<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2000
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______to ______
Commission file number: 0-20124
NETWORK COMPUTING DEVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0177255
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Ravendale Avenue, Mountain View, California 94043
(Address of principal executive offices and zip code)
Registrant's telephone number: (650) 694-0650
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock was 16,579,171
at March 31, 2000
<PAGE>
NETWORK COMPUTING DEVICES, INC.
INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE NUMBER
- ------------------------------------------------------------------------- -----------
<S> <C>
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 3
Condensed Consolidated Statements of Operations for the
Three-Month Periods Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three-Month Periods Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3: Quantitative and Qualitative Disclosure about Market Risk 15
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
2
<PAGE>
NETWORK COMPUTING DEVICES, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,416 $ 4,781
Short-term investments 300 3,558
Accounts receivable, net 17,027 21,987
Inventories 13,918 15,082
Other current assets 4,494 4,532
-------------- --------------
Total current assets 39,155 49,940
Property and equipment, net 3,382 3,651
Other assets 3,039 3,173
-------------- --------------
Total assets $ 45,576 $ 56,764
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,043 $ 10,419
Accrued expenses 6,840 4,739
Deferred revenue 3,309 3,384
Short-term debt 2,616 -
Other current liabilities 468 346
-------------- --------------
Total current liabilities 24,276 18,888
Shareholders' equity:
Common stock 17 16
Capital in excess of par 61,950 61,333
Accumulated deficit (40,667) (23,473)
-------------- --------------
Total shareholders' equity 21,300 37,876
-------------- --------------
Total liabilities and shareholders' equity $ 45,576 $ 56,764
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE>
NETWORK COMPUTING DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net revenues:
Hardware products and services $ 12,820 $ 22,785
Software licenses and services 927 3,639
---------------- ----------------
Total net revenues 13,747 26,424
Cost of revenues:
Hardware products and services 12,489 14,064
Software licenses and services 90 1,110
---------------- ----------------
Total cost of revenues 12,579 15,174
---------------- ----------------
Gross margin 1,168 11,250
Operating expenses:
Research and development 3,249 3,439
Marketing and selling 7,977 8,358
General and administrative 2,541 1,685
Business restructuring 2,561 -
Acquired in-process research and development 1,800 -
---------------- ----------------
Total operating expenses 18,128 13,482
---------------- ----------------
Operating loss (16,960) (2,232)
Interest income, net 9 244
---------------- ----------------
Loss before income taxes (16,951) (1,988)
Provision for income taxes 243 -
---------------- ----------------
Net loss $ (17,194) $ (1,988)
================ ================
Net loss per share
Basic $ (1.00) $ (0.12)
================ ================
Diluted $ (1.00) $ (0.12)
================ ================
Shares used in per share computations
Basic 17,233 16,054
================ ================
Diluted 17,233 16,054
================ ================
</TABLE>
See accompanying notes.
4
<PAGE>
NETWORK COMPUTING DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operations:
Net loss $ (17,194) $ (1,988)
Reconciliation of net loss to cash used in operations:
In process research and development charge 1,800 -
Depreciation 656 831
Amortization of goodwill 134 101
Changes in:
Accounts receivable, net 4,960 2,668
Inventories 1,164 457
Other current assets 38 40
Accounts payable 624 (3,164)
Accrued expenses 2,101 (290)
Deferred revenue (75) (772)
Other current liabilities 145 (117)
--------------- ---------------
Cash used in operations (5,647) (2,234)
Cash flows from investing activities:
Acquisition of business (2,201) -
Purchases of short-term investments - (5,432)
Sales and maturities of short-term investments 3,258 9,748
Changes in other assets 401 (399)
Property and equipment purchases (387) (753)
--------------- ---------------
Cash provided by investing activities 1,071 3,164
Cash flows from financing activities:
Principal payments on capital lease obligations (23) (22)
Proceeds from short-term debt 2,616 -
Repurchases of common stock - (555)
Proceeds from issuance of stock, net 618 290
--------------- ---------------
Cash provided by (used in) financing activities 3,211 (287)
--------------- ---------------
Increase (decrease) in cash and equivalents (1,365) 643
Cash and equivalents:
Beginning of period 4,781 8,553
--------------- ---------------
End of period $ 3,416 $ 9,196
=============== ===============
</TABLE>
See accompanying notes.
5
<PAGE>
NETWORK COMPUTING DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited condensed consolidated financial information of Network Computing
Devices, Inc. (the "Company") furnished herein reflects all adjustments,
consisting only of normal recurring entries, which in the opinion of management
are necessary to fairly state our consolidated financial position, results of
operations and cash flows for the periods presented. This Quarterly Report on
Form 10-Q should be read in conjunction with the consolidated financial
statements and notes thereto included in our 1999 Annual Report on Form 10-K.
The consolidated results of operations for the three-month period ended March
31, 2000 are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire year ending December 31, 2000.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted net loss per share is computed
using the weighted-average number of common shares and potential common shares
from stock options and warrants outstanding, when dilutive, using the treasury
stock method. At March 31, 2000 and 1999 there were 4,552,983 and 4,863,787
options and warrants outstanding, respectively, that could potentially dilute
earnings per share ("EPS") in the future that were not included in the
computation of diluted EPS because to do so would have been antidilutive for
those periods.
INVENTORIES
Inventories, stated at the lower of standard cost, which approximates actual
cost on a first-in, first-out basis, or market, consisted of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Purchased components and sub-assemblies $8,456 $9,825
Work in process 573 826
Finished goods 4,889 4,431
------- -------
$13,918 $15,082
------- -------
</TABLE>
INTEREST AND TAX PAYMENTS
Interest payments, primarily interest on capital lease liabilities, were $8,050
and $4,300 for the three months ended March 31, 2000 and 1999, respectively.
Income tax payments, primarily foreign, were $67,600 and $45,200 for the three
months ended March 31, 2000 and 1999, respectively.
MAJOR CUSTOMERS AND OPERATING SEGMENTS
The Company has one operating segment, sales of thin client hardware and
software.
The percentages of total net revenues represented by sales to major customers
are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Adtcom 15% 14%
Tech Data 20% 18%
</TABLE>
6
<PAGE>
NETWORK COMPUTING DEVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS ACQUISITION
On January 7, 2000 we acquired the net assets of Multiplicity LLC in a purchase
business combination with a total purchase price of $2.2 million. The purchase
price was allocated as follows:
<TABLE>
<S> <C>
In-process research and development $1,800
Other intangible assets 200
Goodwill 161
Tangible assets 40
</TABLE>
The allocation of the purchase price was based on an independent appraisal
performed on the acquired net assets.
The goodwill and other intangible assets are being amortized over an
estimated useful life of three years.
SHORT TERM DEBT
Short term debt consists of borrowings under our $15.0 million working
capital line of credit with Foothill Capital Corporation. Our line of credit
is secured by substantially all of our assets. Under the terms of the
agreement borrowings bear interest at a rate of prime plus 0.75%. The amount
that can be borrowed at any given time is determined by the balance of our
accounts receivable as well as our compliance with specified financial
covenants.
RESTRUCTURING CHARGE
On March 31, 2000 we announced a restructuring plan involving a general
reduction in workforce affecting all classes of employees and exiting certain
leased facilities. In connection with the plan, we recorded a restructuring
charge of $2.6 million consisting of $2.4 million for employee separation
costs and $0.2 million for facility exit costs. Of the total restructuring
charge, $2.5 million represented cash charges of which $1.8 million was
unpaid and included in accrued liabilities at March 31, 2000. The
restructuring plan is expected to be completed within six months.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING BUT NOT LIMITED
TO STATEMENTS WITH RESPECT TO OUR FUTURE FINANCIAL PERFORMANCE, OPERATING
RESULTS, PLANS AND OBJECTIVES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CURRENTLY ANTICIPATED DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE
DESCRIBED BELOW UNDER THE SUB-HEADING, "FUTURE PERFORMANCE AND RISK FACTORS."
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED
IN PART I -- ITEM 1 OF THIS QUARTERLY REPORT ON FORM 10-Q, AND THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999, CONTAINED IN OUR 1999 ANNUAL REPORT ON FORM 10-K.
OVERVIEW
Network Computing Devices, Inc. (the "Company") provides thin client hardware
and software that deliver simultaneous, high-performance, easy-to-manage and
cost effective access to all of the information on enterprise intranets and the
Internet from thin client, UNIX and PC desktops. Our product lines include the
NCD THINSTAR line of Windows-based terminals, and NCD EXPLORA network terminals,
and NCD NC200 and NC400 network computers. On the software side, our products
include the NCD THINPATH family of client and server software, developed to
enhance the connectivity, management and features of the NCD thin clients as
well as PCs in accessing information and applications on Windows Servers. We
also market PCXware, NCDware, NC software, and Citrix based Wincenter. Our
products are sold through distributor/VAR channels, and system integrators
worldwide.
In January 2000, we acquired the assets of Multiplicity LLC, a privately held
developer of advanced server management software for Microsoft's Windows NT and
Windows 2000 operating systems. The acquisition has been accounted for using the
purchase method. The purchase price was $2.2 million plus a stream of future
payments based on revenue for the four year period following the acquisition.
The purchase price was allocated as follows, $1.8 million to purchased
in-process research and development and $0.4 million to other intangible assets.
In addition to acquiring certain assets, approximately six former Multiplicity
LLC employees joined us, in the areas of engineering, sales and administration.
Multiplicity LLC provides strategic performance analysis and capacity planning
solutions for networked Windows NT and Windows 2000 servers. These solutions
give customers system measurement and management that enable troubleshooting,
analysis, administration and planning to help IT organizations improve end-user
service levels.
In February 2000, we entered into an OEM agreement with Hitachi Ltd. of Japan to
develop and manufacture customized NCD thin client terminals under the Hitachi
name. Hitachi's OEM thin client brand will be called FLORANET 130 and is based
on our THINSTAR 400 Windows-based terminal.
In April 2000 we finalized an alliance agreement with Hewlett-Packard Company
whereby HP will sell our products through its indirect sales channel and direct
sales force worldwide. HP will market our NC200 and NC400 network computers, our
THINSTAR line of Windows-based terminals and our THINPATH software.
At March 31, 2000 we had cash and short-term investments of approximately $3.7
million. During the years ended December 31, 1998 and 1999 and the quarter ended
March 31, 2000, we incurred losses of approximately $9.1 million, $16.3 million,
and $17.2 million, respectively, and during those periods our cash and
equivalents decreased by approximately $11.2 million, $5.3 million and $1.4
million, respectively. Based on these factors, among others, our independent
auditors have expressed substantial doubt about our ability to continue as a
going concern. Our ability to continue as a going concern is dependent on our
ability to raise additional capital or obtain continued financing and ultimately
to achieve profitability and positive cash flow.
To reduce our operating expenses, we have implemented a 20% across-the-board
reduction in our workforce, additionally on March 30, 2000 we secured a $15.0
million working capital line of credit with Wells Fargo Bank's Foothill Capital
8
<PAGE>
subsidiary. Our line of credit is secured by substantially all of our assets.
Under the terms of the agreement borrowings bear interest at a rate of prime
plus 0.75%. The amount that can be borrowed at any given time is determined by
the balance of our accounts receivable as well as our compliance with specified
financial covenants. Accordingly, this line of credit may not be sufficient to
enable us to continue as a going concern.
We have recently become more actively involved in exploring several strategic
alternatives intended to enhance shareholder value. We have not entered into any
agreement or commitment with respect to any such strategic transaction, and no
assurance can be given that any such transaction will result from these
activities.
On December 31, 1998 we completed the acquisition of Tektronix' Network Displays
business unit ("NWD") for $3.0 million in cash and warrants to purchase one
million shares of our company stock at $8.00 per share. The acquisition was
accounted for as a purchase business combination with a total purchase price of
$5.9 million. The purchase price was allocated as follows; $1.7 million to net
assets acquired, $1.4 million to in-process research and development and $2.8
million to other intangible assets. In addition to acquiring certain assets of
NWD, approximately 83 former NWD employees joined us. In conjunction with this
acquisition, we undertook various restructuring activities to eliminate
redundancies with the acquired business, including the reduction in personnel of
approximately 13 employees. We recorded a charge of approximately $1.0 million
in the fourth quarter of 1998 related to these restructuring activities. By the
end of 1999 it was determined that the program was substantially complete, and
an operating profit of $138,000 was recorded. A total of 13 employees were
terminated under the plan at a total cost of $532,000.
We sell hardware product to IBM pursuant to the joint development agreement
dated June 27, 1996 (the "IBM Agreement") of network application terminal for
resale by IBM. The IBM Agreement provides for IBM to purchase a substantial
portion of its requirements for such products from us through December 31, 2000.
RESULTS OF OPERATIONS
TOTAL NET REVENUES
Total net revenues for the first quarters of 2000 and 1999 were $ 13.7
million and $26.4 million, respectively, representing a decrease of 48%. We
experienced a 60% decline in our international revenues compared to a 40%
decline in revenue generated in North America. Revenue generated under the
IBM Agreement continued to decline accounting for approximately 7% and 9% of
revenue, respectively. Other major customers of ours in the first quarter of
2000 included Tech Data and Adtcom who accounted for 20% and 15% of our
revenues, respectively. In the first quarter of 1999 Tech Data and Adtcom
accounted for 18% and 14% of our revenues, respectively.
HARDWARE REVENUES
Hardware revenues are primarily from the sale of thin client products, and to
a lesser extent, related service activities. Revenues were $12.8 million and
$22.8 million for the first quarters of 2000 and 1999, respectively. Hardware
revenues declined 44% and declined across all product lines. This revenue
decline is due in part to a continued drop in demand for our EXPLORA and
NC200 and NC400 network computers and lower sales of Windows-based terminals
to our distributors.
SOFTWARE REVENUES
Software revenues are primarily from the sale and licensing of THINPATH and
other software products and related support services. Revenues from software and
related services were $0.9 million and $3.6 million for the first three months
of 2000 and 1999, respectively. This decrease primarily reflects the transition
from the sale of the Citrix-based Wincenter software to the sale of software
developed-in-house. Our OEM relationship with Citrix for Citrix' WinFrame
product ended on September 30, 1998. This has resulted in significantly reduced
sales of Citrix based products.
GROSS MARGIN ON HARDWARE REVENUES
Gross margin on hardware revenues were $0.3 million and $8.7 million for the
first three months of 2000 and 1999, respectively. Most of the decline in
margin was due to the lower revenues for the quarter, although pricing
pressures on our Windows-based terminals, inventory writedowns related to
discontinued products and lower overhead
9
<PAGE>
absorption due to the lower volumes this quarter also contributed. Our gross
margin percentages on hardware revenues were 3% and 38% for the first three
months of 2000 and 1999, respectively.
GROSS MARGIN ON SOFTWARE REVENUES
Gross margin on software revenues were $0.8 million and $2.5 million for the
first three months of 2000 and 1999, respectively. This decline was across
all product lines. Our gross margin percentages on software revenues were 90%
and 69% for the first three months of 2000 and 1999, respectively. The
improvement in gross margin percentage reflects the move from the sale of
licensed software to the sale of our branded software which sell at higher
margins than the Citrix-based products that we were selling.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development ("R&D") expenses were $3.2 million and $3.4 million
for the first three months of 2000 and 1999, respectively. The decrease was
the result of reduced headcount.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses were $8.0 million and $8.4 million for the
first three months of 2000 and 1999, respectively. The decrease in marketing
and selling expenses relates to decreasing headcount and lower revenue.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses were $2.5 million and $1.7
million for the first three months 2000 and 1999, respectively. An increase
in the allowance for bad debts of $0.5 million contributed to the increase.
Goodwill amortization expense, related to the acquisition of the Tektronix
Inc.'s Network Displays business in December 1999 and Multiplicity LLC in
January 2000, was $0.1 million for the first three months of 2000 and 1999
respectively.
CHARGE FOR ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with our acquisition of Multiplicity LLC on January 7, 2000,
approximately $1.8 million of the total purchase consideration was allocated to
the value of in-process research and development. The amounts allocated were
determined through established valuation techniques in the high-technology
industry and were expensed upon acquisition because technological feasibility
had not been established and no alternative uses exist. Research and development
cost to bring the products to technological feasibility are not expected to have
a material impact on our future operating results.
The in-process research and development project acquired in the acquisition of
Multiplicity LLC consisted of development of a line of advanced server
management software for Microsoft's Windows NT and Windows 2000 operating
systems. These new products are expected to be released in the second quarter of
2000. The aggregate expected costs to complete the in-process projects is
approximately $0.7 million.
The fair value of the in-process technology was based on projected cash flows
which were discounted based on the risks associated with achieving such
projected cash flows upon successful completion of the acquired projects.
Associated risks include the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility, and
risks related to the impact of potential changes in market conditions and
technology. In developing cash flow projections, revenues were forecast based
upon relevant factors, including aggregate revenue growth rates for the business
as a whole, characteristics of the potential market for the technology and the
anticipated life of the underlying technology. Operating expenses and resulting
profit margins were forecast based on the characteristics and cash flow
generating potential of the acquired in-process technology.
The fair value of the in-process research and development was $1.8 million.
Projected annual revenues for the in-process project was assumed to increase
from product release through 2003.
10
<PAGE>
Gross profit was assumed to be 75%. The projected gross profit percent was based
on an estimated cost of revenue which included duplication, manuals, packaging
materials and third party order fulfillment costs. Gross profit projections were
based on our experience with other similar products.
Estimated operating expenses, income taxes and capital charges to provide a
return on other acquired assets were deducted from gross profit to arrive at net
operating income for the in-process development projects. Operating expenses
were estimated as a percentage of revenue and included sales and marketing
expenses and development costs to maintain the technology once it has achieved
technological feasibility.
We discounted the net cash flows of the in-process research and development
projects to their present values using a discount rate of 35%. This discount
rate approximates the overall rate of return for the acquisition as a whole and
reflects the inherent uncertainties surrounding the successful development of
the in-process research and development projects.
INTEREST INCOME, NET
Interest income, net of interest expense, was $9,000 and $ 244,000 for the first
three months of 2000 and 1999, respectively. The decrease was primarily due to
lower average balances in interest bearing accounts.
INCOME TAXES AND INCOME TAX BENEFIT
The provision for income taxes of $243,000 in the first three months of 2000
is for foreign income taxes. We recognized no income tax benefit for the
first three months of 2000 and 1999, respectively, because continued
operating losses have created uncertainty about our ability to generate
sufficient taxable income to utilize the tax benefit operating losses
provide. At March 31, 2000 we had operating loss carryforwards for federal
and state income tax purposes of approximately $13.0 million and $1.6 million
respectively. These carryforwards are available to offset future taxable
income, if any, thru 2020 and 2005 respectively.
FINANCIAL CONDITION
Total assets of $45.6 million at March 31, 2000 decreased from $56.8 million
at December 31, 1999. The change in total assets primarily reflects decreases
in cash and short-term investments of $4.6 million, accounts receivable of
$5.0 million, and inventory of $1.2 million. Total current liabilities as of
March 31, 2000 increased by $5.4 million, or 29%, from $18.9 million at
December 31, 1999. The change was primarily related to increases in accounts
payable of $0.6 million, accrued expenses of $2.1 million related to the
unpaid portion of the restructuring charge, and short-term debt of $2.6
million.
CAPITAL REQUIREMENTS
Capital spending requirements for the remainder of 2000 are estimated at
approximately $1.0 million.
LIQUIDITY
As of March 31, 2000, we had combined cash, cash equivalents and short-term
investments totaling $3.7 million, with debt of $2.6 under our line of credit
with Foothill Capital. Cash used in operations was $ 5.6 million in the first
three months of 2000 compared to $2.2 million in the first three months of 1999.
In the first three months of 2000, a net loss of $17.2 million was only
partially offset by a decrease in accounts receivable and inventory of $5.0
million and $1.2 million, respectively, and increases in accounts payable and
accrued expenses of $0.6 million and $2.1 million, respectively. In the first
three months of 1999, a decrease in accounts payable of $3.2 million and the net
loss of $2.0 million were only partially offset by a decrease in accounts
receivable of $2.7 million. Cash flows provided from investing activities in the
first three months of 2000 of $1.1 million is the result of sales and maturities
of short-term investments of $3.3 million offset by the cash used to acquire
Multiplicity LLC of $2.2 million. Cash flows provided by financing activities of
$3.2 million in the first three months of 2000 primarily reflects the proceeds
from the line of credit and the issuance of stock of $2.6 million and $0.6
million, respectively.
Based on the factors discussed above, among others, our independent auditors
have expressed substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent on our ability
to raise additional capital or obtain continued financing and ultimately to
achieve profitability and positive cash flow.
11
<PAGE>
On March 30, 2000, we finalized a working capital line of credit with Foothill
Capital, which provides us with up to $15.0 million of available credit subject
to the conditions described below. Our line of credit is secured by
substantially all of our assets. Under the terms of the agreement borrowings
bear interest at a rate of prime plus 0.75%. The amount that can be borrowed at
any given time is determined by the balance of our accounts receivable. The
agreement also contains certain covenants, including the maintenance of minimum
defined levels of tangible net worth.
Our capital requirements will depend on many factors, including but not limited
to the market acceptance of our product, the response of our competitors to our
product and our ability to grow software revenue. In addition to the financing
we received approval for in March 2000, we may be required to seek additional
financing before we achieve positive cash flow or in order to comply with
covenants under the line of credit. In that event, no assurance can be given
that additional financing will be available, or that if available, it will be
available on terms acceptable to us, or our shareholders. If adequate funds are
not available to satisfy short-term or long-term capital requirements we may be
required to limit our operations significantly.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement as amended by SFAS No.
137, "Deferral of the Effective Date of FASB Statement No. 133," establishes
accounting and reporting standards for derivative instruments and requires
recognition of all derivatives as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value. The
statement is effective for fiscal years beginning after June 15, 2000. We
will adopt the standard no later than the first quarter of fiscal year 2001
and are in the process of determining the impact that adoption will have on
our consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation (FIN 44)." The provisions of FIN 44
are effective July 1, 2000. We do not expect the adoption of this standard to
impact the accounting for any stock-based awards granted to date.
FUTURE PERFORMANCE AND RISK FACTORS
THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.
LIQUIDITY
At March 31, 2000 we have cash and equivalents and short-term investments of
approximately $3.7 million. During the years ended December 31, 1998 and 1999
and the quarter ended March 31, 2000, we incurred losses of approximately $9.1
million, $16.3 million and $17.2 million, respectively, and during those periods
our cash and equivalents decreased by approximately $11.2 million, $5.3 million
and $1.4 million, respectively. Based on these factors, among others, our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going concern is
dependent on our ability to raise additional capital or obtain continued
financing and ultimately to achieve profitability and positive cash flow. To
reduce our operating expenses, we have implemented a 20% across-the-board
reduction in our workforce. Additionally, we have obtained a $15.0 million line
of credit with Foothill Capital. However, the continued availability of this
line of credit is subject to conditions that we may not be able to satisfy.
Other sources of financing may not be available in the near future, or may be
available only on terms that are highly dilutive to our stockholders. If we
cannot return to positive cash flow in the near future, we may be required to
raise additional financing upon disadvantageous terms or scale back our
operations significantly.
EVOLVING THIN CLIENT COMPUTING MARKET
We derive substantially all of our revenues from the sale of thin client network
computing products. Our future success will depend substantially upon increased
acceptance of the thin client computing model and the successful marketing of
our thin client computing hardware and software products. There can be no
assurance that our thin client computing products will compete successfully with
alternative desktop solutions or that the thin client computing model will be
widely adopted in the rapidly evolving desktop computer market. To date, the
market for thin client computing products has not lived up to
12
<PAGE>
industry expectations, due in part to competition from low-cost PC's. If new
markets fail to develop for our thin client computing products our business
could fail.
OTHER RISK FACTORS
We have committed significant resources, including research and development,
manufacturing and sales and marketing resources, to the execution of our OEM
Agreements. The production cycle of related product requires us to rely on OEM
customers to provide accurate product requirement forecasts, which are subject
to change by OEM customers who have changed their forecasts from time to time in
the past. Should we commence production of related product based on provided
forecasts that are subsequently reduced, we bear the risk of increased levels of
unsold inventories. Should the expected business volumes associated with these
OEM agreements not occur, or occur in volumes below management's expectations
there could be a material, adverse effect on our operating results.
The market for thin client products and similar products that facilitate access
to data over networks is highly competitive. We experience significant
competition from other network computer manufacturers, suppliers of personal
computers and workstations and software developers. Competition within the thin
client computing market has intensified over the past several years, resulting
in price reductions and reduced profit margins. We expect this intense
competition to continue, and there can be no assurance that we will be able to
continue to compete successfully against current and future competitors as the
desktop computer market evolves and competition increases. There is the
possibility that competition in the future could come from companies not
currently in the market or with greater resources than our which could adversely
effect our operating results.
Our software products also face substantial competition from software vendors
that offer similar products. We are trying to penetrate a software market
currently dominated by Microsoft, Citrix and others. There is no assurance that
we will be able to succeed. Failure to gain market share could have an adverse
effect on our operating results.
Our operating results have varied significantly, particularly on a quarterly
basis, as a result of a number of factors, including general economic conditions
affecting industry demand for computer products, the timing and market
acceptance of new product introductions by us and our competitors, the timing of
significant orders from and shipments to large customers, periodic changes in
product pricing and discounting due to competitive factors, and the availability
and pricing of key components, such as DRAMs, video monitors, integrated
circuits and electronic sub-assemblies, some of which require substantial order
lead times. Our operating results may fluctuate in the future as a result of
these and other factors, including our success in developing and introducing new
products, our product and customer mix, licensing costs, the level of
competition which we experience and our ability to develop and maintain
strategic business alliances.
We operate with a relatively small backlog. Revenues and operating results
therefore generally depend on the volume and timing of orders received, which
are difficult to forecast and which may occur disproportionately during any
given quarter or year. Our expense levels are based in part on our forecast
of future revenues. If revenues are below expectations, our operating results
may be adversely affected. We have experienced a disproportionate amount of
shipments occurring in the last month of our fiscal quarters. This trend
increases the risk of material quarter-to-quarter fluctuations in our
revenues and operating results.
Failure to penetrate software markets currently dominated by others could lead
to lower than expected margins and result in an adverse effect on our operating
results.
The markets for our products are characterized by rapidly changing technologies,
evolving industry standards, frequent new product introductions and short
product life cycles. Our future results will depend to a considerable extent on
our ability to continuously develop, introduce and deliver in quantity new
hardware and software products that offer our customers enhanced performance at
competitive prices. The development and introduction of new products is a
complex and uncertain process requiring substantial financial resources and high
levels of innovation, accurate anticipation of technological and market trends
and the successful and timely completion of product development. Once a hardware
product is developed, we must rapidly bring it into volume production, a process
that requires accurate forecasting of customer requirements in order to achieve
acceptable manufacturing costs. The introduction of new or enhanced products
also requires us to manage the transition from older, displaced products in
order to minimize disruption to customer ordering patterns, avoid excessive
13
<PAGE>
levels of older product inventories and ensure that adequate supplies of new
products can be delivered to meet customer demand. As we are continuously
engaged in this product development and transition process, our operating
results may be subject to considerable fluctuation, particularly when measured
on a quarterly basis. The inability to finance important research and
development projects, delays in the introduction of new and enhanced products,
the failure of such products to gain market acceptance, or problems associated
with new product transitions could adversely affect our operating results.
We rely increasingly on independent distributors and resellers for the
distribution of our products. In early 1996, we experienced significant returns
of our software products from our distributors. Although controls have since
been improved, there can be no assurance that we will not experience some level
of returns in the future. In addition, there can be no assurance that our
distributors and resellers will continue their current relationships with us or
that they will not give higher priority to the sale of other products, which
could include products of our competitors. A reduction in sales effort or
discontinuance of sales of our products by our distributors and resellers could
lead to reduced sales and could adversely affect our operating results. In
addition, there can be no assurance as to the continued viability or the
financial stability of our distributors and resellers, our ability to retain our
existing distributors and resellers or our ability to add distributors and
resellers in the future.
We rely on contract manufacturers for virtually all of the manufacture of our
thin client computing products. Our reliance on these contract manufacturers
limits our control over delivery schedules, quality assurance and product costs.
In addition, a number of our suppliers are located abroad. Our reliance on these
foreign suppliers subjects us to risks such as the imposition of unfavorable
governmental controls or other trade restrictions, changes in tariffs and
political instability. We currently obtain all of the sub-assemblies used for
our thin client computing products from a single supplier located in Thailand.
Any significant interruption in the supply of products from this contractor
would have a material, adverse effect on our business and operating results.
Disruptions in the provision of components by our other suppliers, or other
events that would require that we seek alternate sources of supply, could also
lead to supply constraints or delays in delivery of our products and adversely
affect its operating results.
A number of components and parts used in our products, including certain
semiconductor components, also are currently available from single or limited
sources of supply. We have no long-term purchase agreements or other guaranteed
supply arrangements with suppliers of these single or limited source components.
We have generally been able to obtain adequate supplies of parts and components
in a timely manner from existing sources under purchase orders and we endeavor
to maintain inventory levels adequate to guard against interruptions in
supplies. However, our inability to obtain sufficient supplies of these parts
and components from existing suppliers or to develop alternate supply sources
would adversely affect our operating results.
A majority of our international sales are denominated in Euros. These sales are
subject to exchange rate fluctuations which could affect our operating results
negatively or positively, depending on the value of the U.S. dollar against the
Euro. International sales and operations may also be subject to risks such as
the imposition of governmental controls, export license requirements,
restrictions on the export of technology, political instability, trade
restrictions, changes in tariffs and difficulties in staffing and managing
international operations and managing accounts receivable. In addition, the laws
of certain countries do not protect our products and intellectual property
rights to the same extent as the laws of the United States. There can be no
assurance that these factors will not have an adverse effect on our future
international sales and, consequently, on our operating results.
Our success depends to a significant degree upon the continuing contributions of
our senior management and other key employees. We believe that our future
success will depend in large part on our ability to attract and retain
highly-skilled engineering, managerial, sales and marketing personnel.
Competition for such personnel is intense, and there can be no assurance that we
will be successful in attracting, integrating and retaining such personnel. We
believe that concerns about our current financial strength could deter potential
hires from seeking employment with us. Failure to attract and retain key
personnel could have a material, adverse effect on our business, operating
results or financial condition.
The market price of our common stock has fluctuated significantly over the past
several years and is subject to material fluctuations in the future in response
to announcements concerning us or our competitors or customers, quarterly
variations in operating results, announcements of technological innovations, the
introduction of new products or changes in product pricing policies by us or our
competitors, general conditions in the computer industry, developments in the
financial markets
14
<PAGE>
and other factors. In particular, shortfalls in our quarterly operating results
from historical levels or from levels forecast by securities analysts could have
an adverse effect on the trading price of the common stock. We may not be able
to quantify such a quarterly shortfall until the end of the quarter, which could
result in an immediate and adverse effect on the common stock price. In
addition, the stock market has, from time to time, experienced extreme price and
volume fluctuations that have particularly affected the market prices for
technology companies and which have been unrelated to the operating performance
of the affected companies. Broad market fluctuations of this type may adversely
affect the future market price of our common stock.
We have announced that we have become more actively engaged in exploring several
strategic alternatives intended to enhance shareholder value. We have not
entered into any agreement or commitment with respect to any such strategic
alternatives and may be unsuccessful in our efforts to do so.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our market risk sensitive instruments as of March 31, 2000 are primarily
exposed to interest rate risks. Because of the short-term maturity of these
instruments, a 100 basis point change in related interest rates would not
have a material effect on their fair value.
Effective January 2000 a majority of our international sales are denominated in
Euros. These sales are subject to exchange rate fluctuations which could affect
our operating results negatively or positively, depending on the value of the
U.S. dollar against the Euro.
15
<PAGE>
NETWORK COMPUTING DEVICES, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.53 Loan and Security Agreement by and between Network
Computing Devices, Inc. and Foothill Capital
Corporation dated as of March 31, 2000, Copyright
Security Agreement, General Continuing Guarantee,
Guarantor Security Agreement, Intercompany
Subordination Agreement, Patent Security Agreement,
Stock Pledge Agreement and Trademark Security
Agreement.
Exhibit 27 Financial Data Schedule.
(b) The Company filed the following reports on Form 8-K for the three-month
period ended March 31, 2000:
None
16
<PAGE>
NETWORK COMPUTING DEVICES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Network Computing Devices, Inc.
(Registrant)
Date: May 15, 2000
By: /s/ Gregory S. Wood
-------------------------------------------
Gregory S. Wood
Vice President, Chief Financial Officer and Secretary
(Duly Authorized and Principal Financial and
Accounting Officer)
17
<PAGE>
EXHIBIT 10.53
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
NETWORK COMPUTING DEVICES, INC.
and
FOOTHILL CAPITAL CORPORATION
Dated as of March 30, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Accounting Terms.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.3 Code.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.4 Construction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.5 Schedules and Exhibits.. . . . . . . . . . . . . . . . . . . . . . . . . 21
2. LOAN AND TERMS OF PAYMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1 Revolving Advances.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 23
2.4 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 23
2.5 Overadvances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.6 Interest: Rates, Payments, and Calculations.. . . . . . . . . . . . . . 23
2.7 Collection of Accounts.. . . . . . . . . . . . . . . . . . . . . . . . . 24
2.8 Crediting Payments; Application of Collections.. . . . . . . . . . . . . 26
2.9 Designated Account.. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.10 Maintenance of Loan Account; Statements of Obligations.. . . . . . . . . 27
2.11 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3. CONDITIONS; TERM OF AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . . 28
3.1 Conditions Precedent to the Initial Advance. . . . . . . . . . . . . . . 28
3.2 Conditions Precedent to all Advances.. . . . . . . . . . . . . . . . . . 31
3.3 Condition Subsequent.. . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4 Term.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.5 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.6 Early Termination by Borrower. . . . . . . . . . . . . . . . . . . . . . 32
3.7 Termination Upon Event of Default. . . . . . . . . . . . . . . . . . . . 32
4. CREATION OF SECURITY INTEREST.. . . . . . . . . . . . . . . . . . . . . . . . 33
4.1 Grant of Security Interest.. . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4 Delivery of Additional Documentation Required. . . . . . . . . . . . . . 33
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.6 Right to Inspect.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . 34
5.1 No Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Eligible Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.3 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 35
5.4 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.5 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . . 35
5.6 Inventory Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.7 Location of Chief Executive Office; FEIN.. . . . . . . . . . . . . . . . 35
5.8 Due Organization and Qualification; Subsidiaries.. . . . . . . . . . . . 36
i
<PAGE>
5.9 Due Authorization; No Conflict.. . . . . . . . . . . . . . . . . . . . . 36
5.10 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.11 No Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . . . 37
5.12 Solvency.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.13 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.14 Environmental Condition. . . . . . . . . . . . . . . . . . . . . . . . . 38
5.15 Brokerage Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.16 Permits and other Intellectual Property. . . . . . . . . . . . . . . . . 38
6. AFFIRMATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 Collateral Reporting.. . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.3 Financial Statements, Reports, Certificates. . . . . . . . . . . . . . . 40
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5 Guarantor Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7 Title to Equipment.. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8 Maintenance of Equipment.. . . . . . . . . . . . . . . . . . . . . . . . 42
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.11 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . . . . . . . 44
6.12 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . . 44
6.13 Compliance with Laws.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.14 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 45
6.15 Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.16 Brokerage Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.17 Corporate Existence, etc.. . . . . . . . . . . . . . . . . . . . . . . . 45
6.18 Disclosure Updates.. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.19 Copyright Registrations. . . . . . . . . . . . . . . . . . . . . . . . . 46
6.20 Patent Filings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.1 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.3 Restrictions on Fundamental Changes. . . . . . . . . . . . . . . . . . . 48
7.4 Disposal of Assets.. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.5 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.6 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.7 Nature of Business.. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.8 Prepayments and Amendments.. . . . . . . . . . . . . . . . . . . . . . . 48
7.9 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.10 Consignments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.11 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.12 Accounting Methods.. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.14 Transactions with Affiliates.. . . . . . . . . . . . . . . . . . . . . . 49
7.15 Suspension.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ii
<PAGE>
7.16 Compensation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.17 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees.. . . . . . . . . . . . . . . . . . . . . . . . . 50
7.19 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 50
7.20 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.21 Capital Expenditures.. . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.22 Sales Agency Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 51
8. EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . 53
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10. TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11. WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.1 Demand; Protest; etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.2 Foothill's Liability for Collateral. . . . . . . . . . . . . . . . . . . 56
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12. NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . 58
14. DESTRUCTION OF BORROWER'S DOCUMENTS.. . . . . . . . . . . . . . . . . . . . . 59
15. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.2 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . . 59
15.3 Section Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.4 Interpretation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.5 Severability of Provisions.. . . . . . . . . . . . . . . . . . . . . . . 60
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . . . . . . . 60
15.7 Counterparts; Telefacsimile Execution. . . . . . . . . . . . . . . . . . 60
15.8 Revival and Reinstatement of Obligations.. . . . . . . . . . . . . . . . 60
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
iii
<PAGE>
SCHEDULES AND EXHIBITS
Schedule F-1 Foreign Currency Accounts; Foreign Subsidiary Operating Amounts
Schedule P-1 Permitted Liens
Schedule 5.8 Direct and Indirect Subsidiaries
Schedule 5.10 Litigation
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Indebtedness
Exhibit C-1 Form of Compliance Certificate
iv
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into
as of March 30, 2000, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333 and NETWORK COMPUTING
DEVICES, INC., a Delaware corporation ("Borrower"), with its chief executive
office located at 350 North Bernardo Avenue, Mountain View, California 94043.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, a General Intangible, or
any Negotiable Collateral.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale, license, or lease of goods or General Intangibles, or
the rendition of services by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"ADTCOM" means Adtcom Network Computing AG, a company organized under
the laws of Sweden.
"ADVANCES" has the meaning set forth in SECTION 2.1(a).
"AFFILIATE" means, as applied to any Person, any other Person who,
directly or indirectly, controls, is controlled by, is under common control
with, or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 5% or more of the Stock having ordinary voting power for the election of
directors (or comparable managers) or the direct or indirect power to direct the
management and policies of a Person.
"AGGREGATE FOREIGN SUBSIDIARY OPERATING AMOUNT" means, as of any date
of determination thereof, the aggregate amount of Foreign Subsidiary Operating
Amounts for all Foreign Subsidiaries.
"AGREED CURRENCY" means (i) Dollars, (ii) so long as such currencies
remain Eligible Currencies, the lawful currency of each Specified State and the
Euro, and (iii) any other Eligible Currency which the Borrower requests Foothill
to include as an Agreed Currency hereunder and which is acceptable to Foothill.
If, after the designation by Foothill
1
<PAGE>
of any currency as an Agreed Currency, (a) currency control or other exchange
regulations are imposed in the country in which such currency is issued with the
result that different types of such currency are introduced, (b) such currency
is, in the determination of the Foothill, no longer readily available or freely
traded or (c) in the determination of the Foothill, an equivalent amount of such
currency valued in Dollars at the applicable Exchange Rate is not readily
calculable, Foothill shall promptly notify Borrower, and such currency shall no
longer be an Agreed Currency until such time as Foothill agrees to reinstate
such currency as an Agreed Currency.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"APPLICABLE PREPAYMENT PREMIUM" means, as of any date of
determination, an amount equal to (a) during the period of time from and
including the date of the execution and delivery of this Agreement up to the
first anniversary of the Closing Date, 3.0% TIMES the Maximum Amount, (b) during
the period of time from and including the first anniversary of the Closing Date
up to the second anniversary of the Closing Date, 2.0% TIMES the Maximum Amount,
and (c) during the period of time from and including the second anniversary of
the Closing Date and thereafter, 1.0% TIMES the Maximum Amount; PROVIDED,
HOWEVER, that if the Obligations are repaid in full in cash and this Agreement
is terminated concurrent with a secondary public offering by Borrower of its
common Stock, a private placement by Borrower of its Stock, the issuance of
subordinated debt by Borrower, the sale of all or substantially all of
Borrower's Stock or Assets, or a refinancing of the Obligations by a commercial
banking unit of Wells Fargo, then, in any such case, the Applicable Prepayment
Premium shall be an amount equal to (a) during the period of time from and
including the date of the execution and delivery of this Agreement up to the
first anniversary of the Closing Date, 1.5% TIMES the Maximum Amount, (b) during
the period of time from and including the first anniversary of the Closing Date
up to the second anniversary of the Closing Date, 1.0% TIMES the Maximum Amount,
and (c) during the period of time from and including the second anniversary of
the Closing Date and thereafter, 0.5% TIMES the Maximum Amount.
"AUTHORIZED PERSON" means any officer or other employee of Borrower.
"AVAILABILITY" means, as of any date of determination, determined at
the close of business on such date, if such date is a Business Day, and
determined at the close of business on the immediately preceding Business Day,
if such date of determination is not a Business Day, the amount that Borrower is
entitled to borrow as Advances under SECTION 2.1 (after giving effect to all
previously outstanding Obligations and all sublimits and Reserves applicable
hereunder).
"AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" means, as of any date of
determination, (a) the Maximum Amount, LESS (b) the average Daily Balance of
Advances that were outstanding during the immediately preceding month.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 ET SEQ.), as amended, and any successor statute.
2
<PAGE>
"BASE RATE" means, the rate of interest announced within Wells Fargo
Bank, N.A. at its principal office in San Francisco as its "prime rate", with
the understanding that the "prime rate" is one of Wells Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as Wells Fargo may designate.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER FOREIGN CURRENCY ACCOUNT" means, the Foreign Currency
Account of Borrower set forth on SCHEDULE F-1.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(a).
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"CASH EQUIVALENTS" means and refers to: (a) marketable direct
obligations issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one (1) year from the date of
acquisition thereof; (b) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one (1) year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating
obtainable from either S&P or Moody's; (c) commercial paper maturing no more
than one (1) year from the date of acquisition thereof and, at the time of
acquisition, having a rating of A-2 or P-2, or better, from S&P or Moody's;
(d) certificates of deposit or bankers' acceptances maturing within one (1) year
from the date of acquisition thereof either (i) issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia which bank has a rating of A or A2, or better, from S&P or
Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the
3
<PAGE>
Securities Exchange Act of 1934), directly or indirectly, of more than 35% of
the total voting power of all classes of Stock then outstanding of Borrower
entitled to vote in the election of directors.
"CLOSING DATE" means the date of the first to occur of the making of
the initial Advance.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means all of Borrower's right, title, and interest in and
to each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral
(g) the Investment Property,
(h) any money, or other assets of Borrower that now or hereafter come
into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's Books, Equipment, General
Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
The foregoing notwithstanding, "Collateral" shall not include any General
Intangibles that are now or hereafter held by Borrower as licensee, solely in
the event and to the extent that: (a) as the proximate result of the grant of a
security interest, Borrower's rights in or with respect to such item of General
Intangibles would be forfeited or would become terminable, or if Borrower would
be deemed to have breached the underlying license or other agreement that
governs such item of General Intangibles; (b) any such restriction is effective
and enforceable under applicable law, including Section 9318(4) of the Code; and
(c) any such forfeiture, terminability, or breach cannot be either prevented or
promptly remedied by Borrower using its commercially reasonable efforts (but
without any obligation to make any material expenditures of money or to commence
legal proceedings); PROVIDED, HOWEVER, that the grant of security interest
hereunder shall extend to, and the term "Collateral" shall
4
<PAGE>
include, (1) any and all proceeds of such item of General Intangibles, (2) upon
any such licensor's consent with respect to any otherwise excluded item of
General Intangibles being obtained, such item of General Intangibles, and (3)
any such General Intangible with respect to which any such restriction ceases to
be effective or enforceable.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Collateral, in each case, in form and
substance satisfactory to Foothill.
"COLLATERAL ASSIGNMENT OF RIGHTS" means that certain Collateral
Assignment of Rights, dated as of the date hereof, between Borrower and
Foothill.
"COLLECTIONS" means all cash, checks, notes, instruments, and other
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT C-1 and delivered by the chief accounting officer of Borrower to
Foothill.
"COPYRIGHT SECURITY AGREEMENT" means that certain Copyright Security
Agreement, dated as of the date hereof, among Borrower, NCD Acquisition, NCD
Graphic Software, and Foothill.
"DAILY BALANCE" means the amount of an Obligation owed at the end of a
given day.
"DEEMS ITSELF INSECURE" means that the Person deems itself insecure in
accordance with the provisions of Section 1208 of the Code.
"DEFAULT" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"DESIGNATED ACCOUNT" means account number 6488903649 of Borrower
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) that has been designated,
in writing and from time to time, by Borrower to Foothill.
"DESIGNATED ACCOUNT BANK" means Union Bank of California, N.A., whose
office is located at 99 Almaden Boulevard, 2nd Floor, San Jose, California
95113-1687, and whose ABA number is 121 000 496.
"DILUTION" means, in each case based upon the experience of the
immediately prior 6 months, the result of dividing the Dollar amount (or the
Dollar equivalent amount at the then applicable Exchange Rate with respect to
any other currency) of (a) bad debt write-downs, discounts, advertising,
returns, promotions, credits, or other dilution with respect to
5
<PAGE>
the Accounts, by (b) the Dollar amount (or the Dollar equivalent amount at the
then applicable Exchange Rate with respect to any Collections received in any
other currency) of Borrower's Collections (excluding extraordinary items) plus
the Dollar amount of CLAUSE (a).
"DILUTION RESERVE" means, as of any date of determination, an amount
sufficient to reduce Foothill's advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
5.0%
"DISBURSEMENT LETTER" means an instructional letter executed and
delivered by Borrower to Foothill regarding the extensions of credit to be made
on the Closing Date, the form and substance of which shall be satisfactory to
Foothill.
"DOLLARS OR $" means United States dollars.
"DOMESTIC ACCOUNTS" means Accounts of Borrower with respect to which
the Account Debtor: (a) maintains its chief executive office in the United
States and is organized under the laws of the United States or any State
thereof, (b) is the United States or any department, agency, or instrumentality
of the United States, or (c) is any State of the United States.
"DOMESTIC COLLECTIONS" means all Collections of Borrower other than
Foreign Collections.
"DOMESTIC SUBSIDIARIES" means NCD Graphic Software, NCD Guam, NCD
Acquisition, and any other Subsidiary of Borrower organized under the laws of
the United States or any State, territory or possession thereof.
"EARLY TERMINATION PREMIUM" has the meaning set forth in SECTION 3.6.
"ELIGIBLE ACCOUNTS" means Eligible Domestic Accounts or Eligible
Foreign Accounts.
"ELIGIBLE CURRENCY" means any currency other than Dollars (i) that is
readily available, (ii) that is freely traded, (iii) in which deposits are
customarily offered to banks in the London interbank market, (iv) that is
convertible into Dollars in the London interbank market, (v) as to which an
equivalent amount valued in Dollars at the applicable Exchange Rate may be
readily calculated, and (vi) that is otherwise acceptable to Foothill in its
Permitted Discretion.
"ELIGIBLE DOMESTIC ACCOUNTS" means those Domestic Accounts created by
Borrower in the ordinary course of business, that arise out of Borrower's sale
of goods or rendition of services, that strictly comply with each and all of the
representations and warranties respecting Eligible Accounts made in the Loan
Documents, and that are not excluded as ineligible by virtue of the one or more
of the criteria set forth below; PROVIDED, HOWEVER, that such criteria may be
fixed and revised from time to time by Foothill in Foothill's Permitted
Discretion. Eligible Domestic Accounts shall not include the following:
6
<PAGE>
(a) Domestic Accounts that the Account Debtor has failed to pay
within 90 days of original invoice date or Domestic Accounts that are more than
60 days past due;
(b) Domestic Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under CLAUSE (a) above or under CLAUSE (a) of
the definition of Eligible Foreign Accounts;
(c) Domestic Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Domestic 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) Domestic Accounts that are not payable in Dollars;
(f) Domestic Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Domestic Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account;
(h) Domestic Accounts with respect to an Account Debtor whose total
obligations, together with those of its Affiliates, owing to Borrower exceed (a)
with respect to Adtcom and its Affiliates, 35% of the sum of all Eligible
Accounts, (b) with respect to Tech Data and its Affiliates, 25% of the sum of
all Eligible Accounts, (c) with respect to Ingram Micro and its Affiliates, 20%
of the sum of all Eligible Accounts, and (d) with respect to any other Account
Debtor and its Affiliates, 10% of the sum of all Eligible Accounts, in each
case, to the extent of the obligations owing by such Account Debtor in excess of
such percentage, PROVIDED, HOWEVER, that Foothill shall have the right, at any
time and from time to time to change the foregoing percentages in its Permitted
Discretion;
(i) Domestic Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Domestic Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
7
<PAGE>
(k) Domestic Accounts with respect to which the goods giving rise to
such Domestic Account have not been shipped and billed to the Account Debtor,
the services giving rise to such Domestic Account have not been performed and
accepted by the Account Debtor, or the Domestic Account otherwise does not
represent a final sale;
(l) Domestic Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
(m) Domestic Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods or services; and
(n) Domestic Accounts constituting (i) proceeds of copyrightable
material unless such copyrightable material shall have been registered with the
United States Copyright Office, or (ii) proceeds of patentable inventions unless
such patentable inventions have been registered with the United States Patent
and Trademark Office.
"ELIGIBLE EXTENDED TERM DOMESTIC ACCOUNTS" means Domestic Accounts
owing by Tech Data, Ingram Micro, or their respective Affiliates that do not
qualify as Eligible Domestic Accounts solely because the Account Debtor has
failed to pay such Domestic Account within 90 days of original invoice date or
because such Domestic Accounts are more than 60 days past due, PROVIDED,
HOWEVER, that Eligible Extended Term Domestic Accounts shall not include
Domestic Accounts of Tech Data, Ingram Micro, or their respective Affiliates,
that the Account Debtor has failed to pay within 120 days of original invoice
date or Domestic Accounts that are more than 90 days past due.
"ELIGIBLE EXTENDED TERM FOREIGN ACCOUNTS" means Foreign Accounts owing
by Tech Data, Ingram Micro, or their respective Affiliates that do not qualify
as Eligible Foreign Accounts solely because the Account Debtors has failed to
pay such Foreign Accounts within 90 days of original invoice date or because
such Foreign Accounts are more than 60 days past due, PROVIDED, HOWEVER, that
Eligible Extended Term Foreign Accounts shall not include Foreign Accounts of
Tech Data, Ingram Micro, or their respective Affiliates that the Account Debtor
has failed to pay within 120 days of original invoice date or Foreign Accounts
that are more than 90 days past due.
"ELIGIBLE FOREIGN ACCOUNTS" means those Foreign Accounts created by
Borrower in the ordinary course of business, that arise out of Borrower's sale
of goods or rendition of services, that strictly comply with each and all of the
representations and warranties respecting Eligible Accounts made in the Loan
Documents, and that are not
8
<PAGE>
excluded as ineligible by virtue of the one or more of the criteria set forth
below; PROVIDED, HOWEVER, that such criteria may be fixed and revised from time
to time by Foothill in Foothill's Permitted Discretion. Eligible Foreign
Accounts shall not include the following:
(a) Foreign Accounts that the Account Debtor has failed to pay within
90 days of original invoice date or Foreign Accounts that are more than 60 days
past due;
(b) Foreign Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under CLAUSE (a) above or under CLAUSE (a) of
the definition of Eligible Domestic Accounts;
(c) Foreign Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Foreign 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) Foreign Accounts that are not payable in Dollars or an Agreed
Currency or with respect to which the Account Debtor: (i) does not maintain its
chief executive office in a Specified State, or (ii) is not organized under the
laws of a Specified State, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof;
(f) Foreign Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to such Foreign Account;
(g) Foreign Accounts with respect to an Account Debtor whose total
obligations, together with those of its Affiliates, owing to Borrower (net of
the amount of the obligations of such Account Debtor or its Affiliates deemed
ineligible under CLAUSE (h) of the definition of Eligible Domestic Accounts)
exceed (a) with respect to Adtcom and its Affiliates, 35% of the sum of all
Eligible Accounts, (b) with respect to Tech Data and its Affiliates, 25% of the
sum of all Eligible Accounts, (c) with respect to Ingram Micro and its
Affiliates, 20% of the sum of all Eligible Accounts, and (d) with respect to any
other Account Debtor and its Affiliates, 10% of the sum of all Eligible
Accounts, in each case, to the extent of the obligations owing by such Account
Debtor in excess of such percentage, PROVIDED, HOWEVER, that Foothill shall have
the right, at any time and from time to time to change the foregoing percentages
in its Permitted Discretion;
(h) Foreign Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
9
<PAGE>
(i) Foreign Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(j) Foreign Accounts with respect to which the goods giving rise to
such Foreign Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Foreign Account have not been performed and
accepted by the Account Debtor, or the Foreign Account otherwise does not
represent a final sale;
(k) Foreign Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
(l) Foreign Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods or services; and
(m) Foreign Accounts constituting (i) proceeds of copyrightable
material unless such copyrightable material shall have been registered with the
United States Copyright Office, or (ii) proceeds of patentable inventions unless
such patentable inventions have been registered with the United States Patent
and Trademark Office.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. Sections 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302
10
<PAGE>
of ERISA and Section 412 of the IRC, any party subject to ERISA that is a party
to an arrangement with Borrower and whose employees are aggregated with the
employees of Borrower under IRC Section 414(o).
"EURO" means the euro referred to in Council Regulation (EC) No.
1103/97 dated dune 17, 1997, passed by the Council of the European Union, or, if
different, the then lawful currency of the member states of the European Union
that participate in the third stage of Economic and Monetary Union.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCESS AVAILABILITY" means the amount, as of the date any
determination thereof is to be made, equal to the result of (a) Availability
PLUS (b) Borrower's unrestricted cash and cash equivalents MINUS (c) the
aggregate amount, if any, of all trade payables of Borrower aged in excess of
their historical levels with respect thereto and all book overdrafts in excess
of their historical practices with respect thereto, in each case as determined
by Foothill.
"EXCHANGE RATE" means, as of any date of determination thereof, the
nominal rate of exchange (vis-a-vis Dollars) for a currency other than Dollars
published in the Wall Street Journal (Western Edition) on such date of
determination (which shall be a Business Day on which the Wall Street Journal
(Western Edition) is published), expressed as the number of units of such other
currency per one Dollar.
"EXEMPT COPYRIGHT" means any Incipient Copyright or any Obsolete
Copyright.
"EXEMPT PATENT" means any Incipient Patent or any Obsolete Patent.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.7.
"FOOTHILL EXPENSES" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; reasonable fees or charges paid
or incurred by Foothill in connection with Foothill's transactions with
Borrower, including, fees or charges for photocopying, notarization, couriers
and messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC and comparable foreign searches and including searches with
the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
Collateral appraisals); costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges paid
or incurred by Foothill resulting from the dishonor of checks; costs and
expenses paid or incurred by Foothill to correct any
11
<PAGE>
default or enforce any provision of the Loan Documents, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; reasonable costs and expenses
paid or incurred by Foothill in examining Borrower's Books; costs and expenses
of third party claims or any other suit paid or incurred by Foothill in
enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or Foothill's relationship with Borrower or
any guarantor; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
"FOREIGN ACCOUNTS" means any Accounts of Borrower other than Domestic
Accounts.
"FOREIGN COLLECTIONS" means all Collections of Borrower paid by any
Person that (i) does not maintain its chief executive office in the United
States, (ii) is not organized under the laws of the United States or any State
thereof, or (iii) is the government of any foreign country or sovereign state,
or of any state, province, municipality, or other political subdivision thereof,
or of any department, agency, public corporation, or other instrumentality
thereof.
"FOREIGN CURRENCY ACCOUNT" means, with respect to Borrower and each of
the Foreign Subsidiaries, the non-Dollar denominated bank account of Borrower or
such Foreign Subsidiary, as the case may be, maintained with a Foreign Currency
Account Bank and having the account number set forth on SCHEDULE F-1.
"FOREIGN CURRENCY ACCOUNT BANKS" means Barclays Bank, whose office is
located at P.O. Box 756 Hamilton Road, Slough SL1 4SG, England, Royal Bank of
Canada, whose office is located at Royal Bank Plaza, Business Banking Centre,
200 Bay Street, 5th Floor, South Tower, Toronto Ontario, M5J 215, Canada, and,
solely with respect to each of the Foreign Subsidiaries of Borrower, the other
bank or financial institutions set forth next to such Foreign Subsidiaries name
on SCHEDULE F-1.
"FOREIGN EXCHANGE RESERVE" means, as of any date of determination
thereof, a reserve for foreign currency exchange rate risk with respect to the
Foreign Accounts in such amount as shall be determined by Foothill in its
Permitted Discretion from time to time, which amount shall initially be
established at an amount equal to 5% of the amount of Borrower's Foreign
Accounts outstanding at any time.
"FOREIGN SUBSIDIARIES means NCD Australia, NCD Benelux, NCD Canada,
NCD UK, NCD France, NCD Germany, NCD Sweden, and any other Subsidiary of
Borrower duly organized and validly existing under the laws of a jurisdiction
outside of the United States and its territories and possessions.
12
<PAGE>
"FOREIGN SUBSIDIARY OPERATING AMOUNT" means, with respect to each
Foreign Subsidiary as of any date of determination thereof, an amount, in
Dollars, equal to such Foreign Subsidiary's average monthly disbursements
incurred in the ordinary course of business and consistent with such Foreign
Subsidiary's historical practices for the 3 month period ending as of such date
of determination, which amount, as of the Closing Date, is set forth on SCHEDULE
F-1.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local, or
other governmental or administrative body, instrumentality, department, or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
"GOVERNING DOCUMENTS" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"GUARANTORS" means, individually and collectively, jointly and
severally, each of Borrower's Subsidiaries.
"GUARANTOR SECURITY AGREEMENT" means that certain Security Agreement,
dated as of the date hereof, among the Guarantors and Foothill.
"GUARANTY" means that certain General Continuing Guaranty, dated as of
the date hereof, executed by each Guarantor in favor of Foothill.
"HAZARDOUS MATERIALS" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in
13
<PAGE>
any form or electrical equipment that contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of 50 parts per
million.
"INCIPIENT COPYRIGHT" means any copyright that: (a) relates to
copyrightable material of a Person (i) under development (whether in the form of
a new product, a new version of a pre-existing product, an upgrade, add-on, or
modification to a pre-existing product, or otherwise) that has not yet become a
completed product, version, upgrade, add-on, or modification that is ready to be
marketed by or on behalf of such Person, or (ii) has never been marketed by or
on behalf of such Person; and (b) is not the subject of licenses thereof or
other dispositions by such Person giving rise to accounts, contract rights, or
other form of obligation.
"INCIPIENT PATENT" means any patent that: (a) relates to a patentable
invention of a Person (i) under development (whether in the form of a new
invention, a new version of a pre-existing invention, an upgrade, add-on, or
modification to a pre-existing invention, or otherwise) that has not yet become
a completed invention, upgrade, improvement, add-on, or modification which is
ready to be marketed by or on behalf of such Person, or (ii) has never been
marketed by or on behalf of such Person; and (b) is not the subject of licenses
thereof or other dispositions by such Person giving rise to accounts, contract
rights, or other form of obligation.
"INDEBTEDNESS" means: (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of Borrower, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"INGRAM MICRO" means Ingram Micro, Inc., a Delaware corporation.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law of any applicable jurisdiction, assignments for the
benefit of creditors, formal or informal moratoria, compositions, extensions
generally with creditors, or proceedings seeking reorganization, arrangement,
liquidation or other similar relief.
"INTANGIBLE ASSETS" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"INTELLECTUAL PROPERTY" has the meaning set forth in SECTION 5.16
"INVENTORY" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under a contract of service
14
<PAGE>
and all of Borrower's present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever located.
"INVESTMENT" means, with respect to any Person, any investment by such
Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) BONA FIDE accounts arising from the
sale of goods or rendition of services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"INTERCOMPANY SUBORDINATION AGREEMENT" means that certain
Subordination Agreement, dated as of the date hereof, among Foothill, Borrower,
and each of Borrower's Subsidiaries.
"INVESTMENT PROPERTY" means "investment property" as that term is
defined in the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.10.
"LOAN DOCUMENTS" means this Agreement, the Copyright Security
Agreement, the Patent Security Agreement, the Trademark Security Agreement, the
Stock Pledge Agreement, the Collateral Assignment of Rights, the Guaranty, the
Guarantor Security Agreement, the Intercompany Subordination Agreement, the
Disbursement Letter, the Lockbox Agreements, and any other agreement entered
into, now or in the future, in connection with this Agreement.
"LOCKBOX ACCOUNT" shall mean a depositary account established pursuant
to one of the Lockbox Agreements.
15
<PAGE>
"LOCKBOX AGREEMENTS" means those certain Lockbox Operating Procedural
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among Borrower, Foothill,
and one of the Lockbox Banks.
"LOCKBOX BANKS" means Union Bank of California, N.A.
"LOCKBOXES" has the meaning set forth in SECTION 2.7.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower or Borrower and its Subsidiaries
as a whole, (b) the material impairment of Borrower's ability to perform its
obligations under the Loan Documents to which it is a party or of Foothill to
enforce the Obligations or realize upon the Collateral, (c) a material adverse
effect on the value of the Collateral or the amount that Foothill would be
likely to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (d) a material impairment
of the priority of Foothill's Liens with respect to the Collateral.
"MATURITY DATE" has the meaning set forth in SECTION 3.5.
"MAXIMUM AMOUNT" means $15,000,000.
"NCD AUSTRALIA" means Network Computing Devices Australia Pty Ltd, a
company organized under the laws of Australia.
"NCD BENELUX" means Network Computing Devices (Benelux) B.V., a
company organized under the laws of The Netherlands, having its corporate seat
in Hoofddorp.
"NCD CANADA" means Network Computing Devices (Canada), Inc., a
corporation organized under the laws of Canada
"NCD FRANCE" means Network Computing Devices (France) S.A.R.L., a
company organized under the laws of France.
"NCD GERMANY" means Network Computing Devices, GmbH, a company
organized under the laws of Germany.
"NCD GRAPHIC SOFTWARE" means NCD Graphic Software Corporation, an
Oregon corporation.
"NCD GUAM" means Network Computing Devices (FSC), Inc., a Guam
corporation.
"NCD ACQUISITION" means NCD Acquisition Corp., an Indiana corporation.
16
<PAGE>
"NCD UK" means Network Computing Devices (UK), Ltd., a company
organized under the laws of England.
"NCD SWEDEN" means Network Computing Devices Scandinavia AB, a company
organized under the laws of Sweden.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, Investment Property, documents,
personal property leases (wherein such Person is the lessor), chattel paper, and
Books relating to any of the foregoing.
"OBLIGATIONS" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums (including Applicable Prepayment Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"OBSOLETE COPYRIGHT" means any copyright that relates to copyrightable
material of a Person that, in such Person's good faith determination: (a) is no
longer sold or marketed by such Person; (b) is not generating any material
amount of Accounts or revenues of such Person; and (c) does not have a material
fair market value.
"OBSOLETE PATENT" means any patent that relates to an invention of a
Person that, in such Person's good faith determination: (a) is no longer sold
or marketed by such Person; (b) is not generating any material amount of
Accounts or revenues of such Person; and (c) does not have a material fair
market value.
"OVERADVANCE" has the meaning set forth in SECTION 2.5.
"PARTICIPANT" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PATENT SECURITY AGREEMENT" means that certain Patent Security
Agreement, dated as of the date hereof, among Borrower, NCD Acquisition, NCD
Graphic Software, and Foothill.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
17
<PAGE>
"PERMITTED DISCRETION", with respect to any determination by Foothill,
means a determination made in good faith and in the exercise of reasonable (from
the perspective of a secured asset-based lender) business judgment.
"PERMITTED DISPOSITIONS" means the sale by Borrower of Inventory in
the ordinary course of Business.
"PERMITTED INVESTMENTS" means (a) Investments in Cash Equivalents,
(b) advances made in connection with purchases of goods or services in the
ordinary course of business, (c) to the extent constituting Investments, the
provision of funds by Borrower to the Foreign Subsidiaries for working capital
purposes in accordance with SECTION 2.7(c), and (d) Investments made prior to
the Closing Date by Borrower in New Century Hospitality Network, in an aggregate
amount of $1,000,000, as evidenced by that certain Convertible Promissory Note,
dated July 30, 1999, in the original principal amount of $1,000,000 (of which
only $800,000 was advanced), and by that certain Promissory Note, dated July 30,
1999, in the original principal amount of $200,000.
"PERMITTED LIENS" means (a) Liens held by Foothill, (b) Liens for
unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on SCHEDULE P-1, (d) (i) the
interests of lessors under operating leases, and (ii) purchase money Liens or
the interests of lessors under Capital Leases to the extent that such Liens or
interests secure Purchase Money Indebtedness permitted under SECTION 7.1 hereof
and so long as the Lien attaches only to the asset purchased or acquired and the
proceeds thereof, purchase money Liens and the interests of lessors under
capital leases to the extent that the acquisition or lease of the underlying
asset is permitted under SECTION 7.21 and so long as the Lien only attaches to
the asset purchased or acquired and only secures the purchase price of the
asset, (e) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business of Borrower and not in connection with the
borrowing of money, and which Liens either (i) are for sums not yet due and
payable, or (ii) are the subject of Permitted Protests, (f) Liens arising from
deposits made in connection with obtaining worker's compensation or other
unemployment insurance, (g) Liens or deposits to secure performance of bids,
tenders, or leases (to the extent permitted under this Agreement), incurred in
the ordinary course of business of Borrower and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of Borrower, (i) Liens of or resulting
from any judgment or award that reasonably could not be expected to result in a
Material Adverse Change and as to which the time for the appeal or petition for
rehearing of which has not yet expired, or in respect of which Borrower is in
good faith prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review has been
secured, and (j) with respect to any Real Property, easements, rights of way,
zoning and similar covenants and restrictions, and similar encumbrances that
customarily exist on properties of Persons engaged in similar activities and
similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by Borrower
18
<PAGE>
or the value of Foothill's Lien thereon or therein, or materially interfere with
the ordinary conduct of the business of Borrower.
"PERMITTED PROTEST" means the right of Borrower to protest any Lien
other than any such Lien that secures the Obligations, tax (other than payroll
taxes or taxes that are the subject of a United States federal tax lien or other
tax lien that has priority to the Liens granted herein), or rental payment,
provided that (a) a Reserve with respect to such obligation is established on
the books of Borrower in an amount that is reasonably satisfactory to Foothill,
(b) any such protest is instituted and diligently prosecuted by Borrower in good
faith, and (c) Foothill is satisfied that, while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Liens of Foothill in and to the Collateral.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PROJECTIONS" means, with respect to any Person, such Person's
forecasted consolidated (a) balance sheets, (b) statements of income, and (c)
cash flow statements, all prepared on a basis consistent with its historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"REAL PROPERTY'' means any estates or interests in real property now
owned or hereafter acquired by Borrower.
"REPORTABLE EVENT" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"RESERVES" means all Foreign Exchange Reserves, Dilution Reserves (if
any), and any other reserves that may be established under this Agreement
(including pursuant to SECTION 2.1).
"SALES AGENCY AGREEMENTS" means, collectively, all of the sales agency
agreements, commission agreements, or other agreements between Borrower and each
Foreign Subsidiary pursuant to which each Foreign Subsidiary is appointed as a
sales agent for Borrower.
"SOLVENT" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal
19
<PAGE>
course of business, (d) such Person does not intend to, and does not believe
that it will, incur debts beyond such Person's ability to pay as such debts
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably small capital after giving
due consideration to the prevailing practices in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount that,
in light of all the facts and circumstances existing at such time, represents
the amount that reasonably can be expected to become an actual or matured
liability.
"SPECIFIED STATE" means, England, Scotland, Wales, Ireland, Australia,
France, Germany, Italy, New Zealand, Canada, Norway, Finland, Switzerland,
Sweden, Belgium, Japan, Singapore, the Netherlands, or any other country
approved by Foothill in its sole discretion.
"STOCK" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"STOCK PLEDGE AGREEMENT" means that certain Stock Pledge Agreement,
dated as of the date hereof, between Borrower and Foothill.
"SUBSIDIARY" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.
"SUBSIDIARY FOREIGN CURRENCY OPERATING ACCOUNT" means, with respect to
any Foreign Subsidiary, the Foreign Currency Account of such Foreign Subsidiary
set forth on SCHEDULE F-1.
"TANGIBLE NET WORTH" means, as of any date of determination, the
difference of (a) Borrower's total stockholder's equity, MINUS (b) the sum of:
(i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses,
and (iii) all amounts due to Borrower from Affiliates.
"TECH DATA" means Tech Data Corporation, a Florida corporation.
"TRADEMARK SECURITY AGREEMENT" means that certain Trademark Security
Agreement, dated as of the date hereof, among Borrower, NCD Acquisition, NCD
Graphic Software, and Foothill.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
20
<PAGE>
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum Amount,
or (ii) the result of (A) the Borrowing Base LESS (B) the aggregate amount of
the Reserves (other than Foreign Exchange Reserves). For purposes of this
Agreement, "Borrowing Base," as of any date of determination, shall mean, THE
SUM OF:
(y) the lesser of:
(i) the sum of
(A) 85% of Eligible Domestic Accounts, PLUS
(B) the lesser of (1) the sum of 85% of Eligible
Extended Term Domestic Accounts and (2) $1,000,000;
and
21
<PAGE>
(ii) an amount equal to 66 2/3% of Borrower's Collections
with respect to Domestic Accounts for the immediately preceding
90 day period
PLUS
(z) the least of
(i) the result of:
(A) the lesser of 75% of Eligible Foreign
Accounts, PLUS
(B) the lesser of (1) 75% of Eligible Extended
Term Foreign Accounts, and (2) the result of
$1,000,000 MINUS the amount of Availability created
pursuant to CLAUSE (y)(i)(B) above, MINUS
(C) the aggregate amount of Foreign Exchange
Reserves;
(ii) $7,500,000;
(iii) the amount of Availability created pursuant to
CLAUSE (y) above; and
(iv) an amount equal to a percentage (to be determined by
Foothill from time to time in its Permitted Discretion) of
Borrower's Collections with respect to Foreign Accounts for a
period of time (to be determined by Foothill from time to time
in its Permitted Discretion) preceding any date of determination
of the Borrowing Base.
(b) Anything to the contrary in this SECTION 2.1
notwithstanding, Foothill shall have the right to establish reserves in such
amounts, and with respect to such matters as Foothill in its Permitted
Discretion shall deem necessary or appropriate, against the Borrowing Base,
including reserves with respect to (i) sums that the Borrower is required to pay
(such as taxes, assessments, insurance premiums, or, in the case of leased
assets, rents or other amounts payable under such leases) and have failed to pay
under any Section of this Agreement or any other Loan Document, and (ii) amounts
owing by Borrower to the extent secured by a Lien (other than any existing
Permitted Lien set forth on SCHEDULE P-1 that specifically is identified thereon
as entitled to have priority over Foothill's Liens) on, or trust over, any of
the Collateral, which Lien or trust, in the Permitted Discretion of Foothill,
would be likely to have a priority superior to the Liens of Foothill (such as
landlord liens, ad valorem taxes, property taxes, or sales taxes where given
priority under applicable law) in and to such item of the collateral.
22
<PAGE>
(c) Foothill shall have no obligation to make Advances hereunder
to the extent they would cause the outstanding Obligations to exceed the Maximum
Amount.
(d) Amounts borrowed pursuant to this SECTION 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at any
time during the term of this Agreement.
2.2 [INTENTIONALLY OMITTED].
2.3 [INTENTIONALLY OMITTED].
2.4 [INTENTIONALLY OMITTED].
2.5 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1 is greater
than either the Dollar or percentage limitations set forth in SECTIONS 2.1 (an
"Overadvance"), Borrower immediately shall pay to Foothill, in cash, the amount
of such excess to be used by Foothill first, to repay Advances outstanding under
SECTION 2.1 and, thereafter, to repay any other outstanding Obligations.
2.6 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. Except as provided in CLAUSE (c) below, (i)
all Obligations shall bear interest at a per annum rate of 0.75 percentage
points above the Base Rate.
(b) [Intentionally omitted].
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations that have been charged
to the Loan Account pursuant to the terms hereof shall bear interest on the
Daily Balance thereof at a per annum rate equal to 4.0 percentage points above
the per annum rate otherwise applicable hereunder.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 8.0% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less than
the foregoing minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest payable hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when incurred),
the fees and charges provided for in SECTION 2.11 (as and when accrued or
incurred), and all installments or other payments due under any Loan Document to
Borrower's Loan Account, which amounts thereafter shall accrue interest at the
rate then applicable to Advances hereunder. Any interest not paid when due shall
be
23
<PAGE>
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. In the event the Base Rate is changed from
time to time hereafter, the applicable rate of interest hereunder automatically
and immediately shall be increased or decreased by an amount equal to such
change in the Base Rate. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and Foothill, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS.
(a) Borrower shall at all times maintain lockboxes (the
"Lockboxes") and, immediately after the Closing Date, shall instruct all Account
Debtors with respect to the Accounts, General Intangibles, and Negotiable
Collateral of Borrower to remit all Domestic Collections and all Foreign
Collections payable in Dollars in respect thereof to such Lockboxes or to a
Lockbox Account. Borrower, Foothill, and the Lockbox Banks shall enter into the
Lockbox Agreements, which among other things shall provide for the opening of a
Lockbox Account for the deposit of Domestic Collections at a Lockbox Bank.
Borrower agrees that all Domestic Collections and other amounts received by
Borrower from any Account Debtor or any other source immediately upon receipt
shall be deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrower without the prior written
consent of Foothill. Upon the terms and subject to the conditions set forth in
the Lockbox Agreements, all amounts received in each Lockbox Account shall be
wired each Business Day into an account (the "Foothill Account") maintained by
Foothill at a depositary selected by Foothill.
(b) Borrower may maintain one or more Borrower Foreign Currency
Accounts with the Foreign Currency Account Banks. Borrower and each of its
Subsidiaries at all times promptly shall deposit all Foreign Collections and
other amounts payable in any currency other than Dollars and received by
Borrower or any of its Subsidiaries from any source, to the extent such Foreign
Collections and other amounts are not deposited in a Lockbox Account,
immediately upon receipt thereof into the applicable Borrower Foreign
24
<PAGE>
Currency Account. Each of the Foreign Subsidiaries may maintain with a Foreign
Currency Account Bank one or more Subsidiary Foreign Currency Operating
Accounts, but shall not maintain on deposit in any Subsidiary Foreign Currency
Operating Account any Collections from any source other than Borrower. Subject
to the immediately following sentence, Borrower from time to time may provide
each of the Foreign Subsidiaries with funds for working capital purposes out of
non-Dollar denominated amounts in the Borrower Foreign Currency Account, and
each of the Foreign Subsidiaries shall maintain on deposit in the Subsidiary
Foreign Currency Operating Accounts such funds until used by such Foreign
Subsidiary for working capital purposes. On the last Business Day of each week,
(i) to the extent that the aggregate Dollar amount (Based upon the applicable
Exchange Rate as of such Business Day) of balances in any Foreign Currency
Account of any Foreign Subsidiary exceeds an amount equal to 75% of such Foreign
Subsidiary's Foreign Subsidiary Operating Amount, such excess shall be wired
into a Foreign Currency Account of Borrower or converted into Dollars (at
Borrower's expense) and wired into the Foothill Account, and (ii) to the extent
that the aggregate Dollar amount (based upon the applicable Exchange Rate as of
such Business Day) of balances in all Foreign Currency Accounts (after giving
effect to any wire transfer made pursuant to the foregoing CLAUSE (i)) exceeds
the Aggregate Foreign Subsidiary Operating Amount, such excess shall be
converted into Dollars (at Borrower's sole expense) and wired into the Foothill
Account.
(c) Each Lockbox Bank shall establish and maintain tri-party
blocked account agreements with Foothill and Borrower, in form and substance
reasonably acceptable to Foothill. Each such blocked account agreement shall
provide, among other things, that (i) all items of payment deposited in such
accounts and proceeds thereof are held by such banks as agent or
bailee-in-possession for Foothill, (ii) the bank executing such agreement has no
rights of setoff or recoupment or any other claim against such account, as the
case may be, other than for payment of its service fee and other charges
directly related to the administration of such account and for returned checks
or other items of payment, and (iii) the bank executing the agreement agrees
immediately to forward by daily sweep all amounts received in the applicable
account to the Foothill Account.
(d) Each Foreign Currency Bank shall establish and maintain
tri-party blocked-on-demand account agreements with Foothill and Borrower or its
Subsidiaries, as applicable, in form and substance reasonably acceptable to
Foothill, it being expressly understood that the establishment of such tri-party
blocked-on-demand account agreements shall not be a condition precedent to the
effectiveness hereof; PROVIDED, HOWEVER, that until all such tri-party
blocked-on-demand account agreements shall be established, all Foreign Accounts
shall be deemed to not be Eligible Foreign Accounts.
(e) Borrower shall not, and shall cause each of its Subsidiaries
to not, accumulate or maintain cash in disbursement or payroll accounts (not
including any Foreign Currency Account) as of any date of determination in
excess of checks outstanding against such accounts as of that date and amounts
necessary to meet minimum balance requirements. Borrower and the Foreign
Subsidiaries shall close any of their accounts (and establish replacement
accounts in accordance with the foregoing sentence) promptly and in any event
25
<PAGE>
within 30 days of notice from Foothill that the creditworthiness of any bank
holding an account is no longer acceptable in Foothill's reasonable judgment, or
as promptly as practicable and in any event within 60 days of notice from
Foothill that the operating performance, funds transfer or availability
procedures or performance with respect to accounts or Lockboxes of the bank
holding such accounts or Foothill's liability under any tri-party blocked
account agreement or tri-party blocked-on-demand account agreement, as
applicable, with such bank is no longer acceptable in Foothill's reasonable
judgment.
(f) The arrangements contemplated in this SECTION 2.7 shall not
be modified by Borrower or any of the Foreign Subsidiaries without the prior
written consent of Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the Lockbox
Banks, the Foreign Currency Accounts Banks, or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under SECTION 2.1,
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for 1 Business Day of 'clearance' or 'float' at the
rate set forth in SECTION 2.6(a)(i) or SECTION 2.6(c)(i), as applicable, on all
Collections that are received by Borrower (regardless of whether forwarded by
the Lockbox Banks or Foreign Currency Account Banks to Foothill, whether
provisionally applied to reduce the Obligations under SECTION 2.1, or
otherwise). This across-the-board 1 Business Day clearance or float charge on
all Collections is acknowledged by the parties to constitute an integral aspect
of the pricing of Foothill's financing of Borrower, and shall apply irrespective
of the characterization of whether receipts are owned by Borrower or Foothill,
and whether or not there are any outstanding Advances, the effect of such
clearance or float charge being the equivalent of charging 1 Business Day of
interest on such Collections. Should any Collection item not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item shall be deemed
received by Foothill only if it is received into the Foothill Account on a
Business Day on or before 11:00 a.m. California time. If any Collection item is
received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the Advances
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Person, or without instructions if
pursuant to SECTION 2.6(e). Borrower agrees to establish and maintain the
Designated Account with the Designated Account Bank for the purpose of receiving
the proceeds of the Advances requested by Borrower and made by Foothill
hereunder. Unless otherwise agreed by Foothill and Borrower, any Advance
requested by Borrower and made by Foothill hereunder shall be made to the
Designated Account.
26
<PAGE>
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower
(the "Loan Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's account, including, accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower. In accordance
with SECTION 2.8, the Loan Account will be credited with all payments received
by Foothill from Borrower or for Borrower's account, including all amounts
received in the Foothill Account from any Lockbox Bank. Foothill shall render
monthly statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Foothill unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Foothill written objection thereto describing the
error or errors contained in any such statements.
2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) Origination Fee. On the Closing Date, an origination fee of
$112,500;
(b) Unused Line Fee. On the first day of each month during the
term of this Agreement, an unused line fee in an amount equal to 0.50% per annum
times the Average Unused Portion of the Maximum Amount;
(c) Collateral Management Fee. On the first day of each month
during the term of this Agreement, a collateral management fee of $2,500 per
month; and
(d) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $750 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Foothill; Foothill's out-of-pocket expenses
for each appraisal of the Collateral performed by personnel employed by
Foothill; and, the actual charges paid or incurred by Foothill if it elects to
employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower or to appraise the
Collateral; and, at the Borrowers' election, a one time charge of $3,000 plus
out-of-pocket expenses for the establishment of electronic collateral reporting
systems.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE.
The obligation of Foothill to make the initial Advance is subject to
the fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions on or before the Closing Date:
(a) The Closing Date shall occur on or before March 31, 2000;
27
<PAGE>
(b) Foothill shall have received searches reflecting the filing
of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) UCC termination statements and other documentation
evidencing the termination of all Liens in and to the properties
and assets of Borrower other than Permitted Liens;
(iv) the Copyright Security Agreement;
(v) the Patent Security Agreement;
(vi) the Trademark Security Agreement;
(vii) the Stock Pledge Agreement, together with the
original shares of Stock that are the subject of the Liens
created thereunder and stock powers, executed in blank, with
respect thereto;
(viii) the Collateral Assignment of Rights, together with
the original promissory notes that are the subject thereof;
(ix) the Guaranty;
(x) the Guarantor Security Agreement; and
(xi) the Intercompany Subordination Agreement;
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status with
respect to Borrower, dated within 10 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
28
<PAGE>
(g) Foothill shall have received certificates of status with
respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(h) Foothill shall have received a certificate from the
Secretary of each Subsidiary of Borrower attesting to the resolutions of such
Subsidiary's Board of Directors authorizing its execution, delivery, and
performance of each Loan Document to which such Subsidiary is a party and
authorizing specific officers of such Subsidiary to execute the same;
(i) Foothill shall have received copies of each of Borrower's
Subsidiary's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of such Subsidiary;
(j) Foothill shall have received a certificate of status (or the
applicable foreign equivalent, if any) with respect to each Subsidiary of
Borrower, in each case, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Subsidiary, which certificate shall indicate that such
Subsidiary is in good standing in such jurisdiction;
(k) Foothill shall have received certificates of status (or the
applicable foreign equivalent, if any) with respect to each Subsidiary of
Borrower, each dated within 15 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions in which the failure of
such Subsidiary to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that such Subsidiary is in
good standing in such jurisdictions;
(l) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.10, the
form and substance of which shall be satisfactory to Foothill and its counsel;
(m) Foothill shall have received Collateral Access Agreements
relative to Borrower's facilities located in Mountain View, California, and
Beaverton, Oregon;
(n) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(o) Foothill shall have received a certificate from the chief
financial officer of Borrower that all tax returns required to be filed by
Borrower have been timely filed and all taxes upon Borrower or its properties,
assets, income, and franchises (including real property taxes and payroll taxes)
have been paid prior to delinquency, except such taxes that are the subject of a
Permitted Protest;
29
<PAGE>
(p) Foothill shall have received a copy of Borrower's 10-K for
its fiscal year ending December 31, 1999, certified as being true, correct, and
complete, by the Secretary of Borrower, and the same shall be satisfactory to
Foothill in its sole discretion;
(q) Foothill shall have received Borrower's Projections for its
fiscal year ending December 31, 2000, on a month-by-month basis,
(r) Foothill shall have received copies of all of the Sales
Agency Agreements, certified as being true, correct, and complete by the
Secretary of Borrower, and the same shall be satisfactory to Foothill in its
sole discretion;
(s) Foothill shall have received copies of each of Borrower's
material license agreements (whether Borrower is the licsenor or licensee under
such license agreement) certified as being true, correct, and complete by the
Secretary of Borrower, and the same shall be satisfactory to Foothill in its
sole discretion;
(t) Foothill shall have received a copy of that certain
Investment Agreement between Borrower and New Century Hospitality Network, Inc.,
dated as of July 30, 1999, certified as being true, correct, and complete by the
Secretary of Borrower, and the same shall be satisfactory to Foothill in its
sole discretion;
(u) Borrower shall have Excess Availability of not less than
$10,000,000; and
(v) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Foothill and its
counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES.
The following shall be conditions precedent to all Advances hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof, and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
Borrower, Foothill, or any of their Affiliates.
30
<PAGE>
3.3 CONDITION SUBSEQUENT. As conditions subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by SECTION 6.10, the form and substance of which shall
be satisfactory to Foothill and its counsel;
(b) within 30 days of the Closing Date, Foothill shall have
received satisfactory evidence that all Intellectual Property of any of
Borrower's Subsidiaries shall have been assigned to Borrower;
(c) within 30 days of the Closing Date, Foothill shall have
received satisfactory evidence that all of Borrower's copyrightable material
(other than Exempt Copyrights), including copyrightable material assigned to
Borrower pursuant to SECTION 3.3(b), shall have been registered with the United
States Copyright Office, and that all such copyrightable material and any
proceeds thereof are specifically encumbered by the Copyright Security
Agreement;
(d) within 30 days of the Closing Date, Foothill shall have
received satisfactory evidence that all of Borrower's patentable inventions
(other than Exempt Patents), including patentable inventions assigned to
Borrower pursuant to SECTION 3.3(b), shall have been registered with the United
States Patent and Trademark Office, and that all such patentable inventions and
any proceeds thereof are specifically encumbered by the Patent Security
Agreement;
(e) within 30 days of the Closing Date, each Foreign Currency
Bank shall establish and maintain tri-party blocked-on-demand account agreements
with Foothill and Borrower or its Subsidiaries in accordance with SECTION
2.7(d);
(f) within 90 days of the Closing Date, deliver or cause to be
delivered such agreements, instruments, or other documents, including an opinion
of counsel in form and substance satisfactory to Foothill, as Foothill shall
request in order to perfect its security interest in Borrower's Inventory and
other property located in The Netherlands; and
(g) upon Foothill's request, within 90 days of the Closing Date,
deliver or cause to be delivered such agreements, instruments, or other
documents, including an opinion of counsel in form and substance satisfactory to
Foothill, as Foothill shall request in order to perfect its security interest in
Borrower's Inventory and other property located in Thailand; and
3.4 TERM. This Agreement shall become effective upon the execution
and delivery hereof by Borrower and Foothill and shall continue in full force
and effect for a term ending on the date (the "Maturity Date") that is 3 years
from the Closing Date. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this
31
<PAGE>
Agreement immediately and without notice upon the occurrence and during the
continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's duties, Obligations, or covenants hereunder,
and Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.4
to the contrary notwithstanding, Borrower has the option, at any time upon 90
days prior written notice to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations, in full, together with the Applicable
Prepayment Premium.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the
Applicable Prepayment Premium. The Applicable Prepayment Premium shall be
presumed to be the amount of damages sustained by Foothill as the result of the
early termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The Applicable Prepayment Premium provided for
in this SECTION 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill
a continuing security interest in all currently 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. Foothill's security interests in
the Collateral shall attach to all Collateral without further act on the part of
Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for Permitted Dispositions,
Borrower has no authority, express or implied, to dispose of any of its property
or assets.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately shall endorse and deliver physical possession of such
Negotiable Collateral to Foothill.
32
<PAGE>
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL.
At any time, Foothill or Foothill's designee may (a) notify Account
Debtors of Borrower that the Accounts, General Intangibles, or Negotiable
Collateral have been assigned to Foothill or that Foothill has a security
interest therein, and (b) upon the occurrence and during the continuance of an
Event of Default, collect the Accounts, General Intangibles, and Negotiable
Collateral directly and charge the collection costs and expenses to the Loan
Account. Borrower agrees that it will hold in trust for Foothill, as Foothill's
trustee, any Collections that it receives and immediately will deliver said
Collections to Foothill in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in SECTION 4.4, sign the name of Borrower on any of
the documents described in SECTION 4.4, (b) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure, 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 notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse Borrower's name on any Collection item that may come into
Foothill's possession, (e) at any time that an Event of Default has occurred and
is continuing or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all determinations and
decisions with respect to such policies of insurance, and (g) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as Borrower's attorney, and each and every one of Foothill's rights and
powers, being coupled with an interest, is
33
<PAGE>
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter and, so
long as no Event of Default shall have occurred and be continuing during normal
business hours, to inspect Borrower's book and records and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance made thereafter, as though made on and as of the
date of such Advance (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services by Borrower to Account Debtors in the ordinary course of
Borrower's business, unconditionally owed to Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation. 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 and any services giving rise to
such Eligible Accounts have been fully performed. Neither Borrower nor any of
its Subsidiaries has received notice of actual or imminent bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 [INTENTIONALLY OMITTED].
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are (a) except as set forth on SCHEDULE 6.12, not stored with a
bailee, warehouseman, or similar party (without Foothill's prior written
consent, which consent shall not unreasonably be withheld), and (b) are located
only at the locations identified on SCHEDULE 6.12 or otherwise permitted by
SECTION 6.12.
34
<PAGE>
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 77-0177255.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(b) Set forth on SCHEDULE 5.8, is a complete and accurate list
of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding Stock of each such Subsidiary
has been validly issued and is fully paid and nonassessable.
(c) Except as set forth on SCHEDULE 5.8, no Stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for Stock) of any direct or indirect Subsidiary of Borrower is
subject to the issuance of any security, instrument, warrant, option, purchase
right, conversion or exchange right, call, commitment or claim of any right,
title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
Regulations T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower, (ii) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any material contractual obligation or material lease of
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv)
35
<PAGE>
require any approval of stockholders or any approval or consent of any Person
under any material contractual obligation of Borrower.
(c) Other than the filing of appropriate financing statements,
fixture filings, and mortgages, the execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which Borrower is a party
do not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending by or
against Borrower or any of its Subsidiaries before any court or administrative
agency and neither Borrower nor any of its Subsidiaries has knowledge or belief
of any pending, threatened, or imminent litigation, governmental investigations,
or claims, complaints, actions, or prosecutions involving Borrower, any of its
Subsidiaries, or any other guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
SCHEDULE 5.10; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, any such Subsidiary, or any such guarantor, as the case
may be, reasonably could not be expected to result in a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating
to Borrower, any of its Subsidiaries, or any other guarantor of the Obligations
that have been delivered by Borrower or its Subsidiaries to Foothill have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present Borrower's (or such Subsidiary's or guarantor's,
as applicable) financial condition as of the date thereof and Borrower's results
of operations for the period then ended. There has not been a Material Adverse
Change with respect to Borrower (or such Subsidiary or guarantor, as applicable)
since the date of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.12 SOLVENCY. Borrower and each of its Subsidiaries is Solvent.
No transfer of property is being made by Borrower or any of its Subsidiaries and
no obligation is being incurred by Borrower or any of its Subsidiaries in
connection with the transactions
36
<PAGE>
contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Borrower or any
of its Subsidiaries.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries,
or any of their ERISA Affiliates maintains or contributes to any Benefit Plan.
5.14 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials. None of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous Materials
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 or
operated by Borrower. Borrower has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.
5.15 BROKERAGE FEES. No brokerage commission or finders fees has or
shall be incurred or payable in connection with or as a result of Borrower's
obtaining financing from Foothill under this Agreement, and Borrower has not
utilized the services of any broker or finder in connection with Borrower's
obtaining financing from Foothill under this Agreement.
5.16 PERMITS AND OTHER INTELLECTUAL PROPERTY. Borrower owns or
possesses adequate licenses or other rights to use all Permits, patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, copyrights, trade secrets, source code, and know-how
(collectively, the "Intellectual Property") that are necessary for the operation
of its business as currently conducted. Except as set forth on SCHEDULE 5.10,
no claim is pending or threatened to the effect that Borrower infringes upon, or
conflicts with, the asserted rights of any other Person under any Intellectual
Property, and there is no basis for any such claim (whether pending or
threatened). No claim is pending or threatened to the effect that any such
Intellectual Property owned or licensed by Borrower, or in which Borrower
otherwise has the right to use is invalid or unenforceable by Borrower, and
there is no basis for any such claim (whether or not pending or threatened). No
Subsidiary of Borrower holds of record or beneficially, or has filed an
application for, any copyright, patent, or trademark.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do, and cause
each of its Subsidiaries to do, all of the following:
37
<PAGE>
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may be requested by Foothill. Borrower and its
Subsidiaries also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill:
(a) on each Business Day, a sales journal, collection journal,
and credit register since the last such schedule and a calculation of the
Borrowing Base as of such date;
(b) on each Business Day, notice of all returns, disputes, or
claims;
(c) on a weekly basis, a detailed schedule identifying the
respective balances in each of the Foreign Currency Accounts;
(d) on a monthly basis and, in any event, by no later than the
10th day of each month during the term of this Agreement, (i) a detailed
calculation of the Borrowing Base, (ii) a detailed aging, by total, of the
Accounts, together with a reconciliation to the detailed calculation of the
Borrowing Base previously provided to Foothill, and (iii) copies of bank account
statements evidencing the running daily balance over the previous month for each
of the Foreign Currency Accounts;
(e) on a monthly basis and, in any event, by no later than the
10th day of each month during the term of this Agreement, a summary aging, by
vendor, of Borrower's accounts payable and any book overdraft;
(f) on a monthly basis, a calculation of the Dilution for the
prior month;
(g) on a monthly basis and, in any event, by no later than the
10th day of each month during the term of this Agreement:
(i) a report of all new copyrightable materials generated by
Borrower during the prior month identifying all such
copyrightable materials that are required to be registered
pursuant to SECTION 6.19, and
(ii) a detailed listing of all copyright applications filed
and all copyrights granted since the date of the last report
provided in compliance with this subsection.
38
<PAGE>
(h) on a quarterly basis, and in any event, by no later than the
10th day of the month immediately following the last day of each fiscal quarter,
a detailed list of Borrower's customers;
(i) on a quarterly basis and, in any event, by no later than the
10th day of the month immediately following the last day of each fiscal quarter
during the term of this Agreement:
(i) a report of all new patentable inventions generated by
Borrower during the prior month identifying all such patentable
inventions with respect to which applications are required to be
filed pursuant to SECTION 6.20; and
(ii) a detailed listing of all patent applications filed and
all patents granted since the date of the last report provided in
compliance with this subsection.
(j) upon request:
(i) copies of invoices in connection with the Accounts,
customer statements, credit memos, remittance advices and
reports, deposit slips, shipping and delivery documents in
connection with the Accounts and for Inventory and Equipment
acquired by Borrower, purchase orders and invoices;
(ii) Inventory reports specifying Borrower's cost and the
wholesale market value of its Inventory by category, with
additional detail showing additions to and deletions from the
Inventory;
(iii) such other reports as to the Collateral or the
financial condition of Borrower as Foothill may request from time
to time; and
(iv) such information as Foothill shall request to implement
and continue its electronic collateral reporting system.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor and, at Foothill's direction, the invoices shall indicate on
their face that all payments are to be made directly to a Lockbox Account.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Foothill:
(a) as soon as available, but in any event within 30 days after
the end of each month during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering Borrower's
operations during such period;
39
<PAGE>
(b) as soon as available, but in any event within 90 days after
the end of each of Borrower's fiscal years, financial statements of Borrower for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default. Such audited financial statements shall include a balance sheet, profit
and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. If Borrower is a parent company of one or
more Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate of another
company, then, in addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and on
a consolidated basis; and
(c) as soon as available, but in any event not less than 30 days
prior to the first day of each of Borrower's fiscal years, Borrower's
Projections on a month-by-month basis.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the financial condition of
Borrower.
Each month, together with the financial statements provided pursuant
to SECTION 6.3(a), Borrower shall deliver to Foothill a certificate signed by
its chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in SECTION 7.20
is to be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in SECTION 7.20, and (iv) on the date of delivery of such certificate
to Foothill there does not exist any condition or event that constitutes a
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill
40
<PAGE>
whatever financial information concerning Borrower that Foothill may request.
Borrower hereby irrevocably authorizes and directs all auditors, accountants, or
other third parties to deliver to Foothill, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and other accounting
records of any nature in their possession, and to disclose to Foothill any
information they may have regarding Borrower's business affairs and financial
conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver its annual financial statements at the time when Borrower
provides its audited financial statements to Foothill and copies of all federal
income tax returns of such guarantor as soon as the same are available and in
any event no later than 30 days after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill) in the appropriate amount to such Account Debtor. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrower or any of its property to be paid in full, before delinquency
or before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of
41
<PAGE>
a Permitted Protest. Borrower shall make due and timely payment or deposit of
all such federal, state, and local taxes, assessments, or contributions required
of it by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Borrower will make timely payment or deposit of all tax payments and withholding
taxes required of it by applicable laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability, and local, state, federal, and foreign
income taxes, and will, upon request, furnish Foothill with proof satisfactory
to Foothill indicating that Borrower has made such payments or deposits.
6.10 INSURANCE.
(a) At its expense maintain insurance respecting the Collateral
wherever located, covering loss or damage by fire, theft, explosion, and all
other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Borrower's ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the
type necessary to insure the Collateral for the full replacement cost thereof,
against any loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke
damage, vehicle damage, earthquakes, elevator collision, and other risks from
time to time included under "extended coverage" policies, in such amounts as
Foothill may require, but in any event in amounts sufficient to prevent Borrower
from becoming a co-insurer under such policies, (ii) combined single limit
bodily injury and property damages insurance against any loss, liability, or
damages on, about, or relating to each parcel of Real Property, in an amount of
not less than $2,000,000; and (iii) insurance for such other risks as Foothill
may require.
(c) All such policies of insurance shall be in such amounts and
with such insurance companies as are reasonably satisfactory to Foothill. The
Borrower shall deliver the originals of all such policies to Foothill with 438
BFU lender's loss payable endorsements or other satisfactory lender's loss
payable endorsements, naming Foothill as sole loss payee or additional insured,
as appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Foothill and that any loss payable thereunder shall be payable notwithstanding
any act or negligence of Borrower or Foothill which might, absent such
agreement, result in a forfeiture of all or a part of such insurance payment and
notwithstanding (i) occupancy or use of the Real Property for purposes more
hazardous than permitted by the terms of such policy, or (ii) any change in
title or ownership of the Real Property. Borrower shall deliver to Foothill
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor. If Borrower fails to provide and pay for such insurance,
Foothill may, at its option, but shall not be required to, procure the same and
charge Borrower's Loan Account therefor.
42
<PAGE>
(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Borrower
shall give Foothill prompt notice of any loss covered by such insurance, and
Foothill shall have the right to adjust any loss. Foothill shall have the
exclusive right to adjust any losses payable under any such insurance policies
in excess of $100,000 without any liability to Borrower whatsoever in respect of
such adjustments. Any monies received as payment for any loss under any
insurance policy mentioned above (other than liability insurance policies) or as
payment of any award or compensation for condemnation or taking by eminent
domain, shall be paid over to Foothill to be applied at the option of Foothill
either to the prepayment of the Obligations without premium, in such order or
manner as Foothill may elect, or shall be disbursed to Borrower under stage
payment terms reasonably satisfactory to Foothill for application to the cost of
repairs, replacements, or restorations. All repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, Foothill
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Foothill shall determine.
(e) Borrower shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under this SECTION 6.10, unless Foothill is included thereon as named insured
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local equivalent. Borrower immediately shall
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies immediately shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on SCHEDULE 6.12; PROVIDED, HOWEVER,
that Borrower may amend SCHEDULE 6.12 so long as such amendment occurs by
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, Thailand, or the Netherlands,
and so long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests in such assets and also provides to
Foothill a Collateral Access Agreement. The foregoing to the contrary
notwithstanding, the aggregate value of Inventory located in Thailand shall not,
at any time, exceed $1,750,000, the aggregate value of Inventory located in the
Netherlands shall not, at any time, exceed $4,500,000, and the aggregate value
of Inventory located in all other locations outside the continental United
States shall not exceed $500,000.
43
<PAGE>
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.14 [INTENTIONALLY OMITTED].
6.15 LEASES. Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest.
To the extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16 BROKERAGE COMMISSIONS. Pay any and all brokerage
commission or finders fees incurred by in connection with or as a result of
Borrower's obtaining financing from Foothill under this Agreement.
6.17 CORPORATE EXISTENCE, ETC. At all time preserve and keep in
full force and effect Borrower's valid corporate existence and good standing and
any rights and franchises material to the Borrower's businesses.
6.18 DISCLOSURE UPDATES. Promptly and in no event later than
5 Business Days after obtaining knowledge thereof, (i) notify Foothill if any
written information, exhibit, or report furnished to Foothill contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made, and (ii) correct any defect or error that may
be discovered therein or in any Loan Document or in the execution,
acknowledgement, filing, or recordation thereof.
6.19 COPYRIGHT REGISTRATIONS. No less frequently than monthly,
unless Foothill shall otherwise agree in writing, Borrower shall (a) cause all
copyrightable materials generated by Borrower (other than Exempt Copyrights)
that are, in any way, related to goods or services giving rise to Eligible
Accounts and that are not already the subject of a registration with the United
States Copyright Office (or an application therefor diligently prosecuted) to be
registered with the United States Copyright Office in a manner sufficient to
impart constructive notice of Borrower's ownership thereof, and (b) cause to be
prepared, executed, and delivered to Foothill, with sufficient time to permit
Foothill to record no later than the last Business Day within 10 days following
the date that such copyrightable materials have been registered or an
application for registration has been filed, a Copyright Security Agreement or
supplemental schedules to the Copyright Security Agreement reflecting the
security interest of Foothill in such new copyrightable material (other than
Exempt Copyrights, which, although subject to the security interest of Foothill,
shall not be
44
<PAGE>
required to be registered until 60 days after such time, if any, as they cease
to be Incipient Copyrights), which supplemental schedules shall be in form and
content suitable for registration with the United States Copyright Office so as
to give constructive notice, when so registered, of the transfer by Borrower to
Foothill of a security interest in such copyrightable materials. Borrower shall
also maintain copies of all source and object code for all software utilized in
their business operations at safe and secure offsite locations reasonably
acceptable to Foothill, and shall, at the request of Foothill, advise the
operators of such locations of Foothill's security interest in such software,
shall keep Foothill fully informed of each such location, and shall maintain the
currency of all such software stored offsite.
6.20 PATENT FILINGS. No less frequently than quarterly, unless
Foothill shall otherwise agree in writing, Borrower shall (a) cause, with
respect to all patentable inventions generated by Borrower (other than Exempt
Patents) that are, in any way, related to goods or services giving rise to
Eligible Accounts and that are not already the subject of a registration with
the United States Patent and Trademark Office (or an application therefor
diligently prosecuted), an application to be filed with the United States Patent
and Trademark Office in a manner sufficient to impart constructive notice of
Borrower's ownership thereof, and (b) cause to be prepared, executed, and
delivered to Foothill, with sufficient time to permit Foothill to record no
later than the last Business Day within 10 days following the date that such
patent applications have been filed, a Patent Security Agreement or supplemental
schedules to the Patent Security Agreement reflecting the security interest of
Foothill in such new patentable inventions, which supplemental schedules shall
be in form and content suitable for registration with the United States Patent
and Trademark Office so as to give constructive notice, when so registered, of
the transfer by Borrower to Foothill of a security interest in such patentable
inventions.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do, and will cause each of its Subsidiaries to not do, any of the
following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in SCHEDULE 7.1;
(c) Purchase Money Indebtedness incurred after the Closing Date
in an aggregate amount outstanding at any one time not to exceed $500,000;
(d) Unsecured Indebtedness of Borrower in an aggregate amount
outstanding at any one time not to exceed $10,000,000, that is subordinated in
right of
45
<PAGE>
payment to the Obligations on terms and conditions satisfactory to Foothill in
its sole discretion;
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), or (d) of this SECTION 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
SECTION 7.1(e) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its Stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 DISPOSAL OF ASSETS. Other than Permitted Dispositions, sell,
lease, assign, transfer, or otherwise dispose of any of their or assets.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate structure
(within the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by, endorsement of
instruments or items of payment in the ordinary course of business.
7.7 NATURE OF BUSINESS. Make any change in the principal nature of
Borrower's business.
46
<PAGE>
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by SECTION
7.1(e), prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under SECTIONS 7.1(b), (d), OR (e).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 DISTRIBUTIONS. Except for distributions or dividends by
Borrower's Subsidiaries to Borrower, make any distribution or declare or pay any
dividends (in cash or other property, other than Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding.
7.12 ACCOUNTING METHODS. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Foothill pursuant to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 INVESTMENTS. Except for Permitted Investments, directly or
indirectly make, acquire, or incur any liabilities (including contingent
obligations) for or in connection with any Investment.
7.14 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 fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
47
<PAGE>
7.16 COMPENSATION. Increase the annual fee or per-meeting fees paid
to directors during any year by more than 15% over the prior year; pay or accrue
total cash compensation, during any year, to officers and senior management
employees in an aggregate amount in excess of 115% of that paid or accrued in
the prior year (exclusive of bonuses paid pursuant to a plan authorized by
Borrower's Board of Directors).
7.17 USE OF PROCEEDS. Use (a) the proceeds of the Advances made
hereunder for any purpose other than (i) on the Closing Date to pay
transactional costs and expenses incurred in connection with this Agreement, and
(ii) thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.19 [INTENTIONALLY OMITTED].
7.20 FINANCIAL COVENANTS. Fail to maintain:
(a) Tangible Net Worth. Tangible Net Worth as of each date set
forth below of at least the amount corresponding thereto:
<TABLE>
<CAPTION>
Date Amount
-----------------------------------------------------------------
<S> <C>
June 30, 2000 $21,550,000
-----------------------------------------------------------------
September 30, 2000 and the last
day of each fiscal quarter of In accordance with the
Borrower thereafter procedures set forth below
-----------------------------------------------------------------
</TABLE>
On or before July 31, 2000, Borrower shall deliver to Foothill revised
Projections, in form and substance satisfactory to Foothill, covering the period
from July 1, 2000, through December 31, 2001, on a month by month basis (the
failure to so deliver such revised Projections constituting an Event of
Default). Upon receipt of such revised Projections, Foothill shall establish,
in its Permitted Discretion, minimum Tangible Net Worth amounts to be measured
as of the last day of each fiscal quarter of Borrower
48
<PAGE>
commencing with the fiscal quarter ending September 30, 2000, and thereafter
during the term of this Agreement.
(b) Excess Availability. Excess Availability of not less than
$5,000,000, at any time during the period from the Closing Date through the
later of June 30, 2000, and the date on which Borrower shall deliver the revised
Projections pursuant to SECTION 7.20(a).
7.21 CAPITAL EXPENDITURES. Make capital expenditures in any fiscal
year in excess of the amount set forth below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
- -----------------------------------------------------
<S> <C>
December 31, 2000 $2,500,000
- -----------------------------------------------------
December 31, 2001 $3,000,000
- -----------------------------------------------------
December 31, 2002 $3,500,000
- -----------------------------------------------------
December 31, 2003 and each $3,500,000
fiscal year thereafter
- -----------------------------------------------------
</TABLE>
7.22 SALES AGENCY AGREEMENTS. Amend or terminate any of the Sales
Agency Agreements.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 (a) If Borrower fails or neglects to perform, keep, or observe
any covenant or other provision contained in SECTIONS 6.2 or 6.3 hereof and such
failure or neglect continues for a period of 5 days after the date on which such
failure or neglect first occurs, or (b) If Borrower fails or neglects to
perform, keep, or observe any covenant or other provision contained in SECTIONS
6.1, 6.4, 6.5, 6.6, 6.9, or 6.15 hereof and such failure or neglect is not cured
within 15 days after the date on which such failure or neglect first occurs, or
(c) If Borrower or any guarantor fails or neglects to perform, keep, or observe
any other covenant
49
<PAGE>
or other provision contained in any Section of this Agreement (other than a
Section that is expressly dealt with elsewhere in this SECTION 8) or the other
Loan Documents (other than a Section of such other Loan Document dealt with
elsewhere in this SECTION 8); PROVIDED that, during any period of time that any
such failure or neglect of Borrower or any such guarantor referred to in this
paragraph exists, even if such failure or neglect is not yet an Event of Default
by virtue of the existence of a grace or cure period or the pre-condition of the
giving of a notice, Foothill shall be relieved of its obligation to extend
credit hereunder;
8.3 If Borrower fails to perform, keep, or observe any 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 Foothill, or if any party to any Loan Document (other than
Foothill) fails to perform, keep, or observe any term, provision, condition,
covenant, or agreement contained in such Loan Document;
8.4 If there is a Material Adverse Change;
8.5 If any material portion of Borrower's or any of its Subsidiaries'
properties or assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person;
8.6 If an Insolvency Proceeding is commenced by Borrower or any of
its Subsidiaries;
8.7 If an Insolvency Proceeding is commenced against Borrower, any of
its Subsidiaries, or any other guarantor of the Obligations and any of the
following events occur: (a) Borrower, such Subsidiary, or such guarantor, as
applicable, consents to the institution of the Insolvency Proceeding against it;
(b) the petition commencing the Insolvency Proceeding is not timely
controverted; (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; PROVIDED,
HOWEVER, that, during the pendency of such period, Foothill shall be relieved of
its obligation to extend credit hereunder; (d) an interim trustee is appointed
to take possession of all or a substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
such Subsidiary, as applicable; or (e) an order for relief shall have been
issued or entered therein;
8.8 If Borrower or any of its Subsidiaries is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.9 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Subsidiaries' properties or assets by
the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or Governmental Authority, or if
any taxes or debts owing at any time hereafter to any one or more of such
entities becomes a Lien, whether choate or otherwise, upon any of Borrower's or
any of its Subsidiaries' properties or assets and the same is not paid on the
payment date thereof;
50
<PAGE>
8.10 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of Borrower's or any of its Subsidiaries' properties or
assets;
8.11 If there is a default in any material agreement to which Borrower
or any of its Subsidiaries is a party with one or more third Persons and such
default (a) occurs at the final maturity of the obligations thereunder, or (b)
results in a right by such third Person(s), irrespective of whether exercised,
to accelerate the maturity of Borrower's or such Subsidiary's, as applicable,
obligations thereunder;
8.12 If Borrower or any of its Subsidiaries makes any payment on
account of Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.13 If any misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or report made to Foothill by
Borrower or any of its Subsidiaries or any officer, employee, agent, or director
of Borrower or any of its Subsidiaries, or if any such warranty or
representation is withdrawn; or
8.14 If the obligation of any of Borrower's Subsidiaries, any other
guarantor, or other third Person under any Loan Document is limited or
terminated by operation of law or by such Subsidiary, guarantor, or other third
Person.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill 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;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Collateral and without affecting
the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
51
<PAGE>
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon Borrower, any of its
Subsidiaries, or any other guarantor, make such payments and do such acts as
Foothill considers necessary or reasonable to protect its security interests in
the Collateral. Borrower agrees to assemble the Collateral if Foothill so
requires, and to make the Collateral available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Foothill's determination appears to conflict with its
security interests and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned or leased premises, Borrower hereby
grants Foothill a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits
of Borrower held by Foothill, and any amounts received in the Lockbox Accounts,
to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service 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 Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) 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 Foothill
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a
written request for
52
<PAGE>
notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other
than a public sale is to be made of the Collateral, then the time
on or after which the private sale or other disposition is to be
made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in SECTION 12, at least
5 days before the date fixed for the sale, or at least 5 days
before the date on or after which the private sale or other
disposition is to be made; no notice needs to be given prior to
the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is
of a type customarily sold on a recognized market. Notice to
Persons other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as they have furnished
to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time
at least 5 days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be
held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Foothill may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrower's Loan Account as Foothill deems necessary
to protect Foothill from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in SECTION 6.10, and take any
action with respect to such policies as Foothill deems prudent. Any such amounts
paid by Foothill shall constitute Foothill Expenses. Any such payments
53
<PAGE>
made by Foothill shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the validity of, any
such expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
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. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this SECTION 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
54
<PAGE>
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document 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 registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to Borrower: NETWORK COMPUTING DEVICES, INC.
350 North Bernardo Avenue
Mountain View, California 94043
Attn: Chief Financial Officer
Fax No. (650) 961-7711
With copies to: GRAY CARY WARE & FREIDENRICH LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attn: Paul A. Blumenstein, Esq.
Fax No. (650) 327-3699
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
With copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
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. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
55
<PAGE>
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE 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 OF BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill 4 months after
they are delivered to or received by Foothill, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
56
<PAGE>
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 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.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement (and any
amendment hereto or waiver with respect hereto) 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.
Delivery of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
57
<PAGE>
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[Remainder of page left intentionally blank.]
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
NETWORK COMPUTING DEVICES, INC.
a Delaware corporation
By
-----------------------------------
Title:
------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
-----------------------------------
Title:
------------------------------
S-1
<PAGE>
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of
March [], 2000, is made by NETWORK COMPUTING DEVICES, INC., a Delaware
corporation ("Debtor"), in favor of FOOTHILL CAPITAL CORPORATION, a
California corporation ("Secured Party"), with reference to the following:
WHEREAS, Debtor and Secured Party have entered into that certain
Loan and Security Agreement, dated as of even date herewith (as amended and
as otherwise amended, restated, modified, supplemented, refinanced, renewed,
or extended from time to time, the "Loan Agreement"), pursuant to which
Secured Party has agreed to make certain financial accommodations to Debtor,
and pursuant to which Debtor has granted to Secured Party a security interest
in (among other things) all general intangibles of Debtor.
WHEREAS, Pursuant to the Loan Agreement and as one of the
conditions to the obligations of Secured Party under the Loan Agreement,
Debtor has agreed to execute and deliver this Agreement to Secured Party for
filing with the United States Copyright Office and with any other relevant
recording systems in any domestic jurisdiction, and as further evidence of
and to effectuate Secured Party's existing security interests in the
copyrights and other general intangibles described herein.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtor hereby agrees in favor of
Secured Party as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.
"COPYRIGHT COLLATERAL" has the meaning set forth in SECTION 2.
"COPYRIGHTS" has the meaning set forth in SECTION 2.
"DEBTOR" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in the
Loan Agreement.
"LIEN" means any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or
1
<PAGE>
perfected, and whether such interest shall be contingent upon the occurrence
of some future event or events or the existence of some future circumstance
or circumstances.
"OBLIGATIONS" shall have the meaning ascribed thereto in the Loan
Agreement.
"PROCEEDS" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Copyright Collateral, including
"proceeds" as defined at UCC Section 9306, and all proceeds of proceeds.
Proceeds shall include (i) any and all accounts, chattel paper, instruments,
general intangibles, cash and other proceeds, payable to or for the account
of Debtor, from time to time in respect of any of the Copyright Collateral,
(ii) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to or for the account of Debtor from time to time with respect to any
of the Copyright Collateral, (iii) any and all claims and payments (in any
form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Copyright Collateral by any Person
acting under color of governmental authority, and (iv) any and all other
amounts from time to time paid or payable under or in connection with any of
the Copyright Collateral or for or on account of any damage or injury to or
conversion of any Copyright Collateral by any Person.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of California.
"UNITED STATES" and "U.S." each mean the United States of America,
including all territories thereof and all protectorates thereof.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the
meanings ascribed to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the
extent the context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto, respectively, and to
a subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a whole and
not merely to the specific Section, subsection, paragraph or clause in
which the respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
2
<PAGE>
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments,
restatements, supplements, refinancings, renewals, extensions, and other
modifications thereto and thereof.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein
shall have the respective meanings ascribed to them in the Loan Agreement.
(ix) In the event of a direct conflict between the
terms and provisions of this Agreement and the Loan Agreement, it is the
intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in concert
with each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; PROVIDED, HOWEVER, that the inclusion
herein of additional obligations on the part of Debtor and supplemental
rights and remedies in favor of Secured Party (whether under California law
or applicable federal law), in each case in respect of the Copyright
Collateral, shall not be deemed a conflict with the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY. Debtor, as security
for the payment and performance of the Obligations, hereby grants, assigns,
transfers and conveys to Secured Party a continuing security interest in all
of Debtor's right, title and interest in, to and under the following
property, whether now existing or hereafter acquired or arising or in which
Debtor now has or hereafter acquires or develops an interest and wherever the
same may be located (the "Copyright Collateral"):
(i) all copyrights, rights, titles and interests in
and to published and unpublished works of authorship that Debtor owns or
uses in its business or will in the future adopt and so use, and all
copyrights in any original or derivative works of authorship and all works
protectable by copyright that are presently, or in the future may be,
owned, created, authored (excluding all works for hire created by Debtor
for any other Person), acquired or used (whether pursuant to a license or
otherwise) by Debtor, in whole or in part (collectively, the "Copyrights"),
all copyright registrations and applications for copyright registration
that have
3
<PAGE>
heretofore been or may hereafter be issued thereon or applied for
in the United States, including registrations, recordings, supplemental
registrations and pending applications for registration in the United
States Copyright Office (the "Registrations"), all common law and other
rights in and to the Copyrights throughout the world, including all
copyright licenses (collectively, the "Copyright Rights"), and all renewals
and extensions thereof, throughout the world, the right (but not the
obligation) to renew and extend such Copyrights, Registrations and
Copyright Rights and to register works protectable by copyright and the
right (but not the obligation) to sue or bring proceedings in the name of
Debtor or in the name of Secured Party for past, present and future
infringements or violations of the Copyrights, Registrations and Copyright
Rights, and recover damages for past, present and future infringements or
violations thereof, and all rights corresponding thereto throughout the
world, including:
(A) all of Debtor's right, title and interest in and to all
copyrights or rights or interests in copyrights registered or recorded in
the United States Copyright Office, including the Registrations listed on
SCHEDULE A attached hereto, as the same may be amended or supplemented
pursuant hereto from time to time;
(B) all of Debtor's right, title and interest in and to all
renewals and extensions of any such copyrights, including renewals or
extensions of the Registrations listed on SCHEDULE A attached hereto, that
may be secured under the law now or hereafter in force and effect;
(C) all of Debtor's right, title and interest to make and
exploit all derivative works based on or adopted from all works covered by
any of the Copyright Collateral; and
(D) all of Debtor's right, title and interest pursuant to or
under licensing or other contracts in favor of Debtor pertaining to
copyrights and works protectable by copyright presently or in the future
owned or used by third parties;
(ii) all inventions, designs, registrations, trade
secrets, proprietary rights, corporate or other business records, computer
programs, source codes, object codes, data bases and all other intangible
personal property at any time used in connection with the businesses of
Debtor (referred to herein as "Proprietary Rights");
(iii) all general intangibles (as defined in the UCC)
and all intangible intellectual or other similar property of Debtor of any
kind or nature, whether now owned or hereafter acquired or developed,
associated with or arising out of any of the Copyrights, Registrations,
Copyright Rights or Proprietary Rights and not otherwise described above;
and
4
<PAGE>
(iv) all Proceeds of any and all of the foregoing
Copyright Collateral (including license royalties, rights to payment,
accounts receivable and proceeds of infringement suits) and, to the extent
not otherwise included, all payments under insurance (whether or not
Secured Party is the loss payee thereof) or any indemnity, warranty or
guaranty payable by reason of loss or damage to or otherwise with respect
to the foregoing Copyright Collateral.
(b) CONTINUING SECURITY INTEREST. Debtor agrees that this
Agreement shall create a continuing security interest in the Copyright
Collateral which shall remain in effect until terminated in accordance with
SECTION 16.
(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement
shall be fully incorporated into the Loan Agreement and all understandings,
agreements and provisions contained in the Loan Agreement shall be fully
incorporated into this Agreement. Without limiting the foregoing, the
Copyright Collateral described in this Agreement shall constitute part of the
Collateral in the Loan Agreement.
(d) PERMITTED LICENSING. Anything in the Loan Agreement or
this Agreement to the contrary notwithstanding, Debtor may license to any
other Person the Copyright Collateral on a non-exclusive basis, free and
clear of Secured Party's security interest (other than its security interest
in the proceeds of such license).
3. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants to Secured Party, the following:
(a) TRUE AND COMPLETE LIST. Set forth in SCHEDULE A is a
true and complete list of all Copyrights, Registrations, and Copyright Rights
owned, held, or used (whether pursuant to a license or otherwise) by Debtor,
in whole or in part;
(b) VALIDITY. Each of the Registrations of Debtor referred
to in SCHEDULE A is valid, subsisting and enforceable, and Debtor has
properly complied in all material respects with all applicable statutory and
regulatory requirements, including all notice requirements, in connection
with each of such Registrations, and, no claim has been made that the use of
any of such Copyrights does or may infringe or otherwise violate the rights
of any third Person;
(c) TITLE. (i) Debtor has rights in and good and
defensible title to the Copyright Collateral, (ii) with respect to the
Copyright Collateral shown on SCHEDULE A as being owned by it, is the sole
and exclusive owner of the entire and unencumbered right, title and interest
in and to such Copyright Collateral, free and clear of any Liens (other than
Liens in favor of Secured Party), and (iii) with respect to any Copyright
Collateral for which Debtor is either a licensor or a licensee pursuant to a
license or licensing agreement regarding such Copyright Collateral, each such
license or licensing agreement is in full force and effect, Debtor is not in
material default of any of its obligations thereunder and, other than (A) the
parties to such licenses or licensing agreements, or (B) in the case of any
non-exclusive license or license agreement entered into by Debtor or any such
licensor regarding
5
<PAGE>
such Copyright Collateral, the parties to any other such non-exclusive
licenses or license agreements entered into by Debtor or any such licensor
with any other Person, no other Person has any rights in or to any of such
Copyright Collateral;
(d) NO VIOLATION. The execution, delivery and performance
by Debtor of this Agreement do not violate any provision of law or the
articles of incorporation or by-laws of Debtor or result in a breach of or
constitute a default under any contract, obligation, indenture or other
instrument to which Debtor is a party or by which Debtor may be bound;
(e) POWERS. Debtor has full power, authority and legal
right to pledge and to grant to Secured Party a security interest in all
right, title, and interest of Debtor in and to the Copyright Collateral
pursuant to this Agreement, and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement, without the
consent or approval of any other Person except as already obtained; and
(f) SECRECY. Debtor has taken and will continue to take
all reasonable steps to protect the secrecy of all trade secrets relating to
any of its unpublished Copyright Collateral and its Proprietary Rights.
4. COVENANTS. Debtor covenants that so long as this Agreement
shall be in effect, Debtor shall:
(a) FURTHER ACTS. On a continuing basis, make, execute,
acknowledge and deliver, and file and record in the proper filing and
recording places, all such instruments and documents, including appropriate
financing and continuation statements and security agreements, and take all
such action as may be necessary or advisable or may be requested by Secured
Party to carry out the intent and purposes of this Agreement, or for
assuring, confirming or protecting the grant or perfection of the security
interest granted or purported to be granted hereby, to ensure Debtor's
compliance with this Agreement or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to the Copyright
Collateral. Without limiting the generality of the foregoing sentence,
Debtor:
(i) hereby authorizes Secured Party in its sole
discretion if Debtor refuses to execute and deliver, or fails timely to
execute and deliver, any of the documents it is requested to execute and
deliver by Secured Party, to modify this Agreement without first obtaining
Debtor's approval of or signature to such modification by amending
SCHEDULE A hereof to include a reference to any right, title or interest in
any existing Copyright, Registration or Copyright Right or any Copyright,
Registration or Copyright Right acquired or developed by Debtor after the
execution hereof, or to delete any reference to any right, title or
interest in any Copyright, Registration or Copyright Right in which Debtor
no longer has or claims any right, title or interest; and
6
<PAGE>
(ii) hereby authorizes Secured Party, in its sole
discretion, to file one or more financing or continuation statements, if
Debtor refuses to execute and deliver, or fails timely to execute and
deliver, any such amendment thereto it is requested to execute and deliver
by Secured Party, any amendments thereto, relative to all or any portion of
the Copyright Collateral, without the signature of Debtor where permitted
by law;
(b) COMPLIANCE WITH LAW. Comply, in all material respects,
with all applicable statutory and regulatory requirements in connection with
any and all of the Copyright Collateral that is the subject of the
Registrations and give such notice of copyright, prosecute such material
claims, and do all other acts and take all other measures which, in Debtor's
reasonable business judgment, may be necessary or desirable to preserve,
protect and maintain such Copyright Collateral and all of Debtor's rights
therein, including diligently prosecute any material copyright application
pending as of the date of this Agreement or thereafter;
(c) COMPLIANCE WITH AGREEMENT. Comply with each of the
terms and provisions of this Agreement, and not enter into any agreement (for
example, a license agreement) which is inconsistent with the obligations of
Debtor under this Agreement without Secured Party's prior written consent; and
(d) LIEN PROTECTION. Not permit the inclusion in any
contract to which Debtor becomes a party of any provision that could or might
impair or prevent the creation of a security interest in favor of Secured
Party in Debtor's rights and interest in any property included within the
definitions of the Copyrights, Registrations and Copyright Rights acquired
under such contracts.
5. FUTURE RIGHTS. If Debtor shall obtain rights to or develop
any new works protectable by copyright, or become entitled to the benefit of
any Copyright Rights, Registration or application for Registration not
described on the schedules hereto, or any renewals or extension of any
Copyright, Copyright Rights or Registration, the provisions of this Agreement
shall automatically apply thereto. Debtor shall give Secured Party written
notice (a) of any such work or such rights of material value to Debtor or the
operation of its businesses and (b) any such Registration, applications for
Registration or renewal or extension of any Copyright. Concurrently with its
filing of an application for any Registration for any Copyright, Debtor shall
execute and deliver a supplement to this Agreement in form and substance
satisfactory to the Secured Party (or, at the election of Secured Party, a
new Copyright Security Agreement substantially in the form of this Agreement
and otherwise in form and substance satisfactory to the Secured Party),
pursuant to which Debtor shall grant and reaffirm its grant of a security
interest to the extent of its interest in such Registration as provided
herein to Secured Party, and Debtor shall cause such agreement to be recorded
in the offices and jurisdictions indicated by Secured Party.
6. COPYRIGHT REGISTRATION, RENEWAL AND LITIGATION.
7
<PAGE>
(a) REGISTRATION. Except to the extent otherwise permitted
under the Loan Agreement, Debtor shall have the duty diligently to make any
application for Registration on any existing or future unregistered but
copyrightable works that are material to Debtor's business or operations and
to do any and all acts which are reasonably necessary or desirable to
preserve, renew and maintain all rights in all Copyrights, Registrations and
Copyright Rights. Any expenses incurred in connection therewith shall be
borne solely by Debtor. Except as otherwise permitted in the Loan Agreement
or this SECTION 6(a), Debtor shall not do any act or omit to do any act
whereby any of the Copyright Collateral may become abandoned or fall into the
public domain or fail to renew any Copyright, Registration or Copyright Right
owned by Debtor without the prior written consent of Secured Party.
(b) PROTECTION. Except as provided in SECTION 8, Debtor
shall have the right and obligation to commence and diligently prosecute in
its own name, as real party in interest, for its own benefit and at its own
expense, such suits, proceedings or other actions for infringement or other
damage as are in its reasonable business judgment necessary to protect the
Copyright Collateral or any of Debtor's rights therein. Debtor shall provide
to Secured Party any information with respect thereto requested by Secured
Party. Secured Party shall provide at Debtor's expense all necessary
cooperation in connection with any such suit, proceeding or action including
joining as a nominal party if Secured Party shall have been satisfied that it
is not incurring any risk of liability because of such joinder. Debtor shall
provide at its expense representation acceptable to Secured Party for the
common interest of Debtor and Secured Party with respect to such proceedings.
(c) NOTICE. Debtor shall, promptly upon its becoming aware
thereof, notify Secured Party in writing of the institution of, or any
adverse determination in, any proceeding, application, suit or action of any
kind described in SECTION 6(a) OR 6(b), or regarding Debtor's claim of
ownership in any of the Copyrights, Registrations or Copyright Rights, its
right to register the same, or its right to keep and maintain such
registration, whether before the United States Copyright Office or any United
States court or governmental agency. Debtor shall provide promptly to
Secured Party any information with respect thereto requested from time to
time by Secured Party.
7. REMEDIES. Following the occurrence and during the
continuation of an Event of Default, Secured Party shall have all rights and
remedies available to it under the Loan Agreement and the other Loan
Documents and applicable law (which rights and remedies are cumulative) with
respect to its security interests in any of the Copyright Collateral or any
other Collateral. Debtor agrees that such rights and remedies include the
right of Secured Party as a secured party to sell or otherwise dispose of its
Collateral after default, pursuant to UCC Section 9504. Debtor agrees that
Secured Party shall at all times have such royalty free licenses, to the
extent permitted by law, for any Copyright, Copyright Rights, Proprietary
Right and any other Copyright Collateral that is reasonably necessary to
permit the exercise of any of Secured Party's rights or remedies upon the
occurrence and during the continuation of an Event of Default with respect to
(among other things) any asset of Debtor in which Secured Party has a
security interest, including Secured Party's rights to sell or license
general intangibles, inventory, tooling or packaging which is acquired by
8
<PAGE>
Debtor (or its successors, permitted assignees, or trustee in bankruptcy).
In addition to and without limiting any of the foregoing, upon the occurrence
and during the continuance of an Event of Default, Secured Party shall have
the right but shall in no way be obligated to bring suit, or to take such
other action as Secured Party deems necessary or advisable, in the name of
Debtor or Secured Party, to enforce or protect any Copyright, Registration,
Copyright Right or Proprietary Right, and any license thereunder, in which
event Debtor shall, at the request of Secured Party, do any and all lawful
acts and execute any and all documents required by Secured Party in aid of
such enforcement. To the extent that Secured Party shall elect not to bring
suit to enforce any Copyright, Registration, Copyright Rights, Proprietary
Right, or any license thereunder, Debtor, in the exercise of its reasonable
business judgment, agrees to use all reasonable measures and its diligent
efforts, whether by action, suit, proceeding or otherwise, to prevent the
infringement, misappropriation or violation thereof by others and for that
purpose agrees diligently to maintain any action, suit or proceeding against
any Person necessary to prevent such infringement, misappropriation or
violation.
8. AUTHORIZATION. If Debtor fails to comply with any of its
obligations hereunder, Secured Party may do so in Debtor's name or in Secured
Party's name, but at Debtor's expense, and Debtor hereby agrees to reimburse
Secured Party in full upon demand for all reasonable expenses, including
reasonable attorneys fees, incurred by Secured Party in protecting, defending
and maintaining any of the Copyright Collateral or any right, title or
interest of Debtor or Secured Party therein. Debtor hereby appoints Secured
Party, and authorizes, directs and empowers Secured Party to make, constitute
and appoint any officer or agent of Secured Party as Secured Party may
select, in its exclusive discretion, as the true and lawful attorney-in-fact
of Debtor, with the power, (a) if Debtor refuses or fails to do so timely, to
execute in the name of Debtor any financing statement or other instrument and
any modification, supplement or amendment to this Agreement or any
supplemental Copyright Security Agreement described in SECTIONS 4(a) OR 5
hereof, and do such other acts on Debtor's behalf, that Secured Party may
deem necessary or advisable to accomplish the purposes hereof, and (b) upon
the occurrence and during continuation of any Event of Default, (i) to
endorse Debtor's name on all applications, documents, papers and instruments
necessary for Secured Party to use any of the Copyright Collateral, (ii) to
assert or retain any rights under any license agreement for any of the
Copyright Collateral, including any rights of Debtor arising under Section
365(n) of the Bankruptcy Code, and (iii) to grant or issue any exclusive or
nonexclusive license under any of the Copyright Collateral to anyone else, or
as may be necessary for Secured Party to assign, pledge, convey or otherwise
transfer title in or dispose of any of the Copyright Collateral or any other
collateral to anyone else. Debtor hereby ratifies all that such attorney
shall lawfully do or cause to be done by virtue hereof. This power of
attorney is coupled with an interest and is irrevocable until termination of
this Agreement.
9. NOTICES. All notices and other communications hereunder to
or from Secured Party and Debtor shall be in writing and shall be mailed,
sent or delivered in accordance with the Loan Agreement.
9
<PAGE>
10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
California, except to the extent that the validity or perfection of the
security interests hereunder in respect of any Copyright Collateral are
governed by federal law, in which case such choice of California law shall
not be deemed to deprive Secured Party of such rights and remedies as may be
available under federal law.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan
Agreement, together with the Schedules and Exhibits hereto and thereto, which
are incorporated herein by this reference, contains the entire agreement of
the parties with respect to the subject matter hereof and supersede all prior
drafts and communications relating to such subject matter. Neither this
Agreement nor any provision hereof may be modified, amended or waived except
by the written agreement of the parties, as provided in the Loan Agreement.
Notwithstanding the foregoing, Secured Party may re-execute this Agreement,
modify, amend or supplement the Schedules hereto or execute a supplemental
Copyright Security Agreement, as provided herein, and the terms of any such
modification, amendment, supplement or supplemental Copyright Security
Agreement shall be deemed to be incorporated herein by this reference.
12. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render
illegal or unenforceable any such provision in any other jurisdiction or with
respect to any other party, or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement
14. LOAN AGREEMENT. Debtor acknowledges that the rights and
remedies of Secured Party with respect to the security interest in the
Copyright Collateral granted hereby are more fully set forth in the Loan
Agreement and the other Loan Documents and all such rights and remedies are
cumulative.
15. NO INCONSISTENT REQUIREMENTS. Debtor acknowledges that this
Agreement and the other Loan Documents may contain covenants and other terms
and provisions variously stated regarding the same or similar matters, and
Debtor agrees that all
10
<PAGE>
such covenants, terms and provisions are cumulative and all shall be
performed and satisfied in accordance with their respective terms.
16. TERMINATION. Upon the final payment in full in cash of the
Obligations and the full and final termination of any commitment to extend
any financial accommodations under the Loan Agreement, this Agreement shall
terminate, and Secured Party shall execute and deliver such documents and
instruments and take such further action reasonably requested by Debtor, at
Debtor's expense, as shall be necessary to evidence termination of the
security interests granted by Debtor to Secured Party hereunder.
[Remainder of page intentionally left blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
NETWORK COMPUTING DEVICES, INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:_________________________________
Name________________________________
Title:______________________________
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On ________________, before me, __________________________________,
Notary Public, personally appeared _________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf
of which the person acted, executed the instrument.
WITNESS my hand and official seal.
_____________________________________
Signature
[SEAL]
S-2
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On ________________, before me, _________________________________,
Notary Public, personally appeared ________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf
of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Signature
[SEAL]
S-3
<PAGE>
SCHEDULE A
COPYRIGHT REGISTRATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Debtor Country of Registered Registration Registration
Registration Copyright Date Number
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Network Computing Devices, Inc. U.S.A NCDWare Version 3.0 3/17/93 TX 3516376
Network Computing Devices, Inc. U.S.A PC-Xware Version 1.0 11/2/93 TX 3677658
NCD Graphic Software Corporation U.S.A GSS-Drivers (software) 9/24/84 TXU 184-300
NCD Graphic Software Corporation U.S.A. GSS-CGI V. 2.15 (Software) 7/20/89 TX 2 709 076
NCD Graphic Software Corporation U.S.A GSS-Programmer's Guide for PC- 10/10/89 TX 2 696 181
DOS and OS/2 (manual)
NCD Graphic Software Corporation U.S.A. GSS* CGI ANSI-C Programmer's 3/28/90 TX 2 809 076
Guide for PC/MS and OS/2
NCD Graphic Software Corporation U.S.A. GSS* CGI Device Drivers Test 3/23/90 TX 2 809 205
Suites for DOS
NCD Graphic Software Corporation U.S.A. DGIS Development Toolkit for MS- 3/23/89 TX 2 787 067
DOS
NCD Graphic Software Corporation U.S.A. DGIS Test Suites V.S. 00 2/21/90 TX 2 761 956
NCD Graphic Software Corporation U.S.A. DGIS Architecture and Porting 1/31/90 TX 2 763 300
Guide for MS-DOS Personal
Computers (manual)
NCD Graphic Software Corporation U.S.A. GSS AT1000 High-Resolution Video 2/5/90 TX 2 752 331
Display Controller, User's
Manual
NCD Graphic Software Corporation U.S.A. GSS MC1000 High-Resolution Video 2/5/90 TX 2 776 143
Display Controller, User's
Manual
NCD Graphic Software Corporation U.S.A. GSS 1000 Presentation Driver 2/5/90 TX 2 776 142
(manual)
NCD Graphic Software Corporation U.S.A. Running DOS Programs in High- 2/5/90 TX 2 775 795
Resolution (manual)
NCD Graphic Software Corporation U.S.A. PC-Xview Release Notes (manual) 3/28/90 TX 2 790 639
NCD Graphic Software Corporation U.S.A. PC-Xview User's Guide 3/28/90 TX 2 833 112
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Debtor Country of Application Application Application
Application for Copyright Date Number
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
*Note: Reference Attached Form TX Applications, application number to be
provided upon receipt from Copyright Office.
A-2
<PAGE>
GENERAL CONTINUING GUARANTY
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
March 30, 2000, is executed and delivered by NETWORK COMPUTING DEVICES
AUSTRALIA PTY. LTD, a company organized under the laws of Australia, NETWORK
COMPUTING DEVICES (BENELUX) B.V., a company organized under the laws of The
Netherlands, NETWORK COMPUTING DEVICES (CANADA), INC., a corporation
organized under the laws of Canada, NETWORK COMPUTING DEVICES (FRANCE)
S.A.R.L., a company organized under the laws of France, NETWORK COMPUTING
DEVICES, GMBH, a company organized under the laws of Germany, NCD GRAPHIC
SOFTWARE CORPORATION, an Oregon corporation, NETWORK COMPUTING DEVICES (FSC),
INC., a Guam corporation, NCD ACQUISITION CORP., an Indiana corporation,
NETWORK COMPUTING DEVICES (UK), LTD., a company organized under the laws of
England, NETWORK COMPUTING DEVICES SCANDINAVIA AB, a company organized under
the laws of Sweden, (individually and collectively, jointly and severally,
"Guarantor"), in favor of FOOTHILL CAPITAL CORPORATION, a California
corporation, ("Guarantied Party"), in light of the following:
WHEREAS, Borrower and Guarantied Party are, contemporaneously
herewith, entering into the Loan Agreement; and
WHEREAS, in order to induce Guarantied Party to extend
financial accommodations to Borrower pursuant to the Loan Agreement, and in
consideration thereof, and in consideration of any loans or other financial
accommodations heretofore or hereafter extended by Guarantied Party to
Borrower, whether pursuant to the Loan Agreement or otherwise, each Guarantor
has agreed to guaranty the Guarantied Obligations.
NOW, THEREFORE, in consideration of the foregoing, each
Guarantor hereby agrees, in favor of Guarantied Party, as follows:
1. Definitions and Construction.
(a) DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement. The following terms, as used in this Guaranty, shall have the
following meanings:
"BORROWER" shall mean Network Computing Devices, Inc., a
Delaware corporation.
"GUARANTIED OBLIGATIONS" shall mean, with respect to each
Guarantor: (a) the due and punctual payment of the principal of, and
interest (including, any and all interest which, but for the application
of the provisions of the Bankruptcy Code, would have accrued on such
amounts) on, any and all premium on, and any and all fees, costs, and
expenses incurred in connection with or on the Indebtedness owed by
Borrower to Guarantied Party pursuant to the terms of the Loan Documents;
and
1
<PAGE>
(b) the due and punctual payment of all other present or future
Indebtedness owing by Borrower to Guarantied Party. The foregoing to the
contrary notwithstanding, the amount of the Guarantied Obligations with
respect to each Guarantor hereunder shall at all times not exceed the
maximum amount permissible under the laws of any jurisdiction that are
applicable to such Guarantor (the "Maximum Lawful Amount"), nor shall
this Guaranty be deemed to extend or impose any duty, obligation, or
liability on any Guarantor that would be illegal for such Guarantor to
undertake, accept, or assume. If, for any reason, the amount of the
Guarantied Obligations which, but for the preceding sentence, otherwise
would be due from any Guarantor hereunder would exceed the Maximum Lawful
Amount, each of the Guarantors and the Guarantied Party agree that, IPSO
FACTO, as of the date of this Guaranty, such Guarantor's obligations
under this Guaranty shall be limited to, and such Guarantor shall be
liable only for, the payment of the Maximum Lawful Amount applicable to
such Guarantor. The limitation set forth in the immediately preceding
two sentences shall inure to the benefit of each Guarantor, and to each
Guarantor's officers, directors, and shareholders, as applicable.
"GUARANTIED PARTY" shall have the meaning set forth in the
preamble to this Guaranty.
"GUARANTOR" shall have the meaning set forth in the
preamble to this Guaranty.
"GUARANTY" shall have the meaning set forth in the preamble
to this Guaranty.
"INDEBTEDNESS" shall mean any and all obligations,
indebtedness, or liabilities of any kind or character owed by Borrower to
Guarantied Party and arising directly or indirectly out of or in
connection with the Loan Agreement or the other Loan Documents, including
all such obligations, indebtedness, or liabilities, whether for
principal, interest (including any and all interest which, but for the
application of the provisions of the Bankruptcy Code, would have accrued
on such amounts), premium, reimbursement obligations, fees, costs,
expenses (including attorneys fees), or indemnity obligations, whether
heretofore, now, or hereafter made, incurred, or created, whether
voluntarily or involuntarily made, incurred, or created, whether secured
or unsecured (and if secured, regardless of the nature or extent of the
security), whether absolute or contingent, liquidated or unliquidated, or
determined or indeterminate, whether Borrower is liable individually or
jointly with others, and whether recovery is or hereafter becomes barred
by any statute of limitations or otherwise becomes unenforceable for any
reason whatsoever, including any act or failure to act by Guarantied
Party.
"LOAN AGREEMENT" shall mean that certain Loan and Security
Agreement, dated as of even date herewith, entered into between Borrower
and Guarantied Party.
2
<PAGE>
(b) CONSTRUCTION. Unless the context of this Guaranty clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty. Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Loan Agreement; this Guaranty; and the
other Loan Documents. Neither this Guaranty nor any uncertainty or ambiguity
herein shall be construed or resolved against Guarantied Party or Guarantor,
whether under any rule of construction or otherwise. On the contrary, this
Guaranty has been reviewed by Guarantor, Guarantied Party, and their respective
counsel, and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of Guarantied Party and Guarantor.
2. GUARANTIED OBLIGATIONS. Each Guarantor hereby irrevocably and
unconditionally guaranties to Guarantied Party, as and for its own debt,
until final and indefeasible payment thereof has been made, (a) the payment
of the Guarantied Obligations, in each case when and as the same shall become
due and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of each
Guarantor that the guaranty set forth herein shall be a guaranty of payment
and not a guaranty of collection; and (b) the punctual and faithful
performance, keeping, observance, and fulfillment by Borrower of all of the
agreements, conditions, covenants, and obligations of Borrower contained in
the Loan Agreement, and under each of the other Loan Documents.
3. CONTINUING GUARANTY. This Guaranty includes Guarantied
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Guarantied
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Guarantied Obligations
after prior Guarantied Obligations have been satisfied in whole or in part.
To the maximum extent permitted by law, Guarantor hereby waives any right to
revoke this Guaranty as to future Indebtedness. If such a revocation is
effective notwithstanding the foregoing waiver, Guarantor acknowledges and
agrees that (a) no such revocation shall be effective until written notice
thereof has been received by Guarantied Party, (b) no such revocation shall
apply to any Guarantied Obligations in existence on such date (including any
subsequent continuation, extension, or renewal thereof, or change in the
interest rate, payment terms, or other terms and conditions thereof), (c) no
such revocation shall apply to any Guarantied Obligations made or created
after such date to the extent made or created pursuant to a legally binding
commitment of Guarantied Party in existence on the date of such revocation,
(d) no payment by Guarantor, Borrower, or from any other source, prior to the
date of such revocation shall reduce the maximum obligation of Guarantor
hereunder, and (e) any payment by Borrower or from any source other than
Guarantor subsequent to the date of such revocation shall first be applied to
that portion of the Guarantied Obligations as to
3
<PAGE>
which the revocation is effective and which are not, therefore, guarantied
hereunder, and to the extent so applied shall not reduce the maximum
obligation of Guarantor hereunder.
4. PERFORMANCE UNDER THIS GUARANTY. In the event that Borrower
fails to make any payment of any Guarantied Obligations, on or before the due
date thereof, or if Borrower shall fail to perform, keep, observe, or fulfill
any other obligation referred to in CLAUSE (B) OF SECTION 2 hereof in the
manner provided in the Loan Agreement or the other Loan Documents, as
applicable, Guarantor immediately shall cause such payment to be made or each
of such obligations to be performed, kept, observed, or fulfilled.
5. PRIMARY OBLIGATIONS. This Guaranty is a primary and original
obligation of Guarantor, is not merely the creation of a surety relationship,
and is an absolute, unconditional, and continuing guaranty of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions. Guarantor agrees that it is directly, jointly
and severally with any other guarantor of the Guarantied Obligations, liable
to Guarantied Party, that the obligations of Guarantor hereunder are
independent of the obligations of Borrower or any other guarantor, and that a
separate action may be brought against Guarantor, whether such action is
brought against Borrower or any other guarantor or whether Borrower or any
other guarantor is joined in such action. Guarantor agrees that its
liability hereunder shall be immediate and shall not be contingent upon the
exercise or enforcement by Guarantied Party of whatever remedies it may have
against Borrower or any other guarantor, or the enforcement of any lien or
realization upon any security Guarantied Party may at any time possess.
Guarantor agrees that any release which may be given by Guarantied Party to
Borrower or any other guarantor shall not release Guarantor. Guarantor
consents and agrees that Guarantied Party shall be under no obligation to
marshal any property or assets of Borrower or any other guarantor in favor of
Guarantor, or against or in payment of any or all of the Guarantied
Obligations.
6. WAIVERS.
(a) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Loan
Agreement, or the creation or existence of any Guarantied Obligations; (iii)
notice of the amount of the Guarantied Obligations, subject, however, to
Guarantor's right to make inquiry of Guarantied Party to ascertain the amount
of the Guarantied Obligations at any reasonable time; (iv) notice of any
adverse change in the financial condition of Borrower or of any other fact
that might increase Guarantor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the
Loan Documents; (vi) notice of any unmatured Event of Default or Event of
Default under the Loan Agreement; and (vii) all other notices (except if such
notice is specifically required to be given to Guarantor under this Guaranty
or any other Loan Documents to which Guarantor is a party) and demands to
which Guarantor might otherwise be entitled.
4
<PAGE>
(b) To the fullest extent permitted by applicable law,
Guarantor hereby waives the right by statute or otherwise to require
Guarantied Party to institute suit against Borrower or to exhaust any rights
and remedies which Guarantied Party has or may have against Borrower. In
this regard, Guarantor agrees that it is bound to the payment of each and all
Guarantied Obligations, whether now existing or hereafter arising, as fully
as if such Guarantied Obligations were directly owing to Guarantied Party by
Guarantor. Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guarantied
Obligations shall have been fully and finally performed and indefeasibly
paid) of Borrower or by reason of the cessation from any cause whatsoever of
the liability of Borrower in respect thereof.
(c) To the fullest extent permitted by applicable law,
Guarantor hereby waives: (i) any rights to assert against Guarantied Party
any defense (legal or equitable), set-off, counterclaim, or claim which
Guarantor may now or at any time hereafter have against Borrower or any other
party liable to Guarantied Party; (ii) any defense, set-off, counterclaim, or
claim, of any kind or nature, arising directly or indirectly from the present
or future lack of perfection, sufficiency, validity, or enforceability of
Guarantied Obligations or any security therefor; (iii) any defense arising by
reason of any claim or defense based upon an election of remedies by
Guarantied Party including any defense based upon an election of remedies by
Guarantied Party under the provisions of Sections 580d and 726 of the
California Code of Civil Procedure, or any similar law of California or any
other jurisdiction; (iv) the benefit of any statute of limitations affecting
Guarantor's liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statute of limitations applicable
to the Guarantied Obligations shall similarly operate to defer or delay the
operation of such statute of limitations applicable to Guarantor's liability
hereunder.
(d) Until such time as all of the Guarantied Obligations
have been fully, finally, and indefeasibly paid in full in cash: (i)
Guarantor hereby waives and postpones any right of subrogation Guarantor has
or may have as against Borrower with respect to the Guarantied Obligations;
(ii) in addition, Guarantor hereby waives and postpones any right to proceed
against Borrower or any other Person, now or hereafter, for contribution,
indemnity, reimbursement, or any other suretyship rights and claims
(irrespective of whether direct or indirect, liquidated or contingent), with
respect to the Guarantied Obligations; and (iii) in addition, Guarantor also
hereby waives and postpones any right to proceed or to seek recourse against
or with respect to any property or asset of Borrower. Guarantor hereby
agrees that, in light of the waivers contained in this Section, Guarantor
shall not be deemed to be a "creditor" (as that term is defined in the
Bankruptcy Code or otherwise) of Borrower, whether for purposes of the
application of Sections 547 or 550 of the Bankruptcy Code or otherwise.
(e) If any of the Guarantied Obligations at any time are
secured by a mortgage or deed of trust upon real property, Guarantied Party
may elect, in its sole discretion, upon a default with respect to the
Guarantied Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing this Guaranty, without diminishing or affecting the liability of
Guarantor
5
<PAGE>
hereunder. Guarantor understands that (a) by virtue of the operation of
California's antideficiency law applicable to nonjudicial foreclosures or any
similar laws of any other jurisdiction, an election by Guarantied Party
nonjudicially to foreclose such a mortgage or deed of trust probably would
have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of Guarantor against Borrower or
other guarantors or sureties, and (b) absent the waiver given by Guarantor
herein, such an election would estop Guarantied Party from enforcing this
Guaranty against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of
this Guaranty, Guarantor hereby waives any right to assert against Guarantied
Party any defense to the enforcement of this Guaranty, whether denominated
"estoppel" or otherwise, based on or arising from an election by Guarantied
Party nonjudicially to foreclose any such mortgage or deed of trust.
Guarantor understands that the effect of the foregoing waiver may be that
Guarantor may have liability hereunder for amounts with respect to which
Guarantor may be left without rights of subrogation, reimbursement,
contribution, or indemnity against Borrower or other guarantors or sureties.
Guarantor also agrees that the "fair market value" provisions of Section 580a
of the California Code of Civil Procedure or any similar laws of any other
jurisdiction shall have no applicability with respect to the determination of
Guarantor's liability under this Guaranty.
(f) Without limiting the generality of any other waiver or
other provision set forth in this Guaranty, Guarantor waives all rights and
defenses that Guarantor may have because Borrower's debt is secured by real
property. This means, among other things:
(i) Guarantied Party may collect from Guarantor
without first foreclosing on any real or personal property collateral pledged
by Borrower.
(ii) If Guarantied Party forecloses on any real
property collateral pledged by the Borrower:
(1) the amount of the debt may be reduced only by
the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price.
(2) Guarantied Party may collect from Guarantor
even if Guarantied Party, by foreclosing on the real property
collateral, has destroyed any right Guarantor my have to collect
from Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses
Guarantor may have because Borrower's debt is secured by real property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure or any similar laws of any other jurisdiction.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION
SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE MAXIMUM EXTENT SUCH
WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR
6
<PAGE>
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE Sections 2799,
2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848,
2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE Sections 580a, 580b,
580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE
OR ANY SIMILAR LAWS OF ANY OTHER JURISDICTION.
(h) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY GUARANTIED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH
RESPECT TO SECURITY FOR A GUARANTIED OBLIGATION, HAS DESTROYED GUARANTOR'S
RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE BORROWER BY THE OPERATION
OF SECTION 580d OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR ANY SIMILAR LAWS
OF ANY OTHER JURISDICTION OR OTHERWISE.
7. RELEASES. Guarantor consents and agrees that, without notice
to or by Guarantor and without affecting or impairing the obligations of
Guarantor hereunder, Guarantied Party may, by action or inaction, compromise
or settle, extend the period of duration or the time for the payment, or
discharge the performance of, or may refuse to, or otherwise not enforce, or
may, by action or inaction, release all or any one or more parties to, any
one or more of the terms and provisions of the Loan Agreement or any of the
other Loan Documents or may grant other indulgences to Borrower in respect
thereof, or may amend or modify in any manner and at any time (or from time
to time) any one or more of the Loan Agreement or any of the other Loan
Documents, or may, by action or inaction, release or substitute any other
guarantor, if any, of the Guarantied Obligations, or may enforce, exchange,
release, or waive, by action or inaction, any security for the Guarantied
Obligations or any other guaranty of the Guarantied Obligations, or any
portion thereof.
8. NO ELECTION. Guarantied Party shall have the right to seek
recourse against Guarantor to the fullest extent provided for herein and no
election by Guarantied Party to proceed in one form of action or proceeding,
or against any party, or on any obligation, shall constitute a waiver of
Guarantied Party's right to proceed in any other form of action or proceeding
or against other parties unless Guarantied Party has expressly waived such
right in writing. Specifically, but without limiting the generality of the
foregoing, no action or proceeding by Guarantied Party under any document or
instrument evidencing the Guarantied Obligations shall serve to diminish the
liability of Guarantor under this Guaranty except to the extent that
Guarantied Party finally and unconditionally shall have realized indefeasible
payment by such action or proceeding.
9. INDEFEASIBLE PAYMENT. The Guarantied Obligations shall not be
considered indefeasibly paid for purposes of this Guaranty unless and until all
payments to Guarantied Party are no longer subject to any right on the part of
any person whomsoever, including Borrower, Borrower as a debtor in possession,
or any trustee (whether appointed under the
7
<PAGE>
Bankruptcy Code or otherwise) of Borrower's assets to invalidate or set aside
such payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential. In the event
that, for any reason, all or any portion of such payments to Guarantied Party
is set aside or restored, whether voluntarily or involuntarily, after the
making thereof, the obligation or part thereof intended to be satisfied
thereby shall be revived and continued in full force and effect as if said
payment or payments had not been made and Guarantor shall be liable for the
full amount Guarantied Party is required to repay plus any and all costs and
expenses (including attorneys fees) paid by Guarantied Party in connection
therewith.
10. FINANCIAL CONDITION OF BORROWER. Guarantor represents and
warrants to Guarantied Party that it is currently informed of the financial
condition of Borrower and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Guarantied
Obligations. Guarantor further represents and warrants to Guarantied Party
that it has read and understands the terms and conditions of the Loan
Agreement and the other Loan Documents. Guarantor hereby covenants that it
will continue to keep itself informed of Borrower's financial condition, the
financial condition of other guarantors, if any, and of all other
circumstances which bear upon the risk of nonpayment or nonperformance of the
Guarantied Obligations.
11. SUBORDINATION. Guarantor hereby agrees that any and all
present and future indebtedness of Borrower owing to Guarantor is postponed
in favor of and subordinated to payment, in full, in cash, of the Guarantied
Obligations. In this regard, except to the extent expressly permitted by the
Loan Agreement, no payment of any kind whatsoever shall be made with respect
to such indebtedness until the Guarantied Obligations have been indefeasibly
paid in full.
12. PAYMENTS; APPLICATION. All payments to be made hereunder by
Guarantor shall be made in lawful money of the United States of America at
the time of payment, shall be made in immediately available funds, and shall
be made without deduction (whether for taxes or otherwise) or offset. All
payments made by Guarantor hereunder shall be applied as follows: first, to
all reasonable costs and expenses (including attorneys fees) incurred by
Guarantied Party in enforcing this Guaranty or in collecting the Guarantied
Obligations; second, to all accrued and unpaid interest, premium, if any, and
fees owing to Guarantied Party constituting Guarantied Obligations; and
third, to the balance of the Guarantied Obligations.
13. ATTORNEYS FEES AND COSTS. Guarantor agrees to pay, on demand,
all reasonable attorneys fees and all other reasonable costs and expenses
which may be incurred by Guarantied Party in the enforcement of this Guaranty
or in any way arising out of, or consequential to the protection, assertion,
or enforcement of the Guarantied Obligations (or any security therefor),
irrespective of whether suit is brought.
14. NOTICES. Unless otherwise specifically provided in this Guaranty,
any notice or other communication relating to this Guaranty or any other
agreement entered into in
8
<PAGE>
connection herewith shall be in writing and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, or by prepaid telex, TWX, telefacsimile, or telegram (with
messenger delivery specified) to Guarantor or to Guarantied Party, as the
case may be, at its addresses set forth below:
If to any Guarantor: c/o Network Computing Devices, Inc.
350 North Bernardo Avenue
Mountain View, California 94043
Attn: Chief Financial Officer
Telecopy No. (650) 961-7711
with a copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attn: Paul A. Blumenstein, Esq.
Fax No. (650) 327-3699
If to Guarantied Party: Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025
Attn: Business Finance Division
Manager
Telecopy No. (310) 478-9788
with a copy to: Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Telecopy No.: (213) 745-3345
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. All notices or demands sent in accordance with this SECTION
14, other than notices by Guarantied Party in connection with Sections 9504
or 9505 of the Code, shall be deemed received on the earlier of the date of
actual receipt or three (3) calendar days after the deposit thereof in the
mail. Guarantor acknowledges and agrees that notices sent by Guarantied Party
in connection with Sections 9504 or 9505 of the Code shall be deemed sent
when deposited in the mail or transmitted by telefacsimile or other similar
method set forth above.
15. CUMULATIVE REMEDIES. No remedy under this Guaranty, under the
Loan Agreement, or any other Loan Document is intended to be exclusive of any
other remedy, but each and every remedy shall be cumulative and in addition
to any and every other remedy given under this Guaranty, under the Loan
Agreement, or any other Loan Document, and those provided by law. No delay
or omission by Guarantied Party to exercise any right
9
<PAGE>
under this Guaranty shall impair any such right nor be construed to be a
waiver thereof. No failure on the part of Guarantied Party to exercise, and
no delay in exercising, any right under this Guaranty shall operate as a
waiver thereof; nor shall any single or partial exercise of any right under
this Guaranty preclude any other or further exercise thereof or the exercise
of any other right.
16. SEVERABILITY OF PROVISIONS. Any provision of this Guaranty
which is prohibited or unenforceable under applicable law shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
17. ENTIRE AGREEMENT; AMENDMENTS. This Guaranty constitutes the
entire agreement between Guarantor and Guarantied Party pertaining to the
subject matter contained herein. This Guaranty may not be altered, amended,
or modified, nor may any provision hereof be waived or noncompliance
therewith consented to, except by means of a writing executed by Guarantor
and Guarantied Party. Any such alteration, amendment, modification, waiver,
or consent shall be effective only to the extent specified therein and for
the specific purpose for which given. No course of dealing and no delay or
waiver of any right or default under this Guaranty shall be deemed a waiver
of any other, similar or dissimilar, right or default or otherwise prejudice
the rights and remedies hereunder.
18. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
Guarantor and its successors and assigns and shall inure to the benefit of
the successors and assigns of Guarantied Party; PROVIDED, HOWEVER, no
Guarantor shall assign this Guaranty or delegate any of its duties hereunder
without Guarantied Party's prior written consent and any unconsented to
assignment shall be absolutely void. In the event of any assignment or other
transfer of rights by Guarantied Party, the rights and benefits herein
conferred upon Guarantied Party shall automatically extend to and be vested
in such assignee or other transferee.
19. NO THIRD PARTY BENEFICIARY. This Guaranty is solely for the
benefit of Guarantied Party and its successors and assigns and may not be
relied on by any other Person.
20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR AT
THE SOLE
10
<PAGE>
OPTION OF GUARANTIED PARTY, IN ANY OTHER COURT IN WHICH GUARANTIED PARTY
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
21. COUNTERPARTS; TELEFACSIMILE EXECUTION. 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. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
22. AGREEMENT TO BE BOUND BY LOAN AGREEMENT. By its execution and
delivery of this Guaranty or any joinder hereto, any Guarantor that is not a
party to the Loan Agreement or any joinder thereto nevertheless shall be
deemed to have agreed to be bound by each provision in the Loan Agreement
relating to the Guarantors or Obligors or their assets with the same force
and effect as though such Guarantor were party to the Loan Agreement or any
joinder thereto, MUTATIS MUTANDIS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
NETWORK COMPUTING DEVICES
AUSTRALIA PTY LTD., a company organized
under the laws of Australia
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Secretary
-------------------------------------
NETWORK COMPUTING DEVICES (BENELUX) B.V., a
company organized under the laws of The
Netherlands
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Managing Director
-------------------------------------
NETWORK COMPUTING DEVICES (CANADA), INC., a
corporation organized under the laws of
Canada
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
NETWORK COMPUTING DEVICES (FRANCE) S.A.R.L.,
a company organized under the laws of France
By:
----------------------------------------
Name: John DeSantis
--------------------------------------
Title: Sole General Manager
-------------------------------------
NETWORK COMPUTING DEVICES GMBH, a company
organized under the laws of Germany
By:
----------------------------------------
Name: Eric Grayson
--------------------------------------
Title: Managing Director
-------------------------------------
S-1
<PAGE>
NCD GRAPHIC SOFTWARE CORPORATION, a
California corporation
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
NETWORK COMPUTING DEVICES (FSC), INC., a Guam
corporation
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
NCD ACQUISITION CORP., an Indiana corporation
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
NETWORK COMPUTING DEVICES (UK), LIMITED., a
company organized under the laws of England
By:
----------------------------------------
Name: Gregory S. Wood
--------------------------------------
Title: Director
-------------------------------------
NETWORK COMPUTING DEVICES SCANDINAVIA AB, a
company organized under the laws of Sweden
By:
----------------------------------------
Name: Rudolph G. Morin
--------------------------------------
Title: Director
-------------------------------------
S-2
<PAGE>
GUARANTOR SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), is entered into as of
March 30, 2000, among FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333, and NETWORK
COMPUTING DEVICES AUSTRALIA PTY. LTD, a company organized under the laws of
Australia, NETWORK COMPUTING DEVICES (BENELUX) B.V., a company organized
under the laws of [], NETWORK COMPUTING DEVICES (CANADA), INC., a corporation
organized under the laws of Canada, NETWORK COMPUTING DEVICES (FRANCE)
S.A.R.L., a company organized under the laws of France, NETWORK COMPUTING
DEVICES, GMBH, a company organized under the laws of Germany, NCD GRAPHIC
SOFTWARE CORPORATION, an Oregon corporation, NETWORK COMPUTING DEVICES (FSC),
INC., a Guam corporation, NCD ACQUISITION CORP., an Indiana corporation,
NETWORK COMPUTING DEVICES (UK), INC., a company organized under the laws of
England, NETWORK COMPUTING DEVICES SCANDINAVIA AB, a company organized under
the laws of Sweden, (each, a "Guarantor:" together, individually and
collectively, jointly and severally, the "Guarantors").
WHEREAS, Borrower and Foothill are, contemporaneously herewith,
entering into the Loan Agreement;
WHEREAS, Borrower owns one hundred percent (100%) of the issued and
outstanding stock of each Guarantor;
WHEREAS, each Guarantor has executed that certain General
Continuing Guaranty, of even date herewith, in favor of Foothill (the
"Guaranty"), respecting certain obligations of Borrower owing to Foothill
under the Loan Agreement;
WHEREAS, each Guarantor desires to collateralize its obligations
under the Guaranty by granting to Foothill a security interest in certain of
its assets; and
WHEREAS, each Guarantor will benefit by virtue of the credit
extended by Foothill to Borrower.
NOW THEREFORE, in consideration of the premises set forth above,
the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and each intending to be bound hereby, Foothill and each Guarantor agrees as
follows:
1
<PAGE>
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement. As used in this Agreement, the following terms shall have the
following definitions:
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to any
Guarantor arising out of the sale, license, or lease of goods or General
Intangibles or the rendition of services by any such Guarantor, irrespective
of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"AGREEMENT" means this Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Security Agreement.
"CODE" means the California Uniform Commercial Code.
"BORROWER" means Network Computing Devices, Inc., a Delaware
corporation.
"COLLATERAL" means each of the following: the Accounts; Guarantor's
Books; the Equipment; the General Intangibles; the Inventory; the Investment
Property; the Negotiable Collateral; any money, or other assets of any
Guarantor which now or hereafter come into the possession, custody, or
control of Foothill; and the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Guarantor's Books,
Equipment, General Intangibles, Inventory, Investment Property, Negotiable
Collateral, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"EQUIPMENT" means all of any Guarantor's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
dies, jigs, goods (other than consumer goods, farm products, or Inventory),
wherever located, and any interest of any Guarantor in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located.
"EVENT OF DEFAULT" has the meaning ascribed to it in SECTION 6.
"GENERAL INTANGIBLES" means all of any Guarantor's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statues, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, source code, blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists, rights to
payment and other rights under any royalty or licensing agreements,
infringements, claims,
2
<PAGE>
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, Investment Property, and
Negotiable Collateral.
"GUARANTIED OBLIGATIONS" shall have the meaning ascribed to it in
the Guaranty.
"GUARANTOR'S BOOKS" means all of any Guarantor's books and records,
including: ledgers; records indicating, summarizing, or evidencing any
Guarantor's properties or assets (including the Collateral) or liabilities;
all information relating to any Guarantor's business operations or financial
condition; and all computer programs, disc or tape files, printouts, runs, or
other computer prepared information in respect of such books and records.
"GUARANTOR" has the meaning ascribed thereto in the preamble to
this Agreement.
"GUARANTY" means the General Continuing Guaranty of each of the
Guarantors, granted in favor of Foothill of even date herewith.
"INVENTORY" means all present and future inventory in which any
Guarantor has any interest, including goods held for sale, license, or lease
or to be furnished under a contract of service and all of any Guarantor's
present and future raw materials, work in process, finished goods, and
packing and shipping materials, wherever located, and any documents of title
representing any of the above.
"INVESTMENT PROPERTY" means all of any Guarantor's present and
future "investment property" as that term is defined in Section 9115 of the
Code.
"LOAN AGREEMENT" means that certain Loan and Security Agreement,
dated as of even date herewith (as amended, restated, modified, renewed or
extended from time to time), between Borrower and Foothill.
"NEGOTIABLE COLLATERAL" means all of any Guarantor's present and
future letters of credit, notes, drafts, instruments, documents, personal
property leases (wherein any Guarantor is the lessor), chattel paper, and any
Guarantor's Books relating to any of the foregoing.
"SECURED OBLIGATIONS" shall mean all liabilities, obligations, or
undertakings owing by each of the Guarantors to Foothill of any kind or
description arising out or outstanding under, advanced or issued pursuant to,
or evidenced by the Guaranty, and any other Loan Document heretofore,
herewith, or hereinafter executed by such Guarantor, or this Agreement,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or not due, voluntary or involuntary, whether now
existing or hereafter arising, and including all interest (including interest
that accrues after the filing of a case under the Bankruptcy Code) and any an
all costs, fees (including attorney's fees), and
3
<PAGE>
expenses which such Guarantor is required to pay pursuant to any of the
foregoing, by law or otherwise.
1.2 CODE. Any terms used in this Agreement which are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. Any reference in this
Agreement or in any of the other Loan Documents to this Agreement or any of
the other Loan Documents shall include all alterations, amendments,
restatements, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable. In the
event of a direct conflict between the terms and provisions of this Agreement
and the Loan Agreement, it is the intention of the parties hereto that both
such documents shall be read together and construed, to the fullest extent
possible, to be in concert with each other. In the event of any actual,
irreconcilable conflict that cannot be resolved as aforesaid, the terms and
provisions of the Loan Agreement shall control and govern; provided, however,
that the inclusion herein of additional obligations on the part of each of
the Guarantors and supplemental rights and remedies in favor of Foothill, in
each case in respect of the Collateral, shall not be deemed a conflict with
the Loan Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Each Guarantor hereby
grants to Foothill a continuing security interest in all of its right, title,
and interest in and to all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment and performance of the
Secured Obligations. Foothill's security interests in the Collateral shall
attach to all Collateral without further act on the part of Foothill or any
Guarantor. Anything contained in this Agreement or any other Loan Document to
the contrary notwithstanding, except for [sale of Inventory to buyers in the
ordinary course of business], none of the Guarantors has authority, express
or implied, to dispose of any item or portion of the Collateral.
2.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, each Guarantor, immediately upon the request of Foothill, shall
endorse and deliver physical possession of such Negotiable Collateral to
Foothill.
4
<PAGE>
2.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. At any time, Foothill or Foothill's designee may (a) notify
customers or Account Debtors of each Guarantor that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Each Guarantor agrees
that it will hold in trust for Foothill, as Foothill's trustee, any
Collections that it receives and immediately will deliver said Collections to
Foothill in their original form as received by such Guarantor.
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Each
Guarantor shall execute and deliver to Foothill, prior to or concurrently
with such Guarantor's execution and delivery of this Agreement and at any
time thereafter at the request of Foothill, all financing statements,
continuation financing statements, fixture filings, security agreements,
chattel mortgages, pledges, mortgages, deeds of trust, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Foothill may reasonably request, in form satisfactory to
Foothill, to perfect and continue perfected Foothill's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under the Loan Documents.
2.5 POWER OF ATTORNEY. Each Guarantor hereby irrevocably
makes, constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as such Guarantor's true and
lawful attorney, with power to (a) if such Guarantor refuses to, or fails
timely to execute and deliver any of the documents described in SECTION 2.4,
sign the name of such Guarantor on any of the documents described in SECTION
2.4, (b) at any time that an Event of Default has occurred and is continuing
or Foothill deems itself insecure (in accordance with Section 1208 of the
Code), sign such Guarantor'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 notices to Account Debtors, (c) send
requests for verification of Accounts, (d) endorse such Guarantor's name on
any Collection item that may come into Foothill's possession, (e) at any time
that an Event of Default has occurred and is continuing or Foothill deems
itself insecure (in accordance with Section 1208 of the Code), notify the
post office authorities to change the address for delivery of such
Guarantor's mail to an address designated by Foothill, to receive and open
all mail addressed to such Guarantor, and to retain all mail relating to the
Collateral and forward all other mail to such Guarantor, (f) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure (in accordance with Section 1208 of the Code), make, settle, and
adjust all claims under such Guarantor's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, and
(g) at any time that an Event of Default has occurred and is continuing or
Foothill deems itself insecure (in accordance with Section 1208 of the Code),
settle and adjust disputes and claims respecting the Accounts directly with
Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as each Guarantor's attorney, and each and every
5
<PAGE>
one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Secured Obligations have been fully and finally
repaid and performed and Foothill's obligation to extend credit under the
Loan Agreement is terminated.
2.6 RIGHT TO INSPECT. Foothill (through any of its
officers, employees, or agents) shall have the right, from time to time
hereafter to inspect each Guarantor's Books and to check, test, and appraise
the Collateral in order to verify each Guarantor's financial condition or
the amount, quality, value, condition of, or any other matter relating to,
the Collateral.
3. REPRESENTATIONS AND WARRANTIES.
Each Guarantor represents and warrants as follows:
3.1 NO ENCUMBRANCES. Such Guarantor has good and
indefeasible title to the Collateral of such Guarantor, free and clear of
Liens except for Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE; FEIN. The
chief executive office of such Guarantor is at the address set forth opposite
such Guarantor's name on SCHEDULE 3.2, and all other locations at which any
such Guarantor has a place of business are set forth on SCHEDULE 3.2. Such
Guarantor's FEIN (or foreign equivalent, if any) is set forth on SCHEDULE 3.2.
3.3 INVENTORY. All of such Guarantor's Inventory is now and
at all times hereafter shall be of good and serviceable quality, free from
defects.
3.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment of such Guarantor are not stored with a bailee, warehouseman, or
similar party (without Foothill's prior written consent) and are located only
at the locations identified on Schedule 6.12 of the Loan Agreement or
otherwise permitted by Section 6.12 of the Loan Agreement.
3.5 INVENTORY RECORDS. Such Guarantor now keeps, and
hereafter at all times shall keep, correct and accurate records itemizing and
describing the kind, type, quality, and quantity of the Inventory, and such
Guarantor's cost therefor.
3.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The
jurisdiction or country of organization of such Guarantor is set forth
opposite such Guarantor's name on Schedule 3.6 and such Guarantor shall at
all times hereafter be duly organized and existing and in good standing under
the laws of such jurisdiction or and qualified and licensed to do business
in, and in good standing in, any jurisdiction where the failure to be so
licensed or qualified could reasonably be expected to have a material adverse
effect on the business, operations, condition (financial or otherwise),
finances, or prospects of such Guarantor or on the value of the Collateral.
6
<PAGE>
3.7 DUE AUTHORIZATION; NO CONFLICT. The execution,
delivery, and performance of this Agreement, the Guaranty, and any other Loan
Document to which such Guarantor is a party are within such Guarantor's
corporate powers, have been duly authorized, and are not in conflict with
nor, constitute a breach of any provision contained in such Guarantor's
Articles or Certificate of Incorporation, By-laws, or any partnership or
trust agreement pertaining to such Guarantor, nor will they constitute an
event of default under any material agreement to which such Guarantor is now
or may hereafter become a party.
3.8 LITIGATION. There are no actions or proceedings
pending by or against such Guarantor before any court or administrative
agency and such Guarantor does not have knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving such Guarantor, except for:
(a) ongoing collection matters in which such Guarantor is the plaintiff; (b)
matters disclosed on Schedule 5.10 of the Loan Agreement; and (c) matters
arising after the date hereof that, if decided adversely to such Guarantor,
would not materially impair the prospect of repayment of the Guarantied
Obligations or materially impair the value or priority of Foothill's security
interests in the Collateral.
3.9 SOLVENCY. Such Guarantor is Solvent. No transfer of
property is being made by such Guarantor and no obligation is being incurred
by such Guarantor in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of such Guarantor.
3.10 RELIANCE BY FOOTHILL; CUMULATIVE. The warranties,
representations, and agreements set forth herein shall be conclusively
presumed to have been relied upon by Foothill and shall be cumulative and in
addition to any and all other warranties, representations, and agreements
which such Guarantor shall now or hereinafter give, or cause to be given, to
Foothill.
4. AFFIRMATIVE COVENANTS.
Each Guarantor covenants and agrees that, until payment in
full of the Secured Obligations, and unless Foothill shall otherwise consent
in writing, such Guarantor shall do all of the following:
4.1 SCHEDULES OF ACCOUNTS.
With such regularity as Foothill shall require, provide Foothill
with schedules describing all of such Guarantor's Accounts. Foothill's
failure to request such schedules or such Guarantor's failure to execute and
deliver such schedules shall not affect or limit Foothill's security
interests or other rights in and to the Accounts.
4.2 INVENTORY REPORTING. From time to time hereafter, but
not less frequently than monthly, execute and deliver to Foothill a report
regarding such Guarantor's
7
<PAGE>
Inventory specifying such Guarantor's cost therefor and further specifying
such other information as Foothill may reasonably request.
4.3 TITLE TO EQUIPMENT. Upon Foothill's request,
immediately deliver to Foothill, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items
of such Guarantor's Equipment.
4.4 MAINTENANCE OF EQUIPMENT. Maintain such Guarantor's
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Such Guarantor shall not permit any item of such Guarantor's Equipment to
become a fixture to real estate or an accession to other property, and such
Equipment is now and shall at all times remain personal property.
4.5 TAXES. All assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against such Guarantor or any of its property have been paid, and shall
hereafter be paid in full, before delinquency or before the expiration of any
extension period. Such Guarantor shall make due and timely payment or deposit
of all taxes, assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment or deposit thereof. Such Guarantor will make timely
payment or deposit of all tax payments and withholding taxes required of it
by applicable laws, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that such Guarantor has made such
payments or deposits, other than assessments or taxes that are the subject of
a Permitted Protest.
4.6 INSURANCE. At its expense, keep such Guarantor's
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as are
ordinarily insured against by other owners in similar businesses. Such
Guarantor also shall maintain business interruption, public liability,
product liability, and property damage insurance relating to its ownership
and use of the Collateral, as well as insurance against larceny,
embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. All such policies of insurance (except those of
public liability and property damage) shall contain a 438BFU lender's loss
payable endorsement, or an equivalent endorsement in a form satisfactory to
Foothill, showing Foothill as a loss payee thereof as its interest may
appear, shall contain a waiver of warranties, and shall specify that the
insurer must give at least ten (10) days prior written notice to Foothill
before canceling its policy for any reason. Such Guarantor shall deliver to
Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor. All proceeds payable under any such policy
shall be payable to Foothill to be applied on account of the Guarantied
Obligations.
8
<PAGE>
4.7 FOOTHILL EXPENSES. Such Guarantor shall immediately
and without demand reimburse Foothill for all sums expended by Foothill which
constitute Foothill Expenses and such Guarantor hereby authorizes and
approves all advances and payments by Foothill for items constituting
Foothill Expenses.
5. NEGATIVE COVENANTS.
Each Guarantor covenants and agrees that until payment in full of
the Guarantied Obligations, it will not do any of the following without
Foothill's prior written consent:
5.1 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income
or profits therefrom, except for Permitted Liens (including liens that are
replacements of Permitted Liens to the extent that the original indebtedness
is refinanced under Section 7.1(d) of the Loan Agreement and so long as the
replacement liens secure only those assets or property that secured the
original indebtedness).
5.2 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all of the properties, assets, stock, or other
evidence of beneficial ownership of any Person.
5.3 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS.
Enter into any transaction not in the ordinary and usual course of such
Guarantor's business, including the sale, lease, or other disposition of,
moving, relocation, or transfer, whether by sale or otherwise, of any of such
Guarantor's properties or assets.
5.4 CHANGE NAME. Change such Guarantor's name, FEIN,
business structure, or identity, or add any new fictitious name.
5.5 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third Person except by
endorsement of instruments or items of payment for deposit to the account of
such Guarantor or which are transmitted or turned over to Foothill and except
for the guarantee of the payment and performance of the Guarantied
Obligations.
5.6 NATURE OF BUSINESS; FISCAL YEAR. (a) Make any change
in the principal nature of such Guarantor's business, or (b) without the
prior written consent of Foothill, which consent shall not unreasonably be
withheld, change the date of its fiscal year.
5.7 TRANSACTIONS WITH AFFILIATES. Such Guarantor will not
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of such
9
<PAGE>
Guarantor except for transactions which are in the ordinary course of such
Guarantor's business, upon fair and reasonable terms and which are fully
disclosed to Foothill and, no less favorable to such Guarantor than would be
obtained in arm's length transaction with a non-Affiliate.
5.8 SUSPENSION. Suspend or go out of business.
5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written
notification to Foothill, relocate its chief executive office to a new
location, unless, at the time of such written notification, such Guarantor
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests and also provides to
Foothill a landlord's waiver in form and substance satisfactory to Foothill.
Such Guarantor's Inventory and Equipment shall not at any time now or
hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
6.1. The occurrence of an Event of Default (as defined in
the Loan Agreement);
6.2. If any Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant,
or agreement contained in this Agreement, in the Guaranty, or in any other
Loan Document to which such Guarantor is party or by which such Guarantor or
its assets are bound;
6.3. If there is a material impairment of the prospect of
repayment of any portion of the Guarantied Obligations owing to Foothill or a
material impairment of the value or priority of Foothill's security interests
in the Collateral;
6.4. If a notice of lien, levy, or assessment is filed of
record with respect to any of any Guarantor's properties or assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or other governmental agency, or
if any taxes or debts owing at any time hereafter to any one or more of such
entities becomes a lien, whether choate or otherwise, upon any of Guarantor's
properties or assets and the same is not paid on the payment date thereof;
6.5. If a judgment or other claim becomes a lien or
encumbrance upon any material portion of any Guarantor's properties or assets;
6.6. If there is a default in any material agreement to
which any Guarantor is a party with one or more third Persons resulting in a
right by such third Persons,
10
<PAGE>
irrespective of whether exercised, to accelerate the maturity of such
Guarantor's obligations thereunder;
6.7. If any Guarantor makes any payment on account of
indebtedness that has been contractually subordinated in right of payment to
the payment of the Guarantied Obligations, except to the extent such payment
is permitted by the terms hereof and by the subordination provisions
applicable to such indebtedness;
6.8. If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to
Foothill by any Guarantor or any officer, employee, agent, or director of
Guarantor, or if any such warranty or representation is withdrawn.
7. FOOTHILL'S RIGHTS AND REMEDIES.
7.1 RIGHTS AND REMEDIES. Upon the occurrence, and during
the continuation, of an Event of Default Foothill 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 each Guarantor:
(a) Proceed directly and at once, without notice,
against each Guarantor to collect and recover the full amount or any portion
of the Guarantied Obligations, without first proceeding against Borrower, any
other Guarantor, or against any security or collateral for the Guarantied
Obligations.
(b) Without notice to any Guarantor and regardless
of the acceptance of any security or collateral for the payment hereof,
appropriate and apply toward the payment of the Guarantied Obligations (i)
any indebtedness due or to become due from Foothill to any Guarantor and (ii)
any moneys, credits or other property belonging to any Guarantor at any time
held by or coming into the possession of Foothill.
(c) May exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein and the Guaranty or
otherwise available to it, all the rights and remedies available to it at law
(including those of a secured party under the Code) or in equity.
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases, Foothill will credit Borrower's loan account
with only the net amounts received by Foothill in payment of such disputed
Accounts after deducting all Foothill Expenses incurred or expended in
connection therewith;
(e) Cause each Guarantor to hold all returned
Inventory in trust for Foothill, segregate all returned Inventory from all
other property of such Guarantor or in such Guarantor's possession and
conspicuously label said returned Inventory as the property of Foothill;
11
<PAGE>
(f) Without notice or demand, make such payments
and do such acts as Foothill considers necessary or reasonable to protect its
security interest in the Collateral. Each Guarantor agrees to assemble the
Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Each Guarantor authorizes Foothill to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or lien which in Foothill'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
any Guarantor's owned premises, such Guarantor hereby grants Foothill 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 Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the
manner provided for herein) the Collateral. Foothill is hereby granted a
license or other right to use, without charge, each Guarantor's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service 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 each Guarantor's rights
under all licenses and all franchise agreements shall inure to Foothill's
benefit;
(h) Sell all or any part of 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 on any Guarantor's premises) as Foothill determines is
commercially reasonable. It is not necessary that the Collateral be present
at any such sale. Foothill shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in any Guarantor, which right or equity is
hereby waived or released to the extent permitted by law;
(i) By an instrument in writing, appoint a receiver
(which term shall include a receiver and manager) of all or any part of the
Collateral and may remove or replace such receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the
appointment of such receiver;
(j) Require each Guarantor to establish a lockbox
or other restricted account satisfactory to Foothill for the collection of
such Guarantor's Accounts, General Intangibles, or Negotiable Collateral;
(k) Notify customers or Account Debtors of each
Guarantor that such Guarantor's Accounts, General Intangibles, or Negotiable
Collateral have been assigned to Foothill or that Foothill has a security
interest therein;
(l) Collect each Guarantor's Accounts, General
Intangibles, and Negotiable Collateral directly, and charge the collection
costs and expenses as Foothill
12
<PAGE>
Expenses; but, unless and until Foothill does so or gives any Guarantor other
written instructions, such Guarantor shall collect all of such Guarantor's
Accounts, General Intangibles, and Negotiable Collateral for Foothill,
receive in trust all payments thereon as Foothill's trustee, and immediately
deliver said payments to Foothill in their original form as received from
such Account Debtor;
(m) Any deficiency which exists after disposition
of the Collateral as provided above will be paid immediately by each
Guarantor up to the maximum amount, if any, of such Guarantor's liability
under the Guaranty. Any excess will be returned to Guarantors, without
interest and subject to the rights of third parties, by Foothill.
Except as required by law, Foothill may take any or all of the foregoing
action without demand, presentment, protest, advertisement or notice of any
kind to or upon any Guarantor or any other person.
7.2 REMEDIES CUMULATIVE. Foothill's rights and remedies
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Foothill of one right or remedy shall be deemed an election, and
no waiver by Foothill of any Event of Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver, election, or
acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If any Guarantor fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of licensed or leased
properties or assets, royalties, rents, or other amounts payable under such
licenses or leases) due to third Persons, or fails to make any deposits or
furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that
such failure by any such Guarantor could result in a Material adverse effect
on Foothill's interests in the collateral, in its discretion, without prior
notice to any Guarantor, Foothill may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves in
Borrower's Loan Account as Foothill deems necessary to protect Foothill from
the exposure created by such failure; or (c) obtain and maintain insurance
policies insuring Guarantor's ownership and use of the Collateral and take
any action with respect to such policies as Foothill deems prudent. Any such
amounts paid or deposited by Foothill shall constitute Foothill Expenses.
Any such payments made by Foothill shall not constitute an agreement by
Foothill to make similar payments in the future or a waiver by Foothill of
any Event of Default under this Agreement. Foothill need not inquire as to,
or contest the validity of, any such expense, tax, or Lien and the receipt of
the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the extent permitted by law,
each of the Guarantors waives demand, protest, notice of protest, notice of
default or dishonor, notice
13
<PAGE>
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
Foothill on which any Guarantor may in any way be liable.
9.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as
Foothill complies with its obligations, if any, under Section 9207 of the
Code, Foothill 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. All risk of loss,
damage, or destruction of the Collateral shall be borne by the Guarantors.
9.3 INDEMNIFICATION. Each Guarantor agrees to defend,
indemnify, save, and hold Foothill and its officers, employees, and agents
harmless against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other Person, and (b) all losses (including
attorneys fees and disbursements) in any way suffered, incurred, or paid by
Foothill as a result of or in any way arising out of, following, or
consequential to transactions with Borrower or any Guarantor, whether under
this Agreement, the other Loan Documents or otherwise. This provision shall
survive the termination of this Agreement.
9.4 WAIVERS.
(a) To the maximum extent permitted by law, each of
the Guarantors hereby waives: (i) notice of acceptance hereof; (ii) notice
of any loans or other financial accommodations made or extended under the
Loan Agreement, or the creation or existence of any Obligations; (iii) notice
of the amount of the Obligations, subject, however, each Guarantor's right to
make inquiry of Foothill to ascertain the amount of the Obligations at any
reasonable time; (iv) notice of any adverse change in the financial condition
of Borrower or of any other fact that might increase such Guarantors' risk
hereunder; (v) notice of presentment for payment, demand, protest, and notice
thereof as to any instrument among the Loan Documents; (vi) notice of any
unmatured Event of Default or Event of Default under the Loan Agreement; and
(vii) all other notices (except if such notice is specifically required to be
given to such Guarantor under this Agreement or the other Loan Documents) and
demands to which such Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable
law, each of the Guarantors hereby waives the right by statute or otherwise
to require Foothill to institute suit against Borrower or to exhaust any
rights and remedies which Foothill has or may have against Borrower. Each of
the Guarantors further waives any defense arising by reason of any disability
or other defense (other than the defense that the Obligations shall have been
fully and finally indefeasibly paid) of Borrower or by reason of the
cessation from any cause (other than that the Obligations shall have been
fully and finally indefeasibly paid) whatsoever of the liability of Borrower
in respect thereof.
14
<PAGE>
(c) To the maximum extent permitted by law, each of
the Guarantors hereby waives: (i) any rights to assert against Foothill any
defense (legal or equitable), set-off, counterclaim, or claim which any
Guarantor may now or at any time hereafter have against Borrower or any other
party liable to Foothill on account of or with respect to the Obligations;
(ii) any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future sufficiency,
validity, or enforceability of the Obligations; (iii) any defense arising by
reason of any claim or defense based upon an election of remedies by Foothill
including, to the extent applicable, the provisions of Sections 580d and 726
of the California Code of Civil Procedure, or any similar law of California
or any other jurisdiction; (iv) the benefit of any statute of limitations
affecting such Guarantor's liability hereunder or the enforcement thereof.
(d) To the maximum extent permitted by law each
Guarantor hereby waives any right of subrogation such Guarantor has or may
have as against Borrower with respect to the Obligations. In addition, to
the maximum extent permitted by law, each of the Guarantors hereby waives any
right to proceed against Borrower, now or hereafter, for contribution,
indemnity, reimbursement, or any other suretyship rights and claims
(irrespective of whether direct or indirect, liquidated or contingent), with
respect to the Obligations. To the maximum extent permitted by law, each of
the Guarantors also hereby waives any right to proceed or to seek recourse
against or with respect to any property or asset of Borrower. Each of the
Guarantors hereby agrees that, in light of the waivers contained in this
Section, none of the Guarantors shall be deemed to be a "creditor" (as that
term is defined in the Bankruptcy Code or otherwise) of Borrower, whether for
purposes of the application of Sections 547 or 550 of the United States
Bankruptcy Code or otherwise.
(e) If any of the Secured Obligations at any time
are secured by a mortgage or deed of trust upon real property, Foothill may
elect, in its sole discretion, upon the occurrence and during the continuance
of an Event of Default, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing this Agreement, without diminishing or affecting the liability of
the Guarantors hereunder. Each of the Guarantors understands that (a) by
virtue of the operation of California's antideficiency law applicable to
nonjudicial foreclosures, an election by Foothill nonjudicially to foreclose
such a mortgage or deed of trust probably would have the effect of impairing
or destroying rights of subrogation, reimbursement, contribution, or
indemnity of each of the Guarantors against Borrower or guarantors or
sureties, and (b) absent the waiver given by the Guarantors herein, such an
election might estop Foothill from enforcing this Agreement against the
Guarantors. Understanding the foregoing, and understanding that each of the
Guarantors is hereby relinquishing a defense to the enforceability of this
Agreement, each of the Guarantors hereby waives any right to assert against
Foothill any defense to the enforcement of this Agreement, whether
denominated "estoppel" or otherwise, based on or arising from an election by
Foothill nonjudicially to foreclose any such mortgage or deed of trust. Each
of the Guarantors understands that the effect of the foregoing waiver may be
that such Guarantors may have liability hereunder for amounts with respect
to which such Guarantor may be left without rights of subrogation,
reimbursement, contribution, or indemnity against Borrower or guarantors or
sureties. Each
15
<PAGE>
of the Guarantors also agrees that the "fair market value" provisions of
Section 580a of the California Code of Civil Procedure shall have no
applicability with respect to the determination of such Guarantor's liability
under this Agreement.
(f) Without limiting the generality of any other
waiver or other provision set forth in this Guaranty, Guarantor waives all
rights and defenses that Guarantor may have because Debtor's debt is secured
by real property. This means, among other things:
(i) Guarantied Party may collect from Guarantor
without first foreclosing on any real or personal property collateral pledged
by Debtor.
(ii) If Guarantied Party forecloses on any real
property collateral pledged by the Debtor:
(1) the amount of the debt may be reduced only by
the price for which that collateral is sold at the foreclosure sale, even if
the collateral is worth more than the sale price.
(2) Guarantied Party may collect from Guarantor
even if Guarantied Party, by foreclosing on the real property collateral, has
destroyed any right Guarantor may have to collect from Debtor.
This is an unconditional and irrevocable waiver of any
rights and defenses Guarantor may have because Debtor's debt is secured by
real property. These rights and defenses based upon Section 580a, 580b,
580d, or 726 of the Code of Civil Procedure.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, EACH OF THE GUARANTORS
HEREBY WAIVES, TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND
ALL DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA
CIVIL CODE Sections 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845,
2848, 2849, AND 2850, TO THE EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL
PROCEDURE Sections 580a, 580b, 580c, 580d, AND 726, AND, TO THE EXTENT
APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
(h) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, EACH OF THE GUARANTORS
HEREBY WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY
FOOTHILL, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL
FORECLOSURE WITH RESPECT TO SECURITY FOR A SECURED OBLIGATION, HAS DESTROYED
GUARANTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST
16
<PAGE>
THE BORROWER BY THE OPERATION OF SECTION 580d OF THE CODE OF CIVIL PROCEDURE
OR OTHERWISE.
10. NOTICES.
All notices and other communications hereunder shall be made
in accordance with the Guaranty.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA. THE GUARANTORS AND FOOTHILL AGREE THAT ALL ACTIONS
OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
OF THE GUARANTORS AND FOOTHILL EACH WAIVE, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. THE GUARANTORS AND FOOTHILL HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND
ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF THE GUARANTORS AND
FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12. DESTRUCTION OF THE GUARANTORS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless any
Guarantor requests, in writing, the return of said documents, schedules, or
other papers and makes arrangements, at such Guarantor's expense, for their
return.
17
<PAGE>
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by each of the Guarantors and accepted and
executed by Foothill.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that the Guarantors may not assign this Agreement
or any rights or duties hereunder without Foothill's prior written consent
and any prohibited assignment shall be absolutely void. No consent to an
assignment by Foothill shall release any of the Guarantors from its
Guarantied Obligations. Foothill may assign this Agreement and its rights and
duties hereunder and no consent or approval by the Guarantors is required in
connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of,
or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating
to any of the Guarantors or any of the Guarantors' business. To the extent
that Foothill assigns its rights and obligations hereunder to a third Person,
Foothill thereafter shall be released from such assigned obligations to the
Guarantors and such assignment shall effect a novation among the Guarantors
and such third Person.
13.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against
Foothill or the Guarantors, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by all parties
and shall be construed and interpreted according to the ordinary meaning of
the words used so as to fairly accomplish the purposes and intentions of all
parties hereto.
13.5 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.
13.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Foothill and each of the Guarantors.
13.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. 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. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective
as delivery of an original executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile also
shall deliver an original
18
<PAGE>
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Secured Obligations by the Guarantors or the
transfer by any Guarantor to Foothill of any property of such Guarantor
should for any reason subsequently be declared to be void or voidable under
any state or federal law relating to creditors' rights, including provisions
of the Bankruptcy Code relating to fraudulent conveyances, preferences, and
other voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Foothill is required to repay
or restore, in whole or in part, any such Voidable Transfer, or elects to do
so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay
or restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of each of the Guarantors
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
[SIGNATURE PAGES TO FOLLOW.]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
FOOTHILL CAPITAL CORPORATION, a California
Corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
NETWORK COMPUTING DEVICES AUSTRALIA PTY LTD.,
a company organized under the laws of
Australia
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Secretary
--------------------------------------
NETWORK COMPUTING DEVICES (BENELUX) B.V., a
company organized under the laws of The
Netherlands
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Managing Director
--------------------------------------
NETWORK COMPUTING DEVICES (CANADA), INC., a
corporation organized under the laws of
Canada
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Chief Financial Officer
--------------------------------------
S-1
<PAGE>
NETWORK COMPUTING DEVICES (FRANCE) S.A.R.L.,
a company organized under the laws of France
By:
-----------------------------------------
Name: John DeSantis
---------------------------------------
Title: Sole General Manager
--------------------------------------
NETWORK COMPUTING DEVICES GMBH, a company
organized under the laws of Germany
By:
-----------------------------------------
Name: Eric Grayson
---------------------------------------
Title: Managing Director
--------------------------------------
NCD GRAPHIC SOFTWARE CORPORATION, a
California corporation
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Chief Financial Officer
--------------------------------------
NETWORK COMPUTING DEVICES (FSC), INC., a Guam
corporation
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Chief Financial Officer
--------------------------------------
NCD ACQUISITION CORP., an Indiana corporation
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Chief Financial Officer
--------------------------------------
S-2
<PAGE>
NETWORK COMPUTING DEVICES (UK), LIMITED., a
company organized under the laws of England
By:
-----------------------------------------
Name: Gregory S. Wood
---------------------------------------
Title: Director
--------------------------------------
NETWORK COMPUTING DEVICES SCANDINAVIA AB, a
company organized under the laws of Sweden
By:
-----------------------------------------
Name: Rudolph G. Morin
---------------------------------------
Title: Director
--------------------------------------
S-3
<PAGE>
SUBORDINATION AGREEMENT
(INTERCOMPANY)
THIS SUBORDINATION AGREEMENT (this "Agreement"), is entered
into as of March [ ], 2000, among Foothill Capital Corporation, a California
corporation ("Foothill") and the undersigned Subsidiaries of Network
Computing Devices, Inc., a Delaware corporation (individually and
collectively, the "Borrower Subsidiaries"), with reference to the following
recitals of fact:
WHEREAS, Network Computing Devices, Inc., a Delaware
corporation ("Borrower") and Foothill have entered into that certain Loan and
Security Agreement dated as of the date hereof (as amended, modified,
renewed, extended, or replaced from time to time, the "Loan Agreement"),
pursuant to which Foothill has agreed to make certain loans to Borrower;
WHEREAS, the Borrower Subsidiaries have made or hereafter may
make loans and other advances to Borrower or Borrower may otherwise incur
indebtedness to the Borrower Subsidiaries; and
WHEREAS, the Borrower Subsidiaries have agreed to the
subordination of such indebtedness to it, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, conditions, representations, and warranties set forth herein and
for other good and valuable consideration, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN LOAN AGREEMENT. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the
meanings assigned to them in the Loan Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"Dollars" means and refers to United States of America dollars
or such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts in
the United States of America.
"Insolvency Event" has the meaning set forth in SECTION 3.
"Senior Debt" shall mean all indebtedness and liabilities
(including all principal, interest (including interest accruing after the
commencement of a Proceeding whether or not such interest is allowed as a
claim therein), default interest, fees, charges, and collection expenses) now
or hereafter owed by Borrower under the Loan Agreement or any other Loan
Document.
<PAGE>
"Subordinated Debt" means all indebtedness, liabilities and
other monetary obligations of Borrower owing to the Borrower Subsidiaries,
whether now existing or hereafter arising, and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined, including all principal, all interest accrued thereon, all
fees, and all other amounts payable by Borrower to the Borrower Subsidiaries.
"Subordinated Debt Documents" means any agreement, note, or
other document evidencing the Subordinated Debt.
"Subordinated Debt Payment" means any payment or distribution
by or on behalf of Borrower, directly or indirectly, of assets of Borrower of
any kind or character, whether in cash, property or securities, including on
account of the purchase, redemption or other acquisition of Subordinated
Debt, as a result of any collection, sale or other disposition of collateral,
or by setoff, exchange or in any other manner, for or on account of the
Subordinated Debt.
(c) INTERPRETATION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. References to agreements and
other contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto. References to statutes or
regulations are to be construed as including all statutory and regulatory
provisions consolidating, amending or replacing the statute or regulation
referred to. The captions and headings are for convenience of reference only
and shall not affect the construction of this Agreement.
SECTION 2 SUBORDINATION TO PAYMENT OF SENIOR DEBT.
All payments on account of the Subordinated Debt shall be
subject, subordinate and junior, in right of payment and exercise of
remedies, to the extent and in the manner set forth herein, to the prior
payment, in full, in cash (or other consideration acceptable to Foothill in
its sole discretion and agreed to by Foothill) of the Senior Debt.
SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF BORROWER.
In the event of any payment or distribution of assets or
properties of Borrower of any kind or character, whether in cash, property,
or securities, upon the dissolution, winding up, or total or partial
liquidation or reorganization, readjustment, arrangement, or similar
proceeding relating to Borrower or its property, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership, arrangement or
similar proceedings or upon an assignment for the benefit of creditors, or
upon any other marshaling or composition of the assets and liabilities of
Borrower, or otherwise (such events, collectively, the "Insolvency Events"):
(i) all amounts
2
<PAGE>
owing on account of the Senior Debt shall first be paid, in full, in cash, or
payment provided for in cash (or other consideration acceptable to Foothill
in its sole discretion and agreed to by Foothill), before any Subordinated
Debt Payment is made; and (ii) to the extent permitted by applicable law, any
Subordinated Debt Payment to which any Borrower Subsidiary would be entitled
except for the provisions hereof, shall, in the event of any such Insolvency
Event, be paid or delivered by the trustee in bankruptcy, receiver, assignee
for the benefit of creditors, or other liquidating agent making such payment
or distribution directly to Foothill for application to the payment of the
Senior Debt in accordance with clause (i), after giving effect to any
concurrent payment or distribution or provision therefor to Foothill in
respect of such Senior Debt.
SECTION 4 PAYMENTS ON SUBORDINATED DEBT.
(a) PERMITTED PAYMENTS. So long as no Event of Default or
Default shall have occurred and be continuing or would result therefrom,
Borrower may make, and the Borrower Subsidiaries shall be entitled to
receive, Subordinated Debt Payments made in the ordinary course of business
solely to the extent permitted in the Loan Agreement.
(b) PROHIBITION ON PAYMENTS. Notwithstanding the provisions
of SUBSECTION 4(a) above, (i) upon the occurrence and during the continuation
of any Default or Event of Default, or (ii) if a Default or Event of Default
would result therefrom then, in either case, no Subordinated Debt Payment
shall be made or agreed to be made by Borrower or accepted by any Borrower
Subsidiary on account of the principal of, premium or interest on, or any
other amounts in respect of the Subordinated Debt, and Borrower shall not
segregate or hold in trust money for any such payment or distribution.
SECTION 5 SUBORDINATION OF REMEDIES.
As long as any Senior Debt shall remain outstanding and unpaid,
no Borrower Subsidiary shall, without the prior written consent of Foothill:
(i) accelerate, make demand, or otherwise make due and
payable prior to the original stated maturity thereof any Subordinated Debt
or bring suit or institute any other actions or proceedings to enforce its
rights or interests in respect of the obligations of Borrower owing to such
Borrower Subsidiary;
(ii) exercise any rights under or with respect to guaranties
of the Subordinated Debt, if any;
(iii) exercise any rights to setoffs and counterclaims in
respect of any indebtedness, liabilities or obligations of Borrower to
Borrower against any of the Subordinated Debt; or
(iv) commence, or cause to be commenced, or join with any
creditor other than Foothill in commencing, any bankruptcy, insolvency or
receivership proceeding against Borrower.
3
<PAGE>
SECTION 6 PAYMENT OVER TO FOOTHILL.
Notwithstanding the provisions of SECTIONS 3, 4, AND 5, in the
event that any Subordinated Debt Payments shall be received in contravention
of such SECTIONS 3, 4, AND 5 by any Borrower Subsidiary before all Senior
Debt is paid, in full, in cash (or other consideration acceptable to Foothill
in its sole discretion and agreed to by Foothill), such Subordinated Debt
Payments shall be held in trust for the benefit of Foothill and shall be paid
over or delivered to Foothill for application to the payment, in full, in
cash (or other consideration acceptable to Foothill in its sole discretion
and agreed to by Foothill) of all Senior Debt remaining unpaid to the extent
necessary to give effect to such SECTIONS 3, 4, AND 5, after giving effect to
any concurrent payments or distributions to Foothill in respect of the Senior
Debt.
SECTION 7 AUTHORIZATION TO FOOTHILL.
If, while any Subordinated Debt is outstanding, any Insolvency
Event shall occur relating to Borrower or its property: (i) Foothill is
hereby irrevocably authorized and empowered (in the name of any one or more
Borrower Subsidiaries or otherwise), but shall have no obligation, to demand,
sue for, collect, and receive every payment or distribution in respect of the
Subordinated Debt and give acquittance therefor and to file claims and proofs
of claim and take such other action (including voting the Subordinated Debt)
as it may deem necessary or advisable for the exercise or enforcement of any
of the rights or interests of Foothill; and (ii) each Borrower Subsidiary
shall promptly take such action as Foothill reasonably may request (A) to
collect the Subordinated Debt for the account of Foothill and to file
appropriate claims or proofs of claim in respect of the Subordinated Debt,
(B) to execute and deliver to Foothill such powers of attorney, assignments,
and other instruments as it may request to enable it to enforce any and all
claims with respect to the Subordinated Debt, and (C) to collect and receive
any and all Subordinated Debt Payments to the extent permitted by applicable
law.
SECTION 8 CERTAIN AGREEMENTS OF BORROWER.
(a) NO BENEFITS. Each Borrower Subsidiary understands that
there may be various agreements among Foothill and Borrower evidencing and
governing the Senior Debt, and such Borrower Subsidiary acknowledges and
agrees that such agreements are not intended to confer any benefits on such
Borrower Subsidiary and that Foothill shall have no obligation to such
Borrower Subsidiary or any other Person to exercise any rights, enforce any
remedies, or take any actions which may be available to them under such
agreements.
(b) NO INTERFERENCE. Each Borrower Subsidiary acknowledges
that Borrower has granted Foothill a security interest in all of Borrower's
assets, and agrees that, so long as such Borrower Subsidiary holds
Subordinated Debt, such Borrower Subsidiary will not interfere with or in any
manner oppose a disposition of any Collateral by Foothill in accordance with
the terms of the agreements governing such grants and applicable law.
(c) RELIANCE BY FOOTHILL. Each Borrower Subsidiary
acknowledges and agrees that Foothill will have relied upon and will continue to
rely upon the subordination provisions
4
<PAGE>
provided for herein and the other provisions hereof in entering into the Loan
Documents and making or making the Advances thereunder.
(d) WAIVERS. Each Borrower Subsidiary waives any and all
notice of the incurrence of the Senior Debt or any part thereof and any right
to require marshaling of assets.
(e) OBLIGATIONS OF BORROWER SUBSIDIARIES NOT AFFECTED. Each
Borrower Subsidiary agrees that at any time and from time to time, without
notice to or the consent of such Borrower Subsidiary, without incurring
responsibility to such Borrower Subsidiary, and without impairing or
releasing the subordination provided for herein or otherwise impairing the
rights of Foothill hereunder: (i) the time for Borrower's performance of or
compliance with any of its agreements contained in the Loan Documents may be
extended or such performance or compliance may be waived by Foothill; (ii)
the agreements of Borrower with respect to the Loan Documents may from time
to time be modified by Borrower and Foothill for the purpose of adding any
requirements thereto or changing in any manner the rights and obligations of
Borrower or Foothill thereunder; (iii) the manner, place or terms for payment
of Senior Debt or any portion thereof may be altered or the terms for payment
extended, or the Senior Debt may be renewed in whole or in part; (iv) the
maturity of the Senior Debt may be accelerated in accordance with the terms
of any present or future agreement by Borrower and Foothill; (v) any
Collateral may be sold, exchanged, released or substituted in accordance with
the Loan Documents and any Lien in favor of Foothill may be terminated,
subordinated, or fail to be perfected or become unperfected; (vi) any Person
liable in any manner for Senior Debt may be discharged, released, or
substituted; and (vii) all other rights against Borrower, any other Person,
or with respect to any Collateral may be exercised (or Foothill may waive or
refrain from exercising such rights) in accordance with the Loan Documents.
(f) RIGHTS OF FOOTHILL NOT TO BE IMPAIRED. No right of
Foothill to enforce the subordination provided for herein or to exercise its
other rights hereunder shall at any time in any way be prejudiced or impaired
by any act or failure to act by Borrower hereunder or under or in connection
with the other Loan Documents or by any noncompliance by Borrower with the
terms and provisions and covenants herein or in any other Loan Document,
regardless of any knowledge thereof Foothill may have or otherwise be charged
with.
(g) FINANCIAL CONDITION OF BORROWER. No Borrower Subsidiary
shall have any right to require Foothill to obtain or disclose any
information with respect to: (i) the financial condition or character of
Borrower or the ability of Borrower to pay and perform the Senior Debt; (ii)
the Senior Debt; (iii) the Collateral or other security for any or all of the
Senior Debt; (iv) the existence or nonexistence of any guarantees of, or any
other subordination agreements with respect to, all or any part of the Senior
Debt; (v) any action or inaction on the part of Foothill or any other Person;
or (vi) any other matter, except as otherwise expressly required by any
provision of any Loan Document or law (except to the extent that any
otherwise applicable requirement of law has been waived by such Borrower
Subsidiary pursuant to a legally enforceable waiver).
5
<PAGE>
(h) ACQUISITION OF LIENS OR GUARANTIES. Unless otherwise
expressly permitted under the Loan Documents, no Borrower Subsidiary shall,
without the prior consent of Foothill, acquire any right or interest in or to
any Collateral or accept any guaranties for the Subordinated Debt.
SECTION 9 SUBROGATION.
(a) SUBROGATION. Until the payment and performance in full
of all Senior Debt, each Borrower Subsidiary shall not have, and shall not
directly or indirectly exercise, any rights that it may acquire by way of
subrogation under this Agreement, by any payment or distribution to Foothill
hereunder or otherwise.
(b) PAYMENTS OVER TO THE BORROWER SUBSIDIARIES. If any
payment or distribution to which the Borrower Subsidiaries would otherwise
have been entitled but for the provisions of SECTION 3, 4, OR 5 shall have
been applied pursuant to the provisions of SECTION 3, 4, OR 5 to the payment
of all amounts payable under the Senior Debt, the Borrower Subsidiaries shall
be entitled to receive from Foothill any payments or distributions received
by Foothill in excess of the amount sufficient to pay in full all amounts
payable under or in respect of the Senior Debt. If any such excess payment
is made to Foothill, Foothill shall promptly remit such excess to the
Borrower Subsidiaries and until so remitted shall hold such excess payment
for the benefit of the Borrower Subsidiaries. Each Borrower Subsidiary
hereby agrees that the remittance by Foothill of such excess to any Borrower
Subsidiary shall be deemed a remittance for the benefit of all the Borrower
Subsidiaries.
SECTION 10 CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing
agreement of subordination and shall continue in effect and be binding upon
the Borrower Subsidiaries until payment and performance in full of the Senior
Debt. The subordinations, agreements, and priorities set forth herein shall
remain in full force and effect regardless of whether any party hereto in the
future seeks to rescind, amend, terminate, or reform, by litigation or
otherwise, its respective agreements with Borrower.
(b) REINSTATEMENT. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if, for any reason, any
payment of the Senior Debt by or on behalf of Borrower shall be rescinded or
must otherwise be restored by Foothill, whether as a result of an Insolvency
Event or otherwise.
SECTION 11 TRANSFER OF SUBORDINATED DEBT.
No Borrower Subsidiary may assign or transfer its rights and
obligations in respect of the Subordinated Debt or any interest in the
Subordinated Debt without the prior written consent of Foothill (which
consent shall not be unreasonably withheld), and any such transferee or
assignee, as a condition to acquiring an interest in the Subordinated Debt
shall agree to be bound hereby, in form reasonably satisfactory to Foothill.
6
<PAGE>
SECTION 12 OBLIGATIONS OF BORROWER NOT AFFECTED.
The provisions of this Agreement are intended solely for the
purpose of defining the relative rights against Borrower of the Borrower
Subsidiaries, on the one hand, and Foothill, on the other hand. Nothing
contained in this Agreement shall (i) impair, as between Borrower and the
Borrower Subsidiaries, the obligation of Borrower to pay its obligations with
respect to the Subordinated Debt as and when the same shall become due and
payable in accordance with the terms thereof, or (ii) otherwise affect the
relative rights against Borrower of the Borrower Subsidiaries, on the one
hand, and the creditors of Borrower (other than Foothill), on the other hand.
SECTION 13 FURTHER ASSURANCES AND ADDITIONAL ACTS.
(a) ENDORSEMENT OF SUBORDINATED DEBT DOCUMENTS. At the
request of Foothill, all documents and instruments evidencing any of the
Subordinated Debt shall be endorsed with a legend noting that such documents
and instruments are subject to this Agreement, and the Borrower Subsidiaries
shall promptly deliver to Foothill evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each of the
Borrower Subsidiaries and Borrower shall execute, acknowledge, deliver, file,
notarize and register at its own reasonable expense all such further
agreements, instruments, certificates, financing statements, termination
statements, documents and assurances, and perform such acts as Foothill
reasonably shall deem necessary or appropriate to effectuate the purposes of
this Agreement, and promptly provide Foothill with evidence of the foregoing
reasonably satisfactory in form and substance to Foothill.
SECTION 14 NOTICES.
All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including by facsimile
transmission) and shall be mailed, sent, or delivered at or to the address or
facsimile number of the respective party or parties set forth below:
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Attn: Business Finance Division Manager
Telecopier: 310.478.9788
With a copy to: BROBECK, PHLEGER & HARRISON LLP
550 S. Hope Street, Suite 2100
Los Angeles, CA 90071
Attn: John Francis Hilson, Esq.
Telecopier: 213.239.1324
7
<PAGE>
If to any Borrower C/O NETWORK COMPUTING DEVICES, INC.
Subsidiary: 350 North Bernardo Avenue
Mountain View, California 94043
Attn: Chief Financial Officer
Telecopies: 650.961.7711
With a copy to:
------------------------------------------------
------------------------------------------------
Attn:
--------------------------------------------
Telecopier:
-------------------------------------
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 parties. All notices and communications sent in accordance with
this section shall be effective (i) if delivered by hand, when delivered;
(ii) if sent by mail, upon the earlier of the date of receipt or five (5)
Business Days after deposit in the mail, first class (or air mail, with
respect to communications to be sent to or from the United States), postage
prepaid; and (iii) if sent by facsimile transmission, when sent.
SECTION 15 NO WAIVER; CUMULATIVE REMEDIES.
No failure on the part of Foothill to exercise, and no delay in
exercising, any right, remedy, power, or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power, or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power, or privilege. The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers, and privileges that may otherwise be available to Foothill.
SECTION 16 COSTS AND EXPENSES.
(a) PAYMENTS BY BORROWER. Borrower agrees to pay to
Foothill on demand the reasonable out-of-pocket costs and expenses of
Foothill, and the reasonable fees and disbursements of counsel to Foothill,
in connection with the negotiation, preparation, execution, and delivery of
this Agreement, and any amendments, modifications, or waivers of the terms
thereof.
(b) PAYMENTS BY BORROWER AND THE BORROWER SUBSIDIARIES.
Each of Borrower and the Borrower Subsidiaries jointly and severally agrees
to pay to Foothill on demand all reasonable out-of-pocket costs and expenses
of Foothill, and the fees and disbursements of counsel, in connection,
following a breach hereof, with the enforcement or attempted enforcement of,
and preservation of rights or interests under, this Agreement, including any
reasonable out-of-pocket losses, costs and expenses sustained by Foothill as
a result of any failure by any of the Borrower Subsidiaries to perform or
observe its obligations contained in this Agreement.
8
<PAGE>
SECTION 17 SURVIVAL.
All covenants, agreements, representations and warranties made
in this Agreement shall, except to the extent otherwise provided herein,
survive the execution and delivery of this Agreement, and shall continue in
full force and effect so long as any Senior Debt remains unpaid. Without
limiting the generality of the foregoing, the obligations of Borrower and the
Borrower Subsidiaries under SECTION 16 shall survive the satisfaction of the
Senior Debt.
SECTION 18 BENEFITS OF AGREEMENT.
This Agreement is entered into for the sole protection and
benefit of the parties hereto and their successors and assigns, and no other
Person shall be a direct or indirect beneficiary of, or shall have any direct
or indirect cause of action or claim in connection with, this Agreement.
SECTION 19 BINDING EFFECT.
This Agreement shall be binding upon, inure to the benefit of
and be enforceable by Borrower, the Borrower Subsidiaries, and Foothill and
their respective successors and assigns.
SECTION 20 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
SECTION 21 SUBMISSION TO JURISDICTION.
EACH BORROWER SUBSIDIARY HEREBY (i) SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL COURTS
OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE OF
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii)
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN SUCH COURTS, (iii) IRREVOCABLY WAIVES (TO THE EXTENT
PERMITTED BY APPLICABLE LAW) ANY OBJECTION WHICH THEY NOW OR HEREAFTER MAY
HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
OF THE FOREGOING COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION
OR PROCEEDING IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND
(iv) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 22 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
9
<PAGE>
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of Borrower, Foothill, and the Borrower Subsidiaries with respect
to the matters set forth herein and supersedes any prior agreements,
commitments, drafts, communications, discussions, and understandings, oral or
written, with respect thereto.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision
of this Agreement shall in any event be effective unless the same shall be in
writing and signed by Borrower, the Borrower Subsidiaries, and Foothill; and
no waiver of any provision of this Agreement, or consent to any departure by
Borrower or the Borrower Subsidiaries therefrom, shall in any event be
effective unless the same shall be in writing and signed by Foothill. Any
such amendment, waiver, or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 23 CONFLICTS WITH SUBORDINATED DEBT DOCUMENTS.
In case of any conflict or inconsistency between any terms of
this Agreement, on the one hand, and any of the Subordinated Debt Documents,
on the other hand, then the terms of this Agreement shall control.
SECTION 24 SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only
to the extent of such prohibition or invalidity without affecting the
remaining provisions of this Agreement or the validity or effectiveness of
such provision in any other jurisdiction.
SECTION 25 INTERPRETATION.
This Agreement is the result of negotiations between, and has
been reviewed by counsel to, Foothill, the Borrower Subsidiaries, and
Borrower and is the product of all parties hereto. Accordingly, this
Agreement shall not be construed against Foothill merely because of
Foothill's involvement in the preparation hereof.
SECTION 26 COUNTERPARTS; TELEFACSIMILE EXECUTION.
This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective
as delivery of an original executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile also
shall deliver an original executed
10
<PAGE>
counterpart of this Agreement, but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.
SECTION 27 TERMINATION OF AGREEMENT.
Upon payment and performance in full of the Senior Debt, this
Agreement shall terminate and Foothill shall promptly execute and deliver to
Borrower and the Borrower Subsidiaries (in each case, at Borrower's expense)
such documents and instruments as shall be necessary to evidence such
termination; provided, however, that the obligations of Borrower and the
Borrower Subsidiaries under SECTION 16 shall survive such termination.
[Remainder of page left intentionally blank.]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
FOOTHILL CAPITAL CORPORATION,
a California Corporation
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES (AUSTRALIA)
Pty. Ltd., a company organized under
the laws of Australia
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES (BENELUX)
B.V., a company organized under the
laws of [ ]
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES (CANADA),
INC., a corporation organized under
the laws of Canada
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES (FRANCE)
S.A.R.L., a company organized under
the laws of France
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
S-1
<PAGE>
NETWORK COMPUTING DEVICES (GERMANY),
GMBH, a company organized under the
laws of Germany
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NCD GRAPHIC SOFTWARE CORPORATION, an
Oregon corporation
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES (FSC), INC.,
a Guam corporation
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NCD ACQUISITION CORP., an Indiana
corporation
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES (UK), INC.,
a company organized under the laws of
England
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
NETWORK COMPUTING DEVICES
(SCANDINAVIA) AB, a company organized
under the laws of Sweden
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
S-2
<PAGE>
BORROWER ACKNOWLEDGEMENT
Borrower has received a copy of, and has read, the foregoing Subordination
Agreement. Borrower agrees to be bound by such agreement, and not to take
any action that would breach or violate the terms thereof. Borrower consents
to the execution, delivery, and performance of such agreement by Foothill and
the Borrower Subsidiaries, and agrees that Borrower's obligations to Foothill
and the Borrower Subsidiaries are not diminished by such agreement. Borrower
acknowledges that it has no rights under the foregoing agreement and is not a
third party beneficiary of such agreement.
Dated as of the date first set forth above:
NETWORK COMPUTING DEVICES, INC.
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title
----------------------------------
S-3
<PAGE>
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this "Agreement"), dated as of March
[], 2000 is made by NETWORK COMPUTING DEVICES, INC., a Delaware corporation
("Debtor"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation
("Secured Party"), with reference to the following:
WHEREAS, Debtor and Secured Party have entered into that certain Loan
and Security Agreement, dated as of the date hereof (as amended, modified,
renewed or extended from time to time, the "Loan Agreement"), pursuant to which
Secured Party has agreed to make certain financial accommodations to Debtor, and
pursuant to which Debtor has granted to Secured Party a security interest in
(among other things) certain of the general intangibles of Debtor.
WHEREAS, pursuant to the Loan Agreement and as one of the conditions
precedent to the obligations of Secured Party under the Loan Agreement, Debtor
has agreed to execute and deliver this Agreement to Secured Party for filing
with the PTO and with any other relevant recording systems in any domestic or
foreign jurisdiction, and as further evidence of and to effectuate Secured
Party's existing security interests in the patents and other general intangibles
described herein.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which is hereby acknowledged, Debtor hereby agrees in favor of Secured Party
as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 ET SEQ.), as amended, and any successor statute.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in the Loan
Agreement.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances.
"OBLIGATIONS" shall have the meaning ascribed thereto in the Loan
Agreement.
"PATENT COLLATERAL" has the meaning set forth in SECTION 2.
- 1 -
<PAGE>
"PATENTS" has the meaning set forth in SECTION 2.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PROCEEDS" means whatever is receivable or received from or upon the
sale, lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Patent Collateral, including "proceeds" as
defined at UCC Section 9306, and all proceeds of proceeds. Proceeds shall
include (i) any and all accounts, chattel paper, instruments, general
intangibles, cash and other proceeds, payable to or for the account of Debtor,
from time to time in respect of any of the Patent Collateral, (ii) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to or for the
account of Debtor from time to time with respect to any of the Patent
Collateral, (iii) any and all claims and payments (in any form whatsoever) made
or due and payable to Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Patent Collateral by any Person acting under color of governmental
authority, and (iv) any and all other amounts from time to time paid or payable
under or in connection with any of the Patent Collateral or for or on account of
any damage or injury to or conversion of any Patent Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
successor thereto.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of California.
"UNITED STATES" and "U.S." each mean the United States of America.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
ascribed to them in the UCC.
(c) TERMS DEFINED IN THE LOAN AGREEMENT. Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to them
in the Loan Agreement.
(d) INTERPRETATION. In this Agreement, except to the extent the
context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto, respectively, and to a
subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears.
- 2 -
<PAGE>
(ii) The words "hereof," "herein," "hereto," "hereunder"
and the like mean and refer to this Agreement as a whole and not merely to
the specific Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
(viii) In the event of a direct conflict between the terms
and provisions of this Agreement and the Loan Agreement, it is the
intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in concert
with each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; PROVIDED, HOWEVER, that the inclusion
herein of additional obligations on the part of the Debtor and supplemental
rights and remedies in favor of Secured Party (whether under California law
or applicable federal law), in each case in respect of the Patent
Collateral, shall not be deemed a conflict with the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY INTEREST. As security for
the payment and performance of the Obligations, Debtor hereby grants, assigns,
transfers, and conveys to Secured Party a continuing security interest in all of
Debtor's right, title and interest in, to and under the following property,
whether now existing or hereafter acquired or arising (collectively, the "Patent
Collateral"):
(i) all letters patent of the U.S. or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the U.S. or any other country, owned, held, or used by
Debtor in whole or in part, including all existing U.S. patents and patent
applications of Debtor which are described in SCHEDULE A hereto, as the
same may be amended or supplemented pursuant hereto
- 3 -
<PAGE>
from time to time, and together with and including all patent licenses held
by Debtor, including such patent licenses which are described in SCHEDULE
A hereto, together with all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof and the inventions disclosed
therein, and all rights corresponding thereto throughout the world,
including the right to make, use, lease, sell and otherwise transfer
the inventions disclosed therein, and all proceeds thereof, including all
license royalties and proceeds of infringement suits (collectively,
the "Patents");
(ii) all claims, causes of action and rights to sue for
past, present and future infringement or unconsented use of any of the
Patents and all rights arising therefrom and pertaining thereto;
(iii) all general intangibles (as defined in the UCC) and
all intangible intellectual or other similar property of Debtor of any kind
or nature, whether now owned or hereafter acquired or developed, associated
with or arising out of any of the Patents and not otherwise described
above; and
(iv) all products and Proceeds of any and all of the
foregoing.
(b) CONTINUING SECURITY INTEREST. Debtor agrees that this
Agreement shall create a continuing security interest in the Patent Collateral
which shall remain in effect until terminated in accordance with SECTION 16.
(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement shall be
fully incorporated into the Loan Agreement and all understandings, agreements
and provisions contained in the Loan Agreement shall be fully incorporated into
this Agreement. Without limiting the foregoing, the Patent Collateral described
in this Agreement shall constitute part of the Collateral in the Loan Agreement.
(d) LICENSES. Anything in the Loan Agreement or this Agreement
to the contrary notwithstanding, Debtor may grant non-exclusive licenses of the
Patent Collateral (subject to the security interest of Secured Party therein) in
the ordinary course of business and consistent with past practice, PROVIDED,
that no Event of Default shall have occurred and be continuing.
3. FURTHER ASSURANCES; APPOINTMENT OF SECURED PARTY AS
ATTORNEY-IN-FACT. Debtor at its expense shall execute and deliver, or cause
to be executed and delivered, to Secured Party any and all documents and
instruments, in form and substance satisfactory to Secured Party, and take
any and all action, which Secured Party may reasonably request from time to
time, to perfect and continue perfected, maintain the priority of or provide
notice of Secured Party's security interest in the Patent Collateral and to
accomplish the purposes of this Agreement. If Debtor refuses to execute and
deliver, or fails timely to execute and deliver, any of the documents it is
requested to execute and deliver by Secured Party in accordance with the
foregoing, Secured Party shall have the right to, in the name of Debtor,
- 4 -
<PAGE>
or in the name of Secured Party or otherwise, without notice to or assent by
Debtor, and Debtor hereby irrevocably constitutes and appoints Secured Party
(and any of Secured Party's officers or employees or agents designated by
Secured Party) as Debtor's true and lawful attorney-in-fact with full power
and authority, (i) to sign the name of Debtor on all or any of such documents
or instruments, and perform all other acts, that Secured Party deems
necessary or advisable in order to perfect or continue perfected, maintain
the priority or enforceability of or provide notice of Secured Party's
security interest in, the Patent Collateral, and (ii) to execute any and all
other documents and instruments, and to perform any and all acts and things
for and on behalf of Debtor, which Secured Party may deem necessary or
advisable to maintain, preserve and protect the Patent Collateral and to
accomplish the purposes of this Agreement, including (A) upon the occurrence
and during the continuance of any Event of Default, to defend, settle, adjust
or institute any action, suit or proceeding with respect to the Patent
Collateral, (B) upon the occurrence and during the continuance of any Event
of Default, to assert or retain any rights under any license agreement for
any of the Patent Collateral, including any rights of Debtor arising under
Section 365(n) of the Bankruptcy Code, and (C) upon the occurrence and during
the continuance of any Event of Default, to execute any and all applications,
documents, papers and instruments for Secured Party to use the Patent
Collateral, to grant or issue any exclusive or non-exclusive license with
respect to any Patent Collateral, and to assign, convey or otherwise transfer
title in or dispose of the Patent Collateral. The power of attorney set
forth in this SECTION 3, being coupled with an interest, is irrevocable so
long as this Agreement shall not have terminated in accordance with SECTION
16.
Nothing in this Agreement shall obligate Debtor to commence any suit,
proceeding or other action for infringement of any of the Patents that are
immaterial to Debtor's business.
4. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants
to Secured Party, as follows:
(a) NO OTHER PATENTS. A true and correct list of all Patents
owned, held (whether pursuant to a license or otherwise) or used by Debtor, in
whole or in part, is set forth in SCHEDULE A.
(b) VALIDITY. Each of the Patents listed on SCHEDULE A is
subsisting and has not been adjudged invalid or unenforceable, in whole or in
part, all maintenance fees required to be paid on account of any Patents have
been timely paid for maintaining such Patents in force, and, to the best of
Debtor's knowledge, each of the Patents is valid and enforceable.
(c) TITLE. (i) Debtor has rights in and good title to the
existing Patent Collateral, (ii) with respect to the Patent Collateral shown on
SCHEDULE A hereto as owned by it, Debtor is the sole and exclusive owner
thereof, free and clear of any Liens and rights of others (other than the
security interest created hereunder), including licenses, shop
- 5 -
<PAGE>
rights and covenants by Debtor not to sue third persons and (iii) with
respect to any Patent for which Debtor is either a licensor or a licensee
pursuant to a license or licensee agreement regarding such Patent, each such
license or licensing agreement is in full force and effect, Debtor is not in
default of any of its obligations thereunder and, other than (A) the parties
to such licenses or licensing agreements, or (B) in the case of any
non-exclusive license or license agreement entered into by Debtor or any such
licensor regarding such Patent Collateral, the parties to any other such
non-exclusive licenses or license agreements entered into by Debtor or any
such licensor with any other Person, no other Person is known by Debtor to
have any rights in or to any of the Patent Collateral.
(d) NO INFRINGEMENT. To the best of Debtor's knowledge, (i) no
material infringement or unauthorized use presently is being made of any of the
Patent Collateral by any Person, and (ii) the past, present and contemplated
future use of the Patent Collateral by Debtor has not, does not and will not
infringe upon or violate any right, privilege or license agreement of or with
any other Person.
(e) POWERS. Debtor has the unqualified right, power and
authority to pledge and to grant to Secured Party a security interest in all of
the Patent Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
5. COVENANTS. Debtor covenants that so long as this Agreement shall
be in effect, Debtor shall:
(a) comply with all of the covenants, terms and provisions of
this Agreement, the Loan Agreement and the other Loan Documents;
(b) promptly give Secured Party written notice of the occurrence
of any event that could have a material adverse effect on any of the Patents or
the Patent Collateral, including any petition under the Bankruptcy Code filed by
or against any licensor of any of the Patents for which Debtor is a licensee;
(c) on a continuing basis, make, execute, acknowledge and
deliver, and file and record in the proper filing and recording places, all such
instruments and documents, including appropriate financing and continuation
statements and security agreements, and take all such action as may be necessary
or advisable or may be requested by Secured Party to carry out the intent and
purposes of this Agreement, or for assuring, confirming or protecting the grant
or perfection of the security interest granted or purported to be granted
hereby, to ensure Debtor's compliance with this Agreement or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
the Patent Collateral. Without limiting the generality of the foregoing
sentence, Debtor:
- 6 -
<PAGE>
(i) hereby authorizes Secured Party in its sole
discretion if Debtor refuses to execute and deliver, or fails timely to
execute and deliver, any of the documents it is requested to execute and
deliver by Secured Party, to modify this Agreement without first obtaining
Debtor's approval of or signature to such modification by amending
SCHEDULE A hereof to include a reference to any right, title or interest in
any existing Patent Collateral or Patent Collateral acquired or developed
by Debtor after the execution hereof, or to delete any reference to any
right, title or interest in any Patent Collateral in which Debtor no longer
has or claims any right, title or interest; and
(ii) hereby authorizes Secured Party, in its sole
discretion, to file one or more financing or continuation statements, if
Debtor refuses to execute and deliver, or fails timely to execute and
deliver, any such amendment thereto it is requested to execute and deliver
by Secured Party, any amendments thereto, relative to all or any portion of
the Patent Collateral, without the signature of Debtor where permitted by
law;
(d) comply, in all material respects, with all applicable
statutory and regulatory requirements in connection with any and all of the
Patent Collateral and give such notice of patent, prosecute such material
claims, and do all other acts and take all other measures which, in Debtor's
reasonable business judgment, may be necessary or desirable to preserve, protect
and maintain the Patent Collateral and all of Debtor's rights therein, including
diligently prosecute any material patent application pending as of the date of
this Agreement or thereafter;
(e) comply with each of the terms and provisions of this
Agreement, and not enter into any agreement (for example, a license agreement)
which is inconsistent with the obligations of Debtor under this Agreement
without Secured Party's prior written consent; and
(f) not permit the inclusion in any contract to which Debtor
becomes a party of any provision that could or might impair or prevent the
creation of a security interest in favor of Secured Party in Debtor's rights and
interest in any property included within the definition of Patent Collateral
acquired under such contracts.
6. FUTURE RIGHTS. If and when Debtor shall obtain rights to any new
patentable inventions, or become entitled to the benefit of any Patent, or any
reissue, division, continuation, renewal, extension or continuation-in-part of
any Patent or Patent Collateral or any improvement thereof (whether pursuant to
any license or otherwise), the provisions of this Agreement shall automatically
apply thereto and Debtor shall give to Secured Party prompt notice thereof.
Debtor shall do all things deemed necessary or advisable by Secured Party to
ensure the validity, perfection, priority and enforceability of the security
interests of Secured Party in such future acquired Patent Collateral. Debtor
hereby authorizes Secured Party to modify, amend or supplement the Schedules
hereto and to
- 7 -
<PAGE>
re-execute this Agreement from time to time on Debtor's behalf and as its
attorney-in-fact to include any future patents which are or become Patent
Collateral and to cause such re-executed Agreement or such modified, amended
or supplemented Schedules to be filed with the PTO.
7. REMEDIES. Upon the occurrence and during the continuance of an
Event of Default, Secured Party shall have all rights and remedies available to
it under the Loan Agreement and applicable law (which rights and remedies are
cumulative) with respect to the security interests in any of the Patent
Collateral or any other Collateral. Debtor agrees that such rights and remedies
include the right of Secured Party as a Secured Party to sell or otherwise
dispose of its Collateral after default, pursuant to UCC Section 9504. Debtor
agrees that Secured Party shall at all times have such royalty free licenses, to
the extent permitted by law, for any Patent Collateral that is reasonably
necessary to permit the exercise of any of Secured Party's rights or remedies
upon the occurrence and during the continuation of an Event of Default with
respect to (among other things) any tangible asset of Debtor in which Secured
Party has a security interest, including Secured Party's rights to sell
inventory, tooling or packaging which is acquired by Debtor (or its successor,
assignee or trustee in bankruptcy). In addition to and without limiting any of
the foregoing, upon the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Secured Party deems necessary or
advisable, in the name of Debtor or Secured Party, to enforce or protect any of
the Patent Collateral, in which event Debtor shall, at the request of Secured
Party, do any and all lawful acts and execute any and all documents required by
Secured Party in aid of such enforcement. To the extent that Secured Party
shall elect not to bring suit to enforce such Patent Collateral, upon the
occurrence and during the continuation of an Event of Default, Debtor, in the
exercise of its reasonable business judgment, agrees to use all reasonable
measures and its diligent efforts, whether by action, suit, proceeding or
otherwise, to prevent the infringement, misappropriation or violations thereof
by others and for that purpose agrees diligently to maintain any action, suit or
proceeding against any Person necessary to prevent such infringement,
misappropriation or violation.
8. BINDING EFFECT. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by Debtor and Secured Party and their
respective successors and assigns.
9. NOTICES. All notices and other communications hereunder shall be
in writing and shall be mailed, sent or delivered in accordance with the Loan
Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the security interests
hereunder in respect of the Patent Collateral are governed by federal law, in
which case such choice of California law shall not be deemed to deprive Secured
Party of such rights and remedies as may be available under federal law.
- 8 -
<PAGE>
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan
Agreement, together with the Schedules hereto and thereto, contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior drafts and communications relating to such subject matter.
Neither this Agreement nor any provision hereof may be modified, amended or
waived except by the written agreement of the parties, as provided in the Loan
Agreement. Notwithstanding the foregoing, Secured Party may re-execute this
Agreement or modify, amend or supplement the Schedules hereto as provided in
SECTION 6 hereof.
12. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement
14. LOAN AGREEMENT. Debtor acknowledges that the rights and remedies
of Secured Party with respect to the security interest in the Patent Collateral
granted hereby are more fully set forth in the Loan Agreement and all such
rights and remedies are cumulative.
15. NO INCONSISTENT REQUIREMENTS. Debtor acknowledges that this
Agreement and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and Debtor
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms.
16. TERMINATION. Upon the indefeasible payment in full of the
Obligations, including the cash collateralization, expiration, or cancellation
of all Obligations, if any, consisting of letters of credit, and the full and
final termination of any commitment to extend any financial accommodations under
the Loan Agreement, this Agreement shall terminate and Secured Party shall
execute and deliver such documents and instruments and take such further action
reasonably requested by Debtor and at Debtor's expense as shall be necessary to
evidence termination of the security interest granted by Debtor to Secured Party
hereunder.
- 9 -
<PAGE>
[Remainder of page intentionally left blank]
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
NETWORK COMPUTING DEVICES, INC.,
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:_____________________________
Name:___________________________
Title:__________________________
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On__________________, before me,_________________________________,
Notary Public, personally appeared________________________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________________
Signature
[SEAL]
S-2
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On__________________, before me,_________________________________,
_______Notary Public, personally appeared___________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Signature
[SEAL]
S-3
<PAGE>
SCHEDULE A
to the Patent Security Agreement
United States Patents
AND PATENT APPLICATIONS
PATENT LICENSES
A-1
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
March [ ], 2000, is entered into between Network Computing Devices, Inc., a
Delaware corporation ("Pledgor"), and Foothill Capital Corporation, a
California corporation ("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns the specified number of
shares identified as Pledged Shares in the Persons identified as Issuers on
SCHEDULE A attached hereto (or any addendum thereto);
WHEREAS, Pledgor and Secured Party are parties to that certain
Loan and Security Agreement (the "Loan Agreement"), of even date herewith,
pursuant to which Secured Party has agreed to make certain financial
accommodations to Pledgor;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Pledgor pursuant to the Loan Agreement, Pledgor
desires to pledge, grant, transfer, and assign to Secured Party a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations, and warranties set forth herein and for other
good and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) Definitions.
All initially capitalized terms used herein and not otherwise
defined herein shall have the meaning ascribed thereto in the Loan Agreement.
As used in this Agreement:
"AGREEMENT" shall mean this Stock Pledge Agreement.
"CHIEF EXECUTIVE OFFICE" shall mean where Pledgor is deemed
located pursuant to Section 9103(3)(d) of the Code.
"COLLATERAL" shall mean the Pledged Shares, the Future Rights,
and the Proceeds, collectively.
"FUTURE RIGHTS" shall mean: (a) all shares of stock (other than
Pledged Shares) of the Issuers, and all securities convertible or
exchangeable into, and all warrants, options, or other rights to purchase,
shares of stock of the Issuers; (b) to the extent of Pledgor's interest
therein, all shares of, all securities convertible or exchangeable into, and
all warrants, options, or other rights to purchase shares of stock of any
Person in which Pledgor, after the date of this Agreement, acquires a direct
equity interest, irrespective of whether such Person is or becomes a
Subsidiary of Pledgor; and (c) the certificates or instruments representing
<PAGE>
such additional shares, convertible or exchangeable securities, warrants, and
other rights and all dividends, cash, options, warrants, rights, instruments,
and other property or proceeds from time to time received, receivable, or
otherwise distributed in respect of or in exchange for any or all of such
shares.
"HOLDER" and "HOLDERS" shall have the meanings ascribed thereto
in SECTION 3 of this Agreement.
"ISSUERS" shall mean each of the Persons identified as an
Issuer on SCHEDULE A attached hereto (or any addendum thereto), and any
successors thereto, whether by merger or otherwise.
"LIEN" shall mean any lien, mortgage, pledge, assignment
(including any assignment of rights to receive payments of money), security
interest, charge, or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, or any
agreement to give any security interest).
"LOAN AGREEMENT" shall have the meaning ascribed thereto in the
recitals to this Agreement.
"PLEDGED SHARES" shall mean all of the shares identified as
Pledged Shares on SCHEDULE A attached hereto (or any addendum thereto).
"PLEDGOR" shall have the meaning ascribed thereto in the
preamble to this Agreement.
"PROCEEDS" shall mean all proceeds (including proceeds of
proceeds) of the Pledged Shares and Future Rights including all: (a) rights,
benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for,
any of the Pledged Shares, Future Rights, or proceeds thereof (including any
cash, stock, or other securities or instruments issued after any
recapitalization, readjustment, reclassification, merger or consolidation
with respect to the Issuers and any security entitlements, as defined in
Section 8102(17) of the Code, with respect thereto); (b) "proceeds," as such
term is used in Section 9306 of the Code; (c) proceeds of any insurance,
indemnity, warranty, or guaranty (including guaranties of delivery) payable
from time to time with respect to any of the Pledged Shares, Future Rights,
or proceeds thereof; (d) payments (in any form whatsoever) made or due and
payable to Pledgor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Pledged Shares, Future Rights, or proceeds thereof; and (e) other amounts
from time to time paid or payable under or in connection with any of the
Pledged Shares, Future Rights, or proceeds thereof.
"SECURED OBLIGATIONS" shall mean all liabilities, obligations, or
undertakings owing by Pledgor to Secured Party of any kind or description
arising out of or outstanding
2
<PAGE>
under, advanced or issued pursuant to, or evidenced by the Loan Agreement,
the other Loan Documents, or this Agreement, irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or
to become due, voluntary or involuntary, whether now existing or hereafter
arising, and including all interest (including interest that accrues after
the filing of a case under the Bankruptcy Code) and any and all costs, fees
(including attorneys fees), and expenses which Pledgor is required to pay
pursuant to any of the foregoing, by law, or otherwise.
"SECURED PARTY" shall have the meaning ascribed thereto in the
preamble to this Agreement, together with its successors or assigns.
"SECURITIES ACT" shall have the meaning ascribed thereto in
SECTION 9(c) of this Agreement.
(b) Construction.
(i) Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term
"including" is not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The
words "hereof," "herein," "hereby," "hereunder," and other similar terms in
this Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. Article, section, subsection,
exhibit, and schedule references are to this Agreement unless otherwise
specified. All of the exhibits or schedules attached to this Agreement shall
be deemed incorporated herein by reference. Any reference to any of the
following documents includes any and all alterations, amendments,
restatements, extensions, modifications, renewals, or supplements thereto or
thereof, as applicable: this Agreement, the Loan Agreement, or any of the
other Loan Documents.
(ii) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Secured Party or
Pledgor, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by both of the parties and their
respective counsel and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes
and intentions of the parties hereto.
(iii) In the event of any direct conflict between the
express terms and provisions of this Agreement and of the Loan Agreement, the
terms and provisions of the Loan Agreement shall control.
2. PLEDGE. As security for the prompt payment and performance of the
Secured Obligations in full by Pledgor when due, whether at stated maturity,
by acceleration or otherwise (including amounts that would become due but for
the operation of the provisions of the Bankruptcy Code), Pledgor hereby
pledges, grants, transfers, and assigns to Secured Party a security interest
in all of Pledgor's right, title, and interest in and to the Collateral,
whether now owned or hereinafter acquired.
3
<PAGE>
3. DELIVERY AND REGISTRATION OF COLLATERAL.
(a) All certificates or instruments representing or
evidencing the Collateral shall be promptly delivered by Pledgor to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to Secured Party.
(b) Upon the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgor, to transfer to or to register on
the books of the Issuers (or of any other Person maintaining records with
respect to the Collateral) in the name of Secured Party or any of its
nominees any or all of the Collateral. In addition, Secured Party shall have
the right at any time to exchange certificates or instruments representing or
evidencing Collateral for certificates or instruments of smaller or larger
denominations.
(c) If, at any time and from time to time, any Collateral
(including any certificate or instrument representing or evidencing any
Collateral) is in the possession of a Person other than Secured Party or
Pledgor (a "Holder"), then Pledgor shall immediately, at Secured Party's
option, either cause such Collateral to be delivered into Secured Party's
possession, or execute and deliver to such Holder a written
notification/instruction, and take all other steps necessary to perfect the
security interest of Secured Party in such Collateral, including obtaining
from such Holder a written acknowledgement that such Holder holds such
Collateral for Secured Party, all pursuant to Section 9115 of the Code or
other applicable law governing the perfection of Secured Party's security
interest in the Collateral in the possession of such Holder. Each such
notification/instruction and acknowledgement shall be in form and substance
satisfactory to Secured Party.
(d) Any and all Collateral (including dividends, interest,
and other cash distributions) at any time received or held by Pledgor shall
be so received or held in trust for Secured Party, shall be segregated from
other funds and property of Pledgor and shall be forthwith delivered to
Secured Party in the same form as so received or held, with any necessary
endorsements; PROVIDED that cash dividends or distributions received by
Pledgor, if and to the extent they are not prohibited by the Loan Agreement,
may be retained by Pledgor in accordance with SECTION 4 and used in the
ordinary course of Pledgor's business.
(e) If at any time and from time to time any Collateral
consists of an uncertificated security or a security in book entry form, then
Pledgor shall immediately cause such Collateral to be registered or entered,
as the case may be, in the name of Secured Party, or otherwise cause Secured
Party's security interest thereon to be perfected in accordance with
applicable law.
4. VOTING RIGHTS AND DIVIDENDS.
4
<PAGE>
(a) So long as no Event of Default shall have occurred and
be continuing, Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Collateral or any part thereof for
any purpose not inconsistent with the terms of the Loan Documents and shall
be entitled to receive and retain any cash dividends or distributions paid in
respect of the Collateral.
(b) Upon the occurrence and during the continuance of an
Event of Default, all rights of Pledgor to exercise the voting and other
consensual rights or receive and retain cash dividends or distributions that
it would otherwise be entitled to exercise or receive and retain, as
applicable pursuant to SECTION 4(a), shall cease, and all such rights shall
thereupon become vested in Secured Party, who shall thereupon have the sole
right to exercise such voting or other consensual rights and to receive and
retain such cash dividends and distributions. Pledgor shall execute and
deliver (or cause to be executed and delivered) to Secured Party all such
proxies and other instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party to exercise the voting and other rights
which it is entitled to exercise and to receive the dividends and
distributions that it is entitled to receive and retain pursuant to the
preceding sentence.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents, warrants, and
covenants as follows:
(a) Pledgor has taken all steps it deems necessary or
appropriate to be informed on a continuing basis of changes or potential
changes affecting the Collateral (including rights of conversion and
exchange, rights to subscribe, payment of dividends, reorganizations or
recapitalization, tender offers and voting rights), and Pledgor agrees that
Secured Party shall have no responsibility or liability for informing Pledgor
of any such changes or potential changes or for taking any action or omitting
to take any action with respect thereto;
(b) All information herein or hereafter supplied to Secured
Party by or on behalf of Pledgor in writing with respect to the Collateral
is, or in the case of information hereafter supplied will be, accurate and
complete in all material respects;
(c) Pledgor is and will be the sole legal and beneficial
owner of the Collateral (including the Pledged Shares and all other
Collateral acquired by Pledgor after the date hereof) free and clear of any
adverse claim, Lien, or other right, title, or interest of any party, other
than the Liens in favor of Secured Party;
(d) This Agreement, and the delivery to Secured Party of the
Pledged Shares representing Collateral (or the delivery to all Holders of the
Pledged Shares representing Collateral of the notification/instruction
referred to in SECTION 3 of this Agreement), creates a valid, perfected, and
first priority security interest in one hundred percent (100%) of the Pledged
Shares in favor of Secured Party securing payment of the Secured Obligations,
and all actions necessary to achieve such perfection have been duly taken;
5
<PAGE>
(e) SCHEDULE A to this Agreement is true and correct and
complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares are in certificated form, and, except
to the extent registered in the name of Secured Party or its nominee pursuant
to the provisions of this Agreement, are registered in the name of Pledgor;
and (ii) the Pledged Shares as to each of the Issuers constitute at least the
percentage of all the fully diluted issued and outstanding shares of stock of
such Issuer as set forth in SCHEDULE A to this Agreement;
(f) There are no presently existing Future Rights or
Proceeds owned by Pledgor;
(g) The Pledged Shares have been duly authorized and validly
issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to this
Agreement nor the extensions of credit represented by the Secured Obligations
violates Regulation T, U or X of the Board of Governors of the Federal
Reserve System.
6. FURTHER ASSURANCES.
(a) Pledgor agrees that from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action that may be necessary or
reasonably desirable, or that Secured Party may request, in order to perfect
and protect any security interest granted or purported to be granted hereby
or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, Pledgor will: (i) at the request of Secured Party, mark
conspicuously each of its records pertaining to the Collateral with a legend,
in form and substance reasonably satisfactory to Secured Party, indicating
that such Collateral is subject to the security interest granted hereby; (ii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
reasonably desirable, or as Secured Party may request, in order to perfect
and preserve the security interests granted or purported to be granted
hereby; (iii) allow inspection of the Collateral by Secured Party or Persons
designated by Secured Party; and (iv) appear in and defend any action or
proceeding that may affect Pledgor's title to or Secured Party's security
interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative
to all or any part of the Collateral without the signature of Pledgor where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will furnish to Secured Party, upon the request of
Secured Party: (i) a certificate executed by an authorized officer of Pledgor,
and dated as of the date of delivery to Secured Party, itemizing in such detail
as Secured Party may request, the Collateral which, as of the date of such
certificate, has been delivered to Secured Party by
6
<PAGE>
Pledgor pursuant to the provisions of this Agreement; and (ii) such
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as Secured Party may
request.
7. COVENANTS OF PLEDGOR. Pledgor shall:
(a) Perform each and every covenant in the Loan Documents
applicable to Pledgor;
(b) At all times keep at least one complete set of its
records concerning substantially all of the Collateral at its Chief Executive
Office as set forth in SCHEDULE B hereto, and not change the location of its
Chief Executive Office or such records without giving Secured Party at least
thirty (30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use its best
efforts to prevent the Issuers from issuing Future Rights or Proceeds, except
for cash dividends and other distributions, if any, that are not prohibited
by the terms of the Loan Agreement to be paid by any Issuer to Pledgor; and
(d) Upon receipt by Pledgor of any material notice, report,
or other communication from any of the Issuers or any Holder relating to all
or any part of the Collateral, deliver such notice, report or other
communication to Secured Party as soon as possible, but in no event later
than five (5) days following the receipt thereof by Pledgor.
8. SECURED PARTY AS PLEDGOR'S ATTORNEY-IN-FACT.
(a) Pledgor hereby irrevocably appoints Secured Party as
Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to
time at Secured Party's discretion, to take any action and to execute any
instrument that Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (i) upon the occurrence
and during the continuance of an Event of Default, to receive, endorse, and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any
part thereof to the extent permitted hereunder and to give full discharge for
the same and to execute and file governmental notifications and reporting
forms; (ii) to issue any notifications/instructions Secured Party deems
necessary pursuant to SECTION 3 of this Agreement; or (iii) to arrange for
the transfer of the Collateral on the books of any of the Issuers or any
other Person to the name of Secured Party or to the name of Secured Party's
nominee.
(b) In addition to the designation of Secured Party as
Pledgor's attorney-in-fact in SUBSECTION (a), Pledgor hereby irrevocably
appoints Secured Party as Pledgor's agent and attorney-in-fact to make,
execute and deliver any and all documents and writings which may be necessary
or appropriate for approval of, or be required by, any regulatory authority
located in any city, county, state or country where Pledgor or any of the
Issuers engage in
7
<PAGE>
business, in order to transfer or to more effectively transfer any of the
Pledged Shares or otherwise enforce Secured Party's rights hereunder.
9. REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
an Event of Default:
(a) Secured Party may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Code (irrespective of whether the Code applies to the affected
items of Collateral), and Secured Party may also without notice (except as
specified below) sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at any
of Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such
other terms as Secured Party may deem commercially reasonable, irrespective
of the impact of any such sales on the market price of the Collateral. To
the maximum extent permitted by applicable law, Secured Party may be the
purchaser of any or all of the Collateral at any such sale and shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply all or any part of the Secured Obligations as a
credit on account of the purchase price of any Collateral payable at such
sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Pledgor, and Pledgor
hereby waives (to the extent permitted by law) all rights of redemption,
stay, or appraisal that it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. Pledgor
agrees that, to the extent notice of sale shall be required by law, at least
ten (10) calendar days notice to Pledgor of the time and place of any public
sale or the time after which a private sale is to be made shall constitute
reasonable notification. Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
To the maximum extent permitted by law, Pledgor hereby waives any claims
against Secured Party arising because the price at which any Collateral may
have been sold at such a private sale was less than the price that might have
been obtained at a public sale, even if Secured Party accepts the first offer
received and does not offer such Collateral t more than one offeree.
(b) Pledgor hereby agrees that any sale or other disposition
of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, or other financial institutions in
the City of Los Angeles, California in disposing of property similar to the
Collateral shall be deemed to be commercially reasonable.
(c) Pledgor hereby acknowledges that the sale by Secured Party
of any Collateral pursuant to the terms hereof in compliance with the Securities
Act of 1933 as now in effect or as hereafter amended, or any similar statute
hereafter adopted with similar purpose or effect (the "Securities Act"), as well
as applicable "Blue Sky" or other state
8
<PAGE>
securities laws may require strict limitations as to the manner in which
Secured Party or any subsequent transferee of the Collateral may dispose
thereof. Pledgor acknowledges and agrees that in order to protect Secured
Party's interest it may be necessary to sell the Collateral at a price less
than the maximum price attainable if a sale were delayed or were made in
another manner, such as a public offering under the Securities Act. Pledgor
has no objection to sale in such a manner and agrees that Secured Party shall
have no obligation to obtain the maximum possible price for the Collateral.
Without limiting the generality of the foregoing, Pledgor agrees that, upon
the occurrence and during the continuation of an Event of Default, Secured
Party may, subject to applicable law, from time to time attempt to sell all
or any part of the Collateral by a private placement, restricting the bidders
and prospective purchasers to those who will represent and agree that they
are purchasing for investment only and not for distribution. In so doing,
Secured Party may solicit offers to buy the Collateral or any part thereof
for cash, from a limited number of investors deemed by Secured Party, in its
reasonable judgment, to be institutional investors or other responsible
parties who might be interested in purchasing the Collateral. If Secured
Party shall solicit such offers, then the acceptance by Secured Party of one
of the offers shall be deemed to be a commercially reasonable method of
disposition of the Collateral.
(d) If Secured Party shall determine to exercise its right
to sell all or any portion of the Collateral pursuant to this Section,
Pledgor agrees that, upon request of Secured Party, Pledgor will, at its own
expense:
(i) use its best efforts to execute and deliver, and
cause the Issuers and the directors and officers thereof to execute and
deliver, all such instruments and documents, and to do or cause to be done
all such other acts and things, as may be necessary or, in the opinion of
Secured Party, advisable to register such Collateral under the provisions of
the Securities Act, and to cause the registration statement relating thereto
to become effective and to remain effective for such period as prospectuses
are required by law to be furnished, and to make all amendments and
supplements thereto and to the related prospectuses which, in the opinion of
Secured Party, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(ii) use its best efforts to qualify the Collateral
under the state securities laws or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Collateral, as requested
by Secured Party;
(iii) cause the Issuers to make available to their
respective security holders, as soon as practicable, an earnings statement
which will satisfy the provisions of Section 11(a) of the Securities Act;
(iv) execute and deliver, or cause the officers and
directors of the Issuers to execute and deliver, to any person, entity or
governmental authority as Secured Party may choose, any and all documents and
writings which, in Secured Party's reasonable judgment, may be necessary or
appropriate for approval, or be required by, any regulatory
9
<PAGE>
authority located in any city, county, state or country where Pledgor or the
Issuers engage in business, in order to transfer or to more effectively
transfer the Pledged Shares or otherwise enforce Secured Party's rights
hereunder; and
(v) do or cause to be done all such other acts and
things as may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by
it to comply with the provisions of this Section and that such failure would
not be adequately compensable in damages, and therefore agrees that its
agreements contained in this Section may be specifically enforced.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED
BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO
THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS
PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL
THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW
OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH
IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR
ADVERTISEMENT FOR SALE.
10. APPLICATION OF PROCEEDS. Upon the occurrence and during the
continuance of an Event of Default, any cash held by Secured Party as
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in SECTION 9 shall be applied from time to time
by Secured Party as provided in the Loan Agreement.
11. DUTIES OF SECURED PARTY. The powers conferred on Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose on it any duty to exercise such powers. Except as provided in Section
9207 of the Code, Secured Party shall have no duty with respect to the
Collateral or any responsibility for taking any necessary steps to preserve
rights against any Persons with respect to any Collateral.
12. CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY
10
<PAGE>
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF PLEDGOR AND SECURED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12.
13. AMENDMENTS; ETC. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Pledgor herefrom shall in any event
be effective unless the same shall be in writing and signed by Secured Party,
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the
part of Secured Party to exercise, and no delay in exercising any right under
this Agreement, any other Loan Document, or otherwise with respect to any of
the Secured Obligations, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right under this Agreement, any other Loan
Document, or otherwise with respect to any of the Secured Obligations
preclude any other or further exercise thereof or the exercise of any other
right. The remedies provided for in this Agreement or otherwise with respect
to any of the Secured Obligations are cumulative and not exclusive of any
remedies provided by law.
14. NOTICES. Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given shall be in
writing and shall be delivered in the manner set forth in the Loan Agreement.
15. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement; (ii) be binding upon
Pledgor and its successors and assigns; and (iii) inure to the benefit of
Secured Party and its successors, transferees, and assigns. Upon the
indefeasible payment in full of the Secured Obligations, including the cash
collateralization, expiration, or cancellation of all Secured Obligations, if
any, consisting of letters of credit, and the full and final termination of
any commitment to extend any financial accommodations under the Loan
Agreement, the security interests granted herein shall automatically
terminate and all rights to the Collateral shall revert to Pledgor. Upon any
such termination, Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination. Such documents shall be prepared by Pledgor and
shall be in form and substance reasonably satisfactory to Secured Party.
16. SECURITY INTEREST ABSOLUTE. To the maximum extent permitted by law,
all rights of Secured Party, all security interests hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
11
<PAGE>
(a) any lack of validity or enforceability of any of the
Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of payment of,
or in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise constitute
a defense available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held
from Pledgor; or (B) pursue any other remedy in Secured Party's power
whatsoever.
17. HEADINGS. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
18. SEVERABILITY. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
19. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original and
all of which together shall constitute one and the same Agreement. Delivery
of an executed counterpart of this Agreement by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall
not affect the validity, enforceability, or binding effect hereof.
20. WAIVER OF MARSHALING. Each of Pledgor and Secured Party acknowledges
and agrees that in exercising any rights under or with respect to the
Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral
in any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
21. WAIVER OF JURY TRIAL.
12
<PAGE>
PLEDGOR AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED PARTY REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
[Signature page to follow.]
13
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
-----------------------------------
Title:
-------------------------------
NETWORK COMPUTING DEVICES, INC.,
a Delaware corporation
By
-----------------------------------
Title:
-------------------------------
S-1
<PAGE>
SCHEDULE A
TO
STOCK PLEDGE AGREEMENT
Pledgor: Network Computing Devices, Inc.
PLEDGED SHARES
<TABLE>
<CAPTION>
Former Name, Pledgor's
Issuer Number of Class Certificate if any, in Percentage Jurisdiction
------ Shares ----- Number(s) which Ownership of
------ --------- Certificate --------- Incorporation
Issued -------------
------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
B-1
<PAGE>
SCHEDULE B
TO
STOCK PLEDGE AGREEMENT
Pledgor: Network Computing Devices, Inc.
Address of Chief Executive Office:
350 North Bernardo Avenue
Mountain View, California 94043
B-1
<PAGE>
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of
March [ ], 2000, is made by NETWORK COMPUTING DEVICES, INC., a Delaware
corporation ("Debtor"), in favor of FOOTHILL CAPITAL CORPORATION, a
California corporation, ("Secured Party") with reference to the following:
WHEREAS, Debtor and Secured Party have entered into that certain
Loan and Security Agreement, of even date herewith (as amended, restated,
modified, renewed or extended from time to time, the "Loan Agreement"),
pursuant to which Secured Party has agreed to make certain financial
accommodations to Debtor, and pursuant to which Debtor has granted to Secured
Party a security interest in (among other things) all of the general
intangibles of Debtor.
WHEREAS, pursuant to the Loan Agreement and as one of the
conditions precedent to the obligations of Secured Party under the Loan
Agreement, Debtor has agreed to execute and deliver this Agreement to Secured
Party for filing with the PTO and with any other relevant recording systems
in any domestic jurisdiction, and as further evidence of and to effectuate
Secured Party's existing security interests in the trademarks and other
general intangibles described herein.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtor hereby agrees in favor of
Secured Party as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.
"DEBTOR" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in the
Loan Agreement.
"LIEN" means any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall
be contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances.
1
<PAGE>
"OBLIGATIONS" shall have the meaning ascribed thereto in the Loan
Agreement.
"PROCEEDS" means whatever is receivable or received from or upon
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined at UCC Section 9306, all insurance proceeds and all
proceeds of proceeds. Proceeds shall include (i) any and all accounts,
chattel paper, instruments, general intangibles, cash and other proceeds,
payable to or for the account of Debtor, from time to time in respect of any
of the Trademark Collateral, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to or for the account of Debtor from
time to time with respect to any of the Trademark Collateral, (iii) any and
all claims and payments (in any form whatsoever) made or due and payable to
Debtor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Trademark
Collateral by any Person acting under color of governmental authority, and
(iv) any and all other amounts from time to time paid or payable under or in
connection with any of the Trademark Collateral or for or on account of any
damage or injury to or conversion of any Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
successor thereto.
"TRADEMARK COLLATERAL" has the meaning set forth in SECTION 2.
"TRADEMARKS" has the meaning set forth in SECTION 2.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of California.
"UNITED STATES" and "U.S." each mean the United States of America.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the
meanings assigned to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the
extent the context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto, respectively, and to a
subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears.
(ii) The words "hereof," "herein," "hereto,"
"hereunder" and the like mean and refer to this Agreement as a whole and
not merely to the specific Section, subsection, paragraph or clause in
which the respective word appears.
2
<PAGE>
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein
shall have the respective meanings ascribed to them in the Loan Agreement.
(ix) In the event of a direct conflict between the
terms and provisions of this Agreement and the Loan Agreement, it is the
intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in concert
with each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, the terms and provisions of the Loan
Agreement shall control and govern; PROVIDED, HOWEVER, that the inclusion
herein of additional obligations on the part of Debtor and supplemental
rights and remedies in favor of Secured Party (whether under federal law or
applicable California law), in each case in respect of the Trademark
Collateral, shall not be deemed a conflict in the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY INTEREST. To secure
the Obligations, Debtor hereby grants, assigns, transfers and conveys to
Secured Party a continuing security interest in all of Debtor's right, title
and interest in and to the following property, whether now existing or
hereafter acquired or arising and whether registered or unregistered
(collectively, the "Trademark Collateral"):
(i) all state (including common law) and federal
trademarks, service marks and trade names, corporate names, company names,
business names, fictitious business names, trade styles, trade dress,
logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired,
together with and including all licenses therefor held by Debtor, and all
registrations and recordings thereof, and all applications filed or to be
filed in
3
<PAGE>
connection therewith, including registrations and applications in
the PTO, any State of the United States (but excluding each application to
register any trademark, service mark or other mark prior to the filing
under applicable law of a verified statement of use (or the equivalent) for
such trademark or service mark) and all extensions or renewals thereof,
including without limitation any of the foregoing identified on SCHEDULE A
hereto (as the same may be amended, modified or supplemented from time to
time), and the right (but not the obligation) to register claims under any
state or federal trademark law or regulation and to apply for, renew and
extend any of the same, to sue or bring opposition or cancellation
proceedings in the name of Debtor or in the name of Secured Party for past,
present or future infringement or unconsented use thereof, and all rights
arising therefrom throughout the world (collectively, the "Trademarks");
(ii) all claims, causes of action and rights to sue for
past, present or future infringement or unconsented use of any Trademarks
and all rights arising therefrom and pertaining thereto;
(iii) all general intangibles related to or arising out
of any of the Trademarks and all the goodwill of Debtor's business
symbolized by the Trademarks or associated therewith; and
(iv) all Proceeds of any and all of the foregoing
Trademark Collateral (including license royalties, rights to payment,
accounts receivable and proceeds of infringement suits) and, to the extent
not otherwise included, all payments under insurance (whether or not
Secured Party is the loss payee thereof) or any indemnity, warranty or
guaranty payable by reason of loss or damage to or otherwise with respect
to the foregoing Trademark Collateral.
(b) CONTINUING SECURITY INTEREST. Debtor agrees that this
Agreement shall create a continuing security interest in the Trademark
Collateral which shall remain in effect until terminated in accordance with
SECTION 16.
(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement
shall be fully incorporated into the Loan Agreement and all understandings,
agreements and provisions contained in the Loan Agreement shall be fully
incorporated into this Agreement. Without limiting the foregoing, the
Trademark Collateral described in this Agreement shall constitute part of the
Collateral in the Loan Agreement.
(d) PERMITTED LICENSES. Anything in the Loan Agreement or
this Agreement to the contrary notwithstanding, Debtor may grant
non-exclusive licenses of the Trademark Collateral (subject to the security
interest (if any) of Secured Party therein) in the ordinary course of
business consistent with past practice.
4
<PAGE>
3. FURTHER ASSURANCES; APPOINTMENT OF SECURED PARTY AS
ATTORNEY-IN-FACT. Debtor at its expense shall execute and deliver, or cause
to be executed and delivered, to Secured Party any and all documents and
instruments, in form and substance reasonably satisfactory to Secured Party,
and take any and all action, which Secured Party may reasonably request from
time to time, to perfect and continue perfected, maintain the priority of or
provide notice of Secured Party's security interest in the Trademark
Collateral and to accomplish the purposes of this Agreement. If Debtor
refuses to execute and deliver, or fails timely to execute and deliver, any
of the documents it is requested to execute and deliver by Secured Party in
accordance with the foregoing, Secured Party shall have the right, in the
name of Debtor, or in the name of Secured Party or otherwise, without notice
to or assent by Debtor, and Debtor hereby irrevocably constitutes and
appoints Secured Party (and any of Secured Party's officers or employees or
agents designated by Secured Party) as Debtor's true and lawful
attorney-in-fact with full power and authority, (i) to sign the name of
Debtor on all or any of such documents or instruments and perform all other
acts that Secured Party reasonably deems necessary or advisable in order to
perfect or continue perfected, maintain the priority or enforceability of or
provide notice of Secured Party's security interest in, the Trademark
Collateral, and (ii) to execute any and all other documents and instruments,
and to perform any and all acts and things for and on behalf of Debtor, which
Secured Party reasonably may deem necessary or advisable to maintain,
preserve and protect the Trademark Collateral and to accomplish the purposes
of this Agreement, including (A) after the occurrence and during the
continuance of any Event of Default, to defend, settle, adjust or institute
any action, suit or proceeding with respect to the Trademark Collateral, (B)
after the occurrence and during the continuance of any Event of Default, to
assert or retain any rights under any license agreement for any of the
Trademark Collateral, and (C) after the occurrence and during the continuance
of any Event of Default, to execute any and all applications, documents,
papers and instruments for Secured Party to use the Trademark Collateral, to
grant or issue any exclusive or non-exclusive license with respect to any
Trademark Collateral, and to assign, convey or otherwise transfer title in or
dispose of the Trademark Collateral. The power of attorney set forth in this
SECTION 3, being coupled with an interest, is irrevocable so long as this
Agreement shall not have terminated in accordance with SECTION 16.
4. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants to Secured Party, as follows:
(a) NO OTHER TRADEMARKS. SCHEDULE A sets forth, a true and
correct list of all of the existing Trademarks (whether registered or
otherwise), or for which any application for registration has been filed with
the PTO or any corresponding or similar trademark office of any other U.S.
jurisdiction, and that are owned or held (whether pursuant to a license or
otherwise) and used by Debtor.
5
<PAGE>
(b) VALIDITY. Each of the Trademarks listed in SCHEDULE A
is subsisting and has not been adjudged invalid or unenforceable, in whole or
in part, and, to the best of Debtor's knowledge, each of the Trademarks is
valid and enforceable.
(c) TITLE. (i) Debtor has rights in and good and
defensible title to the Trademark Collateral, (ii) with respect to the
Trademark Collateral shown on SCHEDULE A hereto as owned by it, Debtor is the
sole and exclusive owner thereof, free and clear of any Liens and rights of
others (other than the security interest created hereunder and other than
Permitted Liens), including licenses, registered user agreements and
covenants by Debtor not to sue third persons, and (iii) with respect to any
Trademarks for which Debtor is either a licensor or a licensee pursuant to a
license or licensee agreement regarding such Trademark, each such license or
licensing agreement is in full force and effect, Debtor is not in material
default of any of its obligations thereunder and, other than (A) the parties
to such licenses or licensing agreements, or (B) in the case of any
non-exclusive license or license agreement entered into by Debtor or any such
licensor regarding such Trademark, the parties to any other such
non-exclusive licenses or license agreements entered into by Debtor or any
such licensor with any other Person, no other Person has any rights in or to
any of the Trademark Collateral.
(d) NO INFRINGEMENT. To the best of Debtor's knowledge,
(i) no material infringement or unauthorized use presently is being made of
any of the Trademark Collateral by any Person, and (ii) the past, present and
contemplated future use of the Trademark Collateral by Debtor has not, does
not and will not infringe upon or violate any right, privilege or license
agreement of or with any other Person.
(e) POWERS. Debtor has the unqualified right, power and
authority to pledge and to grant to Secured Party a security interest in all
of the Trademark Collateral pursuant to this Agreement, and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other Person except as
already obtained.
5. COVENANTS. Debtor covenants that so long as this Agreement
shall be in effect, Debtor shall:
(a) comply with all of the covenants, terms and provisions
of this Agreement, the Loan Agreement and the other Loan Documents;
(b) promptly give Secured Party written notice of the
occurrence of any event that could have a material adverse effect on any of
the Trademarks or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which Debtor is a licensee;
(c) on a continuing basis, make, execute, acknowledge and
deliver, and file and record in the proper filing and recording places, all
such instruments and documents,
6
<PAGE>
including appropriate financing and continuation statements and security
agreements, and take all such action as may be necessary or advisable or may
be requested by Secured Party to carry out the intent and purposes of this
Agreement, or for assuring, confirming or protecting the grant or perfection
of the security interest granted or purported to be granted hereby, to ensure
Debtor's compliance with this Agreement or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to the
Trademark Collateral. Without limiting the generality of the foregoing
sentence, Debtor:
(i) hereby authorizes Secured Party in its sole
discretion if Debtor refuses to execute and deliver, or fails timely to
execute and deliver, any of the documents it is requested to execute and
deliver by Secured Party, to modify this Agreement without first obtaining
Debtor's approval of or signature to such modification by amending
SCHEDULE A hereof to include a reference to any right, title or interest in
any existing Trademark Collateral or any Copyright, Registration or
Trademark Collateral acquired or developed by Debtor after the execution
hereof, or to delete any reference to any right, title or interest in any
Trademark Collateral in which Debtor no longer has or claims any right,
title or interest; and
(ii) hereby authorizes Secured Party, in its sole
discretion, to file one or more financing or continuation statements, if
Debtor refuses to execute and deliver, or fails timely to execute and
deliver, any such amendment thereto it is requested to execute and deliver
by Secured Party, any amendments thereto, relative to all or any portion of
the Trademark Collateral, without the signature of Debtor where permitted
by law;
(d) comply, in all material respects, with all applicable
statutory and regulatory requirements in connection with any and all of the
Trademark Collateral and do all other acts and take all other measures which,
in Debtor's reasonable business judgment, may be necessary or desirable to
preserve, protect and maintain the Trademark Collateral and all of Debtor's
rights therein, including diligently prosecute any material trademark
application pending as of the date of this Agreement or thereafter;
(e) comply with each of the terms and provisions of this
Agreement, and not enter into any agreement (for example, a license
agreement) which is inconsistent with the obligations of Debtor under this
Agreement without Secured Party's prior written consent; and
(f) not permit the inclusion in any contract to which
Debtor becomes a party of any provision that could or might impair or prevent
the creation of a security interest in favor of Secured Party in Debtor's
rights and interest in any property included within the definition of
Trademark Collateral acquired under such contracts.
6. FUTURE RIGHTS. If and when Debtor shall obtain rights to any new
Trademarks, or any reissue, renewal or extension of any Trademarks, the
provisions of this
7
<PAGE>
Agreement shall automatically apply thereto and Debtor shall give to Secured
Party prompt notice thereof. Debtor shall do all things reasonably deemed
necessary or advisable by Secured Party to ensure the validity, perfection,
priority and enforceability of the security interests of Secured Party in
such future acquired Trademark Collateral. If Debtor refuses to execute and
deliver, or fails timely to execute and deliver, any of the documents it is
requested to execute and deliver by Secured Party in connection herewith,
Debtor hereby authorizes Secured Party to modify, amend or supplement the
Schedules hereto and to re-execute this Agreement from time to time on
Debtor's behalf and as its attorney-in-fact to include any future Trademarks
which are or become Trademark Collateral and to cause such re-executed
Agreement or such modified, amended or supplemented Schedules to be filed
with the PTO.
7. REMEDIES. Upon the occurrence and during the continuation of
an Event of Default, Secured Party shall have all rights and remedies
available to it under the Loan Agreement and applicable law (which rights and
remedies are cumulative) with respect to the security interests in any of the
Trademark Collateral or any other Collateral. Debtor agrees that such rights
and remedies include the right of Secured Party as a secured party to sell or
otherwise dispose of its Collateral after default, pursuant to UCC Section
9504. Debtor agrees that Secured Party shall at all times have such
royalty-free licenses, to the extent permitted by law, for any Trademark
Collateral that is reasonably necessary to permit the exercise of any of
Secured Party's rights or remedies upon or after the occurrence of (and
during the continuance of) an Event of Default with respect to (among other
things) any tangible asset of Debtor in which Secured Party has a security
interest, including Secured Party's rights to sell inventory, tooling or
packaging which is acquired by Debtor (or its successor, assignee or trustee
in bankruptcy). In addition to and without limiting any of the foregoing,
upon the occurrence and during the continuance of an Event of Default,
Secured Party shall have the right but shall in no way be obligated to bring
suit, or to take such other action as Secured Party deems necessary or
advisable, in the name of Debtor or Secured Party, to enforce or protect any
of the Trademark Collateral, in which event Debtor shall, at the request of
Secured Party, do any and all lawful acts and execute any and all documents
required by Secured Party in aid of such enforcement. To the extent that
Secured Party shall elect not to bring suit to enforce such Trademark
Collateral, Debtor, in the exercise of its reasonable business judgment,
agrees to use all reasonable measures and its diligent efforts, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
misappropriation or violation thereof by others and for that purpose agrees
diligently to maintain any action, suit or proceeding against any Person
necessary to prevent such infringement, misappropriation or violation.
8. BINDING EFFECT. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by Debtor and Secured Party and their
respective successors and assigns.
8
<PAGE>
9. NOTICES. All notices and other communications hereunder shall
be in writing and shall be mailed, sent or delivered in accordance with the
Loan Agreement.
10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
California, except to the extent that the validity or perfection of the
security interests hereunder in respect of any Trademark Collateral are
governed by federal law, in which case such choice of California law shall
not be deemed to deprive Secured Party of such rights and remedies as may be
available under federal law.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan
Agreement, together with the Schedules hereto and thereto, contains the
entire agreement of the parties with respect to the subject matter hereof and
supersede all prior drafts and communications relating to such subject
matter. Neither this Agreement nor any provision hereof may be modified,
amended or waived except by the written agreement of the parties as provided
in the Loan Agreement. Notwithstanding the foregoing, Secured Party may
re-execute this Agreement or modify, amend or supplement the Schedules hereto
as provided in SECTION 6 hereof.
12. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render
illegal or unenforceable any such provision in any other jurisdiction or with
respect to any other party, or any other provisions of this Agreement.
13. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement
14. LOAN AGREEMENT. Debtor acknowledges that the rights and
remedies of Secured Party with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Loan
Agreement and all such rights and remedies are cumulative.
15. NO INCONSISTENT REQUIREMENTS. Debtor acknowledges that this
Agreement and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and Debtor
agrees that all such
9
<PAGE>
covenants, terms and provisions are cumulative and all shall be performed and
satisfied in accordance with their respective terms.
16. TERMINATION. Upon the payment in full of the Obligations,
including the cash collateralization, expiration, or cancellation of all
Obligations, if any, consisting of letters of credit, and the full and final
termination of any commitment to extend any financial accommodations under
the Loan Agreement, this Agreement shall terminate, and Secured Party shall
execute and deliver such documents and instruments and take such further
action reasonably requested by Debtor, at Debtor's expense, as shall be
necessary to evidence termination of the security interest granted by Debtor
to Secured Party hereunder, including cancellation of this Agreement by
written notice from Secured Party to the PTO.
[Remainder of page intentionally left blank]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
NETWORK COMPUTING DEVICES, INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
S-1
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On ___________________, before me, ____________________________,
Notary Public, personally appeared ________________________________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
---------------------------------------
Signature
[SEAL]
S-2
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On ___________________, before me, _____________________________,
Notary Public, personally appeared
__________________________________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------
Signature
[SEAL]
S-3
<PAGE>
SCHEDULE A
to the Trademark Security Agreement
TRADEMARKS OF DEBTOR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TYPE MARK REGISTRATION/ REGISTRATION#/ JURISDICTION
APPLICATION DATE APPLICATION #
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark ThinSTAR 12/14/99 2,300,698 USA
- ----------------------------------------------------------------------------------------------------------------------------------
" " CTM App. Pending 15 European Countries
- ----------------------------------------------------------------------------------------------------------------------------------
" " App. Pending Australia
- ----------------------------------------------------------------------------------------------------------------------------------
" Network Computing Devices 9/1/92 1,711,241 USA
- ----------------------------------------------------------------------------------------------------------------------------------
" " 6/24/94 429,286 Canada
- ----------------------------------------------------------------------------------------------------------------------------------
" " 3/13/92 1396/92 Denmark
- ----------------------------------------------------------------------------------------------------------------------------------
" " 3/15/90 1,580,445 France
- ----------------------------------------------------------------------------------------------------------------------------------
" " 6/4/92 90.6191 Norway
- ----------------------------------------------------------------------------------------------------------------------------------
" " 2/26/92 394,394 Switzerland
- ----------------------------------------------------------------------------------------------------------------------------------
" " 1/12/93 612.305 Italy
- ----------------------------------------------------------------------------------------------------------------------------------
" " 8/29/97 4050977 Japan
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark & Design Network Computing Devices + Design 2/25/92 B1492114 United Kingdom
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark NCD 2/10/92 B1490360 United Kingdom
- ----------------------------------------------------------------------------------------------------------------------------------
" NCDnet 3/15/90 1,580,442 France
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark & Design NCD & Design(1) N/A N/A USA(1)
- ----------------------------------------------------------------------------------------------------------------------------------
" NCD & Design 9/25/92 TMA402,980 Canada
- ----------------------------------------------------------------------------------------------------------------------------------
" " 3/5/91 1979/91 Denmark
- ----------------------------------------------------------------------------------------------------------------------------------
" " 3/15/90 1,580,446 France
- ----------------------------------------------------------------------------------------------------------------------------------
" " 7/29/94 2685139 Japan
- ----------------------------------------------------------------------------------------------------------------------------------
" " 7/30/91 217,624 Korea
- ----------------------------------------------------------------------------------------------------------------------------------
" " 6/4/92 90.6192 Norway
- ----------------------------------------------------------------------------------------------------------------------------------
" " 4/2/91 390,489 Switzerland
- ----------------------------------------------------------------------------------------------------------------------------------
" " 9/1/92 569,944 Taiwan
- ----------------------------------------------------------------------------------------------------------------------------------
" " 1/15/97 2913553 Germany
- ----------------------------------------------------------------------------------------------------------------------------------
" " 6/12/93 612310 Italy
- ----------------------------------------------------------------------------------------------------------------------------------
" " 3/6/90 B530044 Australia
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark NCDware 3/15/90 1,580,444 France
- ----------------------------------------------------------------------------------------------------------------------------------
" " 10/22/91 224,457 Korea
- ----------------------------------------------------------------------------------------------------------------------------------
" PC-Xware (to be assigned from NCD 10/4/94 1,857,205 USA
Graphic Software Corp.)
- ----------------------------------------------------------------------------------------------------------------------------------
" ThinPATH 2/12/99 75/639,805 USA
- ----------------------------------------------------------------------------------------------------------------------------------
" " CTM App. Pending 15 European Countries
- ----------------------------------------------------------------------------------------------------------------------------------
" " App Pending Australia
- ----------------------------------------------------------------------------------------------------------------------------------
" Wincenter 5/19/98 2,158,272 USA
- ----------------------------------------------------------------------------------------------------------------------------------
" " CT App. Pending 15 European Countries
- ----------------------------------------------------------------------------------------------------------------------------------
" WinDD 12/16/96 739782 Taiwan
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TYPE MARK REGISTRATION/ REGISTRATION#/ JURISDICTION
APPLICATION DATE APPLICATION #
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
" " 10/24/94 4690/95 Hong Kong
- ----------------------------------------------------------------------------------------------------------------------------------
" " 4/2/95 659146 Australia
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark " 8/23/96 780809 Canada
- ----------------------------------------------------------------------------------------------------------------------------------
" " 9/22/95 95568572 France
- ----------------------------------------------------------------------------------------------------------------------------------
" " 4/221/95 573795 Benelux
- ----------------------------------------------------------------------------------------------------------------------------------
" " 4/24/95 2018208 United Kingdom
- ----------------------------------------------------------------------------------------------------------------------------------
" " 4/21/95 39517289 Germany
- ----------------------------------------------------------------------------------------------------------------------------------
" " 4/29/96 432587 Switzerland
- ----------------------------------------------------------------------------------------------------------------------------------
" " 5/9/96 173045 Norway
- ----------------------------------------------------------------------------------------------------------------------------------
" " 2/23/96 309107 Sweden
- ----------------------------------------------------------------------------------------------------------------------------------
" Explora App. Pending 75/464040 USA
- ----------------------------------------------------------------------------------------------------------------------------------
" ThinFrastructure CTM App. Pending 15 European Countries
- ----------------------------------------------------------------------------------------------------------------------------------
" ThinFrastructure App. Pending USA
- ----------------------------------------------------------------------------------------------------------------------------------
" Xremote 2/26/90 A529,524 Australia
- ----------------------------------------------------------------------------------------------------------------------------------
" " 1/10/92 392,724 Canada
- ----------------------------------------------------------------------------------------------------------------------------------
" " 5/15/92 4199/92 Denmark
- ----------------------------------------------------------------------------------------------------------------------------------
" " 12/20/91 115.670 Finland
- ----------------------------------------------------------------------------------------------------------------------------------
" " 3/15/90 1580443 France
- ----------------------------------------------------------------------------------------------------------------------------------
" " 11/12/92 2,024,570 Germany
- ----------------------------------------------------------------------------------------------------------------------------------
" " 10/31/94 2698751 Japan
- ----------------------------------------------------------------------------------------------------------------------------------
" " 10/22/91 224,456 Korea
- ----------------------------------------------------------------------------------------------------------------------------------
" " 10/15/91 1,660,583 USA
- ----------------------------------------------------------------------------------------------------------------------------------
Service mark Enlighten Your Load (to be assigned App. Pending 75/723,459 USA
from NCD Acquisition)
- ----------------------------------------------------------------------------------------------------------------------------------
Design mark Miscellaneous Design Trademark (to be App. Pending 75/729,442 USA
assigned from NCD Acquisition)
- ----------------------------------------------------------------------------------------------------------------------------------
Design & Service Miscellaneous Design Service Mark (to App. Pending 75/731,214 USA
mark be assigned from NCD Acquisition)
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark & Multiplicity (to be assigned from NCD App. Pending 75 & 470296 USA
Service mark Acquisition)
- ----------------------------------------------------------------------------------------------------------------------------------
Trademark Enlighten Your Load (to be assigned App. Pending 75/723,463 USA
from NCD Acquisition)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)On August 30, 1991, Network Computing Devices, Inc. (the "Company") entered
into an agreement with National Computer Dynamic, an Ohio corporation
("National), whereby National granted the Company an exclusive license to use
the NCD & Design mark in the U.S. in connection with the manufacture,
advertising, marketing, sale, distribution and financing of the goods and
services underlying the NCD & Design mark. In consideration for this license,
the Company withdrew its application to register with the USPTO, the NCD &
Design mark and also granted National a non-exclusive license to use National's
similar NCD & Design mark outside of the U.S. in connection with the
manufacture, advertising, marketing, sale and distribution of National's goods
and services.
A-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,416
<SECURITIES> 300
<RECEIVABLES> 21,757
<ALLOWANCES> 4,730
<INVENTORY> 13,918
<CURRENT-ASSETS> 39,155
<PP&E> 22,346
<DEPRECIATION> 18,964
<TOTAL-ASSETS> 45,576
<CURRENT-LIABILITIES> 24,276
<BONDS> 0
0
0
<COMMON> 61,967
<OTHER-SE> (40,667)
<TOTAL-LIABILITY-AND-EQUITY> 45,576
<SALES> 13,747<F1>
<TOTAL-REVENUES> 13,747
<CGS> 12,579<F2>
<TOTAL-COSTS> 12,579
<OTHER-EXPENSES> 18,128
<LOSS-PROVISION> 527
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 0
<INCOME-TAX> 243
<INCOME-CONTINUING> (17,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,194)
<EPS-BASIC> (1.00)
<EPS-DILUTED> (1.00)
<FN>
<F1>INCLUDES REVENUES FROM LICENSING OF SOFTWARE AND SUPPORT SERVICES
<F2>INCLUDES COSTS FROM LICENSING OF SOFTWARE AND SUPPORT SERVICES
</FN>
</TABLE>
