SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-23866
March 31, 2000
VARI-L COMPANY, INC.
(Exact name of Registrant as specified in its charter.)
Colorado 06-0679347
(State of Incorporation) (I.R.S. Employer identification No.)
4895 Peoria Street
Denver, Colorado 80239
(Address of principal executive offices)
(303) 371-1560
(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 each of the issuer's classes
of common stock, as of March 31, 2000:
Class of Securities Outstanding Securities
$0.01 par value 7,069,188 shares
Common shares
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VARI-L COMPANY, INC.
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(000's Omitted)
<TABLE>
<CAPTION>
3/31/00 12/31/99
ASSETS (Unaudited) (Restated)
- ------ ---------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $11,800 $ 14,883
Trade receivables,
less $223 and $123
allowance for doubtful
accounts 5,636 4,762
Inventories 11,946 10,255
Prepaid expenses and other 2,056 1,160
-------- -------
Total Current Assets 31,438 31,060
-------- -------
Property and Equipment:
Machinery and equipment 28,747 27,673
Furniture and fixtures 1,838 1,776
Leasehold improvements 8,747 8,544
-------- -------
39,332 37,993
Less accumulated depreciation
and amortization (6,591) (6,112)
-------- -------
Net Property and Equipment 32,741 31,881
-------- -------
Other Assets:
Long-term inventories 475 475
Patents, net of accumulated
amortization of $293 and $258 2,256 2,065
ISO registration costs and other,
net of accumulated amortization
of $176 and $149 1,589 1,616
-------- -------
Total Other Assets 4,320 4,156
-------- -------
TOTAL ASSETS $68,499 $ 67,097
======== =======
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
VARI-L COMPANY, INC.
BALANCE SHEETS, CONTINUED
MARCH 31, 2000 AND DECEMBER 31, 1999
(000's Omitted)
<TABLE>
<CAPTION>
3/31/00 12/31/99
(Unaudited) (Restated)
---------- --------
Liabilities and Stockholders' Equity
- ------------------------------------
<S> <C> <C>
Current Liabilities:
Current installments of
long-term debt $ 24 $ 1,070
Financed insurance premiums 155 38
Trade accounts payable 2,464 1,996
Accrued expenses and other 250 602
Income taxes payable 682 0
-------- -------
Total Current Liabilities 3,575 3,706
Bank line of credit 9,500 4,016
Long-term debt 55 6,099
Deferred income taxes 3,614 3,641
-------- -------
Total Liabilities 16,744 17,435
-------- -------
Stockholders' Equity:
Common stock, $.01 par value,
50,000 shares authorized;
7,069 and 6,945 shares
outstanding, respectively 71 69
Paid-in capital 37,050 36,064
Retained earnings 14,634 13,529
-------- -------
Total Stockholders' Equity 51,755 49,662
-------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 68,499 $ 67,097
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
VARI-L COMPANY, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
(000's omitted, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/00 3/31/99
(Unaudited) (Unaudited)
---------- ---------
<S> <C> <C>
Net sales $ 7,866 $ 5,313
Cost of products sold 3,589 2,366
-------- -------
Gross profit 4,277 2,947
-------- -------
Other costs and expenses:
General and administrative 966 477
Engineering 564 334
Selling 869 618
Interest expense 239 243
Interest income (146) (68)
Profit sharing plan contribution 4 108
Other (6) 16
-------- -------
2,490 1,728
-------- -------
Income before taxes 1,787 1,219
Income taxes 682 465
-------- -------
NET INCOME $ 1,105 $ 754
========== ========
=======
Basic earnings per share $ 0.16 $ 0.14
======== =======
Basic weighted average
shares outstanding 7,014 5,488
======== =======
Diluted earnings per share $ 0.15 $ 0.14
======== =======
Diluted weighted average
shares outstanding 7,586 5,580
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
VARI-L COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
(000's Omitted)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/00 3/31/99
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
Net cash (used by) provided
by operating
activities (Note 7) $(1,243) $ 352
-------- -------
Cash flows from investing
activities:
Purchases of property
and equipment (1,339) (1,468)
-------- -------
Net cash used in investing
activities (1,339) (1,468)
-------- -------
Cash flows from financing activities:
Increases in long-term debt 0 733
Repayments of long-term debt (7,090) (260)
Borrowings under bank line
of credit 9,500 900
Repayments under bank line
of credit (4,016) (1,250)
Net borrowings for insurance
financing activities 117 59
Treasury stock purchase 0 (22)
Net proceeds from stock issuances 988 85
-------- -------
Net cash (used by) provided
by financing activities (501) 245
-------- -------
Net (decrease) in cash (3,083) (871)
Beginning cash 14,883 6,515
------- -------
ENDING CASH $11,800 $ 5,644
======== =======
Supplemental disclosure of cash flows
information:
Cash paid for interest $ 260 $ 275
======== =======
Cash paid for income taxes $ 0 $ 0
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Vari-L Company, Inc. (the Company) was founded in 1953 and is a
manufacturer of electronic components. The Company's products are used in
commercial and military communications systems where electrical processing
of radio frequency signals is required.
NOTE 1 - FINANCIAL PRESENTATION
These financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1999 and notes
thereto.
Subject to the potential adjustments reference in the Company's Form 8-K
filed May 17, 2000, in the opinion of management, the accompanying
interim, unaudited financial statements contain all the adjustments
necessary to present fairly the financial position of the Company as of
March 31, 2000, and the results of its operations, and its cash flows for
the three months ended March 31, 2000 and March 31, 1999. Except as
described in Note 8 below, all adjustments made are of a normal recurring
nature.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(000's Omitted)
-----------------------------
3/31/00 12/31/99
(Unaudited) (Audited)
--------- -------
<S> <C> <C>
Finished goods $ 3,007 $ 3,181
Work in process 3,240 3,087
Raw materials 5,548 3,836
Gold bullion 151 151
------- -------
$11,946 $ 10,255
======= =======
Long-term inventories $ 475 $ 475
======= =======
</TABLE>
NOTE 3 - INCOME TAXES
Income tax expense reflects effective tax rates of 38.14% for 2000 and
38.13% for 1999.
NOTE 4 - CREDIT FACILITY
The Company formerly had two credit facilities, a line of credit with one
banking institution and a second facility, consisting of a term loan and a
revolving equipment term loan, with a second banking institution. On
March 24, 2000, the Company restructured its credit facilities by closing
its line of credit with one banking institution and establishing a new,
$20 million Revolving Loan Agreement with a 30-month maturity with the
second banking institution referred to above. Proceeds from the first
advance on the new Revolving Loan Agreement of $9.5 million were used to
pay off the previous line of credit ($16,000), the previous term loan and
revolving equipment term loans ($6.8 million), replenish marketable
securities for prior purchases of equipment ($2.0 million) and for working
capital ($.7 million).
The Revolving Loan Agreement provides for borrowings of up to $20 million.
The Company has several interest rate options available: 1) floating
prime, payable monthly, 2) 30-day LIBOR plus 2.5%, payable monthly, 3)
three-month, six-month or twelve-month LIBOR plus 2.25%, payable
quarterly. The Company and the banking institution are discussing various
interest rate agreements, designed to mitigate interest rate risk to the
Company, which agreement has not yet been finalized. The Revolving Loan
agreement is secured by all of the Company's assets and matures September
30, 2002. At March 31, 2000, the outstanding balance due under the
Revolving Loan Agreement totaled $9.5 million, including $0.5 million at
the Prime Rate Option, $3.4 million at the 30-day LIBOR plus 2.5%
(8.6325%) option, and $5.6 million at the 90-day LIBOR plus 2.25% (8.53%)
option.
Continued
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE 5 - STOCK COMPENSATION PLANS
The Company has three stock-based compensations plans: a stock option
plan, an employee stock purchase plan and a stock grant plan.
Stock Option Plan
- -----------------
The Company has reserved 3,270,000 shares of its common stock for issuance
upon exercise of rights and options under the stock option plan.
Typically, rights and options have been granted, subject to a vesting
schedule, vesting at the rate of 20 percent per year, becoming fully
vested upon the change of control of the Company, and expiring 10 years
from the date of issuance. Certain options granted to senior management
are fully vested upon issuance.
In the three months ended March 31, 2000, the Company granted 6,000
options pursuant to the plan. 115,784 options were exercised in the
quarter.
Employee Stock Purchase Plan
- ----------------------------
Under the Company's employee stock purchase plan, eligible employees may
contribute up to 10 percent of their earnings, through payroll deductions,
to purchase shares of the Company's common stock. The purchase price is
equal to 85 percent of the fair value of the stock on specified dates. A
total of 800,000 shares were reserved under the plan and the maximum
number of shares to be issued is 200,000 per year. For the plan year
1999, a total of 7,471 shares were issued in January 2000 at $6.72 per
share.
Stock Grant Plan
- ----------------
During 1996, the Company adopted a stock grant plan under which stock
grants can be made to the Company's officers, directors, employees,
consultants, and advisors. The Company reserved 100,000 shares of its
common stock for issuance under the stock grant plan. The plan provides
for automatic grants of 50 shares per month to nonmanagement members of
the Company's Board of Directors. During the first quarter of 2000, those
members received grants for 450 shares. Compensation cost charged to
operations was measured by the fair market value of the stock on the date
of the grants.
In connection with certain executive employment agreements, the
Compensation Committee granted stock bonuses of 25,000 shares to each of
the Company's two senior officers. The grants are subject to a vesting
schedule whereby three-quarters of the shares were vested during 1997,
1998 and 1999. Shares are granted only as earned pursuant to the vesting
schedule in the employment agreements. The remaining shares are scheduled
to vest in 2000 subject to forfeiture provisions related to fulfillment of
performance goal set by the Committee in accordance with the employment
agreements. Additionally, the Company is liable for income and payroll
taxes attributable to the stock bonuses. Accordingly, the Company is
amortizing the cost of the stock bonuses over the term of the employment
agreements. As of March 31, 2000, the unamortized, prepaid expense
portion of this cost was approximately $328,000.
Continued
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE 6 - RECONCILIATION OF NET INCOME TO NET CASH
(USED BY) PROVIDED BY OPERATING ACTIVITIES
The reconciliation of net income to net cash (used by) provided by
operating activities for the three months ended March 31, 2000 and March
31, 1999 is as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Three Months Three Months
Ended Ended
3/31/00 3/31/99
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
Net Income $ 1,105 $ 754
------- -------
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and
amortization 542 377
Amortization of covenant
not to compete 0 8
Stock contribution to
profit sharing plan 0 101
Changes in assets
and liabilities:
(Increase) decrease in
accounts receivable (874) 618
(Increase) decrease in
inventories (1,691) 41
(Increase) in prepaid
expenses and other (896) (836)
(Increase) in patents
and other assets (227) (139)
Increase (decrease)
in accounts payable 468 (620)
(Decrease) in accrued
expenses (352) (417)
Increase in income
taxes payable 682 465
------- -------
Total adjustments (2,348) (402)
------- -------
NET CASH (USED BY) PROVIDED BY
OPERATING ACTIVITIES $(1,243) $ 352
======= =======
</TABLE>
Continued
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - EARNINGS PER SHARE
The following is a reconciliation of the net income (numerator) and number
of shares (denominator) for the computations of basic and diluted earnings
per shares:
<TABLE>
<CAPTION>
(000's Omitted)
-------------------------
For the quarter ended March 31, 1999
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
<S> <C> <C> <C>
Basic earnings per share $ 754 5,488 $0.14
Effect of dilutive stock
options 0 92
------ ------
Diluted earnings
per share $ 754 5,580 $0.14
====== ======
For the quarter ended March 31, 2000
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
Basic earnings per share $ 1,105 7,014 $0.16
Effect of dilutive stock
options 0 572
------ ------
Diluted earnings
per share $ 1,105 7,586 $0.15
====== ======
</TABLE>
At March 31, 2000, the Company had 7,069,188 common shares outstanding.
During the three months ended March 31, 2000, the
Company issued 123,705 shares. For purposes of computing earnings per
share, the shares issued during the period were weighted for the period of
time they were outstanding.
NOTE 8 SUBSEQUENT EVENTS
On May 17, 2000, the Company filed a Form 8-K disclosing its intent to
restate its revenue and income for fiscal year 1997 and to make resulting
adjustments to its balance sheet for subsequent periods. The balance
sheet data as of March 31, 2000 and December 31, 1999 reflect these
adjustments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended
- ------------------
March 31, 2000 and March 31, 1999
- ---------------------------------
TOTAL REVENUES
Sales revenue increased approximately $2.7 million (48%) in the three
months ended March 31, 2000 as compared with the three months ended March
31, 1999, from $5.3 million to $7.9 million The strong increase in sales
reflects a significant increase in demand for signal source components and
special assemblies used in commercial wireless infrastructure. Demand has
been driven by the rapid build out of international wireless networks, the
upgrading of domestic networks to satisfy higher bandwidth requirements
and the recent emergence of "last-mile" point-to-point/multipoint radio
networks including local multipoint service distribution ("LMDS") and
multipoint multimedia service distribution ("MMDS").
The Company produces seven major product lines:
1. Signal Processing components for industrial, military and
aerospace (Military/Aerospace Signal Processing, or MSP).
2. Signal Source components, primarily wide-band VCOs, for
industrial, military and aerospace (Military/Aerospace Signal
Source, or MSS).
3. Special Assemblies that combine MSP and MSS components
(Military/Aerospace Special Assemblies, or MSA).
4. Commercial Signal Source components including PLLs and narrow-
band VCOs (Commercial Signal Source, or CSS).
5. Commercial Signal Processing components, including
optoelectronic components and subassemblies used in magnetic and
fiberoptic products for CATV applications (Commercial Signal
Processing, or CSP).
6. Subscriber product components used in hand-held telephone sets,
pagers and other consumer-oriented products (Subscriber Signal
Source, or SSS).
7. Commercial Special Assemblies (CSA).
In the first three months of 2000, the composition of sales revenue was 3%
MSP, 8% MSS, less than 1% MSA, 77% CSS, 4% CSP, 5% SSS and 3% CSA. In the
first three months of 1999, the composition of sales revenue was 6% MSP,
7% MSS, less than 1% MSA, 68% CSS, 7% CSP, 12% SSS and less than 1% CSA.
COST OF GOODS SOLD
Cost of goods sold, as a percent of sales revenue, was 46% and 45% in the
three months ended March 31, 2000 and 1999, respectively. The increase
in the cost of goods sold for the period ended March 31, 2000 primarily
resulted from increased sales performance bonuses rewarded to the
Company's employees.
SELLING AND ENGINEERING EXPENSE
Selling expenses increased approximately $251,000, or 41%, for the three
months ended March 31, 2000 as compared to the three months ended March
31, 1999, primarily reflecting commissions on approximately $2.6 million
in increased sales in the quarter and increased personnel in the Sales
Department. The Company continues to actively advertise and travel to
promote its product lines.
Engineering expenses increased approximately $230,000, or 69%, for the
three months ended March 31, 2000 as compared to the three months ended
March 31, 1999. These increases reflect ongoing improvements to the
engineering department, including increased engineering staff and related
equipment costs and expenses to support new product development and
expansion of existing product lines and overall increased production
bonuses rewarded by the Company to its employees.
GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES
General and administrative expenses increased approximately $489,000, or
103%, for the three months ended March 31, 2000 as compared to the three
months ended March 31, 1999. The primary increases in G&A expenses were
a $100,000 increase in the reserve for uncollectible accounts receivable,
a $100,000 increase in shareholder expenses due to increased board of
director and committee activity, and related legal and accounting costs,
and a $200,000 increase in staffing expenses, including wages and bonuses,
in corporate administration, finance, human resources, and management
information systems.
Other expenses decreased approximately $22,000 in the three months ended
March 31, 2000 as compared to the three months ended March 31, 1999.
INTEREST INCOME AND EXPENSE
The Company manages its credit facility and money fund in tandem.
Interest income is earned on the Company's short-term investments in a
U.S. government securities money fund purchased with proceeds from its
March 1997 convertible debenture offering as well as subsequent exercises
of warrants and employee stock options.
Interest income increased approximately $78,000, or 115%, to approximately
$146,000, in the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. A significant portion of the proceeds from
the exercises of warrants and employee stock options in the fourth quarter
of 1999 were invested in the money fund.
Interest expense decreased approximately $4,000 (2%) for the three months
ended March 31, 2000 as compared with the three months ended March 31,
1999. Although long-term debt was higher in the first quarter of 2000
compared to the first quarter of 1999, $4.0 million of the proceeds from
the exercises of warrants and employee stock options was used to pay down
the Company's line of credit during the first quarter of 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $165,000 (44%) for
the three months ended March 31, 2000 as compared with the three months
ended March 31, 1999. The increase reflects depreciation on increased
investments in property, equipment and leasehold improvements and other
assets such as patents and ISO registration costs. Depreciation and
amortization expense is expected to continue to increase as a result of
these and future capital investments.
FINANCIAL CONDITION
LIQUIDITY
At March 31, 2000, the Company's working capital was $27.9 million
compared to $27.4 million at December 31, 1999. The Company's current
ratio was 8.8 to 1 as of March 31, 2000 and 8.4 to 1 at December 31, 1999.
CAPITAL RESOURCES
The Company formerly had two credit facilities, a line of credit with one
banking institution and a second facility, consisting of a term loan and a
revolving equipment term loan, with a second banking institution. On
March 24, 2000, the Company restructured its credit facilities by closing
its line of credit with one banking institution and establishing a new,
$20 million Revolving Loan Agreement with a 30-month maturity with the
second banking institution referred to above. Proceeds from the first
advance on the new Revolving Loan Agreement of $9.5 million were used to
pay off the previous line of credit ($16,000), the previous term loan and
revolving equipment term loans ($6.8 million), replenish previous
expenditures of marketable securities which had been used for purchases of
equipment ($2.0 million) and for working capital ($.7 million).
The Revolving Loan Agreement provides for borrowings of up to $20 million.
The Company has several interest rate options available: 1) floating
prime, payable monthly, 2) 30-day LIBOR plus 2.5%, payable monthly, 3)
three-month, six-month or twelve-month LIBOR plus 2.25%, payable
quarterly. The Company and the banking institution are discussing various
interest rate agreements, designed to mitigate interest rate risk to the
Company, which agreement has not yet been finalized. The Revolving Loan
agreement is secured by all of the Company's assets and matures September
30, 2002. At March 31, 2000, the outstanding balance due under the
Revolving Loan Agreement totaled $9.5 million, including $0.5 million at
the Prime Rate Option, $3.4 million at the 30-day LIBOR plus 2.5%
(8.6325%) option, and $5.6 million at the 90-day LIBOR plus 2.25% (8.53%)
option.
The Company finances certain of its annual insurance premiums through a
financing company. The amounts due under these loans totaled
approximately $155,000 as of March 31, 2000 and are paid in monthly
installments of $23,913 with interest rates ranging from 7.845% and 8.3%.
The Company believes that it has sufficient financial resources available
to meet its short-term working capital needs through cash flows generated
by operating activities and through the management of its sources of
financing. The Company also believes that, partially as the result of the
recent warrant and stock option exercises, it has adequate capital
resources to continue its growth plans.
BACKLOG
Total backlog of unfilled firm customer orders ("backlog") at March 31,
2000 was $22.9 million compared with $16.8 million at March 31, 1999.
Backlog at December 31, 1999 was $22.6 million.
YEAR 2000 ISSUES
The Company gave serious attention to the potential problems that could
have arisen from the rollover of computer clocks with two-digit year
fields when the year 2000 arrived. By December 31, 1999, the Company had
successfully completed all of its Year 2000 preparedness measures.
The costs that the Company incurred which were specific to the assessment
and remediation of Year 2000 issues were not material. No special
expenditures were required in the area of software or hardware; the
Company's growth over the last several years had enabled the Company to
purchase hardware and software that met Year 2000 compliance criteria.
Some legal fees and educational expenses were incurred to heighten
awareness and to help organize business activities to incorporate
assessment and remediation. For the most part, however, Year 2000 issues
were incorporated into other management routines, thereby minimizing
extraordinary costs.
The Company was very diligent to monitor the effects prior to and with the
advent of the clock rollover to January 1, 2000 and subsequent time
periods. The impact, if any, was negligible. The Company has not seen
any negative effects of the rollover in the business it does with either
its vendors or customers.
While there is no guarantee that there will be no residual effect from the
Year 2000 rollover, the Company believes that any such effect will be
minimal and within the ability of the Company to manage without a
noticeable impact to operations.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this document are forward-looking
statements. The accuracy of these statements cannot be guaranteed as they
are subject to a variety of risks including, but not limited to the
success of the products into which the Company's products are integrated,
governmental action relating to wireless communications licensing and
regulation, internal projections as to the demand for certain types of
technological innovation, competitive products and pricing, the success of
new product development efforts, the timely release for production and the
delivery of products under existing contracts, future economic conditions
generally, as well as other factors, including any events that result from
the year 2000 computer clock rollover.
VARI-L COMPANY, INC.
PART II--OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 Revolving Loan Agreement, Revolving
Note and General Security Agreement between the Company
and Bank One, Colorado, N.A. dated March 24, 2000
Exhibit 27 Financial Data Schedule
Exhibit 99 Letter from Haugen, Springer & Co.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 22, 2000 /s/Jon L. Clark
Jon L. Clark, V.P. Finance
and Principal Financial Officer
EXHIBIT INDEX
No. Description
- --- -----------
10 Revolving Loan Agreement, Revolving Note and General Security
Agreement between the Company and Bank One, Colorado, N.A. dated
March 24, 2000
27 Financial Data Schedule
99 Letter from Haugen, Springer & Co.
All of the foregoing exhibits are filed herewith electronically.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VARI-L'S
UNAUDITED FINANCIAL STATEMENTS PREPARED AS OF MARCH 31, 2000 AND FOR THE
THREE-MONTH PERIOD THEN ENDED, IN ITS 1ST QUARTER 2000 10-Q FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,800
<SECURITIES> 0
<RECEIVABLES> 5,859
<ALLOWANCES> 223
<INVENTORY> 11,946
<CURRENT-ASSETS> 31,438
<PP&E> 39,332
<DEPRECIATION> 6,591
<TOTAL-ASSETS> 68,499
<CURRENT-LIABILITIES> 3,575
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 37,050
<TOTAL-LIABILITY-AND-EQUITY> 51,755
<SALES> 7,866
<TOTAL-REVENUES> 8,012
<CGS> 3,589
<TOTAL-COSTS> 3,589
<OTHER-EXPENSES> 2,297
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 239
<INCOME-PRETAX> 1,787
<INCOME-TAX> 682
<INCOME-CONTINUING> 1,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105
<EPS-BASIC> .16
<EPS-DILUTED> .15
</TABLE>
REVOLVING LOAN AGREEMENT
Between
VARI - L COMPANY, INC.
and
BANK ONE, COLORADO, N.A.
March 24, 2000
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS 1
1.1 Definitions. 1
ARTICLE II THE REVOLVING LOAN 7
2.1 Agreement 7
2.2 Revolving Loan. 7
2.3 Payment of Note 8
2.4 Interest; Usury 8
2.5 Unused Revolving Commitment Fee 8
2.6 Voluntary Prepayment 8
2.7 Payment 9
2.8 Payment on Non-Business Days 9
ARTICLE III CONDITIONS OF LENDING 9
3.1 Initial Advance 9
3.2 The Initial and Subsequent Advances 10
ARTICLE IV SECURITY 11
4.1 Security Agreements 11
4.2 UCC 11
ARTICLE V REPRESENTATIONS AND WARRANTIES 11
5.1 Existence 11
5.2 Non-Contravention 11
5.3 Third Party Authorization 12
5.4 Authorization; Binding Effect 12
5.5 Litigation 12
5.6 Taxes 12
5.7 Names and Places of Business 12
5.8 Use of Proceeds 12
5.9 Other Obligations 13
5.10 Full Disclosure. 13
5.11 ERISA Compliance 13
5.12 Compliance with Laws 15
5.13 Financial Condition 15
5.14 Environmental Matters 15
5.15 First Priority Security Interest 15
5.16 Location of Inventory and Equipment 15
5.17 No Burdensome Agreements 15
5.18 Licenses 15
ARTICLE VI AFFIRMATIVE COVENANTS 16
6.1 Payment and Performance of Revolving Loan 16
6.2 Financial Statements. 16
6.3 Preservation of Existence, Etc 17
6.4 Maintenance of Property 17
6.5 Payment of Other Obligations 17
6.6 Insurance 17
6.7 Inspection of Property, Books and Records 18
6.8 Notices 18
6.9 ERISA Notices 18
6.10 Compliance with Laws 19
6.11 Further Assurances 19
6.12 Environmental Matters 19
6.13 Types of Business 19
6.14 Financial Covenants 19
6.15 Quick Ratio 20
6.16 Primary Deposit and Investment Accounts 20
ARTICLE VII NEGATIVE COVENANTS 20
7.1 Debt 20
7.2 Liens 20
7.3 Guaranty Obligations 21
7.4 Loans and Cash Advances by Borrower 21
7.5 Limitation on Investments and New Businesses 21
7.6 Mergers, Acquisitions and Consolidations 21
7.7 Burdensome Undertakings 21
7.8 Change in Location of Business 22
7.9 Disposition of Assets 22
7.10 ERISA 22
7.11 Transactions with Affiliates 23
7.12 Amendments to Organizational Documents 23
ARTICLE VIII EVENTS OF DEFAULT 23
8.1 Non-Payment 23
8.2 Other Defaults 23
8.3 Representation or Warranty 23
8.4 Loan Documents 23
8.5 Judgments 23
8.6 Insolvency 24
8.7 Bankruptcy, Etc 24
8.8 Cross-Default 24
8.9 ERISA 24
8.10 Loan Documents 25
8.11 Dissolution 25
8.12 Taxes 25
8.13 Interest Rate Agreement 25
ARTICLE IX REMEDIES 25
9.1 Automatic Acceleration of Revolving Loan 25
9.2 Optional Acceleration of Revolving Loan 25
9.3 Setoff 26
ARTICLE X MISCELLANEOUS 26
10.1 No Waiver; Cumulative Remedies 26
10.2 Notices 26
10.3 Counterpart Execution 27
10.4 Governing Law; Entire Agreement 27
10.5 Amendments and Waivers 27
10.6 Costs, Expenses and Indemnity 27
10.7 Inconsistent Provisions; Severability 28
10.8 Incorporation of Exhibits and Schedules 29
10.9 References and Titles 29
10.10 Calculations and Determinations 29
10.11 Waiver of Right to Trial by Jury 29
10.12 Arbitration 29
10.13 Successors and Assigns 30
10.14 Term of Agreement 30
10.15 Submission to Jurisdiction; Service of Process. 30
10.16 Limitation of Liability 30
LIST OF EXHIBITS
EXHIBIT A Request for Advance A-1
EXHIBIT B List of Closing Documents B-1
LIST OF SCHEDULES
Schedule 5.7 Chief Executive Office and Principal Place of Business
Schedule 5.11 ERISA Compliance
Schedule 5.16 Location of Inventory and Equipment
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT (this "AGREEMENT"), dated as of March
24, 2000, is between VARI-L COMPANY, INC., a Colorado corporation ("the
BORROWER"), with offices located in Denver, Colorado, and BANK ONE,
COLORADO, N.A., a national banking association (the "LENDER"), with
offices located in Denver, Colorado.
The Borrower desires to borrow from the Lender to provide funds for
the purposes set forth below, and the Lender is willing to lend such funds
to the Borrower to accomplish those purposes, subject to the terms and
conditions contained herein. Accordingly, in consideration of the mutual
agreements, provisions and covenants contained herein, the parties agree
as follows:
ARTICLE I
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DEFINITIONS
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1.1 DEFINITIONS. As used herein, each of the following capitalized
terms shall have the meaning given it in this Section 1.1:
"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.
"ADJUSTED LIBOR RATE" means the LIBOR Rate plus the applicable LIBOR
Spread.
"AFFILIATE" means as to any Person, each other Person which, directly
or indirectly (through one or more intermediaries or otherwise), is in
control of, is controlled by, or is under common control with, such
Person. 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.
"AUTHORIZED OFFICER" means the chief executive officer, the
president, the chief financial officer, or any other officer having
substantially the same authority and responsibility as specifically
designated in a resolution of the Board of Directors relating to the
Revolving Loan which has been delivered to the Lender.
"BUSINESS DAY" means any day other than a Saturday or Sunday or other
day on which commercial banks are authorized or required by law to be
closed for business with the public in Denver, Colorado, and if the
applicable Business Day relates to a LIBOR Advance, means such a day on
which dealings in U.S. dollar deposits are carried on in the London
interbank Eurodollar market.
"CAPITAL EXPENDITURES" for a period means any expenditure of money
for the lease, purchase, construction or other acquisition of any capital
asset, or for the lease of any other asset whether payable currently or in
the future, and whether or not capitalized on the Borrower's balance
sheet.
"CAPITAL LEASE" means any lease which is or should be capitalized on
the balance sheet of the lessee in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capital Leases calculated in accordance with GAAP.
"CLOSING DATE" means March 24, 2000.
"CODE" means the Internal Revenue Code of 1986, as amended, together
with the regulations promulgated thereunder.
"COLLATERAL" means all property of any kind which is subject to a
Lien in favor of Lender or which, under the terms of any Security
Document, is encumbered thereby or subject thereto including proceeds
thereof excluding, however, equipment and other personal property of the
Borrower located in New Mexico and Virginia having an aggregate value of
not more than $25,000.
"CONTROLLED GROUP" means the Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with
the Borrower pursuant to Section 414(b), (c), (m) or (o) of the Code.
"DEBT" means the sum (without duplication) of (a) all indebtedness
for borrowed money or for the deferred purchase price of property or
services (excluding accounts payable and prepaid insurance premiums
incurred in the ordinary course of business), (b) all obligations in
respect of letters of credit, acceptances, or similar obligations, (c) all
Capital Lease Obligations and (d) all obligations of any nature whatsoever
arising out of or in connection with any Interest Rate Agreement.
"DEFAULT RATE" means the otherwise applicable rate plus five percent
(5%).
"EBITDA" for a period means, the sum of (i) pretax earnings from
continuing operations, (ii) Interest Expense and (iii) depreciation,
depletion, and amortization of tangible and intangible assets, before (a)
special extraordinary gains, and (b) miscellaneous gains for such period,
computed and calculated in accordance with GAAP.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, rules, regulations, ordinances and codes, together with all
administrative orders, criteria, standards, directed duties, decrees,
judgments, injunctions, requests, licenses, authorizations and permits of,
and agreement with, any governmental authorities, in each case relating to
environmental or public health and safety matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulation promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b), 414(c) or 414(m) of the Code.
"ERISA EVENT" means (a) a Reportable Event with respect to a
Qualified Plan or a Multiemployer Plan; (b) a withdrawal by the Borrower
or any ERISA Affiliate from a Qualified Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA; (c) a complete or partial
withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer
Plan; (d) the filing of a notice of intent to terminate, the treatment of
a plan amendment as a termination under Section 4041 or 4041A of ERISA or
the commencement of proceedings by the PBGC to terminate a Qualified Plan
or Multiemployer Plan subject to Title IV of ERISA; (e) a failure by the
Borrower or any member of the Controlled Group to make required
contributions to a Qualified Plan or Multiemployer Plan; (f) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Qualified Plan or Multiemployer Plan; (g) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the
Borrower or any ERISA Affiliate; (h) an application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the
Code with respect to any Plan; (i) a non-exempt prohibited transaction
occurs with respect to any Plan for which the Borrower or any Subsidiary
of the Borrower may be directly or indirectly liable; or (j) a violation
of the applicable requirements of Section 404 or 405 of ERISA or the
exclusive benefit rule under Section 401(a) of the Code by any fiduciary
or disqualified person with respect to any Plan for which the Borrower or
any of its Subsidiaries may be directly or indirectly liable.
"EVENT OF DEFAULT" has the meaning set forth in ARTICLE VIII.
"FISCAL YEAR" means a twelve-month period ending on December 31 of
any year.
"FIXED CHARGE COVERAGE RATIO" means the ratio of EBITDA to the sum of
(a) Interest Expense, (b) current portion of Capital Lease Obligations,
(c) current maturities of long term debt, and (d) an amount equal to the
average amount of the Revolving Advances outstanding during the current
calendar quarter and the three previous calendar quarters less $5,000,000,
and the net amount then amortized as if such average amount of the
Revolving Advances were payable over an assumed period of three years on a
straight line basis.
"FLOATING RATE" means the Prime Rate.
"FLOATING RATE ADVANCE" means an Advance that bears interest based on
the Floating Rate.
"FUNDED DEBT" means all indebtedness for borrowed money and Capital
Lease Obligations.
"GAAP" means generally accepted accounting principles and practices
as consistently applied (except as otherwise required due to changes in
GAAP) by the Borrower; provided, however, if any change in any accounting
principle or practice is required by the Financial Accounting Standards
Board (or any such successor), compliance with all financial covenants
provided for herein shall be determined without reference to such change
unless the Lender consents in writing that such change (or any other
change proposed by the Borrower in lieu of the change proposed by the
Financial Accounting Standards Board) shall be taken into account in
determining compliance with the financial covenants set forth herein,
which consent will not be unreasonably withheld.
"INITIAL FINANCIAL STATEMENTS" means the audited financial statements
of the Borrower for the Fiscal Year ending December 31, 1999.
"INTEREST EXPENSE" means the Borrower's total gross interest expense
as calculated in accordance with GAAP (excluding interest income), and
shall in any event include, without limitation, (i) interest expensed
(whether or not paid) on all Debt, (ii) the amortization of Debt
discounts, (iii) the amortization of all fees payable in connection with
the incurrence of Debt to the extent included in interest expense, and
(iv) the portion of any Capital Lease Obligation allocable to interest
expense.
"INTEREST PAYMENT DATE" shall have the meaning set forth in SECTION
2.4.
"INTEREST PERIOD" has the meaning set forth in the Note.
"INTEREST RATE AGREEMENT" means any agreement entered into by the
Borrower relating to the provision of an interest rate hedging product,
including, without limitation, any interest rate swap agreement, any
interest rate cap agreement, and any interest rate "collar" agreement, and
further including, without limitation, any ISDA Master Agreement ("Master
Agreement") by and between the Borrower and Lender or any affiliate of
Lender, together with any and all schedules and exhibits attached thereto.
"LIBOR ADVANCE" means an Advance that bears interest based on the
Adjusted LIBOR Rate.
"LIBOR RATE" has the meaning set forth in the Note.
"LIBOR SPREAD" means 2.50% per annum with respect to the one-month
LIBOR Rate, and 2.25% per annum with respect to the three-month, six-month
and one-year LIBOR Rate.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever.
"LOAN DOCUMENTS" means this Agreement, the Note, the Security
Documents, and all other documents executed and delivered by or on behalf
of the Borrower to the Lender in connection herewith or therewith.
"Maturity Date" means September 30, 2002.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (within the meaning
of Section 4001(a)(3) of ERISA) and to which any member of the Controlled
Group makes, is making or is obligated to make contributions or, during
the preceding three calendar years, has made, or been obligated to make,
contributions.
"NOTE" means the Borrower's revolving promissory note, payable to the
order of the Lender and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or restated from time
to time.
"OBLIGATIONS" means the Revolving Loan and all other obligations from
time to time owing by the Borrower to the Lender under or pursuant to any
of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation, or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" means the Liens set forth in Section 7.2.
"PERSON" means an individual, partnership, corporation, association,
business trust, joint stock company, trust or trustee thereof,
unincorporated association, joint venture, governmental unit or any agency
or subdivision thereof, or any other legally recognizable entity.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower or any member of the Controlled Group sponsors
or maintains or to which the Borrower or any member of the Controlled
Group makes, is making or is obligated to make contributions, and includes
any Multiemployer Plan or Qualified Plan.
"PRIME RATE" means an annual rate of interest which equals the
floating commercial Revolving Loan rate of the Lender announced from time
to time as its "prime rate," which rate is adjustable the date of any
change and may not be the lowest rate charged by the Lender.
"QUALIFIED PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the Code and
which any member of the Controlled Group sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding period
covering at least five plan years, but excluding any Multiemployer Plan.
"REPORTABLE EVENT" means, as to any Plan, (a) any of the events set
forth in Section 4043(b) of ERISA or the regulations thereunder, other
than any such event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the PBGC, (b) a withdrawal from a
Plan described in Section 4063 of ERISA, or (c) a cessation of operations
described in Section 4062(e) of ERISA.
"REQUEST FOR ADVANCE" means a request for a Revolving Advance given
by the Borrower to the Lender pursuant to Section 2.2, in substantially
the form of EXHIBIT A.
"REVOLVING ADVANCE" means an advance under the Note.
"REVOLVING COMMITMENT" means the commitment of the Lender under
Article II to make Revolving Advances on the Revolving Loan on the terms
and conditions provided therein; provided that the Revolving Commitment
shall not exceed $20,000,000 during the term of this Agreement.
"REVOLVING LOAN" means that certain revolving line of credit extended
to the Borrower by the Lender in the maximum principal amount of
$20,000,000.
"SECURITY DOCUMENTS" means the instruments listed in ARTICLE IV and
all other security agreements, deeds of trust, mortgages, chattel
mortgages, assignments, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now or hereafter delivered by the Borrower or any other Person
to the Lender in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the
Obligations or the performance of any other duties and obligations of the
Borrower under the Loan Documents.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate
entity, enterprise or organization which is directly or indirectly
(through one or more intermediaries) controlled by or owned fifty percent
or more by such Person.
"TANGIBLE NET WORTH" means the difference between (i) the tangible
assets of the Borrower, which, in accordance with GAAP are tangible
assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper and (ii) all liabilities of the
Borrower; PROVIDED, HOWEVER, that notwithstanding the foregoing in no
event shall there be included as such tangible assets, patents,
trademarks, trade names, copyrights, licenses, goodwill, receivables from
Affiliates, directors, officers or employees, deferred charges or treasury
stock.
"TOTAL LIABILITIES" means liabilities of the Borrower that should be
reflected on a balance sheet prepared in accordance with GAAP, and shall
include all Debt of the Borrower.
"UCC" shall mean the Uniform Commercial Code as in effect from time
to time in the State of Colorado.
"UNFUNDED PENSION LIABILITIES" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used by
the Plan's actuaries for funding the Plan pursuant to section 412 of the
Code for the applicable plan year.
"UNMATURED EVENT OF DEFAULT" shall mean any event that with the
passage of time or giving of notice, or both, would constitute an Event of
Default.
ARTICLE II
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THE REVOLVING LOAN
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2.1 AGREEMENT. Subject to the terms and conditions of the
Agreement, the Lender agrees to make Revolving Advances of the Revolving
Loan to the Borrower. The Revolving Loan shall be evidenced by the Note
and secured by the Security Documents. Payments made by the Borrower in
connection with the Revolving Loan shall be credited the same Business Day
if received by the Lender before 11:00 a.m Denver, Colorado time, or the
next Business Day if received after 11:00 a.m. Denver, Colorado time.
2.2 REVOLVING LOAN. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make Revolving Advances of the
Revolving Loan to the Borrower from time to time from the date all of the
conditions set forth in Section 3.1 are satisfied to the Maturity Date.
Proceeds of the Revolving Loan shall be used to refinance existing debt
with the Lender and Wells Fargo Bank, N.A., to finance working capital and
other general corporate purposes. 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 would exceed $20,000,000. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Note and shall be secured by
the Collateral and Security Documents as provided herein. Within the
limits set forth in this Section 2.2, the Borrower may borrow, prepay and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.2:
(a) The Borrower shall make each Request for Advance to the
Lender before 11:00 a.m. (Denver time) three Business Days prior to the
date of the requested Revolving Advance (with respect to a LIBOR Advance)
and on the same Business Day of the requested Revolving Advance (in the
case of a Floating Rate Advance). Requests for Revolving Advances must be
made in writing on the form attached hereto as Exhibit A specifying (w)
the date of the requested Revolving Advance, and (x) the amount thereof,
(y) whether the Revolving Advance will be a LIBOR Advance or a Floating
Rate Advance and (z) the duration of the Interest Period applicable to any
LIBOR Advance. If a request for a Revolving Advance shall fail to specify
the duration of any Interest Period for a LIBOR Advance, such Interest
Period shall be one month. Each Request for Revolving Advance shall be by
any Authorized Officer of the Borrower.
(b) Promptly upon fulfillment of the applicable conditions set
forth herein and in Article III, the Lender shall disburse the proceeds of
the requested Revolving Advance by crediting the same to the Borrower's
demand deposit account maintained with the Lender, unless the Lender and
the Borrower shall agree in writing to another manner of disbursement.
The Borrower shall repay all Revolving Advances even if the Authorized
Officer requesting a Revolving Advance was not in fact authorized to do
so. Any request for a Revolving Advance shall be deemed to be a
representation by the Borrower that the conditions set forth in Article
III have been satisfied as of the time of the request.
(c) Each Revolving Advance which shall accrue interest at the
Adjusted LIBOR Rate shall be in a minimum amount of $1,000,000 and for any
advances over $1,000,000, in minimum increments of $500,000, and each
Revolving Advance which shall accrue interest at the Floating Rate shall
be in a minimum amount of $100,000, and for any advances over $100,000, in
minimum increments of $100,000.
2.3 PAYMENT OF NOTE. Interest on the Revolving Loan shall be due
and payable in accordance with Section 2.4 below. On the Maturity Date,
the entire unpaid principal balance of the Note, and all unpaid interest
accrued thereon, shall in any event be due and payable.
2.4 INTEREST; USURY
(a) Interest accruing on the outstanding principal balance of
the Revolving Loan shall be computed by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Interest accruing on the Note shall be due and
payable in arrears as follows:
(i) for any portion of the Revolving Loan bearing interest
at the Adjusted LIBOR Rate with an Interest Period of
1 month or 3 months, on the last day of the Interest
Period;
(ii) for any portion of the Revolving Loan bearing interest
at the Adjusted LIBOR Rate with an Interest Period of
6 months or 12 months, on the last day of each
calendar quarter; or
(iii) for any portion of the Revolving Loan bearing
interest at the Floating Rate, the fifth day of each
calendar month (as applicable, the "Interest Payment
Date").
(b) At any time after the occurrence of an Event of Default, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Revolving Advances outstanding from
time to time shall bear interest at the Default Rate.
2.5 UNUSED REVOLVING COMMITMENT FEE. The Borrower agrees to pay to
the Lender an unused line fee at the rate of .15% per annum on the average
daily Unused Amount from the date of this Agreement to and including the
Maturity Date, due and payable quarterly in arrears on the last day of
each calendar quarter and the Maturity Date. For the purposes of this
Section 2.5, "Unused Amount" at any time means $15,000,000, less the
average outstanding principal balance of the Revolving Loan for the
quarter.
2.6 VOLUNTARY PREPAYMENT. The Borrower may prepay the Revolving
Loan in whole at any time or in part from time to time; provided that with
respect to any portion of the Revolving Loan bearing interest at the
Adjusted LIBOR Rate if the Borrower makes any such prepayment other than
on the last day of an Interest Period, the Borrower shall pay additional
costs in accordance with the Note.
2.7 PAYMENT. All payments to be applied against the Obligations
shall be made in immediately available funds. However, notwithstanding
the foregoing, the Borrower hereby authorizes the Lender without any
further action by the Borrower to charge an account of the Borrower
(designated by the Borrower) for all amounts payable against the
Obligations in accordance herewith and Lender agrees to so charge the
designated account in a timely manner. The Borrower agrees to ensure that
sufficient funds are available in such account to make the payment.
Notwithstanding the foregoing, the Borrower agrees that the Borrower's
obligation to make payments against the obligations continues in the event
there are no funds or insufficient funds to make the required payment
hereunder. In the event (i) the Lender fails to charge the account for
the payment of Obligations, and funds were on deposit in such account in
an amount sufficient to make the payment in full in a timely manner (as
evidenced by the account records of the Lender), or (ii) in the event that
the Borrower has made a timely request of Banc One Investment Management
Group to transfer sufficient funds to the account referenced above to pay
the Obligations, and Banc One Investment Management Group fails to comply
with such request, and sufficient funds of the Borrower were on deposit
with such Group to make such payment, there shall be no Event of Default
under Section 8.1 and the Lender shall not charge Default Interest in such
circumstance.
2.8 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day,
such payment may be made on the next succeeding Business 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.
ARTICLE III
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CONDITIONS OF LENDING
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3.1 INITIAL ADVANCE. The Lender shall have no obligation to make
the initial Revolving Advance of the Revolving Loan unless the Lender
shall have received all of the following, at the Lender's office in
Denver, Colorado, duly executed, acknowledged (if applicable), and
delivered by all parties thereto, and in form and substance satisfactory
to the Lender and its counsel:
(a) All of the documents, instruments, agreements and
certificates listed on the List of Closing Documents attached hereto as
Exhibit B;
(b) UCC lien searches as to the Borrower for the State of
Colorado and for all other relevant filing jurisdictions as to the
Collateral showing no prior Liens other than Permitted Liens on the
Property of the Borrower that constitutes Collateral;
(c) Evidence that the Lender has been named as mortgagee/loss
payee under all policies of casualty insurance, and as an additional
insured under all policies of liability insurance, as required by Section
6.6;
(d) All of the conditions of Section 3.2 have been satisfied;
(e) The Borrower shall have obtained a landlord's waiver, in
form and substance acceptable to Lender, with respect to each of its
properties;
(f) The payment to the Lender of the balance of the commitment
fee of $50,000 and the payment of legal fees and out-of-pocket expenses of
the Lender;
(g) Releases of UCC liens executed by Norwest Bank Colorado,
N.A. (which appear on the search referred to in (b) above) in form and
substance satisfactory to the Lender;
(h) Schedule 5.11 shall be completed; and
(i) All other documents and assurances which the Lender
requires or which it may reasonably request in connection with the
transactions contemplated by this Agreement shall have been provided.
3.2 THE INITIAL AND SUBSEQUENT ADVANCES. The obligation of the
Lender to make the initial Revolving Advance of the Revolving Loan and to
make subsequent Revolving Advances of the Revolving Loan is subject to
satisfaction of the conditions set forth in Article II and the following
conditions precedent:
(a) The Lender shall have received a Request for Advance, dated
the date of the requested Revolving Advance and executed by an Authorized
Officer of the Borrower in form and substance acceptable to Lender;
(b) All representations and warranties contained in Article V
hereof and in the Loan Documents shall be true on the date of such
requested Revolving Advance as if then given, and the Borrower shall have
performed or observed all terms, agreements, conditions and obligations
hereunder and under the Loan Documents to be performed or observed on or
prior to the date of such requested Revolving Advance;
(c) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing or would result from the making of the
requested Revolving Advance;
(d) All legal matters relating to the Loan Documents, such
Revolving Advance and the consummation of the transactions contemplated
thereby shall be satisfactory to the Lender and its counsel; and
(e) There shall have occurred no material adverse change, as
determined by Lender, in the condition, financial or otherwise, of
Borrower or the Collateral.
ARTICLE IV
----------
SECURITY
--------
The repayment of the Revolving Loan and all extensions and renewals
thereof, and the performance of all obligations of the Borrower hereunder
and under the other Loan Documents, shall be secured by the Security
Documents, including without limitation, the following:
4.1 SECURITY AGREEMENTS. A Security Agreement, in form and
substance acceptable to Lender, from the Borrower to the Lender, covering,
among other things, all personal property of the Borrower, including
without limitation, all "accounts," "accounts receivable," "equipment,"
"inventory" and "general intangibles" as such terms are defined in the UCC
and all machinery.
4.2 UCC. All UCC's filed in connection with the Revolving Loan.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Lender that:
5.1 EXISTENCE.
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado, and
is qualified to do business in every other jurisdiction in which the
nature of its business or the ownership of its assets requires such
qualification and failure to so qualify could have a material adverse
effect on the Borrower, its business, operations, assets, property,
prospects or condition (financial or otherwise).
(b) The Borrower has the power and authority to own the
property which it owns and to carry on its business as such business is
now conducted.
(c) The Borrower has all material franchises, permits, licenses
and similar agreements necessary to carry on its business as now
conducted, and has not received any notices of default or termination
under any of such agreements.
5.2 NON-CONTRAVENTION. The execution, delivery and performance by
the Borrower of this Agreement, the borrowing by the Borrower under this
Agreement and the Note, and the execution, delivery and performance by the
Borrower of any of the other Loan Documents to which it is a party and the
consummation of the transactions contemplated herein and therein, will not
conflict with the articles of incorporation or bylaws of the Borrower, or
conflict with or result in any breach of any lien, lease, agreement,
instrument, order, injunction, judgment, decree, law, rule, regulation or
any other restriction of any kind or character to which the Borrower is a
party or is subject or by which the Borrower or its properties are bound
or affected or result in the creation or imposition of any Lien upon any
property of the Borrower.
5.3 THIRD PARTY AUTHORIZATION. No consent, approval, exemption,
authorization or order of or other action by, and no notice to or filing
with, any court or governmental authority or third party is required by
the Borrower in connection with the execution, delivery or performance by
Borrower of this Agreement; the borrowing by the Borrower under this
Agreement and the Note; and the execution, delivery or performance by the
Borrower of any other Loan Document to which it is a party or to
consummate any transactions contemplated hereby or thereby.
5.4 AUTHORIZATION; BINDING EFFECT. The Borrower has full power and
authority to enter into this Agreement and any of the other Loan Documents
to which it is a party. The execution and delivery of this Agreement, and
the other Loan Documents, and the performance and observance of their
terms, conditions and obligations, have been duly authorized by all
necessary action by the Borrower. This Agreement, the Note and the other
Loan Documents are the legal, valid and binding obligations of the
Borrower to the extent it is a party thereto, enforceable against the
Borrower in accordance with their respective terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency or similar
laws relating to the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
5.5 LITIGATION. There are no actions, suits, proceedings, labor
controversies, or claims against the Borrower or any of its properties
pending or, to the knowledge of the Borrower, threatened in writing before
any court or by or before any governmental instrumentality, which could
have a material adverse effect on the business, operations, assets,
property, prospects or condition (financial or otherwise) of the Borrower
or the ability of the Borrower to perform its obligations under this
Agreement, or under any of the other Loan Documents to which it is a
party. There exists no default or breach by the Borrower with respect to
any order, writ, injunction, decree or demand of any court or governmental
instrumentality, nor does the execution, delivery or performance by the
Borrower of any of the Loan Documents to which it is a party result in any
such default or breach.
5.6 TAXES. The Borrower has filed all required tax returns and paid
all taxes and other governmental charges or levies imposed upon or against
it or its properties, including the Collateral, before the same became in
default.
5.7 NAMES AND PLACES OF BUSINESS. The Borrower has not been known
by, or used any other corporate, trade, or fictitious name. The chief
executive office and principal place of business of the Borrower are set
forth on Schedule 5.7. The place where the Borrower keeps its books and
records concerning the Collateral is set forth in Schedule 5.7, and has
been there for at least the four months immediately preceding the date
hereof.
5.8 USE OF PROCEEDS. No portion of the Revolving Loan will be used
directly or indirectly by any Person for personal, family, household or
agricultural purposes.
5.9 OTHER OBLIGATIONS. The Borrower does not have any outstanding
Debt of any kind (including contingent obligations, tax assessments, and
unusual forward or long-term commitments) except Debt permitted by Section
7.1 or 7.3.
5.10 FULL DISCLOSURE. No certificate, statement, report or other
information delivered herewith or heretofore by the Borrower to the Lender
in connection with the negotiation of this Agreement or any other Loan
Document or in connection with any transaction contemplated hereby
contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements contained herein or therein
not misleading as of the date made or deemed made when taken as a whole,
provided, however, that nothing herein shall require Borrower to make any
disclosure to Lender of non- public material information which does not
specifically relate to the Revolving Loan or to Borrower's assets or
financial condition if and to the extent that Borrower has been advised by
legal counsel that, under applicable securities laws, the public
disclosure of such non-financial material information is not required by
law or that the determination as to whether the making of such public
disclosure is within the reasonable business judgment of the Borrower's
Board of Directors. There is no fact known to the Borrower that has not
been disclosed to the Lender in writing that could materially and
adversely affect the Borrower's business, operations, assets, property,
prospects or condition (financial or otherwise), provided, however, that
nothing herein shall require Borrower to make any disclosure to Lender of
non- public material information which does not specifically relate to the
Revolving Loan or to Borrower's assets or financial condition if and to
the extent that Borrower has been advised by legal counsel that, under
applicable securities laws, the public disclosure of such non-financial
material information is not required by law or that the determination as
to whether the making of such public disclosure is within the reasonable
business judgment of the Borrower's Board of Directors. Nevertheless, the
Borrower shall make all reports to Lender required by Section 6.2 or which
are otherwise specifically required by this Agreement to be made.
5.11 ERISA COMPLIANCE. The Borrower agrees to deliver to the Lender
prior to the first Revolving Advance a list of all Plans, including
Multiemployer Plans to be included in Schedule 5.11. All written
descriptions thereof provided to the Lender are true and complete in all
respects. Except as disclosed on Schedule 5.11:
(a) Each Plan and Multiemployer Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and
other Federal or state law, including all requirements in form and in
operation, under the Code or ERISA for filing reports (which are true and
correct in all material respects as of the date filed), and benefits have
been paid in accordance with the provisions of the Plan.
(b) Each Qualified Plan and Multiemployer Plan satisfies the
qualifications and requirements under Section 401 of the Code, and the
trusts created are exempt from tax under the provisions of Section 501 of
the Code, and to the best knowledge of the Borrower, except as otherwise
disclosed to Lender, nothing has occurred which would cause the loss of
such qualification or tax-exempt status.
(c) There are no outstanding material liabilities under Title
IV of ERISA with respect to any Plan maintained or sponsored by the
Borrower or any ERISA Affiliate, nor with respect to any Plan to which the
Borrower or any ERISA Affiliate contributes or is obligated to contribute.
(d) No Plan subject to Title IV of ERISA has any Unfunded
Pension Liability.
(e) No member of the Controlled Group has ever represented,
promised or contracted (whether in oral or written form) to any current or
former employee (either individually or to employees as a group) that such
current or former employee(s) would be provided, at any cost to any member
of the Controlled Group, with life insurance or employee welfare plan
benefits (within the meaning of section 3(1) of ERISA) following
retirement or termination of employment. To the extent that any member of
the Controlled Group has made any such representation, promise, or
contract, such member has expressly reserved the right to amend or
terminate such life insurance or employee welfare plan benefits with
respect to claims not yet incurred.
(f) Members of the Controlled Group have complied in all
material respects with the notice and continuation coverage requirements
of Section 4980B of the Code.
(g) No ERISA Events have occurred or are reasonably expected to
occur with respect to any Plan(s).
(h) There are no pending or, to the best knowledge of the
Borrower, threatened claims, actions or lawsuits, other than routine
claims for benefits in the usual and ordinary course, asserted or
instituted against (i) any Plan maintained or sponsored by the Borrower or
its assets, (ii) any member of the Controlled Group with respect to any
Qualified Plan, or (iii) any fiduciary with respect to any Plan for which
the Borrower may be directly or indirectly liable, through indemnification
obligations or otherwise.
(i) Neither the Borrower nor any ERISA Affiliate has incurred
nor reasonably expects to incur (i) any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Section 4201 or 4243 of ERISA, or
secondary liability under Section 4204 of ERISA, with respect to a
Multiemployer Plan or (ii) any liability under Title IV of ERISA (other
than premiums due and not delinquent under Section 4007 of ERISA) with
respect to a Plan.
(j) Neither the Borrower nor any ERISA Affiliate has
transferred any Unfunded Pension Liability to a Person other than the
Borrower or an ERISA Affiliate or otherwise engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
(k) No member of the Controlled Group has engaged, directly or
indirectly, in a non-exempt prohibited transaction (as defined in Section
4975 of the Code or Section 406 of ERISA) in connection with any Plan
which would reasonably be expected to have a material adverse effect on
the properties, business, operations, prospects or condition (financial or
otherwise) of the Borrower.
5.12 COMPLIANCE WITH LAWS. The Borrower is in material compliance
with all laws, rules and regulations, and determination of any arbitrator
or governmental authority applicable to or binding upon it or any of its
property or to which it or any of its property is subject.
5.13 FINANCIAL CONDITION. The Initial Financial Statements fairly
present the Borrower's financial position at the date thereof and the
results of Borrower's operations and cash flows for the period thereof.
Since the date thereof, there has been no material adverse change in the
business operations, assets, property, prospects or condition (financial
or otherwise) of the Borrower.
5.14 ENVIRONMENTAL MATTERS. To the best of Borrower's knowledge, (i)
the operations of the Borrower comply in all material respects with all
Environmental Laws; (ii) the Borrower has obtained all permits, licenses
and other authorizations that are required under any Environmental Laws
with respect to its operations, and the Borrower is in compliance with all
terms and conditions of such required permits, licenses and
authorizations; (iii) none of the operations of the Borrower is the
subject of any federal, state or local investigation evaluating whether
any material remedial action is needed to respond to a release of any
hazardous or toxic waste, substance or constituent into the environment;
and (iv) there is no civil, criminal or administrative proceeding pending
or threatened in writing against the Borrower under any Environmental
Laws.
5.15 FIRST PRIORITY SECURITY INTEREST. The provisions of the
Security Agreements are effective to create, in favor of and for the
benefit of the Lender, legal, valid and enforceable security interests in
all of the Collateral described therein. The Lien of the Security
Agreements constitutes a perfected, first priority security interest in
all right, title and interest of the Borrower in the Collateral described
therein, prior and superior to all other Liens and interests.
5.16 LOCATION OF INVENTORY AND EQUIPMENT. The location of all of
Borrower's inventory, equipment and fixtures is set forth in Schedule
5.16.
5.17 NO BURDENSOME AGREEMENTS. The Borrower is not a party to or in
any manner bound by, any contract or agreement that would materially
adversely affect the Borrower or its ability to perform its obligations
under the Loan Documents.
5.18 LICENSES. The Borrower has the right to use all trademarks,
trademark rights, trade names, trade name rights, copyrights, licenses,
permits, authorizations and other rights as are necessary for the present
and planned future conduct by the Borrower of the businesses to be
operated by it on and after the date hereof. All of the foregoing are and
will be in full force and effect, and the Borrower is and will be in
substantial compliance with the foregoing, without any known conflict with
the valid rights of others which could have or cause a material adverse
effect on the Borrower's business, operations, assets, property, prospects
or condition (financial or otherwise). No event has occurred which
permits, or after notice or lapse of time or both would permit, the
revocation or termination of any such license or other right or affects or
would affect the rights of the Borrower thereunder so as to have a
material adverse effect on the Borrower's business, operations, assets,
property, prospects or condition (financial or otherwise).
ARTICLE VI
----------
AFFIRMATIVE COVENANTS
---------------------
AFFIRMATIVE COVENANTS. Until payment in full of the Revolving Loan
and termination of all commitments by the Lender to make Advances
hereunder:
6.1 PAYMENT AND PERFORMANCE OF REVOLVING LOAN. The Borrower shall
duly and punctually pay or cause to be paid in lawful money of the United
States, the principal and interest on the Revolving Loan, and the Borrower
shall perform and observe all other obligations under this Agreement and
the other Loan Documents.
6.2 FINANCIAL STATEMENTS. The Borrower shall maintain proper books
of record and account in which full, true and correct entries will be made
of all business, dealings and affairs in accordance with GAAP, and the
Borrower shall deliver to the Lender, at the Borrower's expense and in
format acceptable to the Lender:
(a) Within 90 calendar days after the end of each Fiscal Year
(unless the Borrower shall deliver to the Lender a written extension of
the then-applicable filing deadline under the Securities Act of 1934, as
amended, from the Securities Exchange Commission, in which case the
Borrower may deliver the information set forth herein within the time
period so stipulated in the extension) either audited annual financial
statements of the Borrower as of the end of such Fiscal Year, together
with all notes thereto, prepared in reasonable detail in accordance with
GAAP, together with an unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, stating
that such financial statements present fairly the financial position for
the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise required due to changes
in GAAP) or the Borrower's report on Form 10-K filed by the Borrower with
the Securities and Exchange Commission.
(b) Within 45 calendar days after the end of each fiscal
quarter (unless the Borrower shall deliver to the Lender a written
extension of the then-applicable filing deadline under the Securities Act
of 1934, as amended, from the Securities Exchange Commission, in which
case the Borrower may deliver the information set forth herein within the
time period so stipulated in the extension) either an unaudited quarterly
income statement, balance sheet and statement of cash flows for the
Borrower for the relevant quarter, prepared in reasonable detail and in
accordance with GAAP and certified by an appropriate Authorized Officer of
the Borrower as fairly presenting in accordance with GAAP (subject to year-
end adjustments and the omission of footnotes), the financial position and
the results of operations of the Borrower or the Borrower's report on Form
10-Q filed by the Borrower with the Securities and Exchange Commission.
(c) Together with the delivery of each of the financial
statements or reports described in Subsection (a) and (b) above, a
certificate signed by an Authorized Officer of the Borrower in a form
acceptable to Lender, showing the calculation of and compliance with the
financial covenants contained in Section 6.14 and 6.15, and stating that,
to the best of such officer's knowledge, no Event of Default or Unmatured
Event of Default has occurred and is continuing except as specified in
detail in such certificate.
(d) Promptly after the furnishing thereof to the shareholders
of the Borrower copies of all financial statements, reports and proxy
statements so furnished; and promptly upon the filing thereof, copies of
all registration statements and any other reports which the Borrower files
with the Securities and Exchange Commission.
(e) Prior to the end of the Borrower's Fiscal Year, the
Borrower's proposed Capital Expenditure budget for the ensuing Fiscal
Year.
6.3 PRESERVATION OF EXISTENCE, ETC. The Borrower shall maintain in
full force and effect its existence as a corporation and its good standing
under the laws of the State of Colorado, and the Borrower shall maintain
its right to transact business in all states where its activities and
ownership of assets are such that qualification to transact business is
necessary under the laws of such states and failure to so qualify could
have a material adverse effect on the business, operations, assets,
property, prospects or condition (financial or otherwise) of the Borrower.
6.4 MAINTENANCE OF PROPERTY. The Borrower shall maintain, preserve,
protect and keep in good repair and in good working order and condition
the Collateral; and the Borrower shall maintain all other properties, real
or personal, used or useful in its business in good repair and in good
working order and condition.
6.5 PAYMENT OF OTHER OBLIGATIONS. The Borrower shall duly and
punctually pay and discharge all taxes, assessments and other governmental
charges assessed against or imposed upon or with respect to the Borrower
or its properties or assets prior to the date when they shall become
delinquent, unless the same are being contested in good faith and by
appropriate proceedings, appropriate reserves have been established in
accordance with GAAP and for which there is no risk of loss of any of the
Collateral.
6.6 INSURANCE.
(a) In addition to any insurance requirements set forth in the
Security Documents, the Borrower shall keep all of its insurable property,
real and personal, adequately insured at all times in financially sound
and reputable independent insurance companies having a rating of "A" VII
or better by A.M. Best Co., in Best's Rating Guide, against fire and
against such other risks as are customarily insured against by the same or
similar businesses of a comparable size, and fully insure against its
employer's and public liability risks, all in such amounts and upon such
terms and conditions, including deductibles, consistent with industry
standards.
(b) Each insurance policy covering Collateral shall be
endorsed:
(i) to provide for payment of losses to the Lender, as its
interest may appear; (ii) to provide that such policies may not be
canceled, reduced or affected in any manner for any reason without thirty
days prior notice to the Lender; (iii) to provide for any other matters
specified in any applicable Security Document or which the Lender may
reasonably require; and (iv) to provide for insurance against fire,
casualty and any other hazards normally insured against, in the amount of
the full value (less a reasonable deductible not to exceed amounts
customary in the industry for similarly situated businesses and
properties) of the property insured.
(c) The Borrower shall maintain at all times adequate insurance
against its liability for injury to persons or property, or death, which
insurance shall be by financially sound and reputable independent
insurers, having a rating of "A" VII or better by A.M. Best Co., in Best's
Rating Guide, in an amount not less than $5,000,000 for each occurrence.
Such policies must be written as an occurrence basis so as to provide
blanket contractual liability, broad form property damage coverage, and
coverage for products and completed operations.
6.7 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Lender's duly
authorized officers, employees and agents shall have the right to inspect
(and make copies of or abstracts therefrom) the Collateral and the other
property, books and records of the Borrower, and to discuss the Borrower's
affairs, finances and accounts with the Borrower's officers and its
independent accountants, and furnish any other data which the Lender may
reasonably request, and which the Borrower has not previously agreed in
writing to keep confidential, all at the expense of the Borrower and at
any reasonable time and as often as the Lender may reasonably request.
6.8 NOTICES. The Borrower shall promptly give written notice to the
Lender of any of the following:
(a) Any material adverse change in the business, operations,
assets, property, prospects or condition (financial or otherwise) of the
Borrower; (b) the occurrence of any Event of Default or Unmatured Event of
Default; (c) the institution of any litigation or other proceeding before
any governmental body or official, or any against the Borrower or any of
its assets and any material developments in any pending litigation or
other proceeding before any governmental body or official that in any such
case could materially adversely affect the business, operations, property,
assets, prospects, or condition (financial or otherwise) of the Borrower;
(d) any existing or pending investigation or inquiry, or any investigation
or inquiry known to the Borrower to have been threatened, against or with
respect to the Borrower or any of its properties by any governmental
authority in connection with any applicable Environmental Laws; (e) any
litigation affecting any of the Collateral; and (f) any fact that causes
or may cause the Lender to fail to have a valid, enforceable and perfected
first priority lien on any of the Collateral, except as expressly
permitted by this Agreement or the Security Documents.
6.9 ERISA NOTICES. The Borrower shall promptly give written notice
to the Lender of any of the following events affecting the Borrower or any
member of its Controlled Group (but in no event more than ten days after
becoming aware of such event), together with a copy of any notice with
respect to such event that may be required to be filed with any
governmental authority and any notice delivered by any governmental
authority to the Borrower or any member or its Controlled Group with
respect to such event:
(a) an ERISA Event;
(b) the adoption of any new Plan that is subject to Title IV of
ERISA or section 412 of the Code by any member of the Controlled Group;
(c) the adoption of any amendment to a Plan that is subject to
Title IV of ERISA or section 412 of the Code, if such amendment results in
a material increase in benefits or unfunded liabilities; or
(d) the commencement of contributions by any member of the
Controlled Group to any Plan that is subject to Title IV of ERISA or
section 412 of the Code.
6.10 COMPLIANCE WITH LAWS. The Borrower shall comply with all
applicable laws, statutes, rules and regulations of the United States and
of any state or municipality, and of any official, arbitrator or
governmental authority, in respect of the conduct of business and
ownership of property by the Borrower.
6.11 FURTHER ASSURANCES. The Borrower shall promptly and at the
Borrower's own expense, do all things necessary or expedient to be done to
effectively create, perfect, maintain and preserve the Liens intended to
be created by the Security Documents as a Lien on real property and
fixtures.
6.12 ENVIRONMENTAL MATTERS. The Borrower shall use and operate all
of its facilities and properties in compliance with all Environmental
Laws, keep all necessary permits, approvals, certificates, licenses and
other authorizations relating to environmental matters in effect and
remain in compliance therewith.
6.13 TYPES OF BUSINESS. The Borrower shall engage only in its
primary business on the Closing Date, as the same may be modified in the
ordinary course of business without changing the nature of such business.
6.14 FINANCIAL COVENANTS. The Borrower shall comply with the
following financial covenants:
(a) MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrower will
maintain a minimum Fixed Charge Coverage Ratio of 1.30:1.00, calculated as
of the last day of each calendar quarter and based on such quarter and the
prior three calendar quarters, such calculations to be based on the
information shown on the most recent unaudited financial statements of the
Borrower delivered to the Lender in accordance herewith.
(b) MAXIMUM FUNDED DEBT TO EBITDA RATIOS. The Borrower will
maintain the ratio of maximum Funded Debt to EBITDA of 2.50:1.00,
calculated as of the last day of each calendar quarter and based on such
quarter and the prior three calendar quarters, such calculations to be
based on the information shown on the most recent unaudited financial
statements of the Borrower delivered to the Lender in accordance herewith.
(c) TANGIBLE NET WORTH. The Borrower represents and warrants
that the Initial Financial Statements demonstrate that the Borrower had a
Tangible Net Worth of at least $25,000,000 as of the date thereof.
Beginning with the fiscal year ending December 31, 2000, and for each
fiscal year thereafter, the Borrower shall maintain a Tangible Net Worth
equal to at least the previous fiscal year's Tangible Net Worth plus 75%
of the current fiscal year's net income, if any, not taking into account
any net losses in any such Fiscal Year.
Such ratios shall be based on the information shown in the most
recent audited financial statements of the Borrower delivered to the
Lender in accordance herewith.
6.15 QUICK RATIO. The Borrower will maintain a Quick Ratio of
1.00:1.00, determined at the end of each calendar quarter. "Quick Ratio"
is defined to mean the ratio of current assets to current expenses,
excluding inventory and prepaid expenses, such calculations to be based on
the information shown on the most recent unaudited or audited financial
statements of the Borrower delivered to the Lender in accordance herewith.
6.16 PRIMARY DEPOSIT AND INVESTMENT ACCOUNTS. Borrower shall
maintain its primary treasury management and investment management
relationships at Lender or Banc One Investment Management Group, as the
case may be.
ARTICLE VII
-----------
NEGATIVE COVENANTS
------------------
NEGATIVE COVENANTS. Until payment in full of the Revolving Loan and
termination of all commitments by the Lender to make Revolving Advances
hereunder and without the prior written consent of the Lender:
7.1 DEBT. The Borrower shall not create, incur, assume or permit to
exist any Debt, except:
(a) The Revolving Loan;
(b) Current trade payables incurred for goods or services in
the ordinary course of business; and
(c) Debt incurred by the Borrower in connection with the
acquisition of automobiles in the ordinary course of business.
7.2 LIENS. The Borrower shall not create, assume or permit to exist
any Lien upon the Borrower's properties or assets, whether now owned or
hereafter acquired, real or personal, except:
(a) Those created by the Security Documents;
(b) Liens for taxes not delinquent or being contested in good
faith and by appropriate proceedings, for which adequate reserves have
been set aside on the Borrower's books and for which there is no risk of
loss of any of the Collateral;
(c) Mechanic's, workmen's, materialmen's and other like Liens
arising in the ordinary course of business in respect of obligations not
overdue or which are being contested in good faith and by appropriate
proceedings, for which adequate reserves have been set aside on the
Borrower's books and for which there is no risk of loss of any of the
Collateral;
(d) Liens created in connection with Debt incurred in
accordance with 7.1(c);
(e) Liens existing as of the date hereof, created for the
benefit of Lucent Technologies Inc., and Dell Financial Services, L.P.
with respect to certain equipment of the Borrower as shown on the UCC
search referred to in Section 3.1(b); and
(f) Purchase money security interests for equipment with a
value not to exceed $100,000 in each year.
7.3 GUARANTY OBLIGATIONS. The Borrower shall not assume, guarantee,
endorse or otherwise become liable in connection with the Debt or stock of
any Person, except for any endorsements of negotiable instruments for
deposit or collection in the ordinary course of its business and except
for guarantees of indebtedness owed by David G. Sherman and Joseph H.
Kiser to Carolyn Y. Kiser in an amount not to exceed $169,000.
7.4 LOANS AND CASH ADVANCES BY BORROWER. The Borrower shall not
make any loan or cash advance to any Person at any time, excluding,
however, advances to employees in the ordinary course of business and a
loan in the amount of $30,000 to Pacific Mobile Intelligence, Inc., and
except for accounts receivable or notes receivable arising from the sale
or lease of goods or services in the ordinary course of its business.
7.5 LIMITATION ON INVESTMENTS AND NEW BUSINESSES. The Borrower
shall not (a) consummate a tender offer, stock purchase transaction or
investment in the securities of any other Person, (b) acquire by purchase
or otherwise all or an integral part of the business of any other Person
or the property or assets comprising such business or such part thereof,
or (c) organize, capitalize or acquire any Subsidiary.
7.6 MERGERS, ACQUISITIONS AND CONSOLIDATIONS. Borrower shall not
merge or consolidate into or with any Person, or purchase or otherwise
acquire all or substantially all of the assets of any other Person.
7.7 BURDENSOME UNDERTAKINGS. The Borrower shall not undertake, or
become contractually bound to undertake, any action not in the ordinary
course of business that could materially adversely affect the Borrower or
its primary business, operations, assets, property, prospects, or
condition (financial or otherwise). "Primary business" shall mean the
design, production, manufacture and sale of electronic devices and related
components.
7.8 CHANGE IN LOCATION OF BUSINESS. The Borrower shall not move its
place of business or chief executive office or the place where the
Borrower keeps its books and records concerning the Collateral (including,
without limitation, the records with respect to its accounts and contract
rights), from one state to another without giving the Lender forty-five
days' prior written notice of the proposed new location thereof and
executing all documents required by Lender in connection therewith.
7.9 DISPOSITION OF ASSETS. The Borrower shall not sell, assign,
transfer, convey, lease, exchange or otherwise dispose of (whether in one
or a series of transactions) any of its assets, real or personal
(including accounts and notes receivable, with or without recourse) except
for (a) sales of goods and inventory in the ordinary course of business
and (b) sales, assignments, transfers, conveyances, leases, exchanges or
other dispositions of assets not material to the Borrower in the ordinary
course of its business for the fair market value thereof on reasonable
business terms negotiated in good faith and on an arm's-length basis.
7.10 ERISA. The Borrower shall not:
(a) terminate any Plan subject to Title IV of ERISA that might
reasonably be expected to result in liability to the Borrower or any ERISA
Affiliate in an aggregate amount exceeding $2,000,000;
(b) permit to exist any ERISA Event or any other event or
condition that might reasonably be expected to result in liability to any
member of the Controlled Group in an aggregate amount exceeding
$2,000,000;
(c) make a complete or partial withdrawal (within the meaning
of ERISA Section 4201) from any ERISA Plan that might reasonably be
expected to result in liability to the Borrower or any ERISA Affiliate in
an aggregate amount exceeding $2,000,000;
(d) enter into any new ERISA Plan or modify any existing ERISA
Plan so as to increase its obligations thereunder which could result in
liability to any member of the Controlled Group in the aggregate amount of
$2,000,000 or more;
(e) permit the present value of all nonforfeitable accrued
benefits under any ERISA Plan (using the actuarial assumptions used by the
ERISA Plan's actuaries for purposes of determining the funding for the
ERISA Plan pursuant to Section 412 of the Code) to exceed the fair market
value of ERISA Plan assets allocable to such benefits by $2,000,000 or
more; or
(f) cause or permit the occurrence of any combination of events
listed in clauses (a) through (e) that involves a potential liability,
excess of accrued benefits over fair market value, or any combination
thereof, in excess of $5,000,000.
7.11 TRANSACTIONS WITH AFFILIATES. The Borrower shall not make any
payments or otherwise distribute any assets, property, cash, rights,
obligations or securities to any of its Affiliates or make any direct or
indirect investments in any of its Affiliates, or otherwise enter into any
transaction with any Affiliate, without the prior written consent of the
Lender.
7.12 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Without the Lender's
prior written consent, which consent shall not be unreasonably withheld,
Borrower shall not amend its articles of incorporation.
ARTICLE VIII
------------
EVENTS OF DEFAULT
-----------------
EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default ("EVENT OF DEFAULT") hereunder:
8.1 NON-PAYMENT. Subject to Section 2.7, failure by the Borrower to
pay any installment of principal, interest or any fees or other amounts
payable hereunder or under the Note or any of the Loan Documents when due
and the continuance thereof for five Business Days.
8.2 OTHER DEFAULTS. Failure to perform or observe any covenant,
agreement, condition or provision contained in this Agreement and the
continuance thereof for thirty days after written notice by Lender to
Borrower.
8.3 REPRESENTATION OR WARRANTY. Any representation or warranty of
the Borrower, whether contained in this Agreement or in any certificate or
other writing required or contemplated by this Agreement, shall be false
or misleading in any material respect as of the date made or deemed made.
8.4 LOAN DOCUMENTS.
(a) Occurrence of any of the events of default defined in any
of the Loan Documents.
(b) Any of the Security Documents shall for any reason (other
than pursuant to the terms thereof) cease to create a valid security
interest in the Collateral purported to be covered thereby or such
security interest shall for any reason cease to be a perfected and first
priority lien and security interest, subject only to those matters
expressly permitted by Section 7.2 hereof or by the applicable Security
Document.
8.5 JUDGMENTS. Any money judgment, writ or warrant of attachment,
or similar process in an amount of $250,000 (in the aggregate) or more
shall be entered or filed against the Borrower or any of its assets and
shall remain unvacated, unbonded or unstayed for a period of 30 calendar
days, or in any event later than five calendar days prior to the date of
any proposed sale thereunder.
8.6 INSOLVENCY. The Borrower shall become insolvent, admit in
writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of
its property or business; or such a receiver or trustee otherwise shall be
appointed and shall not be discharged within 30 calendar days after such
appointment.
8.7 BANKRUPTCY, ETC. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any other law for the relief of debtors shall be
instituted by or against the Borrower, or any order, judgment or decree
shall be entered against any such Person decreeing its dissolution or
division.
8.8 CROSS-DEFAULT. Any event of default, shall occur as to any
other agreement now or hereafter existing relating to extensions of credit
for borrowed funds to the Borrower by the Lender or by any third party and
shall remain uncured for a period of thirty days after written notice from
the Lender or the applicable third party to the Borrower.
8.9 ERISA. (i) A member of the Controlled Group shall fail to pay
when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under a
Multiemployer Plan; (ii) the Borrower or an ERISA Affiliate shall fail to
satisfy its contribution requirements under Section 412(c)(11) of the
Code, whether or not it has sought a waiver under Section 412(d) of the
Code; (iii) in the case of an ERISA Event involving the withdrawal from a
Plan of a "substantial employer" (as defined in Section 4001(a)(2) or
Section 4062(e) of ERISA), the withdrawing employer's proportionate share
of that Plan's Unfunded Pension Liabilities is more than $2,000,000; (iv)
in the case of an ERISA Event involving the complete or partial withdrawal
from a Multiemployer Plan, the withdrawing employer has incurred a
withdrawal liability in an aggregate amount exceeding $2,000,000; (v) in
the case of an ERISA Event not described in clause (iii) or (iv), the
Unfunded Pension Liabilities of the relevant Plan or Plans exceed
$2,000,000; (vi) a Plan that is intended to be qualified under Section
401(a) of the Code shall lose its qualification, and the loss can
reasonably be expected to impose on members of the Controlled Group
liability (for additional taxes, to Plan participants, or otherwise) in
the aggregate amount of $2,000,000; or more; (vii) the commencement or
increase of contributions to, or the adoption of or the amendment of a
Plan by, a member of the Controlled Group shall result in a net increase
in unfunded liabilities to the Controlled Group in excess of $2,000,000;
(viii) any member of the Controlled Group engages in or otherwise becomes
liable for a non-exempt prohibited transaction and the initial tax or
additional tax under Section 4975 of the Code relating thereto might
reasonably be expected to exceed $2,000,000; (ix) a violation of Section
404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of
the Code if such violation might reasonably be expected to expose a member
or members of the Controlled Group to monetary liability in excess of
$2,000,000; (x) any member of the Controlled Group is assessed a tax under
Section 4980B of the Code in excess of $2,000,000; (xi) any member of the
Controlled Group is subject to a payment in excess of $2,000,000 in
connection with any agreement with the Internal Revenue Service to prevent
the disqualification of a Plan; or (xii) the occurrence of any combination
of events listed in clauses (iii) through (xi) that involves a potential
liability, net increase in aggregate Unfunded Pension Liabilities,
unfunded liabilities, or any combination thereof, in excess of $2,000,000.
8.10 LOAN DOCUMENTS. This Agreement, the Note or any of the other
Loan Documents shall for any reason be revoked or invalidated, or
otherwise cease to be in full force and effect.
8.11 DISSOLUTION. 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.
8.12 TAXES. 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 state or federal tax liens shall be
filed or issued.
8.13 INTEREST RATE AGREEMENT. The occurrence of any default, event
of default or breach under any Interest Rate Agreement.
ARTICLE IX
----------
REMEDIES
--------
9.1 AUTOMATIC ACCELERATION OF REVOLVING LOAN. Upon the occurrence
of any Event of Default specified in Section 8.6 or 8.7, the obligation of
the Lender to make Revolving Advances under the Revolving Loan shall
automatically terminate and the unpaid principal amount of the Revolving
Loan and all interest and other amounts payable hereunder, under the Note
or any of the Security Documents, shall automatically become due and
payable without further act of the Lender.
9.2 OPTIONAL ACCELERATION OF REVOLVING LOAN. Upon the occurrence of
any Event of Default (other than those specified in Section 8.6 or 8.7),
the Lender may:
(a) Declare all or any part of the Revolving Loan to be
forthwith due and payable, together with all accrued and unpaid interest
thereon and all other amounts payable hereunder or under any of the other
Loan Documents, without presentment, demand, protest or other notice of
any kind, all of which are expressly waived by the Borrower;
(b) Declare the Revolving Commitment terminated;
(c) With respect to any and all contingent, unmatured or
unliquidated obligations of the Borrower hereunder, declare and require
that cash in an amount equal to the aggregate outstanding amount of all
such obligations be immediately paid over, pledged and delivered to the
Lender to be held as cash collateral for such obligations; and
(d) Proceed with every remedy provided for herein or in the
Note, the Loan Documents or any contract, agreement or undertaking
supplemental hereto and the Lender shall have, without limitation, all of
the rights of a secured party under the UCC as then in effect with respect
to any security then held for the Revolving Loan.
The enforcement of any rights of the Lender as to the security
for the Revolving Loan shall not affect the rights of the Lender to
enforce payment of the Revolving Loan against the Borrower and to recover
judgment against the Borrower for any portion thereof remaining unpaid.
9.3 SETOFF. Upon the occurrence of any Event of Default, the Lender
shall have the right at any time and from time to time, without prior
notice to the Borrower (which notice is hereby waived by the Borrower to
the fullest extent permitted by law), to setoff and apply any debt owing
to the Borrower by the Lender, including without limitation, any deposits
(general or special, time or demand, provisional or final) now or
hereafter maintained by the Borrower with such Lender, against any and all
obligations of the Borrower now or hereafter existing under this Agreement
or any of the other Loan Documents, although such obligations may be
unmatured, but excluding cash or securities on deposit with Banc One
Investment Management Group, and for such purpose the Borrower hereby
grants a security interest in and assigns to Lender all such deposit
accounts.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 NO WAIVER; CUMULATIVE REMEDIES. No delay on the part of the
Lender in exercising any right, power, privilege or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise or
waiver of any right, power, privilege, or remedy hereunder preclude any
other or further exercise of such right, power, privilege, or remedy
hereunder or the exercise of any other right, power or privilege or
remedy. The rights and remedies of Lender contained herein are cumulative
and not exclusive of any right or remedy which the Lender shall otherwise
have pursuant to the Security Documents, the Note or applicable law. The
obligations of the Borrower contained herein are cumulative, and
compliance by the Borrower with any covenant shall not excuse compliance
by the Borrower with any other covenant.
10.2 NOTICES. All notices given hereunder shall be in writing, shall
be given by certified mail, return receipt requested, overnight courier
service, telecopy, facsimile or copy delivered by hand, and, (i) if
mailed, shall be deemed received three Business Days after having been
deposited in a receptacle for United States mail, postage prepaid, (ii) if
delivered by overnight air courier service, shall be deemed received one
Business Day after having been deposited with such overnight air courier
service, postage prepaid, and (iii) if delivered by telex, telecopy or
hand delivery, shall be deemed received on the day the notice is sent
(provided that the sender receives confirmation of transmission), in each
case addressed as follows:
If to the Borrower, to:
VARI-L COMPANY, INC.
4895 Peoria Street
Denver, Colorado 80239
Attention: Jon L. Clark, Chief Financial Officer
Fax No.: (303) 373-3870
If to the Lender, to:
Bank One, Colorado, N.A.
1125 17th Street, 3rd Floor,
P.O. Box 5586 TA
Denver, Colorado 80217-5586 TA
Attention: T.J. Kern, Vice President
Fax. No.: (303) 244-3351
Any party may, by written notice so delivered to the others, change the
address or facsimile number to which delivery shall thereafter be made.
10.3 COUNTERPART EXECUTION. This Agreement may be executed in any
number of counterparts which together will be but one and the same
instrument. This Agreement shall become effective when each party shall
have signed at least one counterpart.
10.4 GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT IS BEING
DELIVERED IN AND SHALL BE DEEMED TO BE A CONTRACT GOVERNED BY THE LAWS OF
THE STATE OF COLORADO AND SHALL BE INTERPRETED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THAT STATE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAWS. Such document and any other Loan Documents constitute and
incorporate the entire agreement between the Lender and the Borrower
concerning the subject matter hereof and thereof, and supersede any prior
or contemporaneous agreements, verbal or written, between the Lender and
the Borrower concerning the subject matter hereof and thereof. Provided,
however, nothing contained herein shall affect the validity of or effect a
merger of the Mutual Non-disclosure Agreement dated July 24, 1997 between
the Borrower and the Lender.
10.5 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement, the Note or any of the Security Documents, and no
consent with respect to any departure by the Borrower therefrom, shall be
effective unless the same shall be in writing and signed by the Lender.
Any waiver shall be effective only in the specific instance and for the
specific purpose for which given. Any consent or approval contemplated
herein by the Lender may be granted or withheld in its sole discretion.
10.6 COSTS, EXPENSES AND INDEMNITY. Borrower shall reimburse and pay
the Lender for all fees, costs and expenses (including, without
limitation, attorneys' fees, court costs and legal expenses and
consultants' and experts' fees and expenses, the costs of the Lender's
inspection of the Collateral and the costs and expenses of title or lien
searches and filing and recording fees and expenses), reasonably incurred
or expended in connection with (i) the preparation, execution, delivery
and enforcement of this Agreement, the Note and the other Loan Documents
(other than legal fees in connection with the initial closing of the
Revolving Loan which shall be paid by the Lender), and any amendments,
waivers or modifications thereof, (ii) the breach by the Borrower of any
representation or warranty contained in this Agreement, the Security
Documents or any other Loan Document, (iii) the failure by the Borrower to
perform any agreement, covenant, condition, indemnity or obligation
contained in this Agreement, the Security Documents or any other Loan
Document, (iv) the Lender's exercise of any of its rights and remedies
under this Agreement, the Security Documents and the other Loan Documents,
or (v) the protection of the Collateral and the Liens thereon and security
interests therein. The Borrower shall indemnify, defend and hold harmless
the Lender and persons or entities owned or controlled by or affiliated
with the Lender and their respective directors, officers, shareholders,
partners, employees, consultants and agents (herein individually called an
"Indemnified Party," and collectively called "Indemnified Parties") from
and against, and reimburse and pay Indemnified Parties with respect to,
any and all claims, demands, liabilities, losses, damages (including,
without limitation, actual, consequential, exemplary and punitive
damages), causes of action, judgments, penalties, fees, costs and expenses
(including, without limitation, attorneys' fees, court costs and legal
expenses and consultants' and experts' fees and expenses), of any and
every kind or character, known or unknown, fixed or contingent, that may
be imposed upon, asserted against or incurred or paid by or on behalf of
any Indemnified Party on account of, in connection with, or arising out of
(a) any bodily injury or death or property damage occurring in or upon or
in connection with the Collateral through any cause whatsoever, (b) any
act performed or omitted to be performed hereunder or the breach of or
failure to perform any warranty, representation, indemnity, covenant,
agreement or condition contained in this Agreement, the Security Documents
or any other Loan Documents, (c) any transaction, act, omission, event or
circumstance arising out of or in any way connected with the Collateral or
with this Agreement, the Security Documents or any other Loan Documents,
and (d) subject to the exceptions and limitations contained in the
Security Documents, the violation of or failure to comply with any
statute, law, rule, regulation or order now existing or hereafter
occurring, including without limitation, Environmental Laws. The
foregoing indemnities shall not apply to any Indemnified Party to the
extent the subject of the indemnification is caused by or arises out of
the gross negligence or willful misconduct of Indemnified Party or a
successful suit by the Borrower against such Indemnified Party. If the
Borrower and the Indemnified Party are jointly named in any action covered
by this Section 10.6, the Indemnified Party shall cooperate in the defense
of such action to the extent its own rights or defenses are not
compromised thereby. Subject to the exceptions and limitations contained
in the Security Documents, the foregoing indemnities shall not terminate
upon release, foreclosure or other termination of this Agreement or the
Security Documents, but shall survive such release, foreclosure or
termination and the repayment of the Revolving Loans. Any amount to be
paid hereunder by the Borrower to the Lender or for which the Borrower has
indemnified an Indemnified Party shall constitute a part of the Revolving
Loan and be indebtedness secured by the Security Documents.
10.7 INCONSISTENT PROVISIONS; SEVERABILITY. In case of any
irreconcilable conflict between the provisions of this Agreement and those
of the Security Documents or the Note, the provisions of this Agreement
shall govern. The invalidity, illegality or unenforceability of any
provision of any of the Loan Documents shall not in any way affect or
impair the legality or enforceability of the remaining provisions of each
of the Loan Documents.
10.8 INCORPORATION OF EXHIBITS AND SCHEDULES. All Exhibits and
Schedules attached to this Agreement are a part hereof and are
incorporated herein for all purposes.
10.9 REFERENCES AND TITLES. Headings are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions.
10.10 CALCULATIONS AND DETERMINATIONS. Unless otherwise expressly
provided herein or unless the Lender otherwise consents, all financial
statements and reports furnished to the Lender hereunder shall be prepared
and all financial computations and determinations pursuant hereto shall be
made in accordance with GAAP.
10.11 WAIVER OF RIGHT TO TRIAL BY JURY. The Borrower and the Lender
hereby knowingly, voluntarily, irrevocably and unconditionally waive any
right to have a jury participate in resolving any dispute (whether based
upon contract, tort or otherwise) between or among the Borrower and the
Lender arising out of or in any way related to this agreement or any other
Loan Document. This provision is a material inducement to the Lender to
provide the financing described herein.
10.12 ARBITRATION. The Lender and the Borrower agree that upon the
written demand of either party, whether made before or after the
institution of any legal proceedings, but prior to the rendering of any
judgment in that proceeding, all disputes, claims and controversies
between them, whether individual, joint or class in nature, arising from
this Agreement, any Loan Documents, or otherwise, including without
limitation contract disputes and tort claims, shall be resolved by binding
arbitration pursuant to the Commercial Rules of the American Arbitration
Association. Any arbitration proceeding held pursuant to this arbitration
provision shall be conducted in the city nearest the Borrower's address
having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of the Collateral
shall constitute a waiver of this arbitration provision or be prohibited
by this arbitration provision. This arbitration provision shall not limit
the right of either party during any dispute, claim or controversy to
seek, use and employ ancillary, or preliminary rights and/or remedies,
judicial or otherwise, for the purposes of realizing upon, preserving,
foreclosing upon or proceeding under forcible entry and detainer for
possession of, any real or personal property, and any such action shall
not be deemed an election of remedies. Such remedies include, without
limitation, obtaining injunctive relief or a temporary restraining order,
obtaining a writ of attachment or imposition of a receivership, or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code or when applicable, a judgment by
confession of judgment. Any disputes, claims or controversies concerning
the lawfulness or reasonableness of an act, or exercise of any right or
remedy concerning any Collateral, including any claim to rescind, reform,
or otherwise modify any agreement relating to the Collateral, shall also
be arbitrated; provided, however, that no arbitrator shall have the right
to or the power to enjoin or restrain any act of either party. Judgment
upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this arbitration provision shall preclude
either party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of any action for these purposes. The Federal Arbitration Act (Title 9 of
the United States Code) shall apply to the construction, interpretation
and enforcement of this arbitration provision.
10.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not transfer or
assign any of its rights or obligations hereunder without the Lender's
prior written consent.
10.14 TERM OF AGREEMENT. This Agreement shall continue in full force
and effect so long as any indebtedness or other obligation of the Borrower
to the Lender remains unpaid or outstanding or the Borrower has any right
to Advances hereunder.
10.15 SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. As a material
inducement to the Lender to enter into this Agreement:
(a) the Borrower agrees that all actions or proceedings in any
manner relating to or arising out of this Agreement or the other Loan
Documents may be brought only in courts of the State of Colorado located
in Denver County or the Federal District Court in Colorado and the
Borrower consents to the jurisdiction of such courts. The Borrower waives
any objection it may now or hereafter have to the venue of any such court
and any right it may have now or hereafter have to claim that any such
action or proceeding is in an inconvenient court; and
(b) The Borrower consents to the service of process in any such
action or proceeding by certified mail sent to the address specified in
Section 10.2.
10.16 LIMITATION OF LIABILITY. The Borrower and the Lender hereby
waive any right either of them may have to claim or recover from the other
party any special, exemplary, punitive or other consequential damages or
any damages of whatever nature, other than actual damages.
EXECUTED to be effective as of the day and year first above written.
VARI-L COMPANY, INC.,
a Colorado corporation
By:/s/David G. Sherman
David G. Sherman
President and CEO
By:/s/Joseph H. Kiser
Joseph H. Kiser, Chairman of the
Board and CSO
BANK ONE, COLORADO, N.A.,
a national banking association
By:/s/T.J. Kern
T.J. Kern
Vice President
EXHIBIT A
VARI-L COMPANY, INC.
Request for Advance
To Bank One, Colorado, N.A.:
This Request for Advance is given pursuant to Article II of that certain
Revolving Loan Agreement, dated as of March __, 2000, as the same may have
been amended to the date hereof (the "Revolving Loan Agreement"), between
VARI-L COMPANY, INC. ("Borrower") and Bank One, Colorado, N.A. ("Lender").
Terms defined in the Revolving Loan Agreement are used herein with the
same meanings.
The undersigned hereby gives Lender irrevocable notice that Borrower
requests a Revolving Advance of the Revolving Loan under the Revolving
Loan Agreement as follows:
1. Date of Revolving Loan. The requested date of the proposed
Advance is -------------, 20--, which is a Business Day.
2. Details of Revolving Loan.
(a) Amount of Revolving Advance. The requested aggregate
amount of the proposed Revolving Advance is: $----------.
(c) Type of Revolving Advance and Interest Period. The
requested type of Revolving Advance and Interest Period (if
applicable) for the proposed Revolving Advance is (check (A) or (B)
as applicable):
[ ] (A) A LIBOR Advance for an Interest Period of
(check one, as applicable):
[ ] One month
[ ] Three months
[ ] Six months
[ ] Twelve months
[ ] (B) A Floating Rate Advance.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the proposed Revolving
Advance, before and after giving effect the proposed Revolving Advance.
(a) All conditions precedent under Article IV of the Revolving
Loan Agreement to the making of the proposed Revolving Advance are
satisfied;
(b) All representations and warranties contained in Article VI
of the Revolving Loan Agreement and in the Security Documents are
true on the date of such requested Revolving Advance as if then
given, and the Borrower has performed or observed all terms,
agreements, conditions and obligations under the Revolving Loan
Agreement and under the Security Documents to be performed or
observed by such Person on or prior to the date of such requested
Revolving Advance.
(c) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing or would result from the making of
the requested Revolving Advance.
Dated: _________________, 20__.
VARI-L COMPANY, INC., a Colorado corporation
By: -------------------------------------
-------------------------------------
Authorized Officer
EXHIBIT B
VARI-L COMPANY, INC.
List of Closing Documents
A. BASIC LOAN DOCUMENTS
1. $20,000,000 Revolving Promissory Note
2. Revolving Loan Agreement
3. UCC-1 Financing Statement(s)
a. Colorado Secretary of State, No. ------------, filed ------
----, 2000.
4. General Security Agreement
B. MISCELLANEOUS DOCUMENTS
1. Insurance Certificate and Loss Payee Endorsement
2. Landlord's Disclaimer and Consent Agreement(s) and Copies of
Lease(s)
3. Payoff Letter(s) and UCC Terminations [Post-closing]
4. Request for Advance Executed by Borrower
5. UCC Search Results
C. BORROWER DOCUMENTS
a. Certificate of Authority of Borrower
1. Articles of Incorporation
2. Bylaws
3. Good Standing Certificate
4. Borrowing Resolution
b. Opinion of Counsel
SCHEDULES
---------
Schedule 5.7 Chief Executive Office and Principal Place of Business
Schedule 5.11 ERISA Compliance
Schedule 5.16 Location of Inventory and Equipment.
SCHEDULE 5.7
VARI-L COMPANY, INC.
Chief Executive Office and Principal Place of Business
4895 Peoria St.
Denver, CO 80239
SCHEDULE 5.11
VARI-L COMPANY, INC.
ERISA Compliance
SCHEDULE 5.16
VARI-L COMPANY, INC.
Location of Inventory, Equipment and Fixtures
11101 E. 51st Ave., Denver, CO 80239 (Denver County)
4895 Peoria Street, Denver, CO 80239 (Denver County)
5165 Peoria Street, Denver, CO 80239 (Denver County)
15556 E. 17th Ave., Aurora, CO 80011 (Adams County)
REVOLVING NOTE
--------------
$20,000,000 March 24, 2000
Denver, Colorado
FOR VALUE RECEIVED, VARI-L COMPANY, INC., a Colorado corporation
("BORROWER"), promises to pay to the order of, BANK ONE, COLORADO, N.A., a
national banking association ("LENDER"), on or before the Maturity Date or
such earlier date as may be required pursuant to the Revolving Loan
Agreement (the "LOAN AGREEMENT"), of even date herewith, between Borrower
and Lender, the principal sum of Twenty Million Dollars ($20,000,000), or
so much thereof as may be advanced by Lender pursuant to the Loan
Agreement together with interest on the outstanding unpaid balance of such
principal amount as set forth herein. Capitalized terms used herein and
not defined herein shall have the meaning set forth in the Loan Agreement.
PAYMENTS.
- ---------
Interest on this Note is computed by applying the ratio of the
annual Interest Rate (as defined below) over a year of 360 days,
multiplied by the outstanding principal balance hereunder, multiplied by
the actual number of days the principal balance is outstanding. Interest
shall accrue and be due and payable in arrears on each Interest Payment
Date.
If upon the expiration of an Interest Period, the Borrower has
failed to select in writing at least three Business Days prior to the end
of such Interest Period a new Interest Period to be applicable to the
amounts with respect to which such Interest Period is expiring, or if any
Unmatured Event of Default or Event of Default shall then exist, the
Borrower shall be deemed to have elected that such amounts shall bear
interest at the Floating Rate effective as of the expiration date of such
Interest Period. Unless the Lender shall otherwise state in writing,
during the existence of an Unmatured Event of Default or Event of Default,
the Borrower may not elect to have (i) any Revolving Advance bear interest
at the Adjusted LIBOR Rate, or (ii) any amounts for which an Interest
Period is expiring continue to bear interest at the Adjusted LIBOR Rate.
Upon the provision of an irrevocable written notice to the Lender, the
Borrower may elect to convert on any Business Day any amounts accruing
interest at the Floating Rate, in a minimum amount not less than
$1,000,000 or if in excess of $1,000,000 in integrals of $500,000, to the
Adjusted LIBOR Rate. The Borrower shall deliver any notice of conversion
or continuation, as described above, to be received by the Lender not
later than 11:00 a.m. (Denver, Colorado time) at least three Business Days
in advance of the conversion or continuation date; specifying:
(a) the proposed conversion or continuation date, which shall
be a Business Day;
(b) the aggregate amount of the Revolving Advances to be
converted or continued;
(c) the nature of the proposed conversion or continuation; and
(d) the duration of the requested Interest Period.
All payments due under the terms hereof shall be made at
Lender's offices at 1125 17th Street, 3rd Floor, Denver, Colorado 80202,
Attention: T. J. Kern, or at such other place as Lender shall have
designated to Borrower in writing. Notwithstanding the foregoing, the
Borrower has authorized the Lender in the Loan Agreement to charge an
account designated by the Borrower for all payments due hereunder, and the
Lender has agreed to charge such account, subject to Section 2.7 of the
Loan Agreement. Notwithstanding the foregoing, the Borrower shall be
liable for all payments due hereunder, regardless of whether funds are
available in the account designated by the Borrower for payment. Payments
received after 11:00 a.m. Denver time shall be credited on the next
Business Day. All payments received hereunder shall be applied first to
accrued interest as of the date of payment and then to the outstanding
principal balance of this Note. Principal repaid shall be available for
reborrowing in accordance with the terms and conditions of the Loan
Agreement.
Subject to Section 2.7 of the Loan Agreement, overdue principal,
and (to the extent permitted under applicable law) overdue interest,
whether caused by acceleration of maturity or otherwise, shall bear
interest at the rate that is equal to five percentage points above the
Interest Rate, until paid, and shall be payable monthly or, at the option
of the holder hereof, on demand. In addition, if payment is 10 days or
more late, Borrower will be charged 5.0% of the regularly scheduled
payment or $25.00, whichever is greater, up to the maximum amount of
$1500.00 per late charge.
Except as provided below, this Note may be prepaid, either in
whole or in part, on any date without premium or penalty. Borrower may
prepay all or any portion of the principal amount of this Note bearing
interest at a LIBOR Rate, provided that if Borrower makes any such
prepayment other than on the last day of an Interest Period, Borrower (a)
with such prepayment, shall pay all accrued interest on the principal
amount prepaid (unless less than all of the principal amount of this Note
is being prepaid, in which case such interest shall be due and payable on
the next scheduled Interest Payment Date), (b) with such prepayment, shall
pay an administrative fee of $250.00, and (c) on demand, shall reimburse
Lender and hold Lender harmless from all losses and expenses incurred by
Lender as a result of such prepayment, including, without limitation, any
losses and expenses arising from the liquidation or preemployment of
deposits acquired to fund or maintain the principal amount prepaid.
Lender's determination of the amount of such reimbursement shall be
conclusive in the absence of manifest error.
If Borrower fails to pay any amount due under this Note and
Lender has to take any action to collect the amount due or to exercise its
rights under the Loan Documents, including without limitation retaining
attorneys for collection of this Note, or if any suit or proceeding is
brought for the recovery of all or any part of or for protection of the
indebtedness or to enforce Lender's rights under the Loan Documents, then
Borrower agrees to pay on demand all reasonable costs and expenses of any
such action to collect, suit or proceeding, or any appeal of any such suit
or proceeding, incurred by Lender, including but not limited to the fees
and disbursements of Lender's attorneys and their staff.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest permitted to be charged to Borrower under
applicable law, but if, notwithstanding such intention, interest in excess
of the maximum rate shall be paid hereunder, the excess shall be retained
by the holder of this Note as additional cash collateral for the payment
of the Loan, unless such retention is not permitted by law, in which case
the interest rate on this Note shall be adjusted to the maximum permitted
under applicable law during the period or periods that the interest rate
otherwise provided herein would exceed such rate.
ILLEGALITY.
- -----------
If the Lender shall determine that the introduction of any law,
rule or regulation, or any change in any law, rule or regulation or in the
interpretation or administration thereof, has made it unlawful, or that
any central bank or other governmental authority has asserted that it is
unlawful, for the Lender to permit amounts to bear interest at the
Adjusted LIBOR Rate, then, on fifteen days' notice thereof by the Lender
to the Borrower, the obligation of the Lender to permit amounts to bear
interest at the Adjusted LIBOR Rate shall be suspended, and all such
amounts shall thereafter bear interest at a comparable rate of interest or
using a rate index mutually acceptable to the parties.
INCREASED COSTS AND REDUCTION OF RETURN.
- ----------------------------------------
If the Lender shall determine that, due to either (i) the
introduction of or any change (other than any change by way of imposition
of or increase in reserve requirements included in the calculation of the
LIBOR Rate) in or in the interpretation of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to the Lender of agreeing to make
or making, funding or maintaining any amount bearing interest at the
Adjusted LIBOR Rate (other than changes in the rate of taxes on the
overall net income of the Lender), then the Borrower shall be liable for,
and shall from time to time, upon demand therefor by the Lender, pay to
the Lender additional amounts as are sufficient to compensate the Lender
for such increased costs.
If the Lender shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other governmental
authority charged with the interpretation or administration thereof, or
(iv) compliance by the Lender or any corporation controlling the Lender,
with any Capital Adequacy Regulation, affects or would affect the amount
of capital required or expected to be maintained by the Lender or any
corporation controlling the Lender and (taking into consideration the
Lender's or such corporation's policies with respect to capital adequacy
and the Lender's desired return on capital) determines that the amount of
such capital is increased as a consequence of the Loans, credits or
obligations under this Agreement, then, upon demand of the Lender, the
Borrower shall upon demand pay to the Lender, from time to time as
specified by the Lender, additional amounts sufficient to compensate the
Lender for such increase.
SECURITY.
- ---------
This Note is secured by, and the holder of this Note is entitled to
the benefits of the Loan Agreement and other Loan Documents provided for
in the Loan Agreement. Reference is made to the Loan Documents for a
description of the property covered thereby and the rights, remedies and
obligations of the holder hereof in respect thereto.
DEFAULT/REMEDIES.
- -----------------
Time is of the essence hereof. In the event of (a) a default in
any payment of any amount required to be paid pursuant to this Note when
due and payable, or (b) any other default or event of default under the
provisions of the Loan Agreement or any other Loan Document and subject to
the notice and cure rights set forth in the Loan Agreement or other Loan
Documents, then the whole principal sum of this Note plus accrued interest
and all other obligations of Borrower to holder, direct or indirect,
absolute or contingent, now existing or hereafter arising, shall, at the
option of the holder of this Note become immediately due and payable
without notice or demand, and the holder of this Note shall have and may
exercise any or all of the rights and remedies provided herein and in the
Loan Agreement and the other Loan Documents, as they may be amended,
modified or supplemented from time to time, and under applicable law.
The remedies provided in this Note shall be cumulative, and
shall be in addition to any other rights or remedies now or hereafter
provided by law or equity. No delay, failure or omission by any holder of
this Note, in respect of any default by the Borrower, to exercise any
right or remedy shall constitute a waiver of the right to exercise the
right or remedy upon any such default or subsequent default.
Borrower and any endorser herein each waives presentment,
demand, notice of dishonor, notice of acceleration and protest and assents
to any extension of time with respect to any payment due under this Note,
to any substitution or release of collateral and to the addition or
release of any party. No waiver of any payment or other right under this
Note shall operate as a waiver of any other payment or right.
MISCELLANEOUS.
- --------------
This Note may not be changed orally, but only by an agreement in
writing, signed by both parties.
If any of the provisions of this Note shall be held to be
invalid or unenforceable, the determination of invalidity or
unenforceability of any such provision shall not affect the validity or
enforceability of any other provision or provisions hereof.
This Note shall be binding upon Borrower and its successors and assigns
and shall inure to the benefit of and be enforceable by the Lender and its
successors and assigns.
All notices to Borrower expressly required in this Note shall be
given in the manner set forth in the Loan Agreement.
The parties agree that this Note shall be subject to Section
10.12 of the Loan Agreement regarding arbitration. To the extent
permitted by such Section 10.12, an action may be brought to enforce this
Note in the District Court in and for the City and County of Denver, State
of Colorado, or in any other court in which venue and jurisdiction are
proper at the option of the Lender. Borrower and all signers or endorsers
hereof consent to such venue and jurisdiction and to service of process
under Colorado Revised Statutes (1973) Sections 13-1-124(1)(a) and 13-1-
125, in any action commenced to enforce this Note.
This Note shall be construed and enforced in accordance with the
laws of the State of Colorado.
DEFINITIONS:
- ------------
As used in this Note, the following Terms have the meanings set
forth below:
"Adjusted LIBOR Rate" means the LIBOR Rate plus the applicable
LIBOR Spread.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other governmental authority, or any
other law, rule, or regulation, whether or not having the force of law, in
each case regarding capital adequacy of all domestic banks or of any
corporation controlling a domestic bank.
"Interest Rate" means as applicable, the Adjusted LIBOR Rate or
the Floating Rate.
"Interest Period" means a period commencing on the Business Day
any amounts bearing Interest at the Adjusted LIBOR Rate are disbursed,
continued or converted and ending on the date one, three, six or twelve
months thereafter, as selected by the Borrower in its written Request for
Advance or notice of conversion/continuation; provided that:
(a) if any Interest Period would otherwise end on a day which
is not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(c) no Interest Period may be selected by the Borrower which
would extend beyond the applicable Maturity Date.
"LIBOR Rate" means the offered rate for the period equal to or
next greater than the Interest Period for U.S. Dollar deposits of not less
than $1,000,000.00 as of 11:00 A.M. City of London, England time two
London Business Days prior to the first day of the Interest Period as
shown on the display designated as "British Bankers Association Interest
Settlement Rates" on Reuters Screen FRBD, or such other screen as may
replace such screen on Reuters for the purpose of displaying such rate.
In the event that such rate is not available on Reuters, then such offered
rate shall be otherwise independently determined by Lender from an
alternate, substantially similar independent source available to Lender or
shall be calculated by Lender by a substantially similar methodology as
that theretofore used to determine such offered rate.
"LIBOR Spread" means 2.50% per annum with respect to the one-
month LIBOR Rate, and 2.25% per annum with respect to the three-month, six-
month and one-year LIBOR Rate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this instrument to be
executed as of the day and year first above written.
BORROWER:
VARI-L COMPANY, INC.,
a Colorado corporation
By:/s/David G. Sherman
David G. Sherman, President and CEO
By:/s/Joseph H. Kiser
Joseph H. Kiser, Chairman of the Board
and CSO
GENERAL SECURITY AGREEMENT
--------------------------
(VARI-L COMPANY, INC.)
This GENERAL SECURITY AGREEMENT (this "AGREEMENT"), dated as of March
24, 2000, is from VARI-L COMPANY, INC., a Colorado corporation ("Debtor"),
to BANK ONE, COLORADO, N.A., a national banking association ("LENDER").
Recitals
--------
A. Lender and Debtor have entered into a Loan Agreement (the "Loan
Agreement") dated of even date herewith pursuant to which Lender has
provided to Debtor a certain loan (the "Loan") in the total principal
amount of $20,000,000, which Loan is evidenced by a Revolving Promissory
Note (the "Note") dated of even date herewith in the amount of
$20,000,000.
B. It is a condition precedent to Lender extending the Loan to
Debtor under the Loan Agreement that, among other things, Debtor has
executed and delivered to Lender a security agreement granting to Lender a
security interest in the Collateral (as such term is defined below).
Agreement
---------
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to induce Lender to make the Loan under the
Loan Agreement, Debtor hereby agrees with Lender as follows:
ARTICLE 1
---------
DEFINITIONS AND REFERENCES
--------------------------
1.1 GENERAL DEFINITIONS. As used herein, the terms "Agreement,"
"Debtor," "Loan," "Loan Agreement," "Lender" and "Note" have the meanings
given to them above, and the following terms have the following meanings:
(a) The term "CODE" means the Uniform Commercial Code currently
in effect in the state in which the applicable security is located.
(b) The term "DEBTOR LOCATIONS" shall mean those locations as
set forth on Schedule 5.7 to the Loan Agreement.
(c) The term "DOCUMENTS" shall mean this Agreement, the Loan
Agreement, the Note, and any and all other documents executed in
connection with the Loan.
(d) The term "EQUIPMENT" has the meaning ascribed thereto in
Subsection 2.1(b).
(e) The term "EVENT OF DEFAULT" has the meaning ascribed
thereto in Section 5.1.
(f) The term "GENERAL INTANGIBLES" has the meaning ascribed
thereto in Subsection 2.1(d).
(g) The term "INTEREST RATE AGREEMENT" means any agreement
entered into by Debtor relating to the provision of an interest rate
hedging product, including, without limitation, any interest rate swap
agreement, any interest rate cap agreement, and any interest rate "collar"
agreement, and further including, without limitation, any ISDA Master
Agreement ("Master Agreement") between Debtor and Lender or any affiliate
of Lender together with any and all schedules and exhibits attached
thereto.
(h) The term "INVENTORY" has the meaning ascribed thereto in
Subsection 2.1(a).
(i) The term "ACCOUNTS" has the meaning ascribed thereto in
Subsection 2.1(c).
(j) The term "COLLATERAL" means all property of whatever type,
in which Lender at any time has a security interest pursuant to Section
2.1, excluding, however, equipment and other personal property of the
Borrower located in New Mexico and Virginia having an aggregate value of
not more than $25,000.
(k) The term "SECURED OBLIGATIONS" means all present and future
indebtedness, obligations and liabilities of whatever type which are or
shall be secured pursuant to Section 2.2.
1.2 REFERENCES. Reference is hereby made to the Loan Agreement for
a statement of the terms thereof. All capitalized terms used in this
Agreement which are defined in the Loan Agreement and not otherwise
defined herein have the same meanings herein as set forth therein. All
terms used in this Agreement which are defined in Article 9 of the Code
and not otherwise defined herein or in the Loan Agreement have the same
meanings herein as set forth therein, except where the context otherwise
requires.
1.3 EXHIBITS. All exhibits attached to this Agreement are a part
hereof for all purposes.
1.4 AMENDMENT OF DEFINED INSTRUMENTS. Unless the context otherwise
requires or unless otherwise provided herein, references in this Agreement
to a particular agreement, instrument or document (including, without
limitation, references in Section 2.1) also refer to and include all
renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document; provided,
however, that nothing contained in this Section 1.4 shall be construed to
authorize any person to execute or enter into any such renewal, extension,
amendment, modification, supplement or restatement.
1.5 TITLES. Titles and headings appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any
such subdivision and shall be disregarded in construing the language
contained in this Agreement.
ARTICLE 2
---------
SECURITY INTEREST
-----------------
2.1 GRANT OF SECURITY INTEREST. As security for all of the Secured
Obligations, Debtor hereby pledges, assigns and grants to Lender, a
continuing security interest in all of the following properties, assets
and rights of Debtor, wherever located, whether now owned or hereafter
acquired (by operation of law or otherwise), and all proceeds and products
thereof (the "Collateral"):
(a) INVENTORY. All of the following, whether now or hereafter
existing, which are owned by Debtor or in which Debtor otherwise has any
rights: (i) inventory in all its forms and of any kind, including, without
limitation, all documents of title covering any such Inventory, wherever
located: (ii) goods in which Debtor has an interest; (iii) goods which
are returned to or repossessed by Debtor; and (iv) all accessions thereto
and products thereof and documents therefor (collectively, the
"Inventory").
(b) EQUIPMENT. All equipment in any form and of any kind,
whether now or hereafter existing, owned by Debtor or in which Debtor
otherwise has any rights (collectively, the "Equipment").
(c) ACCOUNTS. All of the following, whether now or hereafter
existing, which are owned by Debtor or in which Debtor otherwise has any
rights: (i) all accounts of any kind, (ii) all chattel paper, instruments
and documents of any kind relating to such accounts or arising out of or
in connection with the sale or lease of goods or the rendering of
services, and (iii) all rights in, to or under all security agreements,
leases and other contracts securing or otherwise relating to any such
accounts, chattel paper, instruments or documents (collectively, the
"Accounts").
(d) CONTRACT RIGHTS, GENERAL INTANGIBLES, ETC. All of the
following, whether now or hereafter existing, which are owned by Debtor or
in which Debtor otherwise has any rights: all contract rights and general
intangibles of any kind (including but not limited to choses in action,
tax refunds and claims therefor (but excluding uncertificated securities),
license fees, patents, patent applications, trademarks, trademark
applications, trade names, copyrights, copyright applications, rights to
sue and recover for past infringement of patents, trademarks and
copyrights, computer programs, computer software, engineering drawings,
service marks, customer lists (except those customer lists which the
Debtor has previously agreed in writing to keep confidential), goodwill
and insurance policies, proceeds and claims) and all chattel paper,
documents, instruments (excluding marketable securities), security
agreements, leases, other contracts and money, and all other rights of
Debtor (except those constituting Accounts) to receive payments of money
or the ownership of property, regardless of whether such rights arise by
contract or tort, and all licenses, permits, agreements of any kind or
nature pursuant to which Debtor possesses, uses or has authority to
possess or use property (whether tangible or intangible) of others or
others possess, use or have authority to possess or use property (whether
tangible or intangible) of Debtor, and all recorded data of any kind or
nature, regardless of the medium of recording, including without
limitation, all software, writings, plans, specifications and schematics
(collectively, the "General Intangibles").
(e) OTHER PROPERTY. To the extent not included in the
foregoing, all of the personal and fixture property of every kind and
nature (including, without limitation, all furniture, fixtures, raw
materials and deposit accounts, books, records, ledger sheets, files and
other data and documents, including records in any form (digital or other)
and recorded in or through any medium (magnetic, laser graphic or other)
and all machinery and processes (including computer programming
instructions) required to read and print such records, now or hereafter
existing relating to all types of personal and fixture property described
in this Section 2.1), rights and interests, present and future, tangible
and intangible, which are owned by Debtor or in which Debtor otherwise has
any rights, including without limitation all accounts, goods, inventory,
equipment, fixtures, chattel paper, documents and general intangibles.
(f) PROCEEDS. All proceeds and products of any and all of the
foregoing and, to the extent not otherwise included, any payments under
insurance (whether or not Lender is the loss payee thereof) or under any
indemnity, warranty or guaranty by reason of loss to or otherwise with
respect to any of the foregoing.
In each case, the foregoing shall be covered by this Agreement, whether
Debtor's ownership or other rights therein are presently held or hereafter
acquired (by operation of law or otherwise) and howsoever Debtor's
interests therein may arise or appear (whether by ownership, security
interest, claim or otherwise).
2.2 OBLIGATIONS SECURED. The security interest created hereby in
the Collateral constitutes a continuing security interest for all of the
following obligations, indebtedness and liabilities, whether now existing
or hereafter incurred or arising (the "Secured Obligations"):
(a) LOAN AGREEMENT INDEBTEDNESS. All Obligations (as such term
is defined in the Loan Agreement) of the Debtor.
(b) EXPENDITURES. All expenditures made or incurred by Lender
to protect and maintain the Collateral and to enforce the rights of Lender
under this Agreement, to the extent not otherwise included as Secured
Obligations hereunder.
(c) PERFORMANCE. The due performance and observance by Debtor
of all other obligations and undertakings from time to time existing under
or with respect to the Loan Documents or any other instrument now or
hereafter delivered in connection with or as security for any of the Loan
Documents.
(d) RENEWALS. All renewals, extensions, amendments,
modifications, supplements or restatements of or substitutions for any of
the foregoing.
(e) INTEREST RATE AGREEMENT. Any and all amounts due under any
Interest Rate Agreement.
(f) AMOUNTS DUE HEREUNDER. All amounts due and payable by
Debtor under this Agreement shall, until paid, be a debt secured by the
Collateral and a part of the Secured Obligations.
ARTICLE 3
---------
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
3.1 REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants
as follows:
(a) OWNERSHIP AND LIENS. Debtor has good and marketable title
to the Collateral pledged pursuant to this Agreement, free and clear of
all liens, security interests, adverse claims and other charges or
encumbrances, except for the security interest created by this Agreement
and except for liens expressly permitted by the Loan Agreement (the
"Permitted Liens"). No dispute, right of setoff, counterclaim or defense
exists with respect to all or any part of the Collateral. No effective
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office except such
as may have been filed in favor of Lender relating to this Agreement and
the Permitted Liens. None of the Collateral constitutes, or is the
proceeds of, "farm products" as defined in Section 9-109(3) of the Code.
None of the account debtors in respect of any Accounts or General
Intangibles, and none of the obligors in respect of any instruments
included in the Collateral is a governmental authority subject to the
Federal Assignment of Claims Act.
(b) NO CONFLICTS OR CONSENTS. Neither the ownership or
intended use of the Collateral by Debtor, nor the grant of a security
interest by Debtor, nor the exercise by Lender of the rights or remedies
afforded it hereunder, will (i) conflict with any provision of (A) the
articles or certificate of incorporation, charter or bylaws of Debtor or
(B) any material agreement, judgment, license, order or permit applicable
to or binding upon, Debtor or the Collateral, or (ii) result in or require
the creation of any lien, charge or encumbrance upon any assets or
properties of Debtor except as expressly contemplated in the Loan
Documents. Except as expressly contemplated in the Loan Documents, no
consent, approval, authorization or order of, and no notice to or filing
with any court, governmental authority or third party is required in
connection with the grant by Debtor of the security interest herein, or
the exercise by Lender of its rights and remedies hereunder.
(c) COLLATERAL INTEREST. Debtor has and will have at all times
full right, power and authority to grant a security interest in the
Collateral pledged to Lender in the manner provided herein, free and clear
of any lien, security interest, adverse claims or other charge or
encumbrance except for Permitted Liens. This Agreement creates a valid
and binding security interest in favor of Lender in the Collateral
securing the Secured Obligations, except as such enforcement may be
limited by bankruptcy, insolvency, or similar laws of general application
relating to the enforcement of creditors' rights. The taking of
possession by Lender of all instruments and cash constituting Collateral
from time to time and the filing of the financing statements delivered
concurrently herewith by Debtor to Lender will perfect Lender's security
interest hereunder in the Collateral securing the Secured Obligations
(except for patents). No further or subsequent filing, recording,
registration, other public notice or other action is necessary or
desirable to perfect or otherwise continue, preserve or protect such
security interest, except for continuation statements or filings upon the
occurrence of the events stated in Section 3.3(d) below.
(d) LOCATION OF DEBTOR AND RECORDS. The chief executive office
and principal place of business and the office where the records
concerning the Collateral is kept is as set forth in the Loan Agreement.
Any changes in the same or in the name, identity or corporate structure
will be effected in accordance with the requirements of Section 3.3(d)
below.
(e) ACCOUNTS. Each Account represents the valid and legally
binding indebtedness of a bona fide account debtor arising from the sale
or lease by Debtor of goods or the rendition by Debtor of services, and is
not subject to contra-accounts, setoffs, defenses or counterclaims by or
available to account debtors obligated on the Accounts except as disclosed
to Lender in writing and except for disputes arising in the ordinary
course of business that do not affect a material percentage of the
Accounts then-outstanding. Goods which have been delivered to, and
services which have been rendered by Debtor to, the account debtor have
been accepted by the account debtor, and the amount shown as to each
Account on Debtor's books is the true and undisputed amount owing and
unpaid thereon, subject only to discounts, allowances, rebates, loans and
adjustments to which the account debtor has a right and which have been
disclosed to Lender in writing or which arise in the ordinary course of
business and do not affect a material percentage of the Accounts then-
outstanding.
(f) CHATTEL PAPER, LOAN DOCUMENTS AND INSTRUMENTS. All chattel
paper, documents and instruments included in the Collateral are valid and
genuine. Any chattel paper, document or instrument included in the
Collateral has only one original counterpart which constitutes collateral
within the meaning of the Code or the law of any applicable jurisdiction.
No Person other than Debtor or Lender is in actual or constructive
possession of any chattel paper, documents or instruments.
(g) EQUIPMENT AND INVENTORY. Debtor owns all of the Equipment
free and clear of all liens, security interests, adverse claims and other
charges or encumbrances, except for the security interest created by this
Agreement and the Permitted Liens. All of the Equipment and all of the
Inventory of the Debtor is located only at the Debtor Locations and will
be kept at the Debtor Locations unless Debtor provides Lender with notice
prior to relocation pursuant to the requirements of Section 3.3(d) below.
Subject to Sections 7.1 and 7.2 of the Loan Agreement, although Debtor and
Lender agree that all motor vehicles now or hereafter owned by Debtor
shall constitute a portion of the Collateral hereunder, Lender
acknowledges that Debtor shall not be obligated to deliver the titles to
such motor vehicles to Lender, and Debtor represents that it has not
pledged any such motor vehicle to any third party as of the date hereof
and warrants that it will not pledge any such motor vehicle to any third
party during any period in which any of its assets remain subject to this
Agreement or any other Document.
3.2 AFFIRMATIVE COVENANTS. Unless Lender otherwise consents in
writing, Debtor shall at all times comply with the covenants and
agreements contained in the Loan Agreement and this Section 3.2 from the
date hereof and so long as any part of the Secured Obligations are
outstanding.
(a) OWNERSHIP AND LIENS. Debtor shall maintain good and
marketable title to all Collateral free and clear of all liens, security
interests, adverse claims and other charges or encumbrances, except for
the security interest created by this Agreement and the Permitted Liens.
Debtor shall defend Lender's right, title and security interest in and to
the Collateral against the claims of any Person.
(b) CONDITION OF COLLATERAL. Debtor shall maintain the
Collateral in good condition and shall not use the same in violation of
any law or any policy of insurance thereon, and shall make such Collateral
available for inspection by Lender. Debtor shall not permit the
Collateral or any part thereof to be affixed to or otherwise become a part
of any real or personal property, without first making arrangements
satisfactory to Lender to protect Lender's security interest therein.
(c) COLLECTION OF ACCOUNTS AND GENERAL INTANGIBLES. Debtor
shall, except as otherwise provided in Section 4.2 or 4.4, collect, at its
own expense, all amounts due or to become due under each of the Accounts
and General Intangibles. In connection with such collections, Debtor may
(and if in Lender's reasonable discretion, Debtor is not taking such
actions to collect all such amounts due or to become due as a reasonably
prudent creditor would take, then at Lender's direction, Debtor shall)
take such action (not otherwise forbidden by Section 3.3(d)) as Debtor or
Lender may deem necessary or advisable to enforce collection or
performance of each of the Accounts and General Intangibles to the extent
the cost of such action does not exceed the amount of such Account or
General Intangible.
(d) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS.
(i) Debtor shall at all times cause any chattel paper,
documents or negotiable and non-negotiable instruments which are a
part of the Collateral to be valid and genuine. Debtor shall cause
all chattel paper included in the Collateral pledged by it to have
only one original counterpart which constitutes chattel paper or
collateral within the meaning of the Code or the law of any
applicable jurisdiction. Upon request by Lender, Debtor shall
deliver to Lender all originals of chattel paper, documents or
instruments which are included in the Collateral. Upon request by
Lender, Debtor shall mark each chattel paper which is a part of the
Collateral pledged by it with a legend indicating that such chattel
paper is subject to the security interest granted by this Agreement.
(ii) In the event that Debtor shall, after the date of this
Agreement, acquire any other negotiable or non-negotiable instruments
or chattel paper to be pledged by it hereunder, except such
instruments and chattel paper that may be on deposit with Banc One
Investment Management Group, Debtor shall forthwith endorse, assign
and deliver the same to Lender, accompanied by such instruments of
transfer or assignment duly executed in blank as Lender may from time
to time specify. Notwithstanding the foregoing, the Debtor need not
deliver to the Lender any patent certificates representing the award
of a patent by the U.S. Patent and Trademark office . Debtor hereby
acknowledges that Lender may, in its discretion, appoint one or more
financial institutions to act as Lender's agent in holding in
custodial account instruments or other financial assets in which
Lender is granted a security interest hereunder, including, without
limitation, certificates of deposit and other instruments evidencing
short-term obligations.
(e) PERFORMANCE RELATED TO ACCOUNTS. Debtor shall duly perform
and cause to be performed all of its obligations with respect to the goods
or services, the sale or lease or rendition of which gave rise or will
give rise to each Account.
(f) PERFORMANCE OF CONTRACTS. Debtor shall duly perform or
cause to be performed all of its obligations, if any, to be performed
under or with respect to the General Intangibles.
(g) LOCATION OF AFTER-ACQUIRED COLLATERAL. All Equipment and
Inventory acquired by Debtor subsequent to the date of this Agreement
shall be received by Debtor and thereafter kept only at the Debtor
Locations, unless Debtor (i) notifies Lender in writing as soon as
practicable prior to receipt of such Collateral of the location at which
such Equipment or Inventory will be received or kept and (ii) takes all
action required by Lender for the purpose of ensuring a perfected security
interest in favor of Lender in such Equipment or Inventory. Any notice
furnished pursuant to this Section 3.2(g) shall expressly state that the
notice is required by this Agreement and contains facts that may require
additional filings of financing statements or other notices for the
purposes of continuing perfection of Lender's security interest in the
Collateral.
3.3 NEGATIVE COVENANTS. Unless Lender otherwise consents in
writing, Debtor shall at all times comply with the covenants contained in
this Section 3.3 from the date hereof and so long as any part of the
Secured Obligations are outstanding.
(a) IMPAIRMENT OF COLLATERAL INTEREST. Debtor shall not take
or fail to take any action that would in any manner impair the value or
enforceability of Lender's security interest in any Collateral.
(b) POSSESSION OF COLLATERAL. Except as permitted by Section
7.10 of the Loan Agreement, Debtor shall not cause or permit the removal
of any item of the Collateral from its possession, control or risk of
loss, or from the location specified herein, other than removal in
connection with possession of Collateral by Lender or by a bailee selected
by Lender who is holding the Collateral for the benefit of Lender.
(c) FINANCING STATEMENT FILINGS. Debtor recognizes that
financing statements pertaining to the Collateral have been or may be
filed where Debtor maintains any Collateral, has its records concerning
any Collateral or has its chief executive office or principal place of
business. Without limitation of any other covenant herein, Debtor shall
not cause or permit any change to be made in its name, identity or
corporate structure, or any change to be made to the location, as
represented in Section 3.1, of (i) any Collateral, (ii) any records
concerning any Collateral, or (iii) its chief executive office or
principal place of business, unless Debtor has notified Lender of such
change at least thirty days prior to the effective date of such change and
has first taken all action required by Lender for the purpose of further
perfecting or protecting the security interest in favor of Lender in the
Collateral.
(d) POSSESSION OF CHATTEL PAPER, LOAN DOCUMENTS OR INSTRUMENTS.
Debtor shall not cause or permit any chattel paper, documents or
instruments included in the Collateral at any time to be in the actual or
constructive possession of any Person other than Debtor or Lender.
ARTICLE 4
---------
POWERS AND AUTHORIZATIONS
-------------------------
4.1 ADDITIONAL FINANCING STATEMENT FILINGS. Debtor hereby
authorizes Lender to file, without the signature of Debtor where permitted
by law, one or more financing or continuation statements, and amendments
thereto, relating to the Collateral. Debtor further agrees that a carbon,
photographic or other reproduction of this Agreement or any financing
statement describing any Collateral is sufficient as a financing statement
and may be filed in any jurisdiction that Lender may deem appropriate.
4.2 POWER OF ATTORNEY. Debtor hereby irrevocably appoints Lender as
Debtor's attorney-in-fact and proxy, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, in Lender's
discretion, at any time upon the occurrence and during the continuance of
an Event of Default, to take any action relating to the Collateral, or the
Lender's rights hereunder and to execute any instrument which Lender may
deem necessary or advisable relating to the Collateral, or the Lender's
rights hereunder.
4.3 PERFORMANCE BY LENDER. If Debtor fails to perform any agreement
or obligation contained herein, Lender may itself, at its option and in
its sole discretion, perform, or cause performance of, such agreement or
obligation, and the expenses of Lender incurred in connection therewith
shall be payable by Debtor, on demand; provided, however, that nothing
herein shall impose any obligation of any kind whatsoever on Lender to
perform any obligation or agreement of Debtor.
4.4 COLLECTION RIGHTS. Lender shall have the right at any time upon
the occurrence and during the continuance of an Event of Default to notify
any or all obligors under any Accounts or General Intangibles of the
assignment of such Accounts or General Intangibles to Lender and to direct
such obligors to make payment of all amounts due or to become due to
Debtor thereunder directly to Lender and, upon such notification and at
the expense of Debtor, and to the extent permitted by law, to enforce
collection of any such Accounts or General Intangibles and to adjust,
settle or compromise the amount or payment thereof, in the same manner and
to the same extent as Debtor may have done. After the giving of notice by
Lender referred to in this Section 4.4: (i) all amounts and proceeds
(including instruments and writings) received by Debtor with respect to
such Accounts or General Intangibles shall be received in trust for the
benefit of Lender hereunder, shall be segregated from other funds of
Debtor and shall be forthwith paid over to Lender in the same form as so
received (with any necessary endorsement) to be held as cash collateral
and applied as specified in section 5.3, and (ii) Debtor shall not adjust,
settle or compromise the amount or payment of any Account or General
Intangible or release wholly or partly any account debtor or obligor
thereof or allow any credit or discount thereon in excess of $100,000
without the prior consent of the Lender.
ARTICLE 5
---------
EVENTS OF DEFAULT AND REMEDIES
------------------------------
5.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" hereunder:
(a) Subject to Section 2.7 of the Loan Agreement, the failure
of Debtor to pay any of the Secured Obligations and the continuance
thereof for five business days;
(b) The failure of Debtor to perform or observe any other
covenant contained in this Agreement, the Loan Agreement, or any other
Loan Document and the continuance thereof for thirty days after written
notice by Lender to Borrower;
(c) Any warranty, representation or statement of Debtor in this
Agreement or otherwise made or furnished to Lender by or on behalf of
Debtor proves to have been false or misleading in any material respect
when made or furnished;
(d) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
any other law for the relief of debtors shall be instituted by or against
Debtor (except for an involuntary petition against Debtor, which shall not
constitute an Event of Default if such petition is vacated or dismissed
within thirty days after the filing thereof), or any order, judgment or
decree shall be entered against Debtor decreeing its dissolution or
division;
(e) Debtor shall become insolvent, admit in writing its
inability to pay its debts as they mature, or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee otherwise shall be appointed and
shall not be discharged within thirty calendar days after such
appointment.
(f) Ten business days after any Collateral having an aggregate
value in excess of $1,000,000 alone or in combination with other affected
Collateral, shall:
(i) become lost, stolen, destroyed or otherwise
substantially damaged, and such loss, theft or destruction is not
covered under policies of insurance the proceeds of which are
received within a reasonable time;
(ii) be seized or taken by any governmental or similar
authority; or
(iii) become subject to any writ, order of attachment or
garnishment,
Provided, however, the Debtor may offer substitute Collateral during such
ten business day period or request the Lender to waive this Event of
Default, but such waiver shall be in the Lender's sole discretion.
(g) There shall occur or exist a default or an "Event of
Default" under and as defined in the Loan Agreement, the Note or any other
Loan Document.
5.2 REMEDIES.
(a) Upon the occurrence of any Event of Default, or at any time
thereafter, in addition to all other rights, powers and remedies conferred
herein, conferred in the other Loan Documents or conferred by operation of
law, Lender may declare the Secured Obligations immediately due, payable
and performable, including all principal and interest remaining unpaid on
the Note and all other amounts secured hereby or thereby, all without
demand, presentment or notice, all of which are hereby expressly waived;
and from time to time in its discretion, without limitation and without
notice except as expressly provided below Lender may:
(i) exercise with respect to the Collateral all the rights
and remedies of a secured party on default under the Code (whether or
not the Code applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that it
shall at its expense and upon request of Lender forthwith, assemble
all or part of the Collateral as directed by Lender and make it
available to Lender at a place to be designated by Lender which is
reasonably convenient to both Lender and Debtor;
(iii) reduce its claim to judgment or foreclose or
otherwise enforce, in whole or in part, the security interest created
hereby by any available judicial procedure;
(iv) dispose of, at its office, on the premises of Debtor
or elsewhere, all or any part of the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale of any part of the
Collateral shall not exhaust Lender's power of sale, but sales may be
made from time to time, and at any time, until all of the Collateral
has been sold or until the Secured Obligations have been paid and
performed in full), and at any such sale it shall not be necessary to
exhibit any of the Collateral;
(v) buy the Collateral, or any portion thereof, at any
public sale;
(vi) buy the Collateral, or any portion thereof, at any
private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type that is the subject of widely
distributed standard price quotations;
(vii) apply by appropriate judicial proceedings for
appointment of a receiver for the Collateral, or any part thereof,
and Debtor hereby consents to any such appointment; and
(viii) at its discretion, retain the Collateral in
satisfaction of the Secured Obligations whenever the circumstances
are such that Lender is entitled to do so under the Code or
otherwise.
(b) Debtor agrees that, to the extent notice of sale shall be
required by law, ten business days' notice to Debtor of the time and place
of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Lender shall not be obligated
to make any sale of Collateral regardless of notice of sale having been
given. Lender may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
5.3 APPLICATION OF PROCEEDS. Upon the occurrence of any Event of
Default, or at any time thereafter, Lender may in its discretion apply any
cash held by Lender as Collateral, and any cash proceeds received by
Lender with respect to any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in
the following order of priority:
(a) first, to the repayment of the reasonable out-of-pocket
costs and expenses, including attorneys' fees and legal expenses, incurred
by Lender in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Collateral, (iii) the
exercise or enforcement of any of the rights of Lender hereunder; or (iv)
the failure of Debtor to perform or observe any of the provisions hereof;
(b) to the payment or other satisfaction of any liens and other
encumbrances upon any of the Collateral;
(c) to the reimbursement of Lender for the amount of any
obligations of Debtor paid or discharged by Lender pursuant to the
provisions of this Agreement or the other Loan Documents, and of any
expenses of Lender payable by Debtor hereunder or under the other Loan
Documents;
(d) to the satisfaction of any other Secured Obligations;
(e) to the payment of any other amounts required or permitted
by applicable law (including, without limitation, Section 9-504(a)(3) of
the Code or any successor or similar, applicable statutory provision); and
(f) by delivery to the Debtor or to whomsoever shall be
lawfully entitled to receive the same or as a court of competent
jurisdiction directs.
5.4 DEFICIENCY. In the event that the proceeds of any sale,
collection or realization of or upon the Collateral by Lender are
insufficient to pay all amounts to which Lender is legally entitled,
Debtor shall be liable for the deficiency, together with interest thereon
as provided in the Loan Documents or (if no interest is so provided) at
such other rate as shall be fixed by applicable law, together with the
costs of collection and the fees and expenses of any attorneys employed by
Lender to collect such deficiency.
5.5 OTHER RECOURSE. Debtor waives any right to require Lender to
proceed against any other Person, exhaust any Collateral or other security
for the Secured Obligations, or pursue any other remedy in Lender's power.
Debtor further waives any and all notice of acceptance of this Agreement.
Until all of the Secured Obligations have been paid in full, Debtor shall
not have the right to subrogation, and Debtor waives the right to enforce
any remedy which Lender has or may hereafter have against any other party
liable for the Secured Obligations, and waives any benefit of and any
right to participate in any other security whatsoever now or hereafter
held by Lender. Subject to Section 5.3, no action which Lender may take
or omit to take in connection with any of the Loan Documents or any of the
Secured Obligations shall release or diminish the obligations,
liabilities, duties or agreements of Debtor hereunder, including without
limitation, from time to time: (a) taking or holding any other property of
any type from any other Person as security for the Secured Obligations,
and exchanging, enforcing, waiving and releasing any or all of such other
property, and (b) applying the Collateral or such other property and
directing the order or manner of sale thereof as Lender may in its
discretion determine which is not inconsistent with the Loan Documents.
5.6 REMEDIES NOT EXCLUSIVE. All rights, powers and remedies herein
conferred are cumulative, and not exclusive, of (i) any and all other
rights and remedies herein conferred or provided for, (ii) any and all
other rights, powers and remedies conferred or provided for in the Loan
Documents, and (iii) any and all rights, powers and remedies conferred,
provided for or existing at law or in equity, and Lender shall, in
addition to the rights, powers and remedies herein conferred or provided
for, be entitled to avail itself of all such other rights, powers and
remedies as may now or hereafter exist at law or in equity for the
collection of and enforcement of the Secured Obligations and the
enforcement of the warranties, representations, covenants, indemnities and
other agreements contained in this Agreement and the Loan Documents. Each
and every such right, power and remedy may be exercised from time to time
and as often and in such order as may be deemed expedient by Lender and
the exercise of any such right, power or remedy shall not be deemed a
waiver of the right to exercise, at the same time or thereafter, any other
right, power or remedy. No delay or omission by Lender or other Person in
the exercise of any right, power or remedy will impair any such right,
power or remedy or operate as a waiver thereof or of any other right,
power or remedy then or thereafter existing.
5.7 NO SUBROGATION. Until all the Secured Obligations shall be paid
in full, Debtor shall not have the right of subrogation with respect
hereto, and Debtor hereby waives any rights to enforce any rights of
subrogation, contribution, reimbursement, indemnification, exoneration and
any other remedy which Debtor may have against any other Person with
respect to this Agreement or the duties of Debtor under the Loan Documents
or applicable law. Debtor hereby irrevocably agrees, to the fullest
extent permitted by law, that it shall not exercise (and herein waives)
any rights against any other Person which it may acquire by way of
subrogation, contribution, reimbursement, indemnification or exoneration
under or with respect to this Agreement, the Loan Documents or applicable
law, by any payment made hereunder or otherwise. If the foregoing waivers
are adjudicated unenforceable by a court of competent jurisdiction, then
Debtor agrees that no liability or obligation of Debtor that shall accrue
by virtue of any right to subrogation, contribution, indemnity,
reimbursement or exoneration shall be paid, nor shall any such liability
or obligation be deemed owed, until all of the Secured Obligations have
been paid in full.
5.8 PROCEEDS OF INSURANCE.
(a) NOTICE TO LENDER. Debtor will give Lender prompt notice of
any damage to or destruction of the Collateral or any portion thereof, and
such notice shall specify whether such damage or destruction gives rise to
a claim for insurance proceeds.
(b) RIGHT TO SETTLE OR COMPROMISE CLAIMS. In case of loss
covered by policies of insurance, Debtor may, unless there is an Event of
Default, settle and adjust any claim under such policies and agree with
the insurance company or companies on the amount to be paid upon the loss;
provided, upon the occurrence of an Event of Default, that Lender shall,
and is hereby authorized to, collect and receive any such insurance
proceeds, subject to the disbursement of such proceeds pursuant to Section
5.9(c) below and to settle and adjust any claim. Any expenses incurred by
Lender in the adjustment and collection of insurance proceeds shall become
Secured Obligations as if set forth with specificity in Section 2.2 of
this Agreement, and, together with interest at the Prime Rate, shall be
reimbursed to Lender on demand.
(c) APPLICATION OF INSURANCE PROCEEDS. After an Event of
Default, any insurance proceeds received by Lender with respect to an
insured casualty may, subject to the requirements of the following
sentence, be retained and applied by Lender toward payment of the Secured
Obligations (whether or not then due) in such order as is dictated by the
provisions of this Agreement. Notwithstanding the foregoing, Lender shall
make available to Debtor insurance proceeds for the purpose of replacing
or repairing Collateral or other purpose approved by Lender in its
reasonable discretion , provided that (i) no Event of Default or no event
that with notice, the passage of time or both would constitute an Event of
Default has occurred and is continuing at the time the insured casualty
occurs or the insurance proceeds are received, (ii) such proceeds will be
disbursed subject to and in accordance with the conditions set forth in
Section 5.9(d), (iii) such proceeds are less than $50,000 in the aggregate
with respect to any one loss, and (iv) if such proceeds are disbursed to
Debtor, Debtor hereby covenants and agrees forthwith to diligently repair
or replace such Collateral or use the proceeds for a purpose approved by
Lender in its reasonable discretion.
(d) DISBURSEMENT OF INSURANCE PROCEEDS. If Debtor uses the
proceeds to repair or replace or for another purpose approved by Lender in
accordance with the provisions of Section 5.9(c), such proceeds, (i) if
less than $50,000 for a single casualty, shall be disbursed directly to
Debtor for repair or replacement as required herein, or (ii) if equal to
or more than $50,000 shall be disbursed from time to time by Lender in
accordance with procedures established by Lender.
ARTICLE 6
---------
MISCELLANEOUS
-------------
6.1 NOTICES. Any notice or communication required or permitted
hereunder shall be given as provided in the Loan Agreement.
6.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto) and the Loan Documents constitute the entire understanding between
the parties with respect to the subject matter hereof and supersede all
negotiations, prior discussions and prior agreements and understandings
relating to such subject matter.
6.3 PRESERVATION OF RIGHTS. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder or under any
other Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. Neither the execution nor the
delivery of this Agreement shall in any manner impair or affect any other
security for the Secured Obligations. The rights of the Lender under any
Document against any party thereto are not conditional or contingent on
any attempt by Lender to exercise any of its rights under any other
Document against such party or against any other Person.
6.4 UNENFORCEABILITY. All rights, powers and remedies hereunder
conferred shall be exercisable by Lender only to the extent not prohibited
by applicable law and to the extent permitted by the Loan Agreement; and
all waivers or relinquishments of rights and similar matters shall only be
effective to the extent such waivers or relinquishments are not prohibited
by applicable law. If any provision of this Agreement or of any of the
Loan Documents is invalid or unenforceable in any jurisdiction in any
respect or to any extent, it is the stated intention and agreement of
Debtor and Lender that any balance of the obligation created by such
provision and all other obligations of Debtor to Lender shall remain valid
and enforceable and that any unenforceable aspect of such provision shall
be fully severable from this Agreement, and the balance of such provision
and all other provisions hereof and the Loan Documents shall remain valid,
enforceable and in full force and effect in such jurisdiction, and such
remaining provisions shall be liberally construed in favor of Lender in
order to carry out the provisions and intent hereof. If by final order a
court of competent jurisdiction declares any sums which Lender may be
otherwise entitled to collect from Debtor under this Agreement or any
other Document to be in excess of those permitted under any law (including
any federal or state fraudulent conveyance or like statute or rule of law)
applicable to Debtor's obligations under this Agreement or any other Loan
Documents, it is the stated intention and agreement of Debtor and Lender
that the sums not in excess of those permitted under such applicable law
shall remain fully collectible by Lender under this Agreement. The
invalidity of any provision of this Agreement in any jurisdiction or with
respect to any entity comprising Debtor shall not affect the validity or
enforceability of any such provision in any other jurisdiction or with
respect to any other entity comprising Debtor.
6.5 SURVIVAL OF AGREEMENTS. All representations and warranties of
Debtor herein and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of
any other Loan Documents and the creation of the Secured Obligations.
6.6 BINDING EFFECT AND ASSIGNMENT. This Agreement creates a
continuing security interest in the Collateral and (a) shall be binding on
Debtor and its successors and permitted assigns, and (b) shall inure,
together with all rights and remedies of Lender hereunder, to the benefit
of Lender and the successors, transferees and assigns of Lender. Without
limiting the generality of the foregoing, Lender may assign or otherwise
transfer its rights under any Document to any other Person as permitted
under the Agreement, and such other Person shall thereupon become vested
with all of the benefits with respect thereto granted to its assignor,
herein or otherwise. None of the rights or obligations of Debtor
hereunder may be assigned or otherwise transferred without the prior
written consent of Lender.
6.7 TERMINATION. Upon the satisfaction in full of the Secured
Obligations, upon the termination or expiration of the commitment of
Lender to extend credit to Debtor and upon written request delivered by
Debtor to Lender, and upon the expiration of a period of time equal to any
possible preference or similar period, the security interest created by
this Agreement shall terminate, and all rights to the Collateral shall
revert to Debtor. Upon such event, Lender shall, upon the request and at
the expense of Debtor (a) return to Debtor such of the Collateral as shall
not have been sold or otherwise disposed of or applied pursuant to the
terms hereof, and (b) execute and deliver to Debtor such documents as
Debtor shall reasonably request to evidence such termination. The
termination of the security interests created by this Agreement shall not
terminate or otherwise affect Lender's right or ability to exercise any
right, power or remedy on account of any claim for breach of warranty or
representation, for failure to perform any covenant or other agreement,
under any indemnity or for fraud, deceit or other misrepresentation or
omission.
6.8 GOVERNING LAW. This Agreement is being delivered in and shall
be deemed to be a contract governed by the laws of the State of Colorado
and shall be interpreted and enforced in accordance with the laws of that
state without regard to the principles of conflicts of laws.
6.9 OBLIGATIONS ABSOLUTE. Debtor acknowledges that this Agreement
and Debtor's obligations under this Agreement are and shall at all times
continue to be absolute and unconditional in all respects, and shall at
all times be valid and enforceable irrespective of any other agreements or
circumstances of any nature which might otherwise constitute a defense to
this Agreement and the obligations of Debtor under this Agreement or the
obligations of any other person or party relating to this Agreement or the
obligations of Debtor hereunder or otherwise with respect to the loan.
6.10 SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. Submission to
jurisdiction and service of process shall be as agreed to in Section 10.14
of the Loan Agreement.
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original.
REMAINDER OF PAGE INTENTIONALLY BLANK
This Agreement is executed and delivered as of the date first above
written.
DEBTOR:
-------
VARI-L COMPANY, INC., a Colorado
corporation.
By:/s/David G. Sherman
David G. Sherman
President and CEO
By: /s/Joseph H. Kiser
By: Joseph H. Kiser, Chairman of the
Board and CSO
Audit Committee
Vari-L Company, Inc.
Page 2
May 19, 2000
Audit Committee
Vari-L Company, Inc.
Dear Committee Members:
The purpose of this letter is to inform Vari-L Company, Inc. ("the
Company") and the Audit Committee of the Vari-L Board of Directors that
professional standards preclude us from issuing an Accountant's Review
Report on the financial statements to be included in the Vari-L 10 Q for
the three months ended March 31, 2000, at this time.
As you know, the Company announced on May 17, 2000 that it was restating
revenues and earnings for the year ended December 31, 1997 and the three
month period ended December 31, 1997. Haugen Springer, as well as the
Audit Committee, have undertaken investigations to evaluate certain of the
Company's accounting policies and practices as reflected in its financial
statements. Further, the Audit Committee has requested that upon
completion of this evaluation, that we issue new reports on restated
financial statements for the years ended December 31, 1997, 1998 and 1999,
if circumstances so require.
Further, as the Committee knows, our evaluation of the Company's
accounting procedures which include, but are not limited to, the Company's
policies and procedures related to the recognition of revenue and the
capitalization of labor and other expenses in connection with certain
asset accounts. We share the Company's belief that the completion of such
evaluation may result in further adjustments to the Company's financial
statements. The amount of such adjustments, if any, has not presently
been determined because neither the Company nor we have completed our
investigations.
Because we have not completed our investigation, professional standards,
particularly paragraph 26 in AU Section 722 of the AICPA Statements on
Auditing Standards precludes us from permitting the use of our name or the
inclusion of our Review Report in connection with the financial statements
contained in the Company's 10 Q for the three months ended March 31, 2000,
at this time. This limitation in the scope of our review, we believe, is
a limitation caused by circumstance.
We therefore request that the Company understand that we have not prepared
a Review Report in connection with the financial statements contained in
the Company's 10 Q for the three months ended March 31, 2000 and that our
name should not be associated with the financial statements contained in
this filing.
Other generally accepted auditing standards require that we disclose to
the Audit Committee certain additional information including, but not
limited to, matters relating to internal control, selection of or changes
to significant accounting policies and their application, methods used to
account for significant, unusual transactions and the effect of
significant accounting policies in controversial or emerging areas as well
as possible illegal acts. We are required to report to you the existence
of sensitive accounting estimates and the bases for our judgments that
such estimates are reasonable.
In addition, we are obligated by our professional standards to inform the
Audit Committee of any significant disagreements with management over the
application of accounting principles, significant difficulties in
performing the audit and differences with management over its accounting
estimates.
We believe our recent communications, both oral and writing, have been
made in compliance with these standards. However, because we have not
completed our investigation, we may have additional, material disclosures
to report to you in the future.
Please know we will complete our work as quickly as practicable and will
report to the Committee as soon as possible. Thank you for your
consideration.
Sincerely,
/s/Charles Springer
Charles Springer
Haugen, Springer & Co.
