<PAGE> 1
_________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-21138
September 30, 1996
____________
BOCA RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2479377
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1377 Clint Moore Road
Boca Raton, Florida
(Address of principal 33847
executive offices) (Zip Code)
Registrant's telephone number, including
area code: (407) 997-6227
____________
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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class November 12, 1996
----- -----------------
<S> <C>
Common stock, par value 8,662,216
$.01 per share
</TABLE>
<PAGE> 2
BOCA RESEARCH, INC.
Form 10-Q For The Quarter Ended September 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of September 30, 1996 and
December 31, 1995 ......................................... 3
Condensed Consolidated Statements of
Income (unaudited) for the three and nine
months ended September 30, 1996 and 1995 .................. 4
.
Condensed Consolidated Statements of
Cash Flows (unaudited) for the nine
months ended September 30, 1996 and 1995 .................. 5
Notes to Condensed Consolidated
Financial Statements (unaudited) .......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................................ 12
PART II. OTHER INFORMATION
Items 1-3. Not applicable .............................................. 24
Item 4. Submission of Matters to a Vote of
Security Holders .......................................... 24
Item 5. Other Information ................................................... 24
Item 6. Exhibits and Reports on Forms 8-K ................................... 24
Signatures ..................................................................... 25
</TABLE>
- 2 -
<PAGE> 3
PART I. ITEM 1.
BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 2,056 $ 477
Trade receivables, net .............................. 31,569 22,871
Inventory, net ...................................... 16,867 22,457
Prepaid expenses and other assets ................... 415 890
Deferred and prepaid income taxes ................... 2,783 2,230
------- -------
Total current assets ............................. 53,690 48,925
Property and equipment, net ......................... 7,773 7,722
Deferred income taxes, noncurrent ................... 242 242
Goodwill, net ....................................... 41 166
Other assets ........................................ 711 623
------- -------
Total assets ..................................... $62,457 $57,678
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 5,104 $ 5,837
Accrued expenses and other current liabilities ...... 3,181 4,628
Income taxes payable ................................ 0 607
------- -------
Total current liabilities ......................... 8,285 11,072
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, 25,000,000 $.01 par value shares
authorized, 8,648,883 issued and outstanding
at September 30, 1996, 8,522,759 issued and
outstanding at December 31, 1995 .................. 87 85
Additional paid-in capital .......................... 24,649 23,470
Retained earnings ................................... 29,436 23,051
------- -------
Total stockholders' equity ........................ 54,172 46,606
------- -------
Total liabilities and stockholders' equity .... $62,457 $57,678
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
- 3 -
<PAGE> 4
BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- -----------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales ................................. $32,966 $37,350 $124,563 $97,815
Cost of goods sold ........................ 26,798 27,829 99,169 72,397
------- ------- -------- -------
Gross profit ...................... 6,168 9,521 25,394 25,418
------- ------- -------- -------
Operating expenses:
Research and development .......... 739 839 2,222 2,086
Selling, general and administrative 4,010 4,951 13,636 13,417
------- ------- -------- -------
Total operating expenses .......... 4,749 5,790 15,858 15,503
------- ------- -------- -------
Income from operations .................... 1,419 3,731 9,536 9,915
Non-operating income, net ................. 177 63 440 419
------- ------- -------- -------
Income before income taxes ................ 1,596 3,794 9,976 10,334
Income taxes .............................. 574 1,372 3,591 3,726
------- ------- -------- -------
Net income ................................ $ 1,022 $ 2,422 $ 6,385 $ 6,608
======= ======= ======== =======
Primary earnings per share ................ $ 0.12 $ 0.27 $ 0.71 $ 0.74
======= ======= ======== =======
Shares used in primary
per share calculation ............. 8,792 9,087 8,965 8,874
======= ======= ======== =======
Fully diluted earnings per share .......... $ 0.12 $ 0.27 $ 0.71 $ 0.73
======= ======= ======== =======
Shares used in fully diluted
per share calculation ............. 8,792 9,087 8,965 9,016
======= ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------
1996 1995
------- --------
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Net income ................................... $ 6,385 $ 6,608
Adjustments for non-cash charges ............. 2,267 1,938
Changes in assets and liabilities ............ (6,061) (13,476)
------- --------
Net cash provided by (used in)
operating activities ....................... 2,591 (4,930)
------- --------
Investing activities:
Loan to related party ........................ 0 (205)
Loan repayment from related party ............ 0 500
Capital expenditures ......................... (2,193) (2,352)
------- --------
Net cash used in investing activities ...... (2,193) (2,057)
------- --------
Financing activities - Exercise of options ............ 1,181 494
------- --------
Net increase (decrease) in cash and cash equivalents .. 1,579 (6,493)
Cash and cash equivalents, beginning of period ........ 477 6,666
------- --------
Cash and cash equivalents, end of period .............. $ 2,056 $ 173
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by
the Company in accordance with the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting and, accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles. In the opinion of management, the condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the Company as of September 30, 1996, and the results of its operations and its
cash flows for the three and nine month periods ended September 30, 1996 and
1995. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in the
preparation of the Company's 1995 audited financial statements.
The accompanying financial statements should be read in conjunction with
the Company's most recent audited financial statements and notes thereto for the
year ended December 31, 1995. The results of operations for the three and nine
month periods ended September 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," effective January 1, 1996. The adoption did not have
a significant effect on financial position or results of operations.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," effective January 1, 1996. The Company is continuing to measure
stock-based employee compensation using the intrinsic value method, and will
provide the pro forma disclosures required by SFAS No. 123 in its financial
statements for the year ending December 31, 1996.
Certain prior year amounts have been reclassified to conform to the
current presentation.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments (net of refunds) for income taxes were $4,751,683 and
$4,082,231 in the nine month periods ended September 30, 1996 and 1995,
respectively.
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<PAGE> 7
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
CURRENT ASSETS
Accounts receivable are included in the condensed consolidated balance
sheets net of allowances and consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
Accounts receivable .......................... $ 35,668 $ 26,484
Allowance for sales returns, allowances and
price protection ........................... (2,500) (2,613)
Allowance for doubtful accounts .............. (1,599) (1,000)
-------- --------
$ 31,569 $ 22,871
======== ========
</TABLE>
Included in the accounts receivable balance are: (a) $846,000 from
MBf/Boca Asia Pacific Sdn Bhd, a joint venture in Malaysia in which the Company
has a 50% ownership interest; and (b) $376,000 from Powertel of India, a joint
venture in India in which the Company has a 20% ownership interest. Sales to
these related parties in the three and nine month periods ended September 30,
1996 were approximately $843,000 and $4,472,000, respectively. The Company did
not have such investments in the nine months ended September 30, 1995.
Inventories included in the condensed consolidated balance sheets
consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials ................ $ 13,069 $ 16,501
Work in process .............. 5,045 5,346
Finished goods ............... 753 1,690
Inventory reserves ........... (2,000) (1,080)
-------- --------
$ 16,867 $ 22,457
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is included in the condensed consolidated balance
sheets net of accumulated depreciation of $7,319,715 at September 30, 1996 and
$5,347,030 at December 31, 1995.
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<PAGE> 8
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
LINE OF CREDIT
The Company had an unsecured revolving line of credit expiring April 30,
1997, which permitted borrowings of the lesser of $7,000,000 or 50% of qualified
accounts receivable. On September 12, 1996, the Company entered into a new
unsecured revolving line of credit agreement expiring May 31, 1998, which
permits borrowings of the lesser of $12,000,000 or 60% of qualified accounts
receivable. Under the terms of the loan agreement relating to the line of
credit, the Company may elect the interest rate to be either the bank's prime
rate or the London InterBank Offered Rate (LIBOR) plus 1 1/2%. The loan
agreement requires the Company to maintain certain financial ratios, limits the
incurrence of additional debt, and prohibits payment of dividends without the
bank's consent. There were no borrowings outstanding at September 30, 1996.
COMMITMENTS AND CONTINGENCIES
Rent expense for the three month periods ended September 30, 1996 and
1995 was $197,153 and $166,990, respectively, and $603,657 and $975,073 for the
nine month periods ended September 30, 1996 and 1995, respectively. In the three
month period ended March 31, 1995, the Company incurred additional rent expense
of approximately $269,000 to record the effect of vacating two leased
facilities. The Company is committed through 2000 for rents under noncancelable
operating leases for use of its offices, warehouses and manufacturing
facilities. The aggregate minimum annual payments under such leases for the
years ending December 31, 1996, 1997, 1998, 1999 and 2000 are $659,320,
$543,426, $427,533, $325,728, and $206,686, respectively.
The Company receives communications from time to time alleging that
certain of the Company's products infringe the patent rights of other parties.
Based on information currently available to the Company, it is the opinion of
the Company's management that the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.
On October 4, 1996, the Company entered into a Consulting Agreement (the
"Consulting Agreement") with ARGOQUEST, Inc., a California corporation
("ArgoQuest") pursuant to which ArgoQuest was retained to serve as a consultant
to the Company with respect to sales to retail accounts, wholesale distributors
and original equipment manufacturers ("OEMs"). The principal terms of the
Consulting Agreement are as follows:
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<PAGE> 9
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
The Consulting Agreement has a term of 54 months (the "Term"). In
consideration of entering into the Consulting Agreement, ArgoQuest will receive
a monthly fee of $83,333 in cash, plus expenses, for the Term, except that no
fees will be paid for the period commencing on the first day of the seventh
month of the Term and ending on the last day of the eighteenth month of the Term
(the "Deferred Period"), unless the Board of Directors of the Company shall
determine otherwise. If the Company achieves at least $50 million in certain Net
Sales, as defined in the Consulting Agreement ("Net Sales"), during the first
eighteen months of the Consulting Agreement (the "First Period"), then ArgoQuest
will be entitled to receive an additional consulting fee of $1,000,000, less any
consulting fees paid to ArgoQuest during the Deferred Period. If the Company
does not achieve at least $50 million in Net Sales during the First Period, the
Company may terminate the Consulting Agreement.
ArgoQuest will have the right to be granted options to purchase shares
of Common Stock of the Company, subject to the Company achieving specified Net
Sales during certain periods (the "Initial Options"). In the event that during
the First Period, the Company achieves Net Sales of at least $100 million, then
ArgoQuest will be granted options to purchase 500,000 shares of Common Stock of
the Company (the "Boca Common Stock"), at an exercise price of $2.95 per share.
In the event that during the period commencing at the expiration of the First
Period and continuing through the date which is thirty months after the
execution and delivery of the Consulting Agreement (the "Second Period"), the
Company achieves Net Sales of at least $125 million, then ArgoQuest will be
granted options to purchase 1,000,000 shares of Boca Common Stock, at an
exercise price of $2.95 per share. In the event that the Company achieves at
least $50 million in Net Sales for the First Period, the Initial Options to be
granted with respect to the First Period will be pro rated on a linear basis
between $0 and $100 million of the targeted Net Sales for such period. In the
event that the Company achieves at least $70 million in Net Sales for the Second
Period, the Initial Options to be granted with respect to the Second Period will
be pro rated on a linear basis between $0 and $125 million of the targeted Net
Sales for such period. In addition, in the event that Net Sales for the First
Period are less than $100 million, ArgoQuest will be entitled to be granted
those Initial Options attributable to the First Period which were not granted in
the First Period if the Company achieves Net Sales for the Second Period of at
least $125 million plus an amount equal to the difference between actual Net
Sales for the First Period and $100 million.
ArgoQuest will have the right to receive additional options to purchase
shares of Boca Common Stock, the grant of such options to be subject to the
Company achieving the Target Net Sales set forth below during the periods set
forth below (the "Performance Options"):
- 9 -
<PAGE> 10
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Rata Number of
Target Net Sales Threshold Performance Exercise Price
Period (Millions) (Millions) Options per Share
------ ---------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Date of Agreement $150 $100 225,000 $14.16
through 3/31/98 200 150 225,000 14.16
4/1/98 through 175 150 300,000 17.70
3/31/99 225 175 300,000 17.70
4/1/99 through 250 175 300,000 20.65
3/31/00 350 250 300,000 20.65
4/1/00 through 325 250 300,000 23.60
3/31/01 400 325 300,000 23.60
</TABLE>
In the event that the Company achieves Net Sales equal to at least the
Pro Rata Threshold set forth in the table above but less than the Net Sales
Target for such period, then ArgoQuest will be entitled to be granted a portion
of the Performance Options designated for such period determined on a linear
basis from the Pro Rata Threshold through the Net Sales Target for such period.
All earned Initial Options will vest in full on the date of grant. All
earned Performance Options will vest over a three-year period from the date of
grant, commencing on the first anniversary of the date of grant, and will be
subject to the restrictions on transfer discussed above with respect to the
issuance of the shares. The vesting of all earned Options will accelerate upon a
change of control (as defined). In the event of a change of control, the Company
may elect to terminate the Consulting Agreement and will be discharged from any
further obligations to grant Options or pay consulting fees under the Agreement,
except that a portion of the remaining Options will be granted subject to the
Company achieving certain Net Sales targets during the period in which the
change of control occurs. The shares of Common Stock issuable upon exercise of
any Options granted pursuant to the Consulting Agreement will not be registered
under the Securities Act of 1933, as amended, and will be subject to the
restrictions on resale imposed by the Securities Act. The Consultant has been
granted certain rights to require the Company to register (at the expense of the
Consultant) the shares issuable upon exercise of the Options. The Consultant may
not assign or otherwise transfer any Options, except that the Consultant may
transfer Options aggregating not more than 25% of the Options,
- 10 -
<PAGE> 11
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
determined on a cumulative basis. The Consultant is not permitted to sell or
otherwise dispose of any shares of Common Stock issuable upon exercise of the
Options until the first anniversary of the date of issuance thereof and, after
such date, not to sell or otherwise dispose of greater than 33% of such shares,
in the aggregate, on an annual basis.
STOCKHOLDERS' EQUITY
During the nine month period ended September 30, 1996, 105,379 shares
were issued to current employees in connection with the exercise of options
granted to the individuals under the Company's stock option plans. The aggregate
proceeds received from these exercises were $792,125.
In January and July 1996, 9,502 and 11,243 options were exercised by
employees under the 1992 Employee Stock Purchase Plan. Aggregate proceeds
received from these exercises were $388,439.
STOCK OPTION PLAN
During the nine month period ended September 30, 1996, the Company
granted options to purchase 448,408 shares at prices ranging from $11.50 to
$25.00 to both new and existing employees.
During the nine month period ended September 30, 1996, 80,849 stock
options were canceled.
- 11 -
<PAGE> 12
ITEM 2.
BOCA RESEARCH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors set forth below and
elsewhere in this Report.
As an aid to reviewing the Company's results of operations for the three
and nine months ended September 30, 1996 and 1995, the following table sets
forth the items in the consolidated statements of income as a percent of net
sales and as a percent of change when compared to the earlier period:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- Percent --------------------- Percent
1996 1995 Change 1996 1995 Change
------ ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................ 100.0% 100.0% (11.7)% 100.0% 100.0% 27.3%
Cost of goods sold ....................... 81.3 74.5 (3.7) 79.6 74.0 37.0
----- ----- ----- -----
Gross profit ......................... 18.7 25.5 (35.2) 20.4 26.0 (0.1)
----- ----- ----- -----
Operating expenses:
Research and development ............. 2.2 2.2 (11.9) 1.8 2.1 6.5
Selling, general and administrative .. 12.2 13.3 (19.0) 10.9 13.7 1.6
----- ----- ----- -----
Total operating expenses ......... 14.4 15.5 (18.0) 12.7 15.8 2.3
----- ----- ----- -----
Income from operations ................... 4.3 10.0 (62.0) 7.7 10.2 (3.8)
Non-operating income, net ................ 0.5 0.2 181.0 0.3 0.4 5.0
----- ----- ----- -----
Income before income taxes ............... 4.8 10.2 (57.9) 8.0 10.6 (3.5)
Income taxes ............................. 1.7 3.7 (58.2) 2.9 3.8 (3.6)
----- ----- ----- -----
Net income ............................... 3.1 6.5 (57.8) 5.1 6.8 (3.4)
===== ----- ===== -----
</TABLE>
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<PAGE> 13
RESULTS OF OPERATIONS
Net Sales. The Company's net sales decreased by 11.7% to
$32,966,000 in the three months ended September 30, 1996 from $37,350,000 in the
three months ended September 30, 1995. For the nine months ended September 30,
1996, net sales increased by 27.3% to $124,563,000 from $97,815,000 for the
comparable period in 1995. The sales increase for the three and nine month
periods ended September 30, 1996 over the comparable periods in 1995 is shown
below by product category.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Data Communications ..... $ 27.1 $ 24.3 $108.0 $ 48.0
Multimedia .............. 0.3 2.2 0.7 22.8
Networking .............. 1.8 2.8 4.9 7.0
Video Graphics .......... 1.5 4.2 4.8 10.3
I/O, IDE, & Multiport ... 2.1 3.7 5.8 9.4
Memory .................. -- 0.1 -- 0.3
ISDN .................... 0.1 -- 0.3 --
Video Phone ............. 0.1 -- 0.1 --
------ ------ ------ ------
$ 33.0 $ 37.3 $124.6 $ 97.8
====== ====== ====== ======
</TABLE>
The decrease in sales for the three month period ended September 30,
1996 compared to the comparable period in 1995 was attributable to decreased
sales in all product categories except the Company's data communications
products. The increase in sales for the nine month period ended September 30,
1996 compared to the comparable period in 1995 was attributable to increased
sales of data communications products offset by a decline in sales of the
Company's other product categories. Sales of product in the Company's two new
product categories, ISDN and video phone, were minimal for the three month and
nine month periods ended September 30, 1996. The increased sales of the
Company's data communications products in the three months and nine months ended
September 30, 1996 compared to the comparable periods in 1995 was primarily due
to the increase in demand for the Company's 28.8 Kbps modem products. These
higher speed modems are becoming increasingly popular for accessing the Internet
and connecting individuals and information worldwide. The Company believes that
the increased use of the Internet and on-line services is fueling the demand for
modem products. The overall sales level of the Company's products is affected by
pricing conditions in the industry. The decrease in sales for the three month
period ended September 30, 1996 was due, in part, to industry-wide decreases in
prices of the Company's
- 13 -
<PAGE> 14
major product, the 28.8 Kbps modem, which the Company anticipates could continue
in the future.
Sales of the Company's Sound Expression multimedia product declined by
$1,900,000 for the three months ended September 30, 1996 and declined by
$22,100,000 for the nine months ended September 30, 1996 compared to the
comparable periods in 1995. This is a continuation of a decline in sales of the
Sound Expression product that occurred in the last six months of 1995 due to the
increased use by OEMs of a chipset incorporating sound on the system board of
the PC. As of September 30, 1996, net inventory includes $500,000 of components
and finished goods relating to this product line. The Company believes that
there is a niche market for its 28.8 Sound Expression product and anticipates
sales in this category in the future, however, at gross margin percentages below
the Company's average. The decline in sales of networking, video and I/O, IDE
and multiport products reflects the Company's decision to focus its sales
efforts on other product categories that have more value-added features and thus
the potential for higher gross profits.
Two OEM customers accounted for approximately $12,300,000 and
$6,300,000 in sales, representing 36% and 19% respectively of net sales for the
three months ended September 30, 1996. These two OEM customers for the nine
month period ended September 30, 1996 accounted for approximately $19,800,000
and $23,800,000 in sales, representing 15% and 19%, respectively, of net sales.
The Company expects that sales to these two customers for the remainder of 1996
will likely be less than in the third quarter of 1996. As of September 30, 1996
the Company had accounts receivable balances of $12,300,000 and $5,600,000,
respectively, from these two OEM customers of which approximately $1,600,000 was
between 60 and 90 days beyond the invoice date. In addition, an international
OEM customer accounted for $13,700,000 in sales, representing 11% of net sales
for the nine months ended September 30, 1996, none of which was in the third
quarter. As of September 30, 1996, the Company had an accounts receivable
balance of $3,200,000 from this customer which was beyond the agreed terms. The
Company believes that this customer's inventory of products purchased from the
Company is at higher than normal levels, which impacted the Company's sales to
this customer for the three month period ended September 30, 1996. In light of
the customer's inventory levels, the Company believes that sales to this
customer for the last three months of 1996 will continue to be adversely
affected. A delay or default in payment by any significant customer could have a
material adverse effect on the Company's results of operations or financial
condition. Also, a decline in sales to a significant customer could have a
material adverse effect on the Company's results of operations or financial
condition.
International sales represented 14% of net sales for the three months
ended September 30, 1996 and 30% of net sales for the nine months ended
September 30, 1996. International sales represented 17% of net sales for the
three months ended September 30, 1995 and 16% of net sales for the nine month
period ended September 30, 1995.
- 14 -
<PAGE> 15
The percentage of net sales attributable to OEM customers increased to
66% in the three months ended September 30, 1996 from 38% in the three months
ended September 30, 1995. For the nine month period ended September 30, 1996,
the percentage of net sales to OEM customers increased to 63% from 44% in the
comparable period in 1995. The Company believes that sales to OEM customers will
continue to represent a substantial portion of net sales.
Gross Profit. Gross profit decreased to $6,168,000 in the three months
ended September 30, 1996 from $9,521,000 in the three months ended September 30,
1995, and decreased as a percentage of net sales to 18.7% in the three months
ended September 30, 1996 from 25.5% in the three months ended September 30,
1995. As discussed above, sales to OEM customers, for which gross profit margins
are typically lower, increased to 66% of net sales in the three months ended
September 30, 1996 compared to 38% of net sales in the three months ended
September 30, 1995. Gross profit percentage was also affected by increased price
competition on the Company's major product, the 28.8 Kbps modem, and a rapid
decline in selling price of certain products due to their replacement with later
generation products. For the nine months ended September 30, 1996, gross profit
decreased to $25,394,000 from $25,418,000 for the nine months ended September
30, 1995. Gross profit as a percentage of net sales decreased to 20.4% for the
nine month period ended September 30, 1996 from 26.0% for the nine month period
ended September 30, 1995. The decrease in gross profit percentage for the nine
month period is attributable to the increase in sales to OEM customers to 63%
for the nine month period ended September 30, 1996, from 44% for the nine month
period ended September 30, 1995. Gross profit percentage was also affected by a
write down of DRAM inventory components of $750,000, increased inventory
reserves of $920,000, a rapid decline in selling price of certain products due
to their replacement with later generation products and a decline in price of
the Company's major product, the 28.8 Kbps modem.
The modem market is experiencing changing dynamics in that the supply
of modem chips is more available in 1996 as contrasted to the short supply in
1995. Also, modem manufacturers are increasing production and seeking to expand
their market share. These circumstances will likely result in lower selling
prices for modems in the future. The Company's gross profit percentage will be
dependent on the Company's ability to offset this price decrease with cost
decreases on the major components.
The gross profit margins for the Company's products depend upon a
number of factors, such as the degree of competition in the market for such
products, the product and channel mix (wholesale distributors and retailers
versus OEMs), component costs, and manufacturing efficiencies. In general, gross
profit margins are higher on sales to wholesale distributors and retailers than
on sales to OEMs. In addition, gross profit margins on product categories
differ. Accordingly, the Company's gross profit margin has varied substantially
from quarter to quarter in the past, and can be expected to continue to do so in
the future. Management believes that the lower operating expenses typically
associated with OEM sales generally offset their corresponding lower gross
profit margins. There will be circumstances, which management anticipates will
occur in the fourth quarter, in which the Company accepts lower margin sales for
purposes such as to phase-out inventory, to utilize manufacturing capacity, and
to increase penetration in the retail channel.
- 15 -
<PAGE> 16
Research and Development Expenses. Research and development expenses
decreased to $739,000 in the three months ended September 30, 1996 from $839,000
in the three months ended September 30, 1995. As a percentage of net sales,
research and development expenses were 2.2% for the three months ended September
30, 1996 and 1995. For the nine months ended September 30, 1996, research and
development expenses increased to $2,222,000 from $2,086,000 for the nine month
period ended September 30, 1995. This represented a decrease in research and
development expenses as a percentage of net sales to 1.8% for the nine months
ended September 30, 1996 from 2.1% of net sales for the comparable period in
1995. The decrease in research and development expenses as a percentage of net
sales was primarily attributable to the fixed nature of certain research and
development costs allocated over a larger sales base. Also, the Company relies
on license and royalty agreements with third parties for much of its new product
development. The Company has formed alliances with Chase Research Plc, NetComm
Limited, Viewpoint Systems, a wholly owned subsidiary of Multimedia Access
Computer and Telesoft International, Inc. to develop ISDN, high-end network
management products and video conferencing products. The Company has recently
increased its staff of engineers which is anticipated to increase research and
development expenses in the fourth quarter.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses decreased to $4,010,000 in the three months ended
September 30, 1996 from $4,951,000 in the three months ended September 30, 1995.
Selling, general and administrative expenses as a percentage of net sales
decreased to 12.2% in the three months ended September 30, 1996 from 13.3% in
the three months ended September 30, 1995. Selling, general and administrative
expenses increased to $13,636,000 in the nine months ended September 30, 1996
from $13,417,000 in the nine months ended September 30, 1995. Selling, general
and administrative expenses as a percentage of net sales decreased to 10.9% in
the nine months ended September 30, 1996 from 13.7% in the nine months ended
September 30, 1995. The decrease in selling, general and administrative expenses
as a percentage of net sales is primarily the result of increased sales to OEM
customers during the three and nine month periods ended September 30, 1996, as
well as the non-variable nature of certain expenses relative to sales increases.
Certain selling, general and administrative expenses associated with OEM sales
are typically lower than those expenses associated with sales to wholesale
distributors and retailers. Selling, general and administrative expenses as a
percentage of net sales will continue to fluctuate and will be influenced by the
level of sales to the various channels, and the particular sales and marketing
requirements of each of the channels. Expenses for employee bonuses are
approximately $708,000 less in the nine months ended September 30, 1996 compared
to the comparable period in 1995 because net income performance targets are not
being met. Selling, general and administrative expenses are anticipated to
increase in the fourth quarter as the Company increases its sales focus and
consulting fees and expenses are recorded per the October 4, 1996 Consulting
Agreement entered into by the Company with ArgoQuest, Inc. The Company
anticipates that it will incur fees and other expenses of at least $100,000
monthly during the fourth quarter of 1996 in connection with this Agreement,
which amount could
- 16 -
<PAGE> 17
increase depending on the level of sales resulting from the Agreement. See Notes
to the Condensed Consolidated Financial statements for further information
regarding this Agreement. Also, the terms and conditions of this Agreement are
detailed in the Company's Current Report on Form 8-K filed with the Commission
on October 15, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 1996, the Company's working
capital increased by $7,552,000 from December 31, 1995. This increase was
represented by increases in cash and cash equivalents of $1,579,000, trade
receivables of $8,698,000, other current assets of $78,000 and a decrease in
current liabilities of $2,787,000; offset by a decrease in inventories of
$5,590,000. The Company's operations provided cash of $2,591,000 for the nine
months ended September 30, 1996. The Company's investing activities consisted of
capital expenditures of $2,193,000 during the nine months ended September 30,
1996.
The Company may from time to time experience periods of negative cash
flow from operations. The Company intends to borrow under its line of credit to
the extent necessary to finance cash needs. The Company had an unsecured
$7,000,000 line of credit with a commercial bank expiring on April 30, 1997. On
September 12, 1996, the Company entered into a new unsecured revolving line of
credit agreement expiring May 31, 1998. As of September 30, 1996, no borrowings
were outstanding under this line of credit, which permits borrowings of the
lesser of $12,000,000 or 60% of qualified accounts receivable. Under the terms
of the loan agreement relating to the line of credit, the Company may elect the
interest rate to be either the bank's prime rate or the London InterBank Offered
Rate (LIBOR) plus 1 1/2%. The loan agreement requires the Company to maintain
certain financial ratios, limits the incurrence of additional debt, and
prohibits payment of dividends without the bank's consent. The Company does not
anticipate that borrowings will be made under the line of credit in the fourth
quarter of 1996 unless there is an unexpected delay of the collection of
receivables from three major customers as discussed on page 12.
The Company's trade receivables have increased at September 30, 1996 as
a result of slow payments by major customers and extended credit terms. It is
anticipated that these extended terms will increase the Company's investment in
receivables in the future. In addition, while inventories decreased during the
nine months ended September 30, 1996, increases may occur in the future to
support higher sales, particularly to OEMs and management may make strategic
investments in inventory to improve the flow of components to manufacturing in
order to assure timely delivery to customers. The Company intends to finance
these increases through existing cash balances, cash generated from operations
and borrowings under its line of credit. The Company currently believes that the
combination of cash generated from operations, the Company's existing cash
balances, and its line of credit will be sufficient to meet its liquidity and
capital requirements through at least December 31, 1996.
- 17 -
<PAGE> 18
The Company's management continually reviews its financing options. The
Company is considering and will continue to consider alternative financing
opportunities including the issuance of equity, debt or convertible debt, if
market conditions make such alternatives financially attractive methods of
funding the Company's short-term or long-term needs.
CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE.
In addition to the other information contained in this Report, the
following are important factors that should be considered carefully in
evaluating the Company and its business.
NEW PRODUCTS, TECHNOLOGICAL CHANGES AND INVENTORY MANAGEMENT. The
markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and short product life cycles. The
Company's success depends upon its ability to enhance its existing products and
to introduce new products with features that meet changing end user
requirements. Moreover, because of short product life cycles coupled with long
lead times for many components used in the Company's products, the Company may
not be able to quickly reduce its production or inventory levels in response to
unexpected shortfalls in sales or, conversely, to increase production or
inventory levels in response to unexpected demand. There can be no assurance
that the Company will be successful in identifying new markets, in developing,
manufacturing and marketing new products, or in enhancing its existing products,
either internally or through strategic relationships with third parties. The
Company's business would be adversely affected if the Company were to incur
delays in developing new products or enhancing existing products, if the Company
experiences delays in obtaining any required regulatory approvals for its
products or if such new products or enhancements did not gain market acceptance.
In addition, there can be no assurance that products or technologies developed
by others will not render the Company's products or technologies noncompetitive
or obsolete.
Sales of individual products and product lines are typically
characterized by rapid declines in sales, pricing and margins toward the end of
the respective product's life cycle, the precise timing of which may be
difficult to predict. As new products are planned and introduced, the Company
attempts to monitor closely the inventory of older products and to phase out
their manufacture in a controlled manner. Nevertheless, the Company could
experience unexpected reductions in sales of older generation products as
customers anticipate the availability of new products. These reductions could
give rise to additional charges for obsolete or excess inventory, returns of
older generation products by distributors or substantial price protection
charges. To the extent that the Company is unsuccessful in managing product
transitions, its business and operating results could be materially adversely
affected.
Because all of the Company's products are used in PCs and computer
networks, the Company's future operating results could be adversely affected by
changes in the PC and computer networking markets, including major technological
developments or fluctuations in the growth rate. In addition, there is a trend
in original PC system manufacturing to integrate
- 18 -
<PAGE> 19
additional functionality onto the system board of the PC or to utilize chipsets
which incorporate additional functionality, thereby decreasing the market for PC
enhancement products. In this regard, demand for the Company's SoundExpression
multimedia products declined in the last six months of 1995 and the first nine
months of 1996 due to the increased use by OEMs of chipsets incorporating sound
and modem features which are integrated into the system board of the PC. Any
decrease in the markets for PC enhancement or networking products or reduction
in the growth rates in such markets could have a material adverse effect on the
Company's operating results.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly
operating results have varied significantly, and may continue to vary
significantly, depending on a number of factors, some of which could adversely
affect the Company's operating results and the trading price of the Company's
Common Stock. These factors include competitive pricing pressures, the timing of
orders from and shipments to major customers, the timing of new product
introductions by the Company and its competitors, the availability and pricing
of components for the Company's products, the timing of phase-outs of the
Company's products, variations in the Company's product mix and component costs,
variations in the proportion of sales made to wholesale distributors, OEMs and
retailers, product returns or price protection charges from customers, the
timing of sales of the Company's products to end users by the Company's
customers, seasonal promotions by the Company, its customers and competitors,
economic conditions prevailing within the computer industry and economic
conditions generally. Quarterly sales depend on the volume and timing of orders
received during a quarter, which are difficult to forecast. Customers generally
order products on an as-needed basis, and accordingly the Company has
historically operated with a relatively small backlog. Moreover, as is typical
for companies in the PC industry, a disproportionate percentage of the Company's
net sales in any quarter are typically generated in the last month of a quarter.
As a result, a shortfall in net sales in any quarter as compared to expectations
may not be identifiable until the end of the quarter. In addition, from time to
time, a significant portion of the Company's sales are derived from a limited
number of customers, the loss of one or more of which could adversely impact
operating results. There can be no assurance that the Company will be able to
continue its growth in sales or sustain its profitability on a quarterly or
annual basis. The Company's expense levels are based, in part, on its
expectations as to future sales. If sales levels are below expectations,
operating results may be adversely affected, which would likely have an adverse
effect on the trading price of the Company's Common Stock.
ACQUISITIONS. The Company may from time to time pursue the acquisition
of other companies, assets, technologies or product lines that would complement
or expand its existing business. Certain of these acquisitions may involve
businesses in which the Company lacks experience. Acquisitions involve a number
of risks that could adversely affect the Company's operating results, including
the diversion of management's attention, the assimilation of the operations,
products and personnel of the acquired companies, the amortization of acquired
intangible assets and the potential loss of key employees of the acquired
companies. There can be no assurance that the Company will be able to identify
businesses that would complement or
- 19 -
<PAGE> 20
expand its existing business or complete such acquisitions, manage one or more
acquisitions successfully, or that the Company will be able to integrate the
operations, products or personnel gained through such acquisition without a
material adverse impact on the Company's business, financial condition and
results of operations, particularly in the quarters immediately following such
acquisitions.
INTERNATIONAL OPERATIONS. The Company's international sales are subject
to the risks inherent in international sales, including various regulatory
requirements (including the need to obtain certifications for the Company's data
communications products), political and economic changes and disruptions,
tariffs or other barriers, difficulties in staffing and managing foreign
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render the Company's products less competitive relative to
local product offerings or expose the Company to foreign currency exchange
losses. One or more of these factors may have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
operating results.
DEPENDENCE ON SUPPLIERS. The major components of the Company's products
include circuit boards, microprocessors, chipsets and memory components. Most of
the components used in the Company's products are available from multiple
sources. However, certain components used in the Company's products are
currently obtained from single sources. Certain modem chipsets used in the
Company's data communications products have been in short supply and are
frequently on allocation by semiconductor manufacturers. Similar to others in
the computer industry, the Company has, from time to time, experienced
difficulty in obtaining certain components. The Company has no guaranteed supply
arrangements with any of its suppliers and there can be no assurance that these
suppliers will continue to meet the Company's requirements. Shortages of
components not only limit the Company's production capacity but also could
result in higher costs due to the higher costs of components in short supply or
the need to utilize higher cost substitute components. An extended interruption
in the supply of any of these components or a reduction in their quality or
reliability would have a material adverse effect on the Company's operating
results. While the Company believes that with respect to its single source
components it could obtain similar components from other sources, it could be
required to alter product designs to use alternative components. There can be no
assurance that severe shortages of components will not occur in the future which
could increase the cost or delay the shipment of the Company's products and have
a material adverse effect on the Company's operating results. Significant
increases in the prices of these components could also have a material adverse
effect on the Company's operating results since the Company may not be able to
adjust product pricing to reflect the increases in component costs. Moreover, a
number of components for the Company's products are obtained from foreign
suppliers. Increases in tariffs on such components or fluctuations in exchange
rates could result in increases in the prices paid by the Company for these
components, which could impact the Company's ability to compete with foreign
manufacturers and have a material adverse effect on the Company's operating
results.
- 20 -
<PAGE> 21
SALES CHANNEL RISKS. The Company sells its products to OEMs, national,
regional and international wholesale distributors and retailers and catalog
companies. Sales to OEMs accounted for approximately 63% of net sales in the
nine months ended September 30, 1996. OEMs have significantly different
requirements, and in most cases, more stringent purchasing procedures and
quality standards than wholesale distributors and other resellers. There can be
no assurance that the Company will continue to be successful in developing
products for, and delivering products to, the OEM market, or that it will be
successful in establishing and maintaining an effective distribution and
customer support system for OEMs. The Company's business could be adversely
affected if it is unsuccessful in developing, manufacturing and marketing
products for sale to OEMs. In addition, OEMs may require special distribution
arrangements and product pricing, which could have a material adverse effect on
the Company's operating results. In the nine months ended September 30, 1996,
the Company's three largest OEM customers accounted for approximately 45% of the
Company's net sales. A decline in sales to either of these customers or a delay
or default in payment by either customer could have a material adverse effect on
the Company's results of operations or financial condition.
The Company's three largest wholesale distributors accounted for
approximately 14% of the Company's net sales in the nine months ended September
30, 1996. The PC distribution industry has been characterized by rapid change,
including consolidations and financial difficulties of wholesale distributors
and the emergence of alternative distribution channels. The Company is dependent
upon the continued viability and financial stability of its wholesale
distributors. The loss or ineffectiveness of any of the Company's three largest
wholesale distributors or a number of its smaller wholesale distributors could
have a material adverse effect on the Company's operating results. In addition,
an increasing number of vendors are competing for access to wholesale
distributors which could adversely affect the Company's ability to maintain its
existing relationships with its wholesale distributors or could negatively
impact sales to such distributors.
COMPETITION. The markets for the Company's products are intensely
competitive resulting in constant pricing pressures. Some of the Company's
competitors have significantly greater financial, technical, product
development, manufacturing or marketing resources than the Company. The Company
believes that its ability to compete depends on a number of factors, including
price, product quality and reliability, product availability, credit terms, name
recognition, delivery time, and post-sale service and support. There can be no
assurance that the Company will be able to continue to compete successfully with
respect to these factors. A variety of companies currently offer products that
compete directly with the Company's products. These competitors could introduce
additional products or add features to their existing products that are superior
to the Company's products or that achieve greater market acceptance. In addition
to U.S.-based firms, the Company faces competition from Pacific Rim suppliers
which generally offer products at significantly lower prices. The introduction
of lower priced competitive products or significant price reductions by the
Company's competitors would result in price reductions in the Company's products
that could have a material adverse effect on the Company's operating results. In
addition, as the Company enters into new product
- 21 -
<PAGE> 22
markets, such as ISDN, cable modems and videoconferencing, the Company
anticipates that it will encounter competition from a number of well-established
companies, many of which have greater financial, technical, product development,
manufacturing or marketing resources and experience.
MANAGEMENT OF GROWTH. In recent years, the Company has experienced
significant growth and expansion in the overall level of its business and scope
of operations, including sales and distribution, research and development,
marketing and technical support. The Company's ability to manage its growth will
require it to continue to invest in its operations and to retain, motivate and
effectively manage its employees. If the Company's management is unable to
manage growth effectively, the Company's results of operations could be
materially and adversely affected.
PROPRIETARY RIGHTS; DEPENDENCE ON SOFTWARE LICENSES. Although the
Company has not historically been the subject of significant claims of
infringement by third parties, the Company receives from time to time, and may
receive in the future, communications from third parties asserting intellectual
property rights relating to the Company's products and technologies. There can
be no assurance that in the future the Company will be able to obtain licenses
of any intellectual property rights owned by third parties with respect to the
Company's products or that any such licenses can be obtained on terms favorable
to the Company. If the Company is unable to obtain licenses of protected
technology, it could be prohibited from manufacturing and marketing products
incorporating that technology. The Company could also incur substantial costs in
redesigning its products or in defending any legal action taken against it.
Should the Company be found to infringe the proprietary rights of others, the
Company could be required to pay damages to the infringed party which could have
a material adverse effect on the Company's operating results.
In certain of its products, the Company includes software licensed from
third parties. The Company's operating results could be adversely affected by a
number of factors relating to this third party software, including lack of
market acceptance, failure by the licensors to promote or support the software,
delays in shipment of the Company's products as a result of delays in the
introduction of licensed software or errors in the licensed software, or excess
customer support costs or product returns experienced by the Company due to
errors in the licensed software. Moreover, any impairment or termination of the
Company's relationship with any licensors of third party software could have a
material adverse effect on the Company's operating results.
RELIANCE ON CENTRALIZED MANUFACTURING. All of the Company's
manufacturing occurs at its leased headquarters facility in Boca Raton, Florida.
The Company's manufacturing operations utilize certain equipment which, if
damaged or otherwise rendered inoperable, would result in the disruption of the
Company's manufacturing operations. Although the Company maintains business
interruption insurance which the Company believes is adequate, any
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<PAGE> 23
extended interruption of the operations at this facility would have a material
adverse effect on the Company's operating results.
PRODUCT RETURNS, PRICE PROTECTION AND WARRANTY CLAIMS. Like other
manufacturers of computer products, the Company is exposed to the risk of
product returns from wholesale distributors and retailers, either through
contractual stock rotation privileges or as a result of the Company's interest
in assisting customers in balancing inventories. Although the Company attempts
to monitor and manage the volume of sales to wholesale distributors and
retailers, large shipments in anticipation of sales by wholesale distributors
and retailers can lead to substantial overstocking by the Company's wholesale
distributors and retailers and to higher than normal returns. Moreover, the risk
of product returns may increase if demand for the Company's products declines.
When the Company reduces its prices, the Company credits its wholesale
distributors and retailers for the difference between the purchase price of
products remaining in their inventory and the Company's reduced price for such
products on terms negotiated with the Company, the result of which could have a
material adverse effect on the Company's operating results. The Company's
limited five-year warranty permits customers to return any product for repair or
replacement if the product does not perform as warranted. The Company to date
has not encountered material warranty claims or liabilities. The Company seeks
to continually introduce new and enhanced products, which could result in higher
product returns and warranty claims due to the risks inherent in the
introduction of such products. The Company has established reserves for product
returns, price protection and warranty claims which management believes are
adequate. There can be no assurance that product returns, price protection and
warranty claims will not have a material adverse effect on future operating
results.
VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock
historically has been volatile due to fluctuations in operating results and
other factors relating to the Company's operations, the market's changing
expectations for the Company's growth, overall equity market conditions relating
to the market for technology stocks generally and other factors unrelated to the
Company's operations, including announcements by or relating to the Company's
competitors. Such fluctuations are expected to continue. In addition, stock
markets have experienced more price volatility in recent years. This volatility
has had a substantial effect on the market prices of securities issued by many
technology companies, often for reasons unrelated to the operating performance
of the specific companies.
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<PAGE> 24
PART II.
BOCA RESEARCH, INC.
OTHER INFORMATION
Items 1-3.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended September 30, 1996.
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10 First Union Line of Credit Agreement
11 Calculation of shares used in determining earnings
per share.
27 Financial Data Schedule
(b) Reports on Form 8-K
On October 15, 1996, the Company filed a Current Report on Form
8-K with the Securities and Exchange Commission reporting under
Item 5 of Form 8-K the execution and delivery of the Consulting
Agreement between the Company and ArgoQuest, Inc.
- 24 -
<PAGE> 25
BOCA RESEARCH, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Dated: November 12, 1996 /s/ Anthony F. Zalenski
-------------------------------------
Anthony F. Zalenski
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 12, 1996 /s/ R. Michael Brewer
-------------------------------------
R. Michael Brewer
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 25 -
<PAGE> 26
BOCA RESEARCH, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Exhibit 10 First Union Line of Credit Agreement
11 Calculation of shares used in determining earnings per share 27-28
27 Financial Data Schedule
</TABLE>
- 26 -
<PAGE> 1
SECOND AMENDED REVOLVING CREDIT AGREEMENT
BETWEEN
BOCA RESEARCH, INC.
BOCA RESEARCH INTERNATIONAL, INC.
BOCA RESEARCH HOLLAND B.V., INC.
COMPLETE ACQUISITION CORP.
BOCA RESEARCH OF DELAWARE, INC.
COLLECTIVELY, "BORROWER"
AND
FIRST UNION NATIONAL BANK OF FLORIDA
"BANK"
<PAGE> 2
TABLE OF CONTENTS
Page No.
--------
1. DEFINITIONS....................................................... 1
1.1 Defined Terms............................................ 1
1.2 Financial Terms.......................................... 8
2. REPRESENTATIONS AND WARRANTIES.................................... 8
2.1 Valid Existence and Power................................ 8
2.2 Authority................................................ 8
2.3 Financial Condition...................................... 8
2.4 Litigation............................................... 9
2.5 Agreements, Etc.......................................... 9
2.6 Authorizations........................................... 9
2.7 Title.................................................... 9
2.8 Intentionally deleted.................................... 9
2.9 Location................................................. 9
2.10 Taxes.................................................... 10
2.11 Withholding Taxes........................................ 10
2.12 Labor Law Matters........................................ 10
2.13 Accounts................................................. 10
2.14 Intentionally deleted.................................... 10
2.15 Judgment Liens........................................... 10
2.16 Intent and Effect of Transactions........................ 10
2.17 Subsidiaries............................................. 11
2.18 Hazardous Materials...................................... 11
2.19 ERISA.................................................... 11
2.20 Investment Company Act................................... 11
2.21 Additional Representations............................... 11
3. THE LOAN.......................................................... 11
3.1 Discretionary Revolving Loan............................. 11
3.2 Limitations on Advances.................................. 12
3.3 Manner of Borrowing and Disbursement..................... 13
3.4 Interest................................................. 14
3.5 Prepayment............................................... 14
3.6 Repayment................................................ 15
3.7 Note..................................................... 15
3.8 Manner of Payment........................................ 15
3.9 Application of Payments.................................. 15
3.10 Yield Equivalency........................................ 16
3.11 Reimbursement............................................ 16
(i)
<PAGE> 3
3.12 LIBOR Unavailable........................................ 17
3.13 Illegality............................................... 17
3.14 Increased Costs.......................................... 18
3.15 Effect on Other Advances................................. 19
3.16 Special Loan Account..................................... 19
3.17 Debit for Interest and Expenses.......................... 19
3.18 Sales Tax................................................ 20
3.19 Letters of Credit; Banker's Acceptances.................. 20
4. CONDITIONS PRECEDENT TO BORROWING................................. 21
4.1 Conditions Precedent to Initial Advance.................. 21
4.2 Conditions Precedent to Each Advance..................... 22
5. COVENANTS OF THE BORROWER......................................... 23
5.1 Use of Loan Proceeds..................................... 23
5.2 Maintenance of Business and Properties................... 23
5.3 Insurance................................................ 23
5.4 Notice of Default........................................ 24
5.5 Inspections; Discussions................................. 24
5.6 Financial Information.................................... 24
5.7 Debt..................................................... 26
5.8 Liens.................................................... 26
5.9 (Intentionally Omitted).................................. 26
5.10 Dividends................................................ 26
5.11 Merger, Sale, Etc........................................ 26
5.12 Loans and Other Investments.............................. 27
5.13 Change in Business....................................... 27
5.14 Accounts................................................. 27
5.15 Transactions with Affiliates............................. 27
5.16 No Change in Name, Offices; Removal of Property.......... 27
5.17 No Sale, Leaseback....................................... 28
5.18 Margin Stock............................................. 28
5.19 Payment of Taxes, Etc.................................... 28
5.20 Subordination............................................ 28
5.21 Compliance; Hazardous Materials.......................... 28
5.22 Subsidiaries............................................. 28
5.23 Compliance with Assignment Laws.......................... 28
5.24 Further Assurances....................................... 28
5.25 Withholding Taxes........................................ 28
5.26 Other Covenants.......................................... 29
6. DEFAULT........................................................... 29
6.1 Events of Default........................................ 29
(ii)
<PAGE> 4
6.2 Remedies................................................. 30
6.3 Receiver................................................. 31
6.4 Deposits; Insurance...................................... 31
6.5 Other Rights............................................. 31
6.6 Waiver of Marshalling.................................... 31
6.7 Waiver of Automatic Stay................................. 31
7. MISCELLANEOUS..................................................... 32
7.1 No Waiver, Remedies Cumulative........................... 32
7.2 Survival of Representations.............................. 32
7.3 Expenses................................................. 32
7.4 Notices.................................................. 32
7.5 Governing Law............................................ 33
7.6 Successors and Assigns................................... 33
7.7 Counterparts............................................. 33
7.8 No Usury................................................. 33
7.9 Powers................................................... 34
7.10 Approvals................................................ 34
7.11 Jurisdiction, Service of Process......................... 34
7.12 Multiple Borrowers....................................... 34
7.13 Other Provisions......................................... 36
7.14 Waiver of Jury Trial..................................... 36
(iii)
<PAGE> 5
SECOND AMENDED REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDED REVOLVING CREDIT AGREEMENT (the "Agreement"), dated
as of ________________, 1996 between BOCA RESEARCH, INC., A FLORIDA CORPORATION,
BOCA RESEARCH INTERNATIONAL, INC., A VIRGIN ISLANDS CORPORATION, BOCA RESEARCH
HOLLAND B.V., INC., A NETHERLANDS CORPORATION, COMPLETE ACQUISITION CORP., A
FLORIDA CORPORATION, AND BOCA RESEARCH OF DELAWARE, INC., A DELAWARE CORPORATION
(collectively the "Borrower"), and FIRST UNION NATIONAL BANK OF FLORIDA, a
national banking association (the "Bank");
W I T N E S S E T H :
In consideration of the premises and of the mutual covenants herein
contained and to induce the Bank to extend credit to the Borrower, the parties
agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere in
this Agreement, the following terms have the meanings indicated:
1.1 Defined Terms.
"Account" shall mean any account receivable,
including any rights of payment for goods sold or leased or for services
rendered, which is not evidenced by an instrument or chattel paper, whether or
not it has been earned by performance, and in addition includes all property
included in the definition of "accounts" as used in the Code, together with any
guaranties, letters of credit and other security therefor.
"Account Debtor" shall mean a Person who is
obligated under any Account, Chattel Paper, General Intangible or instrument (as
instrument is defined in the Code).
"Advance" shall mean an advance of proceeds of the
Revolving Loan to the Borrower pursuant to this Agreement, on any given Advance
Date and shall include any LIBOR Advance or any Prime Rate Advance. All Advances
must be in a principal amount of at least $100,000.00.
"Advance Date" shall mean the date as of which an
Advance is made.
<PAGE> 6
"Advance Request" shall mean the written request
for an Advance under the Revolving Loan as identified in Section 3.3 ("Manner of
Borrowing and Disbursement") and shall among other things (i) specify the date
of the requested Advance, which shall be a Business Day; (ii) specify the amount
of the Advance; (iii) specify the applicable Interest Rate Basis for the Advance
hereof; and (iv) include the Borrowing Base Report Specified in Section 5.6(a).
"Affiliate" of a named Person shall mean (a) any
Person owning 5% or more of the voting stock or rights of such named Person or
of which the named Person owns 5% or more of such voting stock or rights; (b)
any Person controlling, controlled by or under common control with such named
Person; (c) any officer or director of such named Person or any Affiliates of
the named Person; and (d) any family member of the named Person or any Affiliate
of such named Person.
"Borrowing Base" shall have the meaning set forth
in Section 3.2 hereof ("Limitations on Advances").
"Business Day" shall mean a weekday on which
commercial banks are open for business in Jacksonville, Florida.
"Chattel Paper" shall mean all writing or writings
which evidence both a monetary obligation and a security interest in or the
lease of specific goods and in addition includes all property included in the
definition of "chattel paper" as used in the Code, together with any guaranties,
letters of credit and other security therefor.
"Code" shall mean the Uniform Commercial Code, as
in effect in Florida from time to time.
"Debt" shall mean all liabilities of a Person as
determined under generally accepted accounting principles and all obligations
which such Person has guaranteed or endorsed or is otherwise secondarily or
jointly liable, and shall include, without limitation: (a) all obligations for
borrowed money or purchased assets, (b) obligations secured by assets whether or
not any personal liability exists, (c) the capitalized amount of any capital or
finance lease obligations, (d) the unfunded portion of pension or benefit plans
or other similar liabilities,
2
<PAGE> 7
(e) obligations as a general partner, (f) contingent obligations pursuant to
guaranties, endorsements, letters of credit and other secondary liabilities, (g)
obligations for deposits, and (h) overdrafts of any account maintained by
Borrower with the Bank.
"Default Rate" shall mean the highest lawful rate
of interest per annum specified in any Note to apply after a default under such
Note or, if no such rate is specified, a rate equal to the lesser of (a) five
(5) percentage points above the Prime Rate Basis or (b) the highest rate of
interest allowed by law.
"Eligible Accounts" shall mean all Accounts (valued
net of any sales tax included in the invoiced amount, the maximum amount of any
discounts or other reductions) arising from the sale of Inventory by the
Borrower payable not more than sixty (60) days after the date of invoice subject
only to Permitted Liens, excluding (a) Accounts outstanding for sixty (60) days
or more from the date of invoice; (b) all Accounts owed by an Account Debtor if
more than 25% of the Accounts owed by such Account Debtor (or any Affiliate) to
the Borrower are ineligible because they are aged beyond 90 days; (c) Accounts
owing from any Affiliate of the Borrower; (d) Accounts owed by a creditor of the
Borrower or which are in dispute or subject to any counterclaim, contra-account
or offset; (e) Accounts owing by any Account debtor which is insolvent or
generally unable to pay its debts as they become due; (f) Accounts arising from
a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or similar basis or which is subject to repurchase, return,
rejection, repossession, loss or damage; (g) Accounts owed by the United States
of America unless the Borrower shall have complied with the federal Assignment
of Claims Act; (h) Accounts as to which the goods giving rise to the Account
have not been delivered to and accepted by the Account Debtor or the service
giving rise to the Account has not been completely performed or which do not
represent a final sale; (i) the total Accounts owed by an Account Debtor and its
Affiliates exceeds a credit limit established by the Bank in its discretion (to
the extent of such excess); (j) an Account which is evidenced by a note or other
instrument, or Chattel Paper or reduced to judgment; (k) the total unpaid
Accounts of the Account Debtor and its Affiliates which exceed 25% of the total
Accounts of the Borrower (to the extent of such excess); (l) Accounts which, by
contract, subrogation, mechanics' lien laws or otherwise, are
3
<PAGE> 8
subject to claims by the Borrower's creditors or other third parties or which
are owed by Account Debtors as to whom any creditor of the Borrower (including
any bonding company) has lien rights; (m) Accounts owed by any foreign customers
or debtors unless they are 100% guaranteed by a letter of credit, Ex-IM or
covered by other insurance acceptable to Bank, and all other requirements for
Eligible Accounts herein have been satisfied; and (n) Accounts of the type
described in Exhibit 1.1B (if any) and other Accounts the validity,
collectibility or amount of which is determined in good faith by the Borrower or
the Bank to be doubtful. No Accounts shall be Eligible Accounts if any
representation, warranties or covenants herein relating thereto shall be in
default.
"Equipment" shall mean all furniture, fixtures, equipment,
motor vehicles, rolling stock and other tangible property of a Person of every
description, except Inventory and in addition includes all property included in
the definition of "equipment" as used in the Code.
"Event of Default" shall mean any event specified
as such in Section 6.1 hereof ("Events of Default"), provided that there shall
have been satisfied any requirement in connection with such event for the giving
of notice or the lapse of time, or both; "Default" or "default" shall mean any
of such events, whether or not any such requirement for the giving of notice or
the lapse of time or the happening of any further condition, event or act shall
have been satisfied.
"General Intangibles" shall mean all intangible
personal property (including things in action) except Accounts, Chattel Paper
and instruments (as defined in the Code), including all contract rights,
copyrights, trademarks, trade names, service marks, patents, patent drawings,
designs, formulas, rights to a Person's name itself, customer lists, rights to
all prepaid expenses, marketing expenses, rights to receive future contracts,
fees, commissions and orders relating in any respect to any business of a
Person, all licenses and permits, all computer programs and other software owned
by a Person, or which a Person has the right to use, and all rights for breach
of warranty or other claims for funds to which a Person may be entitled, and in
addition includes all property included in the definition of "general
intangibles" as used in the Code.
4
<PAGE> 9
"Guarantor" shall mean collectively, any Person now
or hereafter guaranteeing, endorsing or otherwise becoming liable
for any Indebtedness.
"Indebtedness" shall mean all obligations now or
hereafter owed to the Bank by the Borrower, whether related or unrelated to the
Loan, including, without limitation, amounts owed or to be owed under the terms
of the Loan Documents, or arising out of the transactions described therein,
including, without limitation, the Loan, sums advanced to pay overdrafts on any
account maintained by the Borrower with the Bank, reimbursement obligations for
outstanding letters of credit, or banker's acceptances issued to the account of
the Borrower, or its Subsidiaries, amounts paid by the Bank under letters of
credit, or drafts accepted by the Bank for the account of the Borrower or its
Subsidiaries, together with all interest accruing thereon, all fees, all costs
of collection, attorneys' fees and expenses of or advances by the Bank which the
Bank pays or incurs in discharge of obligations of the Borrower, whether such
amounts are now due or hereafter become due, direct or indirect and whether such
amounts due are from time to time reduced or entirely extinguished and
thereafter re-incurred.
"Interest Period" shall mean, relative to any LIBOR
Advance, the period which shall begin on (and include) the date on which such
LIBOR Advance is made and, unless the maturity of such LIBOR Advance is
accelerated, shall end on (but exclude) for any LIBOR Advance, the day which
numerically corresponds to such date one (1) month thereafter. Notwithstanding
the foregoing, however, (a) any applicable Interest Period which would otherwise
end on a day which is not a Business Day shall be extended to the next
succeeding Business Day unless, with respect to a LIBOR Advance, such Business
Day falls in another calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (b) with respect to a LIBOR Advance, any
applicable Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall (subject to clause (a) above) end on the last day of such
calendar month, and (c) no Interest Period shall extend beyond the Maturity
Date. Interest shall be due and payable with respect to any Advance as provided
in Section 3.8 hereof.
5
<PAGE> 10
"Interest Rate Basis" shall mean the Prime Rate
Basis or LIBOR Basis, as appropriate.
"Inventory" means all goods, merchandise and other
personal property of a Person which is held for sale or lease or furnished or to
be furnished under a contract for services or raw materials, and all work in
process and materials used or consumed or to be used or consumed in a Person's
business, and in addition, includes all property included in the definition of
"inventory" as used in the Code.
"LIBOR" shall mean, for any other Interest Period,
that per annum interest rate equal to the London Interbank Offered Rate shown on
the Telerate Screen Page 3750, British Bankers Association Interest Settlement
Rate, at approximately 11:00 a.m. (London time) two (2) Business Days prior to
the first day of such Interest Period for deposits of United States Dollars for
a period of time comparable to the Interest Period for, and in an amount
comparable to the principal amount of, the LIBOR Advance sought by the Borrower.
In the event the Telerate Screen Page 3750 is unavailable for any reason,
"LIBOR" shall mean, for any Interest Period, the average (rounded upward to the
next higher 1/100 of one (1) percent) of the interest rates per annum at which
United States Dollars for such Interest Period are offered to three (3) major
commercial banks selected by Bank in the London Interbank Borrowing Market at
approximately 11:00 a.m. (Eastern time) two (2) Business Days prior to the first
day of such Interest Period for a period of time comparable to the Interest
Period for, and in an amount comparable to, the LIBOR Advance sought by the
Borrower.
"LIBOR Advance" shall mean an Advance which the
Borrower requests to be made as a LIBOR Advance or which is reborrowed as a
LIBOR Advance, in accordance with the provisions of Section 3.3 hereof, and
which shall be in a principal amount of at least $100,000.00 and in an integral
multiple of $100,000.00 in excess thereof.
"LIBOR Basis" shall mean a simple per annum
interest rate equal to the sum of (a) the quotient of (i) LIBOR divided by (ii)
a percentage equal to one hundred percent (100%) minus the LIBOR Reserve
Percentage, plus (b) one and one-half percent (1.5%). The LIBOR Basis shall be
rounded upward to the next higher 1/100 of one (1) percent.
6
<PAGE> 11
"LIBOR Reserve Percentage" shall mean the
percentage which is in effect from time to time under Regulation D of the Board
of Governors of the Federal Reserve System, as such regulation may be amended
from time to time, as the maximum reserve requirement applicable with respect to
Eurocurrency Liabilities (as that term is defined in Regulation D), whether or
not any Lender has any Eurocurrency Liabilities subject to such reserve
requirement at that time. The LIBOR Basis for any LIBOR Advance shall be
adjusted as of the effective date of any change in the LIBOR Reserve Percentage.
"Lien" (collectively "Liens") shall mean any
mortgage, pledge, statutory lien or other lien arising by operation of law,
security interest, trust arrangement, financing lease, collateral assignment or
other encumbrance, or any segregation of assets or revenues (whether or not
constituting a security interest) with respect to any present or future assets,
revenues or rights to the receipt of income of the Person referred to in the
context in which the term is used.
"Loan" shall mean the Revolving Loan identified in
Section 3.1 hereof.
"Loan Documents" shall mean this Agreement, any
Note, the Advance Requests, and all other documents and instruments now or
hereafter evidencing or describing the Indebtedness contemplated hereby or
delivered in connection herewith, as they may be modified.
"Maturity Date" shall mean May 31, 1998 or such
earlier date the Loan shall be due and payable by acceleration or
otherwise.
"Maximum Loan Amount" shall mean Twelve Million
and 00/100 Dollars ($12,000,000.00) or such other amount as the Bank may
consent to in writing from time to time.
"Note" shall mean the Revolving Note as defined in
Section 3.1 hereof and any other promissory note now or hereafter evidencing any
Indebtedness, and all modifications, extensions and renewals thereof.
7
<PAGE> 12
"Permitted Debt" shall mean (a) the Indebtedness;
and (b) any other Debt listed on Exhibit 1.1C hereto (if any) and any
extensions, renewals, replacements, modifications and refundings of any such
Debt if, and to the extent, permitted by Exhibit 1.1C; provided, however, that
the principal amount of such Debt may not be increased from the amount shown as
outstanding on such exhibit; and (c) such other Debt as the Bank may consent to
in writing from time to time.
"Permitted Liens" shall mean (a) Liens securing the
Indebtedness; (b) Liens for taxes and other statutory Liens, landlord's Liens
and similar Liens arising out of operation of law, so long as the obligations
secured thereby are not past due or are being contested as permitted herein; (c)
Liens described on Exhibit 1.1D hereto (if any), provided, however, that no debt
not now secured by such Liens shall become secured by such Liens hereafter and
such Liens shall not encumber any other assets; and (d) such other Liens as the
Bank may consent to in writing from time to time.
"Person" shall mean any natural person,
corporation, unincorporated organization, trust, joint-stock company, joint
venture, association, company, limited or general partnership, any government,
or any agency or political subdivision of any government.
"Prime Rate" shall mean, at any time, the rate of
interest adopted by the Lender as its reference rate for the determination of
interest rates for loans of varying maturities in United States dollars to
United States residents of varying degrees of creditworthiness and being quoted
at such time by the Lender as its "prime rate." The Prime Rate is not
necessarily the lowest rate of interest charged to borrowers by the Lender. Any
change in the Prime Rate shall take effect immediately on and at the start of
the date on which such change is established.
"Prime Rate Advance" shall mean an Advance which
the Borrower requests to be made as a Prime Rate Advance or which is reborrowed
as, a Prime Rate Advance in accordance with the provisions of Section 3.3
hereof, and which shall be in a principal amount of at least $100,000.00 and
$100,000.00 increments in excess thereof.
8
<PAGE> 13
"Prime Rate Basis" shall mean a simple per annum
interest rate equal to the sum of the Prime Rate. Prime Rate Basis shall be
adjusted automatically as of the opening of business on the effective date of
each change in the Prime Rate to account for such change.
"Special Loan Account" shall mean the demand
deposit account established pursuant to Section 3.16 hereof ("Special Loan
Account").
"Subsidiary" shall mean any corporation,
partnership or other Person in which the Borrower, directly or indirectly, owns
fifty percent (50%) or more of the stock, capital or income interests, or other
beneficial interests, or which is effectively controlled by the Borrower and
shall include, but not be limited to, Boca Research International, Inc., Boca
Research Holland B.V., Inc., Complete Acquisition Corp. and Boca Research of
Delaware, Inc.
1.2 Financial Terms. All financial terms used herein shall
have the meanings assigned to them under generally accepted accounting
principles unless another meanings shall be specified.
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Agreement and to make the Loan provided for herein, the Borrower makes
the following representations and warranties, all of which shall survive the
execution and delivery of the Loan Documents. Unless otherwise specified, such
representations and warranties shall be deemed made as of the date hereof and as
of the Advance Date of any Advance by the Bank to the Borrower:
2.1 Valid Existence and Power. The Borrower and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization is duly
qualified or licensed to transact business in all places where the failure to be
so qualified would have a material adverse effect on it. The Borrower and each
other Person which is a party to any Loan Document (other than the Bank) has the
power to make and perform the Loan Documents executed by it and all such
instruments will constitute the legal, valid and binding obligations of such
Person, enforceable in accordance with their
9
<PAGE> 14
respective terms, subject only to bankruptcy and similar laws affecting
creditors' rights generally.
2.2 Authority. The execution, delivery and performance thereof
by the Borrower and each other Person (other than the Bank) executing any Loan
Document have been duly authorized by all necessary action of such Person, and
do not and will not violate any provision of law or regulation, or any writ,
order or decree of any court or governmental or regulatory authority or agency
or any provision of the governing instruments of such Person, and do not and
will not, with the passage of time or the giving of notice, result in a breach
of, or constitute a default or require any consent under, or result in the
creation of any Lien upon any property or assets of such Person pursuant to, any
law, regulation, instrument or agreement to which any such Person is a party or
by which any such Person or its respective properties may be subject, bound or
affected.
2.3 Financial Condition. Other than as disclosed in financial
statements delivered on or prior to the date hereof to the Bank, neither the
Borrower nor any Subsidiary has any direct or contingent obligations or
liabilities (including any guarantees or leases) or any material unrealized or
anticipated losses from any commitments of such Person except as described on
Exhibit 2.3 (if any). The Borrower is not aware of any material adverse fact
(other than facts which are generally available to the public and not particular
to the Borrower, such as general economic or industry trends) concerning the
conditions or future prospects of the Borrower or any Subsidiary which has not
been fully disclosed to the Bank, including any adverse change in the operations
or financial condition of such Person since the date of the most recent
financial statements delivered to the Bank.
2.4 Litigation. Except as disclosed on Exhibit 2.4 (if any),
there are no suits or proceedings pending, or to the knowledge of the Borrower
threatened, before any court or by or before any governmental or regulatory
authority, commission, bureau or agency or public regulatory body against or
affecting the Borrower or any Subsidiary, or their assets, which if adversely
determined would have a material adverse effect on the financial condition or
business of the Borrower or such Subsidiary.
10
<PAGE> 15
2.5 Agreements, Etc. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any court order,
governmental decree or any charter or other corporate restriction, adversely
affecting its business, properties or assets, operations or condition (financial
or otherwise) nor is any such Person in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
any agreement or instrument to which it is a party, or any law, regulation,
decree, order or the like.
2.6 Authorizations. All authorizations, consents, approvals
and licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by the Borrower or any Subsidiary or
for the conduct of any business in which it is engaged have been duly issued and
are in full force and effect, and Borrower and any Subsidiary is not in default,
nor has any event occurred which with the passage of time or the giving of
notice, or both, would constitute a default, under any of the terms or
provisions of any part thereof, or under any order, decree, ruling, regulation,
closing agreement or other decision or instrument of any governmental
commission, bureau or other administrative agency or public regulatory body
having jurisdiction over such Person, which default would have a material
adverse effect on such Person. Except as noted herein, no approval, consent or
authorization of, or filing or registration with, any governmental commission,
bureau or other regulatory authority or agency is required with respect to the
execution, delivery or performance of any Loan Document.
2.7 Title. The Borrower and each Subsidiary has good
title to all of the assets shown in its financial statements free
and clear of all Liens, except Permitted Liens.
2.8 Intentionally deleted.
2.9 Location. The chief executive office of the Borrower where
the Borrower's business records are located is the address designated for
notices in Section 7.4 ("Notices") and the Borrower has no other places of
business except as shown on Exhibit 2.9 (if any).
2.10 Taxes. The Borrower and each Subsidiary has filed all
federal and state income and other tax returns which, to the
11
<PAGE> 16
best knowledge of the Borrower, are required to be filed, and have paid all
taxes as shown on said returns and all taxes, including ad valorem taxes, shown
on all assessments received by it to the extent that such taxes have become due.
Neither the Borrower nor any Subsidiary is subject to any federal, state or
local tax Liens nor has such Person received any notice of deficiency or other
official notice to pay any taxes. The Borrower and each Subsidiary has paid all
sales and excise taxes payable by it.
2.11 Withholding Taxes. The Borrower and each Subsidiary has
paid all withholding, FICA and other payments required by federal, state or
local governments with respect to any wages paid to employees.
2.12 Labor Law Matters. No goods or services have been or will
be produced by the Borrower or any Subsidiary in violation of any applicable
labor laws or regulations or any collective bargaining agreement or other labor
agreements or in violation of any minimum wage, wage-and-hour or other similar
laws or regulations.
2.13 Accounts. Each Account, instrument, Chattel Paper and
other writing is (a) genuine and enforceable in accordance with its terms except
for such limits thereon arising from bankruptcy and similar laws relating to
creditors' rights; (b) not subject to any defense, setoff, claim or counterclaim
of a material nature against the Borrower except as to which the Borrower has
notified the Bank in writing; and (c) not subject to any other circumstances
that would impair the validity, enforceability or amount of such Account,
instrument, Chattel Paper or other writing, except as to which the Borrower has
notified the Bank in writing. Each Account included in any Advance Request,
report or other document as an Eligible Account meets all the requirements of an
Eligible Account set forth herein.
2.14 Intentionally deleted.
2.15 Judgment Liens. Neither the Borrower nor any Subsidiary,
nor any of their assets, are subject to any unpaid judgments (whether or not
stayed) or any judgment liens in any jurisdiction.
12
<PAGE> 17
2.16 Intent and Effect of Transactions. This Agreement and the
transactions contemplated herein (a) are not made or incurred with intent to
hinder, delay or defraud any person to whom the Borrower or any Subsidiary has
been, is now, or may hereafter become indebted; (b) do not render the Borrower
or any Subsidiary insolvent nor is the Borrower or any Subsidiary insolvent on
the date of this Agreement; (c) do not leave the Borrower or any Subsidiary with
an unreasonably small capital with which to engage in its business or in any
business or transaction in which it intends to engage; and (d) are not entered
into with the intent to incur, or with the belief that the Borrower or any
Subsidiary would incur, debts that would be beyond its ability to pay as such
debts mature.
2.17 Subsidiaries. The Borrower's Subsidiaries are listed on
Exhibit 2.17.
2.18 Hazardous Materials. The Borrower's property and
improvements thereon have not in the past been used, are not presently being
used, and will not in the future be used for, nor does the Borrower or any
Subsidiary engage in, the handling, storage, manufacture, disposition,
processing, transportation, use or disposal of hazardous or toxic materials,
except for those hazardous materials referenced on Exhibit 2.18.
2.19 ERISA. The Borrower has furnished to the Bank true and
complete copies of the latest annual report required to be filed pursuant to
Section 104 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to each employee benefit plan or other plan maintained
for employees of the Borrower or any Subsidiary and covered by Title IV of ERISA
(a "Plan"), and no Termination Event (as hereinafter defined) with respect to
any Plan has occurred and is continuing. For the purposes of this Agreement, a
"Termination Event" shall mean a "reportable event" as defined in Section
4043(b) of ERISA ("Reportable Event"), or the filing of a notice of intent to
terminate under Section 4041 of ERISA. Neither the Borrower nor any Subsidiary
has any unfunded liability with respect to any such plan.
2.20 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" as defined in the Investment Company Act
of 1940, as amended.
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<PAGE> 18
2.21 Additional Representations. Any additional
representations or warranties set forth on Exhibit 2.21 (if any) hereto are true
and correct in all material respects.
3. THE LOAN.
3.1 Discretionary Revolving Loan. The Bank may in its
discretion lend to the Borrower a total principal amount not to exceed the
Maximum Loan Amount (the "Revolving Loan") for working capital to be used in the
operation of the Borrower's business and to issue letters of credit. The
Revolving Loan shall be evidenced by and payable in accordance with the terms of
a promissory note in the face amount of the Maximum Loan Amount (the "Revolving
Note"). The Revolving Note shall evidence the outstanding principal balance of
the Revolving Loan, as it may change from time to time. ADVANCES HEREUNDER ARE
DISCRETIONARY WITH THE BANK AND THE OUTSTANDING PRINCIPAL BALANCE TOGETHER WITH
ALL ACCRUED AND UNPAID INTEREST UNDER THE REVOLVING LOAN, OR SO MUCH THEREOF AS
MAY BE ADVANCED, SHALL BE PAYABLE IN FULL ON THE MATURITY DATE. Advances under
the Revolving Loan shall be subject to the following terms:
(a) Advances of proceeds of the Revolving Loan plus
any outstanding letters of credit issued by the Bank shall be limited to the
lesser of the Maximum Loan Amount or the Borrowing Base.
(b) Should there occur any overdraft of any deposit
account maintained by the Borrower with the Bank, the Bank may, at its option,
disburse funds (whether or not in excess of the Maximum Loan Amount) to
eliminate such overdraft and such disbursement shall be deemed an Advance of
Loan proceeds hereunder entitled to all of the benefits of the Loan Documents.
Nothing herein shall be deemed an authorization of or consent to the creation of
an overdraft in any account or create any obligations on the part of the Bank;
(c) All Advances by the Bank to or for the account
of the Borrower, whether or not in excess of the Maximum Loan Amount, shall be
considered part of the Indebtedness under the Revolving Note, and shall bear
interest as provided in the Revolving Note and herein, and shall be entitled to
all rights and benefits hereunder and under all other Loan Documents; and
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<PAGE> 19
(d) The Borrower shall not request and the Bank
will not be required to consider requests for Advances after May 31, 1998;
provided that the Bank may in its discretion extend such date in writing and
further provided that the repayment obligations of the Borrower for Advances
made by the Bank after such date (as it may be extended) shall be binding on the
Borrower and any other persons liable for any Indebtedness to the same extent as
obligations with respect to Advances made prior to such date.
3.2 Limitations on Advances. The outstanding balance of the
Revolving Loan may increase and decrease from time to time, and Advances
thereunder may be repaid and reborrowed, but the total of Advances outstanding
at any one time under the Revolving Loan, plus any outstanding letters of credit
issued by the Bank, shall never exceed the lesser of:
(a) The Maximum Loan Amount; or
(b) The "Borrowing Base," which shall be equal to
Sixty Percent (60%) of Eligible Accounts. Notwithstanding anything to the
contrary, at no time shall the Advances outstanding together with any letters of
credit issued and outstanding by the Bank exceed sixty percent (60%) of the
Eligible Accounts. The Borrower shall immediately pay to the Bank any amount by
which the Revolving Loan exceeds the Borrowing Base or the Maximum Loan Amount,
whichever is less. The Bank may, in its discretion, make, or permit to remain
outstanding, Advances to the Borrower in excess of the Borrowing Base and/or the
Maximum Loan Amount and all such amounts shall be part of the Revolving Loan and
Indebtedness, shall bear interest as provided in the Note, shall be payable on
demand and shall be entitled to all rights provided for herein, and in all of
the other Loan Documents.
3.3 Manner of Borrowing and Disbursement.
(a) Choice of Interest Rate. Borrower may, in
accordance with and subject to the terms and conditions of this Section 3.3,
select either the Prime Rate Basis interest rate or the LIBOR Basis interest
rate to apply to the amount outstanding under the Note. Only one interest rate
shall be applicable to the Note at any one time, and Borrower may not select
portions of the
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Note to be subject to differing interest rates. If a LIBOR Basis interest rate
is selected, such rate shall apply for the duration of the Interest Period
selected. Notices of any selection, conversion, or continuation of an interest
rate must be provided to Bank three (3) business days prior to the date of the
selection, conversion, or continuation of such interest rate. All such notices
shall be by telephone or telecopier, confirmed immediately in writing,
specifying, within the restrictions specified herein, the date of such
selection, conversion, or continuation, whether the interest rate is to be based
on the Prime Rate Basis or the LIBOR Basis. Each notice of selection,
conversion, or continuation shall be irrevocable and binding on Borrower.
(b) Failure to Select. If Borrower shall fail to
give a notice of selection, conversion, or continuation with respect to the
amount outstanding under the Note prior to the end of any Interest Period
applicable thereto as provided in subparagraph (b) hereof, or if there has
otherwise been no interest rate selected for amounts outstanding, then the
interest rate shall automatically convert to the Prime Rate Basis until such
time as Borrower shall select an applicable interest rate in accordance with the
provisions hereof.
(c) Disbursement of Advances. The Lender shall
disburse the Advances to the Borrower by depositing such funds into the
Borrower's operating account with the Bank or disbursing such funds as otherwise
directed in writing by the Borrower if the terms and conditions of this
Agreement have been satisfied to Lender's satisfaction.
3.4 Interest.
(a) On Prime Rate Advances. Interest on each Prime
Rate Advance shall be computed on the basis of a year of 360 days for the actual
number of days elapsed (including the first day but excluding the last day) and
shall be payable at the Prime Rate Basis for such Advance. Interest on Prime
Rate Advances then outstanding shall also be due and payable on the Maturity
Date.
(b) On LIBOR Advances. Interest on each LIBOR
Advance shall be computed on the basis of a 360-day year for the actual number
of days elapsed (including the first day but
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excluding the last day) and shall be payable, to the extent not previously paid,
at the LIBOR Basis for such Advance. Interest on LIBOR Advances then outstanding
shall also be due and payable on the Maturity Date.
(d) Interest Upon Default. Upon the occurrence of
an Event of Default (including notice, if any, for such to occur), interest on
the outstanding principal balance of the Advances shall accrue at the Default
Rate from the date of such Event of Default. Such interest shall be payable on
the earlier of demand, each date interest is payable or the Maturity Date and
shall accrue until the earlier of (i) waiver or cure of the applicable Event of
Default, (ii) written agreement by the Lender to rescind the charging of
interest at the Default Rate, or (iii) payment in full of the Indebtedness. The
Lender shall not be required to (a) accelerate the maturity of the Loan, (b)
exercise any other rights or remedies under the Loan Documents, or (c) give
notice to the Borrower of the decision to charge interest on the Loan at the
Default Rate in accordance herewith prior to or in conjunction with the
effective date of the decision to charge interest at the Default Rate.
(e) Maximum Number of Interest Periods. Under no
circumstances may the Borrower select an Interest Period for LIBOR Advance if as
a result thereof, more than three (3) different Interest Periods would be
outstanding at any one time for Advances.
3.5 Prepayment.
(a) Optional Prepayments. The principal amount of
any Prime Rate Advance may be prepaid in full or in part at any time, without
penalty for such Advance, upon one (1) Business Day's prior written notice to
the Bank of such prepayment. LIBOR Advances may be prepaid upon three (3)
Business Days prior written notice to the Bank; provided, that the Borrower
shall reimburse the Lender, on the earlier of demand or the Maturity Date, for
any loss or out-of-pocket expense incurred by the Lender, in connection with
such prepayment, as set forth in Section 3.11 hereof, including without
limitation, any breakage costs. Any notice of prepayment shall be irrevocable
and all amounts prepaid on the Loan shall be applied first to interest and fees
and other amounts due hereunder, and then to principal. Prepayments of Advances,
under this subsection shall be in principal amounts of not less than $100,000.00
and in integral multiples of $100,000.00.
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(b) Application of Prepayments. In the event the
Borrower does not specify the Advance to which a prepayment is to be applied,
such prepayment shall be applied, First, to Prime Rate Advances, to the full
extent thereof, and Second, to LIBOR Advances to the full extent thereof.
3.6 Repayment. All Indebtedness of the Borrower then
outstanding under the Note shall be due and payable upon the Maturity Date.
3.7 Note. The Loan shall be repayable in accordance with the
terms and provisions set forth herein and shall be evidenced by the Note.
3.8 Manner of Payment.
(a) Interest only, shall be due and payable on July
1, 1996 and continuing on the first day of each month thereafter until the
Maturity Date.
(b) Each payment (including any prepayment) by the
Borrower on account of the principal of or interest on the Loan, and any other
amount owed to the Lender under this Agreement, the Note or the other Loan
Documents, shall be made prior to 12:00 noon (Eastern time) on the date
specified for payment under this Agreement or any other Loan Document to the
Lender in lawful money of the United States of America in immediately available
funds. Any payment received by the Lender at or after 12:00 noon (Eastern time)
shall be deemed received on the next Business Day.
(c) The Borrower agrees to pay principal, interest,
and all other amounts due hereunder or under the Note without set-off or
counterclaim or any deduction whatsoever.
(d) If any payment under this Agreement or any of
the other Loan Documents is specified to be made on a day which is not a
Business Day, it shall be made on the next Business Day (except as otherwise
expressly provided herein), and such extension of time shall in such case be
included in computing interest, if any, in connection with such payment.
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3.9 Application of Payments. Except for prepayments
the application of which is described in Section 3.5 hereof, payments made to
the Lender or otherwise received by the Lender shall be applied as follows:
First, to the costs and expenses, if any, incurred by the Lender in the
collection of such amounts under this Agreement or any of the other Loan
Documents; Second, to the fees, if any, then due and payable hereunder or under
any other Loan Document; Third, to any unpaid interest which may have accrued on
the Loan; Fourth, to any unpaid principal on the Loan; Fifth, to any other Loans
not otherwise referred to in this Section 3.9; Sixth, to damages other than lost
profits incurred by the Lender by reason of any breach hereof or of any other
Loan Documents; and Seventh, upon satisfaction in full of the Loan, to the
Borrower or as otherwise required by law.
3.10 Yield Equivalency. In the event that after the
date of the execution hereof (a) the enactment or adoption of, or any change in,
any law, rule, regulation, treaty, guideline or directive (whether or not having
the force of law), or the interpretation or enforcement of any of the foregoing
by any court, central bank, administrative or governmental authority charged
with the administration thereof shall either (i) impose, modify or deem
applicable any reserve, deposit, insurance premium, assessment, fee, capital
requirement, or tax; or (ii) impose any other condition in connection with any
of the Loan, or (b) the Lender shall, in good faith, voluntarily impose, modify
or deem applicable to itself any reserve, deposit, insurance premium,
assessment, fee, capital requirement or similar requirement applicable to the
Loan at the request or the direction (whether or not having the force of law) of
any Court, central bank, administrative or governmental authority, and the
result of any of the foregoing shall be to increase the cost to the Lender of
extending, issuing or maintaining the Loan or to reduce any amount (or the
effective return on any amount) received or receivable by the Lender in
connection with the Loan (which increase in cost or reduction in yield shall be
the result of the Lender's reasonable allocation, in a nondiscriminatory manner
among borrowers having obligations to the Lender similar to those of the
Borrower, of the aggregate of such cost increases or yield reductions resulting
from such event), then, upon written demand by the Lender, the Borrower shall
promptly pay to the Lender, additional amounts which shall be sufficient to
compensate the Lender for all such increased costs or reductions in yield.
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3.11 Reimbursement.
(a) In the event the Borrower shall (i) fail to
borrow any LIBOR Advance after having given notice of its intention to borrow in
accordance with Section 3.3 hereof (whether by reason of the election of the
Borrower not to proceed or the non- fulfillment of any of the conditions set
forth in Section 4), or (ii) pay any LIBOR prepayment pursuant to Sections 3.5,
3.13 and 3.14 hereof) the Borrower agrees to pay to the Lender, upon the earlier
of Lender's demand or the Maturity Date, an amount sufficient to compensate the
Lender (and its respective participants and assignees permitted hereunder) for
all losses and out-of-pocket expenses directly relating to such failure or
prepayment, as applicable (including, without limitation, breakage costs) as
determined by the Lender on the basis of its own standard practices.
Determination of the amount of such losses and out-of-pocket expenses by the
Lender, absent manifest error, shall be presumed correct.
(b) In the case of a LIBOR Advance, such loss or
expense subject to reimbursement shall include, without limitation, an amount
equal to the present value of the excess, if any, as reasonably determined by
the Lender, of (a) the amount of interest that would have accrued on the
principal amount so prepaid or not borrowed for the period from the date of such
prepayment or failure to borrow (such date being hereinafter referred to as the
"Breakage Date") to the last day of the then current Interest Period for such
Advance (or, in the case of a failure to borrow, the Interest Period for such
Advance that would have commenced on the date of such failure) at the rate of
interest applicable to such Advance under the terms of this Agreement over (b)
the amount of interest that Lender would have earned had it invested the entire
amount of funds so prepaid or the entire amount of funds acquired to effect,
fund or maintain the Loan not borrowed, as the case may be, in U.S. Government
Treasury Securities with a maturity comparable to such period or Interest
Period. The present value of such excess shall be calculated by discounting such
excess from the end of such period or Interest Period to the Breakage Date at
the interest rate expressly borne by such U.S. Government Treasury Securities
or, if none, the effective interest rate on such securities. Notwithstanding any
provision of this Agreement to the contrary, Lender shall be entitled to fund
and maintain its funding of all or any part of any Advance in any manner it sees
fit; it being
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understood, however, that for purposes of this Agreement, all determinations
hereunder shall be made as if Lender had actually funded and maintained each
LIBOR Advance (whether or not the Lender shall have granted any participations
in such Loan).
3.12 LIBOR Unavailable. Notwithstanding anything contained
herein which may be construed to the contrary, if with respect to any proposed
LIBOR Advance for any Interest Period, the Lender determines that deposits in
dollars (in the applicable amount) are not being offered to the Lender in the
relevant market for such Interest Period, the Lender shall forthwith give notice
thereof to the Borrower, whereupon until the Lender notifies the Borrower that
the circumstances giving rise to such situation no longer exist, the obligations
of the Lenders to make LIBOR Advances shall be suspended.
3.13 Illegality. If any applicable law, rule or regulation, or
any change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency, shall make it
unlawful or impossible for the Lender to make, maintain or fund any LIBOR
Advance and the Lender shall forthwith give notice thereof to the Borrower. Upon
receipt of such notice, notwithstanding anything to the contrary, the Borrower
shall repay in full the then outstanding principal amount of each affected
portion of any LIBOR Advance together with accrued interest thereon along with
any reimbursement required under Section 3.11 hereof, either (a) on the last day
of the then current Interest Period applicable to such LIBOR Advance if the
Lender may lawfully continue to maintain and fund its portion of such Advance to
such day or (b) immediately if such Lender may not lawfully continue to fund and
maintain its portion of such Advance to such day. Concurrently with repaying
each affected portion of any LIBOR Advance, notwithstanding anything to the
contrary, the Borrower shall borrow a Prime Rate Advance from the Lender, and
the Lender shall make such Advance in an amount such that the outstanding
principal amount of the Note shall equal the outstanding principal amount of the
Note held by the Lender immediately prior to such repayment.
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3.14 Increased Costs.
(a) If any applicable law, rule or regulation, or
any change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency:
(i) shall subject the Lender to any tax,
duty or other charge with respect to its obligation to fund its portion of any
LIBOR Advances, or any LIBOR Advances outstanding, or shall change the basis of
taxation of payments to the Lender of the principal of or interest on its
portion of any LIBOR Advances or in respect of any other amounts due under this
Agreement, in respect of LIBOR Advances, or its obligation to convert or
continue any LIBOR Advances, as applicable (except for changes in the rate of
tax on the overall net income of the Lender); or
(ii) shall impose, modify or deem applicable
any reserve (including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System), special deposit, capital adequacy,
assessment or other requirement or condition against assets of, deposits with or
for the account of, or commitments or credit extended by, the Lender or shall
impose on the Lender or the London Interbank Borrowing Market any other
condition affecting its obligation to convert or continue such LIBOR Advances,
or LIBOR Advances outstanding; and the result of any of the foregoing is to
increase the cost to the Lender of making or maintaining such LIBOR Advances or
to reduce the amount of any sum received or receivable by the Lender under this
Agreement or under the Note with respect thereto, then, on the earlier of demand
by the Lender or the Maturity Date, the Borrower agrees to pay to the Lender
such additional amount or amounts as will compensate the Lender for such
increased costs.
Any additional amounts payable by the Borrower pursuant to
this Section 3.14 shall be added to the Indebtedness hereunder.
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(b) A certificate of the Lender claiming
compensation under this Section 3.14 and setting forth the additional amount or
amounts to be paid to it hereunder and calculations therefor shall be presumed
correct in the absence of manifest error. In determining such amount, the Lender
may use any reasonable averaging and attribution methods. If the Lender demands
compensation under this Section 3.14, the Borrower may at any time, upon at
least five (5) Business Days' prior notice to the Lender, convert in full the
then outstanding affected portions of any LIBOR Advances to a Prime Rate
Advance, together with accrued interest thereon to the date of prepayment, along
with any reimbursement required under this Section or Section 3.11 hereof.
Concurrently with conversion, such portions of any LIBOR Advances, the Borrower
shall borrow a Prime Rate Advance, from the Lender, and the Lender shall make
such Advance in an amount such that the outstanding principal amount of the Note
shall equal the outstanding principal amount of the Note immediately prior to
such prepayment.
3.15 Effect on Other Advances. If notice has been given
pursuant to Sections 3.12, 3.13 or 3.14 suspending the obligation of the Lender
to make any LIBOR Advances, or requiring affected portions of LIBOR Advances of
the Lender to be converted, then, unless and until the Lender notifies the
Borrower that the circumstances giving rise to such repayment no longer apply,
all portions of Advances which would otherwise be made by such Lender as
portions of LIBOR Advances shall be made instead as Prime Rate Advances.
3.16 Special Loan Account. The Borrower shall establish and
maintain with the Bank, during the term of the Loan, a demand deposit account
(the "Special Loan Account") into which the Borrower shall deposit, as received,
all proceeds from the sale of Inventory and collection of Accounts in the form
of checks, drafts, cash or the like.
3.17 Debit for Interest and Expenses. The Bank may debit the
Special Loan Account and/or make Advances to the Borrower (whether or not in
excess of the Maximum Loan Amount and/or the Borrowing Base) and apply such
amounts to the payment of interest, fees, expenses and other amounts to which
the Bank may be entitled
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from time to time and the Bank is hereby irrevocably authorized to do so without
consent of the Borrower.
3.18 Sales Tax. The Borrower shall notify the Bank if any
Account includes any sales or other similar tax and the Bank may, but shall not
be obligated to, remit any such taxes directly to the taxing authority and make
Advances or charge the Special Loan Account therefor. In no event shall the Bank
be liable for any such taxes.
3.19 Letters of Credit; Banker's Acceptances.
(a) At its discretion the Bank may from time to
time issue, extend or renew letters of credit and banker's acceptances for the
account of the Borrower or its Subsidiaries. The availability of Advances under
the Revolving Loan shall be reduced by outstanding obligations of the Bank under
any letters of credit and banker's acceptances. All payments made by the Bank
under any such letters of credit or banker's acceptances (whether or not the
Borrower is the account party or drawer) and all fees, commissions, discounts
and other amounts owed or to be owed to the Bank in connection therewith, shall
be deemed to be Advances under the Revolving Note, and shall be repaid on
demand. The Borrower shall complete and sign such applications and supplemental
agreements and provide such other documentation as the Bank may require. The
form and substance of all letters of credit and acceptances, including
expiration dates, shall be subject to the Bank's approval. The Bank may charge a
fee or commission for issuance, renewal or extension of a letter of credit or
acceptance. The Borrower unconditionally guarantees all obligations of any
Subsidiary with respect to letters of credit issued by the Bank for the account
of such Subsidiary and all acceptances of any Subsidiaries' drafts. If the Bank
should demand payment of the Revolving Loan, the Borrower shall, on demand,
deliver to the Bank good funds equal to 100% of the Bank's maximum liability
under all outstanding letters of credit and banker's acceptances, to be held as
cash collateral for the Borrower's reimbursement obligations and other
Indebtedness.
(b) In order to induce Bank to issue letters of
credit and banker's acceptances, the Borrower agrees that neither Bank nor its
correspondents or agents shall be liable or responsible for, and the Borrower's
unconditional obligation to
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reimburse Bank for the obligations shall not be affected by, any event or
circumstance, including without limitation: (i) the validity, enforceability,
genuineness or sufficiency of documents or of any endorsement thereon existing
in connection with any letter of credit or banker's acceptance, even if such
documents should in fact prove in any or all respects to be invalid,
unenforceable, insufficient, fraudulent or forged; (ii) any breach of contract
or other dispute between the Borrower and any beneficiary of a letter of credit
or holder of a draft accepted by the Bank; (iii) payment by the Bank upon
presentation of a draft or documents which do not comply in any respect with the
terms of such letter of credit or draft; (iv) loss of or damage to any
collateral; (v) the invalidity or insufficiency of any endorsements: (vi) delay
in giving or failure to give notice of arrival or any other notice; (vii)
failure of any instrument to bear any reference or adequate reference to the
letter of credit or draft or to documents to accompany any instrument at
negotiation; or (viii) failure of any person to note the amount of any payment
on the reverse of the letter of credit or to surrender to or take up the letter
of credit or draft or to forward documents in the manner required by the letter
of credit or draft; or (ix) any other matter whatsoever excepting only with
respect to each of the foregoing items the gross negligence (or negligence as to
(iii) above) or willful misconduct of the Bank or its agent. The Borrower agrees
that any action taken or permitted to be taken by the Bank or its agent under or
in connection with any letter of credit or banker's acceptance, including
related drafts, documents, or property, unless constituting gross negligence or
willful misconduct (or negligence as to (iii) above) on the part of the Bank or
its agent, shall be binding on the Borrower and shall not create any resulting
liability to the Borrower on the part of the Bank or its agent. The Borrower
will immediately examine (a) a copy of the letter of credit (and any amendments
thereof) or draft sent to it by the Bank or its agent, and the Borrower will
immediately notify the Bank in writing of any claim or irregularity.
(c) Any letter of credit issued hereunder shall be
governed by the Uniform Customs of Practice for Documentary Credit (1983 Rev.),
International Chamber of Commerce Publication No. 400, as revised from time to
time, except to the extent that the terms of such publication would limit or
diminish rights granted the Bank hereunder or in any other Loan Document.
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4. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance of the
proceeds of the Revolving Loan, the following conditions shall have been
satisfied, in the sole opinion of the Bank and its counsel:
4.1 Conditions Precedent to Initial Advance. In addition to
any other requirement set forth in this Agreement, the Bank will not be required
to make any disbursement under the Revolving Loan unless and until the following
conditions shall have been satisfied:
(a) Loan Documents. The Borrower and each other
party to any Loan Documents, as applicable, shall have executed and delivered
this Agreement, the Note, and other required Loan Documents, all in form and
substance satisfactory to the Bank.
(b) Supporting Documents. The Borrower shall cause
to be delivered to the Bank the following documents:
(i) A copy of the governing instruments of
the Borrower, and each Subsidiary, and a good standing certificate of the
Borrower and each Subsidiary, certified by the appropriate official of its state
of incorporation and the State of Florida, if different;
(ii) Incumbency certificate and certified
resolutions of the board of directors (or other appropriate Persons) of the
Borrower and each other Person executing any Loan Documents authorizing the
execution, delivery and performance of the Loan Documents.
(c) Insurance. The Borrower shall have delivered to
the Bank satisfactory evidence of insurance meeting the requirements of Section
5.3 ("Insurance").
(d) Subordinations. The Bank shall have received
subordinations satisfactory to it as required by Section 5.20 ("Subordination").
(e) Additional Documents. The Borrower shall have
delivered to the Bank all additional opinions, documents, certificates and other
assurances that the Bank or its counsel may require.
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4.2 Conditions Precedent to Each Advance. The following
conditions, in addition to any other requirements set forth in this Agreement,
shall have been met or performed on or before disbursement of any proceeds of
the Loan and by the Advance Date with respect to any Advance Request:
(a) Information Required by Section 3.3. The
Borrower shall have delivered to Bank information as required under Section 3.3
("Manner of Borrowing and Disbursement") and any other information Bank may
require.
(b) No Default. No default shall have occurred and
be continuing or will occur upon the making of the Advance in question and the
Borrower shall have delivered to the Bank an officer's certificate to such
effect, which may be incorporated in the Advance Request.
(c) Correctness of Representations. All
representations and warranties made by the Borrower and any Guarantor herein or
otherwise in writing in connection herewith shall be true and correct with the
same effect as though the representations and warranties had been made on and as
of the proposed Advance Date, and the Borrower shall have delivered to the Bank
an officer's certificate to such effect, which may be incorporated in the
Advance Request.
(d) No Adverse Change. There shall have been no
material adverse change in the condition, financial or otherwise, of the
Borrower or any Subsidiary from such condition as it existed on the date of the
most recent financial statements of such Person delivered prior to date hereof.
(e) Further Assurances. The Borrower shall have
delivered such further documentation or assurances as the Bank may reasonably
require.
5. COVENANTS OF THE BORROWER. The Borrower covenants and agrees that
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, unless the Bank shall otherwise consent in
writing, the Borrower and each Subsidiary:
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5.1 Use of Loan Proceeds. Shall use the proceeds of the Loan
only for the commercial purposes permitted herein or otherwise permitted by the
Bank and furnish the Bank all evidence that it may reasonably require with
respect to such use.
5.2 Maintenance of Business and Properties. Shall at all times
maintain, preserve and protect its property used or useful in the conduct of its
business, and keep the same in good repair, working order and condition, and
from time to time make, or cause to be made, all material needful and proper
repairs, renewals, replacements, betterments and improvements thereto so that
the business carried on in connection therewith may be conducted properly and in
accordance with standards generally accepted in businesses of a similar type and
size at all times, and maintain and keep in full force and effect all licenses
and permits necessary to the proper conduct of its business.
5.3 Insurance. Shall maintain such liability insurance,
workers' compensation insurance, business interruption insurance and casualty
insurance as may be required by law, customary and usual for prudent businesses
in its industry or as may be reasonably required by the Bank and shall insure
and keep insured its business and properties in good and responsible insurance
companies satisfactory to the Bank. All hazard insurance shall be in amounts and
shall contain co-insurance and deductible provisions approved by the Bank, shall
name and directly insure the Bank as secured party and loss payee under a
long-form New York standard loss payee clause, or its equivalent, and shall not
be terminable except upon 30 days' written notice to the Bank.
5.4 Notice of Default. Shall provide to the Bank immediate
notice of (a) the occurrence of a Default, (b) any material litigation or
material changes in existing litigation or any judgment against it or its
assets, (c) any material damage or loss to property, (d) any notice from taxing
authorities as to claimed deficiencies or any tax lien or any notice relating to
alleged ERISA violations, (e) any Reportable Event, as defined in ERISA, (f) any
rejection, return, offset, dispute, loss or other circumstance having a material
adverse effect on any Accounts, and (g) any loss or threatened loss of material
licenses or permits.
5.5 Inspections; Discussions. Shall permit any Person
designated by Bank to visit and inspect any of its properties,
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corporate books, records, paper and financial reports, including making any
copies thereof and abstracts therefrom, and to discuss its affairs, finances,
and accounts with its principal officers, and at reasonable times and as often
as Bank may reasonably request.
5.6 Financial Information. Shall maintain books and records in
accordance with generally accepted accounting principles applied on a consistent
basis and shall furnish to the Bank the following periodic financial
information:
(a) Periodic Borrowing Base Reports. Within
thirty (30) days after the end of each month, Borrower shall deliver to Bank a
report listing all Accounts and Eligible Accounts of the Borrower as of the last
Business Day of such quarter, which shall include the amount and age of each
Account, the name and mailing address of each Account Debtor and such other
information as Bank may require to verify the Eligible Accounts, all in
reasonable detail and in form acceptable to the Bank.
(b) Quarterly Financial Statement Reports. Within
thirty (30) days after the end of each fiscal quarter, Borrower shall deliver
the following unaudited financial reports, certified by the chief financial
officer of Borrower or the president of Borrower as being true and accurate:
(i) An income statement for such quarter;
(ii) A balance sheet for such quarter;
(iii) A statement of cash flows;
(iv) Copies of the quarterly 10-Q reports
filed (within 10 days after filing same).
All such financial reports shall be prepared in accordance with
generally accepted accounting principles applied on a consistent basis, shall
have supporting schedules attached, and include such other reasonable
information and details that Bank may require.
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(c) Annual Reports. Within 120 days after the end
of each fiscal year, Borrower shall deliver the following financial reports for
Borrower and its Subsidiaries:
(i) An income statement;
(ii) A reconciliation of surplus statement;
(iii) A balance sheet;
(iv) A statement of cash flows;
(v) A copy of the 10-K report filed with the
United States Securities and Exchange Commission;
(vi) A copy of the management letter
prepared by the independent certified public accountants who prepared Borrower's
financial statements;
(vii) A statement by the independent
certified public accountants that prepared Borrower's financial statements
certifying that Borrower is in full compliance with this Agreement.
All of the above financial statements shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis and
audited and certified by independent certified public accountants of recognized
standing selected by the Borrower and satisfactory to the Bank.
(d) No Default Certificates. Together with each
report required by Subsection (b) and (c) above, shall submit a certificate of
its president or chief financial officer that no Default or Event of Default
then exists or if a Default or Event of Default exists, the nature and duration
thereof and the Borrower's intention with respect thereto and in addition shall
cause the Borrower's independent auditors (if applicable) to submit to Bank,
together with its audit report, a statement that, in the course of such audit,
the independent auditors discovered no circumstances which it believes would
result in a Default or Event of Default or if it discovered any such
circumstances, specifying the nature and duration thereof. Borrower shall also
demonstrate its compliance with respect to the financial covenants referenced in
Exhibit 5.26 of this Agreement.
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<PAGE> 35
(e) Reports and Proxies. Within ten (10) days after
the filing thereof with the Internal Revenue Service, copies of the complete
Internal Revenue Service tax returns of the Borrower and its Subsidiaries for
each calendar year and a copy of all financial statements, reports, notices and
proxy statements sent by Borrower and/or any of its Subsidiaries to
stockholders, and all regular or period reports required to be filed by Borrower
with any governmental agency or authority.
If the Borrower has Subsidiaries, the financial statements required
above shall be consolidated and, if required by the Bank, consolidating form for
the Borrower and all Subsidiaries required by generally accepted accounting
principles to be consolidated for financial reporting purposes. In addition to
the financial statements required herein, the Bank reserves the right to require
other or additional financial or other information concerning the Borrower and
its Subsidiaries.
5.7 Debt. Shall not, without Bank's prior written consent,
directly or indirectly create, incur, assume, become liable, contingently or
otherwise or permit to exist any Debt, including any guaranties or other
contingent obligations, except Permitted Debt.
5.8 Liens. Shall not, without Bank's prior written consent,
create or permit to exist any Liens on any of its property except Permitted
Liens.
5.9 (Intentionally Omitted)
5.10 Dividends. Shall not, without Bank's prior written
consent, pay or declare any dividends (other than stock dividends) or other
distribution or purchase, redeem or otherwise acquire any stock or other equity
interests or pay or acquire any debt subordinate to the Indebtedness unless,
after giving effect thereto, there shall be no Default hereunder and such
payment or acquisition is specifically permitted by Exhibit 5.10 hereto (if
any); provided, however, that any Subsidiary may pay dividends to the Borrower
or another Subsidiary wholly-owned by the Borrower.
5.11 Merger, Sale, Etc. Shall maintain its corporate
existence, good standing and necessary qualifications to do business and shall
not: dissolve or liquidate, or become a party to
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<PAGE> 36
any merger or consolidation, (ii) sell, assign, pledge or otherwise transfer
more than 50% of its outstanding stock or voting power in a single transaction
or a series of transactions, or substantially all of Borrower's property, assets
or business, or a material portion (10% or more) thereof if such a sale is
outside Borrower's ordinary course of business, or (iii) acquire by purchase,
lease or otherwise substantially all of the property, assets or business of or
more than 50% of the outstanding stock or voting power of any other entity;
provided however, that the foregoing shall not operate to prevent: (a) mergers
or consolidations of any Subsidiary into Borrower, or a sale, transfer or lease
of assets by any Subsidiary into Borrower; or (b) a merger of any corporation or
entity into Borrower, provided that after such merger, Borrower shall be the
surviving or continuing corporation or entity and, after giving effect to such
transaction Borrower shall be in full compliance with the terms of the Loan
Agreement, and the management of Borrower shall be substantially unchanged.
5.12 Loans and Other Investments. Shall not make or permit to
exist any Advances (except for Advances to Subsidiaries) or loans to, or
guarantee or become contingently liable, directly or indirectly, in connection
with the obligations, leases, stock or dividends of, or own, purchase or make
any commitment to purchase any stock, bonds, notes, debentures or other
securities of, or any interest in, or make any capital contributions to (all of
which are sometimes collectively referred to herein as "Investments") any Person
except for (a) investments of direct obligations of the United States
Government, (b) certificates of deposit of United States commercial banks having
a tier 1 capital ratio of not less than six percent (6%) and then in an amount
not exceeding 10% of the issuing bank's unimpaired capital and surplus; (c)
corporate and municipal bonds which have a rating of at least Aaa; and (d)
commercial paper which has a rating of at least A-1, P-1.
5.13 Change in Business. Borrower shall not enter into any
business which is substantially different from the business or businesses in
which it is presently engaged.
5.14 Accounts. (a) shall not sell, assign or discount any of
its Accounts, Chattel Paper or any promissory notes held by it other than the
discount of such notes in the ordinary course of business for collection; and
(b) shall notify the Bank promptly in writing with any discount, offset or other
deductions not shown on
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<PAGE> 37
the face of an Account invoice and any dispute over an Account, and any
information relating to an adverse change in any Account Debtor's financial
condition or ability to pay its obligations.
5.15 Transactions with Affiliates. Shall not directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, in the ordinary course of
business or otherwise, any Affiliate (other than a Subsidiary); provided,
however, that any acts or transactions prohibited by this Section may be
performed or engaged in, after written notice to the Bank, if upon terms not
less favorable to the Borrower or such Subsidiary than if no such relationship
existed. Any such Affiliate may be a director, officer, employee of the Borrower
or any Subsidiary.
5.16 No Change in Name, Offices; Removal of Property. Shall
not, unless it shall have given 60 days' advance written notice thereof to the
Bank, (a) change its name or the location of its chief executive office or other
office where books or records are kept or (b) permit any Inventory or other
tangible Property to be located at any location other than as specified in
Section 2.9.
("Location").
5.17 No Sale, Leaseback. Shall not enter into any
sale-and-leaseback or similar transaction.
5.18 Margin Stock. Shall not use any proceeds of the Loan to
purchase or carry any margin stock (within the meaning of Regulation U of the
Board of Governors of Federal Reserve System) or extend credit to others for the
purpose of purchasing or carrying any margin stock.
5.19 Payment of Taxes, Etc. Shall pay before delinquent all of
its debts and taxes except that the Bank shall not unreasonably withhold its
consent to nonpayment of taxes being actively contested in accordance with law
(provided that the Bank may require bonding or other assurances).
5.20 Subordination. Shall cause all debt and other obligations
now or hereafter owed to any Guarantor or Affiliate to be subordinated in right
of payment and security to the Indebtedness in accordance with subordination
agreements satisfactory to the Bank.
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<PAGE> 38
5.21 Compliance; Hazardous Materials. Shall strictly comply
with all laws, regulations, ordinances and other legal requirements,
specifically including, without limitation, ERISA, all securities laws and all
laws relating to hazardous materials and the environment. Unless approved in
writing by the Bank, neither the Borrower nor any Subsidiary shall engage in the
storage, manufacture, disposition, processing, handling, use or transportation
of any hazardous or toxic materials, whether or not in compliance with
applicable laws and regulations.
5.22 Subsidiaries. Shall not acquire, form or dispose of any
Subsidiaries or permit any Subsidiary to issue capital stock except to its
parent.
5.23 Compliance with Assignment Laws. Shall if required by the
Bank comply with the Federal Assignment of Claims Act and any other applicable
law relating to assignment of government contracts.
5.24 Further Assurances. Shall take such further action and
provide to the Bank such further assurances as may be reasonably requested to
ensure compliance with the intent of this Agreement and the other Loan
Documents.
5.25 Withholding Taxes. Pay as and when due all employee
withholding, FICA and other payments required by federal, state and local
governments with respect to wages paid to employees.
5.26 Other Covenants. Shall comply with such additional
covenants as may be set forth in Exhibit 5.26 hereto (if any).
6. DEFAULT.
6.1 Events of Default. Each of the following shall constitute
an Event of Default:
(a) Any representation or warranty made by the
Borrower or Subsidiary or any other party to any Loan Document (other than the
Bank) herein or therein or in any certificate or report furnished in connection
herewith or therewith shall prove to have been untrue or incorrect in any
material respect when made; or
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<PAGE> 39
(b) There shall occur any default by the Borrower
in the payment, when due, of any principal of or interest on the Note, any
amounts due hereunder or any other Loan Document or any other Indebtedness (not
cured within any grace period provided in such Note or in the document or
instrument evidencing such Indebtedness); or
(c) There shall occur any default by the Borrower
or Subsidiary or any other party to any Loan Document (other than the Bank) in
the performance of any agreement, covenant or obligation contained in this
Agreement or such Loan Document not provided for elsewhere in this Section 6 and
such default is not cured within any grace period provided in this Agreement or
such other Loan Document; or
(d) Any other obligation now or hereafter owed by
the Borrower or any Subsidiary to the Bank shall be in default and not cured
within any period of grace provided therein; or the Borrower or any Subsidiary
shall be in default under any obligation in excess of $100,000 owed to any other
obligee, which default entitles the obligee to accelerate any such obligations
or exercise other remedies with respect thereto; or
(e) The Borrower or any Subsidiary shall (i)
voluntarily liquidate or terminate operations or apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of such Person or of all or of a substantial part of its assets,
(ii) admit in writing its inability, or be generally unable, to pay its debts as
the debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the federal Bankruptcy Code (as
now or hereafter in effect), (v) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, (vi) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code, or (vii) take any corporate
action for the purpose of effecting any of the foregoing; or
(f) Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent jurisdiction, seeking
in respect of such Person any remedy under
35
<PAGE> 40
the federal Bankruptcy Code, the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of such Person, or of all or any
substantial part of the assets of such Person, or other like relief under any
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts; or
(g) There shall occur any material loss, theft,
damage or destruction of any of Borrower's assets which loss is not fully
insured; or
(h) A judgment in excess of $100,000.00 shall be
rendered against the Borrower or any Subsidiary and shall remain undischarged,
undismissed and unstayed for more than ten days (except judgments validly
covered by insurance with a deductible of not more than $10,000.00) or there
shall occur any levy upon, or attachment, garnishment or other seizure of, any
material portion of the Borrower's or any Subsidiary's assets by reason of the
issuance of any tax levy, judicial attachment or garnishment or levy of
execution; or
(i) The Borrower or any Subsidiary shall fail to
pay, on demand, any returned or dishonored draft, check, or other item which has
been deposited to the Special Loan Account or otherwise presented to the Bank
and for which the Borrower has received provisional credit; or
THE FOREGOING ENUMERATION OF EVENTS OF DEFAULT NOTWITHSTANDING, NOTHING HEREIN
SHALL BE DEEMED TO LIMIT, RESTRICT, IMPAIR OR DIMINISH THE ABSOLUTE RIGHT OF THE
BANK TO DEMAND PAYMENT OF THE REVOLVING LOAN IN FULL, AT ANYTIME, WITHOUT CAUSE.
6.2 Remedies. If any Default shall occur, the Bank may,
without notice to the Borrower, at its option, withhold further Advances to the
Borrower of proceeds of the Loan. Should (a) any Event of Default under Section
6.1(g) occur and not be cured within thirty (30) days following delivery of
written notice thereof by the Bank to the Borrower (which notice shall be
complete upon hand or overnight delivery or upon facsimile delivery or mailing
by certified mail, return receipt requested) or (b) any other Event of Default
occur, the Bank may declare any or all Indebtedness to be immediately due and
payable (if not earlier
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<PAGE> 41
demanded), bring suit against the Borrower to collect the Indebtedness, exercise
any remedy available to the Bank hereunder and take any action or exercise any
remedy provided herein or in any other Loan Document or under applicable law.
Bank agrees that it will apply the Default Rate to any Event of Default under
Section 6.1(c) only after thirty (30) days prior written notice has been given
to Borrower of such default. Notwithstanding the foregoing, Bank may exercise
all of its rights and remedies immediately upon a default under Section 6.1(c)
(including acceleration of the Loan) and Bank shall not be required to wait
until the foregoing thirty (30) day notice period has expired to exercise all of
its rights and remedies. No remedy shall be exclusive of other remedies or
impair the right of the Bank to exercise any other remedies.
6.3 Receiver. In addition to any other remedy available to it,
the Bank shall have the absolute right, upon the occurrence of an Event of
Default, to seek and obtain the appointment of a receiver to take possession of
and operate and/or dispose of the business and assets of the Borrower and any
costs and expenses incurred by the Bank in connection with such receivership
shall bear interest at the Default Rate and shall be secured by all Collateral.
6.4 Deposits; Insurance. Upon the occurrence and continuance
of an Event of Default, the Borrower authorizes the Bank to collect and apply
against the Indebtedness when due any cash or deposit accounts in its
possession, and any refund of insurance premiums or any insurance proceeds
payable on account of the loss or damage to any of Borrower's properties or
Equipment and irrevocably appoints the Bank as its attorney-in-fact to endorse
any check or draft or take other action necessary to obtain such funds.
6.5 Other Rights. The Borrower authorizes the Bank without
affecting the Borrower's obligations hereunder or under any other Loan Document
from time to time (i) to take from any party and hold additional collateral or
guaranties for the payment of the Indebtedness or any part thereof, and to
exchange, enforce or release such collateral or guaranty of payment of the
Indebtedness or any part thereof and to release or substitute any endorser or
guarantor or any party who has given any security interest in any collateral as
security for the payment of the Indebtedness or any part thereof or any party in
any way obligated to pay the Indebtedness or any
37
<PAGE> 42
part thereof; and (ii) upon the occurrence of any Event of Default to direct the
manner of the disposition of any collateral and the enforcement of any
endorsements, guaranties, letters of credit or other security relating to the
Indebtedness or any part thereof as the Bank in its sole discretion may
determine.
6.6 Waiver of Marshalling. The Borrower hereby waives any
right it may have to require marshalling of its assets.
6.7 Waiver of Automatic Stay. The Borrower hereby waives the
application of the automatic stay of enforcement provided in Section 362 of the
United States Bankruptcy Code and agrees that the Bank may proceed with
enforcement and collection notwithstanding the filing of a petition in
bankruptcy.
7. MISCELLANEOUS.
7.1 No Waiver, Remedies Cumulative. No failure on the part of
the Bank to exercise, and no delay in exercising, any right hereunder or under
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are in addition to any other remedies provided by
law, any Loan Document or otherwise.
7.2 Survival of Representations. All representations and
warranties made herein shall survive the making of the Loan hereunder and the
delivery of the Note, and shall continue in full force and effect so long as any
Indebtedness is outstanding, there exists any commitment by the Bank to the
Borrower, and until this Agreement is formally terminated in writing.
7.3 Expenses. Whether or not the Loan herein provided for
shall be made, the Borrower shall pay all reasonable costs and expenses in
connection with the preparation, execution, delivery, amendment and enforcement
of this Agreement and any Loan Document, including the reasonable fees and
disbursements of counsel for the Bank in connection therewith, whether suit be
brought or not and whether incurred at trial or on appeal. Borrower shall pay
Bank a facility fee of $15,000.00 upon execution of this Agreement and an
additional facility fee of $15,000.00 on April 30, 1997. In
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<PAGE> 43
addition, the Borrower agrees to pay and save the Bank harmless against any
liability for payment of any state documentary stamp taxes, intangible taxes or
similar taxes (including interest or penalties, if any) which may now or
hereafter be determined to be payable in respect to the execution, delivery or
recording of any Loan Document or the making of any Advance, whether originally
thought to be due or not, and regardless of any mistake of fact or law on the
part of the Bank or the Borrower with respect to the applicability of such tax.
The provisions of this section shall survive payment in full of the Loan and
termination of this Agreement.
7.4 Notices. Any notice or other communication hereunder to
any party hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered or certified mail and unless otherwise provided
herein shall be deemed to have been given or made when delivered, telegraphed,
telexed, faxed or deposited in the mails, postage prepaid, addressed to the
party at its address specified below (or at any other address that the party may
hereafter specify to the other parties in writing):
The Bank: First Union National Bank of Florida
77 East Camino Real
Boca Raton, Florida 33432
Attention: Karen Leikert,
Assistant Vice-President
The Borrower: c/o Boca Research, Inc.
1377 Clint Moore Road
Boca Raton, Florida 33487
Attention: R. Michael Brewer,
Vice President - Finance
cc: Robert Federspiel, Esq.
Spinner, Dittman, Federspiel
& Dowling
501 East Atlantic Avenue
Delray Beach, Florida 33483
7.5 Governing Law. This Agreement and the Loan Documents shall
be deemed contracts made under the laws of the State of Florida and shall be
governed by and construed in
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<PAGE> 44
accordance with the laws of said state except insofar as the laws of another
jurisdiction may govern the perfection, priority and enforcement of security
interests in collateral located in another jurisdiction.
7.6 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Borrower and the Bank, and their
respective successors and assigns; provided, that the Borrower may not assign
any of its rights hereunder without the prior written consent of the Bank, and
any such assignment made without such consent will be void.
7.7 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same instrument.
7.8 No Usury. Notwithstanding anything contained in this
Agreement, the Note, or in any other Loan Document to the contrary, in no event
will interest or other charges deemed to be interest be chargeable against the
Borrower if such amount (combined with any other amounts considered to be in the
nature of interest) would exceed the maximum amount permitted by law from time
to time while any of the Indebtedness is outstanding, and in the event any
amount in excess of the lawful maximum is charged or collected by the Bank or
paid by the Borrower, the Borrower shall be entitled to the reimbursement of
such excess together with interest thereon at the highest lawful rate at the
time of such overcharge.
7.9 Powers. All powers of attorney granted to the Bank are
coupled with an interest and are irrevocable.
7.10 Approvals. If this Agreement calls for the approval or
consent of the Bank, such approval or consent may be given or withheld in the
discretion of the Bank unless otherwise specified herein.
7.11 Jurisdiction, Service of Process.
(a) Any suit, action or proceeding against the
Borrower with respect to this Agreement, the Collateral or any Loan
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<PAGE> 45
Document or any judgment entered by any court in respect thereof may be brought
in the courts of Broward County, Florida or in the U.S. District court for the
Southern District of Florida as the Bank (in its sole discretion) may elect, and
the Borrower hereby accepts the nonexclusive jurisdiction of those courts for
the purpose of any suit, action or proceeding. Service of process in any such
case may be had against the Borrower by delivery in accordance with the notice
provisions herein or as otherwise permitted by law, and the Borrower agrees that
such service shall be valid in all respects for establishing personal
jurisdiction over it.
(b) In addition, the Borrower hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Loan Documents, the Collateral
or any judgment entered by any court in respect thereof brought in Broward
County, Florida or the U.S. District Court for the Southern District of Florida,
as selected by the Bank, and hereby further irrevocably waives any claim that
any suit, action or proceedings brought in Broward County, Florida or in such
District Court has been brought in an inconvenient forum.
7.12 Multiple Borrowers. If more than one Person is named
herein as the Borrower, all obligations, representations and covenants herein
and in other Loan Documents to which the Borrower is a party shall be joint and
several.
a. Bank shall not be required to proceed first against any or
all of the Borrowers, or any other Person, whether primarily or secondarily
liable, or against any collateral held by it, before resorting to any of the
Borrowers for payment of the obligations under this Agreement and the Loan
Documents. None of the Borrowers shall be entitled to assert as a defense to the
enforceability of such Borrower's obligations under this Agreement or any other
Loan Document, any defense of the other Borrower under this Agreement or other
Loan Document.
b. Each of the Borrowers agrees that Bank may at any time and
from time to time, without notice to, waiver by, or consent of such Borrower,
without incurring responsibility to such Borrower, without impairing, releasing,
or otherwise affecting the
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<PAGE> 46
joint and several obligations of such Borrower under this Agreement or any other
Loan Document, in whole or in part; change the manner, place, or terms of
payment of, change, extend the time of, renew, or alter any of the obligations
of the other Borrower subject to this Agreement, or any security therefor or any
guaranty thereof; loan additional monies or extend additional credit to the
other Borrower, individually or jointly with other persons, with or without
security, thereby creating new liabilities the payment of which may be secured
by the collateral provided hereunder; sell, exchange, release, surrender,
realize upon, or otherwise deal with in any manner and in any order any
guaranties or any property at any time pledged or mortgaged to secure the
obligations subject to this Agreement and any offset thereagainst; take and hold
additional security or guaranties for any of the obligations subject to this
Agreement; exercise or refrain from exercising any rights against the other
Borrower or others (including Borrower) or act or refrain from acting in any
other manner; settle or compromise any of the obligations subject to this
Agreement or any security or guaranty therefor and may subordinate the payment
of all or any part thereof to the payment of any of the liabilities (whether or
not due) of the other Borrower to creditors of the other Borrower (other than
Bank and Borrower); apply any sums from any sources to any of the obligations of
the Borrowers under this Agreement or any other obligations of the other
Borrower to Bank (other than payments by or on behalf of Borrower), and in any
order, without regard to any obligations of Borrower remaining unpaid; and
disburse all or part of the proceeds of any loan subject to the provisions of
this Agreement as instructed by the other Borrower, without inquiry or
investigation of any kind by Bank as to the use of such proceeds. Each of the
Borrowers confirms that it will be directly or indirectly benefited by each and
every loan, disbursement, or advance subject to the provisions of this
Agreement.
c. No invalidity, irregularity, or unenforceability of all or
any part of the obligations of the other Borrower subject to this Agreement or
otherwise to Bank or insufficiency, invalidity, irregularity, or
unenforceability of any security or guaranty for the obligations of Borrowers
hereunder shall affect, impair, or be a defense to the obligations of either of
the Borrowers to Bank subject to this Agreement.
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<PAGE> 47
d. Each of the Borrowers waives any duty on Bank's part
(should such duty exist) to disclose to such Borrower any matter, fact, or thing
related to the business, operations, or condition (financial or otherwise) of
the other Borrower or its affiliates or property, whether now or hereafter known
by Bank. Bank shall have no duty to disclose to such Borrower the
difference, if any, between the terms which were initially proposed for the
obligations subject to this Agreement and which were presumably disclosed to, or
known by such Borrower, and the actual terms of the obligations, as executed,
including but not limited to the existence or amount of guaranties or security
therefor. Each of the Borrowers agrees that any lack of knowledge of such
Borrower as to such matters will not impair, release, or otherwise affect the
obligations of such Borrower subject to this Agreement.
e. Any and all claims of either of the Borrowers against the
other Borrower or any of its property, whether through subrogation to the rights
of Bank hereunder or otherwise, shall be subordinate and subject in right of
payment to the prior payment in full of the obligations subject to this
Agreement.
f. If either of the Borrowers is held to be an accommodation
party with respect to a loan or portion of a loan hereunder, or is otherwise
held not to be primarily liable thereunder, said party (who is held not to be
primarily liable) agrees that it absolutely and unconditionally guarantees the
payment of all loans hereunder whether now or hereafter made regardless of the
enforceability of such loans against any other party thereto.
7.13 Other Provisions. Any other or additional terms and
conditions set forth in Exhibit 8.13 (if any) are hereby incorporated herein.
7.14 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS AGREEMENT OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER LOAN
DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
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<PAGE> 48
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BOCA RESEARCH, INC., FIRST UNION NATIONAL BANK OF
A FLORIDA CORPORATION FLORIDA, A NATIONAL BANKING
ASSOCIATION
By:___________________________ By:___________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
Attest:_______________________
Name:__________________
Title:_________________
(CORPORATE SEAL)
BOCA RESEARCH INTERNATIONAL,
INC., A VIRGIN ISLANDS CORPORATION
By:___________________________
Name:______________________
Title:_____________________
Attest:_______________________
Name:__________________
Title:_________________
(CORPORATE SEAL)
COMPLETE ACQUISITION CORP., A
FLORIDA CORPORATION
By:__________________________
Name:_____________________
Title:____________________
Attest:______________________
Name:_________________
Title:________________
(CORPORATE SEAL)
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<PAGE> 49
BOCA RESEARCH HOLLAND B.V., INC.,
A NETHERLANDS CORPORATION
By:__________________________
Name:_____________________
Title:____________________
Attest:______________________
Name:_________________
Title:________________
(CORPORATE SEAL)
BOCA RESEARCH OF DELAWARE, INC.,
A DELAWARE CORPORATION
By:__________________________
Name:_____________________
Title:____________________
Attest:______________________
Name:_________________
Title:________________
(CORPORATE SEAL)
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SCHEDULE OF EXHIBITS
(IF ANY EXHIBIT IS OMITTED, THE INFORMATION CALLED FOR THEREIN
SHALL BE CONSIDERED "NONE" OR "NOT APPLICABLE")
<TABLE>
<CAPTION>
Exhibit Section Reference Title
<S> <C> <C> <C>
1.1B 1.1 ("Eligible Accounts") Ineligible Accounts
1.1C 1.1 ("Permitted Debt") Permitted Debt
1.1D 1.1 ("Permitted Liens") Permitted Liens
2.3 2.3 ("Financial Condition") Contingent Liabilities
2.4 2.4 ("Litigation") Litigation
2.9 2.9 ("Location") Offices of Borrower
2.17 2.17 ("Subsidiaries") List of Subsidiaries
2.18 2.18 ("Hazardous Materials") Hazardous Materials Utilized
by Borrower
2.21 2.21 ("Additional Representations") Additional Representations
5.6 5.6 ("Financial Information") Borrowing Base Certificate
5.10 5.10 ("Dividends") Permitted Dividends &
Distributions
5.26 5.26 ("Other Covenants") Other Additional Covenants
8.13 8.13 ("Other Provisions") Additional Terms
</TABLE>
46
<PAGE> 51
EXHIBIT 1.1B
ADDITIONAL INELIGIBLE ACCOUNTS
The following shall be additional ineligible accounts:
1. The entire amount due from any account debtor whose ineligible
amounts is equal to or greater than 50% of the total amount due from such
account debtor, sometimes referred to as "cross-aging".
2. Any accounts rebilled and whose age is greater than 60 days from the
original invoice date.
3. Those amounts invoiced whose payment is retained by account debtor
pending final inspection and acceptance, sometimes referred to as "retainage".
4. Those portions of any account that were paid in cash and not already
deducted from the account balance.
47
<PAGE> 52
EXHIBIT 1.1C
PERMITTED DEBT
NONE
48
<PAGE> 53
EXHIBIT 1.1D
PERMITTED LIENS
The following shall be additional Permitted Liens:
1. Deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance, social security
and similar laws.
2. Attachment, judgment and other similar non-tax Liens
arising in connection with court proceedings but only if and for so long as (a)
the execution or enforcement of such Liens is and continues to be effectively
stayed and bonded on appeal, (b) the validity and/or amount of the claims
secured thereby are being actively contested in good faith by appropriate legal
proceedings and (c) such Liens do not, in the aggregate, materially detract from
the value of the assets of the Person whose assets are subject to such Lien or
materially impair the use thereof in the operation of such Person's business.
49
<PAGE> 54
EXHIBIT 2.3
CONTINGENT LIABILITIES
The following are contingent liabilities of the Borrower and its
Subsidiaries:
NONE
50
<PAGE> 55
EXHIBIT 2.4
LITIGATION
Describe any suit or proceeding pending or threatened:
NONE
51
<PAGE> 56
EXHIBIT 2.9
OFFICES OF BORROWER
List any offices of Borrower or Subsidiary not listed in Section 7.4:
(Please refer to Exhibit 2.17)
52
<PAGE> 57
EXHIBIT 2.17
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY LOCATION
Boca Research International, Inc. Resident Agent: CITCO St. Thomas, Inc.
a Virgin Islands corporation 5 Kronprindsens Gade
Charlotte Amalie, St. Thomas,
U.S. Virgin Islands
Boca Research Holland B.V., Inc., Managing Director: Rien van der Jagt
a Netherlands corporation Cypresbaan 7
P.O. Box 704
2900 AS Capelle aan den Ijssel
Holland
Complete Acquisition Corp., 1377 Clint Moore Road
a Florida corporation Boca Raton, Florida 33487
Boca Research of Delaware, Inc., Mellon Bank Center, Second Floor
a Delaware corporation 919 N. Market Street
Wilmington, Delaware 19801
53
<PAGE> 58
EXHIBIT 2.18
HAZARDOUS MATERIALS UTILIZED BY BORROWER
BORROWER'S HAZARDOUS SUBSTANCES PROCEDURES
1. Definition of Hazardous Materials. A material and/or waste (solid,
liquid or gaseous) shall be considered "Hazardous" if:
A. It appears on one or more hazardous substance lists published
by the EPA under the Resource Conservation and Recovery Act
(RCRA) and SARA Title III, Part 313.
B. It is acutely hazardous waste as defined by the EPA's 40
C.F.R. Parts 261-262.
C. It exhibits any of the following characteristics as defined by
NFPA regulations and the substances MSDS:
(1) Ignitibility. The material or waste is easily
combustible or flammable.
(2) Corrosivity. The material or waste is capable of
causing slow chemical and/or electrochemical reaction
between a metal and it's environment (for example,
the rusting of iron). Ultimately, dissolving metals
or other materials and burns the skin.
(3) Reactivity. The material or waste is "explosive,"
unstable, or undergoes rapid or violent chemical
reaction with water or other materials.
(4) Toxicity. The material or waste has the potential to
release toxic substances that can pose a hazard to
human health or the environment.
2. Hazardous Materials Inventory. The following is an inventory of all
hazardous materials handled, stored, accumulated, treated and disposed
within the confines of Boca Research.
A. IEM Fusion NCR-P-7X-3 Soldering Paste (Tin, Lead)
B. Amicon D-124F (Epoxy Adhesive)
54
<PAGE> 59
C. Centari Acrylic Enamel
D. Water soluble, neutral flux solution which is completely
biodegradable and a non-irritant
E. Gold Solution (Cyanide Salt-Amine)
F. Loctite 3348 Chipbonder (Epoxy Adhesive)
G. Loctite 454 Surface Insensitive Instant Adhesive (Ethyl
Cyanoacrylate, Amorphous Silica, Hydroquinone)
H. Nickel Acid Solution (Nickel Sulfate, Formic Acid)
I. SCM Metal Products Soldering Paste (TEA, Tin, Lead,
Triethanolamine, Silver)
J. AP Grease (Naphthionic distillate)
3. Hazardous Materials Handling and Use. All hazardous material and waste
are handled and used in accordance with all Occupational Health and
Safety Association (OSHA) rules and regulations. All employees have
been provided on-the-job training regarding personal protective
equipment, safe handling, storage and disposal of hazardous materials
and waste.
4. Hazardous Materials and Waste Management.
A. Hazardous Materials Labeling. All hazardous materials are
labeled in accordance with Department of Transportation (DOT)
and the National Fire Protection (NFPA).
B. Hazardous Materials Containment. Hazardous waste are placed in
containers appropriate for the type of hazardous waste
generated and the type of treatment and/or disposal method
anticipated.
All containers designated for Hazardous Materials/Waste
containment are constructed of a smooth material that is
impervious to liquids and is capable of being maintained in a
sanitary condition.
C. Hazardous Materials Storage and Accumulation. Hazardous
materials storage and accumulation areas are located away from
public access
55
<PAGE> 60
and general traffic flow patterns. Furthermore,
the area is restricted and secured against authorized
personnel.
(1) Flammables. Flammable materials are stored in a cool,
dry, well-ventilated area away from any possible
ignition sources. Highly flammable materials are kept
in an area separate from oxidizing agents.
(2) Oxidizers. All chemicals that combine or mix with
oxygen are stored away from liquids or low flash
point.
(3) Corrosives. Corrosive materials are stored in a cool,
well-ventilated area (above their freezing point).
Furthermore, corrosives are isolated from other
materials since they tend to corrode everything that
is stored with them.
(4) Acids and Bases. Acids and Bases are stored in a
cool, dry, well-ventilated area.
(5) Highly Volatile Substances. Materials that are highly
toxic or that can decompose into toxic components
from contact with heat, moisture, acids or acid fumes
will be stored in a cool, well-ventilated area out of
the direct rays of the sun. Incompatible toxic
materials will be isolated from each other.
(6) Solder Pastes. All solder pastes are covered by Boca
Research in a solid, physical state which is easily
contained in impermeable, sealed containers and
accumulated in a refrigerator for future reclamation.
D. Hazardous Waste Reclamation and/or Disposal. All hazardous
waste generated by Boca Research is immediately disposed
according to federal, state and local regulations. Hazardous
waste that cannot be treated or disposed immediately after it
is generated is accumulated at its point of origin in a
storage area designated for hazardous waste accumulation.
(1) Solder Paste and Dross. 100% of all excess solder
paste (dross) generated by the Wave Solderer is
immediately contained and accumulated for off-site
reclamation.
56
<PAGE> 61
(2) Containment Residuals. Empty containers lined with a
residue of hazardous material/waste are returned to
the manufacturer for reclamation.
(3) Waste Water Residuals. Waste water effluent generated
by Boca Research that has been contaminated with
hazardous waste is passed through a closed loop
filtration system. The resulting treated residue can
be classified as non-hazardous or as a recovered,
usable product which is recycled by the manufacturer.
57
<PAGE> 62
EXHIBIT 2.21
ADDITIONAL REPRESENTATIONS
Describe fully any additional representations or warranties set forth
by the Borrower.
NONE
58
<PAGE> 63
EXHIBIT 5.10
PERMITTED DIVIDENDS
Describe conditions under which dividends are permitted and specify any
limits on such permitted dividends:
NONE
59
<PAGE> 64
EXHIBIT 5.26
OTHER COVENANTS
1. Financial Covenants. At all times, the Borrower shall be
in compliance with the following financial covenants on a
consolidated basis (with said financial covenants being tested on
a quarterly basis by Bank):
(a) WORKING CAPITAL. Borrower shall at all times maintain
Consolidated Working Capital of at least Thirty-Two Million Dollars
($32,000,000.00) through and including December 31, 1996. After December 31,
1996, Borrower shall at all times maintain Consolidated Working Capital of at
least Forty Million Dollars ($40,000,000.00). "Consolidated Working Capital"
shall mean the excess of the consolidated current assets as determined in
accordance with generally-accepted accounting principles applied on a consistent
basis ("GAAP") of Borrower and its Subsidiaries, over the consolidated current
liabilities as determined in accordance with GAAP of Borrower and its
Subsidiaries.
(b) TANGIBLE NET WORTH. Borrower shall at all times maintain a
Consolidated Tangible Net Worth of at least Forty-Two Million Dollars
($42,000,000.00) through and including December 31, 1996. After December 31,
1996, Borrower shall at all times maintain a Consolidated Tangible Net Worth of
at least Forty-Seven Million Dollars ($47,000,000.00). "Consolidated Tangible
Net Worth" shall mean the consolidated total assets of Borrower and its
Subsidiaries, minus consolidated total liabilities, excluding debt fully
subordinated to the Loan, after subtracting therefrom the aggregate amount of
any intangible assets of Borrower and its Subsidiaries, including, without
limitation, goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks, and brand names.
(c) DEBT/WORTH RATIO. Borrower shall at all times maintain a
consolidated total liabilities, including debt fully subordinated to the Loan,
to Consolidated Tangible Net Worth ratio of not more than 0.50 to 1.00. For
purposes of this computation, "Consolidated Total Liabilities" shall mean all
liabilities of Borrower and its Subsidiaries, including capitalized leases and
all reserves for deferred taxes and other deferred sums appearing on the
liabilities side of a balance sheet of Borrower and its Subsidiaries, in
accordance with GAAP.
60
<PAGE> 65
(d) NEGATIVE PLEDGE. Borrower shall not encumber any Accounts
or Inventory without Bank's prior written consent.
(e) GUARANTEES. Borrower and its Subsidiaries shall not
guarantee or otherwise become responsible for obligations of any other Person,
corporation or entity, excepting for the endorsement of negotiable instruments
by Borrower or its Subsidiaries in the ordinary course of business for
collection.
(f) RETIRE OR REPURCHASE CAPITAL STOCK. Borrower and its
Subsidiaries shall not retire or otherwise acquire any of Borrower's and/or its
Subsidiaries' capital stock in the ordinary course of business for collection.
2. Other Covenants.
(a) DEPOSIT RELATIONSHIP. Borrower will maintain its primary
depository account and cash management account with Bank.
(b) FISCAL YEAR. Borrower and any Subsidiary shall not change
its fiscal year without obtaining the prior written consent of Bank.
61
<PAGE> 66
EXHIBIT 8.13
ADDITIONAL TERMS
Detail any other or additional terms or conditions to be incorporated
into the Loan.
NONE
62
<PAGE> 1
BOCA RESEARCH, INC.
EXHIBIT 11 - CALCULATION OF SHARES USED IN
DETERMINING PRIMARY EARNINGS PER SHARE
(Unaudited)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30 1996
--------------------- ------------------
<S> <C> <C>
Shares outstanding at January 1, 1996......................... 8,522,759 8,522,759
Shares issued January 1, 1996 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 9,502 9,502
Shares issued in connection with a
non-qualified stock option plan............................. 2,778 55,335
Shares issued July 1, 1996 in connection with
the 1992 Employee Stock Purchase Plan....................... 11,243 3,748
Weighted average of optioned shares
using the treasury stock method............................. 245,303 373,958
------- -------
Weighted average primary shares
outstanding................................................. 8,791,585 8,965,302
========= =========
</TABLE>
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
-------------------- ------------------
<S> <C> <C>
Shares outstanding at January 1, 1995......................... 8,424,685 8,424,685
Shares issued January 1, 1995 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 4,932 4,932
Shares issued in connection with a
non-qualified stock option plan............................. 43,528 23,984
Shares issued July 1, 1995 in connection with
the 1992 Employee Stock Purchase Plan....................... 13,810 4,603
Weighted average of optioned shares
using the treasury stock method............................. 600,292 415,806
---------- ----------
Weighted average primary shares
outstanding................................................. 9,087,247 8,874,010
========= =========
</TABLE>
- 27 -
<PAGE> 2
BOCA RESEARCH, INC.
CALCULATION OF SHARES USED IN
DETERMINING FULLY-DILUTED EARNINGS PER SHARE
(Unaudited)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30 1996
--------------------- ------------------
<S> <C> <C>
Shares outstanding at January 1, 1996......................... 8,522,759 8,522,759
Shares issued January 1, 1996 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 9,502 9,502
Shares issued in connection with a
non-qualified stock option plan............................. 2,778 55,335
Shares issued July 1, 1996 in connection with
the 1992 Employee Stock Purchase Plan....................... 11,243 3,748
Weighted average of optioned shares
using the treasury stock method............................. 245,303 373,958
---------- ----------
Weighted average fully-diluted shares
outstanding................................................. 8,791,585 8,965,302
========== ==========
</TABLE>
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
--------------------- ------------------
<S> <C> <C>
Shares outstanding at January 1, 1995......................... 8,424,685 8,424,685
Shares issued January 1, 1995 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 4,932 4,932
Shares issued in connection with a
non-qualified stock option plan............................. 43,528 23,984
Shares issued July 1, 1995 in connection with
the 1992 Employee Stock Purchase Plan....................... 13,810 4,603
Weighted average of optioned shares
using the treasury stock method............................. 600,292 558,262
---------- ----------
Weighted average fully-diluted shares
outstanding................................................. 9,087,247 9,016,466
========== ==========
</TABLE>
- 28 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,056,000
<SECURITIES> 0
<RECEIVABLES> 35,668,000
<ALLOWANCES> 4,099,000
<INVENTORY> 16,867,000
<CURRENT-ASSETS> 53,690,000
<PP&E> 15,093,000
<DEPRECIATION> 7,320,000
<TOTAL-ASSETS> 62,457,000
<CURRENT-LIABILITIES> 8,285,000
<BONDS> 0
0
0
<COMMON> 87,000
<OTHER-SE> 54,085,000
<TOTAL-LIABILITY-AND-EQUITY> 62,457,000
<SALES> 32,966,000
<TOTAL-REVENUES> 32,966,000
<CGS> 26,798,000
<TOTAL-COSTS> 26,798,000
<OTHER-EXPENSES> 4,749,000
<LOSS-PROVISION> 100,000
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 1,596,000
<INCOME-TAX> 574,000
<INCOME-CONTINUING> 1,022,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,022,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
