made upon the exercise of Options or conversion of
Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
---------------------------------------------------------------
Securities. If the consideration payable to, or the amount of common
----------
stock Issuable by, the Company increases or decreases, respectively, pursuant to
the terms of any outstanding Options or Convertible Securities, the Warrant
Price shall be recomputed to reflect such increase or decrease. The
recomputation shall be made as of the time of the Issuance of the Options or
Convertible Securities. Any changes in the Warrant Price that occurred after
such Issuance because other Additional Common Shares were Issued or deemed
Issued shall be recomputed.
6. Recomputation Upon Expiration of Options or Convertible Securities. The
-------------------------------------------------------------------
Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant Price pursuant
-----------------------
to Sections 5 or 6 shall increase the Warrant Price more than the amount of any
decrease made in respect of the Issue of any Options or Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their terms
---------------
not more than 30 days after the date of Issue thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the Company
-----------------------------
for the Issue of any Additional Common Shares shall be computed as follows:
(a) Cash shall be valued at the amount of cash received by the
----
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
3
<PAGE>
(b) Property. Property other than cash shall be computed at the fair
---------
market value thereof at the time of the Issue as determined in good faith by the
Board of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional common
--------------------
Shares Issued together with other property of the Company for consideration that
covers both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per
-----------------------------------
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable by the
Company for the Issue of the Options or Convertible Securities, plus the minimum
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon exercise of the
Options or conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. General.
--------
10.1 Governing Law. This Antidilution Agreement shall be governed by
--------------
and construed in accordance with the laws of the State of Delaware without
giving effect to its principles regarding conflicts of law. Borrower accepts for
itself and in giving effect to its principles regarding conflicts of law.
Borrower accepts for itself and in connection with its properties,
unconditionally, the non-exclusive jurisdiction of any state or federal court of
competent jurisdiction in the Commonwealth of Massachusetts in any action, suit,
or proceeding of any kind against it which arises out of or by reason of this
Antidilution Agreement; provided, however, that if for any reason Lender cannot
avail itself of the courts of the Commonwealth of Massachusetts, then venue
shall lie in Santa Clara County, California.
10.2 Successors and Assigns. Except as otherwise expressly provided
-----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
10.3 Entire Agreement. Except as set forth below, this Antidilution
-----------------
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
10.4 Notices, etc. All notices and other communications require or
-------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage
4
<PAGE>
prepaid, certified or registered mail, return receipt requested, addressed
(a) if to Purchaser at Purchaser's address as set forth below, or at such other
address as Purchaser shall have furnished to the Company in writing, or (b) if
to the Company, at the Company's address set forth below, or at such other
address as the Company shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this Antidilution
------------
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed in
------------
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK doing business in TRANSCEND SERVICES, INC.
Massachusetts as "Silicon Valley East"
By: /s/ Mark Pasculano By: /s/ David W. Murphy
-------------------------------- -------------------------------
Title: MARK PASCULANO Title: DAVID W. MURPHY
----------------------------- ----------------------------
Print Name Print Name
SILICON VALLEY BANK
By:
--------------------------------
Title:
------------------------------
Print Name:
------------------------
Executed in Santa Clara County, CA
5
<PAGE>
prepaid, certified or registered mail, return receipt requested, addressed (a)
if to Purchaser at Purchaser's address as set forth below, or at such other
address as Purchaser shall have furnished to the Company in writing, or (b) if
to the Company, at the Company's address set forth below, or at such other
address as the Company shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this Antidilution
-------------
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and subsections
---------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing the Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed in any
-------------
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK doing business in TRANSCEND SERVICES, INC.
Massachusetts as "Silicon Valley East"
By: /s/ Mark Pasculano By:
----------------------------- -------------------------------
Title: Mark Pasculano Title:
------------------------------ ----------------------------
Print Name Print Name
SILICON VALLEY BANK
By: /s/ Julie Haga
--------------------------------
Title: Vice President
------------------------------
Print Name: Julie Haga
----------------------
Executed in Santa Clara County, CA
5
<PAGE>
EXHIBIT 4.6
EXHIBIT "B"
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of April 30, 1996,
by and between Silicon Valley Bank ("Purchaser") and the Company whose name
appears on the last page of this Agreement.
RECITALS
--------
A. Concurrently with the execution of this Agreement, the Purchases
is purchasing from the Company's Warrant to Purchase Stock (the "Warrant")
pursuant to which Purchaser has the right to acquire from the Company the Shares
(as defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set
forth the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the
Shares (if Common Stock) or all shares of Common Stock of the Company issuable
or issued upon conversion of the Shares and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the
Purchases or qualifying transferees under subjection 1.8 hereof who hold
Registrable Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
1.2 Company Registration.
--------------------
(a) Registration. If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a registration on
Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3, or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
<PAGE>
(ii) include in such registration (and
compliance), and in any underwriting involved therin, all the Registrable
Securities specified in a written request or requests, made with ten (10) days
after receipt of such written notice from the Company, by any Holder or Holders,
except as set forth in subsection 1.2(b) below.
(b) Underwriting. If the registration of which the
------------
Company gives notice is for a registered public offering involving and
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.2(a)(i). In such event the right of any
Holder to registration pursuant to this subsection 1.2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding the foregoing, if
in connection with any registered public offering involving an underwriting of
Common Stock of the Company, the managing underwriter shall impose a limitation*
on the number of shares of such Common Stock which may be included in such
registration statement because, in its judgement, such limitation is necessary
to effect an orderly public distribution, and such limitation is imposed with
respect to the Registrable Securities of any Holder who has the contractual,
incidental right hereunder to include such securities in the registration
statement and as to which inclusion has been requested pursuant to such right,
then the Company shall be obligated to include in such registration statement
only such limited portion of the Registrable Securities as the managing
underwriter has authorizes (which may be none) with respect to which the
applicable Holder has requested inclusion hereunder.
*(whether by limitation on a pro-rata basis or otherwise; or provided that
Company shall use its best efforts in any such event to cause to be included in
such registration a pro-rata portion of the holders registrable securities).
1.3 Expenses of Registration. All expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 1 including without limitation, all registration, filing and the
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company except the Company shall not be
required to pay underwriters' fees, discounts or commissions relating to
Registrable Securities. All expenses of any registered offering not otherwise
borne by the Company shall be borne pro rata among the Holders participating in
the offering and the Company.
1.4 Registration Procedures. In the case of each
-----------------------
registration, qualification or compliance effected by the Company pursuant to
this Registration Rights Agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof.
Except as otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statements as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
2
<PAGE>
(f) Notify each Holder or Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 Indemnification.
---------------
(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors and partners, and each person
controlling such Holder, with respect to which such registration, qualification
or compliance has been effected pursuant to this Rights Agreement, and each
underwriter,if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
setting any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such claim, loss,damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld); and provided further, that the
Company will not be liable in any such case to the extent that any such
claim,loss, damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
an instrument duly executed by such Holder or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by
or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or setting
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, (which
consent shall not be unreasonable withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in
3
<PAGE>
any event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this
subsection 1.5 (the "indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.6 Information by Holder. Any Holder or Holders of Registrable
---------------------
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to Holders
------------------
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, after 90 days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 Transfer of Registration Rights. Holders' rights to cause the
-------------------------------
Company to register their securities and keep information available, granted to
them by the Company under subsections 1.2 and 1.7 may be assigned to a
transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company
4
<PAGE>
may prohibit the transfer of any Holder's rights under this subsection 1.8 to
any proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
2. General.
-------
2.1 Waivers and Amendments. With the written consent of the
----------------------
record or beneficial holders of at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the Holders of the
Registrable Securities under this agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without giving
effect to its principles regarding conflicts of law. Borrower accepts for
itself and in connection with its properties, unconditionally, the non-exclusive
jurisdiction of any state or federal court of competent jurisdiction in the
Commonwealth of Massachusetts in any action, suit, or proceeding of any kind
against it which arises out of or by reason of this Agreement; provided,
however, that if for any reason Lender cannot avail itself of the courts of the
Commonwealth of Massachusetts, then venue shall lie in Santa Clara County,
California.
2.3 Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
2.4 Entire Agreement. Except as set forth below, this
----------------
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
2.5 Notices, etc. All notices and other communications
------------
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Holder, at such Holder's address as set forth
below, or at such other address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at the Company's address set forth
below, or at such other address as the Company shall have furnished to the
Holder in writing.
2.6 Severability. In case any provision of this Agreement
------------
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement or any provision of
the other Agreements shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5
<PAGE>
2.8 Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK doing business in TRANSCEND SERVICES, INC.
Massachusetts as "Silicon Valley East"
By: /s/ Mark Pasculano By: /s/ David W. Murphy
------------------------------ --------------------------------
Name: Mark Pasculano Name: David W. Murphy
---------------------------- ------------------------------
Title: Vice President Title: CFO
--------------------------- -----------------------------
Silicon Valley Bank
By: By: /s/ Jennifer Kirk
------------------------------ --------------------------------
Name: Name: Jennifer Kirk
---------------------------- ------------------------------
Title: Title: Asst. Sec.
--------------------------- -----------------------------
Signed at Santa Clara County, CA
6
<PAGE>
EXHIBIT 11
Six Months Ended June 30,
-------------------------
1995 1996
---- ----
Net Income (Loss) (2,488,000) (1,215,000)
Average Shares Outstanding 17,835,000 18,517,000
Common Stock Equivalents Assuming
Exercise of Stock Options -- --
---------- ----------
17,835,000 18,517,000
========== ==========
Net income (loss) per common share and
common share equivalent ($0.14) ($0.07)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 458
<SECURITIES> 0
<RECEIVABLES> 4,028
<ALLOWANCES> (48)
<INVENTORY> 0
<CURRENT-ASSETS> 5,320
<PP&E> 3,444
<DEPRECIATION> (1,085)
<TOTAL-ASSETS> 18,265
<CURRENT-LIABILITIES> 5,799
<BONDS> 0
0
0
<COMMON> 188
<OTHER-SE> 9,393
<TOTAL-LIABILITY-AND-EQUITY> 18,265
<SALES> 0
<TOTAL-REVENUES> 19,268
<CGS> 16,444
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (95)
<INCOME-PRETAX> (1,215)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,215)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
