United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission File Number 0-23212
Telular Corporation
(Exact name of Registrant as specified in its charter)
Delaware 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
647 North Lakeview Parkway
Vernon Hills, Illinois
60061
(Address of principal executive offices)
(Zip Code)
(847) 247-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock, par
value $.01, as of December 31, 1999, the latest practicable date, was
11,794,199 shares.
<PAGE>
TELULAR CORPORATION
Index
Part I - Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 1999 (unaudited) and
September 30, 1999 3
Consolidated Statements of Operations (unaudited)
Three Months Ended December 31, 1999 and
December 31, 1998 4
Consolidated Statement of Stockholders' Equity
(unaudited)
Period from September 30, 1999 to
December 31, 1999 5
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended December 31, 1999 and
December 31, 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Recent Sales of
Unregistered Securities 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 18
Exhibit Index 19
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, September 30,
1999 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,101 $ 9,972
Receivables:
Trade, net of allowance for doubtful accounts
of $128 and $103 at December 31, 1999
and September 30, 1999, respectively 4,995 6,670
Related parties 399 483
------------ ------------
5,394 7,153
Inventories, net 6,581 8,770
Prepaid expenses and other current asset 638 502
------------ ------------
Total current assets 22,714 26,397
Property and equipment, net 4,964 5,202
Other assets:
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$1,434 and $1,304 at December 31, 1999 and
September 30, 1999, respectively 3,462 3,592
Intangible assets, less accumulated amortization
of $1,095 and $1,089 at December 31, 1999 and
September 30, 1999, respectively 0 6
Long term investment 309 66
Deposits 66 65
------------ ------------
3,837 3,729
------------ ------------
$ 31,515 $ 35,328
============ ============
<PAGE>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 2,124 $ 2,450
Related parties 1,039 1,738
Accrued liabilities 2,145 3,092
------------ ------------
Total current liabilities 5,308 7,280
Commitments and contingencies 0 0
Redeemable Preferred Stock:
Series A convertible preferred stock, $.01
par value; $12,775 liquidation preference
at September 30, 1999; 21,000 shares
authorized at December 31, 1999 and
September 30, 1999; no shares outstanding
at December 31, 1999 and 11,350 shares
outstanding at September 30, 1999. 0 13,057
Stockholders' Equity:
Preferred stock $.01 par value; 9,979,000 shares
authorized at December 31, 1999 and
September 30, 1999; none outstanding 0 0
Common stock; $.01 par value; 75,000,000 shares
authorized; 11,794,199 and 9,563,004 outstanding
at December 31, 1999 and September 30, 1999,
respectively 118 97
Additional paid-in capital 137,064 123,730
Deficit (109,227) (106,845)
Unrealized loss on investments (141) (384)
Treasury stock, 140,000 shares at cost (1,607) (1,607)
------------ ------------
Total stockholders' equity 26,207 14,991
------------ ------------
Total liabilities, redeemable preferred stock
and stockholders' equity $ 31,515 $ 35,328
============ ===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended December 31,
1999 1998
---------- ----------
<S> <C> <C>
Total net product sales $ 8,849 $ 8,211
Royalty and royalty settlement revenue 172 0
---------- ----------
Total revenue 9,021 8,211
Cost of sales 7,163 6,420
---------- ----------
1,858 1,791
Engineering and development expenses 1,272 1,368
Selling and marketing expenses 1,743 2,027
General and administrative expenses 1,068 963
Provision for doubtful accounts 25 20
Amortization 136 247
---------- ----------
Loss from operations (2,386) (2,834)
Other income, net 32 143
---------- ----------
Net loss $ (2,354) $ (2,691)
========== ==========
Less: Cumulative dividend on redeemable
preferred stock (28) (195)
---------- ----------
Net loss applicable to common shares $ (2,382) $ (2,886)
========== ==========
Basic and diluted net loss per common share $ (0.21) $ (0.33)
========== ==========
Weighted average number of common shares 11,318,007 8,669,254
========== ==========
</TABLE>
<PAGE>
<TABLE>
Telular Corporation
Consolidated Statements of Stockholders' Equity
(In Thousands)
Unrealized
Additional gain (loss) Total
Preferred Common Paid-in on Treasury Stockholder's
Stock Stock Capital Deficit Investments Stock Equity
--------- ------ --------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 $ 0 $97 $123,730 $ (106,845) $(384) $(1,607) $ 14,991
Comprehensive income:
Net loss for period from
October 1, 1999 to December
31, 1999 0 0 0 (2,354) 0 0 (2,354)
Other comprehensive income
Unrealized loss on investments 0 0 0 0 243 0 243
---------
Comprehensive income (2,111)
---------
Deferred compensation related
to stock options 0 0 34 0 0 0 34
Stock options exercised 0 0 142 0 0 0 142
Stock issued in connection
with services and compensation 0 0 93 0 0 0 93
Conversion of preferred stock
to common stock 0 21 13,065 0 0 0 13,086
Cumulative dividend on
redeemable preferred stock 0 0 0 (28) 0 0 (28)
--------- ------ --------- --------- ---------- -------- ----------
Balance at December 31, 1999 0 118 137,064 (109,227) (141) (1,607) 26,207
========= ====== ========= ========= ========== ======== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended December 31,
1999 1998
---------- ----------
<S> <C> <C>
Operating Activities:
Net loss $ (2,354) $ (2,691)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 476 388
Amortization 136 247
Inventory obsolescence expense 334 60
Provision for doubtful accounts 25 20
Compensation expense related to
stock options 34 45
Common stock issued for services
and compensation 93 87
Changes in assets and liabilities:
Trade receivables 1,650 (3,172)
Related parties receivables, net 84 1,017
Inventories 1,855 227
Prepaid expenses, deposits and other (136) (56)
Trade accounts payable (326) (2,011)
Related parties accounts payable (699) (655)
Accrued liabilities (947) (374)
---------- ----------
Net cash used in operating activities 225 (6,868)
Investing Activities:
Acquisition of property and equipment (238) (546)
---------- ----------
Net cash used in investing activities (238) (546)
---------- ----------
Financing Activities:
Proceeds from the issuance of common stock 142 0
---------- ----------
Net cash provided by financing activities 142 0
---------- ----------
Net decrease in cash and cash equivalents 129 (7,414)
Cash and cash equivalents, beginning of period 9,972 19,854
---------- ----------
Cash and cash equivalents, end of period $ 10,101 $ 12,440
========== ==========
See accompanying notes
</TABLE>
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Unaudited, dollars in thousands, except share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included.
Operating results for the three months ended December 31, 1999,
are not necessarily indicative of the results that may be
expected for the full fiscal year ending September 30, 2000. For
further information, refer to the consolidated financial
statements and the footnotes included in the Annual Report on
Form 10-K for the fiscal year ended September 30, 1999.
2. Inventories
The components of inventories consist of the following (000's):
December 31, September 30,
1999 1999
---------- -------------
(unaudited)
Raw materials $ 3,031 $ 3,873
Finished goods 4,063 5,481
---------- -------------
7,094 9,354
Less: Reserve for obsolescence 513 584
---------- -------------
$ 6,581 $ 8,770
========== =============
3. Redeemable Preferred Stock
During the year ending September 30, 1997, the Company issued
20,000 shares (10,000 shares on April 16, 1997 and 10,000 shares
on June 6, 1997) of Series A Convertible Preferred Stock (the
Preferred Stock) for $18,375 which is net of issuance cost of
$1,200. The Preferred Stock had a liquidation preference of
$12,775 on September 30, 1999. The Preferred Stock included the
equivalent of a 5% annual stock dividend. Holders of the
Preferred Stock were not entitled to vote on matters submitted
for vote to the stockholders of the Company. The Preferred Stock
reflects a beneficial conversion feature that allowed holders to
convert the security to common stock of the Company at a
discount. The amount of the discount was determined using NASDAQ
closing bid prices for the Company's common stock. On October 15,
1999, the final 11,350 shares of Preferred Stock automatically
converted into 2,146,540 shares of common stock (the Mandatory
Conversion). On October 18, 1999, the previous holders of the
Preferred Stock notified the Company that they disagree with the
conversion formula the Company used to process the Mandatory
Conversion. In Form SC-13G filings with the Securities and
Exchange Commission, the previous holders noted that based upon
their interpretation of the Mandatory Conversion formula, they
are entitled to an aggregate of 4,247,834 additional shares of
the Company's common stock. The Company believes that it
processed the conversion correctly and that the claim by previous
holders of Preferred Stock is unfounded.
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(Unaudited, dollars in thousands, except share data)
4. Comprehensive Income
On October 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income
(SFAS No. 130). Comprehensive income is defined by SFAS No. 130
as net income plus other comprehensive income, which, under
existing accounting standards includes foreign currency items,
minimum pension liability and unrealized gains and losses on
certain investments in debt and equity securities. Comprehensive
income is reported by the Company in the consolidated statement
of stockholders' equity.
5. Segment Disclosures
The Company, which is organized on the basis of products and
services, has two reportable business segments, Fixed Wireless
Terminals and Security Products. The Company designs, develops,
manufactures and markets both fixed wireless terminals and
security products. Fixed wireless terminals bridge wireline
telecommunications customer premises equipment with cellular-type
transceivers for use in wireless communication networks. Security
products provide wireless backup systems for both commercial as
well as residential alarms.
Export sales of fixed wireless terminals represent 89% and 71% of
total fixed wireless net product sales for the first quarter of
fiscal year 2000 and 1999, respectively.
Export sales of security products were insignificant for the
first quarter of fiscal year 2000 and 1999.
Period ending
December 31,
1999 1998
--------- --------
($ in thousands)
Revenue
Fixed Wireless 6,291 5,520
Terminals
Security Products 2,730 2,691
--------- --------
9,021 8,211
Loss From Consolidated
Operations
Fixed Wireless Terminals (1,832) (2,623)
Security Products (522) (68)
--------- --------
(2,354) (2,691)
For the first quarter of fiscal year 2000, two customers located
in Dominican Republic and Mexico accounted for 39% and 15%
respectively, of fixed wireless terminal net product sales and
two customers, both located in the USA, accounted for 21% and 20%
respectively, of the security products net product sales. For the
first quarter of fiscal year 1999, two customers from the USA and
Mexico, accounted for 27% and 21% respectively, of the fixed
wireless terminal net product sales and one customer, located in
the USA accounted for 44% of the security products net product
sales.
<PAGE>
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(Unaudited, dollars in thousands, except share data)
6. Contingencies
On March 2, 1998, the Company reached settlement in its patent
infringement case against ORA Electronics, Inc. and received the
following from ORA Electronics, Inc.: $500 in cash, a $1,000
promissory note payable through February 1, 2000, 300,000 shares
of ORA Electronics, Inc. common stock (ORA stock) with a fair
market value of $450 and the right to receive additional shares
of ORA stock to ensure the fair market value received in stock is
equivalent to $1,500 on February 1, 2000. On February 1, 2000,
the Company did not receive the final balloon payment pursuant to
the promissory note from ORA, nor did the Company receive additional
shares of ORA stock necessary to increase the fair market value of
ORA stock received by the Company to $1,500. The Company is
currently attempting to renegotiate with ORA for the final payment
and the additional shares of ORA stock.
7. Reverse Stock Split
The number of shares of common stock outstanding, the weighted
average number of common shares outstanding and basic and diluted
net loss per share amounts have all been restated to reflect the
one-for-four (1:4) reverse stock split of the Company's common
stock on January 27, 1999.
8. Subsequent Event -- Revolving Line of Credit
On January 7, 2000, the Company entered into a Loan and Security
Agreement with Wells Fargo Business Credit Inc. (Wells) to
provide a revolving credit facility with a loan limit of $5
million (the Loan). Borrowings under the Loan are subject to
borrowing base requirements and other restrictions. As of January
7, 2000, the Company had approximately $2.5 million of available
borrowings under the Loan. Under the Loan, the Company is
restricted from making dividend payments. The Loan matures on
January 7, 2003. The Loan carries interest at the bank's prime
rate. To reduce applicable cash financing fees, the Company
issued 50,000 shares of Common Stock Warrants (Warrants) to
Wells. The strike price for the Warrants is $16.29 per share. On
January 14, 2000, the Company borrowed $2.0 million under the
Loan.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company designs, develops, manufactures and markets products based
on its proprietary interface technologies, which provide the
capability to bridge wireline telecommunications customer premises
equipment (CPE) with cellular-type transceivers for use in wireless
communication networks in the Cellular and PCS bands. Applications of
the Company's technology include fixed wireless telecommunications as
a primary access service where wireline systems are unavailable,
unreliable or uneconomical, as well as wireless backup systems for
wireline telephone systems and wireless security and alarm monitoring
signaling (WAS). The Company's principal product lines are:
PHONECELL, a line of fixed wireless terminals (FWTs), and TELGUARD,
a line of WAS products.
<PAGE>
Currently, the Company is devoting a substantial portion of its
resources to international market development, extension of its core
product line to new wireless standards, expansion, protection and
licensing of its intellectual property rights and development of
underlying radio technology.
The Company's operating expense levels are based in large part on
expectations of future revenues. If anticipated sales in any quarter
do not occur as expected, expenditure and inventory levels could be
disproportionately high, and the Company's operating results for that
quarter, and potentially for future quarters, could be adversely
affected. Certain factors that could significantly impact expected
results are described in Cautionary Statements Pursuant to the
Securities Litigation Reform Act that is set forth in Exhibit 99 to
this Form 10-K.
Results of Operations
First quarter fiscal year 2000 compared to first quarter fiscal year
1999
Total Net Product Sales. Total net product sales includes sales of
finished products and components. Sales of FWTs increased 48%, or $1.9
million, during the first quarter of fiscal year 2000 compared to the
same period last year. Sales of WAS products were unchanged during the
first quarter of fiscal year 2000 compared to the same period last
year. Sales of FWT components decreased $1.2 million during the first
quarter of fiscal year 2000 compared to the same period last year, due
primarily to a one-time $0.9 million cancellation charge that was paid
to the Company by an FWT component customer during the first quarter
of fiscal year 1999.
Royalty and Royalty Settlement Revenue. Royalty and royalty settlement
revenue increased $0.2 million for the first quarter of fiscal year
2000 compared to the first quarter of fiscal year 1999. This increase
resulted primarily from increased royalty revenue from Motorola and
Ericsson during the first quarter 2000 compared to the first quarter
of fiscal year 1999.
Cost of sales. Cost of sales increased 12%, or $0.7 million, for the
first quarter of fiscal year 2000 compared to the first quarter of
fiscal year 1999. Cost of sales for the first quarter 2000 of $7.2
million, or 79% of total revenue, compares to $6.4 million, or 78% of
total revenue, for the first quarter of fiscal year 1999. The
increase in cost of sales during the first quarter of fiscal year 2000
is primarily due to start-up costs associated with the Company's new
Message Center for the WAS business that was placed into service
during the fourth quarter of fiscal year 1999.
Engineering and Development Expenses. Engineering and development
expenses of $1.3 million for the first quarter of fiscal year 2000
decreased approximately 7%, or $0.1 million, from the same quarter of
fiscal year 1999. In fiscal year 1999 the Company was completing its
efforts to transition its product lines from primarily analog-based
products to primarily digital-based products. Consequently,
engineering and development expenses for several quarters, including
the first quarter of fiscal year 1999, were larger than usual.
Beginning in its third quarter of fiscal year 1999 and continuing
through the first quarter of fiscal year 2000, the Company has reduced
its engineering and development expenses to more usual levels,
primarily through reductions in material costs and contracted
engineering services.
<PAGE>
Selling and Marketing Expenses. Selling and marketing expenses of $1.7
million for first quarter of fiscal year 2000 decreased 14%, or $0.3
million, compared to first quarter of fiscal year 1999. The decrease
is primarily due to a reduction in product introduction expenses
during the first quarter of fiscal year 2000 compared to the same
period of last fiscal year (see Engineering and Development Expenses
above).
General and Administrative Expenses (G&A). G&A for the first quarter
of fiscal year ended 2000 increased 11% to $1.1 million from $1.0
million for fiscal year ended 1999. The increase relates to legal fees
for patent defense in New Zealand.
Amortization. Amortization expense decreased 45%, or $0.1 million,
during the first quarter of fiscal year 2000 compared to the first
quarter fiscal year ended 1999 due to certain intangible assets which
became fully amortized during fiscal year 1999.
Other Income. Other income for the first quarter of fiscal year 2000
decreased 78%, or $0.1 million, compared to the same period during
fiscal year 1999. The decrease is primarily due to lower interest
income due to reduced average cash balances during the first quarter
of fiscal year 2000 compared to the same period of fiscal year 1999.
Net loss. The Company recorded a net loss of $2.4 million for the
first quarter of fiscal year 2000 compared to a net loss of $2.7
million for the first quarter of fiscal year 1999. The net loss per
share decreased 32% during the first quarter of fiscal year 2000, from
net loss per share of $0.31 for the first quarter of fiscal year 1999
to a net loss per share of $0.21 for the first quarter of fiscal year
2000.
Net loss applicable to common shares. After giving effect to the
cumulative preferred stock dividend of $28 thousand for the first
quarter of fiscal year 2000 and $0.2 million for the first quarter of
fiscal year 1999, net loss applicable to common shares of $2.4
million, or $0.21 per share, compares to a net loss of $2.9 million,
or $0.33 per share, for the first quarter of fiscal year 1999.
Liquidity and Capital Resources
On December 31, 1999, the Company had $10.1 million in cash and cash
equivalents with a working capital surplus of $17.4 million.
The Company generated $0.1 million of cash during the first quarter of
fiscal year 2000 compared to cash used of $7.4 million during the same
period of fiscal year 1999. The generation of cash during the first
quarter of fiscal year 2000 is primarily due to the effects of an
ongoing inventory reduction plan. Cash used for capital spending was
$0.2 million during the first quarter of fiscal year 2000, compared to
$0.5 million during the same period of fiscal 1999. Cash generated
from financing activities for the first quarter of fiscal year 2000 of
$0.1 million relates to proceeds from the issuance of common stock in
connection with stock options exercised by former employees. There was
no cash activity from financing activities during the first quarter of
fiscal year 1999.
On January 7, 2000, the Company entered into a Loan and Security
Agreement with Wells Fargo Business Credit Inc. (Wells) to provide a
revolving credit facility with a loan limit of $5 million (the Loan).
Borrowings under the Loan are subject to borrowing base requirements
and other restrictions. As of January 7, 2000, the Company had
approximately $2.5 million of available borrowings under the Loan.
Under the Loan, the Company is restricted from making dividend
payments. The Loan matures on December 31, 2002. The Loan carries
interest at the bank's prime rate. To reduce applicable cash financing
fees, the Company issued 50,000 shares of Common Stock Warrants
(Warrants) to Wells. The strike price for the Warrants is $16.29 per
share. The Loan replaces a previous Loan and Security Agreement with
Fleet Capital Corporation (the successor to Sanwa Business Credit
Corporation) which was terminated on July 15, 1999.
<PAGE>
On January 12, 2000, the Company borrowed $2.0 million under the Loan.
The Company expects to borrow additional funds from time to time to
fund working capital requirements, to fund future product development
efforts and to sustain significant levels of cash reserves which are
required to qualify for large sales opportunities.
Based upon its current operating plan, the Company believes its
existing capital resources, including the proceeds from the Loan,
should enable it to maintain its current and planned operations. Cash
requirements may vary and are difficult to predict given the nature of
the developing markets targeted by the Company. The amount of royalty
income from the Company's licensees is unpredictable, but could have
an impact on the Company's actual cash flow.
The Company requires its foreign customers to obtain letters of credit
or to qualify for export credit insurance underwritten by third party
credit insurance companies prior to making international shipments.
Also, to mitigate the effects of currency fluctuations on the
Company's results of operations, the Company conducts all of its
international transactions in U.S. dollars.
Impact of the Year 2000 Issue
Recently, national attention has focused on the potential problems and
associated costs resulting from computer programs that have been
written using two digits rather than four to define the applicable
year. These programs treat all years as occurring between 1900 and
1999 and do not self-correct to reflect the upcoming change in the
century. If not corrected, computer applications could fail or create
erroneous results after December 31, 1999.
In 1998, management conducted a formal assessment of its significant
information technology systems, including computers used in its
production and manufacturing functions. Based upon this assessment,
management developed an action plan to modify its internal software
and hardware (imbedded chips) so that its computer systems will
function properly with respect to dates in the Year 2000 and
thereafter. The cost of such modifications, including testing and
implementation, was not significant and was funded with available
cash. The Company has completed all known changes to its internal
computer systems and has obtained certification of year 2000
compliance from its key external software providers, and has not
experienced any significant operational problems with these systems
since December 31, 1999. However, there can be no absolute assurance
that all of the Company's internal systems will continue to operate
properly.
The Company does not conduct any of its purchase transactions through
computer systems that interface directly with suppliers. However, the
Company has initiated a formal assessment of its significant suppliers
to determine the extent to which the Company would be vulnerable if
those third parties fail to remedy Year 2000 issues. To date, the
Company has received written responses from most of its suppliers. The
Company has evaluated these responses and has determined that all
critical suppliers have prepared for the Year 2000.
The Company currently has no material systems that interface directly
with its customers. The Company's large customers will likely be new
customers due to the project nature of its business. However, as a
global company that operates in many different countries, some of
which may not be addressing the Year 2000 problem as aggressively as
the United States, there can be no assurances that future customers
systems will continue to operate properly. Moreover, because markets
for the Company's products are dependent on third parties, such as
wireless local loop network providers, management cannot fully assess
the impact that the Year 2000 problem will have on future sales.
<PAGE>
The Company has reviewed each of its product lines and has determined
that its products will operate properly in the Year 2000 and beyond.
However, for some industries, the Company's products are integrated
with other companies' products and sold as combined product, by other
companies. There can be no assurances that such combined products,
current and future, will continue to operate properly.
The cost of the Company's efforts to prepare for the Year 2000 was
approximately $100,000, of which approximately 50% was incurred during
the fiscal year 1999. Management will continue to monitor this issue,
particularly the possible impact of third-party Year 2000 compliance
on the Company's operations.
Management believes that it properly prepared for the Year 2000.
Because it is not possible to anticipate all future outcomes,
especially when third parties are involved, there could be
circumstances in which the Company is adversely affected by Year 2000
problems. As of February 14, 2000, the Company has not experienced any
significant Year 2000 issues relating to the procurement, production,
sales or support of the Company's products. The Company believes that
it may take several months to determine the impact of the Year 2000,
if any, on its customers or suppliers.
Outlook
The statements contained in this outlook are based on current
expectations. These statements are forward looking, and actual results
may differ materially.
Based upon observed trends, the Company believes that the market for
FWTs will experience substantial growth over the next five years.
Nearer term prospects should enable the Company to grow, but at more
modest rates. The Company has identified significant near term
opportunities in Brazil, China, Dominican Republic, Mexico, Malaysia,
Egypt and the USA. Each of these markets will develop at a different
pace, and the sales cycle for these regions are likely to be several
months or quarters, but market indications are positive. The Company
is well positioned with a wide range of products to capitalize on
these market opportunities.
In order to enhance its ability to capitalize upon opportunities in
the FWT market, the Company in recent years has established strategic
relationships with a variety of telecommunications vendors, including
Motorola, Lucent, Alcatel, Qualcomm, Ericsson and Nokia. Through these
relationships, the Company seeks to market its technology in
conjunction with the offerings of these larger vendors, in order to
provide an integrated solution to the customer's needs.
Statements contained in this filing, other than historical statements,
consist of forward-looking information. The Company's actual results
may vary considerably from those discussed in the Outlook section
and elsewhere in this filing as a result of various risks and
uncertainties. For example, there are a number of uncertainties as to
the degree and duration of the Company's revenue momentum, which could
impact the Company's ability to be profitable as lower sales may
likely result in lower margins. In addition, product development
expenditures, which are expected to benefit future periods, are likely
to have a negative impact on near term earnings. Other risks and
uncertainties, which are discussed in Exhibit 99 to the Company's Form
10-K for the period ended September 30, 1999, include the risk that
technological change could render the Company's technology obsolete,
unfavorable economic conditions could lead to lower sales of products,
the risk of litigation, the Company's ability to develop new products,
the Company's dependence on contractors and Motorola, the Company's
ability to maintain quality control, the risk of doing business in
developing markets, the Company's dependence on research and
development, the uncertainty of additional funding, the effects of
control by existing shareholders, the effect of changes in management,
intense industry competition and uncertainty in the development of
wireless service generally.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In 1998, the Company received 300,000 shares of common stock of ORA
Electronics, Inc. (ORA stock) in connection with the settlement of
litigation. ORA stock is traded on Nasdaq's Over The Counter (OTC)
system. Although ORA stock is subject to price fluctuations associated
with all securities that are traded on the OTC system, the Company had
the right to receive additional shares of ORA stock to ensure the fair
market value of the settlement consideration received in stock is
equivalent to $1.5 million on February 1, 2000. On February 1, 2000,
the Company did not receive additional shares of ORA stock necessary to
increase the fair market value of ORA stock received by the Company to
$1,500. The Company is currently attempting to renegotiate with ORA
for the additional shares of ORA stock.
The Company frequently invests available cash and cash equivalents in
short term instruments such as certificates of deposit, commercial
paper and money market accounts. Although the rate of interest
available on such investments may fluctuate over time, each of the
Company's investments is made at a fixed interest rate over the
duration of the investment. All of these investments have maturities
of less than 90 days. The Company believes its exposure to market risk
fluctuates for these investments is not material as of December 31,
1999.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of trade
accounts receivable. Credit risks with respect to trade receivables
are limited due to the diversity of customers comprising the Company's
customer base. The Company generally receives irrevocable letters of
credit that are confirmed by U.S. banks to reduce its credit risk.
Further, the Company purchases credit insurance for all significant
open accounts outside of the United States. The Company performs
ongoing credit evaluations and charges uncollectible amounts to
operations when they are determined to be uncollectible.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in legal proceedings that arise in the
ordinary course of business. While any litigation contains an element
of uncertainty, based upon discussion with the Company's counsel,
management believes that the outcome of such proceedings will not have
a material adverse effect on the Company's consolidated financial
position and results of operations.
Item 2. CHANGES IN SECURITIES AND RECENT SALES OF UNREGISTERED
SECURITIES
Changes in Securities
Under the terms of the Loan, the Company is prohibited from paying
cash dividends during the term of the Loan.
Recent Sales of Unregistered Securities
During the three months ended December 31, 1999, the Company issued
43,485 shares of Common Stock valued at $87,521 to the law of firm of
Hamman and Benn for legal services. During the three months ended
December 31, 1999, the Company issued 3,586 shares of Common Stock
valued at $6,724 to the law of firm of Bellows and Bellows for legal
services. These issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as they did
not involve a public offering of securities.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (listed by number according to Exhibit table of Item 601 in
Regulation S-K)
Number Description Reference
------ ---------------------------- -----------------------------
3.1 Certificate of Incorporation Filed as Exhibit 3.1 to
Registration Statement
No. 33-72096 (the
Registration Statement)
3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2
of Incorporation to the Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the
of Incorporation Registration Statement
3.4 Amendment No. 3 to Certificate Filed as Exhibit 3.4 to Form
of Incorporation 10-Q filed February 16, 1999
3.5 Amendment No. 4 to Certificate Filed as Exhibit 3.5 to Form
of Incorporation 10-Q filed February 16, 1999
3.6 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.3 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of Form 8-K filed
Series A Convertible Preferred April 25, 1997
Stock
4.5 Loan agreement with Wells Fargo Filed herewith
Business
4.6 Stock Purchase Warrant with Filed herewith
Wells Fargo Business
10.1 Consulting Agreement with Filed as Exhibit 10.1
William L. De Nicolo to the Registration Statement
10.2 Employment Agreement with Filed as Exhibit 10.1 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.4 Stock Purchase Agreement By Filed as Exhibit
and Among Telular Corporation 10.3 to Form 10-Q
and TelePath Corporation (which filed August 14, 1996
had changed its name to Wireless
Domain, Incorporated)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2
to Form 10-Q filed
May 1, 1995
<PAGE>
10.6 Option Agreement with Motorola Filed as Exhibit 10.6
dated November 10, 1995 to Form 10-K filed
December 26, 1996(1)
10.7 Amendment No. 1 dated September Filed as Exhibit 10.7
24, 1996 to Option Agreement to Form 10-Q filed
with Motorola August 13, 1999 (1)
10.8 Amendment No. 2 dated April 30, Filed as Exhibit 10.8
1999 to Option Agreement with to Form 10-Q filed
Motorola August 13, 1999 (1)
10.9 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration Statement
Telular Corporation dated
September 20, 1993
10.10 Patent Cross License Agreement Filed as Exhibit 10.12
between Motorola, Inc. and the to the Registration
Company, dated March 23, 1990 Statement(1)
and Amendments No. 1, 2 and
3 thereto
10.11 Amendment No 4 to Patent Cross Filed as Exhibit 10.11
License Agreement between to Form 10-Q filed
Motorola, Inc. and the Company August 13, 1999 (1)
dated May 3, 1999
10.12 Exclusive Distribution and Filed as Exhibit 10.14
Trademark License Agreement the Registration
between Telular Canada Inc. Statement(1)
and the Company, dated April 1,
1989, and Amendments thereto
10.13 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement(1)
<PAGE>
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders the Registration
Agreement, dated January 24, 1994 Statement
10.15 Amendment No. 2 to Amended and Filed as Exhibit 10.5
Restated Shareholders Agreement, to the Form 10-Q filed
dated June 29, 1995 July 28, 1995
10.16 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated November to the Registration
2, 1993 Statement
10.17 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, Statement
1994
10.18 Amended and Restated Employee Filed as Exhibit 10.17
Stock Option Plan to Form 10-K filed
December 26, 1996
10.19 Stock Option Grant to Filed as Exhibit 10.7
Independent Directors to Form 10-Q filed
July 28, 1995
10.20 Securities Purchase Agreement Filed as Exhibit 99.1 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
purchasers of the Series A
Convertible Preferred Stock
<PAGE>
10.21 Registration Rights Agreement Filed as Exhibit 99.3 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
purchasers of the Series A
Convertible Preferred Stock
10.22 Securities Purchase Agreement Filed as Exhibit 99.3 to
dated June 6, 1997, by and Registration Statement on
between Telular Corporation and Form S-3, Registration
purchasers of the Series A No. 333-27915, as amended
Convertible Preferred Stock by Amendment No. 1 filed
June 13, 1997, and further
Amended by Amendment
No. 2 filed July 8, 1997
(Form S-3)
10.23 Registration Rights Agreement Filed as Exhibit 99.4 to
dated June 6, 1997, by and Form S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.24 Agreement and Plan of Merger by Filed as Exhibit 10.21
and among Wireless Domain to Form 10-K filed
Incorporated (formerly TelePath), December 19, 1998
Telular-WD (a wholly-owned
subsidiary of Telular) and
certain stockholder of Wireless
Domain Incorporated
10.25 Employment Agreement with Daniel Filed as Exhibit 10.22
D. Giacopelli to Form 10-Q filed
February 13, 1998
<PAGE>
10.27 OEM Equipment Purchase Agreement Filed as Exhibit 10.27
for WAFU dated April 30, 1999 to Form 10-Q filed
August 13, 1999 (1)
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant Filed as Exhibit 99
to the Securities Litigation to Form 10-K filed
Act of 1995 December 30, 1999
(1) Confidential treatment granted with respect to redacted
portions of documents.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the three
months ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report on Form 10-Q to be signed
on its behalf by the undersigned, thereunto duly authorized.
Telular Corporation
Date February 14, 1999 By: /s/ Jeffrey L. Herrmann
----------------- -----------------------------
Jeffrey L. Herrmann
Executive Vice President
& Chief Operating Officer
Date February 14, 1999 /s/ James J. Reiman
----------------- -------------------------
James J. Reiman
Chief Accounting Officer
& Corporate Controller
<PAGE>
Exhibit Index
Number Description Reference
------ ---------------------------- -----------------------------
3.1 Certificate of Incorporation Filed as Exhibit 3.1 to
Registration Statement
No. 33-72096 (the
Registration Statement)
3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2
of Incorporation to the Registration Statement
3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3 to the
of Incorporation Registration Statement
3.4 Amendment No. 3 to Certificate Filed as Exhibit 3.4 to Form
of Incorporation 10-Q filed February 16, 1999
3.5 Amendment No. 4 to Certificate Filed as Exhibit 3.5 to Form
of Incorporation 10-Q filed February 16, 1999
3.6 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.3 Certificate of Designations, Filed as Exhibit 99.2
Preferences, and Rights of Form 8-K filed
Series A Convertible Preferred April 25, 1997
Stock
4.5 Loan agreement with Wells Fargo Filed herewith
Business
4.6 Stock Purchase Warrant with Filed herewith
Wells Fargo Business
10.1 Consulting Agreement with Filed as Exhibit 10.1
William L. De Nicolo to the Registration Statement
10.2 Employment Agreement with Filed as Exhibit 10.1 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form
Kenneth E. Millard 10-Q filed August 14, 1996
10.4 Stock Purchase Agreement By Filed as Exhibit
and Among Telular Corporation 10.3 to Form 10-Q
and TelePath Corporation (which filed August 14, 1996
had changed its name to Wireless
Domain, Incorporated)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2
to Form 10-Q filed
May 1, 1995
<PAGE>
10.6 Option Agreement with Motorola Filed as Exhibit 10.6
dated November 10, 1995 to Form 10-K filed
December 26, 1996(1)
10.7 Amendment No. 1 dated September Filed as Exhibit 10.7
24, 1996 to Option Agreement to Form 10-Q filed
with Motorola August 13, 1999 (1)
10.8 Amendment No. 2 dated April 30, Filed as Exhibit 10.8
1999 to Option Agreement with to Form 10-Q filed
Motorola August 13, 1999 (1)
10.9 Stock Purchase Agreement Filed as Exhibit 10.11
between Motorola, Inc. and to the Registration Statement
Telular Corporation dated
September 20, 1993
10.10 Patent Cross License Agreement Filed as Exhibit 10.12
between Motorola, Inc. and the to the Registration
Company, dated March 23, 1990 Statement(1)
and Amendments No. 1, 2 and
3 thereto
10.11 Amendment No 4 to Patent Cross Filed as Exhibit 10.11
License Agreement between to Form 10-Q filed
Motorola, Inc. and the Company August 13, 1999 (1)
dated May 3, 1999
10.12 Exclusive Distribution and Filed as Exhibit 10.14
Trademark License Agreement the Registration
between Telular Canada Inc. Statement(1)
and the Company, dated April 1,
1989, and Amendments thereto
10.13 Amended and Restated Shareholders Filed as Exhibit 10.15
Agreement dated November 2, 1993 to the Registration
Statement(1)
<PAGE>
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.24
Restated Shareholders the Registration
Agreement, dated January 24, 1994 Statement
10.15 Amendment No. 2 to Amended and Filed as Exhibit 10.5
Restated Shareholders Agreement, to the Form 10-Q filed
dated June 29, 1995 July 28, 1995
10.16 Amended and Restated Registration Filed as Exhibit 10.16
Rights Agreement dated November to the Registration
2, 1993 Statement
10.17 Amendment No. 1 to Amended and Filed as Exhibit 10.25
Restated Registration Rights to the Registration
Agreement, dated January 24, Statement
1994
10.18 Amended and Restated Employee Filed as Exhibit 10.17
Stock Option Plan to Form 10-K filed
December 26, 1996
10.19 Stock Option Grant to Filed as Exhibit 10.7
Independent Directors to Form 10-Q filed
July 28, 1995
10.20 Securities Purchase Agreement Filed as Exhibit 99.1 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
purchasers of the Series A
Convertible Preferred Stock
<PAGE>
10.21 Registration Rights Agreement Filed as Exhibit 99.3 to
dated April 16, 1997, by and Form 8-K filed
between Telular Corporation and April 25, 1997
purchasers of the Series A
Convertible Preferred Stock
10.22 Securities Purchase Agreement Filed as Exhibit 99.3 to
dated June 6, 1997, by and Registration Statement on
between Telular Corporation and Form S-3, Registration
purchasers of the Series A No. 333-27915, as amended
Convertible Preferred Stock by Amendment No. 1 filed
June 13, 1997, and further
Amended by Amendment
No. 2 filed July 8, 1997
(Form S-3)
10.23 Registration Rights Agreement Filed as Exhibit 99.4 to
dated June 6, 1997, by and Form S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.24 Agreement and Plan of Merger by Filed as Exhibit 10.21
and among Wireless Domain to Form 10-K filed
Incorporated (formerly TelePath), December 19, 1998
Telular-WD (a wholly-owned
subsidiary of Telular) and
certain stockholder of Wireless
Domain Incorporated
10.25 Employment Agreement with Daniel Filed as Exhibit 10.22
D. Giacopelli to Form 10-Q filed
February 13, 1998
<PAGE>
10.27 OEM Equipment Purchase Agreement Filed as Exhibit 10.27
for WAFU dated April 30, 1999 to Form 10-Q filed
August 13, 1999 (1)
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant Filed as Exhibit 99
to the Securities Litigation to Form 10-K filed
Act of 1995 December 30, 1999
(1) Confidential treatment granted with respect to redacted
portions of documents.
Exhibit (11) - Statement Re: Computation of Earnings Per Share and
Pro Forma Earnings Per Share (2000)
<TABLE>
<CAPTION> Three Months Ended
December 31,
1999 1998
-------------- -------------
<S> <C> <C>
Average number of shares outstanding 11,318,007 8,669,254
============== =============
Net loss $ (2,354,000) $ (2,691,000)
Less: cumulative dividend on
redeemable preferred stock $ (28,000) $ (195,000)
-------------- -------------
Loss applicable to common shares $ (2,382,000) $ (2,886,000)
============== =============
Net loss per share $ (0.21) $ (0.33)
============== =============
</TABLE>
______________________________________________
______________________________________________
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
TELULAR CORPORATION
AND
WELLS FARGO BUSINESS CREDIT, INC.
Dated as of January 7, 2000
______________________________________________
______________________________________________
<PAGE>
Table of Contents
ARTICLE I DEFINITIONS..........................................1
Section 1.1 Definitions .......................................1
Section 1.2 Cross References .................................11
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY............11
Section 2.1 Revolving Advances ..............................11
Section 2.2 Letters of Credit ...............................12
Section 2.3 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement .....................12
Section 2.4 Special Account .................................13
Section 2.5 Obligations Absolute ............................13
Section 2.6 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury ...........................14
Section 2.7 Fees; Warrant ...................................15
Section 2.8 Computation of Interest and Fees; When Interest
Due and Payable .................................16
Section 2.9 Capital Adequacy; Increased Costs and
Reduced Return...................................16
Section 2.10 Voluntary Prepayment; Termination of the Credit
Facility by the Borrower; Automatic Renewal ....17
Section 2.11 Termination. ...................................17
Section 2.12 Mandatory Prepayment ...........................18
Section 2.13 Payment ........................................18
Section 2.14 Payment on Non-Banking Days ....................18
Section 2.15 Use of Proceeds ................................18
Section 2.17 Liability Records ..............................18
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF..............19
Section 3.1 Grant of Security Interest ......................19
Section 3.2 Notification of Account Debtors and Other
Obligors.........................................19
Section 3.3 Assignment of Insurance .........................19
Section 3.4 Occupancy .......................................19
Section 3.5 License .........................................20
Section 3.6 Financing Statement .............................20
Section 3.7 Setoff ..........................................21
ARTICLE IV CONDITIONS OF LENDING..............................21
Section 4.1 Conditions Precedent to the Initial Revolving
Advances and the Initial Letter of Credit .......21
Section 4.2 Conditions Precedent to All Advances and Letters
of Credit........................................23
ARTICLE V REPRESENTATIONS AND WARRANTIES......................23
Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment
Locations; Tax Identification Number.............23
Section 5.2 Authorization of Borrowing; No Conflict as to
Law or Agreements ...............................24
Section 5.3 Legal Agreements ................................24
Section 5.4 Subsidiaries ....................................24
Section 5.5 Financial Condition; No Adverse Change ..........24
Section 5.6 Litigation ......................................25
Section 5.7 Regulation U ....................................25
Section 5.8 Taxes ...........................................25
Section 5.9 Titles and Liens ................................25
Section 5.10 Plans ..........................................25
Section 5.11 Default ........................................26
Section 5.12 Environmental Matters ..........................26
Section 5.13 Submissions to Lender ..........................27
Section 5.14 Financing Statements ...........................27
Section 5.15 Rights to Payment ..............................27
<PAGE>
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS...................28
Section 6.1 Reporting Requirements ..........................28
Section 6.2 Books and Records; Inspection and Examination ...30
Section 6.3 Account Verification ............................31
Section 6.4 Compliance with Laws ............................31
Section 6.5 Payment of Taxes and Other Claims ...............31
Section 6.6 Maintenance of Properties .......................31
Section 6.7 Insurance .......................................32
Section 6.8 Preservation of Existence .......................32
Section 6.9 Delivery of Instruments, etc ....................32
Section 6.10 Collateral Account .............................32
Section 6.11 Performance by the Lender ......................33
Section 6.12 Minimum Book Net Worth .........................34
Section 6.13 Minimum Availability ...........................34
ARTICLE VII NEGATIVE COVENANTS................................34
Section 7.1 Liens ...........................................34
Section 7.2 Indebtedness ....................................35
Section 7.3 Guaranties ......................................35
Section 7.4 Investments and Subsidiaries ....................36
Section 7.5 Dividends .......................................36
Section 7.6 Sale or Transfer of Assets; Suspension of
Business Operations..........................................36
Section 7.7 Consolidation and Merger; Asset Acquisitions ....36
Section 7.8 Sale and Leaseback ..............................37
Section 7.9 Restrictions on Nature of Business ..............37
Section 7.10 Capital Expenditures ...........................37
Section 7.11 Accounting .....................................37
Section 7.12 Discounts, etc .................................37
Section 7.13 Defined Benefit Pension Plans ..................37
Section 7.14 Other Defaults .................................37
Section 7.15 Place of Business; Name ........................37
Section 7.16 Organizational Documents .......................37
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES...........38
Section 8.1 Events of Default ...............................38
Section 8.2 Rights and Remedies .............................40
Section 8.3 Certain Notices .................................41
ARTICLE IX MISCELLANEOUS......................................41
Section 9.1 No Waiver; Cumulative Remedies ..................41
Section 9.2 Amendments, Etc .................................41
Section 9.3 Addresses for Notices, Etc ......................42
Section 9.4 Further Documents ...............................42
Section 9.5 Collateral ......................................43
Section 9.6 Costs and Expenses ..............................43
Section 9.7 Indemnity .......................................43
Section 9.8 Participants ....................................44
Section 9.9 Execution in Counterparts .......................44
Section 9.10 Binding Effect; Assignment; Complete Agreement;
Exchanging Information .........................44
Section 9.11 Severability of Provisions .....................45
Section 9.12 Headings .......................................45
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial......................................45
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of January 7, 2000
TELULAR CORPORATION, a Delaware corporation (the Borrower), and WELLS
FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the Lender), hereby
agree as follows:
ARTICLE I
Definitions
Section1.1 Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
Accounts means all of the Borrower's accounts, as such term is
defined in the UCC, including, without limitation, the aggregate unpaid
obligations of customers and other account debtors to the Borrower
arising out of the sale or lease of goods or rendition of services by
the Borrower on an open account or deferred payment basis.
Advance means a Revolving Advance.
Affiliate or Affiliates means Telular International, Inc.,
Telular-Adcor Security Products, Inc., Telular -WD Corporation, and any
other Person controlled by, controlling or under common control with
the Borrower, including, without limitation, any Subsidiary of the
Borrower. For purposes of this definition, control, when used with
respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise.
Agreement means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
American National means American National Bank & Trust Company of
Chicago, a national banking association with an office located in Elk
Grove Village, Illinois.
Banking Day means a day other than a Saturday, Sunday or other
day on which banks are generally not open for business in Milwaukee,
Wisconsin.
Book Net Worth means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined on a consolidated
basis in accordance with GAAP.
Borrowing Base means, at any time the lesser of:
(a) the Maximum Line; or
(b) the Collateral Availability.
<PAGE>
Capital Expenditures for a period means any expenditure of money
for the lease, purchase or other acquisition of any capitalized asset,
or for the lease of any other asset whether payable currently or in
the future, provided such lease is a capital lease, all in accordance
with GAAP.
Collateral means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums
on deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all substitutions and replacements for and products of
any of the foregoing; (ii) proceeds of any and all of the foregoing;
(iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any tangible goods;
(v) all warehouse receipts, bills of lading and other documents of title
now or hereafter covering such goods; and (vi) all sums on deposit in
the Special Account.
Collateral Account at any time, has the meaning given in the
Collateral Account Agreement then in effect.
Collateral Account Agreement initially, means the Multi-Party
Blocked Account Agreement of even date herewith by and among the
Borrower, American National and the Lender and, no later than July 1,
2000, means the Collateral Account Agreement of such date by and among
the Borrower, Norwest Bank Wisconsin and the Lender.
Collateral Availability means at any time the sum of:
(i) 85% of Eligible Accounts; plus
(ii) subject to satisfaction of the Foreign Line Conditions,
the lesser of (A) 85% of Eligible Foreign Accounts or
(B) $1,000,000; plus
(iii) the lesser of (A) 35% of Eligible Inventory or
(B) $1,500,000.
Commitment means the Lender's commitment to make Advances and to
cause the Issuer to issue Letters of Credit to or for the Borrower's
account pursuant to Article II.
Credit Facility means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
Default means an event that, with giving of notice and after the
expiry of any applicable notice or remedy period, would constitute an
Event of Default.
Default Period means any period of time beginning on day an Event
of Default has occurred (or in the case of an occurrence of a
violation of Section 6.12 hereof, the fifth business day of the month
immediately following the month in which such provision was violated)
and ending on the date Event of Default has been cured or waived as
set forth in the Lender's written notice of such cure or waiver.
Default Rate means an annual rate equal to three percent (3%)
over the Floating Rate, which rate shall change when and as the
Floating Rate changes.
ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
<PAGE>
Eligible Accounts means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts unpaid more than sixty (60)
days after the due date; provided that in no event shall
any Account payable more than one hundred fifty (150) days
after the invoice date be deemed an Eligible Account;
(ii) That portion of Accounts that is disputed or subject to
a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable,
by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed
by such units of government for which the Borrower has
provided evidence reasonably satisfactory to the Lender that
(A) the Lender has a first priority perfected security
interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable
laws);
(v) Accounts owed by an account debtor located outside the
United States of America which are not backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, confirmed, and in the Lender's possession and
acceptable to the Lender in all material respects;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any
lien, security interest or claim in favor of any Person other
than the Lender including, without limitation, any payment or
performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if twenty five percent (25%) or
more of the total amount due under Accounts from such debtor
is ineligible under clauses (i), (ii) or (ix), above; and
(xii) With respect to any Accounts in an amount in
excess of $200,000 which are not backed by a bank letter of
credit, any such Accounts otherwise deemed ineligible by
the Lender in its reasonable business judgment.
<PAGE>
Eligible Foreign Accounts means Accounts due and owing by an
Account debtor located outside the United States; but excluding any
Accounts having the following characteristics:
(i) That portion of Accounts unpaid more than sixty (60)
daysafter the due date; provided that in no event shall any
Account payable more than one hundred fifty (150) days after
the invoice date be deemed an Eligible Account;
(ii) That portion of Accounts that is disputed or subject
to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable,
by the Borrower to the customer;
(iv) Accounts owed by any unit of government;
(v) Accounts owed by an account debtor that is insolvent,
the subject of bankruptcy proceedings or has gone out of
business;
(vi) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(vii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any
lien, security interest or claim in favor of any Person
other than the Lender including without limitation any
payment or performance bond;
(viii) That portion of Accounts that has been restructured,
extended, amended or modified;
(ix) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(x) That portion of Accounts owed by any one account debtor
that would permit Revolving Advances supported by such
account debtor's Accounts to exceed Two Hundred Thousand
Dollars ($200,000) at any one time;
(xi) Accounts denominated in any currency other than United
States dollars, Canadian dollars, French francs, Swiss
francs, German marks, Japanese yen, United Kingdom pounds
sterling;
(xii) Accounts with respect to which the Borrower has not
instructed the account debtor to pay the Account to the
Collateral Account;
(xiii) Accounts owed by account debtors located in countries
appearing on a list of unacceptable countries delivered by
the Lender to the Borrower from time to time; provided,
however, that to the extent such list is changed by the
Lender, any Accounts owed by account debtors in countries
which are subsequently unacceptable to the Lender shall
nevertheless not be deemed ineligible solely on account of
such change to the list of unacceptable countries;
(xiv) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if twenty five percent (25%) or
more of the total amount due under Accounts from such debtor
is ineligible under clauses (i), (ii) or (viii) above; and
(xv) Foreign Accounts that constitute Eligible Accounts in
accordance with part (v) of the definition of Eligible
Accounts.
<PAGE>
Eligible Inventory means all finished goods Inventory of the
Borrower, at the lower of cost or market value as determined in
accordance with GAAP; provided, however, that the following shall
not in any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements
to perfect a first priority security interest in such
Inventory; covered by any negotiable or non-negotiable
warehouse receipt, bill of lading or other document of
title; on consignment from any Person; on consignment to
any Person or subject to any bailment unless such consignee
or bailee has executed an agreement with the Lender;
(ii) Supplies, packaging, parts or sample Inventory;
(iii) Raw materials and work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has attempted
to return, is in the process of returning or intends to
return to the vendor thereof;
(vi) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing
to permit the Lender to exercise its rights and remedies
against such Inventory or the Lender has agreed in writing
that the licensor's agreement is not required; and
(vii) Inventory that is subject to a security interest in
favor of any Person other than the Lender;
(viii) Inventory otherwise deemed ineligible by the Lender
in its reasonable business judgment.
Environmental Laws has the meaning specified in Section 5.12.
Equipment means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired,
including, but not limited to, all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies, and
including, specifically, without limitation, the goods described in
any equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower.
Event of Default has the meaning specified in Section 8.1.
Floating Rate means an annual rate equal to the Prime Rate, which
annual rate shall change when and as the Prime Rate changes.
Foreign Line Conditions means (i) the Lender has received from
the Borrower a fee equal to one percent (1%) per annum of One Million
Dollars ($1,000,000), prorated for the number of months from the date
the Borrower has requested Advances based of Foreign Accounts to the
Foreign Line Expiry Date and (ii) the Foreign Line Expiry Date has not
occurred.
Foreign Line Expiry Date means September 30, 2000, or such later
date as to which the Lender has agreed, which agreement to extend
shall not be unreasonably withheld.
<PAGE>
Funding Date has the meaning given in Section 2.1.
GAAP means, at any time, accounting principles generally accepted
in the United States, applied on a consistent basis.
General Intangibles means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including, without limitation, all present and
future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts,
manuals, operating instructions, permits, franchises, the right to
use the Borrower's name, and the goodwill of the Borrower's business.
Guarantors means Telular International, Inc., Telular-Adcor Security
Products, Inc., and Telular-WD Corporation.
Hazardous Substance has the meaning given in Section 5.12.
Inventory means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or
under service contracts or for manufacture or processing, and wherever
located.
Investment Agreement means that certain Investment Agreement of
even date herewith between the Borrower and the Lender.
Investment Property means all of the Borrower's investment
property, as such term is defined in the UCC whether now owned or
hereafter acquired, including, but not limited to, all securities,
security entitlements, securities accounts, commodity contracts,
commodity accounts, stocks, bonds, mutual fund shares, money market
shares and United States of America Government Securities.
Issuer means the issuer of any Letter of Credit.
L/C Amount means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
L/C Application means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
Letter of Credit has the meaning specified in Section 2.2.
Loan Documents means this Agreement, the Note and the Security
Documents.
Lockbox at any time, has the meaning given in the Lockbox
Agreement then in effect.
Lockbox Agreement initially, means such agreement as is required
by American National as to lockbox services provided to the Borrower
by American National and, not later than July 1, 2000, means the
Agreement as to Lockbox Services of such date by and among the
Borrower, Norwest Bank Wisconsin and the Lender.
Maturity Date has the meaning set forth in Section 2.10.
Maximum Line means Five Million Dollars ($5,000,000), unless said
amount is reduced pursuant to Section 2.10, in which event it means
the amount to which said amount is reduced.
Minimum Interest Charge has the meaning given in Section 2.6(b).
<PAGE>
Norwest Bank Wisconsin means Norwest Bank Wisconsin, National
Association, a national banking association with an office in
Milwaukee, Wisconsin.
Note means the Revolving Note.
Obligations means the Note and each and every other debt,
liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower,
and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including, specifically, but
not limited to, the Obligation of Reimbursement and all indebtedness of
the Borrower arising under this Agreement, the Note, any L/C
Application completed by the Borrower, or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
Obligation of Reimbursement has the meaning given in Section 2.3(a).
Patent and Trademark Security Agreement means the Patent and
Trademark Security Agreement dated as of the date hereof to be
executed by the Borrower in the Lender's favor.
Permitted Lien has the meaning given in Section 7.1.
Person means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
Plan means an employee benefit plan or other plan maintained for
the Borrower's employees and covered by Title IV of ERISA.
Premises means all premises where the Borrower conducts its
business and has any rights of possession, including, without
limitation, the premises legally described in Exhibit C attached hereto.
Prime Rate means the rate of interest publicly announced from
time to time by Wells Fargo Bank, N. A. as its prime rate or, if such
bank ceases to announce a rate so designated, any similar successor
rate reasonably designated by the Lender.
Receivables means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or
other disposition of goods or other property, out of a rendering of
services, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement,
whether such right to payment is created, generated or earned by the
Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or
is not already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which the Borrower may at
any time have by law or agreement against any account debtor or other
obligor obligated to make any such payment or against any property of
such account debtor or other obligor; all including, but not limited to,
all present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments, tax
refunds and rights to payment in the nature of general intangibles.
<PAGE>
Reportable Event shall have the meaning assigned to that term in
Title IV of ERISA.
Revolving Advance has the meaning given in Section 2.1.
Revolving Note means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit
A hereto and any note or notes issued in substitution therefor, as the
same may hereafter be amended, supplemented or restated from time to
time.
Security Documents means this Agreement, the Patent and Trademark
Security Agreement, the Collateral Account Agreement, the Lockbox
Agreement, and any other document delivered to the Lender from time to
time to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
Security Interest has the meaning given in Section 3.1.
Special Account means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.4.
Subsidiary means any corporation of which more than fifty percent
(50%) of the outstanding shares of capital stock having general voting
power under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at
the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
Termination Date means the earliest of (i) the Maturity Date,
(ii) the date the Borrower terminates the Credit Facility, or (iii)
the date the Lender demands payment of the Obligations after an Event
of Default pursuant to Section 8.2.
UCC means the Uniform Commercial Code as in effect from time to
time in the state designated in Section 9.13 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
Warrant means the Stock Purchase Warrant issued on the date
hereof by the Borrower to the Lender for the purchase of the
Borrower's Common Stock, par value $.01 per share, substantially in
the form of Exhibit D attached hereto.
Section 1.2 Cross References All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections
and subsections of this Agreement unless otherwise explicitly
specified.
<PAGE>
ARTICLEII
Amount and Terms of the Credit Facility
Section 2.1 Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the
Borrower from time to time from the date all of the conditions set
forth in Section 4.1 are satisfied or waived in writing by the Lender
(the Funding Date) to the Termination Date, on the terms and subject
to the conditions herein set forth (the Revolving Advances). The
Lender shall have no obligation to make a Revolving Advance if, after
giving effect to such requested Revolving Advance, the sum of the
outstanding and unpaid Revolving Advances under this Section 2.1 or
otherwise would exceed the Borrowing Base less the L/C Amount. The
Borrower's obligation to pay the Revolving Advances shall be evidenced
by the Revolving Note and shall be secured by the Collateral as
provided in Article III. Within the limits set forth in this Section
2.1, the Borrower may borrow, prepay pursuant to Section 2.12 and
reborrow. The Borrower agrees to comply with the following procedures
in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance
to the Lender before 12:00 p.m. (Milwaukee time) of the day of the
requested Revolving Advance. Requests may be made in writing or by
telephone, specifying the date of the requested Revolving Advance and
the amount thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
officer of the Borrower in a writing delivered to the Lender; or
(iii) any person whom the Lender reasonably believes to be an officer
of the Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand deposit
account maintained with Norwest Bank Wisconsin unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon
the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized
to do so (so long as such person was named on the most current list of
authorized officers delivered to the Lender under Section 2.1(a)). Any
request for an Advance, whether written or telephonic, shall be deemed
to be a representation by the Borrower that the conditions set forth in
Section 4.2 have been satisfied as of the time of the request.
2.2. Letters of Credit.
(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to cause an Issuer to issue, from the Funding Date to
the Termination Date, one or more irrevocable standby or documentary
letters of credit (each, a Letter of Credit) for the Borrower's account.
The Lender shall have no obligation to cause an Issuer to issue any
Letter of Credit if the face amount of the Letter of Credit to be
issued, would exceed the Borrowing Base less the sum of (A) all
outstanding and unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into by the Borrower and the Lender for the
benefit of the Issuer, completed in a manner reasonably satisfactory
to the Lender and the Issuer. The terms and conditions set forth in
each such L/C Application shall supplement the terms and conditions
hereof, but if the terms of any such L/C Application and the terms of
this Agreement are inconsistent, the terms hereof shall control.
<PAGE>
(b) Letters of Credit may not be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit
under this Section 2.2 shall be deemed to be a representation by the
Borrower that the conditions set forth in Section 4.2 have been
satisfied as of the date of the request.
Section 2.3. Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrower acknowledges that the
Lender, as co-applicant, will be liable to the Issuer for reimbursement
of any and all draws under Letters of Credit and for all other amounts
required to be paid under the applicable L/C Application. Accordingly,
the Borrower agrees to pay to the Lender any and all amounts reasonably
required to be paid by the Lender to the Issuer under the applicable
L/C Application, when and as required to be paid thereby, and the
amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Lender has paid or incurred relative to such
draw and the applicable L/C Application, plus interest on all such
amounts, charges and expenses as set forth below (the Borrower's
obligation to pay all such amounts is herein referred to as the
Obligation of Reimbursement).
(b) Whenever a draft is submitted under a Letter of Credit, the
Lender shall make a Revolving Advance in the amount of the
Obligation of Reimbursement and shall apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be
repayable in accordance with and be treated in all other respects
as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for
any other reason, to obtain a Revolving Advance to pay the
Obligation of Reimbursement, the Borrower shall pay to the Lender
on demand and in immediately available funds, the amount of the
Obligation of Reimbursement together with interest, accrued from
the date of the draft until payment in full at the Default Rate.
Notwithstanding the Borrower's inability to obtain a Revolving
Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount
sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made
under this Section 2.3, shall be evidenced by the Revolving Note
and shall bear interest as provided in Section 2.6.
<PAGE>
Section 2.4. Special Account. If the Credit Facility is
terminated for any reason whatsoever while any Letter of Credit
is outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an
amount equal to the L/C Amount. The Special Account shall be an
interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special
Account. Amounts on deposit in the Special Account shall be
applied by the Lender as follows: (a) first, to pay any unpaid
Obligation of Reimbursement for any Letter of Credit which is drawn
upon, (b) second, to the extent there are not any outstanding
Obligations and a Letter of Credit expires undrawn, the amount on
deposit with respect to such Letter of Credit shall not later than
fifteen (15) days after such expiration be paid to the Borrower,
and (c) after all Letters of Credit have expired or been
terminated, any amount or deposit shall be applied to any
outstanding Obligations or if there are none, then released to
the Borrower. The amount on deposit in the Special Account shall
not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to
transfer any balance in the Special Account to the Borrower at
such time as the Lender is required to release its security
interest in the Special Account under applicable law.
Section 2.5. Obligations Absolute. The Borrower's obligations
arising under Section 2.3 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the
terms of Section 2.3, under all circumstances whatsoever,
including, without limitation, the following circumstances:
(a) any lack of validity or enforceability of any Letter of Credit
or any other agreement or instrument relating to any Letter of Credit
(collectively the Related Documents);
(b) any amendment or waiver of or any consent to departure from
all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in any unrelated transactions;
(d) any statement or any other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect whatsoever; or
(e) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing (other than the making of payment under
a Letter of Credit not in conformity with the terms thereof).
Section 2.6. Interest; Minimum Interest Charge; Default Interest;
Participations; Usury. Interest accruing on the Note shall be due and
payable in arrears on the first day of each month.
(a) Note. Except as set forth in Sections 2.6(c) and 2.6(d), the
outstanding principal balance of the Note shall bear interest at the
Floating Rate.
(b) Minimum Interest Charge. Notwithstanding the interest payable
pursuant to Section 2.6(a), the Borrower shall pay to the Lender
interest of not less than Fifteen Thousand Dollars ($15,000) per
calendar month (or a prorata portion of such amount for any partial
month) (the Minimum Interest Charge) during the term of this
Agreement, and the Borrower shall pay any deficiency between the
Minimum Interest Charge and the amount of interest otherwise
calculated under Sections 2.6(a) and 2.6(d) on the date and in the
manner provided in Section 2.8.
<PAGE>
(c) Default Interest Rate. At any time during any Default Period,
in the Lender's sole discretion and without waiving any of its other
rights and remedies, the principal of the Advances outstanding from
time to time shall bear interest at the Default Rate, effective for
any periods designated by the Lender from time to time during that
Default Period.
(d) Usury. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law. Notwithstanding anything to the contrary contained in any Loan
Document, all agreements which either now are or which shall become
agreements between the Borrower and the Lender are hereby limited so
that in no contingency or event whatsoever shall the total liability for
payments in the nature of interest, additional interest and other
charges exceed the applicable limits imposed by any applicable usury
laws. If any payments in the nature of interest, additional interest
and other charges made under any Loan Document are held to be in excess
of the limits imposed by any applicable usury laws, it is agreed that
any such amount held to be in excess shall be considered payment of
principal hereunder, and the indebtedness evidenced hereby shall be
reduced by such amount so that the total liability for payments in the
nature of interest, additional interest and other charges shall not
exceed the applicable limits imposed by any applicable usury laws, in
compliance with the desires of the Borrower and the Lender. This
provision shall never be superseded or waived and shall control every
other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
Section 2.7. Fees; Warrant.
(a) Origination Fee. The Borrower hereby agrees to pay the Lender
a fully earned and non-refundable origination fee of Twenty Five
Thousand Dollars ($25,000), due and payable upon the execution of this
Agreement.
(b) Warrant. The Borrower hereby agrees to issue the Warrant to
the Lender upon execution of this Agreement.
(c) Facility Fee. The Borrower agrees to pay to the Lender a
facility fee at the rate of one half percent (.50%) per annum on the
Maximum Line from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day
of each month commencing February 1, 2000, and on the Termination Date.
(d) Letter of Credit Fees. The Borrower agrees to pay the Lender
a fee with respect to each Letter of Credit, if any, accruing on a daily
basis and computed at the annual rate of one percent (1.0%) of the
aggregate amount that may then be drawn on all issued and outstanding
Letters of Credit assuming compliance with all conditions for drawing
thereunder (the Aggregate Face Amount), from and including the date of
issuance of such Letter of Credit until such date as such Letter of
Credit shall terminate by its terms or be returned to the Lender, due
and payable monthly in arrears on the first day of each month and on the
Termination Date; provided, however that during Default Periods, in the
Lender's sole discretion and without waiving any of its other rights and
remedies, such fee shall increase to three percent (3.0%) of the
Aggregate Face Amount. The foregoing fee shall be in addition to any
and all processing fees, commissions and charges of any Issuer of a
Letter of Credit with respect to or in connection with such Letter of
Credit.
(e) Letter of Credit Administrative Fees. The Borrower agrees to
pay the Lender, on written demand, the administrative fees charged by
the Issuer in connection with the honoring of drafts under any Letter of
Credit, amendments thereto, transfers thereof and all other activity
with respect to the Letters of Credit at the then-current rates
published by the Issuer for such services rendered on behalf of
customers of the Issuer generally.
<PAGE>
(f) Audit Fees. The Borrower hereby agrees to pay the Lender
audit fees of Two Thousand Five Hundred Dollars ($2,500) per quarter
beginning April 1, 2000 in connection with any audit or inspection
conducted by the Lender of any Collateral or the Borrower's operations
or business, and, during Default Periods, all out-of-pocket costs and
expenses incurred in conducting any such audit or inspection.
(g) Miscellaneous Fees. The Borrower hereby agrees to (i)
reimburse the Lender for all wire transfer charges and automated
clearinghouse charges and to (ii) pay overadvance charges of Two Hundred
Dollars ($200) per day; provided, however, that from the first day of
any month during which any Default Period commences or exists at any
time, the daily overadvance charge (if an overadvance exists) shall be
Four Hundred Dollars ($400).
2.8. Computation of Interest and Fees; When Interest Due and Payable.
Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of three hundred
sixty (360) days. Interest shall be payable in arrears on the first
day of each month and on the Termination Date.
Section 2.9. Capital Adequacy; Increased Costs and Reduced Return.If any
Related Lender determines at any time that its Return has been reduced
solely as a result of any Rule Change, such Related Lender may require
the Borrower to pay it the amount necessary to restore its Return to
what it would have been had there been no Rule Change, provided that
the Lender and the Related Lender makes similar adjustments to all of
their other credit facilities. For purposes of this Section 2.9:
(a) Capital Adequacy Rule means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy,
or the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital
in amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) L/C Rule means any law, rule, regulation, guideline,
directive, requirement or request regarding letters of credit, or the
interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules imposing taxes, duties or other similar charges, or
mandating reserves, special deposits or similar requirements against
assets of, deposits with or for the account of, or credit extended by
any Related Lender, on letters of credit.
(c) Return, for any period, means the return as reasonably
determined by such Related Lender on the Advances and Letters of Credit
based upon its total capital requirements and a reasonable attribution
formula that takes account of the Capital Adequacy Rules then in effect
and costs of issuing or maintaining any Letter of Credit. Return may be
calculated for each calendar quarter and for the shorter period between
the end of a calendar quarter and the date of termination in whole of
this Agreement.
(d) Rule Change means any change in any Capital Adequacy Rule or
L/C Rule occurring after the date of this Agreement, but the term does
not include any changes in applicable requirements that at the Closing
Date are scheduled to take place under the existing Capital Adequacy
Rules or L/C Rules or any increases in the capital that any Related
Lender is required to maintain to the extent that the increases are
required due to a regulatory authority's assessment of the financial
condition of such Related Lender.
<PAGE>
(e) Related Lender includes (but is not limited to) the Lender
or any parent corporation of the Lender.
Section 2.10. Voluntary Prepayment; Termination of the Credit Facility
by the Borrower; Automatic Renewal. Except as otherwise provided
herein, the Borrower may prepay the Revolving Advances in whole at any
time or from time to time in part. The Borrower may terminate the
Credit Facility at any time if it (i) gives the Lender at least thirty
(30) days prior written notice and (ii) pays the Lender the termination
fees in accordance with Section 2.11. Upon termination of the Credit
Facility and payment and performance of all Obligations, the Lender
shall release or terminate the Security Interest and the Security
Documents to which the Borrower is entitled by law. Unless terminated
by either the Lender or the Borrower upon ninety (90) days prior
written notice, the Credit Facility shall remain in effect until
December 31, 2002, and thereafter shall automatically renew for
successive one year periods (December 31, 2002 and each anniversary
date thereof which is at the end of any year in which the Credit
Facility has been automatically renewed, is herein referred to as the
(Maturity Date)
Section 2.11. Termination Fees. If the Credit Facility is terminated
for any reason as of a date other than the Maturity Date (other than
following the imposition of a charge under Section 2.9) the Borrower
shall pay the Lender a fee in an amount equal to a percentage of the
Maximum Line, in the case of a termination, as follows: (i) two percent
(2.0%) if the termination or reduction occurs on or before the first
anniversary of the Funding Date; and (ii) one percent (1.0%) if the
termination or reduction occurs after the first anniversary of the
Funding Date.
Section 2.12. Mandatory Prepayment. Without notice or demand, if the
sum of the outstanding principal balance of the Revolving Advances plus
the L/C Amount shall at any time exceed the Borrowing Base, the Borrower
shall (i) first, immediately prepay the Revolving Advances to the
extent necessary to eliminate such excess; and (ii) if prepayment in
full of the Revolving Advances is insufficient to eliminate such
excess, pay to the Lender in immediately available funds for deposit
in the Special Account an amount equal to the remaining excess. Any
payment received by the Lender under this Section 2.12 or under
Section 2.10 may be applied to the Obligations, in such order and in
such amounts as the Lender, in its reasonable discretion, may from
time to time determine.
Section 2.13. Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations
one (1) Banking Day after receipt by the Lender. The Lender may hold
all payments not constituting immediately available funds for two (2)
Banking Days before applying them to the Obligations. Notwithstanding
anything in Section 2.1, the Borrower hereby authorizes the Lender,
in its reasonable discretion at any time or from time to time without
the Borrower's request and even if the conditions set forth in
Section 4.2 would not be satisfied, to make a Revolving Advance in an
amount equal to the portion of the Obligations from time to time due
and payable.
Section 2.14. Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall in such case be included in the computation
of interest on the Advances or the fees hereunder, as the case may be.
Section 2.15. Use of Proceeds. The Borrower shall use the proceeds of
Advances, and each Letter of Credit, if any, for ordinary working
capital purposes.
<PAGE>
Section 2.18. Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. Upon
the Lender's request, the Borrower will review, admit and certify in
writing the exact principal balance of the Obligations that the Borrower
then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender and delivered to the Borrower shall be conclusive
and fully binding on the Borrower unless the Borrower gives the Lender
specific written notice of exception within thirty (30) days after
receipt by the Borrower.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1. Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively
referred to as the Security Interest) in the Collateral, as security
for the payment and performance of the Obligations.
Section 3.2. Notification of Account Debtors and Other Obligors. At any
time after the occurrence and during the continuance of an Event of
Default, the Lender may notify any account debtor or other person
obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid
directly to the Lender. The Borrower will join in giving such notice
if the Lender so requests. At any time after the Borrower or the
Lender gives such notice to an account debtor or other obligor, the
Lender may, but need not, in the Lender's name or in the Borrower's
name, (a) demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such
right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change
the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and
attorney-in-fact, notify the United States Postal Service to change
the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail,
and receive, open and dispose of the Borrower's mail, applying all
Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the
Borrower's last known address.
Section 3.3. Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby
assigns to the Lender any and all monies (including, without
limitation, proceeds of insurance and refunds of unearned premiums)
due or to become due under, and all other rights of the Borrower with
respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the
Borrower hereby directs the issuer of any such policy to pay all such
monies directly to the Lender. At any time, whether or not a Default
Period then exists, the Lender may (but need not), in the Lender's name
or in the Borrower's name, execute and deliver proof of claim, receive
all such monies, endorse checks and other instruments representing
payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
<PAGE>
Section 3.4. Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right
to take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, (ii) the termination of
the relevant Default Period, and (iii) final sale or disposition of all
goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any
rent or other compensation for the possession, occupancy or use of any
of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.
Section 3.5. License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise
exploit all trademarks, franchises, trade names, copyrights and patents
of the Borrower for the purpose of selling, leasing or otherwise
disposing of any or all Collateral during any Default Period.
Section 3.6. Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed
by the Borrower is sufficient as a financing statement and may be
filed as a financing statement in any state to perfect the security
interests granted hereby. For this purpose, the following information
is set forth:
Name and address of Debtor:
Telular Corporation
647 North Lakeview Parkway
Vernon Hills, Illinois 60061
Federal Tax Identification No. 36-3885440
Name and address of Secured Party:
Wells Fargo Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
MAC N9811-143
Milwaukee, Wisconsin 53202
Federal Tax Identification No. 41-1237652
Section 3.7. Setoff. The Borrower agrees that the Lender may at any
time during a Default Period, at its sole discretion and without demand
and without notice to anyone, setoff any liability owed to the Borrower
by the Lender, whether or not due, against any Obligation, whether or not
due. In addition, each other Person holding a participating interest
in any Obligations shall have the right to appropriate or setoff any
deposit or other liability then owed by such Person to the Borrower,
whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly
to the Borrower the amount of such participating interest.
<PAGE>
ARTICLE IV
Conditions of Lending
Section 4.1. Conditions Precedent to the Initial Revolving Advance and
the Initial Letter of Credit. The Lender's obligation to make the
initial Revolving Advance or to cause to be issued the initial Letter
of Credit hereunder shall be subject to the condition precedent that
the Lender shall have received all of the following, each in form and
substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) The Patent and Trademark Security Agreement, properly
executed by the Borrower in the Lender's favor.
(d) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(e) The initial Collateral Account Agreement, properly executed
by the Borrower and American National.
(f) Current searches of appropriate filing offices showing that
(i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements or assignments of
patents, trademarks or copyrights have been filed and remain in effect
against the Borrower except those financing statements and assignments
of patents, trademarks or copyrights relating to Permitted Liens or to
liens held by Persons who have agreed in writing that upon receipt of
proceeds of the Advances, they will deliver UCC releases and/or
terminations and releases of such assignments of patents, trademarks or
copyrights satisfactory to the Lender, and (iii) the Lender has duly
filed all financing statements necessary to perfect the Security
Interest, to the extent the Security Interest is capable of being
perfected by filing.
(g) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(h) A letter from an officer of the Borrower identifying those
individuals who are authorized to initiate and confirm payment orders
and to sign collateral reports.
(i) A current certificate issued by the Secretary of State of
Delaware, certifying that the Borrower is validly existing and in good
standing in the State of Delaware.
(j) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(k) A certificate of an officer of the Borrower confirming the
representations and warranties set forth in Article V.
<PAGE>
(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(m) A Guaranty by Corporation properly executed by each of the
Guarantors in the Lender's favor.
(n) With respect to each Guarantor, a certificate of such
Guarantor's Secretary or Assistant Secretary certifying as to (i) the
resolutions of the Guarantor's directors and, if required, shareholders,
authorizing the execution, delivery and performance of the Guaranty,
(ii) such Guarantor's articles of incorporation and bylaws, and
(iii) the signatures of such Guarantor's officers or agents authorized
to execute and deliver the Guaranty and other instruments, agreements
and certificates. including Advance requests, on the Borrower's behalf.
(o) The Warrant, executed by the Borrower.
(p) Payment of the fees and commissions due through the date of
the initial Advance or Letter of Credit under Section 2.7 and expenses
incurred by the Lender through such date and required to be paid by the
Borrower under Section 9.6, including legal expenses incurred through
the date of this Agreement.
(q) Written authorization from the Borrower to pay proceeds of
the Advances to third parties.
(r) An opinion of counsel to the Borrower and the Guarantors,
addressed to the Lender.
(s) The Investment Agreement, duly executed by the Borrower.
(t) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances and Letters of Credit.
The Lender's obligation to make each Advance or to cause the Issuer to
issue any Letter of Credit shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V are
correct in all material respects on and as of the date of such Advance
or issuance of Letter of Credit as though made on and as of such date,
except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance or the issuance of such Letter of Credit, as the case
may be, which constitutes an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
<PAGE>
Section 5.1. Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number.
The Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business in all jurisdictions where
the character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification
necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its
obligations under, the Loan Documents. During its existence, the
Borrower has done business solely under the names set forth in
Schedule 5.1 hereto. The Borrower's chief executive office and
principal place of business is located at the address set forth in
Schedule 5.1 hereto, and all of the Borrower's records relating to
its business or the Collateral are kept at that location. All
Inventory and Equipment is located at that location or at one of the
other locations set forth in Schedule 5.1 hereto. The Borrower's tax
identification number is correctly set forth in Section 3.6 hereto.
Section 5.2. Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower
of the Loan Documents and the borrowings from time to time hereunder
have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of the Borrower's
stockholders; (ii) require any authorization, consent or approval by,
or registration, declaration or filing with, or notice to, any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or
notice as has been obtained, accomplished or given prior to the date
hereof; provided, that with respect to any applicable federal or state
securities laws, the foregoing representation and warranty is made
subject to and in reliance on the investment letter of the Lender
delivered to the Borrower on the date hereof; (iii) violate any
provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of theFederal
Reserve System) or of any order, writ, injunction or decree presently
in effect having applicability to the Borrower or of the Borrower's
articles of incorporation or bylaws; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement
or any other material agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or other
charge or encumbrance of any nature (other than the Security Interest)
upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.3. Legal Agreements. This Agreement constitutes and, upon
due execution by the Borrower, the other Loan Documents will constitute
the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
Section 5.4. Subsidiaries. The Borrower has no Subsidiaries, other
than Telular International, Inc., Telular-Adcor Security Products,
Inc., and Telular-WD Corporation.
Section 5.5. Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender its audited financial statements
for its fiscal year ended September 30, 1999 and unaudited financial
statements for the fiscal year-to-date period ended November 30, 1999
and those statements fairly present the Borrower's financial condition
on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles. Since the date of the most recent
financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
<PAGE>
Section 5.6. Litigation. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of
the Borrower or any of its Affiliates before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would reasonably be expected to have a
material adverse effect on the financial condition, properties or
operations of the Borrower.
Section 5.7. Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds
of any Advance will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying
any margin stock.
5.8. Taxes. The Borrower and its Affiliates have paid or caused to
be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them unless the same
are being contested in good faith by appropriate proceedings and
proper reserves therefore have been made by the Borrower. The
Borrower and its Affiliates have filed all federal, state and local
tax returns which to the knowledge of the officers of the Borrower
or any Affiliate, as the case may be, are required to be filed, and
the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns
or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9. Titles and Liens. Except as set forth on Schedule 5.9,
the Borrower has good and absolute title to all Collateral described
in the collateral reports provided to the Lender and all other
Collateral, properties and assets reflected in the latest financial
statements provided under Section 6.1 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Seller
or the Borrower as debtor is on file in any office except to perfect
only Permitted Liens.
Section 5.10. Plans. Except as disclosed to the Lender in writing
prior to the date hereof, neither the Borrower nor any of its
Affiliates maintains or has maintained any Plan. Neither the Borrower
nor any Affiliate has received any notice or has any knowledge to the
effect that it is not in full compliance with any of the requirements
of ERISA. No Reportable Event or other fact or circumstance which
may have an adverse effect on the Plan's tax qualified status exists
in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor
or any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11. Default. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which
it is a party or by which it or its property is bound or affected, the
breach or default of which would reasonably be expected to have a
material adverse effect on the Borrower's financial condition,
properties or operations.
<PAGE>
Section 5.12. Environmental Matters.
(a) Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(i) Environmental Law means any federal, state, local or
other governmental statute, regulation, law or ordinance dealing
with the protection of human health and the environment.
(ii) Hazardous Substances means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on
or under the Premises any Hazardous Substances in such form or quantity
as to create any liability or obligation for either the Borrower or the
Lender under common law of any jurisdiction or under any Environmental
Law, and no Hazardous Substances have ever been stored, buried, spilled,
leaked, discharged, emitted or released in, on or under the Premises in
such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) To the Borrower's best knowledge, there are not and there
never have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way
to the Premises or the Borrower, alleging liability under, violation of,
or noncompliance with any Environmental Law or any license, permit or
other authorization issued pursuant thereto. To the Borrower's best
knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses
are and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful
and efficient operation of such businesses are in the Borrower's
possession and are in full force and effect. No permit required under
any Environmental Law is scheduled to expire within twelve (12) months
and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13. Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Borrower
in connection with the Borrower's request for the credit facilities
contemplated hereby is true and correct in all material respects and,
as to projections, valuations or proforma financial statements,
present a good faith opinion as to such projections, valuations and
proforma condition and results.
<PAGE>
Section 5.14. Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the
Security Documents. When such financing statements are filed in the
offices noted therein, the Lender will have a valid and perfected
security interest in all Collateral and all other collateral described
in the Security Documents which is capable of being perfected by filing
financing statements. None of the Collateral or other collateral
covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect
thereto.
Section 5.15. Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security
Documents is (or, in the case of all future Collateral or such other
collateral, will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or
counterclaim, of the account debtor or other obligor named therein or
in the Borrower's records pertaining thereto as being obligated to pay
such obligation.
<PAGE>
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1. Reporting Requirements. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall
be in form and detail reasonably acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements with the unqualified opinion of independent
certified public accountants selected by the Borrower and acceptable
to the Lender in its reasonable discretion, which annual financial
statements shall include the Borrower's balance sheet as at the end of
such fiscal year and the related statements of the Borrower's income,
retained earnings and cash flows for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail
and prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; and (ii) a
certificate of the Borrower's chief financial officer, substantially
in the form of Exhibit B hereto, stating (A) that such financial
statements have been prepared in accordance with GAAP and (B) whether
or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable detail the
facts with respect thereto;
(b) as soon as available and in any event within twenty (20) days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so reasonably requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments and except for the absence of
footnotes; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit B hereto
stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments and except
for the absence of footnotes, (ii) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default
hereunder not theretofore reported and remedied and, if so, stating
in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12 and 7.10;
(c) within fifteen (15) days after the end of each month or more
frequently if the Lender so reasonably requires, agings of the
Borrower's accounts receivable and its accounts payable, an inventory
certification report, and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory and Eligible Inventory as at the end of
such month or shorter time period;
(d) at least thirty (30) days before the beginning of each fiscal
year of the Borrower, the projected balance sheets and income
statements for each month of such year, each in reasonable detail,
representing the Borrower's good faith projections and certified by
the Borrower's chief financial officer as being the most accurate
projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such supporting
schedules and information as the Lender may in its reasonable
discretion require;
<PAGE>
(e) as promptly as practicable, after an officer of the Borrower
obtains knowledge thereof, notice in writing of all litigation and of
all proceedings before any governmental or regulatory agency affecting
the Borrower of the type described in Section 5.12 or which seek a
monetary recovery against the Borrower in excess of Twenty Five Thousand
Dollars ($25,000);
(f) as promptly as practicable, and in any event not later than
five (5) Banking Days after an officer of the Borrower obtains knowledge
of the occurrence of any breach, default or event of default under any
Security Document or any event which constitutes a Default or Event of
Default hereunder, notice of such occurrence, together with a detailed
statement by a responsible officer of the Borrower of the steps being
taken by the Borrower to cure the effect of such breach, default or
event;
(g) as promptly as practicable, and in any event within thirty
(30) days after the Borrower knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, the statement of
the Borrower's chief financial officer setting forth details as to such
Reportable Event and the action which the Borrower proposes to take with
respect thereto, together with a copy of the notice of such Reportable
Event to the Pension Benefit Guaranty Corporation;
(h) as promptly as practicable, and in any event within ten (10)
days after the Borrower fails to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding One Hundred Thousand
Dollars ($100,000) individually; (ii) credit memos exceeding One Hundred
Thousand Dollars ($100,000) individually; (iii) any goods returned to or
recovered by the Borrower exceeding One Hundred Thousand Dollars
($100,000) individually; and (iv) any change in the persons constituting
the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any material portion of the Collateral or other
collateral covered by the Security Documents or of any substantial
adverse change in any Collateral or such other collateral or the
prospect of payment thereof;
(k) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(l) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
would reasonably be expected to materially and adversely affect the
Borrower's business or its financial condition; and
(m) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may reasonably request.
<PAGE>
Section 6.2. Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower's
business and financial condition and such other matters as the Lender
may from time to time reasonably request in which true and complete
entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant
for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of the Borrower at all
times during ordinary business hours, to send and discuss with account
debtors and other obligors requests for verification of amounts owed
to the Borrower, and to discuss the Borrower's affairs with any of its
directors, officers or financial personnel, as well as any other
employees or agents to the extent the same may have specific knowledge
of a matter as to which the Lender requires further information. The
Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other
collateral covered by the Security Documents or any other property of
the Borrower at any time during ordinary business hours and except
during a Default Period, on reasonable notice to the Borrower. The
Lender will, and will cause its agents and representatives to, at all
times take reasonable steps to preserve the confidentiality of all
nonpublic information furnished by the Borrower.
Section 6.3. Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and
other obligors. The Lender may also at any time and from time to time
telephone account debtors and other obligors to verify accounts.
Section 6.4. Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance, the non-compliance
with which would materially and adversely affect its business or its
financial condition.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply in all material respects with
all applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any Environmental
Laws, and will not generate, use, transport, treat, store or dispose of
any Hazardous Substances in such a manner as to create any material
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.5. Payment of Taxes and Other Claims. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon
any properties belonging to it (including, without limitation, the
Collateral) or upon or against the creation, perfection or continuance
of the Security Interest, prior to the date on which penalties attach
thereto, (b) all federal, state and local taxes required to be withheld
by it, and (c) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been made.
<PAGE>
Section 6.6. Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Borrower's good faith
judgment, desirable in the conduct of the Borrower's business, and in
the Lender's good faith judgment, not disadvantageous in any material
respect to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral
or any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except Permitted Liens.
Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible
and reputable, in the same relative amounts (relative to the value of
the Borrowers tangible assets) and against such risks as the Borrower
has in effect as of the date hereof, but in all events in such amounts
and against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general
areas in which the Borrower operates. Without limiting the generality
of the foregoing, the Borrower will at all times maintain business
interruption insurance including coverage for force majeure and keep
all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, and collision (for Collateral
consisting of motor vehicles), with any loss payable to the Lender to
the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit
acceptable to the Lender. All policies of liability insurance required
hereunder shall name the Lender as an additional insured.
Section 6.8. Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall
conduct its business in an orderly, efficient and regular manner.
Section 6.9. Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral,
duly endorsed or assigned by the Borrower.
Section 6.10. Collateral Account.
(a) If, notwithstanding the instructions to debtors to make
payments to the Lockbox, the Borrower receives any payments on
Receivables or other proceeds of Collateral, the Borrower shall
promptly deposit such payments and proceeds into the Collateral
Account. Until so deposited, the Borrower shall hold all such
payments and proceeds in trust for and as the property of the
Lender and shall not commingle such payments with any of its other
funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
<PAGE>
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing two (2) Banking Days, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject
to final payment. If any such item for which the Borrower has received
credit in the Collateral Account is returned uncollected, the Borrower
will immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the amount of
that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.
Section 6.11. Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue
for a period of ten (10) calendar days (or in the case of the agreements
contained in Sections 6.5, 6.7 and 6.10, immediately upon the occurrence
of such failure, without lapse of time), the Lender may, but need not,
perform or observe such covenant on behalf and in the name, place and
stead of the Borrower (or, at the Lender's option, in the Lender's name)
and may, but need not, take any and all other actions which the Lender
may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of
obligations owed to account debtors or other obligors, the procurement
and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of
instruments); and the Borrower shall thereupon pay to the Lender on
demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by
the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the
Lender, together with interest thereon from the date expended or
incurred at the Floating Rate. To facilitate the Lender's performance
or observance of such covenants of the Borrower, the Borrower hereby
irrevocably appoints the Lender, or the Lender's delegate, acting
alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time
to create, prepare, complete, execute, deliver, endorse or file in the
name and on behalf of the Borrower any and all instruments, documents,
assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this
Section 6.11.
Section 6.12. Minimum Book Net Worth. While any part of the
Obligations remains unpaid, the Borrower will continuously maintain:
(a) as of the Funding Date, a minimum Book Net Worth of not
less than Twenty Five Million Dollars ($25,000,000);
(b) thereafter, through September 30, 2000, a minimum Book Net
Worth of not less than Twenty One Million Five Hundred Thousand Dollars
($21,500,000);
(c) thereafter, during each period from October 1 through
September 29, a minimum Book Net Worth of not less than the prior fiscal
year end required minimum Book Net Worth minus One Million Dollars
($1,000,000); and
<PAGE>
(d) as of September 30, 2001 and each September 30 thereafter,
a minimum Book Net Worth of not less than the prior fiscal year end's
required minimum Book Net Worth plus One Million Dollars ($1,000,000).
Section 6.13. Minimum Availability. While any part of the Obligations
remains unpaid, the Borrower will continuously maintain excess
availability of not less than One Million Dollars ($1,000,000). For
purposes hereof, excess availability means the difference of (i) the
Collateral Availability minus (ii) the total of outstanding Revolving
Advances plus the aggregate face amount of any issued and outstanding
Letters of Credit.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without
the Lender's prior written consent:
Section 7.1. Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or
hereafter acquired, to secure any indebtedness; excluding, however,
from the operation of the foregoing, the following (collectively,
Permitted Liens):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests
and assignments in existence on the date hereof and listed in Schedule
7.1 hereto, securing indebtedness for borrowed money permitted under
Section 7.2;
(c) the Security Interest and liens and security interests created
by the Security Documents;
(d) purchase money security interests relating to the acquisition
of machinery and equipment of the Borrower not exceeding the lesser of
cost or fair market value thereof and so long as no Default Period is
then in existence and none would exist immediately after such
acquisition; and
(e) erroneous UCC filings or other evidences of liens filed
without the knowledge or authority of the Borrower, so long as such
evidences of liens are released or terminated within thirty (30) days
of the Lender's notice to the Borrower of the same.
Section 7.2. Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of
credit issued on the Borrower's behalf, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations,
except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof
and listed in Schedule 7.2 hereto;
<PAGE>
(c) indebtedness relating to liens permitted in accordance with
Section 7.1; and
(d) indebtedness relating to performance and surety bonds and
appeal bonds for litigation and other obligations of a like nature
incurred in the ordinary course of business.
Section 7.3. Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4. Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any stock
or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any
interest whatsoever in, any other Person, including, specifically, but
without limitation, any partnership or joint venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States
of America having a maturity of one year or less, commercial paper
issued by United States of America corporations rated A-1 or A-2
by Standard & Poor's Corporation or P-1 or P-2 by Moody's
Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in excess of
One Hundred Million Dollars ($100,000,000) (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation); and
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of Ten
Thousand Dollars ($10,000).
(b) The Borrower will not create or permit to exist any
Subsidiary, other than as provided in Section 5.4.
Sections 7.5. Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower)
on any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make
any distribution in respect thereof, either directly or indirectly.
Section 7.6. Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or
otherwise dispose of (i) the stock of any Subsidiary, (ii) all or
substantially all of its assets, or (iii) any Collateral or any
interest therein (whether in one transaction or in a series of
transactions) to any other Person other than (a) the sale or other
disposition of Inventory in the ordinary course of business and (b)
with the Lender's prior consent, the sale or disposition of obsolete
equipment or other assets or unsaleable, obsolete or slow-moving
inventory. The Borrower and will not liquidate, dissolve or suspend
business operations. The Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate
consideration.
<PAGE>
Section 7.7. Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit
any other Person to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all the assets of any other Person.
Section 7.8. Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether
now owned or hereafter acquired, and then or thereafter rent or lease
as lessee such property or any part thereof or any other property which
theBorrower intends to use for substantially the same purpose or
purposes as the property being sold or transferred.
Section 7.9. Restrictions on Nature of Business. The Borrower will
not engage in any line of business materially different from that
presently engaged in by the Borrower and will not purchase, lease or
otherwise acquire assets not related to its business.
Section 7.10. Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than One Million Dollars
($1,000,000) in the aggregate during any fiscal year.
Section 7.11. Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The
Borrower will not adopt, permit or consent to any change in its fiscal
year.
Section 7.12. Discounts, etc. The Borrower will not, after notice
from the Lender, grant any discount, credit or allowance on any then
outstanding Receivable or accept any return of goods sold without
notifying the Lender of such return, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the
Borrower.
Section 7.13. Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension
plan, unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14. Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or
other contractual obligation binding upon the Borrower or any Affiliate
that would reasonably be expected to have a material adverse effect on
the Borrower.
Section 7.15. Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not
permit any tangible Collateral or any records pertaining to the
Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the
Security Interest. The Borrower will not change its name.
Section 7.16. Organizational Documents. The Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws.
<PAGE>
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1. Events of Default. Event of Default, wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable;
(b) Failure to pay when due any amount specified in Section 2.3
relating to the Borrower's Obligation of Reimbursement, or failure to
pay immediately when due or upon termination of the Credit Facility
any amounts required to be paid for deposit in the Special Account
under Section 2.4 or;
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; provided,
however, that any such Default occurring under any of Sections 6.1
through 6.3, 6.5, 6.6, or 6.8 through 6.11 of this Agreement shall not
be deemed to be an Event of Default unless such Default continues
unremedied for fifteen (15) days after written notice thereof is given
by the Lender to the Borrower; provided, further, however, that any
Default occurring under Section 6.4 of this Agreement shall not be
deemed to be an Event of Default if the applicable governmental agency
or authority has provided the Borrower some time period to remedy its
noncompliance and such noncompliance continues unremedied beyond that
designated time period;
(e) The Borrower or any Guarantor shall be or become insolvent,
or admit in writing its or his inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or the
Borrower or any Guarantor shall apply for or consent to the appointment
of any receiver, trustee, or similar officer for it or for all or any
substantial part of its property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of the
Borrower or any Guarantor, as the case may be and the authority of such
receiver or trustee over the Borrower's assets has not been discharged
or dismissed within ten (10) business days (provided, however, that
during such ten (10) day period the Lender shall be under no obligation
to make any Advances hereunder); or the Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower
or any Guarantor and such proceeding has not been discharged or
dismissed within ten (10) business days (provided, however, that during
such ten (10) day period the Lender shall be under no obligation to make
any Advances hereunder); or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
(f) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or
any Guarantor as debtor;
(g) Any representation or warranty made by the Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or
by the Borrower (or any of its officers) or any Guarantor in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
(h) The rendering against the Borrower of a final and non-
appealable judgment, decree or order for the payment of money in excess
of One Hundred Thousand Dollars ($100,000) and the continuance of such
judgment, decree or order unsatisfied and in effect for any period of
thirty (30) consecutive days without a stay of execution;
<PAGE>
(i) A default under any bond, debenture, note or other evidence
of indebtedness of the Borrower owed to any Person other than the Lender
in excess of One Hundred Thousand Dollars ($100,000), or under any
indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any
lease of any of the Premises, and the expiration of the applicable
period of grace, if any, specified in such evidence of indebtedness,
indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
thirty (30) days after written notice to such effect shall have been
given to the Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, which results in the imposition of a lien on the Borrower's
assets in favor of the Plan;
(k) An event of default (after giving of all required notices and
the expiration of all cure periods, if any) shall occur under any
Security Document or under any other security agreement, mortgage, deed
of trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any federal tax liens or any state tax
liens (other than any state tax lien with respect to a tax deficiency
which is being contested in good faith and by proper proceedings and for
which the Borrower shall have set aside on its books adequate reserves
therefor) shall be filed or issued;
(n) Default in the payment of any amount owed by the Borrower to
the Lender other than any indebtedness arising hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or fail to
perform its obligations under the Guaranty in favor of the Lender; or
(p) Any breach, default or event of default by or attributable to
any Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2. Rights and Remedies. During any Default Period, the
Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
<PAGE>
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) the Lender may make demand upon the Borrower and, forthwith
upon such demand, the Borrower will pay to the Lender in immediately
available funds for deposit in the Special Account pursuant to Section
2.4 an amount equal to the aggregate maximum amount available to be
drawn under all Letters of Credit then outstanding, assuming compliance
with all conditions for drawing thereunder;
(e) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial process
or by judicial process (without a prior hearing or notice thereof, which
the Borrower hereby expressly waives) and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and, in connection
therewith, the Borrower will on demand assemble the Collateral and make
it available to the Lender at a place to be designated by the Lender
which is reasonably convenient to both parties;
(f) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of
Default described in subsections (e) or (f) of Section 8.1, the
Obligations shall be immediately due and payable automatically without
presentment, demand, protest or notice of any kind.
Section 8.3. Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section
9.3) at least ten calendar days before the date of intended disposition
or other action.
ARTICLE IX
Miscellaneous
Section 9.1. No Waiver; Cumulative Remedies. No failure or delay by
the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power
or remedy under the Loan Documents. The remedies provided in the Loan
Documents are cumulative and not exclusive of any remedies provided by
law.
Section 9.2. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent
to any departure by the Borrower therefrom or any release of a Security
Interest shall be effective unless the same shall be in writing and
signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose
for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
<PAGE>
Section 9.3. Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in
writing and shall be (a) personally delivered, (b) sent by first class
United States mail, (c) sent by overnight courier of national
reputation, or (d) transmitted by facsimile, in each case addressed or
facsimiled to the party to whom notice is being given at its address or
facsimile number as set forth below:
If to the Borrower:
Telular Corporation
647 North Lakeview Parkway
Vernon Hills, Illinois 60061
Facsimile: 847/573-2011
Attention:
If to the Lender:
Wells Fargo Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
MAC N9811-143
Milwaukee, Wisconsin 53202
Facsimile: 414/224-7439
Attention: Mark J. Stoeberl
or, as to each party, at such other address or facsimile number as may
hereafter be designated by such party in a written notice to the other
party complying as to delivery with the terms of this Section. All
such notices, requests, demands and other communications shall be
deemed to have been given on (a) the date received if personally
delivered, (b) three (3) business days after deposit in the mail,
postage prepaid, if delivered by mail, (c) the first business day
after the date sent if sent by overnight courier, or (d) the date of
transmission if delivered by facsimile, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not
be effective until received by the Lender.
Section 9.4. Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and
other agreements and writings that the Lender may reasonably request in
order to secure, protect, perfect or enforce the Security Interest or
the Lender's rights under the Loan Documents (but any failure to
request or assure that the Borrower executes, delivers or endorses any
such item shall not affect or impair the validity, sufficiency or
enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
Section 9.5. Collateral. This Agreement does not contemplate a sale
of accounts, contract rights or chattel paper, and, as provided by law,
the Borrower is entitled to any surplus and shall remain liable for
any deficiency. The Lender's duty of care with respect to Collateral
in its possession (as imposed by law) shall be deemed fulfilled if it
exercises reasonable care in physically keeping such Collateral, or in
the case of Collateral in the custody or possession of a bailee or
other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Lender need not otherwise
preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against
prior parties, to realize on the Collateral at all or in any particular
manner or order or to apply any cash proceeds of the Collateral in any
particular order of application.
<PAGE>
Section 9.6. Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses, including, without limitation,
reasonable attorneys' fees, periodic UCC, tax and judgment lien searches
and title insurance premiums incurred by the Lender in connection with
the Obligations, this Agreement, the Loan Documents, any Letters of
Credit, and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including, without
limitation, all such costs, expenses and fees incurred in connection
with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation,
perfection, protection, satisfaction, foreclosure or enforcement of the
Security Interest. Notwithstanding the foregoing, legal fees and
expenses payable by the Borrower hereunder with respect to the
transactions consummated on the date hereof shall not exceed Twenty Five
Thousand Dollars ($25,000).
Section 9.7. Indemnity. In addition to the payment of expenses
pursuant to Section 9.6, the Borrower agrees to indemnify, defend and
hold harmless the Lender, and any of its participants, parent
corporations, subsidiary corporations, affiliated corporations,
successor corporations, and all present and future officers, directors,
employees, attorneys and agents of the foregoing (the Indemnitees) from
and against any of the following (collectively, Indemnified Liabilities):
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution
and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation of
the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or
not such Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of
the Advances and the Loan Documents or the use or intended use of the
proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from
any of the foregoing is brought against any Indemnitee, upon such
Indemnitee's request, the Borrower, or counsel designated by the
Borrower and reasonably satisfactory to the Indemnitee, will resist
and defend such action, suit or proceeding at the Borrower's sole costs
and expense. Each Indemnitee will use its best efforts to cooperate
in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be
held to be unenforceable because it violates any law or public policy,
the Borrower shall nevertheless make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which
is permissible under applicable law. The Borrower's obligation under
this Section 9.7 shall survive the termination of this Agreement and
the discharge of the Borrower's other obligations hereunder.
Section 9.8. Participants. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender shall not have
any liability or responsibility for any obligation, act or omission
of any of its participants. All rights and powers specifically
conferred upon the Lender may be transferred or delegated to any of
the Lender's participants, successors or assigns, provided that any
transfer of warrants or shares acquired on exercise or any rights
therein must be made under an exemption under and in compliance with all
applicable securities laws.
<PAGE>
Section 9.9. Execution in Counterparts. This Agreement and other
Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but
one and the same instrument.
Section 9.10. Binding Effect; Assignment; Complete Agreement;
Exchanging Information. The Loan Documents shall be binding upon and
inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest
therein without the Lender's prior written consent. Any transfer of
warrants or shares acquired on exercise or any rights therein must be
made under an exemption under and in compliance with all applicable
securities laws. This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof. Without limiting the Lender's
right to share information regarding the Borrower and its Affiliates
with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Wells Fargo & Company, and all direct and
indirect subsidiaries of Wells Fargo & Company, may exchange any and
all information they may have in their possession regarding the
Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such
information.
Section 9.11. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective
to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
Section 9.12. Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
Section 9.13. Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. The Loan Documents shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the
State of Wisconsin. This Agreement shall be governed by and construed
in accordance with the substantive laws (other than conflict laws) of
the State of Wisconsin. The parties hereto hereby (i) consents to the
personal jurisdiction of the state and federal courts located in the
State of Wisconsin in connection with any controversy related to this
Agreement; (ii) waives any argument that venue in any such forum is
not convenient, (iii) agrees that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other
Loan Documents shall be venued in either the Circuit Court of Milwaukee
County, Wisconsin, or the United States District Court, Eastern
District of Wisconsin; and (iv) agrees that a final judgment in any
such suit, action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner
provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the
date first above written.
WELLS FARGO BUSINESS CREDIT, INC. TELULAR CORPORATION
By:________________________________ By:_____________________________
Mark J. Stoeberl, Vice President Kenneth E. Millard, President
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
___________________
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A
to Credit and Security Agreement
REVOLVING NOTE
$5,000,000.00
December _____, 1999
For value received, the undersigned, TELULAR CORPORATION, a Delaware
corporation (the Borrower), hereby promises to pay on the Termination
Date under the Credit Agreement (defined below), to the order of WELLS
FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the Lender), at
its office in Milwaukee, Wisconsin, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Five
Million Dollars ($5,000,000.00) or, if less, the aggregate unpaid
principal amount of all Revolving Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest
on the principal amount hereunder remaining unpaid from time to time,
computed on the basis of the actual number of days elapsed and a three
hundred sixty (360) day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Credit and
Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the Credit
Agreement) by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided
in the Credit Agreement. This Note may be prepaid only in accordance with
the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof.
This Note is the Revolving Note referred to in the Credit Agreement. This
Note is secured, among other things, pursuant to the Credit Agreement and
the Security Documents as therein defined, and may now or hereafter be
secured by one or more other security agreements, mortgages, deeds of
trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is
not paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
TELULAR CORPORATION
By:
Its: President
<PAGE>
Exhibit B
to Credit and Security Agreement
Compliance Certificate
To: Mark J. Stoeberl
WELLS FARGO BUSINESS CREDIT, INC.
Date: _________________________, ________
Subject: Telular Corporation
Financial Statements
In accordance with our Credit and Security Agreement dated as of
December _____, 1999, (the Credit Agreement), attached are the financial
statements of Telular Corporation (the Borrower) as of and for
_________________________, ________ (the Reporting Date) and the year-
to-date period then ended (the Current Financials). All terms used in
this certificate have the meanings given in the Credit Agreement.
The Borrower certifies that the Current Financials have been
prepared in accordance with GAAP, subject to year-end audit adjustments,
and fairly present the Borrower's financial condition and the results of
its operations as of the date thereof.
Events of Default. (Check one):
o The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
o The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto
is a statement of the facts with respect to thereto.
The Borrower hereby certifies to the Lender as follows:
o The Reporting Date marks the end of one of the Borrower's fiscal
months.
o The Reporting Date marks the end of the Borrower's fiscal year.
Financial Covenants. The Borrower further hereby certifies as
follows:
1. Minimum Book Net Worth. Pursuant to Section 6.12 of the
Credit Agreement, as of the Reporting Date, the Borrower's Book Net
Worth was $_______________ which @ satisfies @ does not satisfy the
requirement that such amount be not less than the following amounts
on the Reporting Date as set forth in table below:
[To be completed.]
2. Capital Expenditures. Pursuant to Section 7.10 of the
Credit Agreement, for the year-to-date period ending on the Reporting
Date, the Borrower has expended or contracted to expend during the
fiscal year ended _________________________, ________, for Capital
Expenditures, $_______________ in the aggregate [see comment on
credit agreement], which @ satisfies @ does not satisfy the
requirement that such expenditures not exceed
__________________________________ Dollars ($_______________) in the
aggregate and __________________________________ Dollars
($_______________) for expenditures [see comments on credit
agreement] during such year.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to
above. These computations were made in accordance with GAAP.
TELULAR CORPORATION
By:
Its: Chief Financial Officer
<PAGE>
Exhibit C
to Credit and Security Agreement
Premises
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
Location: Corporate Office and Plant (Vernon Hills, Illinois)
Legal Description: Approximately 72,125 sf in the building known as 645-7
North Lakeview Parkway, Vernon Hills, IL 60061
Location: Telular Technology Center (Hauppauge, New York)
Legal Description: 20,000 sf in the building 580 Old Willets Path,
Hauppauge, New York 11788
Location: Telguard Sales Office (Lithia Springs, Georgia)
Legal Description: Suite 109 (7,715sf) in the building located at 420
Thorton Road, Lithia Springs, Georgia 30057
Location: Oxford Fixed Wireless Field Sales Office (Oxford, United
Kingdom)
Legal Description: Unit 185 - IJ in Milton Park Office Building, Abington,
Oxon, OX14 4SR, UK
Location: Singapore Fixed Wireless Field Sales Office (Singapore)
Legal Description: Unit #05-232 (1,500 sf) on the 5th floor of the
building known as Faber House, No. 230 Orchard Road, Singapore
Location: Weston Fixed Wireless Field Sales Office (Weston, Florida)
Legal Description: Approximately 1,225 sf in the building located at 1920-
1 N. Commerce Parkway, Weston, Florida 33326
<PAGE>
Schedule 5.1
to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and
Locations of Collateral
Trade Names
Telular (block), TELULAR plus design, CELJACK, PSCone, TELCEL, Hexagon
logo, PHONECELL, CELSERV, TELGUARD, and CPX
Chief Executive Office/Principal Place of Business
647 N. Lakeview Parkway
Vernon Hills, Illinois 60061
Other Inventory and Equipment Locations
Inventory - None
Equipment:
- All Premises listed on Exhibit C
- SCI, Raleigh, North Carolina
- ACT (formerly CMC), Corinth Mississippi
- Mold-Tech Electronics, Soddy-Dasiy, Tennesee
- Barlovento Electronics, Cuernavaca, Mexico
<PAGE>
Schedule 7.1
to Credit and Security Agreement
Permitted Liens
Creditor Collateral Jurisdiction Filing Filing
Date No.
Fulton County, GA All Personal Property Fulton Co., GA
November 1, 1999 n/a
<PAGE>
Schedule 7.2
to Credit and Security Agreement
Permitted Indebtedness and Guaranties
Indebtedness
See Operating Leases
Guaranties
None.
The securities represented by this Warrant were originally issued on
January 7, 2000, and have not been registered under the Securities Act of
1933, as amended, or any state securities laws. These securities have been
issued in a transaction exempt from the registration requirements of such Act
and state securities laws and may not be sold except in a transaction which
is exempt under such Act or pursuant to a registration statement under such
Act or in a transaction which is otherwise in compliance with such Act, in
each case only to the extent such Act is applicable.
The transfer of the securities represented by this Warrant is restricted
by and subject to the terms of an Investment Agreement dated January 7, 2000,
a copy of which is on file with the Secretary of the Company, and will be
furnished to any interested party upon written request.
TELULAR CORPORATION
STOCK PURCHASE WARRANT
Date of Issuance: January 7, 2000 Certificate No. W-1
FOR VALUE RECEIVED, Telular Corporation, a Delaware corporation (the
Company), hereby grants to Wells Fargo Business Credit, Inc., a Minnesota
corporation (Wells Fargo) or its registered assigns (the Registered
Holder) the right to purchase 50,000 shares of Common Stock (as defined in
Section 4, below) of the Company at any time at an exercise price of
$16.29375 per share (the Exercise Price). The amount and kind of
securities obtainable pursuant to the rights granted hereunder and the
purchase price for such securities are subject to adjustment pursuant to the
provisions contained in this Warrant.
This Warrant was issued pursuant to that certain Credit and Security
Agreement (the Credit Agreement) dated January 7, 2000 by and between the
Company and Wells Fargo and is the Warrant referred to in the Credit
Agreement. This Warrant and any shares of Common Stock issued upon the
exercise of this Warrant shall be subject in all respects to the terms and
conditions of that certain Investment Agreement (the Investment Agreement)
dated January 7, 2000 by and between the Company and Wells Fargo. The
Registered Holder is entitled to certain rights and privileges contained in
the Investment Agreement pertaining to the Company's obligation to purchase
and redeem this Warrant or the Common Stock issued upon the exercise hereof
at the election of the Registered Holder and to provide certain registration
rights, all of which rights are hereby incorporated herein by this reference.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1.1. Exercise. The Registered Holder may exercise, in whole or in
part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time; provided,
however, that any partial exercise of this Warrant shall be for at least
10,000 shares of Common Stock and increments of 1,000 shares of Common Stock,
subject to appropriate adjustment in the event the terms of this Warrant are
adjusted pursuant to Section 2, below.
<PAGE>
1.2. Exercise Procedure.
(a) This Warrant shall be deemed to have been exercised when
the Company has received all of the following items:
(i) a completed Exercise Form, substantially in the form
attached hereto as Exhibit A, executed by the Person (as defined in
Section 4, below) exercising all or part of the purchase rights
represented by this Warrant (the Purchaser);
(ii) this Warrant;
(iii) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in
Exhibit B hereto evidencing the assingment of this Warrant to the
Purchaser, in which case the Registered Holder shall have complied
with the provisions set forth in Section 5 hereof; and
(iv) a cashier's or certified check payable to the
Company in an amount equal to the product of the Exercise Price
multiplied by the number of shares of Common Stock being purchased
upon such exercise.
(b) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the
Purchaser within five business days after the date of any exercise of
this Warrant (the Exercise Date). Unless this Warrant has expired or
all of the purchase rights represented hereby have been exercised, the
Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the
Exercise Form.
(c) The Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser on the
Exercise Date, and the Purchaser shall be deemed for all purposes to
have become the record holder of such Common Stock on the Exercise Date.
(d) The Company shall not close its books against the
transfer of this Warrant or of any share of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise of this Warrant. The Company shall
from time to time take all such action as may be necessary to assure
that the par value per share of the unissued Common Stock acquirable
upon exercise of this Warrant is at all times equal to or less than the
Exercise Price then in effect.
(e) The Company shall assist and cooperate with any
Registered Holder or Purchaser required to make any governmental filings
or obtain any governmental approvals prior to or in connection with any
exercise of this Warrant (including, without limitation, making any
filings required to be made by the Company).
(f) The Company shall take all such actions as may be
necessary to assure that all shares of Common Stock issuable upon the
exercise of this Warrant may be so issued without violation of any
applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance).
<PAGE>
1.3. Fractional Shares. If a fractional share of Common Stock
would, but for the provisions of Section 1.1, be issuable upon exercise of
the rights represented by this Warrant, the Company shall, within five
business days after the Exercise Date, deliver to the Purchaser a check
payable to the Purchaser in lieu of such fractional share in an amount equal
to the difference between the Market Price (as defined in Section 4, below)
of such fractional share and the Exercise Price of such fractional share.
Section 2. Adjustments. In the event of any stock dividend, split-
up, recapitalization, merger, consolidation, combination or exchange of
shares, or the like, as a result of which shares of any class shall be issued
in respect of the outstanding shares of Common Stock, or the shares of Common
Stock shall be changed into the same or a different number of the same or
another class of stock, or into securities of another Person, cash or other
property, the total number of shares of Common Stock which the Registered
Holder shall be entitled to purchase hereunder and the Exercise Price
applicable to each such share of Common Stock shall be automatically (and
without notice or further action) and appropriately adjusted.
Section 3. Covenants. The Company covenants and agrees that so long
as the Registered Holder holds this Warrant and/or any shares of Common Stock
issued upon exercise of this Warrant:
(a) the shares of Common Stock issuable upon exercise of this
Warrant will, upon such exercise and issuance in accordance herewith, be
duly authorized, validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof;
(b) the Company will at all times have authorized, and
reserved for the purpose of issuance upon total or partial exercise of
this Warrant, a sufficient number of shares of Common Stock to provide
for the exercise of this Warrant; and
(c) the Company will pay when due and payable or reimburse
the Registered Holder or Purchaser promptly upon demand for any and all
transfer, stamp and related taxes (except federal and state income
taxes) or other cost which may be payable in connection with the
issuance of this Warrant or the issuance of any shares of Common Stock
upon the exercise of this Warrant except in any case where the shares of
Common Stock are issued to a Registered Holder other than Wells Fargo.
Section 4. Definitions. The following terms have the meanings set
forth below:
Appraised Price means the fair market value of the Company's entire
equity determined on a going concern basis, between a willing buyer and a
willing seller, assuming the payment of the purchase price in cash in full on
the closing of the transaction and the complete cooperation, support and
continuity of management, and taking into account all relevant factors
determinative of value (but not taking into account any discounts for lack of
liquidity, minority position or other similar or related discounts), divided
by the number of shares of Common Stock issued and outstanding on the
Exercise Date. The Appraised Price shall be determined by an independent
investment banking firm of recognized national standing having a capital and
surplus of not less than $50,000,000 mutually agreeable to the Company and
the Registered Holder of this Warrant. In the absence of agreement on such
investment banking firm, the Company and the Registered Holder shall each
select an investment banking firm and the two firms so selected shall select
a third investment banking firm meeting the criteria set forth above which
shall make a determination of the Appraised Price. The cost of such
determination shall be borne by the Company
<PAGE>
Common Stock means the Common Stock of the Company, par value $.01 per
share; provided that if there is a change such that the securities issuable
upon exercise of this Warrant are issued by an entity other than the Company
or there is a change in the class of securities so issuable, then the term
Common Stock shall mean the security issuable upon exercise of this
Warrant.
Market Price means the closing sale price of Common Stock on the
NASDAQ National Market System (or such other national securities exchange or
over-the-counter market on which such shares are then traded) on the Exercise
Date, or if shares of Common Stock are not publicly traded on the Exercise
Date, the Appraised Price as of the end of the month immediately proceeding
the Exercise Date.
Person means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
Section 5. Warrant Transferable. This Warrant and all rights
hereunder are transferable in whole or in part, without charge to the
Registered Holder, upon surrender of this Warrant with a properly executed
Assignment (in the form of Exhibit B hereto) at the principal office of the
Company; provided that in the opinion of counsel for the Company, such
transfer is exempt from registration and otherwise lawful under all
applicable state and federal securities laws.
Section 6. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by
the Registered Holder at the time of such surrender. All Warrants
representing portions of the rights hereunder are referred to herein as this
Warrant.
Section 7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to
the Company (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
Section 8. Notices. Except as otherwise expressly provided herein,
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered,
sent or deposited in the U.S. Mail (i) to the Company, at its principal
executive offices and (ii) to the Registered Holder of this Warrant, at such
holder's address as it appears in the records of the Company (unless
otherwise indicated by any such holder).
Section 9. Amendment and Waiver. Except as otherwise provided
herein, the provisions of this Warrant may be amended, and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company has obtained the written consent
of the Registered Holders of this Warrant representing at least a majority of
the shares of Common Stock obtainable upon exercise of this Warrant.
<PAGE>
Section 10. Descriptive Headings. The descriptive headings of the
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant.
Section 11. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
This Warrant shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Delaware. The
parties hereto hereby (i) consent to the personal jurisdiction of the state
and federal courts located in the State of Wisconsin in connection with any
controversy related to this Warrant; (ii) waive any argument that venue in
any such forum is not convenient, (iii) agree that any litigation initiated
by either party in connection with this Warrant shall be venued in either the
Circuit Court of Milwaukee County, Wisconsin, or the United States District
Court, Eastern District of Wisconsin; and (iv) agree that a final judgment in
any such suit, action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner
provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS WARRANT.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the date hereof.
TELULAR CORPORATION
By:
Kenneth E. Millard, President
[Corporate Seal]
Attest:
Assistant Secretary
EXHIBIT A
EXERCISE FORM
To: Telular Corporation Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-___), hereby agrees to subscribe for the purchase
of ______ shares of the Common Stock covered by such Warrant and makes
payment herewith in full therefor at the price per share provided by such
Warrant.
The shares of Common Stock are to be issued in the following name:
Name
Address
Taxpayer Identification Number
The new Warrant for the unexercised portion of the rights under the
Warrant is to be issued in the following name:
Name
Address
Taxpayer Identification Number
Signature
Address
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, ___________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-______) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
Name(s) of Assignee(s) Address No. of Shares
Dated: Signature
Witness
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 10101
<SECURITIES> 0
<RECEIVABLES> 5522
<ALLOWANCES> 128
<INVENTORY> 6581
<CURRENT-ASSETS> 22714
<PP&E> 11609
<DEPRECIATION> 6645
<TOTAL-ASSETS> 31515
<CURRENT-LIABILITIES> 5308
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 26089
<TOTAL-LIABILITY-AND-EQUITY> 31515
<SALES> 8849
<TOTAL-REVENUES> 9021
<CGS> 7163
<TOTAL-COSTS> 7163
<OTHER-EXPENSES> 4187
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2354)
<DISCONTINUED> 0
<EXTRAORDINARY> (28)
<CHANGES> 0
<NET-INCOME> (2382)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
