<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-25540
STB SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1855896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1651 North Glenville Drive
Richardson, Texas 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 234-8750
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value on January 28, 1998 of the registrant's voting
securities held by non-affiliates was $164,662,400.
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Number of shares of registrant's Common Stock, par value $0.01 per share,
outstanding as of January 28, 1998: 6,976,630.
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DOCUMENTS INCORPORATED BY REFERENCE
(a) Selected portions of the registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 1997. - Part II
(b) Selected portions of the registrant's definitive Proxy Statement for
the 1998 Annual Meeting of Shareholders. - Part III
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PART I
ITEM 1. BUSINESS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" OR "STB" WHEN
USED IN THIS REPORT REFERS TO STB SYSTEMS, INC., A TEXAS CORPORATION, AND ITS
CONSOLIDATED SUBSIDIARIES AND PRIOR AFFILIATES. THIS REPORT CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS.
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN OR CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS DUE TO A
NUMBER OF FACTORS, INCLUDING WITHOUT LIMITATION THOSE SET FORTH UNDER "--RISK
FACTORS" BELOW.
INTRODUCTION
STB designs, manufactures and sells multimedia subsystem and specialized
technology products. The Company's multimedia subsystem products, which are
designed for use primarily in desktop personal computers ("PCs"), include a
full range of multimedia accelerators (also referred to as "video graphics
adapters"), all of which are capable of displaying full-motion video images
on a monitor. These multimedia accelerators enable users to take advantage
of true-color graphics, 3D and video features found in the latest PC
operating systems, such as Microsoft Windows 95 and Windows NT, and in
multimedia applications. The Company's multimedia accelerators are designed
for use primarily in mid-range to high-end PCs. The Company's multimedia
subsystem product line also includes several complementary products,
including DVD products, PC/TV convergence subsystem products and sound cards.
The Company's multimedia subsystem products are sold to original equipment
manufacturers ("OEMs") and, to a lesser extent, to commercial customers, such
as retailers, distributors and direct-mail companies. The Company's OEM and
commercial customers include Gateway 2000, Dell Computer, Compaq Computer,
IBM, Best Buy, CompUSA, Tech Data, Ingram Micro and Merisel.
STB's specialized technology products incorporate graphics technologies
and are usually designed to enable one computer to simultaneously control the
display of multiple monitors. These products are sold to customers for
specialized applications in a number of industries, including the financial
services, hospitality, factory automation, transportation and emergency
response industries. The Company's customers for specialized technology
products include Reuters, Compaq Computer and Lodgenet Entertainment.
STB is recognized as one of the largest independent suppliers of
multimedia accelerators in the world.
INDUSTRY
According to Dataquest, an estimated 98.7 million PCs are expected to be
shipped worldwide in 1998, compared to 84.7 million units in 1997 and 71.7
million units in 1996. A substantial portion of the PCs shipped in recent
periods incorporate high performance Intel Pentium, Pentium Pro and Pentium II
processors and support multimedia functionality, including CD-ROM storage,
higher-resolution graphics, digital video and audio and, in most systems,
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hardware 3D and telecommunications. The evolution of these multimedia-enabled
PCs has been driven by the proliferation of higher performance hardware,
operating systems like Microsoft Windows 95 and Windows NT, the popularity of
the Internet and the growth in the number of consumer and business applications
featuring greater use of 3D graphics, video and sound.
Multimedia applications typically place significantly higher processing
demands on a PC's central processing unit ("CPU"), which can substantially
degrade system performance. The processing burden on the CPU can be reduced by
off-loading the multimedia-intensive processing functions to specialized video
graphics and other multimedia subsystems. This allows for significant
improvement in a PC's performance and can be achieved either through the
placement of subsystems on the motherboard or the use of add-in subsystems.
Motherboard implementations typically cost less, but generally provide lower
levels of functionality and performance. While add-in subsystems cost slightly
more, they generally can support higher levels of functionality and provide a
higher degree of flexibility in PC configuration, which allows PC manufacturers
to more rapidly integrate new technologies into their product lines and to meet
a range of price and performance requirements.
The market continually demands more sophisticated multimedia products as
new technologies evolve and enter the mainstream. Intel's incorporation of the
MMX extended instruction set in its microprocessors, as well as its recent 440LX
chipset with the Pentium II microprocessor that supports the accelerated
graphics port ("AGP"), demonstrate the demand for higher CPU functionality and
better integration between the CPU and the PC graphics subsystem. The
incorporation of these architectural enhancements, in addition to evolving
standards such as MPEG-2 decompression, Dolby Digital audio and DVD storage, are
laying the foundation for using the PC as an enabling platform for digital
television, video teleconferencing and other emerging multimedia capabilities.
The accelerating pace of technological advancement in the PC industry has
made it increasingly difficult for OEMs to devote the resources necessary for
the timely internal development of multimedia subsystems incorporating the
latest innovations. Furthermore, many OEMs are seeking to expand their product
lines in response to consumer demand for a broader range of price and
performance options. As a result, the Company believes OEMs increasingly are
choosing to outsource many of their component and subsystem needs to specialized
subsystem vendors with focused development efforts.
STRATEGY
The Company's goal is to become the leading supplier of multimedia
accelerators and certain other multimedia subsystems for PCs. The Company's
focus on the design, manufacture and sale of multimedia accelerators has earned
it a reputation for providing advanced graphics display solutions. With its
size and reputation, the Company has built relationships with chip suppliers
that allow it to obtain advance information about new developments in video
controller chip technology. Additionally, close relationships with many of its
OEM customers better enable the Company to determine what future performance
features are most desired. The Company believes that the strength of these
relationships also places it in a strong position to be the
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provider of choice to OEMs for a number of other multimedia subsystem products.
STB believes that it is positioned to compete effectively by using its knowledge
of technological advances and customer desires, together with its own
value-added development of software drivers and utilities, to provide
high-quality multimedia accelerators and other multimedia subsystems to the PC
marketplace on a timely, cost-effective basis. The Company also seeks to take
advantage of its expertise gained in developing multimedia subsystem products to
develop its specialized technology products.
The major elements of the Company's strategic plan are as follows:
FOCUS ON MULTIMEDIA ACCELERATOR MARKET AND EMERGING MULTIMEDIA SUBSYSTEM
OPPORTUNITIES. The Company intends to continue focusing its efforts on the
multimedia accelerator market, where it has consistently demonstrated an ability
to introduce innovative multimedia accelerators designed to satisfy rapidly
evolving and increasingly demanding performance standards. Furthermore, the
Company believes that it can leverage its strong OEM relationships and
technological and manufacturing expertise to be the provider of choice to OEMs
for other multimedia subsystem products, including "motherboards" which
incorporate multimedia subsystems. A motherboard is the main system board which
contains the central processing unit and memory. Some motherboards also include
multimedia subsystems as an integrated part of the system board circuitry.
CONTINUED FOCUS ON OEM SALES CHANNEL. The Company has continued to focus
on the OEM sales channel, as evidenced by a significant increase in sales within
this channel during the 1997 fiscal year, and the fact that approximately 79% of
the Company's revenues during such period were derived from sales to OEMs. The
expansion of the Company's business with several established OEM customers, such
as Gateway 2000, Dell Computer, Compaq Computer and IBM, demonstrate the success
of the Company's commitment to meeting the needs of OEMs. Historically, the
Company has provided OEMs with mid-range multimedia accelerators. The Company
recently has commenced delivery of high-end multimedia accelerators and other
multimedia subsystem products in an effort to expand its product offerings to
the OEM market.
CONTROL OF MANUFACTURING. The Company believes that it is the only
major independent supplier of multimedia accelerators that manufactures all
of its own products rather than outsourcing its manufacturing operations.
The Company believes that having its own manufacturing facility in Juarez,
Mexico enables it to maintain lower manufacturing costs, meet expedited
customer delivery schedules, quickly adjust to changes in product orders,
achieve shorter production cycles and accommodate modified or unusual design
specifications, while at the same time ensuring product quality and
reliability.
CONTROLLER CHIP INDEPENDENCE. Unlike some of its competitors, the
Company designs its products after evaluating controller chips produced by a
number of leading suppliers. The selection of a controller chip is based on
competitive factors including cost, performance, compatibility and
reliability of supply. The Company believes that purchasing rather than
internally developing controller chips allows it to consistently develop
products incorporating the latest technological advances. Moreover, the
Company is able to leverage the substantial
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expenditures made by developers of controller chips, achieve component
flexibility and decrease the time and expense required to develop new
products. See "--Risk Factors--Dependence on Suppliers."
MINIMIZE DESIGN-TO-MARKET CYCLES. By capitalizing on the foregoing
elements of its strategy, STB is able to design, manufacture, test and ship new
products in relatively short amounts of time, which is particularly important
for obtaining, maintaining and strengthening relationships with its OEM
customers, who also must operate under short design-to-market cycles.
SELECTIVELY PURSUE OTHER SALES CHANNELS. In addition to focusing on the
OEM sales channel, the Company intends to continue its efforts to further
penetrate the commercial market. The Company believes that the high quality,
low cost standards that it must meet for its OEM customers better position it to
provide competitive products in the commercial market. The Company believes
that increasing awareness of the STB brand, created in part by its penetration
in the OEM sales channel, has strengthened its position in the commercial
market. The Company also seeks to take advantage of its expertise gained in
developing multimedia subsystem products to develop its specialized technology
products. The Company believes it is one of the largest suppliers of
specialized technology products in the world and intends to continue marketing
these products to current customers, as well as to new customers in the same and
other targeted industries.
BRING NEW TECHNOLOGIES TO THE MARKETPLACE. The Company's experienced
software and hardware engineers provide STB with industry-leading expertise.
The Company intends to continue applying this expertise to respond quickly to
customer requirements, anticipate trends and advances in its industry and expand
its product line to take advantage of new technology applications. In
particular, the Company believes that its video graphics expertise places it in
a strong position to develop competitive products employing the most advanced
digital video and audio technologies, including DVD products, PC/TV convergence
subsystem products, sound cards and flat panel display products.
PRODUCTS
The Company divides its products into two categories: multimedia subsystem
products and specialized technology products. From its entry-level to its most
sophisticated products, the Company offers customers products that enhance the
video and audio capabilities for an increasingly broad range of PC
configurations and applications.
MULTIMEDIA SUBSYSTEM PRODUCTS
The Company's multimedia subsystem products include a full range of
multimedia accelerators at various price points, as well as other multimedia
subsystem products. The Company's current major multimedia subsystem products
include the following:
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PRODUCT NAME DESCRIPTION STATUS
MULTIMEDIA ACCELERATORS
PROFESSIONAL 3D MULTIMEDIA ACCELERATORS
Glyder Max - II Entry-level professional 3D multimedia Shipping
accelerator with 8MB of synchronous
graphic RAM (SG RAM); PCI or AGP bus
Glyder TX Gold Mid-range professional 3D multimedia Shipping
accelerator with 8MB of VRAM plus 8MB of
DRAM; PCI bus
Glyder MX High performance professional 3D multimedia Shipping
accelerator with geometry co-processor using
8MB of VRAM and from 8MB to 32MB of DRAM;
PCI bus
Glyder MP High performance professional 3D multimedia Shipping
accelerator with dual graphics processors
and geometry co-processor using 8MB of VRAM
and 32MB of DRAM; PCI bus
3D MULTIMEDIA ACCELERATORS
Powergraph64 3D Entry-level multimedia accelerator using Mature
either 2MB or 4MB of SD RAM
Nitro 3D Mid-Range multimedia accelerator using Shipping
either 2MB or 4MB of SD RAM
Velocity 3D Upper mid-range multimedia accelerator Mature
using 4MB or 8MB of EDO RAM
Velocity 128 Upper mid-range multimedia accelerator with Shipping
128 bit architecture using 4MB of 128 bit
SG RAM; PCI or AGP bus
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PRODUCT NAME DESCRIPTION STATUS
2D MULTIMEDIA ACCELERATORS
Powergraph 64 Video Entry level multimedia accelerator using Mature
either 1 MB or 2MB of EDO DRAM
Nitro 64 Video Entry level multimedia accelerator using Mature
either 1 MB or 2MB of EDO DRAM
Lightspeed 128 Mid-range multimedia accelerator using Mature
2 or 2.25 MB of MDRAM
OTHER MULTIMEDIA SUBSYSTEMS
DVD PRODUCTS
DVD Theater DVD product using dedicated hardware
for MPEG-2 and Dolby Digital audio decoding Shipping
Impact DVD DVD product using the Impact media processor Shipping
with supporting software for MPEG-2 and
Dolby Digital audio decoding
PC/TV CONVERGENCE SUBSYSTEM PRODUCTS
Video Rage II 3D multimedia accelerator using STB's "Hub" Shipping
architecture with television tuner, TV
output and optional DVD module (similar
to DVD Theater)
TV-PCI TV tuner adapter for PCI bus system with Shipping
the capability of receiving cable or
over-the-air analog television broadcasts
SOUND CARDS
Wave up Audio wavetable, upgrade card for Shipping
incorporation on certain Intel-logic
motherboards
The Company anticipates that its multimedia subsystem product line will
continue to evolve based upon its assessment of strategic multimedia
opportunities and the continuing demand for new generations of video and audio
solutions from OEMs and end-users. The Company's multimedia subsystem products
tend to have relatively short life cycles, reflecting the dynamic nature of
technological development within the PC industry. OEMs introduce new system
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configurations as often as twice a year, and the Company must introduce its new
products to comply with OEMs' schedules. The life cycle for a multimedia
accelerator typically is 6 to 9 months (plus a few additional months of sales of
certain of such products in the commercial market).
MULTIMEDIA ACCELERATORS. All of the Company's multimedia accelerators are
capable of displaying full-motion video images on a monitor. A multimedia
accelerator consists of a printed circuit board configured with a video
controller chip, memory chips and software drivers and utilities. The Company
believes that optimal graphics enhancement and video display require custom
software and hardware design that maximize the performance and features of a PC
system. The Company distinguishes its products from those of its competitors
through its innovative proprietary software drivers and utilities and through
the hardware design of its multimedia accelerators. The Company incorporates
its proprietary STB Vision software on all of its multimedia accelerator
products. STB Vision software supports various chip sets, with a consistent
interface that supports multiple languages, including German, English, French,
Dutch, Polish, Japanese, Italian and Spanish, and enhances the performance of a
multimedia accelerator.
The Company's multimedia accelerator product line is comprised of products
with varying degrees of performance based on display speed, resolution, color
depth and 2D/3D capability. The display speed of a multimedia accelerator is
determined primarily by the controller chip and software drivers, while display
resolution and color depth are determined primarily by the amount of display
memory. The Company offers a large family of multimedia accelerators that are
compatible with the bus architectures prevalent in today's market.
By offering a complete line of multimedia accelerators, the Company can
better establish and build relationships with OEMs. The Company currently
offers a high-end professional multimedia accelerator product line that provides
a choice of several "rasterization engines" from 3Dlabs, memory ranging from 8MB
to 40MB and separate geometry co-processors. This product line is optimized to
support the Windows-NT operating system and Open-GL 3D graphics. It is targeted
at customers with the most demanding 3D requirements, such as simulation, 3D
modeling and animation development.
The Company also offers products targeted at mainstream customers. The top
of STB's mainstream product line is the Velocity 128, which has 4MB of
Synchronous Graphic Ram (SG RAM) and uses the Nvidia Riva 128 graphics
controller chip. The Company offers a number of midrange products, including
products with 2D and 3D graphics capability, which generally contain from 1MB
to 4MB of EDO or Synchronous DRAM memory. For fiscal 1997, approximately 63%
of the multimedia accelerators shipped by the Company had hardware assisted
3D capability.
OTHER MULTIMEDIA SUBSYSTEM PRODUCTS. In addition to multimedia
accelerators, the Company also offers complementary multimedia subsystem
products that incorporate emerging technologies.
- DVD PRODUCTS. During the third fiscal quarter of 1997, STB began
supplying products to OEMs designed to enable the use of DVD drives in
PCs. The DVD
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is a 5 1/4" diameter disk that looks almost identical to the CD-ROM.
However, due to advances in recording technology, the capacity for the
DVD is a minimum of 4,770 megabytes, as compared to 680 megabytes on
the CD-ROM. Full motion video and audio data that is recorded on the
DVD is compressed using the MPEG-2 standard, and the audio data is
digital data using Dolby Digital processing. This video and audio
data must be processed as it goes from the DVD drive to the PC memory.
STB provides the adapter circuit that is required to process the data.
One of STB's initial DVD products, either the DVD Theater or the
Impact DVD, are being used by three of the top five current PC
companies (as ranked by International Data Corporation on the basis of
unit shipments).
Since the drive mechanism for the DVD is very similar to current
CD-ROM drives, the cost of these high-capacity drives will likely
approach that of the CD-ROM drives during late 1998. Since DVD drives
can read current CD-ROMs, industry analyst International Data
Corporation ("IDC") predicts that the DVD will begin replacing the
CD-ROM during 1998 and will gain market share relative to the CD-ROM
over the coming years. IDC's research suggests that 2.26 million DVD
drives were sold into the PC market in 1997 with the number growing to
83.8 million units in the year 2000.
- PC/TV CONVERGENCE SUBSYSTEM PRODUCTS. The Company's PC/TV convergence
subsystem products are capable of receiving analog television
broadcasts or cable transmissions and producing a full-motion
television display on a PC monitor. One important feature of these
products is their ability to take advantage of Intel Intercast, which
broadcasts information similar to a web page within an analog
transmission signal. These products are sold through the OEM channel,
and are available through retailers such as Best Buy and CompUSA. The
Company's Video Rage II tuner/video graphics subsystem is used in
Gateway 2000's Destination PC/TV product line.
- SOUND CARDS. A sound card, or "audio adapter," converts digital audio
information into high-fidelity, stereo-quality sound. A sound card
incorporates an audio controller chip, memory chips and software
drivers and utilities in configurations designed to produce high
quality sound. The Company began shipping sound card products in July
1996 in response to OEM customer demand for this additional product
offering. The Company believes that its sound cards complement its
video display products.
The Company's multimedia subsystem products (other than multimedia
accelerators and sound cards) are still in the early production stage. In
addition, in light of the fact that a substantial number of PCs incorporate
video graphics circuitry on the motherboard, the Company is continuing to study
the design, development and manufacture of motherboards containing STB's
multimedia subsystem capabilities. There can be no assurance that any of such
products can be produced in profitable quantities, if at all. The Company
anticipates that it will continue
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to expend efforts with respect to these and other potential products. See
"--Risk Factors--Entry Into New Product Markets."
SPECIALIZED TECHNOLOGY PRODUCTS
The Company's specialized technology products are characterized by their
incorporation of complex technologies, relatively low unit sales volumes and
relatively high unit prices and gross profit margins. The Company's specialized
technology products are sold primarily to resellers, the workstation groups of
OEMs and corporate customers for specialized applications in a number of
industries, including the financial services, hospitality, factory automation,
transportation and emergency response industries. Most specialized technology
products are designed to enable a single computer to control the display of more
than one monitor. The use of the Company's multi-monitor specialized technology
products in certain configurations can allow one computer to control up to 32
monitors. The Company believes it is one of the largest suppliers of
multi-monitor products in the world.
The Company offers two families of multi-monitor multimedia accelerator
products distinguished by the resolution of the monitors with which they are
designed to be used. The MVP family of products is used with high-resolution
monitors, and the Channel family is used with low-resolution, television-type
monitors. An important component that the Company incorporates into the MVP is
its "virtual screen" software driver and Mediator utility. This software driver
allows multiple monitors to act as a single screen, displaying numerous
"windows" of information through only one computer. The Mediator utility allows
the user to control the placement of applications on the available displays.
Many financial institutions employ this capability in their trading rooms, where
large amounts of information must be continuously available to traders. The
Company has made technological advances to its existing MVP product line,
including the introduction of new products, such as full motion digital video
scalers and live video/TV tuner input ports, which are based on the PCI bus
standard and new video graphics drivers and utilities. Channel products are
used in applications, such as airport arrival and departure displays, where
lower cost and larger display size are more important than clarity of display.
Channel products are also used to facilitate the selection of on-demand
programming for hotel room televisions.
The Company began shipping its first flat panel display product during its
first fiscal quarter of 1998. STB's initial flat panel display product is named
the Galileo 15, a 15 inch thin film transistor display offering a viewing area
similar to a 17 inch CRT-type monitor. This flat panel display product consists
of (i) a 3D multimedia accelerator that includes special circuitry to transmit
graphics and video data to digital flat panels, (ii) a receiver card to receive
the transmitted information, (iii) the flat panel display housed in STB's
proprietary housing and mounting system, and (iv) STB's custom driver and
utility software to allow the Display Subsystem to work with Windows-NT and
Windows-9X. Flat panel display products offer several advantages over
traditional cathode ray tube (CRT) glass monitors. They are much thinner, with
thicknesses from two to six inches rather than the foot or more of depth
required for CRTs. Flat panel systems also generate less heat than CRTs and
cause less strain on the
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user's eyes. Current flat panel display systems cost from three to five times
what an equivalent CRT system costs, but costs are expected to decline
dramatically in 1998 and 1999.
The Company also recently introduced several specialized technology
products that incorporate digital video features that meet the MPEG-2
decompression standard and may or may not incorporate a multimedia accelerator.
These products, some of which have multi-monitor control capability, may be used
for applications such as video-on-demand, storing video data for viewing at a
later time and receiving MPEG-2 encoded material over direct broadcast satellite
or advanced technology cable. There can be no assurance that such products can
be produced in profitable quantities, if at all. See "--Risk Factors--Entry
Into New Product Markets."
Listed below are the principal industries and applications for the
Company's specialized technology products:
<TABLE>
<CAPTION>
INDUSTRY APPLICATION
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<S> <C>
Financial services Support of simultaneous display of multiple data
sources on multiple monitors from a single PC for use
by financial traders
Hospitality Control of display on hotel room televisions to allow
guests to view movie choices, review bill prior to
checking out and obtain other information
Factory automation Dual-monitor graphical man-machine interface for
factory machinery
Transportation Flight arrival and departure information
Emergency response 911 emergency call center displays to allow the
operator to follow multiple calls simultaneously, plus
view a map of the emergency location on a separate
monitor
</TABLE>
DESIGN AND DEVELOPMENT
The timely development and introduction of new products is essential to
meeting the performance requirements of OEM customers as well as reinforcing the
Company's competitive position in STB's other sales channels. The Company works
closely with its OEM customers and suppliers to develop new products that
satisfy specific OEM product requirements, such as performance and display
features. The Company's software and hardware engineers design, develop and
test the new product prototype, selecting the most appropriate controller chip,
memory chips and other components for the product.
Operating compatibility of the Company's products is critical for customer
acceptance. STB's compatibility lab personnel ensure that the new product can
function properly in a variety of PC system configurations and with most popular
commercial application software and
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operating systems. The compatibility lab also compares the test performance of
the Company's products against that of competitors' products. In addition, STB
sends product prototypes to OEM customers for performance and compatibility
testing and to the Federal Communications Commission (the "FCC") and to the
Cenelec branch of the European Economic Community ("EEC") for "CE
Certification." See "--Government Regulations." After any necessary
modifications are made to a product, it is released for production.
The Company's design and development personnel have enabled STB to
repeatedly deliver the latest technologies to the OEM market. The Company also
has won numerous top awards from recognized industry magazines, including PC
Magazine, PC World, Windows Magazine, PC Professional, PC Computing, Multimedia
World, InfoWorld and New Media Magazine. In particular, STB's Velocity 128
product has received greater recognition from industry publications than any
other product in Company history, including top awards from PC Magazine, PC
World, PC Computing and numerous European industry magazines.
The Velocity 128 recently won the PC Magazine Editor's Choice award for
business computing, primarily as a result of its versatility, with excellent
performance in 2D and 3D graphics plus motion video acceleration. The Velocity
128 also debuted at the number one position on PC World's top 10 video board
list. In addition, PC Computing gave the Velocity 128 its 5 star award, plus
the prestigious Most Valuable Product award for the best product of its class
for 1997. In addition to the excellent results in the US trade press, the
Velocity 128 has won first place awards in graphic subsystems reviews from PC
Welt in Germany, PC Achat and Windows News in France, Computer Buyer and
Personal Computer World in the UK, and Chip in Italy.
The Company believes that the strength of its engineering resources is
critical to its competitiveness. The Company has substantially increased its
engineering and technical resources, so that as of December 31, 1997 it had a
total engineering staff of 93, including 17 hardware engineers and 41 software
engineers. The Company has also established software engineering centers in
Houston, Texas, Eugene, Oregon and Belfast, Northern Ireland. The Company's
engineering resources are critical to its strength in responding quickly to
customer requirements, anticipating trends and advances in its industry and
expanding its product line to take advantage of new technology applications.
See "--Products" and "--Risk Factors--Dependence on Key Personnel." The Company
anticipates that it will continue to increase its engineering resources in the
future.
SUPPLIERS
The Company believes that its close relationships with its component
suppliers are essential to producing low-cost, innovative products and
maintaining short design-to-market cycles. The Company's primary products,
multimedia accelerators, are printed circuit boards that contain a number of
components, including a video controller chip, memory chips, logic chips,
capacitors and resistors. The video controller chip, which regulates the
information that is displayed on the PC monitor, and the memory chip, which
stores graphics information for display, are the most important components in
determining the functions and manufacturing cost
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of a multimedia accelerator. The Company's other multimedia subsystem products
generally contain components similar to those found on an STB multimedia
accelerator but with different types of controller chips.
The Company purchases memory chips from a number of manufacturers,
including IBM, Mosel/Vitelic, Hyundai, Samsung and Toshiba. Memory chips
generally are less expensive if purchased directly from the manufacturer, but
manufacturers sometimes do not produce sufficient quantities of memory chips to
satisfy market demand. In times of restricted supply of memory chips,
manufacturers may allocate the sale of their memory chips to customers based,
among other factors, upon purchase volumes and the customer's creditworthiness.
The Company's ability to purchase from distributors, and possibly on the spot
market, provides an alternative, but more costly, source of supply if the
Company cannot obtain necessary supplies from memory chip manufacturers. See
"--Risk Factors--Dependence on Suppliers."
The Company purchases controller chips directly from a number of suppliers,
including S3, Cirrus Logic, 3Dlabs, Nvidia and IBM. These controller chips
typically include related software drivers, which the Company's software
engineers often enhance for use in STB products. In addition to controller
chips and the related software drivers, several other components that are used
in the Company's products are obtained from single or limited sources. The
Company has no guaranteed supply arrangements with any of its suppliers, and
there can be no assurance that current suppliers will be able to meet its
requirements. While the Company believes that with respect to its single and
limited source components it could obtain similar products from other sources,
it likely would be required to pay significantly more for such products, alter
product designs to use alternative products or reduce or delay its production of
the related products. As a result of delays in the delivery of components, lack
of available components or the lack of compatible software drivers from
component vendors, the Company has in the past experienced difficulty in meeting
its own scheduled shipment dates to customers, and such difficulties could
recur. See "--Risk Factors--Dependence on Suppliers."
The Company's unit component costs tend to be volatile, and a significant
increase or decrease in unit component costs may have a significant effect on
the Company's results of operations. The Company may experience component cost
increases in the future, which could have a negative effect upon gross profit
margins and gross profits. See "--Risk Factors--Dependence on Suppliers."
MANUFACTURING
STB considers its ability to manufacture high quality products at a low
cost to be critical to its competitiveness. STB began manufacturing at its
facility in Juarez, Mexico in 1988 and presently conducts substantially all of
its manufacturing operations at this ISO 9002 certified facility. STB believes
that by operating its own manufacturing facility the Company has a competitive
advantage in terms of its ability to respond quickly to changing customer needs
and to control product quality. The Company's manufacturing facility is located
in Juarez, Mexico to benefit from low labor and shipping costs, as well as
proximity to the Company's headquarters in Richardson, Texas. The Company has
increased its monthly manufacturing capacity in Mexico
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from approximately 400,000 boards at the beginning of fiscal 1996 to
approximately 500,000 boards as of the end of fiscal 1997, depending on product
mix and complexity. This increase in manufacturing capacity has been achieved
primarily through the addition of new high-volume surface-mount technology
("SMT") equipment, as well as through upgrading existing equipment. The Company
believes that the addition of this equipment has increased not only its
manufacturing capacity but also the speed and efficiency of its manufacturing
operations. With this additional equipment, the Company believes its
manufacturing capacity is sufficient for its current level of operations.
Nevertheless, the Company has placed orders for additional SMT equipment to add
incremental manufacturing capacity during fiscal 1998. In addition, the Company
recently relocated a portion of its manufacturing operations to a larger
facility adjacent to its present manufacturing facility, which should enable the
Company to further increase its manufacturing capacity. See "Properties" and
"--Risk Factors--Management of Growth" and "--Risk Factors--Single Manufacturing
Facility."
The Company emphasizes a comprehensive quality control program at each step
in the manufacturing process. The manufacturing process involves both automated
and manual placement and soldering of components on the circuit board. After
final assembly is completed, each product unit undergoes an elevated temperature
burn-in, a process simulating a PC environment in which the product is placed in
an oven and connected to an electrical source for several hours. After each
product has been burned-in, it is placed through a series of diagnostic tests to
detect defects. The Company believes its comprehensive testing procedures
significantly contribute to its ability to satisfy its customers' stringent
product performance and reliability requirements. The Company offers a limited
warranty ranging from 15 to 39 months for products sold to OEMs, a five-year
limited warranty on its specialized technology products and a limited lifetime
warranty on products sold to commercial customers.
While the Company conducts substantially all of its manufacturing
operations at its facility in Juarez, Mexico, it maintains a smaller facility at
its Richardson, Texas headquarters for the development and testing of prototypes
and the first-run testing of new products. The Company also maintains a
separate facility in Richardson, Texas for technical support and product repair.
In addition, the Company burns-in and functionally tests a small portion of its
products assembled in Mexico at its Richardson, Texas facilities.
STB provides contract assembly services for third parties, providing
incremental gross profit and contributing to the absorption of overhead by
increasing utilization of manufacturing capacity. Revenues from these assembly
services constituted approximately 1% of the Company's net sales for the fiscal
year ended October 31, 1997.
SALES AND MARKETING
SALES. The Company presently sells its products in North America, most
countries in Europe and certain countries in the Pacific Rim. United States
sales accounted for approximately 73% of the Company's net sales in the fiscal
year ended October 31, 1997.
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The Company organizes its Richardson, Texas-based North American sales
force on the basis of its three sales channels. The OEM sales force provides
direct sales coverage of selected OEMs. The commercial market sales force
focuses on marketing and sales to retailers, distributors and direct mail
companies, and also coordinates the efforts of the Company's independent sales
representatives for the commercial channel. The specialized technology sales
force coordinates its efforts with the Company's engineering staff to create
interest among prospects and customers and to determine product features.
The Company's North American sales force generally operates in tandem with
the Company's independent sales representative network in the commercial market.
These sales representatives typically are retained based on relationships they
have with potential customers. The Company believes that the services of
independent sales representatives are important to obtaining and maintaining
relationships with certain commercial customers. The Company's independent
sales representatives generally do not sell products competitive with those
products that they handle for the Company. The Company generally does not
utilize independent sales representatives for its OEM or specialized technology
products.
The Company's European sales force, which is headquartered in London, is
responsible for OEM, commercial and specialized technology product sales in the
region. The European sales force has more direct sales coverage responsibility
than the North American sales force because STB employs fewer European
independent sales representatives. The Company's marketing and sales efforts
for countries outside of North America and Europe are coordinated from STB's
Richardson, Texas offices.
The Company's net sales to OEMs, the commercial market and specialized
technology customers represented approximately 79%, 12% and 8% of the Company's
total net sales in the fiscal year ended October 31, 1997. The Company's top
three customers accounted for approximately 66% of net sales during the fiscal
year ended October 31, 1997, with Gateway 2000, Dell Computer and Compaq
Computer accounting for approximately 35%, 20% and 11%, respectively, of the
Company's net sales for such period. The Company recently has increased its
marketing efforts in the distribution segment of the commercial market. The
Company believes that its recent increase in commercial channel sales is
attributable to these increased efforts. The Company sells products to the
commercial market through specialty retailers, such as Best Buy and CompUSA, and
to commercial distributors, such as Tech Data, Ingram Micro and Merisel. The
Company sells its specialized technology products primarily to resellers, the
workstation groups of OEMs and corporate customers in the financial services,
hospitality, factory automation, transportation and emergency response
industries, which include customers such as Reuters, Compaq Computer and
Lodgenet Entertainment.
The Company generally allows returns in the form of stock rotations only of
products sold through the commercial channel. The Company's current stock
rotation policies typically permit a commercial channel customer to return
approximately 10% of products purchased from STB within the previous 90 days if
it places an order for other STB products of equal or greater value. The
Company usually is able to resell returned products. In addition, the Company
typically provides price protection to commercial channel customers in the form
of credits for price
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reductions on products remaining in customer inventories. See "--Risk
Factors--Stock Rotation and Price Protection Risks" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
The Company currently sells all its products at prices denominated in U.S.
dollars, but expects to sell its products in other currencies in the future,
thereby increasing its currency exposure risk. Additionally, a substantial
portion of the Company's manufacturing labor costs are incurred in Mexican
pesos. See "--Risk Factors--International Operations."
MARKETING. STB promotes its products to OEM customers and specialized
technology customers primarily through the efforts of the Company's sales force.
The Company believes such direct promotion enables it to develop products that
are more in line with customers' needs and with market trends. The Company
supplements these efforts through the promotion of its products at industry
trade shows. The Company's commercial channel marketing efforts include
advertising in recognized industry trade magazines and cooperative promotional
efforts with retailers and commercial distributors.
TECHNICAL SUPPORT
The Company believes that providing technical support to its customers is
essential to its ongoing competitiveness. The Company maintains a toll-free
telephone line in the United States for technical support of its specialized
technology products and for its multimedia accelerator products and other
multimedia subsystem products sold in the commercial market. The Company also
maintains electronic bulletin board systems in Richardson, Texas and London,
England to provide customers with new software drivers and utilities that update
the capabilities of the Company's products. The Company's technical support
group provides the software on disk at a nominal charge to customers who are
unable to obtain updates through the electronic bulletin board system. The
Company's policy of providing updates allows products to maintain compatibility
with new versions of software and increases the useful life of these products.
The Company also devotes significant efforts to the preparation of user manuals
and other product documentation that are informative and easy to understand.
COMPETITION
The market for the Company's products is highly competitive. The Company
competes with independent manufacturers of brand name multimedia subsystem
products, as well as contract manufacturers and certain OEM manufacturing
operations that produce multimedia subsystem products. See "--Industry." The
Company's major competitors in the multimedia subsystem product market include
Diamond Multimedia, ATI Technologies, Number Nine Visual Technology, Matrox,
Elsa, Creative Labs, CEI and Hauppauge. In the specialized technology product
market, the Company's major competitors include ColorGraphics, Datapath and
Appian.
In addition to its major competitors, certain of the Company's suppliers
sell controller chips directly to OEMs for use in internally produced multimedia
accelerators, other multimedia subsystems or on motherboards. If one or more of
the Company's significant OEM customers
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were to commence or increase internal production of multimedia accelerators or
other multimedia subsystems, the Company's results of operations could be
negatively impacted. Furthermore, a number of significant OEMs currently
integrate video controller chips on the motherboard of their PCs. If one or
more of the Company's significant OEM customers begins to incorporate video
controller chips or other controller chips onto motherboards rather than using
the Company's products, the Company's results of operations could be negatively
impacted. See "--Risk Factors--Dependence on Multimedia Accelerator Market;
Migration to Motherboards."
The Company competes in its markets on the basis of a number of factors,
including the compatibility, reliability, price and performance of its products,
its ability to reach the market quickly with new products, its ability to meet
customer delivery and reliability requirements, the quality of its technical
support and its ability to develop and maintain relationships with customers and
suppliers. Many of the Company's competitors and potential competitors have
greater financial, marketing, manufacturing and technical resources than the
Company. In addition, some of the Company's competitors manufacture their own
controller chips, which in certain circumstances may provide these competitors
with an advantage over the Company. Furthermore, while the Company believes it
is the only supplier of brand name multimedia accelerators that produces its own
products, some of STB's competitors internally manufacture other multimedia
subsystem products, such as sound cards and TV tuner cards. The rapid pace of
change in the Company's industry places a premium on factors that include the
knowledge and experience of a company's management, engineers and other
personnel and their ability to develop and improve products. The Company has
continued to increase its engineering resources and believes that its ability to
continue adding new engineers to its staff in the future will affect its
competitiveness. See "--Risk Factors--Dependence on Key Personnel."
INTELLECTUAL PROPERTY
The Company's success depends in part upon its proprietary technology,
consisting of both its software drivers and utilities and its hardware designs.
The Company primarily relies upon copyright, trademark and trade secret laws to
protect its proprietary technology, and also seeks patent protection on selected
inventions from time to time. The Company generally also enters into
nondisclosure agreements with persons to whom it reveals its proprietary
information, such as OEMs that the Company works with concerning future
products. There can be no assurance that the Company's present protective
measures will be adequate to prevent misappropriation of its technology or
independent third party development of the same or similar technology. Many
foreign jurisdictions offer less protection of intellectual property rights than
the United States, and there can be no assurance that the protection provided to
the Company's proprietary technology by the laws of the United States or foreign
jurisdictions will be sufficient to protect the Company's technology. See
"--Risk Factors--Proprietary Technology." While the Company's competitive
position may be affected by its ability to protect its proprietary information,
the Company believes that the rapid pace of technological change in the
multimedia accelerator industry will cause other factors to be more significant
in maintaining the Company's competitive position. These factors include the
technical expertise, knowledge and innovative skill of the Company's management
and technical personnel, name recognition, the timeliness and quality
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of support services provided by the Company and its ability to rapidly develop,
produce, enhance and market innovative products.
STB generally enters into nondisclosure agreements with suppliers of
components for its products in connection with discussions regarding forthcoming
features of those components. The Company also commonly enters into licensing
agreements with suppliers of components that the Company desires to incorporate
into its products.
The Company has pending certain utility and design patent applications on
its flat panel PC monitor products. The Company also has a United States
trademark registration for the STB logo, and owns common law trademark rights
with respect to certain other trademarks.
It is common in the computer industry for companies to assert intellectual
property infringement claims against other companies. As a consequence, the
Company indemnifies some OEM customers in certain respects against intellectual
property claims relating to STB's products. Several OEM customers recently sent
the Company notices of potential indemnity claims based upon a notice of
infringement such OEM customers received from a patent owner relating to the
asserted infringement of its patent for processing color graphics imaging data
in PCs. Subsequently, the patent owner filed a patent infringement lawsuit
against two of such OEM customers. Based upon the Company's preliminary
evaluation of the patent, it does not believe the infringement claims are
meritorious. If this or another intellectual property claim were brought
against the Company and one of the Company's products were found to be
infringing upon the rights of others, the Company could be required to pay
infringement damages, pay licensing fees, modify its products so that they are
not infringing or discontinue offering products that were found to be
infringing, any of which could materially adversely affect the Company and its
results of operations. In addition, the assertion of such claims against one or
more of the Company's vendors could adversely affect the availability from those
vendors of components used by the Company. See "--Risk Factors--Intellectual
Property Infringement Claims."
LEGAL PROCEEDINGS
The Company is a party from time to time to certain legal proceedings
arising in the ordinary course of its business. Although the amount of any
liability that could arise with respect to these proceedings cannot be predicted
accurately, in the opinion of the Company any liability that might result from
such claims will not have a material adverse effect on the financial position of
the Company.
GOVERNMENT REGULATIONS
The Company's business is regulated by federal, state, local and foreign
authorities. The products produced by the Company are subject to approval by
the FCC and the EEC to assure that they do not interfere with the frequencies of
other consumer electronics products. The Company installs certain filter
circuitry on its products to prevent them from disturbing other frequencies in
compliance with FCC and EEC regulations. To date, regulations applicable to the
Company's business have had no material effect on the Company's capital
expenditures, earnings
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or competitive position. Although historically the Company has not experienced
material delays in obtaining FCC or EEC approval of any of its products,
relatively recent government budget constraints have caused delays in obtaining
approval of certain of the Company's products. The Company believes that any
delay in obtaining approvals could, in turn, result in delays in making certain
shipments on a timely basis.
The Company's relationships with its employees at its Mexican manufacturing
facility are regulated by the Mexican Federal Labor Law, which contains detailed
provisions regarding minimum employment conditions and specifies rights that
must be provided to all employees in Mexico. Other Mexican federal laws require
employers to make contributions to the Mexican Social Security System and to
establish and make regular contributions, in specified amounts, to individual
retirement savings and housing accounts at a commercial bank for all employees.
In addition, Mexican federal law requires the payment of substantial severance
amounts in the event of the termination of a Mexican employee. Although Mexican
laws governing employment relationships are extensive, aggregate labor costs at
the Company's Mexican facility are nevertheless significantly less than labor
costs would be at a similar facility in the United States. There can be no
assurance, however, that these laws will not be amended or supplemented in the
future to increase the compensation required to be paid to Mexican employees or
the costs of compliance with such laws or that any such change would not have a
material adverse effect on the Company and its results of operations.
The Company's Mexican manufacturing operations are subject to regulation by
various Mexican environmental agencies. In order to ensure compliance, the
Company regularly monitors changes in Mexican environmental laws, and
representatives of environmental agencies periodically inspect the Company's
Mexican facility.
The Company spent approximately $30,000 in order to comply with Mexican
environmental regulations in fiscal 1997 and anticipates that it will spend
approximately $30,000 in each of fiscal years 1998 and 1999.
BACKLOG
As of December 31, 1997, the Company's backlog was approximately $47.5
million, as compared to approximately $ 23.5 million at December 31, 1996. The
Company includes in its backlog accepted purchase orders with respect to which a
delivery schedule has been specified for product shipment within 60 days. The
Company's business is characterized by short-term order and shipment schedules,
and backlog tends to fluctuate substantially from month to month. Generally,
orders constituting backlog are subject to changes in delivery schedule or to
cancellation at the option of the purchaser. The Company's agreements with its
customers typically specify penalties for cancellation of orders within 60 days
prior to shipment. Other factors, including the Company's inability to obtain
components in sufficient quantities, may result in delays in shipment or
cancellation of orders included in backlog. See "--Risk Factors--Dependence on
Suppliers." Therefore, although backlog is useful for scheduling production,
backlog as of any particular date should not be considered a reliable measure of
sales for the current or any future period.
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EMPLOYEES
As of December 31, 1997, the Company employed 2,191 individuals, of whom
1,865 were employed in operations, 93 in engineering, 75 in sales and marketing
and 158 in administration and finance. Included in the foregoing figures are
1,869 employees in Mexico. Competition for personnel in the PC industry is
intense. The Company believe's that its future success will depend in part on
its ability to continue to attract and retain highly skilled technical,
marketing and management personnel. None of the Company's employees is
represented by a labor union or is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are good. See
"--Government Regulations."
SEASONALITY
The Company's quarterly operating results vary significantly depending on
factors such as the timing of large customer orders, timing of new product
introductions, adequacy of component supply, changes in component costs,
variations in the Company's product mix, seasonal promotions by the Company and
its customers and competitive pricing pressures. Because the timing of these
factors may vary, the results of any particular quarter may not be indicative of
results for the full year or any future period. In addition, the PC market
generally experiences weaker sales during the summer months. Although the
Company has experienced sales growth for each year since fiscal 1990, there can
be no assurance that this growth will continue on a quarterly or annual basis.
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in or contemplated
by the forward-looking statements due to a number of factors, including, without
limitation, those set forth below and elsewhere in this report. In addition to
the other information in this report, the following factors, which may affect
the Company's current position and future prospects, should be considered
carefully in evaluating the Company and an investment in the Common Stock of the
Company.
POTENTIAL FOR FLUCTUATING OPERATING RESULTS; SEASONALITY. The Company's
historical operating results have fluctuated significantly from period to period
and will likely fluctuate in the future. Fluctuations result from a wide
variety of factors, including the timing and availability of components, changes
in product mix and pricing, the timing of customer orders, new product
developments or introductions, production interruptions, product reviews and
other media coverage, changes in sales channel mix and product returns or price
protection claims from customers. Many of these factors are beyond the control
of the Company. The volume and timing of orders received during a quarter are
difficult to forecast. Customers generally order on an as-needed basis.
Consequently, the Company historically has operated with a relatively
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small backlog. Moreover, as sometimes occurs in the PC industry, a
disproportionate percentage of the Company's net sales in any quarter may be
generated in the last month of a quarter. As a result, a shortfall in sales
in any quarter as compared to expectations may not be identifiable until the
end of the quarter. The Company's gross profit margins are impacted by
product sales cycles, sales channel mix, product mix, pricing pressures, the
availability and cost of components from the Company's suppliers and general
economic conditions. The Company's markets are characterized by intense
ongoing competition and a trend of declining average selling prices.
Accordingly, the Company's margins may decline in the future from the levels
experienced to date. In addition, the Company's margins may be adversely
affected by shortages in the availability of key components for the Company's
products, as well as by fluctuations in the value of certain foreign
currencies. The Company's quarterly results are also subject to seasonal
fluctuations, with generally weaker fiscal third quarter results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Seasonality."
DEPENDENCE ON SUPPLIERS. Several components used in the Company's
products are obtained from single or limited sources and, in instances in
which component manufacturers do not allocate a sufficient supply of
components to meet the Company's needs, the Company must obtain such
components from distributors or on the spot market at a higher cost. The
Company has no guaranteed supply arrangements with any of its suppliers, and
there can be no assurance that current suppliers will be able to meet its
requirements. The Company believes that with respect to its single and
limited source components, it generally could obtain similar components from
other sources but likely would be required to pay significantly more for such
products, alter product designs to use alternative components (which would
cause significant delays) or reduce its production of the related multimedia
accelerators. As a result of delays in the delivery of components or lack of
available components, the Company in the past has experienced difficulty in
meeting certain product shipment dates to customers, which in some instances
has resulted in a loss of business. In addition, software drivers, which are
essential to product performance, are included with some of these single and
limited source components. In the past, the Company has experienced delays
in the delivery of its products due to the inadequacy or the incompatibility
of software drivers provided by component suppliers or developed internally.
It is likely that delays in delivery of components, shortages of components
and problems with software drivers will continue to occur in the future, and
such delays or problems would materially adversely affect the Company and its
results of operations. Additionally, in its attempt to counter actual or
perceived component shortages, the Company may overpurchase certain
components, resulting in excess inventory or, in the event of inventory
obsolescence or a decline in the market value of such inventory, causing
inventory write-offs against the Company's operating results.
Significant increases in the prices of components, such as graphics
controller chips or memory chips, occur from time to time, and often the
Company is not able to adjust the price of its products accordingly.
Occasional worldwide shortages of memory or controller chips and
international tariff disputes have resulted in substantial component cost
increases in the past that have materially adversely affected the Company and
its results of operations.
The Company relies upon outside suppliers to continue to develop,
introduce and manufacture in sufficient volumes controller chips, memory
chips and other components.
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Moreover, the technology of these components must compare favorably in terms
of functionality, features and price with the offerings of other
manufacturers, including competitors of the Company that have internally
developed computer chips or manufacturing expertise. The Company's
dependence on single and limited source suppliers, and the risks associated
with any delay or shortfall in supply, are exacerbated by the short life
cycles which characterize multimedia subsystem products. See "--Suppliers."
DEPENDENCE ON MULTIMEDIA ACCELERATOR MARKET; MIGRATION TO MOTHERBOARDS.
A substantial portion of the Company's net sales is derived from the sale of
multimedia accelerators. According to Jon Peddie Associates, approximately
69% of all graphics controller chips manufactured in the 12-month period
ended September 30, 1997, were incorporated onto multimedia accelerators, and
approximately 31% were incorporated onto motherboards. Multimedia
accelerators generally are used in higher-end PCs offering the latest
technology and performance features. However, as a given functionality
becomes technologically stable and widely accepted by PC users, it typically
migrates to the PC motherboard. The Company anticipates that such migration
could occur with respect to the functionality provided by certain of its
current products. In this regard, Intel Corporation's MMX instruction set
and the expanded operating systems provided by Microsoft Corporation
incorporate several functions that traditionally have been performed by
multimedia accelerators. In addition, single chip solutions are currently
available that provide 16-bit sound functionality for implementation directly
onto PC motherboards. As a result of this tendency of technology to migrate
to the PC motherboard, the Company's success is largely dependent on its
ability to continue to develop products that incorporate new and rapidly
evolving technologies that manufacturers have not yet fully incorporated onto
PC motherboards, or dependent on the Company's ability to develop PC
motherboard products that incorporate multimedia subsystems. While the
Company believes that a market will continue to exist for add-in subsystems
that provide advanced functionalities and offer flexibility in systems
configuration, there can be no assurance that the incorporation of new
functionalities onto PC motherboards will not adversely affect the market for
the Company's products. An increase in the number or percentage of PCs that
incorporate graphics circuitry on the motherboard at the expense of add-in
multimedia accelerators, an increase in the number or percentage of
multimedia accelerators manufactured internally by OEMs or a decrease in PC
sales volumes would effectively shrink the market for the Company's current
products and could materially adversely effect the Company's business. See
"--Industry."
TECHNOLOGICAL CHANGE AND NEW PRODUCTS. The market for the Company's
products is characterized by short product life cycles, rapidly changing
technology, evolving industry standards and frequent introductions of new
products. OEMs introduce new system configurations as often as twice a year,
and the life cycles of the Company's multimedia accelerators typically range
from 6 to 9 months (plus a few additional months of sales of certain of such
products in the commercial market). If the Company does not successfully
introduce new products within a given product cycle, the Company's sales will
be adversely affected for that cycle and possibly for subsequent cycles. Any
such failure could also impair the Company's brand name, reputation and
relationships with its OEM customers. The Company's success depends upon
market acceptance of its existing products, its ability to enhance its
existing products and its ability to continually develop and introduce new
products and features to meet
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changing customer requirements. Each new product cycle presents new
opportunities for current or prospective competitors of the Company to gain
market share. The Company's competitors include manufacturers of products
that directly compete with the Company's products, as well as competitors
that can produce products that have a similar functionality to the Company's
products. For instance, Intel Corporation has added new functionalities, such
as MMX, to its controller chips to enhance the power of the CPU of a PC to
manage the display features of a PC. Similarly, Microsoft Corporation is
introducing new versions of its operating systems with features, such as
Direct 3D, that increase the capability of its operating systems to control a
PC's display features. Moreover, Intel's announced acquisition of Chips and
Technologies could eventually result in increased migration of graphics
functionality to the motherboard. Because of the short product life cycles
and the long lead times for many components used in the Company's products,
the Company may not be able to quickly reduce its production or inventory
levels in response to unexpected shortfalls in sales or, conversely, to
increase production in response to unexpected demand. There can be no
assurance of the continued acceptance of the Company's existing products or
that the Company will be successful in enhancing its existing products or
identifying, developing, manufacturing or marketing new products. Delays in
developing new products or enhancements or the failure of such products or
enhancements to gain market acceptance would materially adversely affect the
Company and its results of operations.
Sales of individual products and product lines are typically
characterized by declines in volumes, pricing and margins toward the end of
the product's life cycle, the precise timing of which may be difficult to
predict. As new products are planned and introduced, the Company attempts to
monitor closely the inventory of older products (and older components) and to
phase out their manufacture in a controlled manner. Nevertheless, the
Company could experience unexpected reductions in sales of older generation
products as customers anticipate new products. These reductions could give
rise to additional charges for obsolete or excess inventory, returns of older
generation products by retailers or commercial distributors or substantial
price protection claims. To the extent that the Company is unsuccessful in
managing product transitions, its business and operating results would be
materially adversely affected.
DEPENDENCE ON KEY CUSTOMERS AND DESKTOP PC MARKET. The Company's top
three customers accounted for 59% and 66% of net sales during fiscal 1996 and
fiscal 1997, respectively. In recent years, Gateway 2000 has been the
Company's top customer, although STB's other significant customers have
changed from period to period. See "Business--Sales and Marketing--Sales."
The loss or reduction of the business of Gateway 2000 or one or more of the
Company's other major customers would have a material adverse effect on the
Company and its results of operations. In addition, the Company's future
success will depend significantly upon the success of its customers,
particularly its OEM customers. The Company has no long-term commitments or
contracts with its customers. While a number of the Company's OEM customers
have achieved strong PC sales in recent periods, such customers, and the PC
industry in general are subject to dynamic competitive conditions. In
particular, the loss of sales by the Company's OEM customers to other OEMs or
a decrease in the popularity of desktop PCs that incorporate the Company's
products would adversely affect the Company and its results of operations.
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CHANGE IN PRODUCT OR SALES CHANNEL MIX. The Company offers two broad
categories of products: multimedia subsystem products that are sold to OEMs
and the commercial market and specialized technology products that are sold
to resellers, workstation groups of OEMs and corporate customers in certain
industries. Sales of multimedia accelerators to OEMs, which currently
account for substantially all of the Company's OEM multimedia subsystem
product sales, are characterized by relatively high unit volumes and
relatively low gross profit margins. The Company began shipping significant
unit volumes of certain new multimedia subsystem products (i.e., other than
multimedia accelerators) to OEM customers in the third quarter of its 1996
fiscal year, but is not yet in a position to forecast the effect that the
sale of these new products will have on its results of operations. Sales to
the commercial market are characterized by modest volumes and moderate gross
profit margins. Sales of the Company's specialized technology products are
characterized by relatively low unit volumes and relatively high gross profit
margins. The Company's sales to OEMs, the commercial market and specialized
technology products customers represented approximately 79%, 12% and 8% of
the Company's total net sales during the 1997 fiscal year. In the event the
Company experiences a shift in the type of products that it is able to sell
or a shift in the sales channels into which such products are sold, its
results of operations could be materially adversely affected. In particular,
a decrease in sales of multimedia subsystem products to the commercial market
or in sales of specialized technology products could result in a
disproportionately greater decrease in the Company's gross profit. See
"--Products" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
ENTRY INTO NEW PRODUCT MARKETS. While the Company's business
historically has focused on the design, manufacture and sale of multimedia
accelerators, in the third quarter of fiscal 1996 the Company first began
shipping significant unit volumes of new multimedia subsystem products.
Further, the Company first began shipping DVD products in the third quarter
of fiscal 1997 and flat panel display products in the first quarter of fiscal
1998. See "--Products." There are numerous risks inherent in the entry into
new product markets, including the reallocation of limited management,
engineering and capital resources to unproven product ventures, a greater
likelihood for encountering technical problems and a greater likelihood that
the market will not accept the Company's new products or the PCs into which
they are incorporated. In addition, a new product line, like flat panel
display products, requires significant investment in long-lead time
inventories. The failure of one or more of such products, or any negative
effects upon the Company's core multimedia accelerator business, could
materially adversely affect the Company and its results of operations.
PRICE PROTECTION AND STOCK ROTATION RISKS. As is common practice in its
industry, the Company's arrangements with its commercial customers generally
allow customers, in the event of a price decrease, credit equal to the
difference between the price originally paid and the new decreased price on
units in the customers' inventories on the date of the price decrease. In
addition, commercial customers generally have the right to return slow-moving
or excess inventory for product credit up to an agreed upon percentage of
shipments within specified time periods. While the Company establishes
reserves to cover these practices, there can be no assurance that these
reserves will be sufficient or that any future price protection claims or
returns will not have a material adverse effect on the Company and its
results of operations, particularly
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because results are heavily dependent on products for which the Company has
little or no operating history. See "--Sales and Marketing--Sales" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
COMPETITION. The markets for the Company's products are highly
competitive. The Company has competitors specifically dedicated to the
multimedia subsystem market or specific segments within that market.
Companies in related markets also offer products with functions similar to
the Company's products. For example, the Company's suppliers sell video
graphics controller chips directly to OEMs for use in internally produced
multimedia accelerators or on motherboards. Increased sales of competitive
products could result in price reductions by the Company or loss of its
market share, which would materially adversely affect the Company and its
results of operations. In addition, the Company's OEM customers could
commence or increase internal production of multimedia accelerators or other
multimedia subsystems. Furthermore, the Company's markets are expected to
become increasingly competitive as multimedia functions continue to converge
and companies that previously supplied products providing distinct functions
(for example, companies in the sound board and telephony markets) emerge as
competitors across broader product categories. The Company also anticipates
that as the breadth of its product lines expand, the markets in which it
competes and the number of competitors against which it competes also will
expand. There can be no assurance that the Company will be able to continue
to compete successfully in its markets or that it will be able to compete
successfully against current and new competition as these markets continue to
evolve. Many of the Company's current and potential competitors design and
manufacture some of their own product components. While the Company believes
that its controller chip independence enables it to select from among the
most advanced components available, there may be instances in which these
internally developed components have better features and performance
characteristics than those available from third party vendors. Furthermore,
the Company believes that certain of its current and potential competitors
compete largely on the basis of price, which may result in significant price
competition, lower margins for the Company's products or otherwise affect the
market for the Company's products. Certain of the Company's current and
potential competitors also are located in foreign jurisdictions that may have
lower labor costs, impose significantly lower taxes than the United States or
levy duties on product imports. Many of the Company's current and potential
competitors have greater financial, marketing. manufacturing and
technological resources than the Company. There can be no assurance that the
Company will be able to continue to compete successfully with its existing
competitors or with new competitors. See "--Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends upon the
services of its management, sales, marketing and engineering personnel.
While the Company has entered into employment agreements with a number of
such personnel, the loss of the services of one or more of such personnel
could have a material adverse effect on the Company and its results of
operations. The success of the Company will depend, in part, on its ability
to retain its key management, sales, marketing and engineering personnel and
to attract other personnel to satisfy the Company's current and future needs.
There is substantial competition for such personnel in the computer
industry, and the inability to retain key personnel or to attract additional
personnel
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to satisfy the Company's needs could have a material adverse effect on the
Company and its results of operations.
MANAGEMENT OF CHANGE. The Company has experienced rapid growth, and has
consequently increased its expenditures in a number of areas and made certain
long-term commitments, a number of which would be difficult to quickly reduce
in the event of a decrease, or slower rate of growth, in the Company's
business. In the event the Company experiences further growth, such growth
may require larger quantities of components, additional marketing, sales and
engineering personnel, additional manufacturing equipment and improved
operating, financial and administrative controls, any of which could require
significant additional capital expenditures. The Company may experience
difficulty securing adequate quantities of components or additional
manufacturing equipment, attracting or retaining skilled personnel, improving
infrastructure and information systems or overcoming other difficulties
associated with growth. In addition, gross profit margins derived from
initial orders with new OEM customers are frequently lower than the Company's
typical gross profit margins. There can be no assurance that the Company
will be able to manage future changes in the size of its business
successfully or that difficulties in doing so will not have a material
adverse effect on the Company and its results of operations.
SINGLE MANUFACTURING FACILITY. The Company's primary manufacturing
facility is located in Juarez, Mexico. The Company recently relocated a
portion of its manufacturing operations to an adjacent, larger building, thus
expanding the overall facility square footage, and transitioned to new or
reconfigured manufacturing equipment. Since the Company is substantially
dependent on this single manufacturing facility, a disruption of the
Company's manufacturing operations at this facility would have a material
adverse effect on the Company and its results of operations. Such disruption
could result from various factors, including difficulties associated with the
transition to new or reconfigured manufacturing equipment, or a labor
dispute, human error, governmental or political risks or a natural disaster
such as an earthquake, tornado, fire or flood. In addition, in comparison to
those of its competitors that do not maintain their own manufacturing
facilities, the Company incurs higher relative fixed overhead and labor costs
as a result of operating its own manufacturing facility. Any failure to
generate the level of product revenues needed to absorb these overhead and
labor costs would have a material adverse effect on the Company and its
results of operations. See "--Manufacturing."
INTERNATIONAL OPERATIONS. A substantial portion of the Company's
manufacturing operations are carried out in Mexico. The Company's export
sales (which primarily consist of European sales) were approximately 27% of
net sales in the fiscal year ended October 31, 1997. The Company is subject
to the general risks of conducting business internationally, including
unexpected changes in regulatory requirements, fluctuations in currency
exchange rates, delays resulting from difficulty in obtaining export licenses
for certain technology, state imposed restrictions on the repatriation of
funds, tariffs and other barriers and restrictions and the burdens of
complying with a variety of foreign laws. In addition, the Company is
subject to general geopolitical risks, such as political instability and
changes in diplomatic and trade relationships, in connection with its
international operations. Although the Company has not to date experienced
any material adverse effect on its operations as a result of such factors,
there can be
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no assurance that such factors will not materially adversely impact the
Company and its results of operations in the future or require the Company to
modify its current business practices. The Company currently sells its
products at prices denominated in U.S. dollars, and an increase in the value
of the U.S. dollar relative to foreign currencies could make the Company's
products more expensive and potentially less competitive in foreign markets.
The Company expects to sell a portion of its products in the future at prices
denominated in other currencies and will therefore increase its currency
exposure risk. In addition, a substantial portion of the Company's
manufacturing labor costs are paid in Mexican pesos, so any decrease in the
value of the U.S. dollar relative to the Mexican peso could increase the
Company's manufacturing costs and adversely affect the Company and its
results of operations. See "--Manufacturing" and "--Sales and Marketing."
PROPRIETARY TECHNOLOGY. The Company's success partially depends upon
its proprietary technology, consisting of its software drivers and utilities
and, to a lesser extent, its hardware designs. The Company relies primarily
upon copyright and trade secret laws and agreements with its suppliers and
customers to protect its proprietary technology, and also seeks patent
protection on selected inventions from time to time. There can be no
assurance that the Company's present protective measures will be adequate to
prevent misappropriation of its technology or independent third party
development of the same or similar technology. Many foreign jurisdictions
offer less protection of intellectual property rights than the United States,
and there can be no assurance that the protection provided to the Company's
proprietary technology by the laws of the United States or foreign
jurisdictions will be sufficient to protect the Company's technology. See
"--Intellectual Property."
The Company has and may in the future find it necessary or desirable to
procure licenses from third parties relating to current or future products or
technologies, but there can be no assurance that the Company will continue to
be able to obtain such licenses or other rights or, if it is able to obtain
them, that it will be able to do so on commercially acceptable terms. The
Company could be placed at a disadvantage if its competitors obtain licenses
with lower royalty fee payments or other terms more favorable than those
received by the Company. If the Company or its suppliers were unable to
obtain licenses relating to current or future products or technologies, the
Company could be forced to market products without certain technological
features. The Company's inability to obtain licenses necessary to use
certain technology or its inability to obtain such licenses on competitive
terms could have a material adverse effect on the Company and its results of
operations. See "--Intellectual Property."
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS. It is common in the computer
industry for companies to assert intellectual property infringement claims
against other companies. As a consequence, the Company indemnifies some OEM
customers in certain respects against intellectual property claims relating
to its products. Several OEM customers recently sent the Company notices of
potential indemnity claims based upon a notice of infringement such OEM
customers received from a patent owner relating to the asserted infringement
of its patent for processing color graphics imaging data in PCs. Subsequently,
the patent owner filed a patent infringement lawsuit against two of such OEM
customers. Based upon the Company's preliminary evaluation of the patent, it
does not believe the infringement claims are meritorious. If this or another
intellectual property claim were to be brought against the Company and the
Company were found to be infringing upon the rights of others, the Company
could be required to pay infringement damages, pay licensing fees,
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modify its products so that they are not infringing or discontinue offering
products that were found to be infringing, any of which could materially
adversely affect the Company and its results of operations. See
"--Intellectual Property."
If an intellectual property claim were to be brought against one or more
of the Company's suppliers and the supplier were found to be infringing upon
the rights of others, the supplier could be enjoined from further shipments
of its products to the Company, which could materially adversely affect the
Company and its results of operations.
ANTI-TAKEOVER MEASURES. The Company is a Texas corporation and is
therefore subject to the provisions of the Texas Business Corporation Act,
including the terms of the Texas Business Combination Law ("TBCL") that
became effective on September 1, 1997. In general, the TBCL prohibits a
Texas "issuing public corporation" (such as the Company) from engaging in a
"business combination" with any shareholder who is a beneficial owner of 20%
or more of the corporation's outstanding stock for a period of three years
after such shareholder's acquisition of a 20% ownership interest, unless:
(i) the board of directors of the corporation approves the transaction or the
shareholder's acquisition of shares prior to the acquisition or (ii)
two-thirds of the unaffiliated shareholders of the corporation approve the
transaction at a shareholders' meeting. The TBCL may have the effect of
inhibiting a non-negotiated merger or other business combination involving
the Company. The Company is subject to the terms of the TBCL, unless its
shareholders or directors take action electing not to be governed by its
terms (which action is not currently contemplated).
STOCK MARKET VOLATILITY. There has been significant volatility in the
market price of the Company's Common Stock, as well as in the market price of
securities of technology-based companies. Factors such as announcements of
new products by the Company or its competitors, variations in the Company's
quarterly operating results or general economic or stock market conditions
unrelated to the Company's operating performance may have a significant
impact on the market price of the Common Stock. See "Market for Registrant's
Common Equity and Related Stockholder Matters."
SHARES ELIGIBLE FOR FUTURE SALE. The Company currently has outstanding
6,976,630 shares of Common Stock, of which 5,880,800 shares are currently
freely tradeable. The executive officers and directors of the Company, who
beneficially own 1,211,211 outstanding shares of Common Stock, are free to
sell the shares beneficially owned by them, subject to compliance with the
Securities Act of 1933, as amended (the "Securities Act"), including Rule 144
promulgated thereunder, and the terms of a right of first refusal agreement,
to which certain of such shares are subject. A substantial portion of the
shares held by such beneficial owners may be sold into the public market
effectively free of any significant restrictions. No prediction can be made
as to the effect, if any, that market sales of the above shares or the
availability of such shares for future sale will have on the market price of
shares of Common Stock prevailing from time to time. Future sales of
substantial amounts of Common Stock by existing shareholders could adversely
affect the prevailing market price of the Common Stock after the offering and
the Company's ability to raise additional capital.
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ITEM 2. PROPERTIES.
The Company leases a 68,400 square foot facility in Richardson, Texas
(16,200 square feet of which are subleased to the Company pursuant to a
sublease that commenced November 1, 1996 and expires October 31, 1998) that
serves as its headquarters and as a site for product development and testing.
The Company also leases an additional approximately 21,100 square foot
facility that is near its headquarters in Richardson, Texas that is used for
technical support and product development and repair. The foregoing leases
both expire in December 1998.
The Company has purchased a tract of land and commenced construction of
a new 210,000 square foot headquarters facility in Richardson, Texas with an
expected completion date of December 1998. At that time, the various
operations conducted at its current facilities in Richardson will be
relocated to the new facility.
The Company currently leases a 79,100 square foot manufacturing facility
in Juarez, Mexico, and recently undertook occupancy of a new 136,800 square
foot manufacturing facility under lease on an adjacent site that provides
increased space and improved layout for manufacturing operations, as well as
options to acquire additional space. The term of the new lease will expire
in November, 2007 (plus four optional renewal periods of five years each).
The Company has negotiated an extension of its current lease covering the
79,100 square foot Juarez facility to extend the lease on one-half of the
space through June 30, 1998 and through December 31, 1999 for the remainder
of the space. See "Business--Manufacturing."
Additionally, the Company leases 6,900 square feet of storage space in
El Paso, Texas, under a lease expiring in March 1998, a software development
office in Houston, Texas under a lease expiring in May 1999, a software
development office in Eugene, Oregon under a lease expiring in February 2000,
a software development office in Belfast, Northern Ireland under a lease
expiring in April 2006, and sales offices in London, Paris and Austin under
leases expiring in September 2012, December 2004 and March 1998,
respectively. The Company also maintains product inventories in various
locations under bonded warehouse arrangements in order to permit the timely
delivery of certain products to nearby customers.
The Company believes that its existing facilities are well maintained
and in good operating condition and, following completion of construction of
the Company's new headquarters facility, are adequate for its present and
anticipated levels of operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party from time to time to certain legal proceedings
arising in the ordinary course of its business. Although the amount of any
liability that could arise with respect to these proceedings cannot be
predicted accurately, in the opinion of the Company any liability that might
result from such claims will not have a material adverse effect on the
financial position of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's shareholders during
the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the NASDAQ National Market
under the symbol "STBI" since February 14, 1995. At January , 1998, there
were approximately record holders of the Company's Common Stock, although
the Company believes that the number of beneficial owners of its Common Stock
is substantially greater. The table below sets forth for the fiscal quarters
indicated the high and low sale prices for the Common Stock, as reported by
the NASDAQ National Market, which prices have been adjusted to reflect the
three-for-two stock split of the Common Stock effected in the form of a stock
dividend on July 17, 1997
HIGH LOW
-------- -------
Fiscal 1997
Fourth quarter..... $ 45.75 $ 27.00
Third quarter...... $ 29.88 $ 20.00
Second quarter..... $ 24.17 $ 14.50
First quarter...... $ 23.92 $ 12.67
Fiscal 1996
Fourth quarter..... $ 17.25 $ 8.17
Third quarter...... $ 12.33 $ 6.83
Second quarter..... $ 7.50 $ 5.42
First quarter...... $ 8.17 $ 4.92
The Company intends to retain any future earnings for use in its
business and does not intend to pay cash dividends in the foreseeable future.
The payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors and will depend, among other things, upon future
earnings, operations, capital requirements, restrictions in future financing
agreements, the general financial condition of the Company and general
business conditions. The Company's new Revolving Credit Facility prohibits
the Company from paying cash dividends. See "Management's Discussion and
Analysis of financial Conditions and Results of Operations--Liquidity and
Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
This information is set forth under the caption "Selected Consolidated
Financial Data" for each of the five years in the period ended October 31,
1997, of the Company's 1997 Annual Report to Shareholders, which portion of
such Annual Report is filed herein as Exhibit 13 and incorporated herein by
reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This information is set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the
Company's 1997 Annual Report to Shareholders, which portion of such Annual
Report is filed herein as Exhibit 13 and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company including the independent
accountant's report thereon of the Company's 1997 Annual Report to
Shareholders, which financial statements are filed herein as Exhibit 13, are
incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Election of Directors" and
"Executive Officers of the Company" of the Company's definitive Proxy
Statement for the Company's 1998 Annual Meeting of Shareholders is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation and
Other Matters" of the Company's definitive Proxy Statement for the Company's
1998 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Outstanding Capital Stock
and Stock Ownership of Directors, Certain Executive Officers and Principal
Shareholders" of the Company's definitive Proxy Statement for the Company's
1998 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Transactions" of
the Company's definitive Proxy Statement for the Company's 1998 Annual
Meeting of Shareholders is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) 1. The following financial statements are incorporated by reference
from the Company's 1998 Annual Report to Shareholders, which
financial statements are filed herein as Exhibit 13:
Report of Independent Accountants.
Consolidated Balance Sheets dated October 31,
1997 and 1996.
Consolidated Statement of Operations for the three
years ended October 31, 1997.
Consolidated Statement of Changes in Shareholders'
Equity for the three years ended October 31, 1997.
Consolidated Statement of Cash Flows for the three
years ended October 31, 1997.
Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedule PAGE
----
Report of Independent Accountants on
Financial Statement Schedule. S-1
Consolidated Valuation and Qualifying
Accounts. S-2
All other schedules for which provision is made in the applicable
accounting regulation of the Securities & Exchange Commission are
not required under the related instructions or are inapplicable
and therefore have been omitted.
3. The following documents are filed or incorporated by reference
as exhibits to this Report:
3.1 Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-87612))
3.2 Articles of Amendment to Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997)
3.3 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
4.1 Specimen of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
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4.2 Amended and Restated Articles of Incorporation and Bylaws
of the Company (see Exhibits 3.1, 3.2 and 3.3 above)
4.3 Right of First Refusal Agreement dated December 16, 1994
by and among the Company and Messrs. Ogle, Balthaser and
Sims (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-87612))
* 10.1 Employment Agreement dated November 1, 1996 by and between
the Company and William E. Ogle (incorporated by reference
to Exhibit 10.42 to the Company's Registration Statement on
Form S-1 (Registration No. 333-14313))
* 10.2 Employment Agreement dated November 1, 1996 by and between
the Company and Randall D. Eisenbach (incorporated by
reference to Exhibit 10.43 to the Company's Registration
Statement on Form S-1 (Registration No. 333-14313))
* 10.3 Employment Agreement dated November 1, 1996 by and between
the Company and James L. Hopkins (incorporated by reference
to Exhibit 10.44 to the Company's Registration Statement on
Form S-1 (Registration No. 333-14313))
* 10.4 Employment Agreement dated November 1, 1996 by and between
the Company and J. Shane Long (incorporated by reference to
Exhibit 10.45 to the Company's Registration Statement on
Form S-1 (Registration No. 333-14313))
* 10.5 Indemnification Agreement dated February 8, 1995 by and
between William E. Ogle and the Company (incorporated by
reference to Exhibit 10.23 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
* 10.6 Indemnification Agreement dated February 8, 1995 by and
between Randall D. Eisenbach and the Company (incorporated
by reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
* 10.7 Indemnification Agreement dated February 8, 1995 by and
between James L Hopkins and the Company (incorporated by
reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
* 10.8 Indemnification Agreement dated February 8, 1995 by and
between J. Shane Long and the Company (incorporated by
reference to Exhibit 10.30 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
* 10.9 Indemnification Agreement dated February 8, 1995 by and
between James J. Byrne and the Company (incorporated by
reference to Exhibit 10.28 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
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* 10.10 Indemnification Agreement dated February 8, 1995 by and
between Lawrence E. Wesneski and the Company (incorporated
by reference to Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
+ * 10.11 INTENTIONALLY OMITTED
+ * 10.12 INTENTIONALLY OMITTED
* 10.13 Indemnification Agreement dated February 8, 1995 by and
between Mark S. Sims and the Company (incorporated by
reference to Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
* 10.14 Indemnification Agreement dated February 8, 1995 by and
between William D. Balthaser Jr. and the Company
(incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-87612))
* 10.15 Company's Amended and Restated 1995 Long Term Incentive
Plan (incorporated by reference to Appendix A of the
Company's definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders)
* 10.16 Company's Amended and Restated Stock Option Plan for
Non-Employee Directors (incorporated by reference to
Appendix B of the Company's definitive Proxy Statement
for the 1997 Annual Meeting of Shareholders)
* 10.17 STB Systems, Inc. 1995 Employee Stock Option Purchase Plan
(as amended) (incorporated by reference to Exhibit 10.38 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996)
* 10.18 Amended and Restated Profit Sharing Incentive Plan
(incorporated by reference to Exhibit 10.47 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-14313))
10.19 Lease Agreement dated December 6, 1988 by and between STB
de Mexico S.A. de C.V. (formerly known as Industrias
Fronterizas de Chihuahua, S.A. de C.V.) (a subsidiary of
the Company, as lessee) and Complejo Industrial Fuentes,
S.A. de C.V (as lessor), including an Agreement for
Modification dated February 25, 1994 by and between the
same parties (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
10.20 Modification Agreement dated October 4, 1996 by and between
STB de Mexico, S.A. de C.V. and Complejo Industrial
Fuentes, S.A. de C.V. (relating to the Lease Agreement
filed as Exhibit 10.1 hereto) (incorporated by reference to
Exhibit 10.46 to the Company's Registration Statement on
Form S-1 (Registration No. 333-14313))
10.21 Lease Contract dated October 4, 1996 by and between STB de
Mexico, S.A. de C.V. (as lessee) and Complejo Industrial
Fuentes, S.A. de C.V. (as lessor)
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<PAGE>
(incorporated by reference to Exhibit 10.41 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-14313))
+ 10.22 Amendment to Lease Agreement dated January 30, 1997, by
and between STB de Mexico, S.A. de C.V. (as lessee) and
Complejo Industrial Fuentes, S.A. de C.V.
10.23 Lease Agreement, as amended, dated July 8, 1986 by and
between the Company (as lessee) and Central Park
Associates, Ltd. (as lessor) (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (Registration No. 33-87612))
10.24 Lease Agreement dated June, 1995, by and between the
Company (as lessee) and Springcreek Place, Ltd. (as lessor)
(incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1995)
10.25 Addendum to Lease Agreement dated March 7, 1996 by and
between the Company (as lessee) and Springcreek Place,
Ltd. (as lessor) (incorporated by reference to Exhibit
10.37 to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 31, 1996)
10.26 Second Addendum to Lease Agreement dated March 7, 1996, by
and between the Company (as lessee) and Springcreek Place,
Ltd. (as lessor) (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1997)
10.27 Sublease Agreement dated August 1996 by and between ADC
Telecommunications, Inc. (as sublessor) and the Company
(as sublessee) (incorporated by reference to Exhibit 10.40
to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
10.28 Tax Allocation and Indemnification Agreement dated
December 16, 1994 by and among the Company and Messrs.
Ogle, Balthaser and Sims (incorporated by reference to
Exhibit 10.15 to the Company's Registration Statement on
Form S-1 (Registration No. 33-87612))
+ 10.29 Purchase Agreement dated December 17, 1996, by and between
the Company and Gateway 2000, Inc.
10.30 Lease Agreement by and between the Company and Banc One
Leasing Corporation dated October 30, 1996, together with
related attachments (incorporated by reference to Exhibit
10.48 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
+ 10.31 Participation Agreement dated as of November 14, 1997 among
Asset XVII Holdings Company, L.L.C., as lessor, STB
Systems, Inc., as lesee and Bank One, Texas, N.A., as
lender.
+ 10.32 Lease and Development Agreement dated as of November 14,
1997 among Asset XVII Holdings Company, L.L.C., as lessor,
and STB Systems, Inc., as lessee.
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+ 10.33 Limited Notice to Proceed No. 1 dated as of December 18,
1997 executed by STB Systems, Inc. and Austin Commercial,
Inc.
+ 10.34 Credit Agreement dated as of November 21, 1997 between STB
Systems, Inc., and Bank One, Texas, N.A.
+ 11.1 Computation of Earnings Per Common Share and Common
Equivalent Share
+ 13 Selected portions of the Company's Annual Report to
Shareholders for fiscal year ended October 31, 1997
21 Subsidiaries of the Company
(a) STB Assembly, Inc., a Texas corporation
(b) STB de Mexico, S.A. de C.V., a Mexican corporation
(c) Maquilados Continentales de Chihuahua, a Mexican
corporation (an inactive shell corporation)
(d) Symmetric Simulation Systems, Inc.
+ 23 Consent of Price Waterhouse LLP
+ 24 Powers of Attorney (included on first signature page)
+ 27 Financial Data Schedule
_______________
* Management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit listed above
to any shareholder without charge upon written request to
Mr. Bryan F. Keyes, Treasurer, 1651 North Glenville Drive,
Richardson, Texas 75081.
+ Filed herewith.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
-35-
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of STB Systems, Inc., a Texas
corporation, and the undersigned directors and officers of STB Systems, Inc.,
hereby constitutes and appoints William E. Ogle, Randall D. Eisenbach and
Bryan F. Keyes, or any one of them, its or his true and lawful
attorney-in-fact and agent, for it or him and in its or his name, place and
stead, in any and all capacities, with full power to act alone, to sign any
and all amendments to this Report, and to file each such amendment to the
Report, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorney-in-fact and agent full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
STB SYSTEMS, INC.
By: /s/ William E. Ogle
--------------------------------------
William E. Ogle
Chairman of the Board
and Chief Executive Officer
Dated: January 29, 1998
-36-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company in the capacities indicated on January 29, 1998.
SIGNATURE TITLE
/s/ William E. Ogle Chairman of the Board of Directors and Chief
- ------------------------------- Executive Officer (Principal Executive
William E. Ogle Officer)
/s/ Randall D. Eisenbach Executive Vice President, Chief Operating
- ------------------------------- Officer, Assistant Secretary and Director
Randall D. Eisenbach
/s/ James L. Hopkins Chief Financial Officer, Vice President of
- ------------------------------- Strategic Marketing and Director
James L. Hopkins
/s/ Bryan F. Keyes Director of Legal and Finance, Secretary and
- ------------------------------- Treasurer (Principal Financial and Accounting
Bryan F. Keyes Officer)
/s/ J. Shane Long Vice President of Sales and Marketing and
- ------------------------------- Director
J. Shane Long
/s/ James J. Byrne Director
- -------------------------------
James J. Byrne
/s/ Dennis G. Sabo Director
- -------------------------------
Dennis G. Sabo
/s/ Lawrence E. Wesneski Director
- -------------------------------
Lawrence E. Wesneski
-37-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of STB Systems, Inc.
Our audits of the consolidated financial statements referred to in our report
dated December 8, 1997 appearing in the 1997 Annual Report to Shareholders of
STB Systems, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this
Form 10-K. In our opinion, this Financial Statement Schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
December 8, 1997
S-1
<PAGE>
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
FISCAL BALANCE AT CHARGED TO BALANCE AT
YEAR BEGINNING COSTS AND END
ENDED DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31-Oct-95 Allowance for Bad Debts 363,125 231,040 145,092 449,073
Allowance for Obsolete Inventory 625,000 692,830 317,830 1,000,000
31-Oct-96 Allowance for Bad Debts 449,073 489,837 607,078 331,832
Allowance for Product Returns
and Price Protection 45,000 405,000 175,000 275,000
Allowance for Obsolete Inventory 1,000,000 1,928,013 1,528,013 1,400,000
31-Oct-97 Allowance for Bad Debts 331,832 300,000 166,500 465,332
Allowance for Product Returns
and Price Protection 275,000 - 895 274,105
Allowance for Obsolete Inventory 1,400,000 2,248,918 2,248,918 1,400,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT
-------
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
3.2 Articles of Amendment to Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1997)
3.3 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (Registration No. 33-87612))
4.1 Specimen of Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form
S-1 (Registration No. 33-87612))
4.2 Amended and Restated Articles of Incorporation and Bylaws of the
Company (see Exhibits 3.1, 3.2 and 3.3 above)
4.3 Right of First Refusal Agreement dated December 16, 1994 by and
among the Company and Messrs. Ogle, Balthaser and Sims
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
* 10.1 Employment Agreement dated November 1, 1996 by and between the
Company and William E. Ogle (incorporated by reference to Exhibit
10.42 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
* 10.2 Employment Agreement dated November 1, 1996 by and between the
Company and Randall D. Eisenbach (incorporated by reference to
Exhibit 10.43 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
* 10.3 Employment Agreement dated November 1, 1996 by and between the
Company and James L. Hopkins (incorporated by reference to
Exhibit 10.44 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
* 10.4 Employment Agreement dated November 1, 1996 by and between the
Company and J. Shane Long (incorporated by reference to Exhibit
10.45 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
* 10.5 Indemnification Agreement dated February 8, 1995 by and between
William E. Ogle and the Company (incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
* 10.6 Indemnification Agreement dated February 8, 1995 by and between
Randall D. Eisenbach and the Company (incorporated by reference
to Exhibit 10.24 to the Company's Registration Statement on Form
S-1 (Registration No. 33-87612))
* 10.7 Indemnification Agreement dated February 8, 1995 by and between
James L Hopkins and the Company (incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
* 10.8 Indemnification Agreement dated February 8, 1995 by and between
J. Shane Long and the Company (incorporated by reference to
Exhibit 10.30 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
<PAGE>
EXHIBIT
-------
* 10.9 Indemnification Agreement dated February 8, 1995 by and between
James J. Byrne and the Company (incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
* 10.10 Indemnification Agreement dated February 8, 1995 by and between
Lawrence E. Wesneski and the Company (incorporated by reference
to Exhibit 10.29 to the Company's Registration Statement on Form
S-1 (Registration No. 33-87612))
+ * 10.11 INTENTIONALLY OMITTED
+ * 10.12 INTENTIONALLY OMITTED
* 10.13 Indemnification Agreement dated February 8, 1995 by and between
Mark S. Sims and the Company (incorporated by reference to
Exhibit 10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
* 10.14 Indemnification Agreement dated February 8, 1995 by and between
William D. Balthaser Jr. and the Company (incorporated by
reference to Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (Registration No. 33-87612))
* 10.15 Company's Amended and Restated 1995 Long Term Incentive Plan
(incorporated by reference to Appendix A of the Company's
definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders)
* 10.16 Company's Amended and Restated Stock Option Plan for Non-Employee
Directors (incorporated by reference to Appendix B of the
Company's definitive Proxy Statement for the 1997 Annual Meeting
of Shareholders)
* 10.17 STB Systems, Inc. 1995 Employee Stock Option Purchase Plan (as
amended) (incorporated by reference to Exhibit 10.38 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1996)
* 10.18 Amended and Restated Profit Sharing Incentive Plan (incorporated
by reference to Exhibit 10.47 to the Company's Registration
Statement on Form S-1 (Registration No. 333-14313))
10.19 Lease Agreement dated December 6, 1988 by and between STB de
Mexico S.A. de C.V. (formerly known as Industrias Fronterizas
de Chihuahua, S.A. de C.V.) (a subsidiary of the Company, as
lessee) and Complejo Industrial Fuentes, S.A. de C.V (as lessor),
including an Agreement for Modification dated February 25, 1994
by and between the same parties (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
10.20 Modification Agreement dated October 4, 1996 by and between STB
de Mexico, S.A. de C.V. and Complejo Industrial Fuentes, S.A. de
C.V. (relating to the Lease Agreement filed as Exhibit 10.1
hereto) (incorporated by reference to Exhibit 10.46 to the
Company's Registration Statement on Form S-1 (Registration No.
333-14313))
10.21 Lease Contract dated October 4, 1996 by and between STB de
Mexico, S.A. de C.V. (as lessee) and Complejo Industrial Fuentes,
S.A. de C.V. (as lessor) (incorporated by reference to Exhibit
10.41 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
<PAGE>
EXHIBIT
-------
+ 10.22 Amendment to Lease Agreement dated January 30, 1997, by and
between STB de Mexico, S.A. de C.V. (as lessee) and Complejo
Industrial Fuentes, S.A. de C.V.
10.23 Lease Agreement, as amended, dated July 8, 1986 by and
between the Company (as lessee) and Central Park Associates,
Ltd. (as lessor) (incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
10.24 Lease Agreement dated June, 1995, by and between the Company
(as lessee) and Springcreek Place, Ltd. (as lessor)
(incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the fiscal year ended October
31, 1995)
10.25 Addendum to Lease Agreement dated March 7, 1996 by and
between the Company (as lessee) and Springcreek Place, Ltd.
(as lessor) (incorporated by reference to Exhibit 10.37 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996)
10.26 Second Addendum to Lease Agreement dated March 7, 1996, by
and between the Company (as lessee) and Springcreek Place,
Ltd. (as lessor) (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1997)
10.27 Sublease Agreement dated August 1996 by and between ADC
Telecommunications, Inc. (as sublessor) and the Company (as
sublessee) (incorporated by reference to Exhibit 10.40 to
the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
10.28 Tax Allocation and Indemnification Agreement dated December
16, 1994 by and among the Company and Messrs. Ogle,
Balthaser and Sims (incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
+ 10.29 Purchase Agreement dated December 17, 1996, by and between
the Company and Gateway 2000, Inc.
10.30 Lease Agreement by and between the Company and Banc One
Leasing Corporation dated October 30, 1996, together with
related attachments (incorporated by reference to Exhibit
10.48 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
+ 10.31 Participation Agreement dated as of November 14, 1997 among
Asset XVII Holdings Company, L.L.C., as lessor, STB Systems,
Inc., as lesee and Bank One, Texas, N.A., as lender.
+ 10.32 Lease and Development Agreement dated as of November 14,
1997 among Asset XVII Holdings Company, L.L.C., as lessor,
and STB Systems, Inc., as lessee.
+ 10.33 Limited Notice to Proceed No. 1 dated as of December 18,
1997 executed by STB Systems, Inc. and Austin Commercial,
Inc.
+ 10.34 Credit Agreement dated as of November 21, 1997 between STB
Systems, Inc., and Bank One, Texas, N.A.
+ 11.1 Computation of Earnings Per Common Share and Common
Equivalent Share
+ 13 Selected portions of the Company's Annual Report to
Shareholders for fiscal year ended October 31, 1997
<PAGE>
EXHIBIT
-------
21 Subsidiaries of the Company
(a) STB Assembly, Inc., a Texas corporation
(b) STB de Mexico, S.A. de C.V., a Mexican corporation
(c) Maquilados Continentales de Chihuahua, a Mexican
corporation (an inactive shell corporation)
(d) Symmetric Simulation Systems, Inc.
+ 23 Consent of Price Waterhouse LLP
+ 24 Powers of Attorney (included on first signature page)
+ 27 Financial Data Schedule
_______________
* Management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit listed above
to any shareholder without charge upon written request to
Mr. Bryan F. Keyes, Treasurer, 1651 North Glenville Drive,
Richardson, Texas 75081.
+ Filed herewith.
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of January 28, 1998, is by and between STB
Systems, Inc., a Texas corporation (the "Company"), and Dennis G. Sabo
("Indemnitee").
W I T N E S S E T H :
WHEREAS, the Company desires to have qualified directors serving on its
Board of Directors who are willing to make decisions that in their judgment are
in the Company's best interest without any undue threat of personal liability;
WHEREAS, the Company's Amended and Restated Articles of Incorporation
("Articles of Incorporation") and the Company's Amended and Restated Bylaws
("Bylaws") require indemnification of each director or officer of the Company in
his capacity as a director or officer and, if serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, in each of those capacities, against any and
all liability and reasonable expense that may be incurred by him in connection
with or resulting from (a) any threatened, pending, or completed action, suit,
or proceeding whether civil, criminal, administrative, arbitrative, or
investigative (collectively, a "Proceeding"), (b) an appeal in such a
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, to the fullest extent permitted by the Texas Business Corporation
Act ("Act"), as the same exists or may be hereafter amended;
WHEREAS, the Company desires to grant to Indemnitee the maximum
indemnification for any Loss (hereinafter defined) permitted by the Articles of
Incorporation and Bylaws;
WHEREAS, developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment, and enforcement of statutory, charter, and bylaw
indemnification provisions generally have raised questions concerning the
adequacy, and reliability of the protection afforded to persons intended to be
protected thereunder; and
WHEREAS, in order to resolve such questions and thereby induce Indemnitee
to serve or to continue serving, as a director of the Company, the Company has
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's consent to serve or
continuing to serve in the position of director of the Company, the parties
hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. The Company shall indemnify Indemnitee in
his capacity as director, director nominee, and/or officer of the Company, as
the case may be, and, if serving at the request of the Company as a director,
director nominee, officer, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, trust partnership, joint venture,
sole proprietorship, employee benefit plan, or other enterprise, in each of
those capacities, against any and all liability and reasonable expense that
may be incurred by Indemnitee in connection with or resulting from (a) any
Proceeding, (b) an appeal in such a
<PAGE>
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, all to the fullest extent permitted by Article 2.02-1 of the Act.
All indemnity obligations and/or liabilities of the Company hereunder shall
be without limit and without regard to the cause or causes thereof or the
negligence or gross negligence of any person or persons (expressly including
Indemnitee), whether such negligence or gross negligence of Indemnitee be
sole, joint or concurrent, active, or passive.
2. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, director nominee or officer of the Company, shall be retroactive to
the date Indemnitee first became a director, director nominee or officer
covering all periods of service from time to time, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending, or completed Proceeding, any appeal in a Proceeding, and
any inquiry or investigation that could lead to a Proceeding, by reason of
the fact that Indemnitee was serving, or had consented to serve, in any
capacity referred to herein.
3. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnitee of notice of any claim against Indemnitee or the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the assertion
of any such claim or the commencement thereof; but the omission so to notify
the Company will not relieve it from any liability under this Agreement
unless such delay in notification actually prejudiced the Company (and then
only to the extent the Company was actually prejudiced thereby) and in
addition, the Company shall not be relieved from any liability which it may
have to Indemnitee otherwise than under this Agreement. With respect to any
such Proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof with counsel
satisfactory to Indemnitee, provided that, notwithstanding the Company's
assumption of such defense, Indemnitee shall have the right to retain
separate counsel and the Company shall pay all reasonable fees and expenses
of such counsel and all other reasonable expenses of Indemnitee in
connection with such Proceeding. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company
or as to which Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Company and Indemnitee in the conduct of
the defense of such action.
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company
nor Indemnitee will unreasonably withhold their consent to any proposed
settlement.
-2-
<PAGE>
4. ADVANCES OF EXPENSES. Reasonable expenses (other than judgments,
penalties, fines and settlements) incurred by Indemnitee that are subject to
indemnification under this Agreement (and not paid, reimbursed or advanced by
others) shall be paid or reimbursed by the Company in advance of the final
disposition of the Proceeding within 30 days after the Company receives a
written request by Indemnitee accompanied by substantiating documentation of
such expenses, a written affirmation by Indemnitee of his good faith belief
that he has met the standard of conduct necessary for indemnification under
this Agreement, and a written undertaking by or on behalf of Indemnitee to
repay the amount paid or reimbursed if it is ultimately determined that he
has not met those standards or that such reasonable expenses do not
constitute a Loss. The written undertaking described above shall be an
unlimited general obligation of Indemnitee and shall not be secured. Such
undertaking shall be without reference to the financial ability of Indemnitee
to make repayment.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION: PROCEDURE
UPON APPLICATION. Upon the written request of Indemnitee to be indemnified
pursuant to this Agreement (other than pursuant to Section 4 hereof), the
Company shall cause the Reviewing Party (hereinafter defined) to determine,
within 45 days, whether or not the Indemnitee has met the relevant standards
for indemnification required by this Agreement. The termination of a
Proceeding by judgment, order, settlement, or conviction, or on a plea of
nolo contendere or its equivalent, shall not of itself create a presumption
that Indemnitee did not meet the requirements for indemnification required by
this Agreement. If a determination of indemnification is to be made by
Independent Legal Counsel (hereinafter defined), such Independent Legal
Counsel shall render its written opinion to the Company and Indemnitee as to
what extent Indemnitee will be permitted to be indemnified. The Company
shall pay the reasonable fees of Independent Legal Counsel and indemnify and
hold harmless such Indemnitee against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating
to the engagement of Independent Legal Counsel pursuant hereto and the
written opinion of such Independent Legal Counsel.
6. DEFINITIONS. The terms defined in this Section 6 shall, for
purposes of this Agreement have the indicated meanings:
(a) "Loss" shall mean any and all judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expense
(including attorneys' fees) actually incurred by Indemnitee, after
realization of or giving effect to all insurance, bonding, indemnification
and other payments or recoveries actually received by or for the benefit of
Indemnitee, directly or indirectly.
(b) "Reviewing Party" means, if a Change in Control (hereinafter
defined) has not occurred (or if a Change in Control has occurred and such
Change in Control has been approved by a majority of the Board of Directors
of the Company who were directors of the Company immediately prior to such
Change in Control), (i) a majority of a quorum of directors of the Company
who at the time of voting upon a determination of indemnification are
neither officers or employees of the Company or members of the immediate
family of an officer or employee of the Company ("Interested Parties") nor
parties to that particular Proceeding to which Indemnitee is seeking
indemnification; or (ii) Independent Legal Counsel selected by a majority
of a quorum of directors who at the
-3-
<PAGE>
time of selecting such Independent Legal Counsel are neither Interested
Parties nor parties to that particular Proceeding to which Indemnitee
is seeking indemnification, or if such a quorum cannot be obtained, by
a majority vote of a committee of the Board of Directors of the Company
designated to select such Independent Legal Counsel by a majority vote
of all directors of the Company, consisting solely of two or more
directors who at the time of such selection are neither Interested
Parties nor parties in that particular Proceeding to which Indemnitee
is seeking indemnification, or if such a quorum cannot be obtained and
such a committee cannot be established, by a majority vote of all
directors of the Company. "Reviewing Party" means if a Change in
Control has occurred, Independent Legal Counsel selected in the manner
set forth in (ii) above.
(c) "Change in Control" shall mean an event which shall be deemed to
have occurred if: (i) a merger or consolidation of the Company with or
into another corporation occurs in which the Company shall not be the
surviving corporation (for purposes of this definition, the Company shall
not be deemed the surviving corporation in any such transaction if, as the
result thereof, it becomes a wholly-owned subsidiary of another
corporation); (ii) a dissolution of the Company occurs; (iii) a transfer of
all or substantially all of the assets or shares of stock of the Company in
one transaction or a series of related transactions to one or more other
persons or entities occurs; (iv) if any "person" or "group" as those terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than Excluded Persons, becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities; or (v) during any period of two consecutive years commencing on
or after April 1, 1995, individuals who at the beginning of the period
constituted the Board cease for any reason to constitute at least a
majority, unless the election of each director who was not a director at
the beginning of the period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period. The term "Excluded Persons"
means each of William E. Ogle, William D. Balthaser, Jr., and Mark S. Sims,
and any person, entity, or group under the control of any of them, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company.
(d) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 6(b) hereof, who shall not have
otherwise performed services for Indemnitee, the Company, any person that
controls the Company or any of the directors of the Company, within five
years preceding the time of such selection (other than in connection with
seeking indemnification under this Agreement). Independent Legal Counsel
shall not be any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's
rights under this Agreement, nor shall Independent Legal Counsel be any
person who has been sanctioned or censured for ethical violations of
applicable standards of professional conduct.
7. ENFORCEABILITY. The right to indemnification or advances as provided
by this Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proof that indemnification is not appropriate shall
be on the Company. Neither the
-4-
<PAGE>
failure of the Company (including its Board of Directors or Independent Legal
Counsel) to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because Indemnitee
has met the applicable standard of conduct, nor an actual determination by
the Company (including its Board of Directors or Independent Legal Counsel)
that Indemnitee has not met such an applicable standard of conduct, shall be
a defense to the action or create a presumption that Indemnitee has not met
the applicable standard of conduct.
8. PARTIAL INDEMNITY; EXPENSES. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or
a portion of the expenses, judgments, fines, and penalties, but not for the
total amount thereof, the Company shall indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all Proceedings relating in whole or
in part to an event subject to indemnification hereunder or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee
shall be indemnified against expenses incurred for any Loss in connection
with such Proceeding, issue or matter, as the case may be.
9. REPAYMENT OF EXPENSES. Indemnitee shall reimburse the Company for
all reasonable expenses paid by the Company in defending any Proceeding
against Indemnitee in the event and only to the extent that it shall be
ultimately determined that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of this Agreement.
10. CONSIDERATION. The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Indemnitee to consent to serve, to serve,
and/or to continue serving as a director, and acknowledges that Indemnitee is
relying upon this Agreement in consenting to serve and serving in such
capacity.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
other agreement, vote of shareholders, as a matter of law, or otherwise.
12. SUBROGATION. If a payment is made under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the right
of recovery of such Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights.
13. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision thereof shall be held to be invalid or unenforceable for any reason
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereto.
14. NOTICE. Any notice, consent, or other communication to be given
under this Agreement by any party to any other party shall be in writing and
shall be either (a) personally delivered, (b) mailed by registered or
certified mail, postage prepaid with return receipt requested, (c) delivered
by overnight express delivery service or same-day local courier service, or
(d)
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<PAGE>
delivered by telex or facsimile transmission to the address set forth beneath
the signature of the parties below, or at such other address as may be
designated by the parties from time to time in accordance with this Section.
Notices delivered personally, by overnight express delivery service, or by
local courier service shall be deemed given as of actual receipt. Mailed
notices shall be deemed given three business days after mailing. Notices
delivered by telex or facsimile transmission shall be deemed upon receipt by
the sender of the answerback (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
15. GOVERNING LAW: BINDING EFFECT; AMENDMENT AND TERMINATION:
REIMBURSEMENT.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Texas, without giving effect to Texas
principles of conflicts of laws.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors, and assigns, and shall inure to the benefit of
Indemnitee, his heirs, executors, administrators, personal representation,
and assigns and to the benefit of the Company, its successors, and assigns.
(c) No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) If Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
STB SYSTEMS, INC.
By: /s/ William E. Ogle
---------------------------------------
William E. Ogle, Chairman of the Board,
President and Chief Executive Officer
Address of STB Systems, Inc.
1651 North Glenville Drive, Suite 210
Richardson, Texas 75085-0957
Facsimile: (214) 437-9631
/s/ Dennis G. Sabo
---------------------------------------
Dennis G. Sabo, INDEMNITEE
Address of Indemnitee:
---------------------------------------
---------------------------------------
Facsimile:
-----------------------------
-7-
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of January 28, 1998, is by and between STB
Systems, Inc., a Texas corporation (the "Company"), and Bryan F. Keyes
("Indemnitee").
W I T N E S S E T H :
WHEREAS, the Company desires to have the service of qualified officers and
directors who are willing to make decisions that in their judgment are in the
Company's best interest without any undue threat of personal liability;
WHEREAS, the Company's Amended and Restated Articles of Incorporation
("Articles of Incorporation") and the Company's Amended and Restated Bylaws
("Bylaws") require indemnification of each director or officer of the Company in
his capacity as a director or officer and, if serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, in each of those capacities, against any and
all liability and reasonable expense that may be incurred by him in connection
with or resulting from (a) any threatened, pending, or completed action, suit,
or proceeding whether civil, criminal, administrative, arbitrative, or
investigative (collectively, a "Proceeding"), (b) an appeal in such a
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, to the fullest extent permitted by the Texas Business Corporation
Act ("Act"), as the same exists or may be hereafter amended;
WHEREAS, the Company desires to grant to Indemnitee the maximum
indemnification for any Loss (hereinafter defined) permitted by the Articles
of Incorporation and Bylaws;
WHEREAS, developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment, and enforcement of statutory, charter, and bylaw
indemnification provisions generally have raised questions concerning the
adequacy, and reliability of the protection afforded to persons intended to
be protected thereunder; and
WHEREAS, in order to resolve such questions and thereby induce
Indemnitee to serve or to continue serving, as an officer and/or director of
the Company, the Company has agreed to enter into this Agreement with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's consent to serve or
continuing to serve in the position of an officer and/or director of the
Company, the parties hereto agree as follows:
<PAGE>
1. INDEMNITY OF INDEMNITEE. The Company shall indemnify Indemnitee in
his capacity as director, director nominee, and/or officer of the Company, as
the case may be, and, if serving at the request of the Company as a director,
director nominee, officer, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, trust partnership, joint venture,
sole proprietorship, employee benefit plan, or other enterprise, in each of
those capacities, against any and all liability and reasonable expense that
may be incurred by Indemnitee in connection with or resulting from (a) any
Proceeding, (b) an appeal in such a Proceeding, or (c) any inquiry or
investigation that could lead to such a Proceeding, all to the fullest extent
permitted by Article 2.02-1 of the Act. All indemnity obligations and/or
liabilities of the Company hereunder shall be without limit and without
regard to the cause or causes thereof or the negligence or gross negligence
of any person or persons (expressly including Indemnitee), whether such
negligence or gross negligence of Indemnitee be sole, joint or concurrent,
active, or passive.
2. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, director nominee or officer of the Company, shall be retroactive to
the date Indemnitee first became a director, director nominee or officer
covering all periods of service from time to time, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending, or completed Proceeding, any appeal in a Proceeding, and
any inquiry or investigation that could lead to a Proceeding, by reason of
the fact that Indemnitee was serving, or had consented to serve, in any
capacity referred to herein.
3. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnitee of notice of any claim against Indemnitee or the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the assertion
of any such claim or the commencement thereof; but the omission so to notify
the Company will not relieve it from any liability under this Agreement
unless such delay in notification actually prejudiced the Company (and then
only to the extent the Company was actually prejudiced thereby) and in
addition, the Company shall not be relieved from any liability which it may
have to Indemnitee otherwise than under this Agreement. With respect to any
such Proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof with counsel
satisfactory to Indemnitee, provided that, notwithstanding the Company's
assumption of such defense, Indemnitee shall have the right to retain
separate counsel and the Company shall pay all reasonable fees and expenses
of such counsel and all other reasonable expenses of Indemnitee in
connection with such Proceeding. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company
or as to which Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Company and Indemnitee in the conduct of
the defense of such action.
-2-
<PAGE>
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company
nor Indemnitee will unreasonably withhold their consent to any proposed
settlement.
4. ADVANCES OF EXPENSES. Reasonable expenses (other than judgments,
penalties, fines and settlements) incurred by Indemnitee that are subject to
indemnification under this Agreement (and not paid, reimbursed or advanced by
others) shall be paid or reimbursed by the Company in advance of the final
disposition of the Proceeding within 30 days after the Company receives a
written request by Indemnitee accompanied by substantiating documentation of
such expenses, a written affirmation by Indemnitee of his good faith belief
that he has met the standard of conduct necessary for indemnification under
this Agreement, and a written undertaking by or on behalf of Indemnitee to
repay the amount paid or reimbursed if it is ultimately determined that he
has not met those standards or that such reasonable expenses do not
constitute a Loss. The written undertaking described above shall be an
unlimited general obligation of Indemnitee and shall not be secured. Such
undertaking shall be without reference to the financial ability of Indemnitee
to make repayment.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION: PROCEDURE
UPON APPLICATION. Upon the written request of Indemnitee to be indemnified
pursuant to this Agreement (other than pursuant to Section 4 hereof), the
Company shall cause the Reviewing Party (hereinafter defined) to determine,
within 45 days, whether or not the Indemnitee has met the relevant standards
for indemnification required by this Agreement. The termination of a
Proceeding by judgment, order, settlement, or conviction, or on a plea of
nolo contendere or its equivalent, shall not of itself create a presumption
that Indemnitee did not meet the requirements for indemnification required by
this Agreement. If a determination of indemnification is to be made by
Independent Legal Counsel (hereinafter defined), such Independent Legal
Counsel shall render its written opinion to the Company and Indemnitee as to
what extent Indemnitee will be permitted to be indemnified. The Company
shall pay the reasonable fees of Independent Legal Counsel and indemnify and
hold harmless such Indemnitee against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating
to the engagement of Independent Legal Counsel pursuant hereto and the
written opinion of such Independent Legal Counsel.
6. DEFINITIONS. The terms defined in this Section 6 shall, for
purposes of this Agreement have the indicated meanings:
(a) "Loss" shall mean any and all judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expense
(including attorneys' fees) actually incurred by Indemnitee, after
realization of or giving effect to all insurance, bonding, indemnification
and other payments or recoveries actually received by or for the benefit of
Indemnitee, directly or indirectly.
(b) "Reviewing Party" means, if a Change in Control (hereinafter
defined) has not occurred (or if a Change in Control has occurred and such
Change in Control has
-3-
<PAGE>
been approved by a majority of the Board of Directors of the Company
who were directors of the Company immediately prior to such Change
in Control), (i) a majority of a quorum of directors of the Company
who at the time of voting upon a determination of indemnification are
neither officers or employees of the Company or members of the immediate
family of an officer or employee of the Company ("Interested Parties") nor
parties to that particular Proceeding to which Indemnitee is seeking
indemnification; or (ii) Independent Legal Counsel selected by a majority
of a quorum of directors who at the time of selecting such Independent
Legal Counsel are neither Interested Parties nor parties to that
particular Proceeding to which Indemnitee is seeking indemnification,
or if such a quorum cannot be obtained, by a majority vote of a
committee of the Board of Directors of the Company designated to select
such Independent Legal Counsel by a majority vote of all directors of
the Company, consisting solely of two or more directors who at the time
of such selection are neither Interested Parties nor parties in that
particular Proceeding to which Indemnitee is seeking indemnification,
or if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all directors of the Company.
"Reviewing Party" means if a Change in Control has occurred,
Independent Legal Counsel selected in the manner set forth in (ii)
above.
(c) "Change in Control" shall mean an event which shall be deemed to
have occurred if: (i) a merger or consolidation of the Company with or
into another corporation occurs in which the Company shall not be the
surviving corporation (for purposes of this definition, the Company shall
not be deemed the surviving corporation in any such transaction if, as the
result thereof, it becomes a wholly-owned subsidiary of another
corporation); (ii) a dissolution of the Company occurs; (iii) a transfer of
all or substantially all of the assets or shares of stock of the Company in
one transaction or a series of related transactions to one or more other
persons or entities occurs; (iv) if any "person" or "group" as those terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than Excluded Persons, becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities; or (v) during any period of two consecutive years commencing on
or after April 1, 1995, individuals who at the beginning of the period
constituted the Board cease for any reason to constitute at least a
majority, unless the election of each director who was not a director at
the beginning of the period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period. The term "Excluded Persons"
means each of William E. Ogle, William D. Balthaser, Jr., and Mark S. Sims,
and any person, entity, or group under the control of any of them, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company.
(d) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 6(b) hereof, who shall not have
otherwise performed services for Indemnitee, the Company, any person that
controls the Company or any of the directors of the Company, within five
years preceding the time of such selection (other than in connection with
seeking indemnification under this Agreement). Independent Legal Counsel
shall not be any person who, under the applicable standards of professional
-4-
<PAGE>
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's
rights under this Agreement, nor shall Independent Legal Counsel be any
person who has been sanctioned or censured for ethical violations of
applicable standards of professional conduct.
7. ENFORCEABILITY. The right to indemnification or advances as
provided by this Agreement shall be enforceable by Indemnitee in any court of
competent jurisdiction. The burden of proof that indemnification is not
appropriate shall be on the Company. Neither the failure of the Company
(including its Board of Directors or Independent Legal Counsel) to have made
a determination prior to the commencement of such action that indemnification
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Company (including
its Board of Directors or Independent Legal Counsel) that Indemnitee has not
met such an applicable standard of conduct, shall be a defense to the action
or create a presumption that Indemnitee has not met the applicable standard
of conduct.
8. PARTIAL INDEMNITY; EXPENSES. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or
a portion of the expenses, judgments, fines, and penalties, but not for the
total amount thereof, the Company shall indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all Proceedings relating in whole or
in part to an event subject to indemnification hereunder or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee
shall be indemnified against expenses incurred for any Loss in connection
with such Proceeding, issue or matter, as the case may be.
9. REPAYMENT OF EXPENSES. Indemnitee shall reimburse the Company for
all reasonable expenses paid by the Company in defending any Proceeding
against Indemnitee in the event and only to the extent that it shall be
ultimately determined that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of this Agreement.
10. CONSIDERATION. The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Indemnitee to consent to serve, to serve,
and/or to continue serving as an officer and/or director, and acknowledges
that Indemnitee is relying upon this Agreement in consenting to serve and
serving in such capacity.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
other agreement, vote of shareholders, as a matter of law, or otherwise.
12. SUBROGATION. If a payment is made under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the right
of recovery of such Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights.
-5-
<PAGE>
13. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision thereof shall be held to be invalid or unenforceable for any reason
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereto.
14. NOTICE. Any notice, consent, or other communication to be given
under this Agreement by any party to any other party shall be in writing and
shall be either (a) personally delivered, (b) mailed by registered or
certified mail, postage prepaid with return receipt requested, (c) delivered
by overnight express delivery service or same-day local courier service, or
(d) delivered by telex or facsimile transmission to the address set forth
beneath the signature of the parties below, or at such other address as may
be designated by the parties from time to time in accordance with this
Section. Notices delivered personally, by overnight express delivery
service, or by local courier service shall be deemed given as of actual
receipt. Mailed notices shall be deemed given three business days after
mailing. Notices delivered by telex or facsimile transmission shall be
deemed upon receipt by the sender of the answerback (in the case of a telex)
or transmission confirmation (in the case of a facsimile transmission).
15. GOVERNING LAW: BINDING EFFECT; AMENDMENT AND TERMINATION:
REIMBURSEMENT.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Texas, without giving effect to Texas
principles of conflicts of laws.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors, and assigns, and shall inure to the benefit of
Indemnitee, his heirs, executors, administrators, personal representation,
and assigns and to the benefit of the Company, its successors, and assigns.
(c) No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) If Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
STB SYSTEMS, INC.
By: /s/ William E. Ogle
---------------------------------------
William E. Ogle, Chairman of the Board,
President and Chief Executive Officer
Address of STB Systems, Inc.
1651 North Glenville Drive, Suite 210
Richardson, Texas 75085-0957
Facsimile: (214) 437-9631
/s/ Bryan F. Keyes
--------------------------------------------
Bryan F. Keyes, INDEMNITEE
Address of Indemnitee:
--------------------------------------------
--------------------------------------------
Facsimile:
----------------------------------
-7-
<PAGE>
SUPPLEMENTARY CONTRACT EXECUTED BY PARTY OF THE FIRST PART "COMPLEJO INDUSTRIAL
FUENTES, S.A. DE C.V," REPRESENTED BY THE CHAIRMAN OF ITS BOARD OF DIRECTORS MR,
EDUARDO FUENTES VARELA, WHICH HEREINAFTER SHALL BE KNOWN AS "THE LESSOR"; AND
PARTY OF THE SECOND PART, "S.T.B. DE MEXICO, S.A. DE C.V., REPRESENTED HEREIN BY
ITS SOLE ADMINISTRATOR, MR, RANDALL DON EISENBACH, HEREINAFTER BE KNOWN AS "THE
LESSEE", PURSUANT TO THE FOLLOWING STATEMENTS AND CLAUSES:
STATEMENTS:
I.- Both parties are hereby representing that on October 04, 1996, they
executed a Lease Contract concerning an area of 28,848.54 m2
(approximately 310,522.80 square feet) of land and a Building to be
built of 11,942.09 m2 (approximately 128,543.46 square feet), located at
Avenida Fuentes Sur and situated at Lot 7 and Lot 8 of Block E of
Complejo Industrial Fuentes, Ciudad Juarez, Chihuahua, Mexico, which is
currently in effect, in which both parties were involved in the same
capacity in which they are executing this Supplementary Contract.
II.- They continued by representing that due to a change in the needs of THE
LESSEE, which are causing the latter to require greater space in some
areas and a reduction in others, it has made a request to THE LESSOR for
adjustments to be made to the original plans for THE LEASED PROPERTY,
and THE LESSOR has agreed and authorized making the requested
adjustments so as to thus satisfy the needs of THE LESSEE.
III.- Finally, the parties are representing that in exercise of the right
given to them under Clause twenty-one of the Lease Contract indicated in
the First Statement of this instrument, the parties are expressing their
desire to make this SUPPLEMENTARY CONTRACT to said contract, due to the
fact that the needs of THE LESSEE have changed, requiring greater space
at the Leased Property, and because such is in our mutual interest, we
are hereby executing this SUPPLEMENTARY CONTRACT pursuant to the
following:
CLAUSES:
FIRST.- THE LESSOR, in response to the request made by THE LESSEE, which is
shown in Statement Two of this instrument, shall make the changes to the
original plan for the LEASED PROPERTY for the Contract they had executed on
October 04, 1996, which shall consist of the following areas:
- - Increase Production Area:
601.90 m2 (6,478.79 square feet)
- - Increase Main Switch Panel Room I and Substation-I
14.28 m2 (153.71 square feet)
<PAGE>
- - Construction Main Switch Panel Room II and Substation-II 124.95 m2
(1,344.95 square feet)
- - Increase Production Area 14.78 m2 (159.09 square feet)
- - Increase Employee Service 9.44 m2 (101.61 square feet)
- - Reduction South Production Bathrooms 1.40 m2 (15.07 square feet)
- - Reduction South Locker Area 0.23 m2 (2.48 square feet)
- - Reduction Trash Room 1.19 m2 (12.81 square feet)
For the purpose of fully establishing the adjustments described above, both of
us as parties are attaching plans to this instrument describing in detail the
way the final project for the Lease Contract executed on October 04, 1996 shall
be, which shall evidently be what is binding upon both of us in the future as
parties.
SECOND.- Once adjustments to the LEASED PROPERTY are completed, it shall have a
total land area of 29,371.59 m2 (approximately 316,152.86 square feet) and a
total building area of 12,704.62 m2 (approximately 136,751.25 square feet ), and
these dimensions shall therefore become considered to be the LEASED PROPERTY for
legal contracting purposes already established in the Lease Contract executed on
October 04, 1996.
THIRD.- In recognition of the different arrangements that must be made with
Authorities for constructing the requested job and expansions, both parties are
agreeing to amend the final delivery date of the LEASED PROPERTY which is shown
in clauses One and Twelve of the Lease Contract described in statement One of
this Instrument. This amendment is for granting one more month for THE LESSOR to
make delivery of the LEASED PROPERTY to THE LESSEE, so for such reason, the
obligation shall hereafter be for thirteen months and not for the twelve months
contained in the above mentioned clauses, as a consequence delivery will be made
no later than November 4th, 1997. Also, both parties agree that beneficial
occupancy established on Clause Twelfth paragraphs 3 and 4, will be made on
September 4th, 1997.
FOURTH.- Both parties, for the purpose of adjusting what is being agreed through
this instrument, are agreeing to change the areas which are shown in clause
Twenty of the Leased Contract which is mentioned in Statement One of this
instrument, because these adjustments affect the land adjacent to the Leased
Property; thus the total area of the adjacent parcel of land shall become
19,148.95 m2 (approximately 206,117.38 square feet), and the building area to
which THE LESSEE may have an option in the future shall also become modified,
which shall become 7,598.47 m2 (approximately 81,789.00 square feet).
FIFTH.- Both parties are acknowledging that the Contract they have executed on
October 04, 1996 shall remain effective in each and every one of its parts and
should become supplemented in the manner and according to the terms which are
being agreed in this instrument, so therefore, IT
<PAGE>
SHALL IMMEDIATELY BECOME SUBJECT TO ALL THE CONDITIONS ESTABLISHED IN THE
ORIGINAL LEASE CONTRACT MENTIONED IN STATEMENT ONE OF THIS INSTRUMENT AND TO
THOSE OF THIS SUPPLEMENTARY CONTRACT.
SIXTH.- This SUPPLEMENTARY CONTRACT is being executed in two versions, one in
the English Language and the other in the Spanish language. In case of any
discrepancy between the two texts, the Spanish version shall prevail.
AFTER THIS AGREEMENT WAS READ BY ThE PARTIES, THEY ACCEPTED SAME AND AS PROOF OF
THEIR ACCEPTANCE HEREOF, THEY ARE SIGNING IT AT CIUDAD JUAREZ, CHIHUAHUA, ON THE
30TH (THIRTIETH) DAY OF JANUARY 1997 (NINETEEN HUNDRED NINETY-SEVEN).
THE LESSOR THE LESSEE
COMPLEJO INDUSTRIAL FUENTES, S.T.B. DE MEXICO, S.A. DE C.V.
S.A. DE C.V.
/s/ Mr. Eduardo Fuentes Varela /s/ Mr. Randall Don Eisenbach
- ------------------------------ -----------------------------
MR. EDUARDO FUENTES VARELA MR. RANDALL DON EISENBACH
CHAIRMAN OF THE BOARD SOLE ADMINISTRATOR
OF DIRECTORS
W I T N E S S E S :
/s/ Jesus Trillo Quezada /s/ Dora Irma Corella Melendez
- -------------------------- ------------------------------
JESUS TRILLO QUEZADA DORA IRMA CORELLA MELENDEZ
<PAGE>
12/9/96
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is effective this 17th day of
December, 1996, and entered into by and between GATEWAY 2000, INC., a Delaware
corporation, 610 Gateway Drive, North Sioux City, SD 57049 and its Subsidiaries
(hereafter "Gateway") and STB SYSTEMS, INC., a Texas corporation, -1651 North
Glenville, Richardson, TX 75081-0957 (hereafter "Supplier").
Gateway, a recognized manufacturer and/or distributor of computer-related
equipment, desires to secure a proven source of Product as defined in this
Agreement and attached Exhibits. Gateway prefers to establish a strong relation
with Supplier so as to determine that Supplier is identified as a "Preferred
Supplier".
Supplier manufactures and/or sells and distributes Product as defined in
this Agreement and aft ached Exhibits, and related equipment.
It is mutually agreed that Gateway will purchase and accept from Supplier,
and Supplier will deliver to Gateway, Product as defined in this Agreement and
attached Exhibits, pursuant to and in accordance with the following definitions,
terms, and conditions.
AGREEMENT:
1. DEFINITIONS.
A. "Product", as used in this Agreement shall mean the deliverables in
accordance with the product specifications mutually agreed to between the
parties, as listed on Exhibit "A".
B. "Specifications" as used in this Agreement shall mean the
specifications for the Product to be sold by Supplier to Gateway as described on
Exhibit "A".
C. "Defect(s)" as used in this Agreement shall mean a deficiency,
imperfection or insufficiency in the Product such that it is not fit for
ordinary purposes for which it was purchased, sold or used.
D. "Order", as used in this Agreement shall mean those purchase orders
that Gateway shall provide to Supplier.
E. "Confidential Information", as used in this Agreement shall mean
components, types of systems, new product development, technical information,
data, formulas, patterns, compilations, programs, devises, methods, techniques,
marketing plans, business procedures, customer and supplier lists, agreements
with any suppliers,
<PAGE>
supplements, techniques, or know-how, processes or other proprietary or
confidential or intellectual property information which is received from the
other under this Agreement, which is transmitted from the other party in written
form and which, if disclosed to the general public, would cause harm to the
transmitting party.
F. "Epidemic Failures", as used in this Agreement shall mean that
percentage of the units of Product accepted by Gateway in an Order therefor
which fails to operate in accordance with performance specifications applicable
to such Product solely as a result of the failure of such Product to conform
with the warranty applicable to such Product as set forth in Section 9 of this
Agreement.
G. "Preferred Supplier", as used in this Agreement shall mean a supplier
who is capable of meeting schedule, quality, and pricing requirements.
H. The following Exhibits are incorporated into this Agreement:
Exhibit A - Product, Packaging and Performance Specifications
Exhibit B - Pricing
Exhibit C - Gateway's Sample Purchase Order
Exhibit D - Routing Guide(s)
Exhibit E - Engineering Change Requests
Exhibit F - Regulatory Compliance
Exhibit G - Supplier Certification
Exhibit H - Inspection Procedure
Exhibit I - Supplier Quality Engineering
Exhibit J - Federal Acquisition Regulations
2. TERMS AND CONDITIONS.
All purchase of Product shall be subject only to the terms and conditions
of this Agreement and any other terms and conditions, oral or written,
including, without limitation, any terms and conditions referenced in any Order,
shall have no force or effect, except for Product description, Delivery
Schedule, Price, and Amount of Product ordered.
3. ORDERING PROCEDURE AND DELIVERY.
A. Gateway shall place all Orders under this Agreement by using Gateway's
model numbers for Product. All Orders are subject to acceptance by Supplier and
may be accepted in whole or in part within two (2) working days after Supplier's
receipt of each Order. If Supplier fails to give written notice of rejection of
any part of the Order within the time stated, the Order shall be deemed
accepted.
B. Gateway agrees to place a ninety (90) day Order upon execution of this
Agreement and maintain a continual ninety (90) day Order, subject to the
cancellation and rescheduling provisions of Section 7 for the term of this
Agreement.
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C. Gateway shall use its best efforts to forecast its intended purchases
of Product for the next six (6) month period. These forecasts are intended for
planning purposes only and shall not be considered as firm commitments to
purchase.
D. The prices set forth on Exhibit B hereto include packaging for either
air or surface transportation. All Product shall be suitably packaged to comply
with the method of transportation and in compliance with the specifications set
forth in this Agreement and the attached Exhibit A.
E. A sample purchase order is attached hereto as Exhibit C. In the event
of a conflict between the terms and conditions of this Agreement and the
purchase order, the terms of this Agreement shall apply.
4. PRICES.
A. PRODUCT PRICES. The prices applicable to Product are listed in U.S.
Dollars on Exhibit B. Supplier and Gateway shall conference monthly to discuss
issues such as performance and price changes with respect to unfilled and future
orders. The prices are intended to remain in effect for the term of this
Agreement, but may be equitably adjusted upon review, at least quarterly, by
Gateway and Supplier consistent with a price reduction based upon product
maturation, equitable lot buys, and/or materials cost reduction.
B. PRICE PROTECTION. Supplier warrants and agrees that each of the
charges, prices and fees, terms, warranties or benefits granted to Gateway
pursuant to this Agreement are comparable to or better than the equivalent
charge, price or fee, term, warranty or benefit being offered by Supplier to any
like customer of similar volumes of Supplier. Should Supplier negotiate sales
prices for any Product upon more favorable terms than those provided to Gateway,
Supplier agrees to provide to Gateway the benefit of such more favorable terms
including, but not limited to, reduced prices.
C. ADVERTISING. In addition to any other volume discounts that Supplier
may afford to Gateway, Supplier will provide Gateway an additional 0.25%
discount for listing Supplier's name. This discount will apply to Gateway on a
region-by-region basis and be deducted from the invoice for all shipments during
the actual month that the campaign is in print. Gateway will also evenly split
with Supplier any and all co-op funds that Gateway receives from a third party
chip vendor that pertains to Supplier's Products shipped to Gateway. These funds
will be used by Gateway to help promote the chip vendor. Supplier will use its
portion of the co-op funds to promote Supplier and its Products. This discount
does not apply to the fourth Quarter 1996 shipments of the Virge VX board or
module.
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5. PAYMENT.
Both parties acknowledge that all prices for Product shall be made in U.S.
Dollars. Terms of payment are net thirty (30) days from date of delivery by
Supplier to a carrier for transportation to Gateway, or date of invoice, if
later. The prices include all fees for licenses, taxes and import fees.
6. TITLE AND DELIVERY.
A. PLACE OF DELIVERY AND SHIPPING DESTINATIONS. All deliveries of Product
shall be F.O.B. the Gateway Regional Facility. Gateway shall arrange
transportation at Gateway's cost.
B. TITLE AND RISK OF LOSS. Title and risk of loss to Product will pass to
Gateway upon delivery to a Gateway Regional Facility hereinafter referred to as
"Delivery" as set forth in Exhibit D.
C. EXPEDITED DELIVERIES. Supplier will make reasonable efforts to
deliver, within two (2) business days, of the delivery dates provided by
Gateway. If Supplier fails to deliver within five (5) days of the agreed upon
delivery date, Supplier will pay for all expedited shipping costs or Gateway may
cancel the affected Order without penalty.
D. QUANTITIES. Supplier shall deliver the Products in the quantities
specified in Gateway's Orders against the Order and line item specified.
7. CANCELLATION AND RESCHEDULING.
The following guidelines will apply to cancellation and rescheduling:
0-30 days can
reschedule 15%
or
31-60 days can
reschedule or cancel up to 40%
or
61-90 days can
reschedule or cancel up to 60%
91+ days can
reschedule or cancel up to 100%
8. ENGINEERING CHANGES.
A. Gateway will continuously work with Supplier on final approval of all
phases of Product design verification including, but not limited to, Bill of
Materials
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(BOM) and changes or additions to the Approved Supplier List (ASL) and on-going
approvals of Supplier Engineering Changes Requests/ Notices (SECRs/ECNs). No
changes will be made in the form, fit, function, design or appearance of the
Product without the express written consent of Gateway. The engineering
specifications (revision level) of Product will not be changed without
forty-five (45) days prior written notice to and approval by Gateway, except as
noted below.
B. Supplier will provide Gateway with a written description of the
proposed change and the proposed implementation date by utilizing Gateway's SECR
set forth in the attached Exhibit E. A minimum of fifteen (15) component samples
will be provided for qualification to the Gateway compatibility department.
Gateway shall have the minimum number of days indicated by the Class of change
and identified in Exhibit E to approve or reject the change.
C. Within ten (10) business days of receipt of Gateway's written
response, Supplier will provide Gateway any updated specification material that
has changed as a result of the engineering change.
D. If Gateway wants to initiate an SECR/ECN, it must do so by utilizing a
mechanism similar to Exhibit j and obtaining Supplier's approval.
E. Supplier Engineering Change Requests/Notices shall be sent to the
following addresses:
Supplier: Gateway:
1651 North Glenville Supplier Quality Engineering, MS Y-09
Suite 210 610 Gateway Drive
Richardson, TX 75081 North Sioux City, SD 57049
Attn: OEM Program Manager
F. Supplier shall implement a method of identification which clearly
distinguishes the changed Product.
9. WARRANTY, WARRANTY RETURNS, FIELD FAILURE RATE.
A. WARRANTY.
i. The Product will comply with all Gateway approved product
descriptions and specifications, and other printed information relating to the
Product, provided to Gateway by Supplier and in effect as of the date of the
applicable Order.
ii. The Product, (a) will be new, (b) will be free from defects in
manufacture, materials and design, (c) will function properly under ordinary
use, and (d) will perform in accordance with all applicable specifications and
documentation for such Product for a period of thirty-six (36) months from date
of delivery.
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iii. Supplier warrants that title to all Product purchased by
Gateway, no matter where delivered, shall be free and clear of all liens,
encumbrances, security interest, or other adverse interests or claims.
iv. The aforementioned warranties shall not apply to any Product
which has been altered or changed without Supplier's authorization after receipt
by Gateway or to any failure of the Product to conform to such warranties as a
result of improper maintenance, installation or service, operation and use
contrary to furnished instructions, the transportation or improper storage of
such items, abuse, misuse, neglect, negligence of end-users. It is understood
and agreed that the Product shall be used in connection with and as components
of a larger system, and that such inclusion into the larger system does not and
shall not constitute an unauthorized alteration or change in the Product;
provided that the design and implementation of such inclusion into the larger
system is in conformity with specifications set forth in Exhibit A. However,
should the Gateway misuse the Product when performing its inclusion, the
warranty is void.
v. The warranties set forth in this Section 9 are the only
warranties made by Supplier to Gateway with respect to Product. SUPPLIER
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO PRODUCT SOLD
PURSUANT TO THIS AGREEMENT AND EXHIBITS, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING
OUT OF OR IN CONNECTION WITH THE SALE, USE OR PERFORMANCE OF PRODUCT, EXCEPT
INDEMNIFICATION.
B. WARRANTY RETURNS/REPAIR.
i. Warranty Returns shall be Product which has been delivered to
Gateway or by Gateway to its customers and rejected by them due to defect(s).
ii. All Product returned will require a Return Material
Authorization (RMA) number which will be issued by Supplier. Supplier will pay
return shipping charges to Supplier.
iii. All Warranty Returns shall be returned to Supplier within thirty
(30) days of issuance of the RMA notice.
iv. All Warranty Returns shall be debited by Gateway against
outstanding invoices payable to Supplier. All Warranty Returns will be for
credit only. In the event of No Defects Found (NDF) or a physically damaged
and/or altered Product, Supplier shall return the Product to Gateway at the
original invoice price. Warranty returns for credit will be for currently
shipping products (Velocity 3D, Nitro 64 Video, Video Rage) and all future STB
products. All earlier generation of STB products will fall under the previous
return for repair policy.
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v. Supplier will acknowledge receipt of returned product and
quantities received within five (5) business days of receipt of the returned
Product from Gateway. If Supplier fails to give written acknowledgment of
receipt and quantities received within the time stated, Supplier shall be deemed
to have received Gateway's product and quantities listed on the vendor return
form.
C. EPIDEMIC FAILURES. Gateway will consider an Epidemic Failure as being
a single failure type, if the failure is .7% of the Product shipped during a
three (3) month period. Supplier will take action to correct the defect in
subsequent deliveries of Product and will notify Gateway of its corrective
action plan. The defect must be corrected by upgrading some or all of the
Product previously shipped within the twelve (12) months prior to Gateway's
notice to Supplier. Supplier will provide parts for the upgrades, perform
associated labor costs and pay freight to the customer.
10. PRODUCT ACCEPTANCE.
A. Design verification testing (DVT) is to be performed on all newly
designed products purchased by Gateway. DVT testing is to be completed and
results submitted to Gateway's supplier quality engineer (SQE) responsible for
the Product. DVT results are to be reported with respect to the original Gateway
approved design specification for the Product.
B. Supplier shall submit a capability analysis which indicates the
Supplier's equipment, staff and Supplier's ability to understand, support and
process to the level of design technology required by Gateway.
C. Reliability testing shall be performed using four (4) corner testing.
Four corner testing is defined as a combination of temperature, humidity and
voltage in high and low conditions. Reliability testing shall be performed at
ten percent (10%) beyond the agreed upon design specification limitations set by
Gateway's Global Product Organization (GPO) and Supplier.
D. The design shall specify the expected process, test and field
performance level of the Product. Supplier shall demonstrate the actual
performance level during a site risk analysis and assessment survey.
E. Gateway will consider an epidemic failure as being a single failure
type, if the failure is .7% of the Product shipped during a three (3) month
period. An epidemic failure could have a cost impact to Supplier.
F. Supplier shall perform a structural design test using Gateway's
standard for testing, unless Supplier's test procedure is more rigid than
Gateway's test procedure. Testing shall be conducted at a test provider location
agreed to between Gateway and Supplier. Testing shall include all packaging
which is used during transportation of the Product to Gateway's customer.
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G. Supplier Engineering Change Requests (SECR) will be completed pursuant
to the guidelines set forth on Exhibit E and will be routed to the appropriate
SQE in Singapore and North Sioux City, South Dakota. Gateway's SQE in both
locations will ensure that all SECR's are managed from submission to approval.
H. Regulatory approval is the responsibility of the Supplier to ensure
that all newly designed and/or changed Products meets Gateway's dB margins in
conjunction with FCC industrial standards. All engineering changes that affect
the original test grant are Supplier's responsibility to ensure that the change
is tested and grant status is maintained. Supplier represents and warrants that
Supplier has obtained the necessary regulatory approvals for the Product as set
forth on Exhibit F.
I. Product purchased pursuant to this Agreement shall meet all
established industry operating standards. Product that is combined with other
technology shall be compatible with that standard.
J. Supplier accepts full responsibility for Product failure caused by a
safety defect and for corrective action regardless of when such defect is
detected. Corrective action for a major defect must be implemented within three
(3) business days and corrective action for a minor defect must be implemented
within seven (7) business days upon notification by Gateway.
K. Gateway requires its suppliers to go through the SQE procedure in
order to become a Preferred Supplier. Supplier shall follow and work with
Gateway on achieving Supplier Certification. The criteria for Supplier
Certification is defined within the attached Exhibit G.
L. Incoming Quality Assurance sample acceptable quality level (AQL) for
the three (3) main types of commodity families as per Mil Spec 105E are set
forth on Exhibit H.
M. None of the foregoing shall limit any warranties as set out in Section
9 or affect quality level of Product ordered by Gateway.
11. SERVICE AND ROOT CAUSE FAILURE ANALYSIS.
A. Supplier agrees to enter into a service agreement to support all
in-warranty defective product returned from Gateway's customers. The service of
common Product used by Gateway regions, globally, are to be considered when
service centers are being planned.
B. Supplier shall record all root causes for failures repaired and report
this information on a weekly basis to Gateway and the Supplier's original
manufacturing location.
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C. Gateway's SQE department shall create a corrective action response to
the root cause for failure. This action is to be completed monthly. If a
critical issue arises, Corrective Action Request (CAR) will be issued as set
forth in Exhibit I, to ensure the action taken has improved the reliability of
the Product.
12. PATENT, COPYRIGHT AND TRADE SECRET INDEMNITY.
A. Supplier represents and warrants that:
i It has sufficient right, title and interest in all Product to
enter into this Agreement;
ii. The Product does not infringe any United States, Canada,
Australia, Japan, Malaysian, European Community, Ireland, Sweden, Norway, or
Finland patent, copyright or trade secret;
iii. The combination, operation, or use of the Product with equipment,
data or programs Gateway sells the Product with, does not infringe any United
States, Canada, Australian, Japan, Malaysian, European Community, Ireland,
Sweden, Norway or Finland patent, copyright or trade secret.
iv. The Product does not violate the trade secret or confidentiality
rights of a third party.
Supplier agrees to indemnify, hold harmless and defend Gateway, Gateway's agents
and customers from and against any and all damages, losses, costs, expenses,
including attorneys' fees (including allocated costs for in-house legal
services), and liability incurred in connection with a claim for infringement
which constitutes a breach of the foregoing warranty (hereinafter "Infringement
Claims") whether in this or a foreign country; provided that Supplier is
notified promptly in writing of an Infringement Claim. Supplier shall have sole
control over the defense and settlement of such a claim so long as no settlement
adversely affects Gateway's ability to exercise its rights under this Agreement.
Gateway shall provide reasonable assistance in defense of same. Supplier will
pay all damages and costs finally awarded against Gateway.
B. In the event that a final judgment is obtained against the use of any
Product by Gateway by reason of infringement of any such Intellectual Property
Right, or, if in Supplier's opinion the Product is likely to become the subject
of such a claim of infringement, Supplier shall, at its option and expense:
(a) procure for Gateway the right to continue using the Product; or
(b) replace or modify the Product so that it no longer causes any
such infringement but is still capable of performing its original function.
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13. PARTS
A. Supplier agrees to provide Gateway one hundred twenty (120) days
written notice prior to the discontinuance of any Product purchased by Gateway
pursuant to this Agreement. Upon notification by Supplier, Supplier shall allow
Gateway to make a final purchase of Product at prices agreed to between the
parties.
B. During the term of this Agreement, and for three (3) years after the
termination of this Agreement or any extension of it, Supplier shall make
services and parts available to Gateway at a mutually agreed upon price. In the
event said parts are no longer available, Supplier will provide like parts or
better (in terms of features and performance) in accordance with the provisions
of this section.
C. During the term of this Agreement, and for three (3) years after the
termination of this Agreement or any extension of it, Supplier shall make
available to Gateway custom plastics, custom packing material, and other custom
components for use by Gateway in providing on-going Product support after
Supplier's warranty period has ended.
14. ENVIRONMENTAL.
A. Supplier shall comply with all applicable federal, state and local
environmental laws, ordinances, orders or regulations affecting the Product.
Supplier does hereby agree to indemnify and hold Gateway harmless of; from and
against any and all claims, actions, liens, demands, costs, expenses, fines and
judgments (including legal costs and attorney's fees) resulting from or arising
by reason of the use of Hazardous Substances (as defined in applicable federal,
state, and local environmental laws, ordinances, orders or regulations) or CFCs
and HCFCs in the Product's manufacturing process or included in the Product.
B. Supplier agrees to use reusable and recyclable packaging for Product
purchased under this Agreement.
15. CONFIDENTIALITY.
Each party agrees that it will keep in confidence and prevent the
acquisition, disclosure, use or misappropriation by any person or persons all
types of and/or quantities of components, types of systems, new product
development, technical information, data, formulas, patterns, compilations,
programs, devices, methods, techniques, marketing plans, business procedures,
customer and supplier lists, agreements with any suppliers, supplements,
techniques or know-how, processes or other proprietary or confidential or
intellectual proprietary information which is received from the other under this
Agreement, provided; however, that neither party shall be liable for disclosure
of any data if the same is disclosed with the prior written approval of the
other party. Each party agrees that if it
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breaches the non-disclosure agreement, the owner of the confidential or
proprietary information shall suffer irreparable injury and be entitled
immediately to a temporary and permanent injunction, in addition to the other
remedies for breach of the entire agreement.
This non-disclosure agreement shall survive the termination or expiration
of the entire agreement.
Both parties shall be entitled to attorneys' fees for enforcement of this
section.
The foregoing confidentiality obligation shall not apply to information
which the recipient can demonstrate by written evidence was (i) lawfully in its
possession prior to its first receipt from the deliverer (ii) is or becomes
publicly available without breach of this Agreement by the party receiving the
Confidential Information; (iii) is released for disclosure by the disclosing
party with its written consent; (iv) is known by the receiving party prior to
the disclosure; (v) is rightly received by the receiving party from a third
party without confidential limitations; (vi) is hereafter disclosed to a third
party without restriction on disclosure, which at the date hereof or hereafter
becomes available in the public domain without breach by the recipient of this
Agreement or any unlawful act.
Each party (i) agrees not to disclose Confidential Information given to it
by the other party to any person, real or legal, except as necessary for the
other party to perform its obligation under this Agreement; (ii) shall require
its employees having access to Confidential Information and any third party to
whom disclosure of Confidential Information is necessary to sign a
confidentiality agreement containing provisions similar to this Agreement; (iii)
shall exercise the same degree of care to safeguard the confidentiality of such
Confidential Information as it would exercise in protecting the confidentiality
of similar property of its own (but in no event less than is standard in the
industry); and (iv) agrees to use its diligent efforts to prevent inadvertent or
unauthorized disclosure, publication or dissemination of any Confidential
Information.
Each party shall notify the other of any actual or suspected unauthorized
use or disclosure of Confidential Information or infringement of any of
Supplier's proprietary rights of which such party has knowledge and will
reasonably cooperate with the other party in the investigation and prosecution
of such unauthorized use, disclosure or infringement.
16. FORCE MAJEURE.
In the event that either party is prevented from performing or is unable to
perform any of its obligations under this Agreement due to any Act of God, fire,
casualty, flood, war, strike, lockout, epidemic, destruction of production
facilities, riot, insurrection, or any other cause beyond the reasonable control
of the party invoking this section, and if such party shall have used its best
efforts to mitigate its effects, such party shall give prompt written notice to
the other party, its performance shall be excused, and the time for the
performance shall be extended for the period of delay or inability to perform
due to
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such occurrences. However, if such inability to perform continues for fifteen
(15) days, the other party may terminate this Agreement without penalty and
without further notice.
17. TERM/TERMINATION.
A. Unless sooner terminated, this Agreement shall remain in effect for a
period of one (1) year. This Agreement may be renewed for additional one (1)
year periods upon mutual written agreement between the parties. Either party
shall have the right to terminate this Agreement immediately if the other
breaches any of the material provisions of this Agreement and fails to cure the
breach within thirty (30) days after receipt of written notice.
B. If either Gateway or Supplier should become insolvent, or make any
assignment for the benefit of creditors, or enter into any compromise with
creditors or a general agreement for referral of payment with its creditor, or
make or suffer to be made any transfer to any person, trustee, receiver,
liquidator, or referee for the benefit of creditors, or file a voluntary
petition in bankruptcy, or suffer an involuntary petition in bankruptcy to be
filed against it, or file any petition in any reorganization, arrangement,
compromise, readjustment, liquidation, or dissolution or similar relief for
itself, or becomes unable to pay its debts generally as they become due, the
other party shall have the immediate right to terminate this Agreement upon
delivery of written notice without any liability to the insolvent party and
without further notice to it.
C. Either party may terminate this Agreement without cause by giving
ninety (90) days written notice to the other party.
18. APPLICABLE LAW AND JURISDICTION.
This Agreement shall be governed by and construed in accordance with the
laws of the State of South Dakota without resort to conflict of law principles.
The parties agree that any legal action by either party against the other
relating to this Agreement or Schedule as contained therein shall be commenced
in a court of competent jurisdiction in the State of South Dakota.
19. DISPUTE RESOLUTION.
Each company shall designate in writing to the other the following
individuals for the following purposes:
A. Designated Representatives. Each company shall designate one Primary
Representative. These Primary Representatives shall also act as the designated
persons to resolve disputes under Section 20 (B) herein.
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B. Senior Officers. Each company shall designate a Senior Officer of the
company, who is not an attorney, who shall serve for the purpose of resolving
disputes under Section 20 (C) herein.
C. Executive Officers. Each company shall designate its Chief Executive
Officer or its Chief Operating Officer who shall serve for the purpose of
resolving disputes under Section 20 (D) herein.
D. Changes in Designation. Each party may change such designated
representatives within the parameters called for hereunder for such
representatives upon the giving of advance written notice to that effect.
20. PROCEDURES FOR HANDLING OF DISPUTES.
All disputes under this Agreement, of any nature whatsoever, shall be
handled in strict accordance with the following procedure, and the parties agree
that legal remedies cannot be resorted to until such time that each step of this
procedure has been followed:
A. A dispute shall be formalized, by the party raising the dispute, when
the issues relating to the dispute are placed in writing and submitted to the
other party with adequate backup material, in the submitting party's reasonable
judgment, to substantiate the dispute and the amount of claim under the dispute.
The submittal in writing shall be delivered to the other party as required under
Section 21 of this Agreement.
B. The dispute shall be handled by resolution by the two designated
Primary Representatives within thirty (30) days from submittal. The parties must
mutually agree to the resolution.
C. Failing resolution under B. above, the dispute, including all
supporting documentation and the positions of the parties from step B. above,
shall be submitted for resolution to the Senior Officers so designated for this
purpose by each company in Section 19 (13), within thirty (30) days from
submittal. The parties must mutually agree to the resolution.
D. Failing resolution under C. above, the dispute, including all
supporting documentation and the positions of the parties under steps B. and C.
above, shall be submitted for resolution to the respective Chief Executive
Officer or Chief Operating Officer, as has been so designated for this purpose
in Section 19 (C), within thirty (30) days from submittal. The parties must
mutually agree to the resolution.
E. Failing resolution under D above:
All disputes under this Agreement shall be submitted to arbitration
under the rules of the American Arbitration Association ("AAA") with the
location for arbitration to be in the State of South Dakota. The dispute shall
be decided by one neutral
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arbitrator, to be selected by the parties by providing to each other a list of
three (3) names. If the parties are unable to initially agree on the arbitrator,
the selection process will be as follows: The parties will submit the initial
list of six (6) names to the AAA. Each party will rank the six (6) names
submitted in the order of their choice. The first time a name in order of
ranking on each list is common (the level of ranking need not be common), that
person shall be selected as the arbitrator. Failing agreement under this
procedure, the selection shall be made by the AAA under its established rules.
The parties shall agree on mutually acceptable procedures and standards for said
arbitration including, but not limited to: authority of arbitrator respecting
discovery and procedures, form of evidence and/or witness evidence and
presentation, submission and/or hearing procedures, and other such matters;
provided, however, that the scope of the question to be decided by the
arbitrator shall be narrowly construed and shall be limited to the express issue
presented, and there shall be no punitive or exemplary damages allowed to be
awarded. In the event the arbitrator attempts to or does award incidental,
exemplary, special, indirect, consequential or punitive damages in favor of
either party, the jurisdiction of the arbitrator shall be and is hereby
automatically terminated and any decision as to such damages shall be void and
of no force or effect. The party prevailing as to the entire claim shall have
its costs and the other costs of arbitration, including the arbitrator's fees,
if any, paid by the other party, except where neither party prevails entirely,
the arbitrator may apportion such costs in accordance with the disposition of
the matter. The decision of the arbitrator shall be final and binding upon the
parties, except as to the propriety of the scope of the award and disposition;
and provided that the decision of the arbitrator must not be against public
policy, nor may it be arbitrary or capricious, as determined by whether it is
fairly supported by the evidence presented (including the failure, if any, of
either party to comply with the agreed arbitration procedures), which shall mean
that the decision of the arbitrator must be such that it cannot be said that no
reasonable person could reasonably and logically have reached such result based
upon the said evidence.
F. Failure to Act. Failure to take any action on the part of either or
both parties under any step of this procedure for the specified thirty (30) day
period shall automatically move the dispute process to the next step in the
procedure. After having given notice in accordance with A. above for the first
step of this procedure, the completion of the thirty (30) day time period in
each step shall be deemed to constitute notice to initiate the next step of the
procedure.
21. NOTICES.
Notices and other communication under this Agreement will be sent by
certified mail, return receipt requested, addressed to the other party at its
address as follows, provided either party may change its address by written
notice thereof.
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Supplier: Gateway:
1651 North Glenville 610 Gateway Drive
Suite 210 North Sioux City, SD 57049
Richardson, TX 75081 Attn: Director of Supply Management
Attn: President
with a copy to Gateway's Law
Department.
22. PRODUCTS LIABILITY INDEMNITY.
Supplier shall indemnify, defend and save Gateway harmless from and against
any and all claims, demands, damages, liability, loss, cost, expense or
attorneys' fees which Gateway may incur, suffer or be required to pay arising
from damage to property, or bodily injury to or death of any person arising out
of or resulting from any defect in design, material, manufacture or performance
of the Product.
23. USE OF SUPPLIER DOCUMENTS
Supplier further grants Gateway the right to modify, reproduce, publish,
and sell the Product documentation and to use internally the (1)
instruction/user manuals, including portions of supplier's manuals or product
information in Gateway's manuals, data sheets, faxable materials, training
materials, brochures, catalogs--any printed material Gateway creates. Supplier
grants Gateway the right to distribute and transmit in electronic form,
including CD-ROM, disk, preload, FAX, video tape, through the Bulletin Board
Service or telephone line; (2) packaging copy and artwork, as a component of the
Product, provided that Gateway's modifications shall not render the Product
documentation incomplete or inaccurate. Gateway shall have the right to continue
using the documentation after the term of this Agreement for limited use to
support Products in the field.
24. U.S. EXPORT CONTROLS
Supplier refers to the U.S. Export Administration Regulations ("EAR") and
the Commerce Control List therein. Supplier agrees that it will not reexport any
technical data or software programs received from Gateway or any direct products
thereof without first obtaining the permission of the U.S. Department of
Commerce or State, either in writing or as provided by an applicable regulation.
Such permission is required in addition to any authorization required to be
obtained from Gateway. Supplier agrees that it shall not use or transfer without
U.S. Government permission U.S. Origin products, technology, or software of any
type if Supplier knows that the products, technology, or software will be used
in the design, development, production, or use of missiles, chemical or
biological weapons, or sensitive nuclear end uses in certain specific countries
of concern designated from time to time by the Commerce Department in Part 778
of the U.S. Export Administration Regulations, as amended from time to time.
This requirement shall survive the term or termination of this contract.
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Supplier certifies that the Products, which are the subject of this
Agreement, are not subject to the International Traffic and Arms Regulation
(ITAR) set forth at 22 C.F.R., Sections 120, et. seq.
25. FEDERAL ACQUISITION REGULATIONS
Contract clauses from the Federal Acquisition Regulations ("FAR") (48
C.F.R. Chapter 1) are attached hereto as Exhibit J, incorporated herein by
reference and shall have the same force and effect as if set forth in full text.
In all of the attached clauses, "Contractor" and "Offeror" shall mean Supplier.
The clauses are those in effect as of the date of this Agreement.
26. REGULATORY COMPLIANCE
Supplier shall obtain regulatory compliance approval as referenced in
Exhibit F.
27. GENERAL.
A. All rights and remedies, whether conferred hereunder, or by any other
instrument or law will be cumulative and may be exercised singularly or
concurrently. Failure by either party to enforce any term will not be deemed a
waiver of future enforcement of that or any other term. The terms and conditions
stated herein are declared to be severable.
B. Neither party may assign or delegate any rights hereunder without the
prior written approval of the other party and any attempt to assign any rights,
duties or obligations hereunder without the other party's written consent will
be void.
C. These terms and conditions constitute the entire agreement between the
parties with respect to the subject matter hereof Those terms and conditions
will prevail notwithstanding any different, conflicting or additional terms and
conditions which may appear on any order submitted by Gateway.
D. It is understood that neither party is constituted an agent, employee
or servant of the other for any purpose whatsoever. Each party shall conduct its
business in its own name and shall be solely responsible for its acts, conduct
and expenses and the acts, conduct and expenses of its employees and agents.
E. Each party acknowledges that the other party's employees are critical
to the servicing of its customers. Each party agrees not to employ or otherwise
engage the other party's employees for a period of one (1) year following any
employee's involvement in the performance of this Agreement. Should a party
violate this provision, the hiring parry will pay the other party the former
employee's annual salary.
16
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F. Neither party shall publicly announce or disclose the existence of
this Agreement or its terms and conditions or advertise or release any publicity
regarding this Agreement without the prior written consent of the other party.
This provision shall survive termination of this Agreement.
G. Supplier will provide to Gateway a list of those persons who license
to Supplier intellectual property used by Supplier under this Agreement.
Supplier will update this list by written notice to Gateway, as soon as
practicable and as required during the term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the date and year written below.
GATEWAY 2000, INC. STB SYSTEMS, INC.
By: /s/ William M. Elliott By: /s/ J. Shane Long
-------------------------- ---------------------------
William M. Elliot
Title: Sr. Vice President and Title: VP of Sales & Marketing
----------------------- ------------------------
General Counsel
Date: 12/17/96 Date: 12/27/96
------------------------ -------------------------
17
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===============================================================================
PARTICIPATION AGREEMENT
Dated as of November 14, 1997
among
ASSET XVII HOLDINGS COMPANY, L.L.C., as Lessor
STB SYSTEMS, INC., as Lessee
and
BANK ONE, TEXAS, N.A., as Lender
--------------------------------------
Lease Financing
for STB Systems, Inc.
Corporate Headquarters and Office Facility
Collin County, Texas
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1 DEFINITIONS; INTERPRETATION. . . . . . . . . . . . . . . . . . . . 1
SECTION 2 ACQUISITION, CONSTRUCTION AND LEASE; LOANS;
NATURE OF TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease. . . . . 1
SECTION 2.2 Funding of Construction Costs; Loans . . . . . . . . . . 2
SECTION 2.3 Nature of Transaction. . . . . . . . . . . . . . . . . . 4
SECTION 2.4 Amounts Due Under Lease and Loan Agreement . . . . . . . 4
SECTION 2.5 Controlling Agreements.. . . . . . . . . . . . . . . . . 5
SECTION 2.6 Permitted Applications of Loan Proceeds. . . . . . . . . 5
SECTION 2.7 Covenants Concerning Construction. . . . . . . . . . . . 6
SECTION 3 CONDITIONS PRECEDENT; DOCUMENTS. . . . . . . . . . . . . . . . . . 9
SECTION 3.1 Conditions to the Obligations of the Lessor and the
Lender on the Closing Date.. . . . . . . . . . . . . . . 13
SECTION 3.2 Conditions to Subsequent Fundings. . . . . . . . . . . . 17
SECTION 3.3 Completion Date Conditions.. . . . . . . . . . . . . . . 19
SECTION 3.4 Conditions to the Obligations of the Lessee. . . . . . . 19
SECTION 4 REPRESENTATIONS AND COVENANTS. . . . . . . . . . . . . . . . . . . 19
SECTION 4.1 Representations of the Lessee. . . . . . . . . . . . . . 19
SECTION 4.2 Representations and Covenants of the Lessor. . . . . . . 22
SECTION 4.3 Covenant of Lender.. . . . . . . . . . . . . . . . . . . 25
SECTION 4.4 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5 COVENANTS OF THE LESSEE. . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.1 Qualification as to Corporate Status.. . . . . . . . . . 26
SECTION 5.2 Further Assurances.. . . . . . . . . . . . . . . . . . . 26
SECTION 5.3 Reporting. . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.4 Affirmative Covenants of Lease . . . . . . . . . . . . . 28
SECTION 5.5 Financial Covenants. . . . . . . . . . . . . . . . . . . 29
SECTION 6 TRANSFERS BY LESSOR AND LENDER . . . . . . . . . . . . . . . . . . 29
SECTION 6.1 Lessor Transfers.. . . . . . . . . . . . . . . . . . . . 29
SECTION 6.2 Lender Transfers.. . . . . . . . . . . . . . . . . . . . 29
SECTION 7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.1 General Indemnification. . . . . . . . . . . . . . . . . 29
SECTION 7.2 Environmental Indemnity. . . . . . . . . . . . . . . . . 31
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SECTION 7.3 Proceedings in Respect of Claims.. . . . . . . . . . . . 33
SECTION 7.4 General Tax Indemnity. . . . . . . . . . . . . . . . . . 35
SECTION 7.5 Increased Costs, Etc.. . . . . . . . . . . . . . . . . . 40
SECTION 7.6 End of Term Indemnity. . . . . . . . . . . . . . . . . . 41
SECTION 7.7 Exculpation. . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.8 Role of Lender . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.9 Lender's Benefits. . . . . . . . . . . . . . . . . . . . 43
SECTION 7.10 Lessor's Benefits. . . . . . . . . . . . . . . . . . . . 43
SECTION 8 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.1 Survival of Agreements . . . . . . . . . . . . . . . . . 44
SECTION 8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.3 Counterparts.. . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.4 Amendments.. . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.5 Headings, Etc. . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.6 Parties in Interest. . . . . . . . . . . . . . . . . . . 45
SECTION 8.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.8 No Recourse. . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.9 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.10 Severability.. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.11 Submission to Jurisdiction; Waivers. . . . . . . . . . . 46
SECTION 8.12 Limitation on Interest . . . . . . . . . . . . . . . . . 47
SECTION 8.13 Reproduction of Documents. . . . . . . . . . . . . . . . 48
SECTION 8.14 Waiver of Consumer Rights. . . . . . . . . . . . . . . . 48
APPENDIX I Definitions and Interpretation
APPENDIX II Form of Funding Requisition
EXHIBIT A Form of Lease
EXHIBIT B Form of Loan Agreement
EXHIBIT C Form of Mortgage
EXHIBIT D Form of Assignment of Lease and Rents
EXHIBIT E Form of Non-Disturbance and Attornment Agreement
EXHIBIT F-1 Form of Investment Property Security Agreement
EXHIBIT F-2 Form of Account Control Agreement
EXHIBIT G Form of Security Agreement and Assignment
EXHIBIT H Form of Limited Guaranty Agreement
EXHIBIT I Form of Opinion of Counsel to the Lessee
EXHIBIT J Form of Opinion of Counsel to the Lessor
EXHIBIT K Form of Architect's Certificate
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PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of November 14, 1997, is among ASSET
XVII HOLDINGS COMPANY, L.L.C., a Massachusetts limited liability company, as
Lessor, STB SYSTEMS, INC., a Texas corporation, as Lessee, and BANK ONE, TEXAS,
N.A., a national banking association, as Lender.
W I T N E S S E T H:
WHEREAS, in accordance with the terms and provisions of this Participation
Agreement, the Lease, the Loan Agreement, the Notes and the other Operative
Documents, (i) the Lessor will acquire the Land and has agreed to lease the Land
to the Lessee, (ii) the Lessee has agreed to construct Improvements on the Land
for the Lessor and has agreed to lease the Improvements from the Lessor as part
of the Leased Property under the Lease, (iii) the Lessor and the Lessee wish to
obtain, and the Lender has agreed to provide, funding pursuant to loans in the
aggregate amount of up to $22,116,000 for the acquisition of the Land and the
development and construction of the Improvements, and (iv) Lessor has agreed to
make Contribution Advances from its own equity resources in an aggregate sum not
to exceed $684,000 to pay a portion of the cost of acquisition of the Land and
the development and construction of the Improvements;
NOW, THEREFORE, in consideration of the mutual agreements contained in this
Participation Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and not
defined herein shall have the meanings assigned thereto in Appendix I hereto for
all purposes hereof and the rules of interpretation set forth in Appendix I
hereto shall apply to this Participation Agreement.
SECTION 2
ACQUISITION, CONSTRUCTION AND LEASE; LOANS;
NATURE OF TRANSACTION
SECTION 2.1 AGREEMENT TO ACQUIRE, CONSTRUCT, FUND AND LEASE.
(a) LAND. Subject to the terms and conditions of this Participation
Agreement, on the Closing Date, (i) the Lessor shall acquire fee simple title in
and to the Land, (ii) the Lessor shall lease the Land to the Lessee pursuant to
the Lease and (iii) the Lessee shall lease the Land from the Lessor pursuant to
the Lease.
(b) IMPROVEMENTS. Subject to the terms and conditions of this
Participation Agreement and the other Operative Documents, (i) the Lessee has
agreed, pursuant to the terms of the Lease, to construct and install
Improvements on the Land for the Lessor, (ii) the Lessor has agreed to obtain
funding for all or a portion of the Development Costs of the Leased
<PAGE>
Property, (iii) the Lessor has agreed to lease the Improvements as part of
the Leased Property to the Lessee pursuant to the Lease and (iv) the Lessee
has agreed to lease the Improvements from the Lessor pursuant to the Lease.
SECTION 2.2 FUNDING OF CONSTRUCTION COSTS; LOANS.
(a) THE LOANS. Subject to the terms and conditions of this
Participation Agreement and the Loan Agreement, the Lender has agreed to make
two loans to the Lessor up to the aggregate amount of $22,116,000 in order
finance a portion of the Development Costs of the Leased Property: one loan
shall be in the principal amount of $19,380,000 ("Loan A") and the second loan
shall be in the principal amount of $2,736,000 ("Loan B", and together with Loan
A, the "Loans"). Lessor hereby directs Lender to make disbursements of the
Loans to Lessee unless Lessor (with notice to Lessee) otherwise directs the
Lender. The Lessor shall only so direct Lender if an Event of Default has
occurred and is continuing. Lessee shall use the proceeds of such Loans to pay,
or reimburse itself for paying, Development Costs, as provided in SECTION 2.6
hereof. Loan A shall (i) be a term and construction loan of $19,380,000, (ii)
bear interest from the Closing Date in accordance with SECTION 2.4 of the Loan
Agreement, payable on each Loan Payment Date, (iii) bear interest as to overdue
amounts at the Overdue Rate, (iv) be evidenced by a promissory note ("Note A")
and (v) have the other terms and conditions as provided in the Loan Agreement
and Note A. Loan B shall (i) be a term and construction loan of $2,736,000 (ii)
bear interest from the Closing Date in accordance with SECTION 2.4 of the Loan
Agreement, payable on each Loan Payment Date, (iii) bear interest as to overdue
amounts at the Overdue Rate, (iv) be evidenced by a promissory note ("Note B",
and together with Note A, the "Notes) and (v) have the other terms and
conditions as provided in the Loan Agreement and Note B. The Contribution shall
(i) be in an amount of up to $684,000, (ii) be repayable in full (subject to the
provisions of SECTION 15.6 of the Lease) on the Scheduled Termination Date,
(iii) bear a pre-tax cumulative return equal to the Contribution Return, and
(iv) be subject to such other terms and conditions as the Lessor and the Lessee
shall agree. Under the Lease, the Lessee agrees to pay the Facility Rent to
Lessor in respect of the Contribution Return on each Rent Payment Date.
(b) Beginning with a date at least three Business Days prior to the
Closing Date, and on any date thereafter to and including the third Business Day
next preceding the earlier to occur of the Completion Date or the Completion
Deadline, the Lessee, acting for itself and on behalf of the Lessor, shall have
the right to submit to the Lessor and the Lender a Funding Requisition
requesting Loan Advances and a Contribution Advance (together, a "Funding") for
Development Costs. Each Funding Requisition shall be addressed jointly to the
Lessor and the Lender and be substantially in the form attached hereto as
APPENDIX II. Each Funding Requisition shall (i) request that the Lender make
Loan Advances and that the Lessor make a Contribution Advance, as the case may
be, for Development Costs incurred and not previously reimbursed or paid, (ii)
specify the date not less than three Business Days later than the delivery of
the Funding Requisition on which the Funding is to be made (the "Funding Date")
(PROVIDED THAT if a Funding Requisition requests Loan Advances for a Base Rate
Loan and the stated Funding Date therein is not a Loan Payment Date, the Funding
Date for the
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related Contribution Advance shall be deferred until the next Loan Payment
Date), (iii) specify the respective amounts of the Loan Advances and
Contribution Advance to be made with respect to such Funding, (iv) be
irrevocable, and (v) request a Funding of at least $100,000 or such lesser
amount as shall be equal to the difference between the Total Commitments and
the sum of the outstanding principal balance of the Notes and the
Contribution (the "Remaining Commitments"). Each Funding Requisition shall
constitute a representation and warranty by the Lessee to the Lender and the
Lessor that all the conditions precedent to such Funding have been satisfied,
including but not limited to those contained in SECTION 3.3 hereof, except as
otherwise noted or disclosed by Lessee. Notwithstanding anything to the
contrary contained herein, the Funding Date with respect to any Funding
Requisition shall be a Loan Payment Date, except that a Funding Requisition
which requests a Loan Advance for a Base Rate Loan may request a Funding Date
with respect to such Loan Advance on any Business Day. The Lender and the
Lessor hereby severally (but not jointly) promise and agree that, to the
extent of the Remaining Commitments, (i) upon the receipt by the Lender of a
properly completed Funding Requisition and so long as all conditions
precedent to the Lender's obligation to make Loan Advances shall have been
satisfied or waived by the Lender, the Lender shall, on the Funding Date,
make a Loan Advance (A) in respect of Loan A in an amount equal to the
product of the Funding requested therein multiplied by the Loan A Ratio, and
(B) in respect of Loan B in an amount equal to the product of the Funding
requested therein multiplied by the Loan B Ratio, each in immediately
available funds (for the account of the Lessor) to the Lessee or to such
other Person or Persons as may be specified in such written Funding
Requisition, and (ii) upon the receipt by the Lessor of a properly completed
Funding Requisition and so long as all conditions precedent to the Lessor's
obligation to make Contribution Advances shall have been satisfied or waived
by the Lessor, the Lessor shall, on the Funding Date, make a Contribution
Advance in an amount equal to the product of the Funding requested therein,
multiplied by the Equity Ratio, plus any deferred and unfunded Contribution
Advances related to a Funding which included a Loan Advance for a Base Rate
Loan borrowed since the immediately preceding Loan Payment Date, all in
immediately available funds to Lessee or to such other Person or Persons as
may be specified in the applicable Funding Requisition.
(c) Not less than three Business Days prior to each Loan Payment
Date which falls on or prior to, but not after, the first to occur of the
Completion Deadline and the Completion Date, the Lessee, on behalf of the
Lessor, shall submit a Funding Requisition which includes a request for a
Funding in the total amount which will have accrued and become payable on each
such Loan Payment Date for (i) all interest on the Notes, and (ii) all
Contribution Return, and the amount of such Funding shall be used by the Lessor
exclusively to pay interest on the Notes and the Contribution Return in each
case to the extent accrued under the Loan Agreement or the Participation
Agreement (as the case may be) during the period prior to such Loan Payment
Date.
(d) Notwithstanding the foregoing, neither the Lender nor the Lessor
shall be obligated to make any Advance if the sum of all Advances theretofore
made with respect to the Leased Property exceeds the appraised value of the
Leased Property stated in the appraisal therefor delivered pursuant to SECTION
3.2 hereof. Furthermore, in no event shall the aggregate
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of all Loan Advances in respect of the Loans at any time outstanding exceed
the Loan Commitment, nor shall the Contribution at any time outstanding
exceed the Equity Commitment.
SECTION 2.3 NATURE OF TRANSACTION. It is the intent of the parties hereto
that (i) the leasing transaction contemplated hereby constitutes an operating
lease from the Lessor to the Lessee for purposes of the Lessee's financial
reporting, (ii) the transaction contemplated hereby preserves ownership in the
Leased Property in the Lessee for purposes of federal and state income tax,
bankruptcy and Uniform Commercial Code purposes, (iii) the Lease grants a
security interest or lien, as the case may be, in the Leased Property to the
Lessor to secure the Lessee's performance under and payment of all amounts under
the Lease and the other Operative Documents and (iv) the obligations of the
Lessee under the Lease to pay Basic Rent and Supplemental Rent or the Lease
Balance in connection with any purchase of the Leased Property pursuant to the
Lease shall be treated as payments of interest and principal, respectively.
Notwithstanding the foregoing and the provisions of SECTION 4.4 and SECTION 7.4
hereof, each party hereto acknowledges and agrees that none of the Lessee, the
Lender, the Lessor, the Financial Advisor nor any other Person has made any
representations or warranties to such party concerning the tax, financial,
accounting or legal characteristics or treatment of the Operative Documents and
that each party has obtained and relied solely upon the advice of its own tax,
accounting and legal advisors concerning the Operative Documents and the
accounting, tax, financial and legal consequences of the transactions
contemplated therein.
SECTION 2.4 AMOUNTS DUE UNDER LEASE AND LOAN AGREEMENT. Anything else
herein, in the Loan Agreement or elsewhere to the contrary notwithstanding, it
is the intention of the Lessee and the Lessor that (i) during the period from
the Closing Date to the earlier to occur of the Completion Deadline or the
Completion Date, payment of interest and Contribution Return on each Loan
Payment Date shall be made from Advances made by the Lender, as provided in
SECTION 2.2(c) of this Participation Agreement, (ii) from and after the earlier
to occur of the Completion Date or the Completion Deadline, the Lessee shall be
obligated, pursuant to the terms of the Lease, to pay Basic Rent in respect of
the Notes and the Contribution, and the amount and timing of that portion of the
installments of Basic Rent due and payable from time to time from the Lessee
under the Lease shall be equal to the payments due and payable with respect to
principal and interest on the Notes and the Contribution Return due and payable
on each Interest Payment Date, (iii) if the Lessee elects the Purchase Option or
becomes obligated to purchase the Leased Property under the Lease, the sum of
(A) the principal amount of the Notes then Outstanding, all interest accrued
thereon, and all other obligations of the Lessee owing to the Lessor and the
Lender under the Operative Documents plus (B) the outstanding Contribution, all
accrued and unpaid Contribution Return prorated to the date of payment, and
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all other obligations of the Lessee owing to the Lessor under the Operative
Documents, shall be paid in full by the Lessee and (iv) upon an Event of
Default resulting in an acceleration of the Lessee's obligation to purchase
the Leased Property under the Lease, the amounts then due and payable by the
Lessee under the Lease shall include the sum of (A) all amounts necessary to
pay in full the Loans, accrued interest and all other obligations of the
Lessee owing to the Lender under the Operative Documents plus (B) the
outstanding Contribution, all accrued and unpaid Contribution Return prorated
to the date of payment, and all other obligations of the Lessee owing to the
Lessor under the Operative Documents, PROVIDED that (vi) in the event Lessee
effectively exercises the Remarketing Option pursuant to the provisions of
SECTION 15.6 of the Lease and duly and timely fulfills the provisions of
clauses (i) through (xiii) of SECTION 15.6 of the Lease, Lessee's obligations
shall be limited as provided in SECTION 15.6 of the Lease; PROVIDED FURTHER,
HOWEVER, that (A) payment of the Lease Balance in connection with the clauses
(iii) and (iv) above, shall satisfy any remaining obligation for the payment
of Basic Rent and (B) in the event that, as a result of a Loan Event of
Default which is not related to the occurrence of an Event of Default or
Potential Event of Default, the outstanding principal of, and accrued
interest on, the Loans becomes (automatically or as a result of the Lender's
exercise of its remedies under SECTION 5.1 of the Loan Agreement) immediately
due and payable and no Event of Default or Potential Event of Default has
occurred and is then continuing, the Lessee shall not be responsible for the
payment of (and such amounts shall not be deemed to be Basic Rent of
Supplemental Rent or included in the Lease Balance for any purpose) the
following costs and charges which may become payable as a result of the Loan
Event of Default: (i) any additional interest payable as a result of the
application of the Overdue Rate pursuant to the provisions of SECTION 2.5 of
the Loan Agreement, or (ii) any other costs and expenses of the Lender
incurred by the Lender in the collection or enforcement of the Note and any
other obligations of the Lessor to the Lender under the Loan Agreement. The
foregoing notwithstanding, the parties hereto acknowledge and agree that the
obligations of the Lessor (including its members, incorporators,
stockholders, directors, officers, employees and agents) hereunder, under the
Loan Agreement, the Lease and the other Operative Documents are non-recourse
as provided in SECTION 4.2 of the Loan Agreement and SECTION 18.12 of the
Lease.
SECTION 2.5 CONTROLLING AGREEMENTS. In the event of any conflict between
this Participation Agreement and any other Operative Document, this
Participation Agreement shall control. In the event of any conflict between the
Lease and any other Operative Document to which the Lessee is not a party, the
Lease shall control.
SECTION 2.6 PERMITTED APPLICATIONS OF LOAN PROCEEDS. The parties hereto
agree that the Lessee may apply the Contribution and the proceeds of the Loans
made under the Loan Agreement for the payment (or the reimbursement by the
Lessee of itself for the payment) of any or all of the following items (any
combination or all of the items together, the "Development Costs"): (i) costs of
acquisition of the Land or any part thereof, including, without limitation, all
costs reasonably related thereto, (ii) costs of Construction of the
Improvements, including costs related to letters of credit, surety bonds,
security deposits or other security in connection with the Construction, any
municipal sewer or utility contract, any permit or consent for or from any
Governmental Authority or other Person, or any other obligation or requirement
relating to the Construction, (iii) interest on the Loans and Contribution
Return with respect to the Contribution (but only to the extend and pursuant to
the procedures set forth in SECTION 2.2 (c) hereof and (iv) "soft costs" related
to any of the foregoing, including architect's fees, brokerage fees, engineering
fees, consulting and development fees to the Amend Group, permit and license
fees and charges, travel and related expenses, testing, survey costs, filing and
recording fees, charges, taxes and other imposition of any governmental
authority having jurisdiction, title charges and attorneys' fees and other
related costs and expenses properly attributable to any of
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the foregoing Development Costs. The Lessee covenants not to use any of the
proceeds of Loan Advances or Contribution Advances to pay, or reimburse
itself for paying, for trade fixtures, personal property or equipment which
does not constitute part of the Improvements, or for working capital.
SECTION 2.7 COVENANTS CONCERNING CONSTRUCTION.
(a) CHANGES IN CONSTRUCTION DOCUMENTS. Except for Permitted Change
Orders, no change will be made in the Plans and Specifications, the terms and
conditions of the Construction Contract, or the identity of the General
Contractor without the prior written consent of the Lender. The Lender's
approval of the Plans and Specifications shall be for lending purposes only and
shall not constitute an assumption of liability by the Lender with respect to
the Lessee, the General Contractor, or any other present or future tenant,
occupant or purchaser of the Leased Property.
(b) CONDUCT OF THE CONSTRUCTION. Construction of the Improvements shall
commence within 90 days after the Closing Date. All Improvements shall be
completed prior to the Completion Deadline. In the event of a Construction
Force Majeure Event, the Completion Deadline shall be extended by a period of
time equal to the Construction Force Majeure Event, but in no event to a date
later than June 1, 1999. All Improvements will be constructed substantially in
accordance with the Plans and Specifications and in compliance with all
Applicable Laws. All Improvements will be located entirely upon the Land.
Title to the Leased Property will, during the Construction and on the Completion
Date, be free from all liens, claims, and encumbrances, except for those created
by or arising under the Operative Documents, taxes and assessments which are a
lien but not yet due and payable, liens that are bonded off in accordance with
Applicable Law within 30 days of the filing of such lien, and in any event prior
to the commencement of an action to foreclose on such lien, and any other liens
or exceptions which are approved in writing by the Lender.
(c) INSPECTIONS OF CONSTRUCTION RECORDS. During normal business hours and
at any time an Event of Default has occurred as is continuing, the Lessee will
make available for inspection by a duly authorized representative of the Lender
any of the Lessee's and the General Contractor's books and records insofar as
they relate to the Leased Property at such times as requested by the Lender when
requested to do so and will furnish to the Lender any information regarding its
business affairs and its financial condition.
(d) REIMBURSEMENTS. The Lessee will reimburse the Lender promptly for all
construction loan costs paid by the Lender in accordance with the Operative
Documents, including but not limited to the costs of title insurance policies,
title examinations, recording fees, surveys, fees of counsel for services
rendered and out-of-pocket expenses for which the Lender is entitled to be
reimbursed pursuant to the Operative Documents, all of which the Lender is
authorized to deduct from the proceeds of disbursements hereunder.
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(e) FIXTURES AND EQUIPMENT. No personal property of any kind intended to
be part of the Improvements or paid for with the proceeds of Advances will be
purchased or acquired by the Lessee under any conditional sales contract or
security agreement or any lease agreement, and all such personal property will
be fully paid for before payment therefor becomes past due or in any event
within 30 days after delivery thereof; PROVIDED, HOWEVER, that the foregoing
shall not apply to amounts withheld and unpaid on account of bona fide disputes
with the suppliers thereof.
(f) INSPECTIONS OF THE CONSTRUCTION. The Lessee shall allow the Lender
and its agents, at all times during normal business hours and at any time that
an Event of Default has occurred and is continuing, (i) the right of entry and
free access to the site of the Improvements and the right to inspect all work
done, labor performed and materials furnished in and about the Improvements; and
(ii) to require to be replaced or otherwise corrected any material or work that
does not comply with the Plans and Specifications therefor.
(g) INSURANCE PRIOR TO THE COMPLETION DATE. The Lessee shall submit to
the Lender for its review and approval evidence of builder's risk insurance
coverage or permanent insurance coverage appropriate and satisfactory to the
Lender, on the Leased Property. All insurance policies shall name the Lessee
and the Lender as an additional insured and shall be issued by carriers with a
BEST'S INSURANCE REPORTS policy holder's rating of A+ and a financial size
category acceptable to the Lender and shall include a standard mortgagee clause
(without contribution) in favor of and acceptable to the Lender. The policies
shall provide for the following coverages and any other coverages that the
Lender may from time to time reasonably require:
(1) Builder's "all risk" hazard coverage in the amount of the
replacement cost of the Improvements and all other improvements
and personality on the Leased Property. If the policy is written
on a coinsurance basis, the policy must contain an agreed amount
endorsement as evidence that the coverage is in an amount
sufficient to insure the full amount of the Loan. Such insurance
shall be 100% non-reporting policies;
(2) Public liability insurance in such amounts (at least $5,000,000
for personal injury, death or property damage arising out of any
one accident) and with a deductible satisfactory to the Lender;
(3) Flood hazard coverage, if appropriate, in an amount acceptable to
the Lender and with a deductible acceptable to the Lender; and
(4) Worker's compensation insurance (including employer's liability
insurance, if available and requested by the Lender) for all
employees, if any, of the Lessee and for all employees, if any,
of the Lessee's managing agent(s) and contractor(s) engaged on or
with respect to the Leased Property or the Construction in such
amounts as are satisfactory to the
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Lender, or, if such limits are established by law, in such amounts.
The Lessee may satisfy the requirements of this clause (4) with
respect to employees of the Lessee's agents and contractors through
separate policies provided by each agent or contractor.
The initial policies shall be prepaid and the Lessee shall deliver to the Lender
and the Lessee prior to the Closing Date copies of all such policies, together
with original certificates therefor. Copies of all renewal policies and
original certificates therefor shall be deposited with the Lender as evidence of
such insurance. All policies shall contain provisions for thirty days' written
notice to the Lender prior to expiration or cancellation. The Lessee expressly
agrees to permit the Lender to maintain insurance in force by payment of
premiums from undisbursed Loan proceeds. The Lender hereby agrees that the
insurance coverages required to be obtained and maintained by the Lessee
hereunder may be obtained and maintained in the form of blanket insurance
policies, covering both the Leased Property and other properties and projects
owned by the Lessee. Written evidence satisfactory to the Lender of the
existence and coverage of such blanket policies shall be delivered to the Lender
prior to the Closing Date.
(h) NOTICE OF DEFAULT. The Lessee shall notify the Lender in writing
within ten (10) days of the occurrence thereof of any Default or Event of
Default.
(i) CONSTRUCTION BANK ACCOUNT. The Lessee may, at its option, maintain
with the Lender a commercial operating account. All Loan Advances made by the
Lender and all Contribution Advances issued by the Lender on behalf of the
Lessor shall be made by depositing the amount thereof directly into such
operating account.
(j) COMPLIANCE WITH TEXAS PROPERTY CODE. The Lessee shall fully comply
with Section 53.101, 53.106 and 53.124(c) of the Texas Property Code.
SECTION 3
CONDITIONS PRECEDENT; DOCUMENTS
SECTION 3.1 CONDITIONS TO THE OBLIGATIONS OF THE LESSOR AND THE LENDER ON
THE CLOSING DATE. The obligations of the Lessor and the Lender to carry out
their respective obligations under SECTION 2 of this Participation Agreement to
be performed on the Closing Date shall be subject to the fulfillment to the
satisfaction of, or waiver by, each such party (acting directly or through its
counsel) on or prior to the Closing Date of the following conditions precedent:
(a) DOCUMENTS. The following documents shall have been executed and
delivered by the respective parties thereto:
(i) PARTICIPATION AGREEMENT. Counterparts of this Participation
Agreement, duly executed by the parties hereto, shall have been
delivered to each of the parties hereto.
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(ii) DEED. The Deed, duly executed by the Grantor thereunder
and acknowledged in form for recording, conveying title in fee simple
to the Land and the Improvements to the Lessor, shall have been
delivered to the Lessor;
(iii) LEASE. The original of the Lease (substantially in the
form of EXHIBIT A), together with the Memorandum of Lease, each duly
executed by the Lessee and the Lessor, provided that the Memorandum of
Lease shall be executed in recordable form, shall have been delivered
to the Lender.
(iv) LOAN AGREEMENT. Counterparts of the Loan Agreement
(substantially in the form of EXHIBIT B), duly executed by the Lessor
and the Lender, shall have been delivered to each of the Lessor and
the Lender;
(v) MORTGAGE. Counterparts of the Mortgage (substantially in
the form of EXHIBIT C), duly executed by the Lessee and in recordable
form, shall have been delivered to each of the Lessor and the Lender;
(vi) ASSIGNMENT OF LEASE AND RENTS. Counterparts of the
Assignment of Lease and Rents (substantially in the form of EXHIBIT
D), duly executed by the Lessor, consented to by the Lessee and in
recordable form, shall have been delivered to the Lender;
(vii) NOTES. The Notes (substantially in the form attached
as an exhibit to the Loan Agreement) payable to the order of the
Lender, duly executed by the Lessor, shall have been delivered to the
Lender;
(viii) NON-DISTURBANCE AND ATTORNMENT AGREEMENT. Counterparts
of the Non-Disturbance and Attornment Agreement (substantially in the
form of EXHIBIT E) duly executed by the Lessee, Lessor and Lender and
in recordable form shall have been delivered to the Lender, the Lessor
and the Lessee;
(ix) SECURITIES ACCOUNT. Counterparts of the Investment
Property Security Agreement (substantially in the form of EXHIBIT F-1)
duly executed by the Lessee and Lender and the Account Control
Agreement (substantially in the form of EXHIBIT F-2) shall have been
delivered to the Lender;
(x) SECURITY AGREEMENT AND ASSIGNMENT. The Security Agreement
and Assignment (substantially in the form of EXHIBIT G), duly executed
by the Lessee, with acknowledgements and consents thereto satisfactory
to the Lender, shall have been delivered to the Lender.
(xi) GUARANTY. The Limited Guaranty (substantially in the form
of EXHIBIT H), duly executed by the Lessee, shall have been delivered
to the Lender.
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(xii) TITLE AND TITLE INSURANCE. The Lessor and the Lender
shall receive from the Title Insurance Company, respectively, a Texas
form of Owner's Policy in the amount of the Estimated Development
Costs (the "Owner's Title Policy") and a Texas form of Loan Policy of
title insurance in the amount of Loan B (the "Lender's Title Policy"),
each issued by the Title Insurance Company, in each case, each
acceptable in form and substance to Lessee, the Lessor and the Lender
(the Owner's Title Policy and the Lender's Title Policy, collectively
the "Title Policies"). The Title Policies (A) shall be dated as of
the Closing Date, and (B) to the extent permitted under Applicable
Law, shall include coverage over the general exceptions to such Title
Policy and shall contain such affirmative endorsements as to easements
and rights-of-way, encroachments, the nonviolation of covenants and
restrictions, survey matters, creditor's rights (if available) and
other matters as the Lender and the Lessor shall reasonably request
and is available in the State of Texas.
(xiii) SURVEY. The Lessee shall have delivered, or shall have
caused to be delivered, to the Lessor and the Lender, at the Lessee's
expense, an accurate survey of the Leased Property certified to the
Lessor and the Lender conforming in all material respect to Category
1a, Condition II of the Texas Survey Manual minimum detail standards
and otherwise satisfactory to the Lessor and the Lender and showing no
state of facts unsatisfactory to the Lessor or the Lender and prepared
within sixty (60) days of the Closing Date by a licensed surveyor
selected by Lessee and reasonably satisfactory to Lender. Such survey
shall (A) be acceptable to the Title Insurance Company, (B) show no
encroachments on the Land by structures owned by others, and no
encroachments from any part of the Leased Property onto any land owned
by others, except for such encroachments which, in the judgment of the
Lender and its counsel, do not impair in any material respect the
value of the Leased Property or the suitability of the Leased Property
for its intended use, and (C) disclose no state of facts objectionable
to the Lessor, the Lender or the Title Insurance Company;
(xiv) LESSEE'S RESOLUTIONS AND INCUMBENCY CERTIFICATE, ETC.
Each of the Lender and the Lessor shall have received (A) a
certificate of the Secretary or an Assistant Secretary of the Lessee
attaching and certifying as to (1) the resolution of the Lessee's
Board of Directors (or an appropriate committee of such Board) duly
authorizing the execution, delivery and performance by the Lessee of
each Operative Document to which the Lessee is or will be a party, (2)
the incumbency and signatures of Persons authorized to execute and
deliver Operative Documents on the Lessee's behalf, (3) the Lessee's
certificate of incorporation, certified as of a recent date by the
Secretary of State of the state of the Lessee's incorporation and (4)
the Lessee's by-laws and (B) a good standing certificate for the
Lessee from the appropriate officer of the State of Texas;
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(xv) RECORDING FEES; TRANSFER TAXES. To the extent not
covered by the Lender's Title Policy, the Lender shall have received
satisfactory evidence of the payment by the Lessee of all recording
and filing fees and taxes with respect to any recordings or filings
made of the Memorandum of Lease, the Mortgage, the Assignment of Lease
and Rents and the Subordination and Nondisturbance Agreement;
(xvi) OPINION OF LESSEE'S COUNSEL. The opinion of Locke
Purnell Rain Harrell, dated the Closing Date, and being substantially
in the form set forth in EXHIBIT I and containing such other matters
as the parties to whom such opinion is addressed shall reasonably
request, shall have been delivered and addressed to each of the Lessor
and the Lender;
(xvii) LESSOR'S RESOLUTION AND INCUMBENCY CERTIFICATE. The
Lender shall have received a certificate of the managing member of the
Lessor attaching and certifying as to (A) the managing member's
resolution authorizing the execution, delivery and performance by it
of each Operative Document to which the Lessor is or will be a party
and (B) the incumbency and signatures of Person(s) authorized to
execute and deliver such documents on the Lessor's behalf;
(xviii) OPINION OF LESSOR'S COUNSEL. The Opinion of Ropes and
Gray, Boston, Massachusetts dated the Closing Date, substantially is
the form of EXHIBIT J shall have been delivered and addressed to each
of the Lessee and the Lender;
(xix) ENVIRONMENTAL REPORT. The Lender and the Lessor shall
have received and approved (A) the Environmental Site Assessment dated
July 31, 1997, prepared by ATC Associates, Inc. which shall certify
results related to toxic and other hazardous substances on the Leased
Property and (B) a reliance letter from ATC Associates, Inc. stating
that Lender and Lessor may rely upon such Environmental Site Report;
(xx) UTILITIES. Evidence that all utility services necessary
for construction and use of the Improvements (including without
limitation, electric, gas, telephone, water and sewer service) are
available to the Leased Property, and the Lessee has the right to
connect to and use all utility services without restriction; and that
all necessary easements to provide such utility services to the
Improvements have been obtained;
(xxi) ZONING. Evidence of compliance with applicable zoning
ordinances or similar land use restrictions;
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(xxii) GOVERNMENTAL AUTHORIZATIONS. All authorizations, if
any, required by an governmental authority for the operation of the
Leased Property as a headquarters and office facility, which are
presently procurable;
(xxiii) ESTIMATED DEVELOPMENT COSTS; APPROVED BUDGET. The
Lessee shall deliver an Officer's Certificate certifying Lessee's best
estimate of the Estimated Development Costs for the Construction of
the Improvements, presented in reasonable detail, in form and
substance acceptable to the Lender, and setting forth the Approved
Budget for such Construction;
(xxiv) ARCHITECT CERTIFICATE. Certification from an Architect
approved by the Lender, substantially is the form of EXHIBIT K shall
have been delivered to each of the Lessor and the Lender; and
(xxv) EVIDENCE OF INSURANCE. The Lessor and the Lender have
received from the Lessee certificates of insurance on form ACORD 27
evidencing compliance with the provisions of both SECTION 2.7(g)
hereof and ARTICLE IX of the Lease (including the naming of the Lender
as additional insured or loss payees with respect to such insurance),
in form and substance reasonably satisfactory to the Lender;
(b) LITIGATION. No action or proceeding shall have been instituted
or, to the Lessee's knowledge, threatened nor shall any governmental action,
suit, proceeding or investigation be instituted or, to the Lessee's knowledge,
threatened before any Governmental Authority, nor shall any order, judgment or
decree have been issued or proposed to be issued by any Governmental Authority,
to set aside, restrain, enjoin or prevent the performance of this Participation
Agreement or any of the other Operative Documents or any transaction
contemplated hereby or thereby or which would materially adversely affect the
Leased Property or any transaction contemplated by the Operative Documents or
which would result in a Material Adverse Effect.
(c) LEGALITY. In the opinion of the Lender, the Lessor or their
respective counsel, the transactions contemplated by the Operative Documents
shall not violate any Applicable Law, and no change shall have occurred or been
proposed in Applicable Law that would make it illegal for the Lender or the
Lessor to participate in any of the transactions contemplated by the Operative
Documents.
(d) NO EVENTS. (i) No Default, Event of Default, Event of Loss or
Event of Taking shall have occurred and be continuing and (ii) no action shall
be pending or, to the Lessee's knowledge, threatened by a Governmental Authority
to initiate a Condemnation or an Event of Taking.
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(e) REPRESENTATIONS. Each representation and warranty of the parties
hereto or to any other Operative Document contained herein or in any other
Operative Document shall be true and correct in all material respects as though
made on and as of the Closing Date.
(f) NO MATERIAL ADVERSE EFFECT. There shall not have occurred any
event having a Material Adverse Effect since June 30, 1997.
(g) FEES AND TRANSACTION EXPENSES. The Lessee shall have paid (i)
the fee owed to the Financial Advisor and (ii) the reasonable fees and expenses
of the Lessor, the Lender and their respective counsel.
SECTION 3.2 CONDITIONS TO SUBSEQUENT FUNDINGS. Notwithstanding anything
to the contrary contained herein, or in any other Operative Document, neither
the Lender nor the Lessor shall have any obligation to make any Loan Advance or
Contribution Advance, as the case may be, pursuant to the Funding Requisition
following the Initial Loan Advance, unless each of the following conditions
shall have been satisfied or waived by the Lender with respect to such Funding:
(a) DELIVERIES. On or prior to each Funding subsequent to the
Initial Loan Advance, the Lessee shall deliver, or cause to be delivered, the
following:
(i) PLANS AND SPECIFICATIONS. Detailed architectural,
structural, mechanical, and electrical Plans and Specifications for
all Improvements to be constructed, to the extent not already
delivered, to the Lender, PROVIDED, HOWEVER, that no Advance shall be
required to be made for any portion of the hard costs for Construction
of the Improvements until the Plans and Specifications for such
portion of the Improvements shall have been delivered to and approved
by the Lender;
(ii) TITLE POLICY ENDORSEMENT. If applicable, a endorsement to
the Title Policies (A) indicating that since the last Funding Date as
to which a Funding was made there has been no change in the state of
title and no survey exceptions not theretofore approved by the Lessor
(PROVIDED, HOWEVER, Lessor's approval shall not be unreasonably
withheld or delayed for utility easements that will serve the
Improvements or that will not encroach on the Improvements) and the
Lender and (B) increasing the coverage of the Title Policies by an
amount equal to the Funding then being made so that the total amount
insured equals, in the case of the Lender's Title Policy, the total
amount of Loan Advances disbursed by the Lender, and in the case of
Lessor's Title Policy, a like amount plus in addition, the amount of
the Contribution, and, in each case, changing the effective date of
the Title Policies to the Funding Date. At the Lender's discretion,
any Funding may be made through the Title Insurance Company. Prior to
each Funding Date, the Lessee shall furnish the Title Insurance
Company with lien waivers as required by the Title Insurance Company
through the date which is 30 days prior
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to the time of the Funding. No title indemnities for purposes of
insuring around any objection to or condition of title shall be
issued or provided by the Lessee or the Lessor to the Title Insurance
Company without the prior written consent of the Lender;
(iii) ENGINEER'S CERTIFICATE. If applicable, a certification
from the Architect or from an engineer approved by the Lender that the
Improvements have been or are being erected within the property
boundaries of the Land and in accordance with all applicable set back
requirements and the approved site plan;
(iv) IMPROVEMENTS PERMIT. All building permits or other
authorizations required by any Governmental Authority for the
Construction to the extent not previously obtained;
(v) APPRAISAL. An appraisal report for the Land and the
Improvements (to be constructed thereon), which appraisal report shall
be prepared by an independent appraising firm, and be in form and
substance, acceptable to the Lender in its sole and absolute
discretion, whether in relation to all applicable regulatory
requirements imposed by The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 and the regulations thereunder, or
otherwise, shall have been delivered to the Lender. Such appraisal
shall state the Fair Market Sales Value of the Leased Property upon
completion of Construction (the "Appraised Value"). The cost of such
appraisal shall be borne solely by the Lessee.
(b) NO EVENTS. (i) No Default, Event of Default, Event of Loss or
Event of Taking shall have occurred and be continuing and (ii) no action shall
be pending or threatened by a Governmental Authority to initiate a Condemnation
or an Event of Taking;
(c) REQUISITION. Together with the Funding Requisition, the Lessee
shall submit to the Lender a requisition using AIA Form G702 and 703 accompanied
by a cost breakdown, the accuracy of which shall be certified by the Lessee, the
Architect and the General Contractor, and such other information and
documentation required hereunder. The Approved Budget shall serve as the
disbursement control for each line item. Neither the Lender nor the Lessor
shall be required to make a Funding for any line item in excess of the amount
shown in the Approved Budget for such line item; PROVIDED, HOWEVER, that the
Lender shall not unreasonably withhold its consent to a reallocation of amounts
within line items in the Approved Budget (other than the line item for interest
reserve) as long as the total cost of the Construction does not increase;
(d) TIMING. Funding Requisitions after the Initial Loan Advance
shall not be made more often than once a month and the total amount of all
Fundings in respect of Construction shall not at any time exceed an amount equal
to the sum of the hard costs of the
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work completed to date as certified by the Architect on the aforesaid AIA
draw request forms and the soft costs incurred. The Lender reserves the right
to review and approve invoices for all hard and soft costs. Prior to each
Advance, the Lender or its agents may inspect the Leased Property to verify
that the related Funding Requisition accurately reflects the amount of the
Construction with respect thereto;
(e) LOAN OUT OF BALANCE. If, in the sole judgment of the Lender, and
determined at any time while the Loans are outstanding, the cost of the
Construction increases, the Lessee shall be required to invest the increased
amount in the Construction or deposit such increased amount with the Lender in
an account pledged to the Lessor as security for the Lease and other Operative
Documents in a manner reasonably satisfactory to the Lender or to provide the
Lender such other assurances as to the availability of the funds as subject to
the Lender's approval prior to any Loan Advance;
(f) COMPLETION DEADLINE. If at any time the Lender shall, in its
sole judgment, estimate and give notice to the Lessee that substantial
completion of any Construction will not occur on or before the Completion
Deadline, then neither the Lender nor the Lessor shall have any obligation to
make further Advances until such time as the Lessee shall have delivered to the
Lender evidence satisfactory to Lender that substantial completion of all
Improvements will occur on or before the Completion Deadline;
(g) APPROVAL OF CONTRACTS. Neither the Lender nor the Lessor shall
have any obligation to make any Advances for any Development Costs due from the
Lessee under a contract or subcontract for the Construction if such contract or
subcontract is required to be, but has not been, approved by the Lender and such
approval by the Lender has not been unreasonably withheld or delayed. Although
the Lessee shall not be required to provide to the Lender the subcontracts for
the Construction as a condition precedent to making the Initial Funding, the
Lender reserves the right, upon written notice to the Lessee, to require the
Lessee to provide such subcontracts for subsequent Advances;
(h) COMPLIANCE WITH PLANS AND SPECIFICATIONS. If the Lender or the
Lessor should at any time determine that any part of the work performed on, or
materials incorporated into, any Improvements does not comply in any material
respect with the related Plans and Specifications, whether or not the
Development Cost of any such work or materials shall have been included in a
Funding Requisition theretofore made, then Lender or Lesser, as the case may be,
shall give notice thereof to the Lessee and neither the Lender nor the Lessor
shall have any obligation to make any further Advances until such work is
corrected, or material is changed, to comply with such Plans and Specifications
and the Lender and the Lessor have received satisfactory evidence to them of
such change and compliance, and Lender and the Lessor shall respectively have
the right to offset against the amount of any subsequent Advance the cost of the
nonconforming work or materials included in prior Fundings. Notwithstanding the
foregoing, the Lender and the Lessor shall continue to make Advances for other
work and materials if, prior to the determination by the Lender or the Lessor of
such nonconformance, the Lessee and/or the Architect therefor have previously
made a similar determination, and the
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Lessee has delivered to the Lender and the Lessor evidence reasonably
satisfactory to the Lender and the Lessor that the General Contractor
therefor has agreed to correct such work or to change such materials without
requesting an Advance for the cost thereof, and the General Contractor
diligently pursues such work and changes to completion within 90 days after
the determination of the need for corrective action;
(i) DEFECTS IN CONSTRUCTION. If the Lender or the Lessor should at
any time reasonably determine that any part of the work performed on any
Improvements has not been performed in a good and workmanlike manner, whether or
not the Development Cost of any such work shall have been included in a Funding
Requisition theretofore made, then Lender or Lesser, as the case may be, shall
give notice thereof to the Lessee and neither the Lender nor the Lessor shall
have any obligation to make any further Advances until such work is corrected so
as to have been performed in a good and workmanlike manner and the Lender and
the Lessor have received satisfactory evidence of such correction, and Lender
and the Lessor shall have the right to offset against the amount of any
subsequent Advances by the cost of the nonconforming work or materials included
in prior Fundings. Notwithstanding the foregoing, the Lender and the Lessor
shall continue to make Advances for other work and materials if, prior to the
determination by the Lender or the Lessor of such nonconformance, the Lessee
and/or the Architect therefor have previously made a similar determination, and
the Lessee has delivered to the Lender and the Lessor evidence reasonably
satisfactory to the Lender and the Lessor that the General Contractor therefor
has agreed to correct such work or to change such materials without requesting
an Advance for the cost thereof, and the General Contractor diligently pursues
such work and changes to completion within 90 days after the determination of
the need for corrective action; and
(j) COMPLIANCE WITH CODES. If the Lender or the Lessor should at any
time determine that any part of the work performed on, or materials incorporated
into, any Improvements does not comply with all applicable building codes or
other Applicable Law, whether or not the Development Cost of any such work or
materials shall have been included in a Funding Requisition theretofore made,
then Lender or Lessor, as the case may be, shall give notice thereof to Lessee
and neither the Lender nor the Lessor shall have any obligation to make any
further Advances until such work is corrected, or material is changed, to cause
the same to comply with all applicable building codes or other Applicable Law
and the Lender and the Lessor have received satisfactory evidence of such
correction or change and of such compliance, and the Lender and the Lessor shall
have the right to offset against the amount of any subsequent Advances for other
work and materials by the cost of the nonconforming work as materials included
in prior Fundings. Notwithstanding the foregoing, the Lender and the Lessor
shall continue to make Advances for other work and materials if, prior to the
determination by the Lender or the Lessor of such nonconformance, the Lessee
and/or the Architect have previously made a similar determination, and the
Lessee has delivered to the Lender and the Lessor evidence reasonably
satisfactory to the Lender and the Lessor that the General Contractor therefor
has agreed to correct such work or to change such materials without requesting
an Advance for the cost thereof, and the General Contractor diligently pursues
such work and changes to completion within 90 days after the determination of
the need for corrective action.
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(k) SECURITIES ACCOUNT. To the extent that the market value of the
securities held in the Securities Account (together with any other funds held
therein, hereinafter called the "Account Balance") shall be less than the
Collateral Requirement on the date five (5) Business Days immediately prior to
the first Advance made after delivery of the appraisal pursuant to SECTION
3.2(a)(v) hereof, the Lessee shall have delivered to Banc One Investment
Advisors at 1111 Polaris Parkway, Columbus, Ohio 43271 funds in amount not less
than the amount by which the Collateral Requirement exceeds the Account Balance
of the Securities Account on such fifth Business Day prior to the aforesaid
Advance, which funds shall be held in the Securities Account and invested, all
pursuant to the Investment Property Security Agreement.
SECTION 3.3 COMPLETION DATE CONDITIONS. The occurrence of the Completion
Date shall be subject to the fulfillment or satisfaction of, or waiver by, each
party hereto (acting directly or through its counsel) of the following
conditions precedent:
(a) TITLE POLICY ENDORSEMENTS. The Lessee shall have furnished to
the Lender the following endorsements to its related Title Policy, to the extent
available under the Texas Insurance Code and the Basic Manual for Rates, Rules
and Forms for Title Insurance in Texas (each of which shall be subject to no
exceptions other than those set forth in Schedule B to its Title Policy, or
those which may have been approved by Lender): (i) a date-down endorsement
(redating and confirming the coverage provided under the related Title Policy
and each endorsement thereto) and (ii) an endorsement deleting the "pending
disbursements" clause.
(b) CONSTRUCTION COMPLETE. The Construction of the Improvements
shall have been completed substantially in accordance with the Plans and
Specifications and all Applicable Laws. All fixtures, equipment, materials and
other property contemplated under the Plans and Specifications to be
incorporated or installed in the Leased Property shall have been incorporated or
installed free and clear of all liens except for Permitted Liens.
(c) LESSEE CERTIFICATION. The Lessee shall have furnished the Lessor
and the Lender with both (i) a certification of the Lessee that:
(A) all amounts owing to third parties for the Construction have
been paid in full (other than contingent obligations for which the
Lessee has made adequate reserves or claims being defended in good
faith), and to Lessee's knowledge no litigation or proceedings are
pending, or to the best of the Lessee's knowledge are threatened,
against the Leased Property or the Lessee which would materially
adversely affect (1) the enforceability or priority of this
Participation Agreement or the other Operative Documents and (2) the
ability of the Lessee to fully perform its obligations pursuant to and
as contemplated by the terms and provisions of this Participation
Agreement and the other Operative Documents;
(B) all consents, licenses and permits and other governmental
authorizations or approvals required for the Construction and
operation of the Leased Property have been obtained;
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(C) the Leased Property has available all services of public
facilities and other utilities necessary for use and operation of the
Leased Property for its intended purposes including, without
limitation, adequate water, gas and electrical supply, storm and
sanitary sewerage facilities, telephone and other required public
utilities and means of access between the Improvements and public
highways for pedestrians and motor vehicles;
(D) all agreements, easements and other rights, public or
private, which are necessary to permit the lawful use and operation of
the Leased Property as the Lessee intends to use the Leased Property
under the Lease and which are necessary to permit the lawful intended
use and operation of all then intended utilities, driveways, roads and
other means of egress and ingress to and from the same have been
obtained and are in full force and effect and the Lessee has no
knowledge of any pending modification or cancellation of any of the
same, and the use of the Leased Property does not depend on any
variance, special exception or other municipal approval, permit or
consent that has not been obtained for its continuing legal use;
(E) the Construction has been completed substantially in
accordance with the Plans and Specifications and all Applicable Laws
and the Leased Property is ready for occupancy and operation; and
(F) the Leased Property is in compliance with all applicable
zoning laws, regulations, variances and waivers; and
(ii) copies of (A) all final lien waivers regarding the Construction,
together with sworn statements from contractors, subcontractors and material
suppliers and (B) true and complete copies of an "as built" or "record" set of
the Plans and Specifications, and a plat of survey of the Leased Property "as
built" showing all paving, driveways, fences and exterior improvements and
copies of all licenses and permits required by any Governmental Authority having
jurisdiction over the use and occupancy of the Leased Property and for the
operation thereof, including copies of a certificate or certificates of
occupancy for the Leased Property or other legally equivalent permission to
occupy the Leased Property from the Governmental Authority having jurisdiction.
(d) CUTOFF DATE. The Completion Date shall occur on or prior to the
Completion Deadline.
SECTION 3.4 CONDITIONS TO THE OBLIGATIONS OF THE LESSEE. The obligations
of the Lessee to lease from the Lessor the Leased Property and construct the
Project Alterations to the Improvements are subject to the fulfillment on the
Closing Date to the satisfaction of, or waiver by the Lessee of, the following
conditions precedent:
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(a) GENERAL CONDITIONS. The conditions set forth in SECTIONS 3.1
that require fulfillment by the Lessor and the Lender shall have been
satisfied.
(b) LEGALITY. In the opinion of the Lessee or its counsel, the
transactions contemplated by the Operative Documents shall not violate any
Applicable Law, and no change shall have occurred, or, with respect to tax
laws, shall have been proposed, in Applicable Law that would make it illegal
for the Lessee to participate in any of the transactions contemplated by the
Operative Documents.
SECTION 4
REPRESENTATIONS AND COVENANTS
SECTION 4.1 REPRESENTATIONS OF THE LESSEE. Effective as of the date of
execution hereof and as of the Closing Date, the Lessee represents and
warrants to each of the other parties hereto as follows:
(a) ORGANIZATION; CORPORATE POWERS. The Lessee (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (ii) is duly qualified as a foreign corporation
and in good standing under the laws of each other jurisdiction where such
qualification is required and where the failure to be duly qualified and in
good standing would have a Material Adverse Effect and (iii) has all
requisite corporate power and authority to own, operate and encumber its
property and assets and to conduct its business as presently conducted and as
proposed to be conducted in connection with and following the consummation of
the transactions contemplated by the Operative Documents.
(b) AUTHORITY. The Lessee has the requisite corporate power and
authority to execute, deliver and perform the Operative Documents executed or
to be executed by it. The execution, delivery and performance (or recording
or filing, as the case may be) of the Operative Documents, and the
consummation of the transactions contemplated on the part of the Lessee
thereby, have been duly approved by the Board of Directors of the Lessee and
no other corporate proceedings on the part of the Lessee are necessary to
consummate the transactions so contemplated.
(c) DUE EXECUTION AND DELIVERY OF OPERATIVE DOCUMENTS. The
Operative Documents executed by the Lessee have been duly executed and
delivered (or recorded or filed, as the case may be) by the Lessee, and, in
each case, constitute its legal, valid and binding obligation, enforceable
against it in accordance with each such Operative Document of its respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or limiting creditors'
rights generally or by equitable principles generally.
(d) NO CONFLICT. The execution, delivery and performance of each
Operative Document to which it is a party by the Lessee and each of the
transactions contemplated thereby do not and will not (i) violate any
Applicable Law or Contractual Obligation of the Lessee the
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consequences of which violation, singly or in the aggregate, would have a
Material Adverse Effect, (ii) result in or require the creation or imposition
of any Lien whatsoever on the Leased Property (other than Permitted Liens) or
(iii) require any approval of stockholders which has not been obtained.
(e) GOVERNMENTAL CONSENTS. Except as have been made, obtained or
given, no filing or registration with, consent or approval of, notice to,
with or by any Governmental Authority is required to authorize, or is
required in connection with, the execution, delivery and performance by the
Lessee of the Operative Documents, the use of the proceeds of the Loans made
to effect the acquisition of the leasehold interest in the Land and the
Construction of the Improvements, or the legality, validity, binding effect
or enforceability of any Operative Document.
(f) GOVERNMENTAL REGULATION. The Lessee is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(g) REQUIREMENTS OF LAW. The Lessee is in compliance with all
Requirements of Law applicable to Lessee and its business, in each case where
the failure to so comply would have a Material Adverse Effect, either
individually or together with other such cases.
(h) RIGHTS IN RESPECT OF THE LEASED PROPERTY. The Lessee is not a
party to any contract or agreement to sell any interest in the Leased
Property or any part thereof other than pursuant to the Participation
Agreement, the Deed and the Lease.
(i) HAZARDOUS MATERIALS.
(i) Except as provided in the Environmental Site Assessment
delivered pursuant to Section 3.1(a)(xix) hereof, and except as in full
compliance with all Applicable Law, there are no Hazardous Materials present
at, upon, under or within the Leased Property or released or transported to
or from the Leased Property.
(ii) No Governmental Actions have been taken, or are in
process or have been threatened, which could reasonably be expected to
subject the Leased Property, the Lender or the Lessor to any Claims or Liens
under any Environmental Law which would have a materially adverse effect on
the Lessor, the Lender or the Leased Property.
(iii) The Lessee has or will obtain all Environmental Permits
necessary to operate the Leased Property in accordance with Environmental
Laws and is complying with and has at all times complied with all such
Environmental Permits.
(iv) Except as disclosed in Schedule I hereof, with respect
to the Leased Property, no notice, notification, demand, request for
information, citations, summons, complaint or order has been issued or filed
to or with respect to the Lessee, and no penalty has
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been assessed on the Lessee and no investigation or review is pending or
threatened by any Governmental Authority or other Person with respect to any
alleged violation or liability of the Lessee under any Environmental Law. No
material notice, notification, demand, request for information, citation,
summons, complaint or order has been issued or filed to or with respect to
any other Person, no material penalty has been assessed on any other Person
and no investigation or review is pending or threatened by any Governmental
Authority or other Person relating to the Leased Property with respect to any
alleged material violation or liability under any Environmental Law by any
other Person.
(v) The Leased Property and each portion thereof are
presently in compliance with all Environmental Laws, and, except as disclosed
in Schedule II hereof, there are no present or past facts, circumstances,
activities, events, conditions or occurrences regarding the Leased Property
(including, without limitation, the release or presence of Hazardous
Materials) that could reasonably be anticipated to (A) form the basis of a
Claim against the Leased Property, the Lender, the Lender or the Lessee, (B)
cause the Leased Property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law, (C) require
the filing or recording of any notice or restriction relating to the presence
of Hazardous Materials in the real estate records in the county or other
appropriate municipality in which the Leased Property is located or (D)
prevent or interfere with the continued operation and maintenance of the
Leased Property as contemplated by the Operative Documents.
(j) LEASED PROPERTY. The present condition and use of the Leased
Property conforms with all conditions or requirements of all existing permits
and approvals issued with respect to the Leased Property, and the present use
of the Leased Property and the Lessee's future intended use of the Leased
Property under the Lease does not violate any Applicable Law. No notices,
complaints or orders of violation or non-compliance have been issued or
threatened or contemplated by any Governmental Authority with respect to the
Leased Property or any present or intended future use thereof. All
agreements, easements and other rights, public or private, which are
necessary to permit the lawful use and operation of the Leased Property as
the Lessee intends to use the Leased Property under the Lease and which are
necessary to permit the lawful intended use and operation of all presently
intended utilities, driveways, roads and other means of egress and ingress to
and from the same have been, or in the reasonable judgment of the Lessee will
be, obtained and are in full force and effect and the Lessee has no actual
knowledge of any pending modification or cancellation of any of the same.
(k) TAXES. The Lessee and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings, and as to which there is no imminent threat of
forfeiture, and with respect to which the Lessee or
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a Subsidiary, as the case may be, has established adequate reserves in
accordance with GAAP. The Lessee knows of no basis for any other tax or
assessment that could reasonably be expected to have a Material Adverse
Effect. The charges, accruals and reserves on the books of the Lessee and
its Subsidiaries in respect of Federal, state or other taxes for all fiscal
periods are adequate.
(l) USE OF PROCEEDS; MARGIN REGULATIONS. The Lessee will apply
the proceeds of the Loans and the Contribution as set forth in SECTIONS
2.2(b) and 2.6. No part of the proceeds from the Loans or the Contribution
will be used, directly or indirectly by Lessee, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as
to involve the Lessee in a violation of Regulation X of said Board (12 CFR
224) or to involve any broker or dealer in a violation of Regulation T of
said Board (12 CFR 220).
(m) QUALIFICATION OF LESSEE REPRESENTATIONS. The representations
of the Lessee set forth in this Section are qualified by the conditions that
(i) all representations are made and given to the best of the Lessee's
knowledge after due inquiry, (ii) where a representation involves compliance
by the Lessee with an Applicable Law or an Environmental Law such
representation is deemed to be as to compliance by the Lessee in all material
respects with any such law and (iii) where a representation involves conduct
on the part of the Lessee that does not violate an Applicable Law or an
Environmental Law such representation is deemed to exclude Lessee's
non-material violations of any such law.
SECTION 4.2 REPRESENTATIONS AND COVENANTS OF THE LESSOR. Effective as
of the date of execution hereof and as of the Closing Date, the Lessor
represents and warrants to, and covenants with, the Lender and the Lessee as
follows:
(a) DUE ORGANIZATION; LIMITED PURPOSE. The Lessor is a limited
liability company duly organized and validly existing in good standing under
the laws of the State of Massachusetts; is duly qualified as a foreign
limited liability company and in good standing under the laws of the State of
Texas; and has full power, authority and legal right as a limited liability
company to execute, deliver and perform its obligations under this
Participation Agreement and each other Operative Document to which it is or
will be a party. The Lessor further represents, covenants and warrants that
(i) it has been formed and exists for the sole purpose of, and will not
engage in any business or other activity except as necessary in connection
with, acquiring and owning the Leased Property and taking the actions
contemplated on the Lessor's part under the Operative Documents and (ii)
except for obligations and indebtedness of the Lessor represented by and set
forth in the Operative Documents and except for obligations or indebtedness
of the Lessor arising directly or indirectly from the Lessee's failure to
discharge the Lessee's obligations under the Operative Documents, the Lessor
will not create, incur, suffer to be created or incurred, or guarantee any
obligation or indebtedness.
(b) DUE AUTHORIZATION; ENFORCEABILITY, ETC. The Participation
Agreement and each other Operative Document to which the Lessor is or will be
a party have been or will be
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duly authorized, executed and delivered by or on behalf of the Lessor and
are, or upon execution and delivery will be, legal, valid and binding
obligations of the Lessor enforceable against it in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general equitable principles.
(c) NO CONFLICT. The execution and delivery by the Lessor of this
Participation Agreement and each other Operative Document to which the Lessor
is or will be a party are not or will not, and the performance by the Lessor
of its obligations under each and will not, violate its certificate of
formation or Operating Agreement, do not and will not contravene any
Applicable Law and do not and will not contravene any provision of, or
constitute a default under, any Contractual Obligation of the Lessor, and the
Lessor possesses all requisite regulatory authority to undertake and perform
its obligations under the Operative Documents.
(d) LITIGATION. There are no pending or threatened actions or
proceedings against the Lessor before any court, arbitrator or administrative
agency that would have a material adverse effect upon the ability of the
Lessor to perform its obligations under this Participation Agreement or any
other Operative Documents to which it is or will be a party.
(e) LESSOR LIENS. No Lessor Liens or other Liens created by acts
or omissions of the Lessor (other than Liens created by the Operative
Documents) exist on the Closing Date on the Leased Property, or any portion
thereof, and the execution, delivery and performance by the Lessor of this
Participation Agreement or any other Operative Document to which it is or
will be a party will not subject the Leased Property, or any portion thereof,
to any Lessor Liens or other Liens created by the Lessor (other than by the
Operative Documents). Except for Liens against the Leased Property created by
the Operative Documents, Permitted Liens (other than Lessor Liens), Liens
(including Lessor Liens) arising directly or indirectly from the Lessee's
failure to discharge the Lessee's obligations under the Operative Documents,
the Lessor further represents and warrants that it will not create, suffer to
be created or permit any Liens on the Leased Property.
(f) EMPLOYEE BENEFIT PLANS. The Lessor is not and will not be
making its Contribution Advances hereunder, and is not performing its
obligations under the Operative Documents, with the assets of an "employee
benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title
I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code).
(g) GOVERNMENTAL REGULATION. The Lessor is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(h) USE OF PROCEEDS; MARGIN REGULATIONS. To the best of the
Lessor's knowledge, no part of the proceeds of the Notes will be used,
directly or indirectly, for the purpose of buying or carrying any margin
stock within the meaning of Regulation G of the
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Board of Governors of the Federal Reserve System (12 CFR 207), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Lessor in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220).
(i) LESSOR'S ACTIVITIES. The Lessor warrants and covenants that
(i) it has been formed and exists for the sole purpose of, and will not
engage in any business or other activity except as necessary in connection
with, acquiring and owning the Leased Property and taking the actions
contemplated on the Lessor's part under the Operative Documents, (ii) that it
shall not amend or permit an amendment of its Operating Agreement to permit
it to engage in any other activity or business without the consent of the
Lessee and the Lender, (iii) except for obligations and indebtedness of the
Lessor represented by and set forth in the Operative Documents and except for
obligations or indebtedness of the Lessor arising directly or indirectly from
the Lessee's failure to discharge the Lessee's obligations under the
Operative Documents, the Lessor will not create, incur, suffer to be created
or incurred, or guarantee any obligation or indebtedness, (iv) it shall not
merge or consolidate with any other entity, (v) it will not transfer any of
its assets except (A) in the form of cash dividends to its shareholders and
(B) transfers of the Leased Property pursuant to the provisions of the
Operative Documents, (vi) it will maintain its corporate existence and shall
not dissolve or liquidate, (vii) it will conduct its activities and affairs,
and shall maintain its assets, separate from those of any other Person, and
(viii) it shall have no assets other than the Leased Property, the Lease,
cash, notes receivables and other assets contemplated under this
Participation Agreement and the other Operative Documents.
(j) PAYMENT OF TAXES AND CLAIMS. The Lessor will file all tax
returns required to be filed in any jurisdiction and pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become
delinquent and all claims for which sums have become due and payable that
have or might become a Lien on properties or assets of the Lessor, provided
that the Lessor need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by the Lessor, or any
Person on its behalf, on a timely basis in good faith and in appropriate
proceedings or (ii) the nonpayment of all such taxes and assessments in the
aggregate could not reasonably be expected to have a material adverse effect
on the Lessee's ability to perform its obligations under the Operative
Documents.
(k) MAINTENANCE OF PROPERTIES. The Lessor will maintain and
keep, or cause to be maintained and kept, the Leased Property in good repair,
working order and condition (other than ordinary wear and tear), so that the
business carried on in connection therewith may be properly conducted at all
times.
(l) COVENANT TO SECURE NOTES EQUALLY. The Lessor covenants that,
if it or any Subsidiary shall create or assume any Lien upon any of its
property or assets, whether now owned or hereafter acquired, other than
Permitted Liens, it will make or cause to be made
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effective provision whereby the Notes will be secured by such Lien equally
and ratably with any and all other indebtedness thereby secured so long as
any such other indebtedness shall be so secured.
SECTION 4.3 COVENANT OF LENDER. Upon payment by Lessee of the purchase
price for the Leased Property pursuant to ARTICLE XV of the Lease, Lender
will release the lien of the Operative Documents against the Leased Property.
SECTION 4.4 TAX TREATMENT. (a) The parties hereto agree that it is the
Lessor's and Lessee's intention that for Federal, state and local income Tax
purposes (i) the Lease be treated as the repayment and security provisions of
a loan to the Lessee, all rights to the principal and interest of which have
been assigned by the Lessor to the Lender, (ii) the Lessee be treated as the
legal and beneficial owner entitled to any and all benefits of ownership of
the Property or any part thereof and (iii) all payments of Basic Rent during
the Lease Term be treated as payments of interest and principal, as the case
may be, to the Lender.
(b) The Lessee agrees that neither it nor any member of any affiliated
group of which it is or may become a member (whether or not consolidated or
combined returns are filed for such affiliated group for Federal, state or
local income Tax purposes) will at any time take any action, directly or
indirectly, or file any return or other document inconsistent with the
intended income Tax treatment set forth in SECTION 4.4 (a) hereof, and the
Lessee agrees that the Lessee and any such Affiliates will file such returns,
maintain such records, take such actions and execute such documents as may be
appropriate to facilitate the realization of such intended income Tax
treatment.
(c) The Lessor and the Lender each agree that, except to the extent
required by law, neither it nor any member of any affiliated group of which
it is or may become a member (whether or not consolidated or combined returns
are filed for such affiliated group for Federal, state or local income Tax
purposes) will at any time take any action, directly or indirectly, or file
any return or other document claiming, or asserting that it is entitled to
the income Tax benefits, deductions and/or credits which, pursuant to the
intended income Tax treatment set forth in SECTION 4.4 (a) hereof, would
otherwise be claimed or claimable by the Lessee, and that it and any such
Affiliates will at the expense of the Lessee file such returns, maintain such
records, take such actions, and execute such documents (as reasonably
requested by the Lessee from time to time) as may be appropriate to
facilitate the realization of, and as shall be consistent with, such intended
income Tax treatment, other than engaging in any contest of such treatment
with any taxing authority, and if any such filing, maintenance, action or
execution requested by the Lessee would result in any additional income Tax
liability or expense payable by it or any Affiliate, or could reasonably be
expected to result in liability or expense payable by it or any Affiliate,
then the Lessee will provide an indemnity against such income Tax liability
or other liability satisfactory to the Lessor or the Lender, as the case may
be, in the Lessor's or the Lender's sole opinion, as the case may be.
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SECTION 5
COVENANTS OF THE LESSEE
SECTION 5.1 QUALIFICATION AS TO CORPORATE STATUS. The Lessee shall
remain a validly existing corporation organized under the laws of the State
of Texas or any other State of the United States of America and shall remain
qualified to do business in the State.
SECTION 5.2 FURTHER ASSURANCES. Upon the written request of the Lessor
or the Lender, the Lessee, at its own cost and expense, will cause all
financing statements (including precautionary financing statements), fixture
filings and other similar documents to be recorded or filed at such places
and times in such manner as may be necessary to preserve, protect and perfect
the interest of the Lessor and the Lender in the Leased Property as
contemplated by the Operative Documents.
SECTION 5.3 REPORTING.
(a) FINANCIAL STATEMENTS. The Lessee shall deliver or cause to be
delivered to the Lender:
(i) As soon as practicable, and in any event within forty-five (45)
days after the close of each of the first three quarterly accounting
periods in each Fiscal Year, the consolidated condensed balance sheet of
the Lessee and its Subsidiaries as at the end of such quarterly period and
the related consolidated condensed statements of operations for such
quarterly period and for the elapsed portion of the current Fiscal Year
ended with the last day of such quarterly period, and setting forth
comparative consolidated figures for the related period in the prior Fiscal
Year, which financial statements shall be certified by a duly authorized
officer of the Lessee that they fairly present the consolidated financial
condition of the Lessee and its Subsidiaries as at the dates indicated,
subject to changes resulting from audit and normal year-end adjustments;
(ii) As soon as practicable, and in any event within one hundred
twenty (120) days after the end of each Fiscal Year, consolidated balance
sheets of the Lessee and its Subsidiaries as at the end of such Fiscal Year
and the related consolidated statements of earnings, stockholders' equity
and changes in cash-flows of the Lessee and its Subsidiaries for such
Fiscal Year, setting forth in comparative form the consolidated figures for
the Lessee and its Subsidiaries for the previous Fiscal Year, all in
reasonable detail and accompanied by a report thereon of Price Waterhouse,
L.L.P. or other independent public accountants of recognized national
standing selected by the Lessee which report shall be unqualified as to the
scope of audit and as to the status of the Lessee and its Subsidiaries as a
going concern and shall state that such consolidated financial statements
present fairly the financial position of the Lessee and its Subsidiaries as
at the dates indicated and the results of their operations and changes in
their financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (or, in the event of a
change in accounting principles, such accountants'
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concurrence with such change) and that the examination by such accountants
in connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iii) Together with each delivery of any financial statements
pursuant to clauses (i) and (ii) of this subsection, an officer's
certificate of the Lessee, executed by a duly authorized officer of the
Lessee, stating (A) that the signer has instituted procedures for the
review of the terms of this Participation Agreement and the principal
Operative Documents and the review in reasonable detail of the transactions
and conditions of the Lessee and its Subsidiaries taken as a whole during
the accounting period covered by such financial statements, and that such
review has not disclosed the existence during or at the end of such
accounting period, (B) that the signer does not have knowledge of the
existence as at the date of such officer's certificate, of any condition or
event which constitutes an Event of Default, or, if any such condition or
event existed or exists, specifying the nature and period of existence
thereof and what action the Lessee has taken, is taking and proposes to
take with respect thereto, (C) that, to the best of such officer's
knowledge, the financial statements delivered pursuant to clause (i) of
this subsection present fairly the financial position of the Lessee and its
Subsidiaries as at the dates indicated and the results of their operations
and changes in their financial position for the periods indicated in
conformity with GAAP consistently applied, and (D) that the Lessee is in
compliance with each of the covenants contained in SECTION 5.5 hereof, and
setting out in reasonable detail the data and calculations upon which the
Officer bases such statement;
(iv) Promptly, and in any event within five (5) Business Days after
the Lessee obtains knowledge thereof, notice of (A) the occurrence of any
event which constitutes an Event of Default which notice shall specify the
nature thereof, the period of existence thereof and what action the Lessee
propose to take with respect thereto and (B) any litigation or governmental
proceedings pending against the Lessee which the Lessee determines it will
disclose in the Lessee's reports filed on Forms 10-K or 10-Q with the SEC
(notice being due within five Business Days of such determination); and
(v) With reasonable promptness, such information with respect to the
financial condition of the Lessee or the Leased Property as from time to
time may be reasonably requested by the Lender; PROVIDED, HOWEVER, that the
Lender shall keep such information confidential, except in connection with
enforcement or exercise of the Lender's rights under this Participation
Agreement or otherwise available at law or in equity and PROVIDED, FURTHER,
that the Lender may disclose such information to the extent necessary to
respond to inquiries of bank regulatory authorities or to comply with legal
process or any other legal disclosure obligations, or to the extent such
information has been made publicly available by parties other than the
Lender.
(b) OTHER REPORTS. Promptly after the same are available to it,
the Lessee shall deliver to the Lessor copies of all 10-K and 10-Q reports
submitted by the Lessee to the SEC.
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SECTION 5.4 AFFIRMATIVE COVENANTS OF LESSEE.
(a) COMPLIANCE WITH LAW. The Lessee will, and will cause each of its
Subsidiaries to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct
of their respective businesses, in each case to the extent necessary to
ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(b) PAYMENT OF TAXES AND CLAIMS. The Lessee will, and will cause each
of its Subsidiaries to, file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent and all claims for which sums
have become due and payable that have or might become a Lien on properties or
assets of the Lessee or any Subsidiary, provided that neither the Lessee nor
any Subsidiary need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by the Lessee or such
Subsidiary on a timely basis in good faith and in appropriate proceedings,
and the Lessee or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Lessee or such Subsidiary or (ii)
the nonpayment of all such taxes and assessments in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
(c) CORPORATE EXISTENCE. The Lessee will at all times preserve and
keep in full force and effect its corporate existence. The Lessee will at
all times preserve and keep in full force and effect the corporate existence
of each of its Subsidiaries (unless merged into the Lessee or a Subsidiary)
and all rights and franchises of the Lessee and its Subsidiaries unless, in
the good faith judgment of the Lessee, the termination of or failure to
preserve and keep in full force and effect such corporate existence, right or
franchise could not, individually or in the aggregate, have a Material
Adverse Effect.
(d) MAINTENANCE OF PROPERTIES. The Lessee will and will cause each of
its Significant Subsidiaries to maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the business carried
on in connection therewith may be properly conducted at all times, provided
that this SECTION 5.3(d) shall not prevent the Lessee or any Significant
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Lessee has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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SECTION 5.5 FINANCIAL COVENANTS. The Lessee shall at all times comply
with the financial covenants set forth in Schedule III hereof.
SECTION 6
TRANSFERS BY LESSOR AND LENDER
SECTION 6.1 LESSOR TRANSFERS. The Lessor shall not assign, convey,
encumber or otherwise transfer all or any portion of its right, title or
interest in, to or under the Leased Property or the Lease (except pursuant to
the Mortgage, the Assignment of Lease and Rents or pursuant to ARTICLE XVII
of the Lease) or any of the Operative Documents without obtaining the prior
written consent of the Lender and the Lessee.
SECTION 6.2 LENDER TRANSFERS. The Lender shall not assign, convey or
otherwise transfer all or any portion of its right, title or interest in, to
or under any of the Operative Documents without the prior written consent of
the Lessee and the Lessor (such consent not to be unreasonably withheld);
PROVIDED, HOWEVER, that without the prior written consent of or notice to the
Lessor or the Lessee, the Lender may sell participating interests in the
Loans to such banks and other financial institutions as the Lender shall, in
its sole discretion, determine.
SECTION 7
INDEMNIFICATION
SECTION 7.1 GENERAL INDEMNIFICATION. The Lessee agrees, whether or not
any of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After-Tax Basis, from and against, any and all Claims by
any third-party that may be imposed on, incurred by or asserted against such
Indemnitee, whether or not such Indemnitee shall also be indemnified as to
any such Claim by any other Person (except to the extent such claim is
covered by the insurance required by the Lease) and in any way relating to or
arising out of:
(i) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or waiver in respect
thereof (except to the extent the Lender's or the Lessor's actions with
respect to such matters are in material violation of Applicable Law);
(ii) the Land or any part thereof or interest therein;
(iii) the purchase, design, construction, preparation,
installation, inspection, delivery, non-delivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition or
substitution, storage, transfer or title, redelivery, use, financing,
refinancing, disposition, operation, condition, sale (including, without
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limitation, any sale pursuant to the Lease), return or other disposition of
all or any part or any interest in the Leased Property or the imposition of
any Lien (other than a Lessor Lien) (or incurring of any liability to
refund or pay over any amount as a result of any Lien) thereon, including
without limitation (A) Claims or penalties arising from any violation of
law or in tort (strict liability or otherwise), (B) latent or other
defects, whether or not discoverable, (C) any Claim based upon a violation
or alleged violation of the terms of any restriction, easement, condition
or covenant or other matter affecting title to the Leased Property, (D) the
making of any Alterations in violation of any standards imposed by any
insurance policies required to be maintained by the Lessee pursuant to the
Lease which are in effect at any time with respect to the Leased Property
or any part thereof, (E) any Claim for patent, trademark or copyright
infringement and (F) Claims arising from any public improvements with
respect to the Leased Property resulting in any change or special
assessments being levied against the Leased Property or any Claim for
utility "tap-in" fees;
(iv) the breach or alleged breach by the Lessee of any
representation or warranty made by it or deemed made by it in any
Operative Document or any certificate required to be delivered under any
Operative Document;
(v) the retaining or employment of any broker, finder or financial
advisor by the Lessee to act on its behalf in connection with this
Participation Agreement, or the authorization of any broker or financial
adviser retained or employed by any other Person who or which acts on
Lessee's behalf, or the incurring of any fees or commissions to which the
Lessor or the Lender might be subjected by virtue of their entering into
the transactions contemplated by this Participation Agreement;
(vi) the existence of any Lien (other than a Lessor Lien) on or with
respect to the Leased Property, the Construction, any Basic Rent or
Supplemental Rent, including any Liens (other than a Lessor Lien) which
arise out of the possession, use, occupancy, construction, repair or
rebuilding of or title to or interest of any Person in the Leased Property
or by reason of labor or materials furnished or claimed to have been
furnished to the Lessee or any of its contractors or agents or by reason of
the financing of any personalty or equipment purchased or leased by the
Lessee or Alterations constructed by the Lessee, except in all cases the
Liens listed as items (i) and (ii) in the definition of Permitted Liens;
(vii) any breach of any requirement, condition, restriction or
limitation affecting title to the Land; or
(viii) to the extent not insured by the Title Policies, (A) any
failure of title (except with respect to Permitted Liens) to any part of
the Leased Property or failure (including the failure to create), lack of
perfection, recordation, or loss of priority of the lien of any Mortgage or
the security interests in personal property created thereby, or (B) the
unenforceability, as a matter of law or equity, in whole or in part, of the
Assignment
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of Lease and Rents or any Mortgage or, with respect to the obligations of
the Lessee, any other Operative Document to which it is a party, except
to the extent that the enforceability of such documents shall be affected
by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting the enforcement of creditors' rights
generally, (ii) equitable principles limiting the availability of
equitable remedies, or (iii) limits on enforceability of any provision
calling for the payment of attorneys' fees;
PROVIDED, HOWEVER, that the Lessee shall not be required to indemnify (x) any
Indemnitee under this Section for any Claim (A) to the extent that such Claim
results from the willful misconduct or gross negligence of such Indemnitee
(other than the Lessor), or (B) which occurs or arises out of a time when the
Lessee was not an owner, lessee or otherwise using or in possession of the
Leased Property or the applicable part thereof, or (y) the Lessor, to the
extent that such Claim results from its willful misconduct, or for any Claim
resulting from Lessor Liens which the Lessor is responsible for discharging
under the Operative Documents. It is expressly understood and agreed that
the indemnity provided for herein shall survive the expiration or termination
of and shall be separate and independent from any remedy under the Lease or
any other Operative Document.
SECTION 7.2 ENVIRONMENTAL INDEMNITY. Without limitation of SECTION
7.1, the Lessee agrees to indemnify, hold harmless and defend each Indemnitee
from and against any and all Claims (including without limitation third party
Claims for personal injury or real or personal property damage), losses
(including but not limited to any loss of value of the Leased Property),
damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings (including informal proceedings) and orders, judgments, remedial
action, requirements, enforcement actions of any kind, and all reasonable and
documented costs and expenses incurred in connection therewith (including but
not limited to reasonable and documented attorneys' and/or paralegals' fees
and expenses), including, but not limited to, all costs incurred in
connection with any investigation or monitoring of site conditions or any
clean-up, remedial, removal or restoration work by any Governmental
Authority, arising directly or indirectly, in whole or in part, out of:
(i) the presence on or under the Land of any Hazardous Materials, or
any releases or discharges of any Hazardous Materials on, under, from or
onto the Land;
(ii) any activity, including, without limitation, construction,
carried on or undertaken on or off the Land, and whether by the Lessee, or
any predecessor in title or any employees, agents, contractors or
subcontractors of the Lessee, or any predecessor in title, or any other
Persons (including such Indemnitee), in connection with the handling,
treatment, removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Materials that at any time are located or present
on or under or that at any time migrate, flow, percolate, diffuse or in any
way move onto or under the Land;
(iii) loss of or damage to any property or the environment
(including, without limitation, clean-up costs, response costs, remediation
and removal costs, cost of
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corrective action, costs of financial assurance, fines and penalties and
natural resource damages), or death or injury to any Person, and all
expenses associated with the protection of wildlife, aquatic species,
vegetation, flora and fauna, and any mitigative action required by or
under Environmental Laws;
(iv) any claim concerning lack of compliance with Environmental Laws,
or any act or omission causing an environmental condition that requires
remediation or would allow any Governmental Authority to record a lien or
encumbrance on the land records; or
(v) any residual contamination on or under the Land, or affecting any
natural resources, and any contamination of any property or natural
resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Materials, and
irrespective of whether any of such activities were or will be undertaken
in accordance with applicable laws, regulations, codes and ordinances;
in any case arising or occurring (y) prior to or during the Lease Term or (z)
at any time during which the Lessee or any Affiliate thereof owns any
interest in or otherwise occupies or possesses the Leased Property or any
portion thereof; PROVIDED, HOWEVER, that the Lessee shall not be required to
indemnify any Indemnitee under this Section for any Claim to the extent that
such Claim results from (i) the willful misconduct of such Indemnitee, or
(ii) the gross negligence of any such Indemnitee except the Lessor. It is
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of and shall be separate and
independent from any remedy under the Lease or any other Operative Document.
Notwithstanding any provision hereof to the contrary, the indemnity provided
for in this SECTION 7.2 shall not apply to any new Hazardous Materials first
stored, generated or placed on the Property after the Lessee is removed from
possession of the Leased Property and the Lender takes possession and control
of the Leased Property through appointment of a receiver or the acquisition
of title to the Leased Property by the Lender through foreclosure or deed in
lieu of foreclosure or purchase from a third party after the Loans have been
paid in full (collectively, "Excluded Matters"). Except for the Excluded
Matters, the Lessee hereby releases and waives any future claims against the
Lender for indemnity or contribution in the event the Lessee becomes liable
for cleanup or other costs related to the Leased Property, including without
limitation under any applicable laws, rules, regulations or court orders.
The Lessee acknowledges and agrees that Lessor shall in no respect be
considered to be a receiver of the Leased Property.
SECTION 7.3 PROCEEDINGS IN RESPECT OF CLAIMS. The obligations and
liabilities of the Lessee with respect to any Claims for which, if valid,
Lessee is obligated to provide indemnification pursuant to the provisions of
SECTION 7.1 and SECTION 7.2 ("Indemnified Claims"), shall be subject to the
following terms and conditions:
(a) Whenever an Indemnitee shall have received notice that an
Indemnified Claim has been asserted or threatened against such Indemnitee,
the Indemnitee shall promptly
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notify the Lessee of such Claim, together with supporting facts and data
within the possession or knowledge of the Indemnitee related thereto,
provided that the failure to deliver such notice shall not relieve the Lessee
of its indemnification obligations hereunder except to the extent that such
failure prejudices the Lessee. With respect to any amount that the Lessee is
requested by an Indemnitee to pay by reason of SECTION 7.1 or 7.2, such
Indemnitee shall, if so requested by the Lessee and prior to any payment,
submit such additional information to the Lessee as the Lessee may reasonably
request and which is in the possession of such Indemnitee to substantiate
properly the requested payment.
(b) Lessee shall defend, at its expense, such Indemnified Claim
with counsel of its choice reasonably satisfactory to the Indemnitee,
PROVIDED, HOWEVER, that if an Event of Default has occurred and is
continuing, the Indemnitee shall have the right, upon notice to and at the
expense of Lessee, to undertake the defense of such Claim during the
continuance of such Event of Default; PROVIDED, HOWEVER, that Lessee shall be
entitled to participate in the defense thereof. The Indemnitee shall
promptly notify the Lessee of any compromise or settlement proposal with
respect to any such Claim and shall not unreasonably refuse to accept any
such proposal if the same is acceptable to the Lessee. The Indemnitee may
participate in a reasonable manner at its own expense and with its own
counsel in any proceeding conducted by the Lessee in accordance with the
foregoing. The Lessee shall not enter into any settlement or other
compromise with respect to any Claim which is entitled to be indemnified
under SECTION 7.1 or 7.2 without the prior written consent of the Lender
acting individually and on behalf of the affected Indemnitee (and Lessor
hereby irrevocably so authorizes Lender to grant such consent on behalf of
Lessor and the Lessor Indemnitee), which consent shall not be unreasonably
withheld or delayed. The Lessee and each Indemnitee are and shall be bound
to cooperate with each other in good faith in connection with the defense of
any such action, suit or proceeding in providing any information and bear
witness or give testimony which may be requested by counsel for any of such
parties.
(c) Unless an Event of Default shall have occurred and be
continuing, no Indemnitee shall enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under SECTION
7.1 or 7.2 without the prior written consent of the Lessee, which consent
shall not be unreasonably withheld (it being agreed that it will not be
unreasonable for the Lessee to withhold consent if such compromise or
settlement adversely affects a material right or property interest of the
Lessee, including, without limitation, Lessee's use, title or possession of
the Leased Property), unless such Indemnitee waives its right to be
indemnified under SECTION 7.1 or 7.2 with respect to such Claim, PROVIDED
that no Indemnitee shall enter into any settlement which would adversely
affect Lessee's use, title to or possession of the Leased Property without
Lessee's prior written consent.
(d) Upon payment in full of any Claim by the Lessee pursuant to
SECTION 7.1 or 7.2 to or on behalf of an Indemnitee, the Lessee, without any
further action, shall be subrogated to any and all claims that such
Indemnitee may have relating thereto (other than claims in respect of
insurance policies maintained by such Indemnitee at its own expense)
including claims (subject to the provisions of this SECTION 7 and SECTION
18.12 of the Lease)
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against another Indemnitee and such Indemnitee shall execute such instruments
of assignment and conveyance, evidence of claims and payment and such other
documents, instruments and agreements as may be necessary to preserve any
such Claims and otherwise cooperate with the Lessee and give such further
assurances as are necessary or advisable to enable the Lessee vigorously to
pursue such Claims.
(e) Any amount payable to an Indemnitee pursuant to SECTION 7.1 or
7.2 shall be paid to such Indemnitee promptly upon receipt of a written
demand therefor from such Indemnitee, accompanied by a written statement
describing in reasonable detail the basis for such indemnity and the
computation of the amount so payable, and if requested by the Lessee, such
determination shall be verified by a nationally recognized independent
accounting firm mutually acceptable to the Lessee and the Indemnitee at the
expense of the Lessee.
(f) If Lessee fails to assume the defense of an Indemnified Claim
within a reasonable time (and in any event not more than 30 days) after
receipt of written notice thereof from the Indemnitee, the Indemnitee will
(upon delivering written notice to such effect to the Lessee) have the right
to undertake, at the Lessee's cost and expense, the defense, compromise or
settlement of such Claim on behalf of and for the account and risk of the
Lessee, subject to the right of the Lessee (PROVIDED no Event of Default
shall have occurred and remained outstanding) to assume and control the
defense of such Claim at any time prior to the settlement, compromise or
final determination thereof, and PROVIDED, HOWEVER, that the Indemnitee shall
not enter into any such compromise or settlement without the written consent
of the Lessee, which shall not be unreasonably withheld, as aforesaid, and
PROVIDED FURTHER that no Indemnitee shall enter into any such settlement
which would adversely affect Lessee's use, title to or possession of the
Leased Property without Lessee's prior written consent. In the event the
Indemnitee assumes the defense of any such Claim, the Indemnitee will
cooperate with the Lessee in keeping the Lessee reasonably informed of the
progress of any such defense, compromise or settlement.
(g) Nothing contained in this SECTION 7.3 shall be deemed to
expand the obligation of the Lessee to defend or be responsible for
indemnification of the Indemnitee with respect to any Claim beyond the
specific indemnification obligations set forth in SECTIONS 7.1, 7.2, 7.4, or
elsewhere in the Operative Documents.
SECTION 7.4 GENERAL TAX INDEMNITY.
(a) Except as otherwise provided in this Section, the Lessee shall
pay on an After-Tax Basis, and on written demand shall indemnify and hold
each Tax Indemnitee harmless from and against, any and all fees (including,
without limitation, documentation, recording, license and registration fees),
taxes (including, without limitation, income, gross receipts, sales, rental,
use, turnover, value-added, property, excise and stamp taxes and all
recapture and other payments in connection with any agreement relating to tax
abatements granted in connection with the Leased Property), levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever,
together with any penalties, fines or interest thereon or additions thereto
(any of the foregoing being referred to herein as "Taxes" and individually as
a "Tax" (for the purposes of
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this Section, the definition of "Taxes" excludes amounts imposed on, incurred
by, or asserted against each Tax Indemnitee as the result of any prohibited
transaction, within the meaning of Section 406 or 407 of ERISA or Section
4975(c) of the Code, arising out of the transactions contemplated hereby or
by any other Operative Document, as well as any penalties, fees or interest
on, or additions to taxes, caused solely by the failure of any of the Tax
Indemnitees to provide notice to Lessee of Lessee's indemnity obligations
hereunder)) imposed on or with respect to any Tax Indemnitee, the Lessee, the
Leased Property or any portion thereof or the Land, or any sublessee or user
thereof, by the United States or by any state or local government or other
taxing authority in the United States in connection with or in any way
relating to (i) the acquisition, financing, mortgaging, construction,
preparation, installation, inspection, delivery, non-delivery, acceptance,
rejection, purchase, ownership, possession, rental, lease, sublease,
maintenance, repair, storage, transfer of title, redelivery, use, operation,
condition, sale, return or other application or disposition of all or any
part of the Leased Property or the imposition of any Lien, other than a
Lessor Lien (or incurrence of any liability to refund or pay over any amount
as a result of any Lien, other than a Lessor Lien) thereon, (ii) Basic Rent
or Supplemental Rent or the receipts or earnings arising from or received
with respect to the Leased Property or any part thereof, or any interest
therein or any applications or dispositions thereof, (iii) the Leased
Property, the Land or any part thereof or any interest therein, (iv) all or
any of the Operative Documents, any other documents contemplated thereby and
any amendments and supplements thereto and (v) otherwise with respect to or
in connection with the transactions contemplated by the Operative Documents.
(b) SECTION 7.4(a) shall not apply to:
(i) Taxes on, based on, or measured by or with respect to, net
income of the Lessor and the Lender (including, without limitation, minimum
Taxes, capital gains Taxes, Taxes on or measured by items of tax preference
or alternative minimum Taxes) OTHER THAN (A) any such Taxes that are, or
are in the nature of, sales, use, license, rental, ad valorem or property
Taxes, (B) withholding Taxes imposed by the United States or any state or
local taxing authority (1) on payments with respect to the Notes, to the
extent imposed by reason of a change in Applicable Law occurring after the
Closing Date or (2) on Rent, to the extent the net payment of Rent after
deduction of such withholding Taxes would be less than amounts currently
payable with respect to the Notes and (C) any increase in any franchise
taxes based on or otherwise measured by net income, estate, inheritance,
transfer, income tax or gross income or gross receipts tax in lieu of net
income over the term of the Lease, net of any decrease in such taxes
realized by such Tax Indemnitee, to the extent that such tax increase or
decrease would not have occurred if on the Closing Date the Lessor had
advanced funds to the Lessee in the form of a loan secured by the Leased
Property in an amount equal to the Loans, with debt service for such loan
equal to the portion of the Basic Rent attributable to the Loans payable on
each Rent Payment Date and a principal balance at the maturity of such loan
in an amount equal to the Loans at the end of the Lease Term;
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(ii) Taxes on, based on, or in the nature of or measured by
Taxes on: doing business, business privilege, capital, capital stock, net
worth, or mercantile license or similar taxes other than (A) any increase
in such Taxes imposed on such Tax Indemnitee by any state, net of any
decrease in such taxes realized by such Tax Indemnitee, to the extent that
such tax increase or decrease would not have occurred if on the Closing
Date the Lessor had advanced funds to the Lessee in the form of a loan
secured by the Leased Property in an amount equal to the Loans, with debt
service for such loan equal to the portion of the Basic Rent attributable
to the Loans payable on each Rent Payment Date and a principal balance at
the maturity of such loan in an amount equal to the Loans at the end of
the Lease Term or (B) any Taxes that are or are in the nature of sales,
use, rental, license or property Taxes;
(iii) Taxes that result from any act, event or omission, or
are attributable to any period of time, that occurs after the earliest of
(A) the expiration of the Lease Term with respect to the Leased Property
and, if the Leased Property is required to be returned to the Lessor in
accordance with the Lease, such return and (B) the discharge in full of the
Lessee's obligations to pay the Lease Balance, or any amount determined by
reference thereto, with respect to the Leased Property and all other
amounts due under the Lease, unless such Taxes relate to acts, events or
matters occurring prior to the earliest of such times or are imposed on or
with respect to any payments due under the Operative Documents after such
expiration or discharge;
(iv) Taxes imposed on a Tax Indemnitee that result from any
voluntary sale, assignment, transfer or other disposition by such Tax
Indemnitee or any related Tax Indemnitee of any interest in the Leased
Property or any part thereof, or any interest therein or any interest or
obligation arising under the Operative Documents (including a sale of an
interest in the Note) or from any sale, assignment, transfer or other
disposition of any interest in such Tax Indemnitee or any related Tax
Indemnitee, it being understood that each of the following shall not be
considered a voluntary sale: (A) any substitution, replacement or removal
of any of the property by the Lessee shall not be treated as a voluntary
action of any Tax Indemnitee, (B) any sale or transfer resulting from the
exercise by the Lessee of any termination option, any purchase option or
sale option, (C) any sale or transfer while an Event of Default shall have
occurred and be continuing under the Lease and (D) any sale or transfer
resulting from the Lessor's exercise of remedies under the Lease;
(v) any Tax which is being contested in accordance with the
provisions of SECTION 7.4(c), during the pendency of such contest;
(vi) any Tax that is imposed on a Tax Indemnitee as a result of
such Tax Indemnitee's gross negligence or willful misconduct (other than
gross negligence on the part of the Lessor and the incorporators,
stockholders, directors, officers, employees and agents of the Lessor or
gross negligence or willful misconduct imputed to the Lessor or the Lender
solely by reason of their respective interests in the Leased Property);
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(vii) any Tax that results from a Tax Indemnitee engaging,
with respect to the Leased Property, in transactions other than those
permitted by the Operative Documents; or
(viii) to the extent any interest, penalties or additions to
tax result in whole or in part from the failure of a Tax Indemnitee to file
a return that it is required to file in a proper and timely manner, unless
such failure (A) results from the transactions contemplated by the
Operative Documents in circumstances where the Lessee did not give timely
notice to Lessor (and the Lessor otherwise had no actual knowledge) of such
filing requirement that would have permitted a proper and timely filing of
such return or (B) results from the failure of the Lessee to supply
information necessary for the proper and timely filing of such return that
was not in the possession of the Lessor.
(c) If any claim shall be made against any Tax Indemnitee or if
any proceeding shall be commenced against any Tax Indemnitee (including a
written notice of such proceeding) for any Taxes as to which the Lessee may
have an indemnity obligation pursuant to this Section, or if any Tax
Indemnitee shall determine that any Taxes as to which the Lessee may have an
indemnity obligation pursuant to this Section may be payable, such Tax
Indemnitee shall promptly notify the Lessee in writing. The Lessee shall not
be responsible for the costs, interest, and penalties suffered as a result of
the failure of any of the Tax Indemnitees to notify the Lessee. The Lessee
shall be entitled, at its expense, to participate in and to the extent that
the Lessee desires to, assume and control the defense thereof; provided,
however, that the Lessee shall not be entitled to assume and control the
defense of any such action, suit or proceeding (but the Tax Indemnitee shall
then contest, at the sole cost and expense of the Lessee, on behalf of the
Lessee) if and to the extent that (A) an Event of Default has occurred and is
continuing, (B) such action, suit or proceeding involves matters which are
unrelated to the transactions contemplated by the Operative Documents and if
determined adversely could be materially detrimental to the interests of such
Tax Indemnitee notwithstanding indemnification by the Lessee or (C) such
action, suit or proceeding involves the federal or any state income tax
liability of the Tax Indemnitee. With respect to any contests controlled by
a Tax Indemnitee, (i) if such contest relates to the federal or any state
income tax liability of such Tax Indemnitee, such Tax Indemnitee shall be
required to conduct such contest only if the Lessee shall have provided to
such Tax Indemnitee an opinion of independent tax counsel selected by the
Lessee and reasonably satisfactory to the Tax Indemnitee stating that a
reasonable basis exists to contest such claim for which Lessee may have an
indemnification obligation hereunder or (ii) in the case of an appeal of an
adverse determination of any contest relating to any Taxes, an opinion of
such counsel to the effect that such appeal is more likely than not to be
successful; PROVIDED, HOWEVER, such Tax Indemnitee shall in no event be
required to appeal an adverse determination to the United States Supreme
Court. The Tax Indemnitee may participate in a reasonable manner at its own
expense and with its own counsel in any proceeding conducted by the Lessee in
accordance with the foregoing. Each Tax Indemnitee shall at the Lessee's
expense supply the Lessee with such information and documents reasonably
requested by the Lessee as are necessary or advisable for the Lessee to
participate in any action, suit or proceeding to the extent permitted by this
Section. Unless an Event of Default shall have occurred and be continuing,
no Tax
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Indemnitee shall enter into any settlement or other compromise with respect
to any Claim which is entitled to be indemnified under this Section without
the prior written consent of the Lessee, which consent shall not be
unreasonably withheld (it being agreed that it will not be unreasonable for
Lessee to withhold consent if such compromise or settlement would adversely
affect material rights or property interests of the Lessee, including,
without limitation, Lessee's use, title or possession of the Leased
Property), unless such Tax Indemnitee waives its right to be indemnified
under this Section with respect to such Claim, provided the settlement would
not adversely affect materials rights or property interests of the Lessee,
including, without limitation, Lessee's use, title or possession of the
Leased Property. Notwithstanding anything contained herein to the contrary,
(i) a Tax Indemnitee will not be required to contest (and the Lessee shall
not be permitted to contest) a Claim with respect to the imposition of any
Tax if such Tax Indemnitee shall waive its right to indemnification under
this Section with respect to such Claim (and any related Claim with respect
to other taxable years the contest of which is precluded as a result of such
waiver) and (ii) no Tax Indemnitee shall be required to contest any Claim if
the subject matter thereof shall be of a continuing nature and shall have
previously been decided adversely, unless there has been a change in law
which in the opinion of the Lessee's counsel creates substantial authority
for the success of such contest. Each Tax Indemnitee and the Lessee shall
consult in good faith with each other regarding the conduct of such contest
controlled by either.
(d) If (i) a Tax Indemnitee shall obtain a credit or refund of any
Taxes paid by the Lessee pursuant to this Section or (ii) by reason of the
incurrence or imposition of any Tax for which a Tax Indemnitee is indemnified
hereunder or any payment made to or for the account of such Tax Indemnitee by
the Lessee pursuant to this Section, such Tax Indemnitee at any time realizes
a reduction in any Taxes for which the Lessee is not required to indemnify
such Tax Indemnitee pursuant to this Section, which reduction in Taxes was
not taken into account in computing such payment by the Lessee to or for the
account of such Tax Indemnitee, then such Tax Indemnitee shall promptly pay
to the Lessee the amount of such credit or refund, together with the amount
of any interest received by such Tax Indemnitee on account of such credit or
refund or an amount equal to such reduction in Taxes, as the case may be;
PROVIDED, HOWEVER, that no such payment shall be made so long as an Event of
Default shall have occurred and be continuing; and provided, further, that
the amount payable to the Lessee by any Tax Indemnitee pursuant to this
subsection shall not at any time exceed the aggregate amount of all indemnity
payments made by the Lessee under this Section to such Tax Indemnitee and all
related Tax Indemnitee with respect to the Taxes which gave rise to a credit
or refund or with respect to the Tax which gave rise to a reduction in Taxes
less the amount of all prior payments made to the Lessee by such Tax
Indemnitee and related Tax Indemnitee under this Section. Each Tax Indemnitee
agrees to act in good faith to claim such refunds and other available Tax
benefits, and take such other actions as may be reasonable to minimize any
payment due from the Lessee pursuant to this Section and to maximize the
amount of any Tax savings available to it. The disallowance or reduction of
any credit, refund or other tax savings with respect to which a Tax
Indemnitee has made a payment to the Lessee under this subsection shall be
treated as a Tax for which the Lessee is obligated to indemnify such Tax
Indemnitee hereunder.
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(e) Any Tax indemnifiable under this Section shall be paid
directly to the applicable taxing authority prior to delinquency if direct
payment is practicable and permitted. If direct payment to the applicable
taxing authority is not permitted or is otherwise not made, any amount
payable to a Tax Indemnitee pursuant to this Section shall be paid within
thirty (30) days after receipt of a written demand therefor from such Tax
Indemnitee accompanied by a written statement describing in reasonable detail
the amount so payable, but not before the date that the relevant Taxes are
due. Any payments made pursuant to this Section shall be made directly to
the Tax Indemnitee entitled thereto or the Lessee, as the case may be, in
immediately available funds at such bank or to such account as specified by
the payee in written directions to the payor, or, if no such direction shall
have been given, by check of the payor payable to the order of the payee by
certified mail, postage prepaid at its Address as set forth in this
Participation Agreement. Upon the request of any Tax Indemnitee with respect
to a Tax that the Lessee is required to pay, the Lessee shall furnish to such
Tax Indemnitee the original or a certified copy of a receipt for Lessee's
payment of such Tax or such other evidence of payment as is reasonably
acceptable to such Tax Indemnitee.
(f) If the Lessee knows of any report, return or statement
required to be filed with respect to any Taxes that are subject to
indemnification under this Section, the Lessee shall, if the Lessee is
permitted by Applicable Law, timely file such report, return or statement
(and, to the extent permitted by law, show ownership of the Leased Property
in the Lessee except to the extent contrary to financial reporting
requirements); PROVIDED, HOWEVER, that if the Lessee is not permitted by
Applicable Law or does not have access to the information required to file
any such report, return or statement, the Lessee will promptly so notify the
appropriate Tax Indemnitee, in which case Tax Indemnitee will file such
report. In any case in which the Tax Indemnitee will file any such report,
return or statement, Lessee shall, upon written request of such Tax
Indemnitee, provide such Tax Indemnitee with such information as is
reasonably available to the Lessee.
(g) At the Lessee's request, the amount of any indemnity payment
by the Lessee or any payment by a Tax Indemnitee to the Lessee pursuant to
this Section shall be verified and certified by an independent public
accounting firm selected by the Lessee and reasonably acceptable to the Tax
Indemnitee. Unless such verification shall disclose an error in Lessee's
favor of 5% or more, the costs of such verification shall be borne by the
Lessee. In no event shall the Lessee have the right to review the Tax
Indemnitee's tax returns or receive any other confidential information from
the Tax Indemnitee in connection with such verification. The Tax Indemnitee
agrees to cooperate with the independent public accounting firm performing
the verification and to supply such firm with all information reasonably
necessary to permit it to accomplish such verification; PROVIDED, HOWEVER,
that the information provided to such firm by such Tax Indemnitee shall be
for its confidential use. The parties agree that the sole responsibility of
the independent public accounting firm shall be to verify the amount of a
payment pursuant to this Participation Agreement and that matters of
interpretation of this Participation Agreement are not within the scope of
the independent accounting firm's responsibilities.
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(h) It is expressly understood and agreed that the indemnity
provided for herein shall survive the expiration or termination of and shall
be separate and independent from any remedy under the Lease or any other
Operative Document.
SECTION 7.5 INCREASED COSTS, ETC.
(a) CHANGES; LEGAL RESTRICTIONS. Subject to the provisions of
SECTION 8.12, in the event that after the date hereof (i) the adoption of or
any change in any law, treaty, rule, regulation, guideline or determination
of a court or Governmental Authority or any change in the interpretation or
application thereof by a court or Governmental Authority or (ii) compliance
by the Lender with any request or directive (whether or not having the force
of law) from any central bank or other Governmental Authority:
(A) does or will subject the Lender to any tax, duty or other charge
of any kind which the Lender determines to be applicable to the Operative
Documents or the Loans or change the basis of taxation of payments to the
Lender of principal, interest, invested amount, yield, fees or any other
amount payable hereunder, except for taxes imposed on or measured by the
overall net income of the Lender; or
(B) does or will impose, modify, or hold applicable, in the
determination of the Lender, any reserve, special deposit, liquidity ratio,
compulsory loan, FDIC insurance or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, advances or
loans by, commitments made, or other credit extended by, or any other
acquisition of funds by, the Lender;
and the result of any of the foregoing is to increase the cost to the Lender
of making, renewing or maintaining the Loans or to reduce any amount
receivable thereunder and the Lender gives the Lessee notice of any of the
foregoing and the approximate amount of such cost increase within 120 days
after the calendar year in which such increased costs were incurred by the
Lender, then, in any such case, the Lessee shall promptly pay to the Lender
on an After-Tax Basis, within thirty (30) days after demand made in writing
by the Lender to the Lessee, such amount or amounts (based upon an allocation
thereof by the Lender to the financing transactions contemplated by the
Operative Documents and affected by this Section) as may be reasonably
necessary to compensate the Lender for any such additional cost incurred or
reduced amount received. The Lender shall deliver to the Lessee a written
statement of the costs or reductions claimed and the basis therefor, and the
allocation made by the Lender of such costs and reductions shall be
conclusive, absent demonstrable error.
(b) CAPITAL ADEQUACY. Subject to the provisions of SECTION 8.12,
if the Lender shall have determined that, after the date hereof, the adoption
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof
by any Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Lender
with any request or directive regarding capital adequacy (whether or not
having the force of law) of any
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such Governmental Authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Lender's capital as a
consequence of its obligations hereunder (including, without limitation, the
Loans) to a level below that which the Lender could have achieved but for
such adoption, change or compliance (taking into consideration the Lender's
policies with respect to capital adequacy), then from time to time, within
thirty (30) days after demand made in writing by the Lender to the Lessee,
the Lessee shall pay to the Lender such additional amount or amounts as will
compensate the Lender for such reduction. The Lender, upon determining in
good faith that any additional amounts will be payable pursuant to this
subsection, will give prompt written notice thereof to the Lessee which
notice shall show in reasonable detail the basis for calculation of such
additional amounts. Such notice shall be conclusive absent demonstrable
error.
SECTION 7.6 END OF TERM INDEMNITY. If at the end of the Lease Term (i)
the Lessor elects the option set forth in SECTION 15.6 of the Lease and (ii)
after the Lessor receives the sales proceeds from the Leased Property under
SECTION 15.6 or 15.7 of the Lease together with the Lessee's payment of the
Recourse Deficiency Amount, the Lessor shall not have received the entire
Lease Balance, then the Lessor or the Lender may obtain, at the Lessee's sole
cost and expense, an appraisal report from the Appraiser (or if the Appraiser
is not available, another appraiser reasonably satisfactory to the Lessor or
the Lender, as the case may be) in form and substance satisfactory to the
Lessor and the Lender to establish the reason for any decline in value of the
Leased Property from that anticipated for such date in the appraisal
delivered on the Closing Date. The Lessee shall promptly reimburse the
Lessor for the amount equal to such decline in value to the extent that
appraisal report delivered pursuant to the preceding sentence concludes that
such decline was due to (i) extraordinary use, failure to maintain, to
repair, to restore, to rebuild or to replace the Leased Property in a manner
consistent with reasonable preservation of its value, failure to comply with
all Applicable Laws, failure to use, workmanship, method of installation or
removal or maintenance, repair, rebuilding or replacement, or any other cause
or condition within the reasonable power of the Lessee to control or effect
resulting in the Improvements failing to constitute an office/warehouse
and/or light manufacturing facility (excepting in each case ordinary wear and
tear), (ii) any Alteration made to, or any rebuilding of, the Leased Property
or any part thereof by the Lessee, (iii) any restoration or rebuilding
carried out by the Lessee or any condemnation of any portion of the Leased
Property pursuant to ARTICLE XI of the Lease (after taking into account any
Award in respect thereof) or (iv) any use of the Leased Property or any part
thereof by the Lessee other than as permitted pursuant to ARTICLE XVIII of
the Lease. The parties hereto acknowledge and agree that the obligation
imposed upon the Lessee under this Section arises from a higher standard of
maintenance of the Leased Property than that required under ARTICLE XVIII of
the Lease and is applicable whether or not the Lessee has failed to comply
with any such other obligations under the Operative Documents.
SECTION 7.7 EXCULPATION. Except for the Lender's obligations to
advance the Loans in accordance with the Operative Documents, the Lender has
and shall have no liability or obligation whatsoever or howsoever in
connection with the construction, completion or management of the
Improvements, and the Lender is not obligated to inspect the Improvements;
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nor is the Lender liable and under no circumstances whatsoever shall the
Lender be or become liable for the performance or default of any contractor
or subcontractor, or for any failure to construct, complete, protect or
insure the Improvements, or any part thereof, or for the payment of any cost
or expense incurred in connection therewith, or for the performance or
non-performance of any obligation of the Lessor or the Lessee to the Lender
or to any other person, firm or entity without limitation; and nothing,
including without limitation, any disbursement of proceeds of the Loans or
acceptance of any document or instrument, shall be construed as a
representation or warranty, express or implied, on the Lender's part.
Further, the Lessee shall be solely responsible for all aspects of the
Lessee's business and conduct in connection with the construction, completion
and management of the Improvements including, but not limited to:
(a) The quality and suitability of the Plans and Specifications;
(b) Supervision of the work of Construction;
(c) The qualifications, financial condition and performance of all
architects, engineers, contractors, subcontractors and material
suppliers and consultants;
(d) Conformance of the work of Construction and the Improvements to the
requirements of all Applicable Laws and public and private
restrictions and requirements and to the requirements of this
Participation Agreement;
(e) The quality and suitability of all materials and workmanship; and
(f) The proper application of disbursed proceeds of the Loans.
The Lender shall have no obligation to supervise, inspect or inform the
Lessee, the Lessor or any third party of any aspect of the work or
construction of the Improvements or any other matter referred to above. Any
inspection or review made by or on behalf of the Lender shall be made for the
purpose of determining whether or not the obligations of the Lessee under
this Participation Agreement are being properly discharged, and neither the
Lessee, the Lessor nor any third party shall be entitled to rely upon any
such inspection or review.
The Lender owes no duty of care to the Lessee, the Lessor or any other
Person to protect against or inform the Lessee, the Lessor or any other
Person of the existence of negligent, faulty, inadequate or defective design
or construction of the Improvements.
SECTION 7.8 ROLE OF LENDER. Any term or condition hereof or of any of
the other Operative Documents to the contrary notwithstanding, the Lender
shall not have, and by its execution and acceptance of this Participation
Agreement hereby expressly disclaims, any obligation or responsibility for
the management, conduct or operation of the Improvements or business and
affairs of the Lessee and any term or condition hereof, or of any of the
other Operative Documents, permitting the Lender to disburse funds, whether
from the proceeds of
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the Loans or otherwise, or to take or refrain from taking any action with
respect to the Lessee or the Improvements shall be deemed to be solely for
the benefit of the Lender and may not be relied upon by any other person.
Further, the Lender shall not have, has not assumed and by its execution and
acceptance of this Participation Agreement hereby expressly disclaims, any
liability or responsibility for the payment or performance of any
indebtedness or obligation of the Lessee or the Lessor and no term or
condition hereof, or of any of the other Operative Documents, shall be
construed otherwise.
SECTION 7.9 LENDER'S BENEFITS. All conditions precedent to the
obligation of Lender to make the Loans are imposed hereby solely for the
benefit of Lender. No party other than the Lessor may require satisfaction of
any such condition precedent. No other party (including the Lessor) shall be
entitled to assume that Lender will refuse to advance the proceeds of the
Loans in the absence of strict compliance with such conditions precedent.
Any requirement of this Participation Agreement and any requirement of the
Loan Agreement may be waived by Lender, in whole or in part, at any time. Any
requirement herein or in any other Operative Document of submission of
evidence to Lender of the existence or non-existence of a fact shall be
deemed, also, to be a requirement that the fact shall exist or not exist, as
the case may be, and without waiving any condition or obligation of the
Lessee or the Lessor, Lender may at all times independently establish to its
satisfaction such existence or non-existence.
SECTION 7.10 LESSOR'S BENEFITS. All conditions precedent to the
obligation of Lessor to make any Contribution Advance are imposed hereby
solely for the benefit of Lessor. No party other than the Lender may
require satisfaction of any such condition precedent. No party other than
the Lender shall be entitled to direct Lessor to refuse to make any
Contribution Advance in the absence of strict compliance with such conditions
precedent. Any requirement of this Participation Agreement and any
requirement of the Loan Agreement may be waived by Lessor, in whole or in
part, at any time, subject to Lender's rights under the Assignment of Lease
and Rents and the other Operative Documents. Any requirement herein or in
any other Operative Document of submission of evidence to Lessor of the
existence or non-existence of a fact shall be deemed, also, to be a
requirement that the fact shall exist or not exist, as the case may be, and
without waiving any condition or obligation of the Lessee or the Lessor,
Lender may at all times independently establish to its satisfaction such
existence or non-existence.
SECTION 8
MISCELLANEOUS
SECTION 8.1 SURVIVAL OF AGREEMENTS. The indemnities of the parties
provided for in SECTION 7 of this Participation Agreement, shall survive the
termination or expiration of this Participation Agreement and any of the
other Operative Documents (including, without limitation, the termination of
the Lease pursuant to SECTION 15.7 thereof in connection with the Lessee's
payment of the Recourse Deficiency Amount), any disposition of any interest
of the Lessor, or the Lender in the Leased Property and shall be and continue
in effect notwithstanding any investigation made by any party hereto or to
any of the other Operative Documents and the fact that any such party may
waive compliance with any of the other terms, provisions or
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conditions of any of the Operative Documents. The representations,
warranties, covenants and agreements of the parties provided for in the
Operative Documents shall not be merged into the Deed.
SECTION 8.2 NOTICES. Unless otherwise specified herein or in an
applicable Operative Document, it shall, for purposes of this Participation
Agreement and the other Operative Documents, be sufficient service or giving
of any notice, request, complaint, demand, instruction or other instrument or
document to any Person, if it is in writing to the Address set forth below.
Any notice given by telecopy or facsimile transmission shall be deemed given
when sent provided confirmed by a nationally recognized overnight carrier
service. Any notice given by mail shall be sent by registered or certified
mail, return receipt requested and shall be deemed to have been given when so
sent. Any notice sent by any party hereto under the Operative Documents
shall also be sent to the other parties to this Participation Agreement. The
parties hereto may designate, by notice given to each of the other parties,
any further or different addresses than those set forth below to which
subsequent notices shall be sent. For purposes of the Operative Documents
(but subject to the preceding sentence), the Address of the Lessee, the
Lender and the Lessor is as follows:
(i) Lessee STB Systems, Inc.
1651 North Glenville
Richardson, Texas 75085-0957
Attention: President
Facsimile: (972) 234-1306
Telephone: (972) 234-8750
(ii) Lender Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Attention: Rick Rogers
Facsimile: (214) 290-2305
Telephone: (214) 290-2540
(iii) Lessor Asset XVII Holdings Company, L.L.C.
c/o JH Management Corporation
Room 520
One International Place
Boston, Massachusetts 02110
Attention: Anne B. Brennan
Facsimile: (617) 951-7050
Telephone: (617) 951-7633
SECTION 8.3 COUNTERPARTS. This Participation Agreement may be executed
in any number of counterparts as may be convenient or necessary, and it shall
not be necessary that the
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signatures of all parties hereto or thereto be contained on any one
counterpart hereof or thereof. Additionally, the parties hereto agree that
for purposes of facilitating the execution of this Participation Agreement,
(a) the signature pages taken from the separate individually executed
counterparts of this Participation Agreement may be combined to form multiple
fully executed counterparts and (b) a facsimile transmission shall be deemed
to be an original signature for all purposes. All executed counterparts of
this Participation Agreement shall be deemed to be originals, but all such
counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
SECTION 8.4 AMENDMENTS. No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified with
respect to any party thereto except with the prior written consent of such
party thereto and, in all cases, the Lender and the Lessee. If and to the
extent that this Participation Agreement, the Loan Agreement, the Notes, the
Lease, the Assignment of Lease and Rents or the Mortgage constitutes an
amendment, supplement, termination, waiver or other modification to any
Operative Document, each of the parties hereto, by its execution of this
Participation Agreement, shall be deemed to have given its written consent to
such amendment supplement, termination, waiver or other modification.
SECTION 8.5 HEADINGS, ETC. The Table of Contents and headings of the
various Sections of this Participation Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof.
SECTION 8.6 PARTIES IN INTEREST. Except as expressly provided herein,
none of the provisions of this Participation Agreement is intended for the
benefit of any Person except the parties hereto, their successors and their
permitted assigns.
SECTION 8.7 GOVERNING LAW. THIS PARTICIPATION AGREEMENT HAS BEEN
DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 8.8 NO RECOURSE. No recourse shall be had for any claims under
this Participation Agreement against any incorporator, shareholder, officer,
manager, member or director, past, present or future, of Lessor or of any
successor or of Lessor's constituent members or other affiliates or of JH
Management Corporation, or against JH Management Corporation, either directly
or through Lessor or any successor, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by acceptance hereof and as part of the
consideration for the acceptance hereof, expressly waived and released.
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SECTION 8.9 EXPENSES.
(a) EXPENSES OF LESSOR AND LENDER. The reasonable fees, expenses
and disbursements (including reasonable counsel fees) of the Lessor and the
Lender in connection with the Operative Documents incurred from and after the
Closing Date (including all costs associated with the release and termination
of the Operative Documents in accordance with the terms thereof) shall be
paid by the Lessee as Supplemental Rent upon demand therefor by the Lessor or
the Lender.
(b) AMENDMENTS AND SUPPLEMENTS. The Lessee agrees to pay all
reasonable and documented out-of-pocket costs and expenses of the Lessor and
the Lender in connection with the successful amendment or supplementing of
the Operative Documents and the documents and instruments referred to therein
(including, without limitation, the fees and disbursements of counsel for the
Lessor and the Lender).
SECTION 8.10 SEVERABILITY. Any provision of this Participation
Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 8.11 SUBMISSION TO JURISDICTION; WAIVERS. Each party hereto
hereby irrevocably and unconditionally (i) submits for itself and its
property in any legal action or proceeding relating to this Participation
Agreement or any other Operative Document, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general jurisdiction
of the courts of the State of Texas, the courts of the United States of
America for the Northern District of Texas and appellate courts from any
thereof, (ii) consents that any such action or proceedings may be brought to
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any court or that such action
or proceeding was brought in an inconvenient court and agrees not to plead or
claim the same, (iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid,
to such party at its address set forth in SECTION 8.2 or at such other
address of which the other parties hereto shall have been notified pursuant
to SECTION 8.2 and (iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law. EACH PARTY,
TO THE EXTENT PERMITTED BY LAW, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG OR BETWEEN THE PARTIES HERETO
ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THE PARTIES IN CONNECTION WITH THIS
PARTICIPATION AGREEMENT, ANY OTHER OPERATIVE DOCUMENT OR ANY OTHER DOCUMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED
HERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR
MODIFY THE LENDER'S ABILITY TO PURSUE ANY REMEDIES CONTAINED IN THIS
PARTICIPATION AGREEMENT, THE OTHER OPERATIVE DOCUMENTS OR ANY OTHER AGREEMENT
OR DOCUMENT RELATED HERETO.
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SECTION 8.12 LIMITATION ON INTEREST. Any provision to the contrary
contained in this Participation Agreement or in any of the other Operative
Documents notwithstanding, it is expressly provided that in no case or event
shall the aggregate of (i) all interest payable by the Lessee or the Lessor
and (ii) the aggregate of any other amounts accrued or paid pursuant to this
Participation Agreement or any of the other Operative Documents, which under
applicable laws are or may be deemed to constitute interest, ever exceed the
maximum rate of interest which could lawfully be contracted for, charged or
received. In this connection, it is expressly stipulated and agreed that it
is the intent of the Lessee, the Lessor and the Lender to contract in strict
compliance with the applicable usury laws of the State of Texas and of the
United States (whichever permit the higher rate of interest) from time to
time in effect. In furtherance thereof, none of the terms of this
Participation Agreement or any of the other Operative Documents shall ever be
construed to create a contract to pay, as consideration for the use,
forbearance or detention of money, interest at a rate in excess of the
maximum contract interest rate permitted to be contracted for, charged or
received by the applicable laws of the United States or the State of Texas
(whichever permit the higher rate of interest). The Lessee, the Lessor and
the other parties now or hereafter becoming liable for payment of any
indebtedness under this Participation Agreement or any other Operative
Documents shall never be liable for interest in excess of the maximum rate
that may be lawfully contracted for or charged under the laws of the State of
Texas and of the United States (whichever permit the higher rate of
interest). If under any circumstances the aggregate amounts paid include
amounts which by law are deemed interest which would exceed the maximum
amount of interest which could lawfully have been contracted for, charged or
received, the parties stipulate that such amounts will be deemed to have been
paid as a result of an error on the part of the parties, and the party
receiving such excess payment shall promptly, upon discovery of such error or
upon notice thereof from the party making such payment, refund the amount of
such excess or at the Lender's option, credit such excess against any unpaid
principal balance owing. To the maximum extent permitted by applicable law,
all amounts contracted for, charged or received for the use, forbearance, or
detention of money shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of the
Loan. The provisions of this SECTION 8.12 shall control all of the Operative
Documents.
SECTION 8.13 REPRODUCTION OF DOCUMENTS. The parties hereto agree and
stipulate that, to the extent permitted by applicable law, any reproduction
of this Participation Agreement or other Operative Documents (except the
Note) shall be admissible in evidence as the original itself in any judicial
or administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by you in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This SECTION 8.13
shall not prohibit the Lender or party hereto from contesting any such
reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
SECTION 8.14 WAIVER OF CONSUMER RIGHTS. Each of the parties hereto
does hereby represent and warrant with and to each of the other parties
hereto that (a) it is not in a significantly disparate bargaining position,
(b) it is represented by legal counsel in seeking or
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acquiring goods or services and such legal counsel was not directly nor
indirectly identified, suggested or selected by another party hereto, (c) it
has knowledge and experience in financial and business matters that enable it
to evaluate the merits and risks of a transaction, including the transaction
evidenced by the Operative Documents, and (d) the Operative Documents are not
a result of any disparity in bargaining position among the Lessee, the Lessor
and the Lender and were negotiated on an arms-length basis and represent the
bargained-for agreement of parties. EACH PARTY WAIVES ITS RIGHTS UNDER THE
DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ.,
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF ITS OWN SELECTION, IT
VOLUNTARILY CONSENTS TO THIS WAIVER.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective duly authorized officers as of
the day and year first above written.
STB SYSTEMS, INC., as Lessee
By: /s/ James L. Hopkins
--------------------------------------
Name: James L. Hopkins
------------------------------------
Title: Vice President, Chief Financial Officer
-----------------------------------
ASSET XVII HOLDINGS COMPANY, L.L.C., as
Lessor
By Asset Holdings Corporation I, a
Delaware corporation, its managing
member
By: /s/ Illegible
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK ONE, TEXAS, N.A., as Lender
By: /s/ Illegible
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-49-
<PAGE>
APPENDIX I
TO
PARTICIPATION AGREEMENT
LEASE AND DEVELOPMENT AGREEMENT AND LOAN AGREEMENT
--------------------------------------------------
DEFINITIONS AND INTERPRETATION
[See separate text]
<PAGE>
APPENDIX II
FORM OF FUNDING REQUISITION
---------------------------
[Date]
Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Attention: Rick Rogers
Asset XVII Holdings Company, L.L.C.
c/o JH Management Corporation
Room 520
One International Place
Boston, Massachusetts 02110
Attn: Anne Brennan
Re: Request for Loan Advances and a Contribution Advance under that
certain Participation Agreement, dated as of November 14, 1997 (the
"Participation Agreement"), by and among Asset XVII Holdings Company,
L.L.C., as Lessor (the "Lessor"), STB Systems, Inc., as Lessee (the
"Lessee"), and Bank One, Texas, N.A. as Lender (the "Lender")
I, [Name], [Officer] of the Lessee, [or its agent], acting for the Lessee
and as agent for the Lessor pursuant to the Participation Agreement, submit this
irrevocable Funding Requisition and certify, on behalf of the Lessee, the
following (all terms not defined herein shall have the meanings given in the
Participation Agreement):
1. The total amount of the Development Costs for which a Funding is
hereby requested is ___________ Dollars ($________). The Lender and the Lessor
are each hereby requested to make on the Funding Date of __________ [at least 3
Business Days after the submission date] a Loan Advance or Contribution Advance,
as applicable (subject to the satisfaction or waiver of all conditions precedent
thereto), which in the aggregate total the amount of the Funding set forth in
the first sentence of this paragraph and allocated in accordance with the
Participation Agreement, in the manner herein described.
II-1
<PAGE>
2. The Funding relates to the Leased Property in the following
amounts.
Loan A Loan B Contribution
------ ------ ------------
$ $ $
------------------- ---------------------- ----------------------
3. The Lessee certifies that all conditions precedent to the
requested Funding contained in the Operative Documents have been satisfied, or
waived by Lender.
4. The Lessee acknowledges that the [Base Rate][Applicable LIBOR
Rate] shall apply to the requested Funding for the Loans. [For LIBOR Fundings]
The duration of the Interest Period applicable to the Loan Advance and the
Contribution Advance requested hereby shall be one month. [For Base Rate
Fundings] The Lessee acknowledges that the Base Rate shall apply until the next
Loan Payment Date which is more than 3 Business Days after the submission of
this Funding Requisition, and unless the Lessee shall otherwise request, the
Applicable LIBOR Rate shall apply thereto, and the Funding Date for the
Contribution Advance requested herein shall be the next Loan Payment Date which
is more than 3 Business Days after the submission of this Funding Requisition.
5. The proceeds of the Funding requested herein shall be used solely
to pay Development Costs.
6. [This Funding Requisition is submitted pursuant to Section 2.2(c)
of the Participation Agreement and is in respect of interest and Contribution
Return] OR [No part of the Development Costs paid with the funds advanced under
any previous Funding Requisition is a basis for this Funding Requisition, and
none of the Development Costs which are the subject of this Funding Requisition
was included in any prior Funding Requisition or is in respect of interest on
the Notes.
7. Attached to this Funding Requisition is a copy of each invoice,
purchase order, receipt or other such document (the "INVOICES") for Development
Costs, which, individually, is in an amount in excess of $100,000, which
Invoices will be, or have been, paid with the proceeds of this Funding, or, as
applicable, the previous Fundings.
8. Construction of all Improvements to date has been performed in a
good and workmanlike manner, substantially in accordance with the Plans and
Specifications therefor, and in compliance with Applicable Law.
9. There has been no material change in the estimated time of
completion of construction of the Improvements and the Lessee has no reason to
believe that (i) the Completion
II-2
<PAGE>
Date cannot be achieved by the Completion Deadline or (ii) the Total
Development Costs of the Construction of the Improvements will exceed the
Total Commitments.
10. No applicable Law prohibits, and no litigation, governmental
investigation or other proceeding is pending or, to the knowledge of the Lessee,
threatened in which there is a reasonable possibility of an unfavorable
judgment, decree, order or other determination which could prevent or make
unlawful, or impose any material adverse condition upon, the Land, the
Improvement or the construction or operation thereof or any transaction
contemplated hereby or by any other Operative Document or the ability of the
Lessee to perform its obligations hereunder or thereunder or, to the Lessee's
knowledge, the Lessor's interest in the Improvements and the Land.
11. All amounts previously advanced pursuant to previous Funding
Requisitions were or will be paid to the parties entitled thereto as specified
in such Funding Requisitions.
12. All proceeds of the Loans and the Contribution have been applied
solely to Development Costs as required under the Operative Documents.
13. [Except as set forth in this item 13,] all conditions precedent
to the Funding requested herein set forth in the Participation Agreement (as
defined below) have been satisfied: [identify unfulfilled conditions, the
actions being taken by the Lessee to satisfy such conditions and the date(s) by
which the Lessee plans to satisfy such conditions].
14. All of the representations and warranties of the Lessee set forth
in the Operative Documents are true and correct on and as of the date hereof or,
as applicable, on and as of the date specified in such representation and
warranty. The Lessee is in compliance with all of its obligations under the
Operative Documents and there exists no Event of Default under the Operative
Documents.
15. The name, address and wire instructions for the disbursement of
the requested Advance is set forth in the attachment hereto, and the Lender is
hereby requested to make such disbursement of the Advance on the date set forth
above in accordance with said attachment.
Very truly yours,
STB SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
II-3
<PAGE>
EXHIBIT K
---------
ARCHITECT'S CERTIFICATE
Pursuant to Section 3.1(a)(xxiv) of the Participation Agreement,
________________ ______________, a _______________ ______________ (the
"Company") DOES HEREBY CERTIFY to ASSET XVII HOLDINGS COMPANY, L.L.C. and BANK
ONE, TEXAS, N.A., as follows:
1. The Company has served as architect in connection with the preparation of,
and has prepared (or will prepare) architectural plans and specifications
(collectively, the "Plans and Specifications") for a project consisting of
the construction of a warehouse and distribution facility of approximately
_________ gross square feet (the "Intended Use") located on approximately
______ acres of currently unimproved land (the "Property") more
particularly described on EXHIBIT A attached hereto and incorporated herein
by reference (the "Project"). The Company has performed or will perform
all related architectural design work in connection with the development of
the Project pursuant to that certain contract dated _______________ by and
between the Company and STB Systems, Inc., a copy of which is attached
hereto as EXHIBIT B (the "Contract") Pursuant to the Contract, the Company
will act as the supervising architect during the development of the
Project.
. The Plans and Specifications provide (or will provide) for the construction
referred to above which, when completed in conformity with the Plans and
Specifications, will comply in all material respects with the requirements
of all applicable laws of governmental authorities having jurisdiction
thereof including, without limitation, The Americans with Disabilities Act
of 1990 (and applicable regulations thereunder), environmental laws,
erosion control laws, zoning and subdivision ordinances, land use and
development laws, as well as applicable codes and regulations of municipal
and city authorities. As of the date hereof, all permits required by any
applicable governmental authority, will be issued or available for issuance
in order to permit the development and construction of the Project in a
timely manner. There are no facts or issues outstanding with respect to
the construction of the Project in accordance with the Plans and
Specifications which would cause any material delay or otherwise impair the
issuance of all applicable permits for the construction of the Project in a
timely manner or which would materially impair or delay construction of the
Project in a timely manner.
3. The Plans and Specifications have been (or will be) prepared in accordance
with the standards of sound architectural practice and same will specify
that only new materials will be utilized. Upon completion in accordance
with the Plans and Specifications, the Project will be of sound structure,
free of defects, adequately constructed for its Intended Use and with its
mechanical plan in working order.
K-1
<PAGE>
4. It is our opinion that, upon completion of the Project in conformity with
the Plans and Specifications, all applicable permits, licenses and
certificates of occupancy to permit the use and operation of the Project
for its Intended Use will be obtainable.
5. The construction of the Project in accordance with the Plans and
Specifications will not affect any "wetlands" located on the Property, as
such term is defined in Section 328.3 of Title 33 of the Code of Federal
Regulations.
6. The Plans and Specifications require the following utilities:
(a) electricity
(b) telephone
(c) water
(d) sewer
(e) natural gas
7. We have confirmed that all such utilities are available to the boundaries
of the Project in proper location and in sufficient capacity to adequately
serve the Project upon completion of the construction in accordance with
the Plans and Specifications and that satisfactory commitments for
connection to and service of the Project have been obtained and that such
commitments for such utilities will not have expired at the time the
Project is completed.
8. The Plans and Specifications and Project comply with all applicable
requirements for parking and building setback lines. There is ingress and
egress to the Project from ______________________ which has been dedicated
to public use and accepted for maintenance by the
__________________________.
9. The Survey prepared by _________________ dated ____________ and last
revised ____________, has been reviewed and based on said survey and a
review of the site, there are no structures or utility lines on the site of
the Project which will materially interfere with the construction of
improvements at the site of the Project.
10. Upon completion of the Project in accordance with the Plans and
Specifications, the Project will comply with all lot area, height, floor
area and bulk, front, rear and side yard setbacks, and parking requirements
of all zoning ordinances and all other requirements of applicable
governmental authorities which apply to the Project, standing alone,
separate and distinct from any adjacent or contiguous parcel. Such
compliance is in no way dependent upon the common ownership of the Project
with any other property, and the land upon which the project will be
developed has been lawfully subdivided as a separate parcel.
11. Upon completion of the Project in accordance with the Plans and
Specifications, satisfactory methods of vehicular and pedestrian access to,
and egress from, the Project
K-2
<PAGE>
and adjoining or nearby public ways will be available, sufficient to meet
the reasonable needs of the Project's Intended Use and all applicable
requirements of public authorities. Design conditions are such that no
drainage of surface or other water across the property of others, or over
the site of the Project from land of others, is called for or indicated by
the Plans and Specifications or required for the Project.
12. To the undersigned's best knowledge, neither the Project nor the site of
the Project contain or incorporate any asbestos, PCB's, ureaformaldehyde,
radioactive material, or other toxic or hazardous wastes, materials or
product, as defined in federal, state or local laws and regulations.
------------------------------
K-3
<PAGE>
SCHEDULE I
NONE
<PAGE>
SCHEDULE II
NONE
<PAGE>
SCHEDULE III
FINANCIAL COVENANTS OF LESSEE
(a) The Lessee shall not permit the ratio of Current Assets to Current
Liabilities as determined as of the last day of any fiscal quarter to be less
than 0.80 to 1.00.
(b) The Lessee shall not permit Tangible Net Worth, as determined as of
the last day of any fiscal quarter, to be less than the sum of (i) $30,000,000
plus (ii) an amount equal to 70% of the Net Income for each fiscal quarter from
and including the fiscal quarter beginning April 30, 1997 (provided that any net
loss for any fiscal quarter shall be excluded from such calculation).
(c) The Lessee shall not permit the ratio of Total Liabilities to
Tangible Net Worth, as determined as of the last day of any fiscal quarter, to
be less than (i) 1.75 to 1.00 prior to the issuance after the date hereof of at
least $20,000,000 of further shares of the Lessee, and (ii) 1.00 to 1.00,
thereafter.
(d) The Lessee shall not permit the Fixed Charge Coverage Ratio as
determined as of the last day of any fiscal quarter for the period of four
consecutive fiscal quarters then ended, to be less than 1.75 to 1.00.
DEFINITIONS. Capitalized terms used in this Schedule 1 shall have the meanings
given them below and in Exhibit A to the Participation Agreement.
"Capital Expenditures" means the consolidated capital expenditures of the
Lessee and its Subsidiaries, as defined in accordance with GAAP, other than
those made subject to purchase money security interests or the equivalent
thereof.
"Capitalized Lease Obligation" means any rental obligation which, under
GAAP, is or will be required to be capitalized on the books of the Lessee or any
of its Subsidiaries, taken at the amount thereof accounted for as indebtedness
(net of interest expenses) in accordance with GAAP.
"Current Assets" means the consolidated current assets (other than
inventory) of the Lessee and it Subsidiaries, determined in accordance with
GAAP.
"Current Liabilities" means the consolidated current liabilities of the
Lessee and its Subsidiaries, determined in accordance with GAAP (except that
Current Liabilities shall include all indebtedness of the Lessee pursuant to
that certain Credit Agreement between Lessee and Lender or any replacement or
substitute therefor).
K-6
<PAGE>
"Debt" means with respect to the Lessee or any Subsidiary thereof and as of
any date of its determination, without duplication (a) indebtedness of such
Person for borrowed money, (b) obligations of such Person evidenced by notes,
bonds, debentures, or other similar instruments, (c) obligations of such Person
as lessee under Capitalized Lease Obligations, (d) obligations of such Person to
pay the deferred purchase price of property or services, (e) obligations of such
Person under or relating to letters of credit, guaranties, note purchase
agreements, investment agreements, and other obligations of such Person which
support the repayment of the types of indebtedness and obligations of others
referred to in parts (a) through (d) of this definition, and (f) nonrecourse
indebtedness or obligations of others of the kinds referred to in parts (a)
through (e) of this definition secured by any Lien on or in respect of any
property of such Person, all as determined in accordance with GAAP. For the
purposes of determining the amount of any Debt, the amount of the Debt described
in part (e) of the definition of Debt shall be valued at the full amount of the
contingent liability thereunder and the amount of any Debt described in part (f)
shall be valued at the lesser of the amount of the Debt secured or the value of
the property securing such Debt.
"Depreciation and Amortization" means, for any period, the consolidated
depreciation or amortization charged in such period in respect of the assets of
the Lessee and its Subsidiaries (and not including any amounts attributable to
repayment of Debt), all as determined in accordance with GAAP.
"Dividends" means, for the Lessee and its Subsidiaries, the amounts of cash
or stock dividends, and any other distributions in respect of profits of such
Persons (exclusive of intercompany dividends which would be eliminated upon
preparation of consolidated financial statements), all as determined in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means, for any fiscal quarter, the ratio
between (i) Net Income (excluding any extraordinary or non-recurring gains or
losses and net gains and net losses resulting from the sale of any capital
assets other than in the ordinary course of business) for such period, minus
Dividends, plus all amounts deducted in the calculation of Net Income on account
of (A) Interest Charges, (B) Taxes imposed or measured by income or excess
profits (but only to the extent such Taxes were not actually paid during such
period), (C) Depreciation and Amortization, and (D) Lease Expense, and (ii) the
sum of Lease Expense, Interest Charges, Principal Payments and Capital
Expenditures.
"Intangible Assets" means, with respect to the Lessee and its Subsidiaries
and as of any date of its determination, the goodwill, patents, trade names,
trade marks, copyrights, franchises, experimental expense, organization expense,
unamortized debt discount and expense, deferred assets (other than prepaid
insurance and prepaid taxes), the excess of cost of share acquired over book
value of related assets, and such other assets of such Persons as are properly
classified as "intangible assets" in accordance with GAAP (except that
capitalized research and development shall not be included in the determination
of Intangible Assets).
K-7
<PAGE>
"Interest Charges" means, for any period, the consolidated interest expense
incurred by the Lessee and its Subsidiaries (including amortization of debt
discount and expense and imputed interest on Capitalized Lease Obligations), all
as determined in accordance with GAAP.
"Lease Expense" means, for any period, the consolidated amounts paid by the
Lessee and its Subsidiaries as rent for rental payments under any operating
lease of real property and its improvements, as determined in accordance with
GAAP, pursuant to which lease the Lessee or any such Subsidiary thereof is
treated as the owner of such property and its improvements for federal income
tax purposes.
"Net Income" means, for any period, consolidated net income of the Lessee
and its Subsidiaries, as determined in accordance with GAAP.
"Net Worth" means, as of any date of its determination, the excess of the
consolidated assets of the Lessee and its Subsidiaries over the sum of the
liabilities of the Lessee and its Subsidiaries and the minority interests of
such Persons, all as determined in accordance with GAAP.
"Principal Payments" means, for any period, the consolidated scheduled
principal payments with respect to Debt of the Lessee and its Subsidiaries
during such period, all as determined in accordance with GAAP.
"Tangible Net Worth" means Net Worth less Intangible Assets.
"Total Liabilities" means the consolidated liabilities of the Lessee and
its Subsidiaries, determined in accordance with GAAP.
K-8
<PAGE>
APPENDIX I
TO
PARTICIPATION AGREEMENT, LEASE AND
DEVELOPMENT AGREEMENT AND LOAN AGREEMENT
----------------------------------------
DEFINITIONS AND INTERPRETATION
A. INTERPRETATION. In each Operative Document, unless a clear contrary
intention appears, (i) the singular number includes the plural number and vice
versa, (ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are permitted by
the Operative Documents, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually, (iii) reference to
any gender includes each other gender, (iv) reference to any agreement
(including any Operative Document), document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the other
Operative Documents and reference to any promissory note includes any promissory
note which is an extension or renewal thereof or a substitute or replacement
therefor, (v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated thereunder
and reference to any section or other provision of any Applicable Law means that
provision of such Applicable Law from time to time in effect and constituting
the substantive amendment, modification, codification, replacement or
reenactment of such section or other provision, (vi) reference in any Operative
Document to any Article, Section, Appendix, Schedule or Exhibit means such
Article or Section thereof or Appendix, Schedule or Exhibit thereto, (vii)
"hereunder", "hereof", "hereto" and words of similar import shall be deemed
references to an Operative Document as a whole and not to any particular
Article, Section or other provision hereof, (viii) "including" (and with
correlative meaning "include") means including without limiting the generality
of any description preceding such term, (ix) "or" is not exclusive and (x)
relative to the determination of any period of time, "from" means "from and
including", "to" means "to but not including" and "through" means "to and
including".
B. ACCOUNTING TERMS. In each Operative Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
C. CONFLICT IN OPERATIVE DOCUMENTS. If there is any conflict between any
Operative Documents, such Operative Document shall be interpreted and construed,
if possible, so as to avoid or minimize such conflict but, to the extent (and
only to the extent) of such conflict, the Participation Agreement shall prevail
and control.
D. DEFINED TERMS. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Operative Document.
"ACCELERATION" means the automatic acceleration of Lessee's obligation to
purchase Lessor's interest in the Leased Property pursuant to the provisions of
SECTION 15.3 of the Lease.
<PAGE>
"ACCOUNT CONTROL AGREEMENT" means that certain Account Control Agreement
of even date with the Participation Agreement between the Lessee, the Lender and
Banc One Investment Advisors, Inc. relating to the Securities Account.
"ADDRESS" means, with respect to any Person, such Person's address set
forth in SECTION 8.2 of the Participation Agreement or such other address as
such Person shall have identified to the parties to the Participation Agreement
in writing.
"ADJUSTED LIBOR RATE" means the rate per annum equal to the quotient
obtained by dividing the LIBOR Rate by the percentage obtained by subtracting
from 100% the applicable LIBOR Reserve Percentage on the date of calculation.
"ADVANCE" means a Loan Advance or Contribution Advance.
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, the term "CONTROL" (including the correlative
meanings of the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise; provided, however, (but without limiting the
foregoing) that no pledge of voting securities of any Person without the current
right to exercise voting rights with respect thereto shall by itself be deemed
to constitute control over such Person.
"AFTER-TAX BASIS" means (i) with respect to any payment to be received by
an Indemnitee (which, for purposes of this definition, shall include any Tax
Indemnitee), the amount of such payment supplemented by a further payment or
payments so that, after deducting from such payments the amount of all Taxes
(net of any Tax credits, refunds, deductions or reductions or other Tax benefits
arising from the payment by the Indemnitee of any amount, including Taxes, for
which the Indemnitee is being indemnified) actually imposed currently on the
Indemnitee by any Governmental Authority or taxing authority with respect to
such payments, the balance of such payments shall be equal to the original
payment to be received and (ii) with respect to any payment to be made by any
Indemnitee, the amount of such payment supplemented by a further payment or
payments so that, after increasing such payment by the amount of any current
credits or other Tax benefits realized by the Indemnitee under the laws of any
Governmental Authority or taxing authority resulting from the making of such
payments, the sum of such payments (net of such credits or benefits) shall be
equal to the original payment to be made; provided, however, for the purposes of
this definition, and for purposes of any payment to be made to either the Lessee
or a Tax Indemnitee on an after-tax basis, it shall be assumed that federal,
state and local taxes are payable at the highest combined marginal federal and
state statutory income tax rate (taking into account the deductibility of state
income taxes for federal income tax purposes) applicable to corporations from
time to time and that such Indemnitee or the Lessee has sufficient income to
utilize any deductions, credits (other than foreign tax credits, the use of
which shall be determined on an actual basis) and other Tax benefits arising
from any payments described in clause (ii) of this definition.
-2-
<PAGE>
"ALTERATIONS" means the construction or installation of non-trade fixtures,
alterations, improvements, modifications and additions to the Leased Property
including without limitation, any repair or restoration pursuant to ARTICLE XI
of the Lease or otherwise.
"APPLICABLE LAW" means all existing and future applicable laws, rules,
regulations (including Environmental Laws) statutes, treaties, codes,
ordinances, permits, certificates, orders and licenses of and interpretations by
any Governmental Authorities, and applicable judgments, decrees, injunctions,
writs, orders or like action of any court, arbitrator or other administrative,
judicial or quasi-judicial tribunal or agency of competent jurisdiction
(including those pertaining to health, safety or the environment (including,
without limitation, wetlands) and those pertaining to the construction, use or
occupancy of the Leased Property) and any restrictive covenant or deed
restriction or easement of record affecting the Leased Property.
"APPLICABLE LIBOR RATE" means (i) with respect to Note A, a rate per annum
equal at all times during each respective Interest Period to the sum of the
Adjusted LIBOR Rate plus 1.75% per annum, and (ii) with respect to Note B, a
rate per annum equal at all times during each respective Interest Period to the
sum of the Adjusted LIBOR Rate plus 5.75% per annum.
"APPLICABLE RATE" shall mean, for each Interest Period, (i) with respect to
the Notes, the Applicable LIBOR Rate, and (ii) with respect to the Contribution,
the Contribution Return Rate; PROVIDED, HOWEVER, that from and after the
Effective Date, the Applicable Rate shall be the Fixed Rate.
"APPRAISED VALUE" is defined in SECTION 3.2(a)(v) of the Participation
Agreement.
"APPROVED BUDGET" means the written budget setting forth the estimated
Development Costs for the Construction of Improvements, prepared in cost
breakdown form, the accuracy of which shall be certified by Lessee, the
Architect and the General Contractor in the certificate to be delivered pursuant
to SECTION 3.1(a)(xxiii) of the Participation Agreement, all in form and
substance satisfactory to Lender.
"ARCHITECT" means HKS, Inc. and any Person licensed to perform
architectural services in the State approved by the Lender.
"ASSIGNMENT OF LEASE AND RENTS" means the Assignment of Lease and Rents
dated as of November 14, 1997 from the Lessor to the Lender, together with any
other amendments or supplements thereto.
"AWARDS" means any award or payment received by or payable to the Lender,
the Lessor or the Lessee on account of any Condemnation or Event of Taking (less
the actual costs, fees and expenses incurred in the collection thereof, for
which the Person incurring the same shall be reimbursed from such award or
payment as permitted or required by the Operative Documents).
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as amended.
-3-
<PAGE>
"BASE RATE" means the rate of interest published or announced from time to
time by the Lender as its base rate, which rate may not necessarily represent
the lowest or best rate actually charged to any customer. Any rate of interest
hereunder which is calculated using the Base Rate shall change automatically and
immediately as and when the Base Rate shall change without notice to the Lessor
or the Lessee, and any notice of such change in the Base Rate to which the
Lessor or the Lessee may otherwise be entitled is hereby waived, and any such
change shall not alter any of the terms and conditions of the Participation
Agreement, the Loan Agreement or the Operative Documents.
"BASE RATE LOAN" means any portion of the principal amount of the Notes as
to which the applicable interest rate is the Base Rate.
"BASIC RENT" means the sum of the Scheduled Rent, if any, the Facility Rent
and the Index Rent payable on each Rent Payment Date, as provided in SECTION 4.1
of the Lease.
"BREAKAGE COSTS" shall mean, with respect to any LIBOR Rate Loans, any
amounts required to compensate the Lender for any actual additional losses,
costs or expenses which it may reasonably incur as a result of (i) any payment
of principal on the Notes on a date other than the last day of the Interest
Period relating thereto that the Lender would not incur with respect to a Base
Rate Loan, or (ii) a failure to effect a Loan Advance on a Funding Date,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by the Lender from third parties and that the
Lender would not incur with respect to a Base Rate Loan.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which banks are required or authorized by law or custom to be closed for
business in Dallas, Texas; PROVIDED, HOWEVER, that the term "Business Day" shall
also exclude any day on which commercial banks are not open for international
business (including dealings in U.S. dollar deposits) in the London interbank
market.
"CASUALTY" means an event of damage or casualty relating to all or part of
the Leased Property which does not constitute an Event of Loss.
"CLAIMS" means liabilities, obligations, damages, losses, demands,
penalties, fines, claims, actions, suits, judgments, settlements, utility
charges, costs, expenses and disbursements (including, without limitation,
reasonable legal fees and expenses) of any kind and nature whatsoever.
"CLOSING DATE" means November 24, 1997.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL REQUIREMENT" shall mean (i) prior to the delivery of the
appraisal pursuant to Section 3.2(a)(v) of the Participation Agreement, an
amount equal to 10% of the Total Commitments, and (ii) thereafter, the lesser of
(A) 10% of the Total Commitments and (B) the greater of (1) 20% of the Total
Commitments and (2) an amount equal to the Total
-4-
<PAGE>
Commitments minus 80% of the Appraised Value; PROVIDED, HOWEVER, that the
Collateral Requirement shall be reduced by the aggregate amount of principal
payments of the Loans and repayments of the Contribution by the Lessor
permitted or required to be made under the Operative Documents (except as a
result of a Casualty or Condemnation).
"COMPLETION DATE" means the first Loan Payment Date on which the conditions
specified in SECTION 3.3 of the Participation Agreement shall have been
satisfied.
"COMPLETION DEADLINE" means November 1, 1998, subject to extension by
Construction Force Majeure Events.
"CONDEMNATION" means any condemnation, requisition, confiscation, seizure
or other taking or sale of the use, occupancy or title to the Leased Property or
any part thereof in, by or on account of any actual eminent domain proceeding or
other action by any Governmental Authority or other Person under the power of
eminent domain, or any transfer in lieu of or in anticipation thereof, which in
any case does not constitute an Event of Taking. A Condemnation shall be deemed
to have "occurred" on the earliest of the dates that use, occupancy or title is
taken.
"CONSTRUCTION" means the development and construction of the Improvements
pursuant to the Plans and Specifications.
"CONSTRUCTION CONDITIONS" means those conditions set forth in Section 3.3
of the Participation Agreement.
"CONSTRUCTION CONTRACT" means any agreement for the Construction of the
Improvements now existing or subsequently entered into between the Lessee and
the General Contractor.
"CONSTRUCTION FORCE MAJEURE EVENT" means: (i) an act of God arising after
the Closing Date, (ii) any cause, circumstance or event arising after the
Closing Date and not reasonably within the control of the Lessee or (iii) any
change in any state or local law, regulation or other legal requirement arising
after the Closing Date and relating to the use of the Land or the Construction
of the Improvements which prevents the Lessee from completing the Construction
prior to the Completion Deadline and which could not have been avoided or which
cannot be remedied by the Lessee through the exercise of all commercially
reasonable efforts or the reasonable expenditure of funds and, in the case of
clauses (i) and (ii) of this definition, the existence or potentiality of which
was not known to and could not have been discovered prior to the Closing Date
through the exercise of reasonable due diligence by the Lessee.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision of
any Securities issued by that Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which that
Person is a party or by which it or any of its properties is bound or to which
it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting any of the properties of such Person).
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"CONTRIBUTION" means, at any time, the aggregate amount of Contribution
Advances the Lessor (i) has made pursuant to SECTION 2.2(b) of the Participation
Agreement and (ii) is deemed to have made pursuant to SECTION 2.2(d) of the
Participation Agreement, not to exceed in the aggregate the Equity Commitment.
"CONTRIBUTION ADVANCE" means each amount on account of the Contribution
made by the Lessor (whether directly or by any of its members on its behalf) to
the Lessee for the payment of Development Costs pursuant to SECTION 2.2(b) of
the Participation Agreement, plus each amount which the Lessor shall have been
deemed to have advanced with respect to Contribution Return pursuant to SECTION
2.2 (d) of the Participation Agreement.
"CONTRIBUTION RETURN" means, as of any date of calculation, with respect to
the aggregate amount of the Contribution, a pre-tax cumulative return on the
balance of the Contribution outstanding from time to time, computed at a per
annum rate equal to (i) during any period when a LIBOR Rate Loan is outstanding,
the sum of the Adjusted LIBOR Rate for such Interest Period plus 9.10% per
annum; (ii) during any period when either (A) 100% of the principal balance of
Loan B is a Base Rate Loan, or (B) the Base Rate applies as a result of any
circumstance described in SECTION 2.4 (f) of the Loan Agreement, the Base Rate;
or (iii) during any period when an Event of Default shall have occurred and
remain uncured (other than an Event of Default resulting solely from a Loan
Event of Default not caused by the acts or omissions of Lessee), the Overdue
Rate; PROVIDED, HOWEVER, that in none of the foregoing cases shall the
applicable foregoing rate exceed the highest rate permitted by Applicable Law.
During the period from the first Funding Date on which a Contribution Advance
shall be made to the Completion Date, Contribution Return shall be compounded on
each Loan Payment Date as a result of a Contribution Advance to be deemed made
pursuant to SECTION 2.2 (d) of the Participation Agreement. After the
Completion Date, Contribution Return shall be payable on each Loan Payment Date
from the proceeds of the Facility Rent payable by the Lessee on each such date
and any amount of Contribution Return not so paid when due will bear interest at
the Overdue Rate until paid in full (whether after or before judgment).
"CONTRIBUTION RETURN RATE" means a rate per annum equal at all times during
each respective Interest Period to the sum of the Adjusted LIBOR Rate plus 9.10%
per annum.
"DEED" means the special warranty deed pursuant to which Lessor shall
acquire title to the Land.
"DEFAULT" means any event, condition or failure which, with notice or lapse
of time or both, would become an Event of Default.
"DEVELOPMENT COSTS" is defined in SECTION 2.6 of the Participation
Agreement.
"EFFECTIVE DATE" means the date on which the Fixed Rate shall apply to the
Loans and the Contribution.
"ENVIRONMENTAL LAWS" means and include the Resource Conservation and
Recovery Act of 1976, (RCRA) 42 U.S.C. Sections 6901-6987, as amended by the
Hazardous and Solid Waste
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Amendments of 1984, the Comprehensive Environmental Response, Compensation
and Liability Act, as amended by the Superfund Amendments and Reauthorization
Act of 1986, 42 U.S.C. Sections 9601-9657, (CERCLA), the Hazardous Materials
Transportation Act of 1975, 49 U.S.C. Sections 1801-1812, the Toxic
Substances Control Act, 15 U.S.C. Sections 2601-2671, the Clean Air Act, 42
U.S.C. Sections 7401 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Sections 136 et seq., and all similar federal,
state and local environmental laws, ordinances, rules, orders, statutes,
decrees, judgments, injunctions, codes and regulations, and any other
federal, state or local laws, ordinances, rules, codes and regulations
relating to the environment, human health or natural resources or the
regulation or control of or imposing liability or standards of conduct
concerning human health, the environment, Hazardous Materials or the clean-up
or other remediation of the Leased Property, or any part thereof, as any of
the foregoing may have been from time to time amended, supplemented or
supplanted.
"ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations,
certificates and approvals of Governmental Authorities required by Environmental
Laws.
"EQUITY COMMITMENT" means $684,000, being the maximum amount of the
Contribution which Lessor has committed to make under the Participation
Agreement.
"EQUITY RATIO" means 3.00%.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time or any successor federal statute.
"ESTIMATED DEVELOPMENT COSTS" means the amount of Development Costs to be
incurred by or on behalf of Lessor to pay the purchase price and any related
costs of acquisition of the Land and to pay costs of Construction of
Improvements thereto, all as estimated by the Lessee in the certificate to be
delivered pursuant to SECTION 3.1(a)(xxiii) of the Participation Agreement and
approved by the Lender.
"EVENT OF DEFAULT" means any event or condition designated as an "Event of
Default" in Article XIII of the Lease.
"EVENT OF LOSS" is defined in SECTION 11.1 of the Lease.
"EVENT OF TAKING" is defined in SECTION 11.2 of the Lease.
"FACILITATION AGREEMENT" is defined in SECTION 4.2 of the Lease.
"FACILITATION FEE" means the amount specified as the Facilitation Fee to be
paid by the Lessee to the Lessor as set forth in SECTION 4.2 of the Lease and in
the Facilitation Agreement.
"FACILITY RENT" means amounts payable as Facility Rent as specified in
SECTION 4.1 of the Lease.
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"FAIR MARKET RENTAL VALUE" means, with respect to the Leased Property, the
fair market rental value as determined by an independent appraiser chosen by the
Lessor (and reasonably acceptable to the Lessee and the Lender) that would be
obtained in an arm's-length lease between an informed and willing lessee and
an informed and willing lessor, in either case under no compulsion to lease
and neither of which is related to the Lessor or the Lessee for the lease of
the Leased Property on the terms set forth, or referred to, in the Lease.
Such fair market rental value shall be calculated as the value for the use of
the Leased Property to be leased in place at the Land assuming, in the
determination of such fair market rental value, that the Leased Property is
in the condition and repair required to be maintained by the terms of the
Lease (unless such fair market rental value is being determined for the
purposes of SECTION 14.1 of the Lease and except as otherwise specifically
provided in the Lease, in which case this assumption shall not be made).
"FAIR MARKET SALES VALUE" means, with respect to the Leased Property or any
portion thereof, the fair market sales value as determined by an independent
appraiser chosen by the Lessee (and reasonably acceptable to the Lender) that
would be obtained in an arms-length transaction between an informed and willing
buyer (other than a lessee currently in possession) and an informed and willing
seller, under no compulsion, respectively, to buy or sell and neither of which
is related to the Lessor or the Lessee, for the purchase of the Leased Property.
Such fair market sales value shall be calculated as the value for the use of the
Leased Property assuming, in the determination of such fair market sales value,
that the Leased Property is in the condition and repair required to be
maintained by the terms of the Lease (unless such fair market sales value is
being determined for purposes of SECTION 14.1 of the Lease and except as
otherwise specifically provided in the Lease, or the Participation Agreement, in
which case this assumption shall not be made).
"FINAL RENT PAYMENT DATE" is defined in SECTION 14.1 (e) of the Lease.
"FINANCIAL ADVISOR" means Banc One Capital Corporation, Columbus, Ohio, or
such other Person as selected by the Lender and reasonably acceptable to the
Lessee.
"FISCAL YEAR" means the fiscal year of the Lessee, which shall be the
twelve (12) monthly accounting periods ending on the last calendar day of
September or such other period as the Lessee may designate and the Lender may
approve in writing.
"FIXED RATE" means, as of the time of determination in accordance with an
election made by the Lessee pursuant to the Loan Agreement, the per annum rate
of interest equal to the sum of the interest rate then-prevailing on United
States Treasury Securities with a maturity closest in duration to the period
between the Effective Date and the Scheduled Termination Date, as determined by
the Lender (which determination shall be conclusive in the absence of manifest
error) plus, 250 basis points in respect of Note A, 375 basis points in respect
of Note B and 900 basis points in respect of the Contribution.
"FIXED RATE LOANS" shall mean Loan A and Loan B following the Effective
Date.
"FUNDING" has the meaning specified in SECTION 2.2 of the Participation
Agreement.
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"FUNDING DATE" has the meaning specified in SECTION 2.2 of the
Participation Agreement.
"FUNDING REQUISITION" has the meaning specified in SECTION 2.2 of the
Participation Agreement.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time.
"GENERAL CONTRACTOR" means the general contractor under the Construction
Contract as selected by the Lessee.
"GOVERNMENTAL ACTION" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, decrees,
licenses, exemptions, publications, filings, notices to and declarations of or
with, or required by, any Governmental Authority, or required by any Applicable
Law and shall include, without limitation, all siting, building, environmental
and operating permits and licenses that are required for the acquisition,
construction, use, occupancy, zoning and operation of the Leased Property.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America, the government of any other nation, any political subdivision of the
United States of America or any other nation (including, without limitation, any
state, territory, federal district, municipality or possession) and any federal,
state, county, municipal or other governmental or regulatory authority, agency,
board, body, commission, instrumentality or court, or any political subdivision
thereof.
"GUARANTY" means that certain Limited Guaranty dated of even date herewith
from the Lessee in favor of the Lessor.
"INVESTMENT PROPERTY SECURITY AGREEMENT" means that certain Investment
Property Security Agreement dated of even date wit the Participation Agreement
between the Lessee and the Lender relating to the Securities Account.
"HAZARDOUS MATERIAL" means any substance, waste or material which is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous, including petroleum, crude oil or any fraction
thereof, petroleum derivatives, by products and other hydrocarbons and is or
becomes regulated by any Governmental Authority, including any agency,
department, commission, board or instrumentality of the United States, the State
of Wisconsin or any political subdivision thereof and also including asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon
gas.
"IMPROVEMENTS" means the buildings, structures and improvements described
on APPENDIX II of the Lease located on the Land, along with all fixtures used or
useful in connection with the operation of the Leased Property, including,
without limitation, all furnaces, boilers, compressors, elevators, fittings,
pipings, connectives, conduits, ducts, partitions, equipment and apparatus of
every kind and description now or hereafter affixed or attached or used or
useful in connection with the buildings, all Alterations (including all
restorations,
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repairs, replacements and rebuilding of such buildings, improvements and
structures) thereto (but in all the above cases excluding trade fixtures and
any personal property owned by the Lessee).
"INDEMNITEE" means the Lender and the Lessor, and their respective
successors, permitted assigns, permitted transferees, employees, officers,
directors and agents thereof (and, in the case of the Lessor, also including its
constituent members, its managers, and their respective officers, employees,
directors, agents, incorporators and stockholders); PROVIDED, HOWEVER, that in
no event shall the Lessee be an Indemnitee.
"INDEMNITEE GROUP" means the respective employees, officers, directors and
agents of the Lender, the Lessor and JH Management Corporation (and, in the case
of the Lessor, also including its constituent members and their respective
officers, employees, directors, agents, incorporators and stockholders), as
applicable; PROVIDED, HOWEVER, that in no event shall the Lessee be a member of
an Indemnitee Group.
"INDEMNIFIED CLAIMS" is defined in SECTION 7.3 of the Participation
Agreement.
"INDEX RENT" means an amount equal to all interest accrued and unpaid on
the Loans as of each Rent Payment Date on which Basic Rent shall be due and
payable.
"INITIAL LOAN ADVANCE" means the Loan A Advance made by the Lender pursuant
to the Loan Agreement on the Closing Date.
"INTANGIBLE ASSETS" means, with respect to any Person and as of any date of
its determination, the goodwill, patents, trade names, trade marks, copyrights,
franchises, experimental expense, organization expense, unamortized debt
discount and expense, deferred assets (other than prepaid insurance and prepaid
taxes), the excess of cost of share acquired over book value of related assets,
and such other assets of such Person as are properly classified as "intangible
assets" in accordance with GAAP.
"INTEREST PERIOD" means, during any period as to which the Applicable LIBOR
Rate applies, the one-month period commencing on the Closing Date and,
thereafter with respect to the continuation thereof, each succeeding one-month
period commencing on the last day of the immediately preceding Interest Period.
"INTEREST SETTING DATE" means, with respect to any Interest Period, the
date which is three (3) Business Days before the first day of such Interest
Period; PROVIDED, HOWEVER, that with respect to any period for which the
interest rate is determined by reference to the Base Rate, the date specified by
the Lender as the first day that either such rate is to apply.
"LAND" means the land described in APPENDIX II to the Lease.
"LAWS" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, treaties or decrees of any Governmental Authority or any
governmental or political subdivision or agency thereof, or of any court or
similar entity established by any thereof.
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"LEASE" means the Lease and Development Agreement, dated as of November 14,
1997 between the Lessor and the Lessee, together with any amendments or
supplements thereto.
"LEASE BALANCE" means, as of any date of determination, an amount equal to
the sum of (i) the principal of the Loans then outstanding, any premium
applicable to the prepayment thereof, all accrued and unpaid interest on the
Loans; PROVIDED THAT (A) the payment of the Lease Balance pursuant to the
provisions of the Lease at any time shall satisfy any remaining obligation for
the payment of Basic Rent, and (B) in the event that, as a result of a Loan
Event of Default which is not related to the occurrence of an Event of Default
or Potential Event of Default, the outstanding principal of, and accrued
interest on, the Loans becomes (automatically or as a result of the Lender's
exercise of its remedies under the Operative Documents) immediately due and
payable and no Event of Default or Potential Event of Default has occurred and
is then continuing, the Lessee shall not be responsible for the payment of (and
such amounts shall not be deemed to be Basic Rent or Supplemental Rent or
included in the Lease Balance for any purpose) the following costs and charges
which may become payable as a result of the Loan Event of Default: (I) any
additional interest payable as a result of the application of the Overdue Rate
pursuant to the provisions of SECTION 2.6 of the Loan Agreement, (II) any late
charges payable under the provisions of SECTION 2.8 of the Loan Agreement, or
(III) any other costs and expenses of the Lender incurred by the Lender in the
collection or enforcement of the Notes and any other obligations of the Lessor
to the Lender under the Loan Agreement, and (ii) so long as no Loan Event of
Default not accompanied by an Event of Default shall have occurred and be
continuing, the outstanding balance of the Contribution, all accrued and unpaid
Contribution Return (prorated to the date of payment) and, (iii) without
duplication, all other amounts owing by the Lessee to the Lender or the Lessor
under the Operative Documents.
"LEASE EXPENSE" means, for any period, the amounts paid by the Lessee or
any Subsidiary thereof as rent for rental payments under any operating lease of
real property and its improvements, as determined in accordance with GAAP,
pursuant to which lease the Lessee or any Subsidiary thereof is treated as the
owner of such property and its improvements for federal income tax purposes.
"LEASE TERM" means (i) the period commencing on the Closing Date, and
ending on the Scheduled Termination Date or (ii) such shorter period as may
result from earlier termination of the Lease as provided therein.
"LEASE TERMINATION DATE" means the Scheduled Termination Date or such
earlier date on which the Lease Term shall end as provided in the Lease.
"LEASED PROPERTY" means the Improvements and the Land.
"LENDER" means Bank One, Texas, N.A. and its permitted successors and
assigns.
"LESSEE" means STB Systems, Inc., a Texas corporation, and its permitted
successors and assigns.
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"LESSOR" means Asset XVII Holdings Company, L.L.C., a Massachusetts limited
liability company.
"LESSOR INDEMNITEE" means the Lessor, its successors and permitted assigns,
permitted transferees, incorporators, members, employees, officers, manager and
agents.
"LESSOR LIENS" means Liens on or against the Leased Property or any portion
thereof, the Lease or any payment of Rent (i) which result from any act of, or
any Claim against, the Lessor unrelated to the exercise of Lessor's rights under
the Operative Documents or (ii) which result from any Tax owed by the Lessor,
except any Tax for which the Lessee is obligated to indemnify the Lessor.
"LESSOR PROPERTY FINANCING STATEMENTS" means those UCC financing statements
given by the Lessor to the Lender with reference to the security interest
created by the Mortgage covering the collateral described therein.
"LESSOR RENTS FINANCING STATEMENTS" means those UCC financing statements
given by the Lessor to the Lender with reference to the security interest
created by the Assignment of Lease and Rents covering the collateral described
therein.
"LESSOR'S BREAKAGE COSTS" means any amounts (other than Breakage Costs as
defined herein) required to be paid by the Lessor or any of its members to
compensate any creditor thereof for any actual additional losses, costs or
expenses which such creditor may reasonably incur (including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by such creditor by reason of the liquidation or reemployment of
deposits or other funds acquired such creditor from third parties) which follow
the Lessee's untimely payment of Facility Rent or its failure to accept a
Contribution Advance, resulting in any payment of principal on a note held by
such creditor on a date other than when due.
"LIBOR RATE" means, for any Interest Period to which the Applicable LIBOR
Rate applies, an interest rate per annum equal to the London Interbank Offered
Rate for a term comparable to the term of the Interest Period, as published in
the most recent FEDERAL RESERVE STATISTICAL BULLETIN before the applicable
Interest Setting Date; PROVIDED, HOWEVER, that in the event such a rate for a
particular Interest Period term is not published therein, "LIBOR Rate", with
respect to such Interest Period term, shall mean an interest rate per annum at
which the Lender is offered deposits in U.S. dollars in the London Interbank
Market in accordance with its customary business practice at approximately
10:00 a.m., Dallas, Texas time, two (2) business days prior to the commencement
of such Interest Period in principal amounts approximately equal to the
outstanding principal amount of Loan B or the Contribution, whichever may be
applicable, and with maturity comparable to such Interest Period.
"LIBOR RATE LOAN" means any portion of the principal amount of Note B the
rate of interest applicable thereto is determined by reference to the LIBOR
Rate.
"LIBOR RESERVE PERCENTAGE" means the reserve requirement including any
supplemental and emergency reserves (expressed as a percentage) applicable to
member banks of the Federal
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Reserve System in respect of eurocurrency liabilities under Regulation D of
the Board of Governors of the Federal Reserve System, or any substituted or
amended reserve requirements applicable to member banks of the Federal
Reserve System which is in effect as of November 14, 1997 and taking into
account any transitional requirements thereto becoming effective during the
term of the Loan.
"LIEN" means any lien, mortgage, deed of trust, encumbrance, pledge,
charge, lease, easement, servitude, right of others (legal or equitable) or
security interest of any kind, including any thereof arising under any
conditional sale or other title retention agreement.
"LOAN A" means that loan of $19,380,000 by the Lender to the Lessor made
pursuant to the Loan Agreement.
"LOAN A ADVANCE" means any advance from time to time by the Lender to the
Lessor, or to the Lessee pursuant to SECTION 2.2 of the Participation Agreement
of amounts available to be borrowed under Loan A.
"LOAN A COMMITMENT" means $19,380,000, being the maximum amount of Loan A
Advances which Lender has committed to make under the Operative Documents.
"LOAN A RATIO" means 85.0%.
"LOAN ADVANCE" means either a Loan A Advance or Loan B Advance.
"LOAN B" means that loan of $2,736,000 by the Lender to the Lessor made
pursuant to the Loan Agreement.
"LOAN B ADVANCE" means any advance from time to time by the Lender to the
Lessor, or to the Lessee pursuant to SECTION 2.2 of the Participation Agreement
of amounts available to be borrower under Loan B.
"LOAN B COMMITMENT" means $2,736,000, being the maximum amount of Loan B
Advances which Lender has committed to make under the Operative Documents.
"LOAN B RATIO" means 12.0%.
"LOANS" is defined in SECTION 2.1 of the Loan Agreement.
"LOAN AGREEMENT" means the Loan Agreement dated as of November 14, 1997,
between the Lender and the Lessor, together with all amendments and supplements
thereto.
"LOAN COMMITMENTS" means the Loan A Commitment and the Loan B Commitment.
"LOAN DOCUMENTS" means the Loan Agreement, the Notes, the Mortgage, the
Assignment of Lease and Rents and all documents and instruments executed and
delivered in connection with each of the foregoing.
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"LOAN EVENT OF DEFAULT" means any of the events specified in SECTION 5.1 of
the Loan Agreement, provided that any requirement for the giving of notice, the
lapse of time, or both or any other condition, event or act has been satisfied.
"LOAN PAYMENT DATE" means (i) while any LIBOR Rate Loan shall be
outstanding, (a) to and including the Completion Date, the last day of each
Interest Period, and (b) after the Completion Date, (1) with respect to any
one-month Interest Period, the last day of such Interest Period, and (2) with
respect to any Interest Period having a duration longer than one month, (A)
for each calendar month (or part thereof) other than the last calendar month
(or part thereof) of such Interest Period, the day of each such subsequent
calendar month (or part thereof) which is the same day of the month on which
such Interest Period began, and (B) for the last calendar month (or part
thereof) of such Interest Period, the last day of such Interest Period; and
(ii) otherwise, the first Business Day of each month; PROVIDED, HOWEVER, that
if any date determined in accordance with the foregoing shall be a date other
than a Business Day, the related Loan Payment Date shall instead be the
Business Day immediately preceding such date.
"LOAN DEFAULT" means any event, condition or failure which, with notice or
lapse of time or both, would become a Loan Event of Default.
"LOSS PROCEEDS" shall have the meaning specified in SECTION 11.6 of the
Lease.
"MATERIAL" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Lessee, its Parent
or its Subsidiaries.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the
consolidated financial condition, operations, performance or properties of the
Lessee, its Parent or its Subsidiaries, or (ii) the ability of the Lessee to
perform in any material respect under the Operative Documents.
"MEMORANDUM OF LEASE" means the Memorandum of Lease dated as of November
14, 1997 between Lessee and Lessor which describes the Lease and certain of its
provisions and is intended to be recorded in the Collin County, Texas real
property records.
"MORTGAGE" means that certain Deed of Trust and Security Agreement dated as
of November 14, 1997 made and executed by Lessor and delivered to Christopher T.
Klimco as trustee for the benefit of the Lender with respect to the Leased
Property.
"NON-DISTURBANCE AND ATTORNMENT AGREEMENT" means that certain
Subordination, Non-Disturbance and Attornment Agreement, dated as of November
14, 1997, by and among the Lender, the Lessor and the Lessee, together with any
amendments or supplements thereto.
"NOTE A" means the promissory note issued by Lessor to the Lender under the
Loan Agreement to evidence Loan A, together with any amendments or supplements
thereto or replacements thereof.
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"NOTE B" means the promissory note issued by Lessor to the Lender under the
Loan Agreement to evidence Loan B, together with any amendments or supplements
thereto or replacements thereof.
"NOTES" means, collectively, Note A and Note B.
"OFFICER'S CERTIFICATE" of a Person means a certificate signed by the
Chairman of the Board or the President or any Executive Vice President or any
Senior Vice President or any other Vice President of such Person signing with
the Treasurer or any Assistant Treasurer or the Controller or any Assistant
Controller or the Secretary or any Assistant Secretary of the such Person, or by
any Vice President who is also Controller or Treasurer signing alone.
"OPERATING AGREEMENT" means that certain Limited Liability Company
Agreement with respect to the Lessor, dated as of November 14, 1997, between
Asset Holdings Corporation, a Delaware corporation and Asset Holdings
Corporation I, a Delaware corporation, relating to the formation and governance
of the Lessor.
"OPERATIVE DOCUMENTS" means the Participation Agreement, the Lease, the
Security Agreement and Assignment, the Notes, the Loan Agreement, the Assignment
of Lease and Rents, the Mortgage, the Non-Disturbance and Attornment Agreement,
the Investment Property Security Agreement, the Account Control Agreement, and
the Guaranty.
"OVERDUE RATE" means the lesser of (i) the highest interest rate permitted
by Applicable Law and (ii) an interest rate per annum (calculated on the basis
of a 365-day (or 366-day, if appropriate year) equal to the Base Rate in effect
from time to time plus 3.00%; provided that, from and after the Effective Rate,
the Overdue Rate shall be the Fixed Rate plus 300 basis points.
"PARTICIPATION AGREEMENT" means the Participation Agreement dated as of
November 14, 1997 among the Lender, the Lessor and the Lessee, together with all
amendments and supplements thereto.
"PERMITTED CHANGE ORDERS" means changes in the Plans and Specifications and
the Construction Contract (including change orders thereunder) which do not
modify the scope or use of the Improvements and which, with respect any one
change order, do not result in an increase or decrease in the cost of the
Improvements by more than $50,000, or which, with respect to all change orders,
do not result in an increase or decrease in the aggregate cost of the Building
by more than $250,000, or which reallocate hard cost savings to hard cost
contingencies or reallocate hard cost contingencies to hard cost line items.
"PERMITTED INVESTMENTS" means: (i) interest-bearing deposit accounts (which
may be represented by short-term certificates of deposit, time deposit open
account agreements or other short-term deposit instruments) in national or state
banks having (A) a combined capital and surplus of not less than $100,000,000;
(B) whose deposits are insured by the Federal Deposit Insurance Corporation; and
(C) whose senior unsecured debt is rated "A2" or better (or the then equivalent
thereof) by Moody's or "A" or better (or the then equivalent thereof) by S&P;
(ii)
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<PAGE>
direct obligations of, or obligations the principal of and interest on which
are unconditionally guaranteed by, the United States of America; or (iii)
commercial paper rated "A-1" (or the then equivalent thereof) by S&P and
"P-1" (or the then equivalent thereof) by Moody's and maturing not more than
180 days after the date of deposit.
"PERMITTED LIENS" means (i) the respective rights and interests of the
Lessee, the Lessor and the Lender as provided in the Operative Documents, (ii)
Lessor Liens, (iii) Liens for Taxes either (A) not yet due or (B) being
contested in good faith and by appropriate proceedings, so long as enforcement
thereof is stayed pending such proceedings, (iv) materialmen's, mechanics',
workers', repairmen's, employees' or other like Liens arising after the Closing
Date in the ordinary course of business for amounts either not yet due or being
contested in good faith and by appropriate proceedings, so long as enforcement
thereof is stayed pending such proceedings, (v) Liens arising after the Closing
Date out of judgments or awards with respect to which at the time an appeal or
proceeding for review is being prosecuted in good faith, so long as the
enforcement thereof has been stayed pending such appeal or review, (vi)
easements, rights of way, reservations, servitudes and rights of others against
the Land which are listed on Schedule B to the Title Policy or permitted by
ARTICLE VI of the Lease, and (vii) assignments, leases and subleases expressly
permitted by the Operative Documents.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, nonincorporated
organization or government or any agency or political subdivision thereof.
"PLANS AND SPECIFICATIONS" means the final plans and specifications for the
Project Alternations as such Plans and Specifications may be hereafter amended,
supplemented or otherwise modified from time to time.
"PURCHASE OPTION" is defined in SECTION 15.1 of the Lease.
"PURCHASE OPTION PRICE" means an amount equal to the Lease Balance as of
the closing date of the purchase of all of the Leased Property pursuant to the
exercise by the Lessee of the Purchase Option set forth in, and in accordance
with, SECTION 15.1 of the Lease.
"QUALIFIED PAYMENT" shall mean any monies paid or payable to the Lessor or
the Lender and identified in the Lease or any other Operative Document as a
"Qualified Payment", it being agreed that all Qualified Payments shall be paid
to the Lender as a pre-payment of the Loans to be applied against principal
payments or installments of the Loans in the inverse order of maturity, but
without (unless agreed in writing by the Lender and the Lessee) affecting or
giving rise to any change or adjustment of the Basic Rent except the installment
due on the Lease Termination Date.
"RECOURSE DEFICIENCY AMOUNT" means $17,250,000; PROVIDED, HOWEVER, if (i)
any amount of principal of the Notes shall be prepaid, or repaid other than as
provided in APPENDIX III of the Loan Agreement, following the occurrence of an
Event of Loss or Event of Taking, or (ii) as of the Completion Date, the total
Development Costs shall be less that the Total Commitments, THEN the Lessee may
request the Financial Advisor to recalculate the amount of
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<PAGE>
the Recourse Deficiency Amount for any Property utilizing the same formula,
methodology and assumptions used to calculate the original Recourse
Deficiency Amount. The Financial Advisor shall notify the Lessee, the Lessor
and the Lender of the recalculated Recourse Deficiency Amount, which
recalculation, in the absence of manifest error, shall be conclusive and
binding upon the Lender, the Lessor and the Lessee.
"REGULATIONS" means the income tax regulations promulgated from time to
time under and pursuant to the Code.
"REINVESTMENT ACCOUNT" means the account maintained by the Lender pursuant
to SECTION 3.7 of the Loan Agreement.
"RELEASE" means the release, deposit, disposal or leak of any Hazardous
Material into or upon or under any land or water or air, or otherwise into the
environment, including, without limitation, by means of burial, disposal,
discharge, emission, injection, spillage, leakage, seepage, leaching, dumping,
pumping, pouring, escaping, emptying, placement and the like.
"RELEASE DATE" means the date that the Loans have been paid in full.
"REMARKETING CONDITIONS" is defined in SECTION 15.6(b) of the Lease.
"REMARKETING NOTICE" means the written notice of the exercise of the
Remarketing Option which shall be given pursuant to SECTION 15.6 of the Lease.
"REMARKETING OPTION" is defined in SECTION 15.6 of the Lease.
"RENT" means Basic Rent and Supplemental Rent, collectively.
"RENT PAYMENT DATE" means each Loan Payment Date during the Lease Term
commencing on the first Loan Payment Date which next follows the Closing Date.
"RENT PERIOD" means initially the period commencing on the Closing Date and
ending on the first Rent Payment Date, and thereafter each period from one Rent
Payment Date to the next following Rent Payment Date.
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, permit, approval, authorization, license or variance, order or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject, including, without
limitation, the Securities Act, the Securities Exchange Act, Regulations G, T, U
and X, and any building, environmental or land use requirement or permit or
occupational safety or health law, rule or regulation.
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<PAGE>
"RESPONSIBLE OFFICER" means the President, any Senior Vice President or
Executive Vice President, any Vice President, the Secretary, any Assistant
Secretary, the Treasurer, or any Assistant Treasurer.
"SCHEDULED RENT" means the amounts payable as Scheduled Rent as specified
in APPENDIX III of the Lease.
"SCHEDULED TERMINATION DATE" means December 1, 2002.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES" means any stock, shares, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities", or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing.
"SECURITIES ACCOUNT" means the "Short Cash Account" maintained by Banc One
Investment Advisors, Inc. and subject to the Investment Property Security
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY AGREEMENT AND ASSIGNMENT" means the Security Agreement and
Assignment (Construction Contract, Permits, Licenses and Governmental Approvals,
and Plans, Specifications and Drawings), dated as of the Closing Date, from the
Lessee to the Lender, together with all amendments or supplements thereto.
"STATE" means the State of Texas.
"SUBSIDIARY" means for any Person any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar functions
are at the time directly or indirectly owned by such Person.
"SUPPLEMENTAL RENT" means any and all amounts, liabilities and obligations
other than Basic Rent which the Lessee assumes or agrees or is otherwise
obligated to pay under the Lease or any other Operative Document (whether or not
designated as Supplemental Rent) to the Lessor, the Lender or any other party,
including, without limitation, amounts under Article XVII of the Lease, Fair
Market Sales Value payments and indemnities and damages for breach of any
covenants, representations, warranties or agreements.
"TAX" or "TAXES" is defined in SECTION 7.4 (a) of the Participation
Agreement.
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<PAGE>
"TAX INDEMNITEE" means the Lessor, the Lender and their respective
Affiliates, successors, permitted assigns, permitted transferees, employees,
officers, directors and agents thereof (and, in the case of the Lessor, also
including its incorporators, manager, members, and in particular, the manager in
its capacity as the tax matters partner) provided, however, that in no event
shall the Lessee be a Tax Indemnitee.
"TITLE INSURANCE COMPANY" means Stewart Title Guaranty Company and its
successors and assigns.
"TITLE POLICY" is defined in SECTION 3.1 of the Participation Agreement.
"TOTAL COMMITMENTS" means the sum of the Loan Commitment and the Equity
Commitment.
"TOTAL DEVELOPMENT COSTS" means the aggregate Development Costs incurred in
connection with the Leased Property.
"UCC" means the Uniform Commercial Code of the State, as in effect from
time to time.
"UNFUNDED BENEFIT LIABILITIES" means, with respect to any Employee Benefit
Plan at any time, the amount of unfunded benefit liabilities of such Employee
Benefit Plan at such time as determined under ERISA Section 4001(a)(18) which
shall not be less than the accumulated benefit obligation, as disclosed in
accordance with FAS 87, over the fair market value of Employee Benefit Plan
assets.
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<PAGE>
===============================================================================
LEASE AND DEVELOPMENT AGREEMENT
Dated as of November 14, 1997
between
ASSET XVII HOLDINGS COMPANY, L.L.C., as Lessor
and
STB SYSTEMS, INC., as Lessee
----------------------------------------
Lease Financing for
STB SYSTEMS, INC.
Corporate Headquarters and Office Facility
Collin County, Texas
===============================================================================
<PAGE>
TABLE OF CONTENTS
(Lease and Development Agreement)
PAGE
----
ARTICLE I - DEFINITIONS; INTERPRETATION. . . . . . . . . . . . . . . . . . . 1
ARTICLE II - LEASE OF LEASED PROPERTY. . . . . . . . . . . . . . . . . . . . 1
SECTION 2.1 Lease of Land. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.2 Lease of Improvements. . . . . . . . . . . . . . . . . . 1
SECTION 2.3 Other Property.. . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.4 Nature of Transaction. . . . . . . . . . . . . . . . . . 2
ARTICLE III - CONSTRUCTION AND EQUIPPING OF THE IMPROVEMENTS . . . . . . . . 2
SECTION 3.1 Commencement of Construction.. . . . . . . . . . . . . . 2
SECTION 3.2 Completion of Construction.. . . . . . . . . . . . . . . 2
SECTION 3.3 Permits; Approvals; Storage. . . . . . . . . . . . . . . 3
SECTION 3.4 Inspection.. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV - RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4.1 Basic Rent.. . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4.2 Supplemental Rent. . . . . . . . . . . . . . . . . . . . 5
SECTION 4.3 Method of Payment. . . . . . . . . . . . . . . . . . . . 5
SECTION 4.4 Late Payment.. . . . . . . . . . . . . . . . . . . . . . 5
SECTION 4.5 Net Lease; No Setoff, Etc. . . . . . . . . . . . . . . . 5
SECTION 4.6 Lessee to Cooperate with Lessor. . . . . . . . . . . . . 7
ARTICLE V - CONDITION AND USE OF LEASED PROPERTY . . . . . . . . . . . . . . 7
SECTION 5.1 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI- LIENS; EASEMENTS; PARTIAL CONVEYANCES. . . . . . . . . . . . . . 8
ARTICLE VII- MAINTENANCE AND REPAIR; ALTERATIONS, MODIFICATIONS
AND ADDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 7.1 Maintenance and Repair; Compliance With Law. . . . . . . 9
SECTION 7.2 Alterations. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 7.3 Title to Alterations.. . . . . . . . . . . . . . . . . . 10
ARTICLE VIII - USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IX - INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 9.1 Insurance Coverages. . . . . . . . . . . . . . . . . . . 11
SECTION 9.2 Liability Insurance. . . . . . . . . . . . . . . . . . . 12
SECTION 9.3 Policies . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 9.4 Loss Payee Provisions. . . . . . . . . . . . . . . . . . 12
SECTION 9.5 Other Insurance. . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PAGE
----
SECTION 9.6 Loss Deductibles . . . . . . . . . . . . . . . . . . . . 13
SECTION 9.7 Failure to Maintain Insurance. . . . . . . . . . . . . . 13
ARTICLE X - ASSIGNMENT AND SUBLEASING. . . . . . . . . . . . . . . . . . . . 13
ARTICLE XI - LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE . . . . . . . . . . . 14
SECTION 11.1 Event of Loss. . . . . . . . . . . . . . . . . . . . . . 14
SECTION 11.2 Event of Taking. . . . . . . . . . . . . . . . . . . . . 14
SECTION 11.3 Casualty.. . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 11.4 Condemnation.. . . . . . . . . . . . . . . . . . . . . . 15
SECTION 11.5 Verification of Restoration and Rebuilding.. . . . . . . 16
SECTION 11.6 Application of Payments. . . . . . . . . . . . . . . . . 16
SECTION 11.7 Prosecution of Awards. . . . . . . . . . . . . . . . . . 17
SECTION 11.8 Application of Certain Payments Not Relating to an
Event of Taking. . . . . . . . . . . . . . . . . . . . . 18
SECTION 11.9 Other Dispositions.. . . . . . . . . . . . . . . . . . . 18
SECTION 11.10 No Rent Abatement. . . . . . . . . . . . . . . . . . . . 18
ARTICLE XII- INTEREST CONVEYED TO LESSEE . . . . . . . . . . . . . . . . . . 18
ARTICLE XIII - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XIV - ENFORCEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 14.1 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 14.2 Remedies Cumulative; No Waiver; Consents . . . . . . . . 23
ARTICLE XV - SALE, RETURN OR PURCHASE OF LEASED PROPERTY . . . . . . . . . . 24
SECTION 15.1 Lessee's Option to Purchase. . . . . . . . . . . . . . . 24
SECTION 15.2 Purchase Obligation. . . . . . . . . . . . . . . . . . . 24
SECTION 15.3 Acceleration of Purchase Obligation. . . . . . . . . . . 24
SECTION 15.4 Determination of Purchase Price. . . . . . . . . . . . . 25
SECTION 15.5 Purchase Procedure . . . . . . . . . . . . . . . . . . . 25
SECTION 15.6 Option to Remarket . . . . . . . . . . . . . . . . . . . 26
SECTION 15.7 Rejection of Sale. . . . . . . . . . . . . . . . . . . . 29
SECTION 15.8 Return of Leased Property. . . . . . . . . . . . . . . . 30
SECTION 15.9 Effect of Conveyance to Lessee . . . . . . . . . . . . . 30
ARTICLE XVI - LESSEE'S EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XVII - RIGHT TO PERFORM FOR LESSEE . . . . . . . . . . . . . . . . . 31
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<PAGE>
PAGE
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ARTICLE XVIII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 18.1 Reports. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 18.2 Binding Effect; Successors and Assigns . . . . . . . . . 32
SECTION 18.3 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . 32
SECTION 18.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 18.5 Severability . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 18.6 Amendment; Complete Agreements . . . . . . . . . . . . . 32
SECTION 18.7 Construction.. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 18.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 18.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 18.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 18.11 Discharge of Lessee's Obligations by its Affiliates. . . 33
SECTION 18.12 Liability of Lessor Limited. . . . . . . . . . . . . . . 34
SECTION 18.13 Estoppel Certificates. . . . . . . . . . . . . . . . . . 34
SECTION 18.14 No Joint Venture . . . . . . . . . . . . . . . . . . . . 34
SECTION 18.15 No Accord and Satisfaction . . . . . . . . . . . . . . . 34
SECTION 18.16 No Merger. . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 18.17 Survival . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 18.18 Chattel Paper. . . . . . . . . . . . . . . . . . . . . . 35
SECTION 18.19 Time of Essence. . . . . . . . . . . . . . . . . . . . . 35
SECTION 18.20 Recordation of Lease . . . . . . . . . . . . . . . . . . 35
SECTION 18.21 Investment of Security Funds . . . . . . . . . . . . . . 35
SECTION 18.22 No Illegal Interest to be Charged. . . . . . . . . . . . 36
APPENDIX I Definitions and Interpretation
APPENDIX II Description of Leased Property
APPENDIX III Scheduled Rent
-iii-
<PAGE>
LEASE AND DEVELOPMENT AGREEMENT
THIS LEASE AND DEVELOPMENT AGREEMENT (the "Lease"), dated as of November
14, 1997 is between ASSET XVII HOLDINGS COMPANY, L.L.C., a Massachusetts limited
liability company, as Lessor, and STB SYSTEMS, INC., a Texas corporation, as
Lessee.
PRELIMINARY STATEMENT
In accordance with the terms and provisions of the Deed, this Lease and the
other Operative Documents, (i) the Lessor has acquired the Land and agreed to
lease the Land to the Lessee, (ii) the Lessee has agreed to construct the
Improvements on the Land for the Lessor and, when completed, to lease the
Improvements from the Lessor as part of the Leased Property under this Lease,
(iii) the Lessor and the Lessee wish to obtain, and the Lender has agreed to
provide, two Loans in an aggregate amount of up to the Loan Commitment for the
payment of Development Costs in connection with the acquisition of the Land and
the Construction of the Improvements, and (iv) Lessor has agreed to make
Contribution Advances from its own equity resources in an amount up to the
Equity Commitment to pay a portion of the Development Costs in connection with
the construction of the Improvements.
NOW, THEREFORE, in consideration of the mutual agreements contained in this
Lease and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and not
defined herein shall have the meanings assigned thereto in Appendix I hereto for
all purposes hereof and the rules of interpretation set forth in Appendix I
hereto shall apply to this Lease.
ARTICLE II
LEASE OF LEASED PROPERTY
SECTION 2.1 LEASE OF LAND. Lessor hereby demises and leases Lessor's
interest in the Land to Lessee, and Lessee hereby rents and leases Lessor's
interest in the Land from Lessor, for the Lease Term.
SECTION 2.2 LEASE OF IMPROVEMENTS. Lessor hereby demises and leases
Lessor's interest in the Improvements (whether or not the Construction thereof
has been completed) to Lessee, and Lessee hereby rents and leases Lessor's
interest in the Improvements (whether or not the Construction thereof has been
completed) from Lessor, for the Lease Term. The demise and lease of the
Improvements pursuant to this Section shall include any additional right, title
or interest in the Improvements which may at any time be acquired by Lessor, the
intent being
<PAGE>
that all right, title and interest of Lessor in and to the Improvements shall
at all times be demised and leased hereunder.
SECTION 2.3 OTHER PROPERTY. Lessee may from time to time own or hold
under lease from Persons other than Lessor furniture, trade fixtures and
equipment located on or about the Leased Property which is not subject to this
Lease.
SECTION 2.4 NATURE OF TRANSACTION. It is the intent of the parties
hereto that: (a) for Federal, State and local income tax purposes, this Lease
shall be treated as the repayment and security provisions of a loan by Lessor to
Lessee, and that Lessee shall be treated as the legal and beneficial owner
entitled to any and all benefits of ownership of the Leased Property or any part
thereof; and that all payments of Basic Rent during the Lease Term shall be
treated as payments of interest and principal, as the case may be, in respect of
such loan; (b) if a bankruptcy court or other court of competent jurisdiction
shall at any time determine that the transactions represented by this Lease and
the other Operative Documents either (i) do not constitute a true leasing
transaction or (ii) shall be treated as a financing or other transaction, then
in any such event, this Lease shall be treated as a deed of trust and security
agreement, mortgage and security agreement or other similar instrument with a
power of sale from Lessee, as mortgagor to Lessor for the benefit of the Lender,
as mortgagee, encumbering the Leased Property, and the payment by Lessee of the
Basic Rent (other than Scheduled Rent) shall be treated as payments of interest
and the payment of Lessee of Scheduled Rent and any other amounts in respect of
the Lease Balance shall be treated as repayments of principal (all such payments
are obligatory and shall, to the fullest extent permitted by law, have priority
over any and all mechanics' liens and other liens and encumbrances arising after
the Memorandum of Lease is recorded); and (c) the Mortgage and the Assignment of
Lease and Rents create a lien and security interest in the Collateral (as
defined in the Mortgage) and this Lease, subject to certain limited exceptions.
ARTICLE III
CONSTRUCTION AND EQUIPPING OF THE IMPROVEMENTS
SECTION 3.1 COMMENCEMENT OF CONSTRUCTION. Lessee shall, for the benefit
of Lessor, cause the Construction to be commenced, performed and completed by
the General Contractor pursuant to the Construction Contract. Until the
Construction is completed, the portions of the Improvements under construction
shall, and upon completion of Construction the completed Improvements shall, be
a part of the Leased Property.
SECTION 3.2 COMPLETION OF CONSTRUCTION. Lessee shall endeavor to
achieve satisfactory performance from the General Contractor under the
Construction Contract. Lessee shall cause the Completion Date for the
Improvements to occur on or prior to the Completion Deadline. Lessee may make
changes to the Plans and Specifications, shall review requests for changes,
shall negotiate proposals for changes made by the General Contractor and shall
prepare and sign change orders. Lessee shall develop and implement procedures
for the review and
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<PAGE>
processing of applications by the General Contractor, subcontractors,
materialmen and other Persons involved in the Construction for progress and
final payments, and shall provide to Lessor such certifications for payment
as are required under the Participation Agreement. Lessee's obligations
under this Section shall not be diminished or affected by any insufficiency
of the proceeds of the Loan or the amount of the Contribution, or by the
Development Costs exceeding amounts received as Loan Advances and
Contribution Advances. In the event that the Development Costs which are due
and payable exceed the aggregate amount of Loan Advances and Contribution
Advances, such excess shall be paid by Lessee from Lessee's own funds.
SECTION 3.3 PERMITS; APPROVALS; STORAGE. Lessee shall be responsible
for obtaining or causing the General Contractor to obtain all applicable zoning,
wetlands, subdivision, building and other permits for the Construction, and
shall also be responsible for obtaining or causing the General Contractor to
obtain all other approvals from authorities having jurisdiction over the
Construction, the Land or the Improvements. Lessee shall monitor the progress
of the Construction. Lessee shall arrange for the delivery and storage,
protection and security of materials, systems and equipment which are to be
incorporated into the Improvements until such items are incorporated into the
Improvements.
SECTION 3.4 INSPECTION. At any time during normal business hours upon
three (3) Business Days prior notice to Lessee, Lessor, the Lender and their
authorized representatives may inspect the Leased Property and the books and
records of Lessee relating to the Leased Property and make copies and abstracts
therefrom, subject to the rights of the General Contractor. All reasonable and
documented out-of-pocket costs of such inspection incurred by Lessor or Lender
shall be paid by Lessee promptly after receipt by Lessee of a written request
for such payment. No inspection shall unreasonably interfere with Lessee's
operations or the operations of any other occupant of the Leased Property. None
of the inspecting parties shall have any duty to make any such inspection or
inquiry and none of the inspecting parties shall incur any liability or
obligation by reason of not making any such inspection or inquiry. None of the
inspecting parties shall incur any liability or obligation by reason of making
any such inspection or inquiry unless and to the extent such inspecting party,
during the course of such inspection, causes damage to either the Leased
Property, any property of Lessee or any property of any other Person or to a
Person.
ARTICLE IV
RENT
SECTION 4.1 RENT.
(a) BASIC RENT. The first Rent Payment Date shall be the first
Loan Payment Date which next follows the Closing Date, and beginning on that
date, Lessee shall commence making payments of Basic Rent to Lessor in
installments payable in arrears on each Rent Payment Date and on any date (if
not a Rent Payment Date) which is the Lease Termination
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<PAGE>
Date. Basic Rent shall equal the sum of the Index Rent, the Scheduled Rent,
and the Facility Rent, and shall be payable in installments on each Rent
Payment Date in the respective amounts set forth below.
(b) INDEX RENT. On each Rent Payment Date, the Lessee shall pay as
Index Rent an amount equal to the sum of all interest accrued and unpaid on Loan
A and Loan B of the Rent Payment Date in question.
(c) FACILITY RENT. On each Rent Payment Date, the Lessee shall,
until (i) the Lease Balance shall be paid in full on the Lease Termination Date,
or (ii) the payment by Lessee of the Recourse Deficiency Amount on the Scheduled
Termination Date and the fulfillment of the provisions of CLAUSES (i) through
(xiii) of SECTION 15.6, pay installments of Facility Rent in arrears with
respect to the period elapsed since, in the case of the first Rent Payment Date,
the Closing Date, and in the case of each subsequent Rent Payment Date, the
immediately preceding Rent Payment Date, and each such installment shall be in
an amount which equals the Contribution Return accrued and unpaid. In addition,
the Lessee agrees to pay as Facility Rent an amount equal to the Lessor's
Breakage Costs in the event of the imposition of such Lessor's Breakage Costs.
(d) SCHEDULED RENT. On each Rent Payment Date, Lessee shall pay the
installment of Scheduled Rent, if any, then due and payable. Attached hereto as
APPENDIX III is a schedule of the installments of Scheduled Rent due and payable
on each Rent Payment Date. It is the intention of the parties hereto and the
Lender that the installments of Scheduled Rent set forth on APPENDIX III shall
be in an aggregate amount sufficient (but not in excess) to pay required
payments of principal on the Loans and the Notes, and the proceeds of each such
installment shall be applied by the Lender in reduction of the Loans and the
Notes; PROVIDED, HOWEVER, that the Lessee, in order to avoid Breakage Costs,
hereby directs the Lender to deposit payments of Scheduled Rent in the
Reinvestment Account maintained pursuant to SECTION 3.6 of the Loan Agreement
for payment of principal on the Rent Payment Date at the end of the Interest
Period; PROVIDED, FURTHER, that until amounts in the Reinvestment Account shall
be applied to pay the Loans, interest will continue to accrue with respect to
100% of the principal balance of the Loans without any setoff or deduction
relating to the amounts so deposited. The parties hereto agree to adjust the
schedule of Scheduled Rent set forth in APPENDIX III to the extent necessary to
reflect the actual outstanding principal amount of the Loans, in the event of
(i) a partial prepayment of the Loans, or (ii) that the aggregate total of the
Loan Advances made under the Loans as of the Completion Deadline equals less
than the Loan Commitment. Any such adjustment shall be made (i) in the case of
a partial prepayment, by multiplying the remaining unpaid installments of
Scheduled Rent on by a fraction, the numerator of which is the aggregate total
of Loan Advances made under the Loans less the amount of principal prepaid on
the Loan, and the denominator of which is the amount of the Loan Commitment,
and (ii) in the event that the aggregate total of Loan Advances equals less
than the Loan Commitment as of the Completion Date, by multiplying each of
the installments of Scheduled Rent as set forth on APPENDIX III by a
fraction, the numerator of which is the aggregate total of Loan Advances
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under the Loans, and the denominator of which is the Loan Commitment.
Notwithstanding the foregoing, on the Scheduled Termination Date, the Lessee
shall pay an amount equal to the Recourse Deficiency Amount or the Lease
Balance, as the case may be, in accordance with the provisions of ARTICLE XV
hereof, in addition to the installment of Scheduled Rent due hereunder.
SECTION 4.2 SUPPLEMENTAL RENT. Lessee shall pay to Lessor, or to
whomever shall be entitled thereto as expressly provided herein or in any other
Operative Document or in the Facilitation Agreement dated the date hereof
between the Lessee, the Lessor and JH Management Corporation (the "Facilitation
Agreement"), any and all Supplemental Rent promptly as the same shall become due
and payable. In particular, the Lessee agrees to pay to the Lessor or its
designee as Supplemental Rent (i) on the Closing Date and on May 1st of each
succeeding year during the Lease Term, the annual Facilitation Fee in the sum of
$3,300, (ii) amounts necessary to reimburse Lessor for reasonable legal fees and
expenses in connection with the transaction contemplated by the Operative
Documents; and (iii) such other amounts as Lessor and Lessee shall mutually
agree upon. In the event of any failure on the part of Lessee to pay any
Supplemental Rent, which failure constitutes an Event of Default, Lessor shall
have all rights, powers and remedies provided for herein or by law or in equity
or otherwise in the case of nonpayment of Basic Rent. All Supplemental Rent to
be paid pursuant to this Section shall be payable in the type of funds and in
the manner set forth in SECTION 4.3.
SECTION 4.3 METHOD OF PAYMENT. All Basic Rent shall be paid by Lessee
directly to the Lender. Supplemental Rent (including amounts due under ARTICLE
XV hereof) shall be paid to Lessor (or to such Person as may be entitled
thereto) or, in each case, to such Person as Lessor (or such other Person) shall
specify in writing to Lessee, and at such place as Lessor (or such other Person)
shall specify in writing to Lessee, which specifications by Lessor shall be
given by Lessor at least ten Business Days prior to the due date therefor. Each
payment of Rent (including payments under ARTICLE XV hereof) shall be made by
Lessee prior to 1:00 p.m., Dallas, Texas time, at the place of payment in funds
consisting of lawful currency of the United States of America which shall be
immediately available on the scheduled date when such payment shall be due,
unless such scheduled date shall not be a Business Day, in which case such
payment shall be made on the next succeeding Business Day.
SECTION 4.4 LATE PAYMENT. If any Rent, other than (i) Supplemental Rent
payable by reason of this Section, or (ii) Rent due on the Scheduled Termination
Date (as to which no grace period shall apply), shall not be paid when due or
within five (5) days thereafter, Lessee shall pay to Lender, as assignee of
Lessor, as Supplemental Rent, interest (to the maximum extent permitted by law)
on such overdue amount from and including the due date thereof to but excluding
the Business Day of payment thereof at the Overdue Rate.
SECTION 4.5 NET LEASE; NO SETOFF, ETC. This Lease is a net lease and,
notwithstanding any other provision of this Lease, Lessee shall pay all Basic
Rent and Supplemental Rent, and all costs, charges, taxes, assessments and other
expenses (foreseen or unforeseen) for which Lessee or any Indemnitee is or shall
become liable by reason of Lessee's
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or such Indemnitee's estate, right, title or interest in the Leased Property,
or that are connected with or arise out of the acquisition, installation,
possession, use, occupancy, maintenance, ownership, leasing, repairs and
rebuilding of, or addition to, the Leased Property or any portion thereof,
including, without limitation, the Construction or the financing of the
Construction and any other amounts payable hereunder shall be paid without
counterclaim, setoff, deduction or defense and without abatement, suspension,
deferment, diminution or reduction, and Lessee's obligation to pay all such
amounts throughout the Lease Term is absolute and unconditional. The
obligations and liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected for any reason, including without limitation
(i) any defect in the condition, merchantability, design, quality or fitness
for use of the Leased Property or any part thereof, or the failure of the
Leased Property to comply with all Applicable Law, including any inability to
occupy or use the Leased Property by reason of such non-compliance, (ii) any
damage to, removal, abandonment, salvage, loss, contamination of or Release
from, scrapping or destruction of or any requisition or taking of the Leased
Property or any part thereof, (iii) any restriction, prevention or
curtailment of or interference with any use of the Leased Property or any
part thereof including eviction, (iv) any defect in title to or rights to the
Leased Property or any Lien on such title or rights or on the Leased
Property, (v) any change, waiver, extension, indulgence or other action or
omission or breach in respect of any obligation or liability of any Person
requested or consented to by Lessee, (vi) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other
like proceedings relating to Lessee, Lessor, the Lender (except to the extent
Lender's or Lessor's bankruptcy or insolvency terminates Lender's obligation
to advance the Loans or Lessee's obligation to fund the Equity Commitment) or
any other Person, or any action taken with respect to this Lease by any
trustee or receiver of Lessee, Lessor, the Lender or any other Person, or by
any court, in any such proceeding, (vii) any failure on the part of the
Lessor to perform or comply with any of the terms of this Lease, any other
Operative Document or of any other agreement where such failure was caused by
Lessee's failure to perform its obligations under the Operative Documents,
(viii) any disaffirmance of this Lease or any provision hereof or any of the
other Operative Documents or any provision of any thereof by Lessee, (ix) any
action by any court, administrative agency or other Governmental Authority,
(x) any restriction, prevention or curtailment of or interference with the
Construction or any use of the Leased Property or any part thereof or (xi)
any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not either Lessee shall have notice or knowledge of any
of the foregoing; provided that the waivers and acknowledgements in this
SECTION 4.5 shall not be deemed to be or construed as a waiver of the
Purchase Option or any of Lessee's rights set forth in ARTICLE XV. Except as
specifically set forth in ARTICLES XV or XI of this Lease, this Lease shall
be noncancellable by Lessee for any reason whatsoever and Lessee, to the
extent permitted by Applicable Law, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Lease,
or to any diminution, abatement or reduction of Rent payable by Lessee
hereunder. Lessee assumes the sole responsibility for the condition, use,
operation, maintenance, and management of the Leased Property and Lessor
shall have no responsibility in respect thereof and shall have no liability
for damage to the property of either Lessee or any subtenant of Lessee on any
account
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or for any reason whatsoever other than by reason of Lessor's willful
misconduct or breach of any of its express obligations under any Operative
Document.
SECTION 4.6 LESSEE TO COOPERATE WITH LESSOR. The Lessee hereby agrees
to use its best efforts to supply Lessor with all such information necessary in
order for Lessor to maintain its books and accounts and prepare all required
federal, state and local tax returns.
ARTICLE V
CONDITION AND USE OF LEASED PROPERTY
During the Lease Term, Lessor's interest in the Improvements and the Land
is demised and let by Lessor "AS IS" subject to (i) the rights of any parties in
possession thereof, (ii) the state of the title thereto existing at the time
Lessor acquired its interest in the Leased Property, (iii) any state of facts
which an accurate survey or physical inspection might show (including the survey
delivered on the Closing Date), (iv) all Applicable Law and (v) any violations
of Applicable Law which may exist upon or subsequent to the commencement of the
Lease Term. LESSEE ACKNOWLEDGES THAT, ALTHOUGH LESSOR WILL OWN AND HOLD TITLE
TO THE LEASED PROPERTY, LESSEE IS SOLELY RESPONSIBLE FOR THE DESIGN,
DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE PROJECT ALTERATIONS. NEITHER
LESSOR NOR THE LENDER HAVE MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS TO THE VALUE, MERCHANTABILITY, TITLE, HABITABILITY,
CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE LEASED PROPERTY (OR ANY
PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE LEASED PROPERTY (OR ANY PART THEREOF), ALL SUCH
WARRANTIES BEING HEREBY DISCLAIMED, AND NEITHER LESSOR NOR THE LENDER SHALL BE
LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF THE
LEASED PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAW except
that Lessor hereby represents and warrants that the Leased Property is and shall
at all times remain free of Lessor Liens. As between Lessor and Lessee, Lessee
has been afforded full opportunity to inspect the Land and the Improvements, is
satisfied with the results of its inspections of the Land and the Improvements
and is entering into this Lease solely on the basis of the results of its own
inspections and all risks incident to the matters discussed in the two preceding
sentences, as between Lessor or the Lender, on the one hand, and Lessee, on the
other, are to be borne by Lessee. The provisions of this Article have been
negotiated and, except to the extent otherwise expressly stated, the foregoing
provisions are intended to be a complete exclusion and negation of any
representations or warranties by Lessor or the Lender, express or implied, with
respect to the Leased Property that may arise pursuant to any law now or
hereafter in effect or otherwise.
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ARTICLE VI
LIENS; EASEMENTS; PARTIAL CONVEYANCES
Commencing on the Closing Date and thereafter, Lessee shall not directly or
indirectly create, incur or assume, any Lien on or with respect to the Leased
Property, the Construction, title thereto, or any interest therein including any
Liens which arise out of the possession, use, occupancy, construction, repair or
rebuilding of the Leased Property or by reason of labor or materials furnished
or claimed to have been furnished to Lessee, or any of its contractors or agents
or by reason of the financing of any personalty or equipment purchased or leased
by Lessee or Alterations constructed by Lessee, except in all cases Permitted
Liens.
Notwithstanding the foregoing paragraph, at the request of Lessee, Lessor
shall, from time to time during the Lease Term and upon reasonable advance
written notice from Lessee and receipt of the materials specified in the next
succeeding sentence, consent to and join in any (i) grant of easements,
licenses, rights of way and other rights in the nature of easements, including,
without limitation, utility easements to facilitate Lessee's use, development
and construction of the Leased Property, (ii) release or termination of
easements, licenses, rights of way or other rights in the nature of easements
which are for the benefit of the Land, the Improvements or any portion thereof,
(iii) dedication or transfer of portions of the Land, not improved with a
building, for road, highway or other public purposes, (iv) execution of
agreements for ingress and egress and amendments to any covenants and
restrictions affecting the Land, the Improvements or any portion thereof and (v)
request to any Governmental Authority for platting or subdivision or replatting
or resubdivision approval with respect to the Land or any portion thereof or any
parcel of land of which the Land or any portion thereof forms a part or a
request for any variance from zoning or other governmental requirements.
Lessor's obligations pursuant to the preceding sentence shall be subject to the
requirements that:
(i) any such action shall be at the sole cost and expense of Lessee
and Lessee shall pay all reasonable and documented out-of-pocket costs of Lessor
in connection therewith (including, without limitation, the reasonable and
documented fees of attorneys, architects, engineers, planners, appraisers and
other professionals reasonably retained by Lessor in connection with any such
action);
(ii) Lessee shall have delivered to Lessor a certificate of a
Responsible Officer of Lessee stating that (1) such action will not cause the
Land, the Improvements or any portion thereof to fail to comply in any material
respect with the provisions of this Lease or any other Operative Documents or in
any material respect with Applicable Law and (2) such action will not materially
reduce the Fair Market Sales Value, utility or useful life of the Land or the
Improvements nor Lessor's interest therein;
(iii) all consideration received, if any, in connection with such
action (net of all reasonable out-of-pocket expenses incurred by Lessee in
connection therewith) shall be paid to the Lender within ten (10) Business Days
following receipt thereof and shall constitute a
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Qualified Payment (to the extent consistent with the definition thereof) and
be applied to reduce the Loan; and
(iv) in the case of any release or conveyance, if Lessor so requests
and to the extent available without undue expense, Lessee will cause to be
issued and delivered to Lessor by the Title Insurance Company, to the extent
available in the State of Texas, an endorsement to the Title Policy pursuant to
which the Title Insurance Company agrees that its liability for the payment of
any loss or damage under the terms and provisions of the Title Policy will not
be affected by reason of the fact that a portion of the real property referred
to in Schedule A of the Title Policy has been released or conveyed by Lessor.
ARTICLE VII
MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
SECTION 7.1 MAINTENANCE AND REPAIR; COMPLIANCE WITH LAW. Lessee, at its
own expense, shall at all times during the Lease Term (i) maintain the Leased
Property in good repair and condition (subject to ordinary wear and tear), in
accordance with prudent industry standards and, in any event, in no less a
manner as other similar facilities owned or leased by Lessee in the United
States, (ii) make all Alterations in accordance with, and maintain (whether or
not such maintenance requires structural modifications or Alterations) and
operate and otherwise keep the Leased Property in compliance with, all
Applicable Laws and (iii) make all material repairs, replacements and renewals
of the Leased Property or any part thereof which may be required to keep the
Leased Property in the condition required by the preceding clauses (i) and (ii).
Lessee shall perform the foregoing maintenance obligations regardless of whether
the Leased Property is occupied or unoccupied. Lessee waives any right that it
may now have or hereafter acquire to (i) require Lessor to maintain, repair,
replace, alter, remove or rebuild all or any part of the Leased Property or (ii)
make repairs at the expense of Lessor pursuant to any Applicable Law or other
agreements or otherwise. Lessor shall not be liable to Lessee or to any
contractors, subcontractors, laborers, materialmen, suppliers or vendors for
services performed or material provided on or in connection with the Leased
Property or any part thereof. Lessor shall not be required to maintain, alter,
repair, rebuild or replace the Leased Property in any way.
SECTION 7.2 ALTERATIONS. The Lessee shall have the right, at any time
and from time to time, to make such Alterations, structural or otherwise, to the
Leased Property as the Lessee shall deem necessary or desirable, subject to the
following conditions:
(a) No Alterations shall be undertaken until the Lessee shall have
procured and paid for, so far as the same may be required from time to
time, all required municipal and other governmental permits and
authorizations of the various municipal departments and governmental
subdivisions having jurisdiction,
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and the Lessor, at the Lessee's expense, shall join in the application for
such permits or authorizations whenever such action is necessary;
(b) Any structural Alterations, or any Alterations undertaken as a
single project and involving an estimated cost aggregating more than
$500,000, shall, if requested by the Lender, be conducted under the
supervision of an architect or engineer licensed as such in the State;
selected by the Lessee and reasonably acceptable to the Lender, and no such
work shall be undertaken until preliminary plans and outline specifications
and budget estimates therefor, prepared and approved in writing by such
architect or engineer, stating that the same comply with the provisions of
this Article, shall have been submitted to and approved by the Lessor and
the Lender;
(c) All Alterations will comply in all respects with the provisions
of the Operative Documents and shall be of such a character that, when
completed, the Fair Market Sales Value of the Improvements shall be not
less than the Fair Market Sales Value of the Improvements immediately
before any such Alterations;
(d) All work done in connection with any Alterations shall be done in
a good and workmanlike manner and in compliance with applicable building
and zoning laws and with all other Applicable Laws; the cost of any such
Alterations shall be paid in cash or its equivalent, so that the Leased
Property shall at all times be free of Liens for labor and materials
supplied or claimed to have been supplied (other than inchoate liens or
liens bonded off in accordance with Applicable Law and with Lender's
consent); and the work of any Alterations shall be prosecuted with
reasonable dispatch, unavoidable delays excepted; and
(e) Worker's compensation insurance covering all persons employed in
connection therewith and with respect to whom death or bodily injury claims
could be asserted against the Lessor, the Lender or the Lessee or the
Leased Property and general liability and property damage insurance (which
may be effected by indorsement, if obtainable, on the insurance required to
be carried pursuant to SECTION 9.2) for the mutual benefit of the Lessor,
the Lender or the Lessee with limits of not less than those required to be
carried pursuant to said SECTION 9.2 shall be maintained by the Lessee at
all times when any work is in process in connection with any Alterations.
SECTION 7.3 TITLE TO ALTERATIONS. Title to all Alterations shall
without further act vest in Lessor (subject to Lessee's right to remove trade
fixtures, personal property and equipment which were not acquired with funds
advanced by Lessor or Lender) and shall be deemed to constitute a part of the
Leased Property and be subject to this Lease.
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ARTICLE VIII
USE
Lessee shall use the Leased Property or any part thereof only for the
purpose of a corporate headquarters and office facility and related uses
(including product development and manufacturing), and such other uses that may
be available under the zoning applicable to the Land as of the date of this
Lease.
ARTICLE IX
INSURANCE
SECTION 9.1 INSURANCE COVERAGES. At all times (except as otherwise
indicated) the Lessee, at its sole cost and expense, shall keep the Leased
Property insured for the mutual benefit of the Lender, Lessor and Lessee
against:
(a) loss or damage by fire, and such other risks as may be included
in the so-called "All Risk" form of insurance providing coverage against
all risks of physical loss, in an amount satisfactory to Lender, but in any
event not less than the then Full Replacement Cost of the Leased Property;
(b) loss or damage from leakage of sprinkler systems now or hereafter
installed in the Leased Property, in such amount as Lender may reasonably
require;
(c) to the extent not covered by Lessee's business interruption
insurance, loss of rental from the Leased Property, under a rental value
insurance policy covering risk of loss due to any of the hazards described
in CLAUSES (a) and (b) of this SECTION 9.1 in an amount not less than the
aggregate requirements for the period of 12 months following the occurrence
of the insured casualty for Basic Rent and Supplemental Rent;
(d) loss or damage by explosion of high pressure steam boilers, air
conditioning equipment, pressure vessels, motors or similar apparatus, now
or hereafter installed in the Leased Property in such limits with respect
to any one accident as may reasonably be required by Lender from time to
time, but not less than $100,000;
(e) flood hazard coverage, if available under any applicable federal
flood insurance program, in an amount reasonably satisfactory to Lender
(but only if the Leased Property is located in a special flood hazard
area);
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(f) during the Construction and at any time during which any part of
the Leased Property or any Alteration are under construction, and as to any
part of the Leased Property or any Alteration under construction, builder's
risk coverage under a so-called "all risk" non-reporting completed value
form of policy; and
(g) such other hazards and in such amounts as Lender may reasonably
require provided that such insurance is then customarily maintained with
respect to similar properties in the State.
The term "Full Replacement Cost" shall mean the actual replacement cost of the
Leased Property (excluding foundation and excavation costs) without physical
depreciation. Full Replacement Cost shall be determined at the request of
Lender by an architect, appraiser, appraisal company or one of the insurers,
selected and paid by the Lessee and reasonably acceptable to Lender, but such
determination shall not be required to be made more frequently than once every
24 months.
SECTION 9.2 LIABILITY INSURANCE. The Lessee shall also maintain
insurance for the mutual benefit of the Lessor, the Lender, each other
Indemnitee, and the Lessee against claims for bodily injury or property damage
with respect to the Leased Property, under a policy of general public liability
insurance, with such limits as may reasonably be required by the Lessor or the
Lender from time to time, but not less than $1,000,000 combined single limit,
with excess umbrella liability coverage of not less than $5,000,000.
SECTION 9.3 POLICIES. All insurance provided for under this Lease shall
be effected under valid enforceable policies issued by insurers of recognized
responsibility and acceptable to the Lessor and the Lender. Upon the execution
of this Lease, the Lessee shall deliver to the Lender and the Lessor original
certificates of such insurance and copies of such policies in form reasonably
satisfactory to the Lender. At least 10 days prior to the expiration date of
any policy, a copy of the renewal policy for such insurance shall be delivered
by the Lessee to the Lessor and the Lender, and certificates thereof in form
reasonably satisfactory to the Lender shall be delivered as aforesaid, together
with satisfactory evidence of payment of the premium thereon. All policies
referred to in SECTION 9.1 shall contain agreements by the insurers that (i) any
loss shall be payable to the Lessor and the Lender, notwithstanding any act or
negligence of the Lessee which might otherwise result in forfeiture of said
insurance, (ii) such policies shall not be canceled except upon 30 days' prior
written notice to each named insured and loss payee, (iii) the coverage afforded
thereby shall not be affected by the performance of any work in or about the
Leased Property and (iv) waiving all rights of subrogation against the Lessor,
Lender, Lessee and their respective officers, employees, directors,
incorporators, shareholders and agents.
SECTION 9.4 LOSS PAYEE PROVISIONS. The rental value policy referred to
in SECTION 9.1(c) shall name Lender as the loss-payee thereunder. Upon the
receipt of same, the Lender shall apply the proceeds of such rental value
insurance paid to it first to the payment of
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Basic Rent and then to the payment of taxes, insurance premiums and other
items of Supplemental Rent becoming due during the rebuilding and restoration
of the Leased Property, and any balance of such proceeds after the completion
of such rebuilding and restoration shall be paid to Lessee. Except as
provided above in this SECTION 9.4, all policies of insurance required herein
shall name the Lender, Lessor, and Lessee as the insureds as their respective
interests may appear. Subject to the provisions and limitations of this
Section, all policies referred to in SECTION 9.1 shall also provide for any
loss to be payable to Lender as its interest may appear, pursuant to a
standard mortgagee clause or endorsement. The loss, if any, under the
policies referred to in SECTION 9.1 shall be adjusted with the insurance
companies by the Lessee except that no loss exceeding $250,000 shall be
adjusted without the prior written approval of the Lender, which approval
shall not be unreasonably withheld or delayed. The loss, if any, under all
policies referred to in SECTION 9.1 shall be payable to the Lender. All such
policies shall expressly provide that loss thereunder shall be adjusted and
paid as provided in this Section. Any loss paid to the Lessee under any
insurance policy referred to in SECTION 9.1 shall be held by the Lessee in
trust for application to the cost of restoring, repairing, replacing or
rebuilding the Leased Property. Any loss paid to the Lender shall be held in
trust by it and disbursed by it in accordance with the provisions of SECTION
11.6 of this Lease.
SECTION 9.5 OTHER INSURANCE. Nothing in this Article shall prevent the
Lessee from taking out insurance of the kind and in the amounts provided for
under SECTION 9.1 AND 9.2 under a blanket insurance policy or policies which can
cover other properties owned or operated by the Lessee as well as the Leased
Property; PROVIDED, HOWEVER, that any such policy of insurance provided for
under SECTION 9.1 shall (a) specify therein, or the Lessee shall furnish the
Lessor and the Lender with a written statement from the insurers under such
policies specifying, the amount of the total insurance allocated to the Leased
Property, which amount shall be not less than the amount required by said
SECTION 9.1 to be carried, and (b) not contain any clause which would result in
the insured thereunder being required to carry insurance with respect to the
property covered thereby in an amount equal to a minimum specific percentage of
the value of such property in order to prevent the insured therein named from
becoming a co-insurer of any loss with the insurer under such policy. The
Lessee shall furnish to the Lessor and the Lender, within 30 days after the
filing thereof with any insurance rate-making body, copies of the schedule or
make-up of all property covered by every such policy of blanket insurance.
SECTION 9.6 LOSS DEDUCTIBLES. All insurance provided for under this
Lease may contain loss deductible clauses in such maximum amounts as the Lender
shall approve from time to time.
SECTION 9.7 FAILURE TO MAINTAIN INSURANCE. If Lessee shall fail to
maintain any insurance required to be maintained herein or in any other
Operative Document, then without limiting the application of the provisions of
Article XIII(c) hereof, Lessor or the Lender may, but shall not be required to,
obtain such insurance on behalf of the Lessee. In the event Lessor or Lender
shall obtain such insurance, (a) the Lessee shall pay the costs of obtaining
such
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insurance as Supplemental Rent within five (5) Business Days of demand
therefor, and (b) the Lessee may provide other insurance conforming to the
requirements of this Lease, in which instance any insurance obtained by the
Lender or the Lessor shall be cancelled at its request. The rights of the
Lessee and Lender under this SECTION 9.7 shall be in addition to, and not in
place of, any other rights such parties may have under this Lease and the
other Operative Documents.
ARTICLE X
ASSIGNMENT AND SUBLEASING
Except as provided in the next following sentence, Lessee may not assign
any of its right, title or interest in, to or under this Lease. Lessee may
assign or sublease all or any portion of the Leased Property; PROVIDED, HOWEVER,
that (i) all obligations of Lessee (or, in the case of a merger, consolidation
or sale of all or substantially all of Lessee's assets, Lessee's successor if
(A) such successor has a net worth, determined in accordance with GAAP, at least
equal to that of Lessee as of the end of the most recent fiscal quarter of
Lessee, and is acceptable to Lender (B) such successor assumes in writing all of
Lessee's obligations under the Operative Documents without qualification or
reservation and (C) immediately after giving effect to such merger,
consolidation or sale, no Event of Default exists) shall continue in full effect
as obligations of a principal and not of a guarantor or surety, as though no
assignment or sublease had been made, (ii) any such sublease shall be expressly
subject and subordinate to this Lease, the Loan Agreement, the Mortgage and the
other Operative Documents except to the extent the Lease remains effective under
the Non-Disturbance and Attornment Agreement and (iii) each such sublease shall
terminate on or before the Lease Termination Date.
ARTICLE XI
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
SECTION 11.1 EVENT OF LOSS. Any single event (including a Release)
affecting the Leased Property (i) which would otherwise constitute a Casualty
during the Lease Term, (ii) which, in the good-faith judgement of Lessee, (A)
renders repair and restoration of the Leased Property impractical or
uneconomical, or (B) requires in excess of $5,000,000 to remedy or repair, and
(iii) as to which Lessee, within sixty (60) days after the occurrence of such
event, delivers to Lessor and the Lender an Officer's Certificate notifying
Lessor and the Lender of such event and of such judgement, shall constitute an
"Event of Loss". In the case of any other event which constitutes a Casualty,
Lessee shall restore and rebuild the Leased Property pursuant to SECTION 11.3.
If an Event of Loss other than an Event of Taking shall occur, Lessee shall pay
to Lessor on the next Rent Payment Date following delivery of the Officer's
Certificate pursuant to clause (iii) of the preceding sentence an amount equal
to the Lease Balance. Upon Lessor's receipt of such Lease Balance on such date,
Lessor shall cause Lessor's interest in the Leased Property to be conveyed to
Lessee in accordance with and subject to the provisions of SECTION 15.5
"Purchase Procedure" hereof. Upon completion of such purchase, but not prior
thereto, this Lease and all obligations hereunder shall terminate, except with
respect to
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obligations and liabilities hereunder, actual or contingent, that have arisen
or relate to events occurring on or prior to such date of purchase, or which
are expressly stated herein to survive termination of this Lease. Upon the
consummation of the purchase of the Leased Property pursuant to this Section,
and to the extent the Loans are not paid in full any proceeds derived from
insurance required to be maintained by Lessee pursuant to this Lease for the
Leased Property remaining after payment of such purchase price shall be paid
over to Lessor and shall be applied by the Lessor to pay interest on and
principal of the Notes. If the Loans shall have been paid in full, any such
proceeds shall be paid over to, or retained by the Lessee, or as it may
direct, and Lessor shall assign to Lessee, without warranty, all of Lessor's
rights to and interest in insurance required to be maintained by Lessee
pursuant to this Lease.
SECTION 11.2 EVENT OF TAKING. Any event (i) which constitutes a taking
of title to the Leased Property, or (ii)(A) which would otherwise constitute a
Condemnation, (B) which, in the good-faith judgement of Lessee, (I) renders
restoration and rebuilding of the Leased Property impossible, impractical or
uneconomical, or (II) involves a taking in excess of $2,000,000 and (C) as to
which Lessee, within sixty (60) days after the occurrence of such event,
delivers to Lessor and the Lender an Officer's Certificate notifying Lessor and
the Lender of such event, of such judgement and of the date (or Lessee's best
estimate thereof) on which Lessee shall be required to relinquish possession of
the Leased Property (or the affected portion thereof), shall constitute an
"Event of Taking". In the case of any other event which constitutes a
Condemnation, Lessee shall restore and rebuild the Leased Property pursuant to
SECTION 11.4. If an Event of Taking shall occur, Lessee shall pay to Lessor (i)
on the next Rent Payment Date following the occurrence of such Event of Taking,
in the case of an Event of Taking described in clause (i) of the second
preceding sentence or (ii) on the Rent Payment Date next preceding the date on
which Lessee is required to relinquish possession of the Leased Property (or the
affected portion thereof), in the case of an Event of Taking described in clause
(ii) of the second preceding sentence, an amount equal to the Lease Balance.
Upon Lessor's receipt of the Lease Balance on such date, Lessor shall cause
Lessor's interest in the Leased Property to be conveyed to Lessee in accordance
with and subject to the provisions of SECTION 15.5 "Purchase Procedure" hereof;
PROVIDED, HOWEVER, that (A) such conveyance shall be by special warranty deed,
but free and clear of Lessor's Liens and the lien of the Loan Documents, (B)
such conveyance shall be subject to all rights of the condemning authority, (C)
Lessor shall have no obligation to remove title defects other than Lessor Liens
and the lien of the Mortgage and (D) Lessee's ability to obtain a title
insurance policy shall not affect Lessee's obligation to purchase Lessor's
interest in the Leased Property. Upon completion of such purchase, but not
prior thereto, this Lease and all obligations hereunder shall terminate, subject
to the provisions of SECTION 18.17 hereof. Upon the consummation of the
purchase of the Leased Property pursuant to this Section, all Awards received by
Lessor, after deducting any reasonable and documented costs incurred by Lessor
in collecting such Awards (PROVIDED that the contractual fee arrangement, if
other than on an hourly basis, between Lessor and its counsel shall be subject
to Lessee's approval, not to be unreasonably withheld), received or payable on
account of an Event of Taking during the Lease Term shall be paid to Lessor so
long as the Loans shall remain unpaid in full and the Lessor shall apply the sum
to pay interest on and principal of the Notes. Once the Loans are
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paid in full, such amounts shall be paid to the Lessee, and all rights of
Lessor in Awards not then received shall be assigned to Lessee by Lessor. If
no Event of Default has occurred and is then continuing, Lessee shall have the
right to negotiate with the condemning authority and receive all Awards,
subject to the terms of this Lease.
SECTION 11.3 CASUALTY. If a Casualty shall occur, Lessee shall rebuild
and restore the Leased Property, will complete the same prior to the Lease
Termination Date; PROVIDED, HOWEVER, that such restoration and rebuilding will
be performed, and the Improvements, as applicable, will be restored and rebuilt,
in accordance with the Plans and Specifications as in existence on the date on
which the certificate of occupancy for the Improvements was issued, as such
Plans and Specifications may have been modified in respect of Alterations
completed prior to the occurrence of such Casualty pursuant to SECTION 7.2 or as
may be required by law, with such additional modifications to such Plans and
Specifications as Lessor shall consent to in writing, which consent shall not be
unreasonably held or delayed.
SECTION 11.4 CONDEMNATION. If a Condemnation shall occur, Lessee shall
rebuild and restore the Leased Property to the extent practicable, will complete
the same prior to the Lease Termination Date, PROVIDED, HOWEVER, that within
sixty (60) days after Lessee's receipt of any Awards with respect to such
Condemnation, Lessee shall pay to the Lender, which amounts shall be applied to
the Lease Balance, (a) the portion, if any, of such Awards which are identified,
by the condemner, as being allocable to the Land or (b) if no such
identification is made by the condemner, the portion, if any, of such Awards
which are, in Lessee's good-faith and reasonable judgment, allocable to the
Land; and PROVIDED, FURTHER, that such restoration and rebuilding will be
performed, and the Improvements, as applicable, will be restored and rebuilt, in
accordance with the Plans and Specifications as in existence on the date on
which the certificate of occupancy for the Improvements, as applicable, was
issued, as such Plans and Specifications may have been modified in respect of
Alterations completed prior to the occurrence of such Casualty pursuant to
SECTION 7.2 or modified to adjust for a Casualty of the Leased Property pursuant
to SECTION 11.3 or such additional modifications as may be required by
Applicable Law, with such additional modifications to such Plans and
Specifications as Lessor shall consent to in writing, which consent shall not be
unreasonably withheld or delayed.
SECTION 11.5 VERIFICATION OF RESTORATION AND REBUILDING. Lessee will
promptly notify Lender and Lessor of the completion of the restoration or
rebuilding of the Improvements, as applicable, after a Casualty or Condemnation.
After completion of such restoration and rebuilding and in order to verify
Lessee's compliance with the foregoing SECTIONS 11.3 and 11.4, Lessor, the
Lender and their authorized representatives may, upon three (3) Business Days'
notice to Lessee during normal business hours, inspect the Leased Property and
the completion of the restoration and rebuilding of the Improvements, as
applicable. All reasonable and documented out-of-pocket costs of such
inspection incurred by Lessor and the Lender will be paid by Lessee promptly
after written request. No such inspection shall unreasonably interfere with
Lessee's operations or the operations of any other occupant of the Leased
Property. None of the inspecting parties shall have any duty to make any such
inspection or inquiry and none
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of the inspecting parties shall incur any liability or obligation by reason of
not making any such inspection or inquiry. None of the inspecting parties
shall incur any liability or obligation by reason of making any such
inspection or inquiry unless and to the extent such inspecting party causes
damage to the Leased Property or any property of Lessee or any other Person
during the course of such inspection.
SECTION 11.6 APPLICATION OF PAYMENTS.
(a) All proceeds (except for payments under insurance policies maintained
other than pursuant to ARTICLE IX of this Lease) received at any time by Lessor,
Lessee or the Lender from any Governmental Authority or other Person with
respect to any Condemnation or Casualty to the Leased Property or any part
thereof or with respect to an Event of Loss or an Event of Taking, plus the
amount of any payment that would have been due from an insurer but for Lessee's
self-insurance or deductibles ("LOSS PROCEEDS"), shall (except to the extent
SECTION 11.9 applies) be applied as follows:
(i) In the event Lessee purchases the Leased Property pursuant to
SECTION 11.1 or SECTION 11.2, such Loss Proceeds shall be applied as set
forth in SECTION 11.1 or SECTION 11.2, as the case may be;
(ii) In the event of a Casualty at such time when no Event of Default
has occurred and is continuing and Lessee is obligated to repair and
rebuild the Leased Property pursuant to SECTION 11.3, Lessee may, in good
faith and subsequent to the date of such Casualty, certify to Lender and to
the applicable insurer that no Event of Default has occurred, in which
event the applicable insurer shall pay the Loss Proceeds to Lessee, and, if
requested by Lessee, Lender and Lessor shall so direct the insurer; and
(iii) In the event of a Condemnation at such time when no Event of
Default has occurred and is continuing and Lessee is obligated to repair
and rebuild the Leased Property pursuant to SECTION 11.4, Lessor and Lender
(if required) shall upon Lessee's request assign to Lessee, Lessor's and
Lender's (if applicable) interest in any applicable Awards except for
Awards (or portions thereof) described in SECTION 11.4 (a) or (b); and
(iv) As provided in SECTION 11.8 if such Section is applicable.
(b) After the completion of the repair and/or rebuilding pursuant to this
Article, all sums being held by the Lender pursuant to SECTION 9.4 hereof shall
be disbursed to the Lessee. During any period of repair or rebuilding pursuant
to this Article, this Lease will remain in full force and effect and Basic Rent
shall continue to accrue and be payable without abatement or reduction;
PROVIDED, HOWEVER, that any rent loss payments received by the Lender or the
Lessor shall be credited against the Lessee's obligation to pay Rent. Lessee
shall maintain records setting forth information relating to the receipt and
application of payments in accordance with
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this Section. Such records shall be kept on file by Lessee at its offices and
shall be made available to Lessor and the Lender upon request.
SECTION 11.7 PROSECUTION OF AWARDS.
(a) If, during the continuance of any Event of Default, any Condemnation
shall occur, Lessee shall give to Lessor and the Lender promptly, but in any
event within sixty (60) days after the occurrence of such Condemnation, written
notice of such occurrence and the date thereof, generally describing the nature
and extent of such Condemnation. With respect to any Event of Taking or any
Condemnation, Lessee shall control the negotiations with the relevant
Governmental Authority as to any proceeding in respect of which Awards are
required, under SECTION 11.6, to be assigned or released to Lessee; PROVIDED,
HOWEVER, that if Event of Default shall have occurred and be continuing Lessor
shall control such negotiations. Lessee hereby irrevocably assigns, transfers
and sets over to Lessor all rights of Lessee to any Award made during the
continuance of an Event of Default on account of any Event of Taking or any
Condemnation and, if there will not be separate Awards to the Lessor and the
Lessee on account of such Event of Taking or Condemnation, irrevocably
authorizes and empowers Lessor during the continuance of an Event of Default,
with full power of substitution in the name of Lessee or otherwise (but without
limiting the obligations of Lessee under this Article), to file and prosecute
what would otherwise be Lessee's claim for any such Award and, in the case of
Lessor, to collect, receipt for and retain the same; PROVIDED, HOWEVER, that in
any event Lessor may participate in any such negotiations, and no settlement
will be made without Lessor's prior consent, not to be unreasonably withheld or
delayed.
(b) Notwithstanding the foregoing, Lessee may prosecute, and Lessor shall
have no interest in, any claim with respect to Lessee's trade fixtures, other
personal property and equipment and Lessee's relocation expenses and any other
relocation benefits available to the Lessee under applicable law.
SECTION 11.8 APPLICATION OF CERTAIN PAYMENTS NOT RELATING TO AN EVENT OF
TAKING. In case of a requisition for temporary use of all or a portion of the
Leased Property which is not an Event of Taking, this Lease shall remain in full
force and effect, without any abatement or reduction of Basic Rent, and the
Awards for the Leased Property shall, unless an Event of Default has occurred
and is continuing, be paid to Lessee. Any amounts received by Lessor after an
Event of Default shall be applied to amounts due and owing under this Lease.
SECTION 11.9 OTHER DISPOSITIONS. Notwithstanding the foregoing
provisions of this Article, so long as an Event of Default shall have occurred
and be continuing, any amount that would otherwise be payable to or for the
account of, or that would otherwise be retained by, Lessee pursuant to this
Article shall be paid to Lessor and applied to amounts then due under the Loan
Documents and any excess shall be held by Lessor as security for the obligations
of Lessee under this Lease and, at such time thereafter as no Event of Default
shall be continuing,
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such amount shall be paid promptly to Lessee to the extent not previously
applied by Lessor in accordance with the terms of this Lease or the other
Operative Documents.
SECTION 11.10 NO RENT ABATEMENT. Rent shall not abate hereunder by reason
of any Casualty, any Event of Loss, any Event of Taking or any Condemnation of
the Leased Property, and Lessee shall continue to perform and fulfill all of
Lessee's obligations, covenants and agreements hereunder notwithstanding such
Casualty, Event of Loss, Event of Taking or Condemnation until the Lease
Termination Date. The foregoing notwithstanding, if and to the extent that,
pursuant to the provisions of this Lease and the other Operative Documents, Loss
Proceeds or Awards are paid over to and permanently retained by the Lender or
Lessor in accordance with the Operative Documents, Lessee shall receive as a
credit against its obligation to pay Basic Rent or, as applicable, the Lease
Balance, in the amount of any such Loss Proceeds or Awards.
ARTICLE XII
INTEREST CONVEYED TO LESSEE
If a bankruptcy court or other court of competent jurisdiction determines
that the transaction represented by this Lease will not be enforced as a true
lease, or will be treated as a financing or other transaction, then in such
event it is the intention of the parties hereto that (i) this Lease be treated
as a deed of trust and security agreement, or similar security document
encumbering the Leased Property, (ii) Lessor shall have, as a result of such
determination, all of the rights, powers and remedies of a beneficiary under a
deed of trust available under Applicable Law to take possession of and sell upon
the occurrence and continuation of an Event of Default (whether by foreclosure
or otherwise) the Leased Property, (iii) the effective date of such deed of
trust and security agreement shall be the effective date of this Lease, (iv) the
recording of this Lease, the Memorandum of Lease, or any other instrument
referencing this provision shall be deemed to be the recording of such deed of
trust and security agreement and (v) that the obligations secured by such deed
of trust and security agreement shall include the payment of the Loans, the
Notes and all Basic Rent and Supplemental Rent hereunder and all other
obligations of and amounts due from Lessee hereunder and under the Operative
Documents but without duplication.
ARTICLE XIII
EVENTS OF DEFAULT
The following events shall constitute Events of Default (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
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(a) Lessee shall fail to make any payment of Rent when due hereunder and,
except with respect to the Rent due on the Scheduled Termination Date (as to
which no grace period shall apply), such failure shall continue unremedied for a
period of five (5) Business Days or more;
(b) Lessee shall fail to pay the Loans, the Contribution or the entire
Lease Balance when due pursuant to SECTIONS 11.1, 11.2, 15.1 or 15.2 hereof, or
fail to pay the Recourse Deficiency Amount when required pursuant to ARTICLE XV
hereof;
(c) Lessee shall fail to maintain insurance as required by ARTICLE IX
hereof, which failure shall continue unremedied for a period of five (5)
Business Days or more after notice from Lessor or Lender;
(d) The occurrence of any breach of the covenants in SECTION 5.3, SECTION
5.4 or SECTION 5.5 of the Participation Agreement (after the expiration of any
applicable cure or notice periods);
(e) In the event the Lender exercises its right to apply all or a portion
of the principal amount of the Certificate of Deposit in satisfaction of the
obligations secured thereby (other than for payment of all or any portion of the
principal of the Loans), the Lessee shall fail to pledge an additional
certificate of deposit, in the principal amount equal to the amount so applied,
within five days after the Lender's demand therefor;
(f) [Omitted];
(g) The filing by Lessee of any petition for dissolution or liquidation of
Lessee, or the commencement by Lessee of a voluntary case under any applicable
bankruptcy, insolvency or other similar law for the relief of debtors, foreign
or domestic, now or hereafter in effect, or Lessee shall have consented to the
entry of an order for relief in an involuntary case under any such law, or the
appointment of or taking possession by a receiver, custodian or trustee (or
other similar official) for Lessee or any substantial part of its property, or a
general assignment by Lessee for the benefit of its creditors, or Lessee shall
have taken any corporate action in furtherance of any of the foregoing; or the
filing against Lessee of an involuntary petition in bankruptcy which results in
an order for relief being entered or, notwithstanding that an order for relief
has not been entered, the petition is not dismissed within one hundred twenty
(120) days of the date of the filing of the petition, or the filing under any
law relating to bankruptcy, insolvency or relief of debtors of any petition
against Lessee which either (i) results in a finding or adjudication of
insolvency of Lessee or (ii) is not dismissed within one hundred twenty (120)
days of the date of the filing of such petition;
(h) A "default", "event of default" or other similar occurrence shall have
occurred and be continuing (after the expiration of any applicable cure or
notice periods) under any other loan agreement, credit agreement, revolving
credit agreement, mortgage, security agreement,
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lease agreement, participation agreement or other agreement between Lessee,
or any Affiliate of Lessee, and any Person, evidencing or securing any Debt
of Lessee or such Affiliate exceeding $500,000;
(i) Any representation or warranty by Lessee in any Operative Document or
in any certificate or document delivered to Lessor pursuant to any Operative
Document shall have been incorrect in any material respect when made and has
resulted in a Material Adverse Effect on Lessor and such Material Adverse Effect
shall not have been cured within 10 days of Lessee's receipt of written notice
thereof from Lessor or the Lender on behalf of Lessor;
(j) [omitted];
(k) The occurrence of any breach of Lessee's covenant in ARTICLE X hereof;
or
(l) Lessee shall fail in any material respect to timely perform or observe
any covenant, condition or agreement (not included in CLAUSE (a), (b), (c), (d),
(e), (g), (h), (i) or (k) of this Article) to be performed or observed by it
hereunder or under the other Operative Documents and such failure shall continue
for a period of 30 days after the Lessee's receipt of written notice thereof
from Lessor or Lender (PROVIDED, HOWEVER, if such failure is other than the
payment of money and is of such nature that it can be corrected but not within
the applicable period, then that failure shall not constitute an Event of
Default so long as Lessee institutes curative action within the applicable
period and diligently pursues that action to completion, but in no event for a
period longer than ninety days).
ARTICLE XIV
ENFORCEMENT
SECTION 14.1 REMEDIES. Upon the occurrence of any Event of Default and
at any time thereafter, Lessor may, so long as such Event of Default is
continuing, do one or more of the following as Lessor in its sole discretion
shall determine, without limiting any other right or remedy Lessor may have on
account of such Event of Default (including, without limitation, the obligation
of Lessee to purchase the Leased Property as set forth in SECTIONS 15.2 and
15.3):
(a) Lessor may, by notice to Lessee, rescind or terminate this Lease as of
the date specified in such notice; PROVIDED, HOWEVER, that (i) no reletting,
reentry or taking of possession of the Leased Property by Lessor will be
construed as an election on Lessor's part to terminate this Lease unless written
notice of such intention is given to Lessee, (ii) notwithstanding any reletting,
reentry or taking of possession, Lessor may at any time thereafter elect to
terminate this Lease for a continuing Event of Default, (iii) Lessor shall be
under no obligation whatsoever to mitigate its damages hereunder but shall be
entitled to maintain an action for the payment in full of all amounts due
hereunder (including but not limited to payment of the Recourse Deficiency
Amount, but subject to the terms and provisions of this SECTION 14.1), except as
may
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be required by Applicable Law and (iv) no act or thing done by Lessor or any
of its agents, representatives or employees and no agreement accepting a
surrender of the Leased Property shall be valid unless the same be made in
writing and executed by Lessor.
(b) Lessor may (i) demand that Lessee, and Lessee shall upon the written
demand of Lessor, return the Leased Property promptly to Lessor in the manner
and condition required by, and otherwise in accordance with all of the
provisions of, ARTICLES VII and XV hereof as if the Leased Property were being
returned at the end of the Lease Term, and Lessor shall not be liable for the
reimbursement of Lessee for any costs and expenses incurred by Lessee in
connection therewith and (ii) without prejudice to any other remedy which Lessor
may have for possession of the Leased Property, and to the extent and in the
manner permitted by Applicable Law, enter upon the Leased Property and take
immediate possession of (to the exclusion of Lessee) the Leased Property or any
part thereof and expel or remove Lessee and any other Person who may be
occupying the Leased Property, by summary proceedings or otherwise, all without
liability to Lessee for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise and, in addition to Lessor's other damages, Lessee shall be
responsible for the reasonable and documented costs and expenses of reletting,
including brokers fees and the reasonable and documented costs of any
alterations or repairs made by Lessor.
(c) The Lessor may (i) by or through the Trustee named in the Memorandum
of Lease and as provided therein or otherwise, sell all or any part of the
Leased Property at public or private sale in accordance with Chapter 51 of the
Texas Property Code, as the Lessor may determine, free and clear of any rights
of the Lessee and without any duty to account to the Lessee with respect to such
action or inaction or any proceeds with respect thereto (except to the extent
required by clause (ii) of this subsection if the Lessor shall elect to exercise
its rights thereunder) in which event the Lessee's obligation to pay Basic Rent
hereunder for periods commencing after the date of such sale shall be terminated
or proportionately reduced, as the case may be and (ii) if the Lessor shall so
elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the
Lessor, on the date of such sale, subject to the provisions of Chapter 51 of the
Texas Property Code, as liquidated damages for loss of a bargain and not as a
penalty (the parties agreeing that the Lessor's actual damages would be
difficult to predict, but the aforementioned liquidated damages represent a
reasonable approximation of such amount) (in lieu of Basic Rent due for periods
commencing on or after the Rent Payment Date coinciding with such date of sale
(or, if the sale date is not a Rent Payment Date, the Rent Payment Date next
preceding the date of such sale)), an amount equal to (A) the excess, if any, of
(1) the sum of all Rent due and unpaid to and including such Rent Payment Date
plus an amount equal to the Lease Balance as of the date of sale (or, if the
Event of Default occurs prior to the Completion Date, the principal of and all
accrued and unpaid interest on the Notes) over (2) the net proceeds of such
sale, after deducting all costs and expenses incurred by the Lessor incident to
such sale, including, without limitation, all costs, expenses, fees, premiums
and taxes described in SECTION 15.5(b), plus (B) interest at the Overdue Rate on
the foregoing amount from such Rent Payment Date until the date of payment. The
Lessor and Lessee intend and agree that
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if the provisions of the second sentence of Article XII of this Lease become
applicable, the foregoing provisions of this SECTION 14.1(C) shall be deemed
to be a security agreement and a financing statement within the meaning of
Article 9 of the Uniform Commercial Code of the State of Texas, and a real
property deed of trust and that the power of sale hereinabove provided for
shall be deemed to be a grant by the Lessee to the Lessor of a mortgage lien
and security interest in and to all of the Lessee's right and interest in and
to the Leased Property and all of the proceeds of the conversion, voluntary or
involuntary, or the foregoing into cash, investments, securities, or other
property, and reference is hereby made to the Memorandum of Lease for
additional provisions concerning said security interest and power of sale.
(d) Lessor may, at its option, elect not to terminate the Lease, and
continue to collect all Basic Rent, Supplemental Rent and all other amounts due
Lessor (together with all costs of collection) and enforce Lessee's obligations
under this Lease as and when the same become due, or are to be performed, and at
the option of Lessor, upon any abandonment of the Leased Property by Lessee and
re-entry of same by Lessor, Lessor may, in its sole and absolute discretion,
elect not to terminate this Lease and may make such reasonable alterations and
necessary repairs in order to relet the Leased Property, and relet the Leased
Property or any part thereof for such term or terms (which may be for a long
term extending beyond the term of this Lease) and at such rental or rentals and
upon such other terms and conditions as Lessor in its reasonable discretion may
deem advisable. Upon each such reletting all rentals actually received by
Lessor from such reletting shall be applied to Lessee's obligations hereunder in
such order, proportion and priority as Lessor may elect in Lessor's sole and
absolute discretion, and if such rentals received from such reletting during any
Rent Period are less than the Rent to be paid during that Rent Period by Lessee
hereunder, Lessee shall pay any deficiency, as calculated by Lessor, to Lessor
on the Rent Payment Date in such Rent Period.
(e) If the Leased Property has not been sold, the Lessor may, whether or
not the Lessor shall have exercised or shall thereafter at any time exercise any
of its rights under paragraph (b), (c) or (d) of this Section with respect to
the Leased Property, demand, by written notice to the Lessee specifying a date
(the "FINAL RENT PAYMENT DATE") not earlier than ten (10) days after the date of
such notice, that the Lessee purchase, on the Final Rent Payment Date, the
Leased Property in accordance with the provisions of SECTIONS 15.2, 15.4 and
15.5; PROVIDED, HOWEVER, that (i) such purchase shall occur on the date set
forth in such notice, notwithstanding the provision in SECTION 15.3 calling for
such purchase to occur on the Lease Termination Date and (ii) the Lessor's
obligations under SECTION 15.5(a) shall be limited to delivery of a deed without
warranty and bill of sale without warranty of the Leased Property, without
recourse or warranty, but free and clear of the Lessor's Liens.
(f) To the extent not inconsistent with SUBSECTION (e), Lessor may
exercise any other right or remedy that may be available to it under Applicable
Law, or proceed by appropriate court action (legal or equitable) to enforce the
terms hereof or to recover damages for the breach hereof. Separate suits may be
brought to collect any such damages for any Rent Period(s), and such suits shall
not in any manner prejudice Lessor's right to collect any such damages for any
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subsequent Rent Period(s), or Lessor may defer any such suit until after the
expiration of the Lease Term, in which event such suit shall be deemed not to
have accrued until the expiration of the Lease Term.
(g) Lessor may retain and apply against Lessor's damages all sums which
Lessor would, absent such Event of Default, be required to pay, or turn over, to
Lessee pursuant to the terms of this Lease (subject to Lessor's obligation in
the Operative Documents to pay such amounts to Lender).
SECTION 14.2 REMEDIES CUMULATIVE; NO WAIVER; CONSENTS. To the extent
permitted by, and subject to the mandatory requirements of, Applicable Law
(subject in all events to SECTION 14.1(e) hereof), each and every right, power
and remedy herein specifically given to Lessor or otherwise in this Lease shall
be cumulative and shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time and as often and
in such order as may be deemed expedient by Lessor, and the exercise or the
beginning of the exercise of any power or remedy shall not be construed to be a
waiver of the right to exercise at the same time or thereafter any right, power
or remedy. No delay or omission by Lessor in the exercise of any right, power
or remedy or in the pursuit of any remedy shall impair any such right, power or
remedy or be construed to be a waiver of any default on the part of Lessee or to
be an acquiescence therein. Lessor's consent to any request made by Lessee
shall not be deemed to constitute or preclude the necessity for obtaining
Lessor's consent, in the future, to all similar requests. No express or implied
waiver by Lessor of any Event of Default shall in any way be, or be construed to
be, a waiver of any future Event of Default. To the extent permitted by
Applicable Law (including, without limitation, Texas Property Code, Chapter 51,
as amended), Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise that may require Lessor to sell, lease or otherwise use the
Leased Property or part thereof in mitigation of Lessor's damages upon the
occurrence of an Event of Default or that may otherwise limit or modify any of
Lessor's rights or remedies under this Article.
ARTICLE XV
SALE, RETURN OR PURCHASE OF LEASED PROPERTY
SECTION 15.1 LESSEE'S OPTION TO PURCHASE. Subject to the terms and
conditions and provisions set forth in this Article, Lessee shall have the
option (the "PURCHASE OPTION"), exercisable at any time during the Lease Term on
or prior to the tenth Business Day next preceding the Lease Termination Date, to
purchase from Lessor, Lessor's entire interest in all, but not less than all, of
any Property at the purchase price equal to the Purchase Option Price for such
Property. Such option must be exercised by written notice to the Lessor and the
Lender, which exercise shall be irrevocable, and such notice shall specify the
closing date for Lessee's purchase of such Property, which date shall be (i) not
less than ten (10) Business Days
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or more than 180 calendar days following the Lessor's receipt of such notice
and (ii) in any event not later the Lease Termination Date. If the Purchase
Option is exercised pursuant to the foregoing, then, subject to the provisions
set forth in this Article, on such closing date, Lessor shall convey to
Lessee, and Lessee shall purchase from Lessor, Lessor's interest in all, but
not less than all, of such Property. If Lessee fails to exercise the Purchase
Option in a timely manner, then the Purchase Option shall thereupon
automatically terminate without any further action of Lessor, and the Purchase
Option shall thereafter be of no force or effect. The Purchase Option granted
to Lessee pursuant to this Section is exclusive of the purchase option
provided to Lessee pursuant to SECTION 14.1(e).
SECTION 15.2 PURCHASE OBLIGATION. Unless (i) the Lessee and the Lessor
shall have extended the Lease Term pursuant to a supplement to this Lease
containing conditions and terms mutually agreeable to the Lessee and the Lessor
and approved by the Lender, (ii) Lessee shall have properly exercised the
Purchase Option and purchased all of the Leased Property pursuant thereto, (iii)
Lessee shall have properly exercised the Remarketing Option and shall have
fulfilled the conditions of SECTION 15.6 hereof and Lessor shall have sold its
entire interest in the Leased Property pursuant thereto or (iv) Lessee shall
have properly exercised the Remarketing Option and shall have fulfilled the
conditions of SECTION 15.6 hereof but the Lessor shall have rejected such sale
pursuant to SECTION 15.6(xi) and Lessee shall then have timely fulfilled all of
its obligations under SECTION 15.7 and 15.8 hereof, THEN, subject to the terms,
conditions and provisions set forth in this Article, Lessee shall purchase from
Lessor, and Lessor shall convey to Lessee, on the Lease Termination Date
Lessor's entire interest in all, but not less than all, of the Leased Property.
Lessee may designate, in a notice given to Lessor not less than ten (10)
Business Days prior to the closing of such purchase (time being of the essence),
the transferee to whom the conveyance shall be made (if other than to Lessee),
in which case such conveyance shall (subject to the terms and conditions set
forth herein) be made to such designee; PROVIDED, HOWEVER, that such designation
of a transferee shall not cause Lessee to be released, fully or partially, from
any of its obligations under this Lease.
SECTION 15.3 ACCELERATION OF PURCHASE OBLIGATION. Lessee shall be
obligated to purchase Lessor's entire interest in all, but not less than all, of
the Leased Property immediately, automatically and without notice upon the
occurrence of any Event of Default specified in CLAUSE (g) of ARTICLE XIII;
PROVIDED, HOWEVER, that (without affecting any of Lessee's obligations under
SECTION 15.5 or otherwise) Lessor's obligations under SECTION 15.5 (a) shall be
limited to delivery of a quit claim deed of the Leased Property.
SECTION 15.4 DETERMINATION OF PURCHASE PRICE. Upon the purchase by
Lessee of the Leased Property pursuant to SECTIONS 15.2 or 15.3, the purchase
price therefor shall be an amount equal to the Lease Balance as of the closing
date therefor.
SECTION 15.5 PURCHASE PROCEDURE.
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(a) If Lessee shall purchase Lessor's interest in the Leased Property
pursuant to any provision of this Lease (other than as provided in SECTION
15.3), (i) Lessee shall accept from Lessor, and Lessor shall convey to Lessee,
such Leased Property by one or more duly executed and acknowledged special
warranty deeds of such Leased Property in recordable form, (ii) upon the date
fixed for any purchase of Lessor's interest in such Leased Property hereunder,
Lessee shall pay to the order of Lessor the Lease Balance by wire transfer of
federal funds and (iii) Lessor shall convey to Lessee Lessor's entire interest
in all of the Leased Property via the special warranty deed or deeds described
above and Lessor will execute and deliver to Lessee such other documents as may
be legally required in order to effect such conveyance, and such other documents
as may be required by any escrow agent in order to close escrow in connection
with such conveyance and issue to Lessee an Owner's Policy of Title Insurance in
the form promulgated by the Texas Department of Insurance subject only to (A)
the exceptions set forth on Schedule B of the Title Policy for each Property
other than the Mortgage and the Assignment of Lease and Rents, (B) such
exceptions created or caused by Lessee, or otherwise resulting from any act or
failure to act by Lessee, or consented to by Lessee and (C) taxes and
assessments not yet due and payable.
(b) In the event that Lessee exercises the Remarketing Option pursuant to
SECTION 15.6 and fulfills all of the conditions set forth in CLAUSES (i) through
(xiii) thereof, and if Lessor does not reject the purchase offer for the Leased
Property as provided in SECTION 15.6 (xi), then upon payment of the purchase
price and the satisfaction by such purchaser of all of the applicable closing
conditions, Lessor shall convey to such purchaser Lessor's interest in the
Leased Property by a duly executed special warranty deed or deeds in recordable
form, and Lessor will execute and deliver to such purchaser (or the Lessee, as
appropriate) such other documents as may be legally required in order to effect
such conveyance, and such other documents as may be required by such purchaser's
title insurance company in order to issue to such purchaser an Owner's Policy of
Title Insurance in the form promulgated by the Texas Department of Insurance
subject only to (i) the exceptions set forth on Schedule B of the Title Policy,
other than the Mortgage and the Assignment of Lease and Rents, (ii) such
exceptions created or caused by Lessee, or otherwise resulting from any act or
failure to act by the Lessee, or consented to by the Lessee and (iii) taxes and
assessments not yet due and payable.
(c) Lessee shall, at Lessee's sole cost and expense, obtain all required
governmental and regulatory approval and consents and shall make such filings as
required by Applicable Law. In the event that Lessor is required by Applicable
Law to take any action in connection with such purchase and sale, Lessee shall
pay all costs incurred by Lessor in connection therewith. In addition, all
charges incident to such conveyance, including, without limitation, Lessee's
attorneys' fees, Lessor's reasonable attorneys' fees, commissions, Lessee's and
Lessor's escrow fees, recording fees, title insurance premiums and all
applicable documentary transfer or other transfer taxes and other taxes required
to be paid in order to record the transfer documents that might be imposed by
reason of such conveyance and the delivery of such deed shall be borne entirely
and paid by Lessee.
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(d) Upon expiration or termination of this Lease resulting in conveyance
of Lessor's interest in the title to the Leased Property to Lessee, there shall
be no apportionment of taxes, insurance, utility charges or other charges
payable with respect to the Leased Property, all of such taxes, insurance,
utility or other charges due and payable with respect to the Leased Property
prior to termination being payable by Lessee hereunder and all due after such
time being payable by Lessee as the then owner of the Leased Property.
SECTION 15.6 OPTION TO REMARKET. Subject to the fulfillment of each of
the conditions set forth in this Section, Lessee shall have the option (the
"Remarketing Option") to market all, but not less than all, of the Leased
Property and to procure a purchaser therefor. Lessee's effective exercise and
consummation of the Remarketing Option shall be subject to the due and timely
fulfillment of each of the following provisions, the failure of any of which
shall render the Remarketing Option and Lessee's exercise thereof null and void,
in which event, Lessee shall remain obligated to perform all of its obligations
under SECTION 15.2 ("Purchase Obligation"):
(i) Not earlier than six months before the Scheduled Termination
Date, Lessee shall give to Lessor written notice of Lessee's exercise of
the Remarketing Option, which exercise shall be irrevocable unless
otherwise agreed in writing by the Lender.
(ii) Not later than thirty (30) Business Days prior to the Scheduled
Termination Date, Lessee shall deliver to Lessor an environmental
assessment of the Leased Property dated not later than forty-five (45) days
prior to the Scheduled Termination Date. Such environmental assessment
shall be prepared by ATC Associates Inc, or other environmental consultant
selected by Lessee and reasonably acceptable to Lessor and the Lender,
shall be in form, detail and substance reasonably acceptable to Lessor and
the Lender, and shall otherwise indicate the environmental condition of the
Leased Property to be the same as described in the Environmental Audit
delivered pursuant to SECTION 3.2 of the Participation Agreement.
(iii) On the date of Lessee's notice to Lessor of Lessee's
exercise of the Remarketing Option, no Event of Default shall exist, and
thereafter, no Event of Default shall exist under this Lease.
(iv) Lessee shall have completed all Alterations, restoration and
rebuilding of the Leased Property pursuant to SECTIONS 7.2, 11.3 and 11.4
(as the case may be) and shall have fulfilled all of the conditions and
requirements in connection therewith pursuant to said Sections, in each
case by the date on which Lessor receives Lessee's notice of Lessee's
exercise of the Remarketing Option (time being of the essence), regardless
of whether the same shall be within Lessee's control.
(v) Once Lessee has exercised the Remarketing Option as provided in
CLAUSE (i) hereof, Lessee shall, as nonexclusive agent for Lessor, use
commercially reasonable
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efforts to sell Lessor's interest in the Leased Property and will attempt
to obtain the highest purchase price therefor. Lessee will be responsible
for hiring brokers and making the Leased Property available for
inspection by prospective purchasers. Lessee shall promptly provide any
maintenance records relating to the Leased Property to Lessor and any
potential purchaser thereof upon request, and shall otherwise do all
things necessary to sell and deliver possession of the Leased Property to
the purchaser thereof. All such marketing of the Leased Property shall
be at Lessee's sole expense. Lessee shall allow Lessor, the Lender and
any potential qualified purchaser access to the Leased Property for the
purpose of inspecting the same.
(vi) Lessee shall submit all bids to Lessor and the Lender and Lessor
and the Lender will have the right to review the same and the right to
submit any one or more bids. All bids shall be on an "all-cash" basis (at
least up to the Lease Balance amount). Lessee shall procure bids from one
or more bona fide prospective purchasers of the Leased Property and shall
deliver to Lessor and the Lender not less than ninety (90) days prior to
the Lease Termination Date a binding written irrevocable offer by such
purchaser offering (subject to customary conditions which do not violate
the provisions of CLAUSE viii, below) the highest "all-cash" bid to
purchase the Leased Property. Such purchaser shall not be Lessee or any
Subsidiary or Affiliate of Lessee. The written offer must specify the
Lease Termination Date as the closing date.
(vii) On the Lease Termination Date, Lessee shall surrender the
Leased Property in accordance with SECTION 15.8 hereof.
(viii) In connection with any such sale of the Leased Property,
Lessee may provide to the purchaser any such customary "seller's"
indemnities, representations and warranties regarding title, absence of
Liens (except Lessor's Liens) and the condition of the Leased Property,
including, without limitation, an environmental indemnity, as Lessee may
determine to provide in the exercise of its business judgment and sole
discretion, PROVIDED, HOWEVER, that no such indemnities, representations or
warranties shall be binding on Lessor, nor shall they create liabilities,
charges, offsets or Claims, contingent or otherwise, which could diminish,
offset or impose a lien upon the amount of the cash proceeds payable to
Lessor under such purchase offer, nor shall Lessor be under any obligation
to join in or become obligated for the same, except that Lessor shall
fulfill all of the requirements set forth in CLAUSE (b) of SECTION 15.5,
and such requirements are incorporated herein by reference. As to Lessor,
any such sale shall be made on an "as is, with all faults" basis without
representation or warranty by Lessor other than the absence of Lessor's
Liens.
(ix) Lessor shall pay from the sale proceeds, all prorations, credits,
costs and expenses of the sale of the Leased Property, including without
limitation the cost of all title insurance, surveys, environmental reports,
appraisals, transfer taxes, Lessor's
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reasonable attorneys' fees, commissions, escrow fees, recording fees, and
all applicable documentary and other transfer taxes.
(x) Lessee shall pay to the Lender on the Lease Termination Date (or
to such other Person as Lessor shall notify Lessee in writing or, in the
case of Supplemental Rent, to the Person entitled thereto) an amount equal
to the Recourse Deficiency Amount in the type of funds specified in SECTION
4.3 hereof.
(xi) If the aggregate selling price (net of closing costs and
prorations and other amounts payable by Lessor under clause (ix) above, as
reasonably estimated by Lessor) for the Leased Property plus the Recourse
Deficiency Amount is less than the Lease Balance, then Lessor may, by
notice to Lessee and in Lessor's sole and absolute discretion, reject such
offer to purchase, in which event the parties will proceed according to the
provisions of SECTION 15.7 "Rejection of Sale" hereof.
(xii) If Lessor does not reject such purchase offer as provided
above, the closing of such purchase of the Leased Property by such
purchaser must occur on the Lease Termination Date, contemporaneously with
Lessee's surrender of the Leased Property in accordance with SECTION 15.8
hereof.
(xiii) If Lessor does not reject the purchase offer as provided
above, then the purchase shall be consummated on the Lease Termination Date
and the gross proceeds of the sale (i.e., without deduction for any
marketing, closing or other costs, prorations or commissions) shall be paid
directly to Lessor; provided, however, that if the sum of the gross
proceeds from such sale plus the Recourse Deficiency Amount exceeds the
Lease Balance, as of such date, then the excess shall be paid to Lessee on
the Lease Termination Date.
If one or more of the foregoing provisions shall not be fulfilled as of the
Lease Termination Date or if the Leased Property is not purchased as aforesaid
for any other reason whatsoever other than solely due to rejection by Lessor of
such sale pursuant to subsection (xi) above, then Lessor may, at Lessor's option
and in Lessor's sole discretion, (i) declare by written notice to Lessee the
Remarketing Option to be null and void (whether or not it has been theretofore
exercised by Lessee), in which event all of Lessee's rights under this Section
shall immediately terminate and Lessee shall be obligated to purchase the Leased
Property pursuant to SECTION 15.2 on the Lease Termination Date or (ii) permit
and require Lessee on behalf of Lessor to consummate the sale of the Leased
Property to such purchaser, in which event the gross proceeds shall be paid as
set forth in SECTION 15.6(xiii) above and all of Lessor's rights and remedies
set forth herein, in the other Operative Documents, at law or in equity or
otherwise shall be preserved as set forth in SECTION 14.2 hereof. If the
prospective purchaser breaches its offer to purchase, then Lessor may, in
Lessor's sole discretion, declare the Remarketing Option to be null and void, in
which event all of Lessee's rights under this Section shall immediately
terminate and Lessee shall be obligated to purchase the Leased Property pursuant
to SECTION 15.2. The Lessee shall have no
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right, power or authority to bind the Lessor in connection with any proposed
sale of the Leased Property.
SECTION 15.7 REJECTION OF SALE. (a) Notwithstanding anything contained
herein to the contrary, if Lessor rejects the purchase offer(s) for the Leased
Property as provided in SECTION 15.6(a)(xi) then (i) Lessee shall pay to the
Lender (or to such other person as Lessor shall direct) the Recourse Deficiency
Amount pursuant to SECTION 15.6(xi), (ii) Lessor shall retain title to the
Leased Property and (iii) in addition to Lessee's other obligations hereunder,
Lessee will reimburse Lessor within ten (10) Business Days after written
request, for all reasonable costs and expenses incurred by Lessor, during the
period ending on the first anniversary of the Remarketing Date in connection
with the marketing, sale, closing or transfer of such Series of Properties,
which obligation shall survive the Lease Termination Date and the termination or
expiration of this Lease with respect thereto.
(b) Following any rejection by the Lessor of the purchase offer(s)
for the Leased Property pursuant to the provisions of SECTION 15.6(xi), subject
to the condition that Lessee shall have:
(i) timely paid the Recourse Deficiency Amount to Lessor on or
before the Lease Termination Date,
(ii) duly and timely fulfilled each of the other provisions of
clauses (i) through (xiii) of SECTION 15.6 on or before the Lease
Termination Date, and
(iii) on and after the Lease Termination Date, timely fulfilled
each and every obligation of the Lessee under the Lease, the
Participation Agreement and the other Operative Documents on its part
to be performed, and no Event of Default shall have occurred,
THEN,
upon the subsequent sale of all, but not less than all, of the Leased Property
by Lessor to one or more third parties, Lessor shall pay to Lessee an amount
equal to the Lessor's gain (if any) on the sales, computed taking into account
Lessor's total investment in the Leased Property (including, without limitation,
the unpaid balance of the Loan, if any, and the unrecovered balance of the
Contribution).
SECTION 15.8 RETURN OF LEASED PROPERTY. If Lessor retains title to the
Leased Property pursuant to SECTION 15.7 hereof, then Lessee shall, on the Lease
Termination Date, and at its own expense, return possession of the Leased
Property to Lessor for retention by Lessor. If Lessee properly exercises the
Remarketing Option and fulfills all of the conditions of SECTION
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15.6 hereof and the Lessor does not reject such purchase offers pursuant to
SECTION 15.6(xi), then Lessee shall (unless by agreement with the purchaser
Lessee is to remain in possession of the Leased Property), on the Lease
Termination Date and at its own cost, transfer possession of the Leased
Property to the independent purchaser thereof, in each case by surrendering
the same into the possession of Lessor or such purchaser, as the case may be,
free and clear of all Liens other than Lessor Liens, Liens for Taxes not yet
payable and Liens described in clause (vi) of the definition of Permitted
Liens, in as good condition as it was on the Completion Date (as modified by
Alterations permitted by this Lease), ordinary wear and tear excepted, and in
compliance with Applicable Law. Lessee shall, on and within a reasonable
time before and after the Lease Termination Date, cooperate with Lessor and
the independent purchaser of the Leased Property in order to facilitate the
ownership and operation by such purchaser of the Leased Property after the
Lease Termination Date, which cooperation shall include the following, all of
which Lessee shall do on or before the Lease Termination Date or as soon
thereafter as is reasonably practicable: providing all books and records
regarding the maintenance and ownership of the Leased Property and all
know-how, data and technical information relating thereto to the extent in
Lessee's possession, providing a current copy of the Plans and Specifications
for the Leased Property, assigning all licenses necessary for the operation
and maintenance of the Leased Property to the extent Lessee has the legal
right to do so and cooperating in seeking and obtaining all necessary
Governmental Action relating to occupancy but not special use by the
purchaser thereof. Lessee shall have also paid the cost of all Alterations
with respect to the Leased Property commenced prior to the Lease Termination
Date. The obligation of Lessee under this Article shall survive the
expiration or termination of this Lease.
SECTION 15.9 EFFECT OF CONVEYANCE TO LESSEE. Upon conveyance of the
Leased Property after the exercise by Lessee of any of its rights to purchase
the Leased Property, including its rights under SECTION 14.1(e), or after
exercise of the Remarketing Option and the fulfillment of the applicable
conditions of CLAUSES (i) through (x) of SECTION 15.6, this Lease shall
automatically terminate unless Lessee otherwise elects in writing.
ARTICLE XVI
LESSEE'S EQUIPMENT
Except as expressly provided in this ARTICLE XVI, Lessor waives any
statutory and/or contractual lien on Lessee's personal property as security for
this Lease. After any repossession of the Leased Property (whether or not this
Lease has been terminated), Lessee, at its expense and so long as such removal
of such Alteration shall not result in a violation of Applicable Law, shall,
within a reasonable time after such repossession or within sixty (60) days after
Lessee's receipt of Lessor's written request (whichever shall first occur),
remove all of Lessee's trade fixtures, personal property and equipment from the
Leased Property (to the extent that the same can be readily removed from the
Leased Property without causing material damage to or materially impairing the
value of the Leased Property); PROVIDED, HOWEVER, that Lessee shall not remove,
and Lessor shall have a lien upon, any fixture, equipment or personal property
which
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constitutes part of the Leased Property. Any of Lessee's trade fixtures,
personal property and equipment not so removed by Lessee within such period
shall be considered abandoned by Lessee, and title thereto shall without
further act vest to Lessor, and may be appropriated, sold, destroyed or
otherwise disposed of by Lessor without notice to Lessee and without
obligation to account therefor and Lessee will pay Lessor, upon written
demand, all reasonable and documented costs and expenses incurred by Lessor
in removing, storing or disposing of the same and all costs and expenses
incurred by Lessor to repair any damage to the Leased Property caused by such
removal. Lessee will immediately repair at its expense all damage to the
Leased Property caused by any such removal (unless such removal is effected
by Lessor, in which event Lessee shall pay all reasonable costs and expenses
incurred by Lessor for such repairs). Lessor shall have no liability in
exercising Lessor's rights under this Article, nor shall Lessor be
responsible for any loss of or damage to Lessee's personal property and
equipment in connection therewith.
ARTICLE XVII
RIGHT TO PERFORM FOR LESSEE
If Lessee shall fail to perform or comply with any of its agreements
contained herein, and such failure to perform continues beyond any applicable
notice and cure periods, Lessor may, on thirty (30) days' prior notice (or such
lesser period afforded by Applicable Law or any third party, except that no
notice shall be required in the case of a default in the observance of the
obligations to maintain insurance pursuant to ARTICLE IX) to Lessee, perform or
comply with such agreement, and Lessor shall not thereby be deemed to have
waived any default caused by such failure, and the amount of such payment and
the amount of the expenses of Lessor (including reasonable attorney's fees and
expenses) incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, shall be deemed Supplemental
Rent, payable by Lessee to Lessor within ten (10) days' after written demand
therefor.
ARTICLE XVIII
MISCELLANEOUS
SECTION 18.1 REPORTS. To the extent required under Applicable Law and to
the extent it is reasonably practical for Lessee to do so, Lessee shall prepare
and file in timely fashion, or, where such filing is required to be made by
Lessor or it is otherwise not reasonably practical for Lessee to make such
filing, Lessee shall prepare and deliver to Lessor (with a copy to the Lender)
within a reasonable time prior to the date for filing and Lessor shall file, any
material reports with respect to the condition or operation of the Leased
Property that shall be required to be filed with any Governmental Authority.
SECTION 18.2 BINDING EFFECT; SUCCESSORS AND ASSIGNS; SURVIVAL. The terms
and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor and Lessee, shall be binding upon their respective
successors, legal representatives and assigns
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(including, in the case of Lessor, any Person to whom Lessor may transfer the
Leased Property or any interest therein in accordance with the provisions of
the Operative Documents), and inure to the benefit of their respective
permitted successors and assigns, and the rights hereunder of the Lender
shall inure (subject to such conditions as are contained herein) to the
benefit of the Lender's permitted successors and assigns.
SECTION 18.3 QUIET ENJOYMENT. Lessor covenants that, so long as no Event
of Default has occurred and is continuing, it will not interfere in Lessee's or
any of its sublessees' quiet enjoyment of the Leased Property in accordance with
this Lease during the Lease Term.
SECTION 18.4 NOTICES. Except for statutory notices required under
SECTION 14.1(c) (which shall be given as provided in the Texas Property Code),
unless otherwise specified herein, all notices, offers, acceptances, rejections,
consents, requests, demands or other communications to or upon the respective
parties hereto shall be in accordance with SECTION 8.2 of the Participation
Agreement.
SECTION 18.5 SEVERABILITY. Any provision of this Lease that shall be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and Lessee shall remain
liable to perform its obligations hereunder except to the extent of such
unenforceability. To the extent permitted by Applicable Law, the parties hereby
waive any provision of law that renders any provision hereof prohibited or
unenforceable in any respect.
SECTION 18.6 AMENDMENT; COMPLETE AGREEMENTS. Neither this Lease nor any
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, or by other instrument in writing signed by Lessor and the Lessee in
accordance with the provisions of SECTION 8.4 of the Participation Agreement.
This Lease, together with the other Operative Documents, is intended by the
parties as a final expression of their lease agreement and as a complete and
exclusive statement of the terms thereof, all negotiations, considerations and
representations between the parties having been incorporated herein and therein.
No course of prior dealings between the parties or their officers, employees,
agents or Affiliates shall be relevant or admissible to supplement, explain, or
vary any of the terms of this Lease or any other Operative Document. Acceptance
of, or acquiescence in, a course of performance rendered under this or any prior
agreement between the parties or their Affiliates shall not be relevant or
admissible to determine the meaning of any of the terms of this Lease or any
other Operative Document. No representations, undertakings, or agreements have
been made or relied upon in the making of this Lease other than those
specifically set forth in the Operative Documents.
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SECTION 18.7 CONSTRUCTION. This Lease shall not be construed more
strictly against any one party, it being recognized that both of the parties
hereto have contributed substantially and materially to the preparation and
negotiation of this Lease.
SECTION 18.8 HEADINGS. The Table of Contents and headings of the various
Articles and Sections of this Lease are for convenience of reference only and
shall not modify, define or limit any of the terms or provisions hereof.
SECTION 18.9 COUNTERPARTS. This Lease may be executed in any number of
counterparts as may be convenient or necessary, and it shall not be necessary
that the signatures of all parties hereto or thereto be contained on any one
counterpart hereof or thereof. Additionally, the parties hereto agree that for
purposes of facilitating the execution of this lease, (a) the signature pages
taken from the separate individually executed counterparts of this lease may be
combined to form multiple fully executed counterparts and (b) a facsimile
transmission shall be deemed to be an original signature for all purposes. All
executed counterparts of this Lease shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
SECTION 18.10 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED
BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
EXCEPT, WITH RESPECT TO LEASED PROPERTY LOCATED IN ANY STATE OTHER THAN TEXAS,
FOR ISSUES WHICH ARE MANDATORILY SUBJECT TO THE LAWS OF THE STATE IN WHICH ANY
PART THE LEASED PROPERTY IS LOCATED, WHICH ISSUES SHALL BE INTERPRETED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH SUCH
PART OF THE LEASED PROPERTY IS LOCATED.
SECTION 18.11 DISCHARGE OF LESSEE'S OBLIGATIONS BY ITS AFFILIATES. Lessor
agrees that performance of any of Lessee's obligations hereunder by one or more
of Lessee's Affiliates or one or more of Lessee's sublessees of the Leased
Property or any part thereof shall constitute performance by Lessee of such
obligations to the same extent and with the same effect hereunder as if such
obligations were performed by Lessee, but no such performance shall excuse
Lessee from any obligation not performed by it or on its behalf under the
Operative Documents.
SECTION 18.12 LIABILITY OF LESSOR LIMITED. Except as otherwise expressly
provided below in this Section, it is expressly understood and agreed by and
between Lessee, Lessor and their respective successors and assigns that nothing
herein contained shall be construed as creating any personal liability of Lessor
or any of its constituent members or other Affiliates, or JH Management
Corporation, or any of their respective incorporators, stockholders, officers,
directors, employees or agents, individually or personally, to perform any
covenant, either express or implied, contained herein, all such personal
liability, if any, being expressly waived by Lessee and by each and every Person
now or hereafter claiming by, through or under Lessee, and that, so far as
Lessor or any of its constituent members or other Affiliates,
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or JH Management Corporation, or any of their respective incorporators,
stockholders, officers, directors, employees or agents, individually or
personally, is concerned, Lessee and any Person claiming by, through or under
Lessee shall look solely to, and the liability of Lessor hereunder shall be
limited to, the right, title and interest of Lessor in the Leased Property,
any proceeds from Lessor's sale or encumbrance thereof, and any Awards or
Loss Proceeds (PROVIDED, HOWEVER, that Lessee shall not be entitled to any
double recovery) for the performance of any obligation under this Lease and
under the Operative Documents and the satisfaction of any liability arising
therefrom.
SECTION 18.13 ESTOPPEL CERTIFICATES. Each party hereto agrees that at any
time and from time to time during the Lease Term, it will promptly, but in no
event later than fifteen (15) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to the Lender, any
prospective purchaser (if such prospective purchaser has signed a commitment or
letter of intent to purchase the Leased Property or any part thereof), assignee
or mortgagee or third party designated by such other party, a certificate
stating (i) that this Lease is unmodified and in force and effect (or if there
have been modifications, that this Lease is in force and effect as modified, and
identifying the modification agreements), (ii) the date to which Basic Rent has
been paid, (iii) whether or not there is any existing default by Lessee in the
payment of Basic Rent or any Supplemental Rent, and whether or not there is any
other existing default by either party with respect to which a notice of default
has been served, and, if there is any such default, specifying the nature and
extent thereof, (iv) whether or not, to the knowledge of the signer, there are
any setoffs, defenses or counterclaims against enforcement of the obligations to
be performed hereunder existing in favor of the party executing such certificate
and (v) other matters concerning the status of this Lease and of any of the
Operative Documents to which the Lessee is a party that may be reasonably
requested; PROVIDED, HOWEVER, that no such certificate may be requested unless
the requesting party has a good faith reason for such request.
SECTION 18.14 NO JOINT VENTURE. Any intention to create a joint venture
or partnership relation between Lessor and Lessee is hereby expressly
disclaimed.
SECTION 18.15 NO ACCORD AND SATISFACTION. The acceptance by Lessor of any
sums from Lessee (whether as Basic Rent or otherwise) in amounts which are less
than the amounts due and payable by Lessee hereunder is not intended, nor shall
any such acceptance be construed, to constitute an accord and satisfaction of
any dispute between Lessor and Lessee regarding sums due and payable by Lessee
hereunder, unless Lessor specifically deems it as such in writing.
SECTION 18.16 NO MERGER. In no event shall the leasehold interests,
estates or rights of Lessee hereunder merge with any interests, estates or
rights of Lessor in or to the Leased Property, it being understood that such
leasehold interests, estates and rights of Lessee hereunder shall be deemed to
be separate and distinct from Lessor's interests, estates and rights
-35-
<PAGE>
in or to the Leased Property, notwithstanding that any such interests,
estates or rights shall at any time or times be held by or vested in the same
person, corporation or other entity.
SECTION 18.17 SURVIVAL. The obligations of Lessee to be performed under
this Lease prior to the Lease Termination Date and the obligations of Lessee
pursuant to ARTICLES IV, XI, XII, XIV, SECTIONS 15.2, 15.3, 15.4, 15.5 and 15.8,
ARTICLES XVI, XVII, and SECTIONS 18.09 and 18.11 shall survive the expiration or
termination of this Lease. The extension of any applicable statute of
limitations by Lessor, Lessee, the Lender or any Indemnitee shall not affect
such survival.
SECTION 18.18 CHATTEL PAPER. To the extent that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code in any
applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the original
counterpart, which shall be identified as the original counterpart by the
receipt of Lessor on its signature page.
SECTION 18.19 TIME OF ESSENCE. Time is of the essence of this Lease.
SECTION 18.20 RECORDATION OF LEASE. Lessee will, at its expense, cause
either the Lease or each Memorandum of Lease to be recorded in the proper office
or offices in the State and the municipality in which the Land is located.
SECTION 18.21 INVESTMENT OF SECURITY FUNDS. Any amounts not payable to
Lessee (which amounts shall be paid to or retained by Lessor), pursuant to any
provision of ARTICLE IX, XI or XV or this Section solely because an Event of
Default shall have occurred and be continuing, shall be held by the Lender, on
behalf of Lessee, as security for the obligations of Lessee under this Lease and
the Participation Agreement. At such time as no Event of Default shall be
continuing, such amounts, net of any amounts previously applied to Lessee's
obligations hereunder or under the Participation Agreement, shall be paid to
Lessee or such sublessee or transferee, as the case may be. Any such amounts
which are held by the Lender pending payment to Lessee or such sublessee or
transferee, as the case may be, shall until paid to Lessee or such sublessee or
transferee, as the case may be, as provided hereunder or, as long as the Loan
Agreement is in effect, until applied against Lessee's obligations herein and
under the Participation Agreement and distributed as provided in SECTION 3 of
the Loan Agreement or (after the Loan Agreement is no longer in effect) in
connection with any exercise of remedies hereunder, be invested by the Lender as
directed from time to time in writing by Lessee (PROVIDED, HOWEVER, if an Event
of Default has occurred and is continuing such investment will be directed by
Lessor in insured certificates of deposit of the Lender and its Affiliates up to
$100,000 or United States Treasury Obligations) and at the expense and risk of
Lessee, in investments reasonably approved by the Lender. Any gain (including
interest received) realized as the result of any such investment (net of any
fees, commissions and other expenses, if any, incurred in connection with such
investment) shall be applied in the same manner as the principal invested.
-36-
<PAGE>
SECTION 18.22 NO ILLEGAL INTEREST TO BE CHARGED. All agreements between
the Lessee and the Lessee under this Lease or the Participation Agreement are
expressly limited so that in no contingency or event whatsoever shall the amount
paid or agreed to be paid to the Lessor or its successors or assigns for the
use, forbearance or detention of the money to be advanced to the Lessee exceed
the highest rate permissible under law applicable thereto by a court of
competent jurisdiction. If, from any circumstances whatever, fulfillment of any
provisions of this Lease or any of the Operative Documents at the time
performance of such provision shall be due, shall involve payment of interest at
a rate that exceeds the highest lawful rate as so determined, then ipso facto
the obligation to be fulfilled shall be reduced to such highest lawful rate. If
from any circumstances whatsoever, the Lessor or its successors or assigns shall
ever receive interest, the amount of which would exceed such highest lawful
rate, the portion thereof that would be excessive interest shall be applied to
the reduction of the unpaid Scheduled Rent; provided, however, that nothing
contained herein, in the Participation Agreement, this Lease or any of the
Operative Documents shall be deemed to create a defense, contractual or
otherwise, to any sums due or to become due or coming due under this Lease, the
Participation Agreement or any of the Operative Documents where no such defense
exists at law, as for example, where corporations are barred from asserting the
defense of usury or in a case wherein no limit exists upon the rate of interest
that may be charged.
SECTION 18.23 SUBMISSION TO JURISDICTION; WAIVERS. Each party hereto
hereby irrevocably and unconditionally (i) submits for itself and its property
in any legal action or proceeding relating to this Lease or any other Operative
Document, or for recognition and enforcement of any judgment in respect thereof,
to the non-exclusive general jurisdiction of the courts of the State of Texas,
the courts of the United States of America for the Eastern District of Texas and
appellate courts from any thereof, (ii) consents that any such action or
proceedings may be brought to such courts, and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any court
or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same, (iii) agrees that service of process in
any such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such party at its address set forth in SECTION 8.2 of the
Participation Agreement or such other address of which the other parties hereto
shall have been notified pursuant to said SECTION 8.2 and (iv) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law. EACH PARTY, TO THE EXTENT PERMITTED BY LAW, HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG
OR BETWEEN THE PARTIES HERETO ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THE PARTIES IN CONNECTION WITH
THIS LEASE, ANY OTHER OPERATIVE DOCUMENT OR ANY OTHER DOCUMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. THIS
WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY THE LESSOR'S
ABILITY TO PURSUE ANY REMEDIES CONTAINED IN THIS LEASE, THE OTHER OPERATIVE
DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT RELATED HERETO.
-37-
<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-38-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease and
Development Agreement to be executed by their respective duly authorized
officers as of the day and year first above written.
ASSET XVII HOLDINGS COMPANY,
L.L.C., as Lessor
By: Asset Holdings Corporation I,
as Managing Member
By: /s/ Illegible
------------------------------
Name:
----------------------------
Title:
---------------------------
STB SYSTEMS, INC., as Lessee
By: /s/ James L. Hopkins
-----------------------------------
Name: James L. Hopkins
---------------------------------
Title: Vice President
--------------------------------
-39-
<PAGE>
APPENDIX I
TO
PARTICIPATION AGREEMENT, LEASE AND
DEVELOPMENT AGREEMENT AND LOAN AGREEMENT
DEFINITIONS AND INTERPRETATION
[See separate text]
<PAGE>
APPENDIX II
DESCRIPTION OF LEASED PROPERTY
I. LAND: The real property described on Exhibit A hereto.
II. IMPROVEMENTS:
An office building containing approximately _______ square feet on the Land
and any and all buildings, structures, replacements, furnishings, fixtures,
fittings and other improvements and property of every kind and character
now or hereafter located or erected on the Land, together with all
buildings or construction materials, equipment, appliances, machinery,
plant equipment, fittings, apparatus, fixtures and other articles of any
kind or nature whatsoever now or hereafter found on, affixed to or attached
to the Land, including (without limitation) all motors, boilers, engines
and devices for the operation of pumps, and all heating, electrical,
lighting, power, plumbing, air conditioning, refrigeration and ventilation
equipment (but in all the above cases excluding trade fixtures and any
personal property owned by the Lessee).
<PAGE>
APPENDIX III
SCHEDULED RENT
<PAGE>
[LETTERHEAD]
December 18, 1997
Austin Commercial, Inc.
3535 Travis Street, Suite 300
Dallas, Texas 75204-1466
LIMITED NOTICE TO PROCEED NO.1
WATERVIEW TECHNOLOGY CENTER PHASE I - RICHARDSON, TEXAS
Gentlemen:
This "Limited Notice to Proceed," having an effective date of December 18,
1997, is your authorization to proceed with the Scope of Work defined in
Attachment "A". The Guaranteed Maximum Cost to Owner for Contractor's
performance of this Limited Notice to Proceed Work is not to exceed
$3,777,420, including Contractor's Fee of $127,735. Applicable Conditions of
this Limited Notice to Proceed are listed in Attachment "A".
OWNER:
STB SYSTEMS, INC.
BY /s/ Bryan F. Keyes
-----------------------------------
Bryan F. Keyes
Vice President
ACCEPTED BY CONTRACTOR:
AUSTIN COMMERCIAL, INC.
BY /s/ Steve Warnick
-----------------------------------
Steve Warnick
Vice President
DATE: December 18, 1997
<PAGE>
ATTACHMENT 'A'
TO
LIMITED NOTICE TO PROCEED NO. 1
WATERVIEW TECHNOLOGY CENTER PHASE I
RICHARDSON, TEXAS
I. SCOPE OF WORK TO BE PERFORMED BY CONTRACTOR UNDER THIS LIMITED NOTICE TO
PROCEED
A. Layout Work, Civil and Site Work including Clearing, Grading and Fill,
Utilities, Paving, etc. - all in accordance with the following
documents:
PROJECT MANUAL (Specifications) Titled - SITEWORK CONSTRUCTION
PACKAGE - Dated November 25,1997 - Consisting of Divisions and
Sections listed in the Table of Contents
DRAWINGS - Titled - SITEWORK PACKAGE FOR CONSTRUCTION - Consisting
of the following Sheets having latest date indicated:
Sheet No. and Title Latest Date
------------------- -----------
---- Cover Sheet & Index of Drawings 11/26/97 (1)
C-1 Cover Sheet & Index of Drawings 11/25/97
C-4 Grading/Erosion Control Plan 11/25/97
C-5 Erosion Control Details 11/25/97
C-6 Drainage Area Map 11/25/97
C-7 Storm Sewer Plan 11/25/97
C-8 Storm Sewer Profiles 11/25/97
C-9 Paving/Dimension Control Plan 11/25/97
C-10 Paving Details 11/25/97
C-11 Water & Sewer Plan 11/25/97
C-12 Water & Sewer Profiles 11/25/97
C-13 Prevention Plan Narrative 11/25/97
C-14 Prevention Plan Narrative 11/25/97
C-15 Storm Water Pollution Prevention Plan (Not Dated) (2)
CITY OF RICHARDSON STANDARD CONSTRUCTION DETAILS
C-1 Water 05/08/97
C-2 Water 04/19/96
C-3 Sanitary Sewer 04/19/96
C-4 Storm Sewer 04/19/96
C-5 Street 05/--/97
C-8 Misc. Details 04/19/96
C-9 Screening Wall Brick/Sidewalk 04/19/96 (3)
(1) Disregard issue date of drawings listed on this sheet.
(2) Manual Pages on this sheet have latest date of Feb. 1993.
(3) Issued for Standard Sidewalk Details Only.
General Notes:
(A) Reinforced concrete paving to be 3000 psi - 5" or 6" thick
(as scheduled) on 6" compacted fill with P.I. between 8
and 20. Refer to alternate description on Drawing Sheet
C9.
A-1
<PAGE>
ATTACHMENT 'A' TO LIMITED NOTICE TO PROCEED NO. 1
WATERVIEW TECHNOLOGY CENTER PHASE I - RICHARDSON, TEXAS
(B) Water lines shown on Drawing Sheet C11 are included in the
scope of this Limited Notice to Proceed. Installation of
the 12" water lines and a portion of the 8" water line are
"On Hold" pending further study by the City. Refer to
attached drawing SK-C11 dated 12/15/97 for location of
water lines "On Hold."
(C) Sanitary sewer lines shown on Drawing Sheet C11 are
included in the scope of this Limited Notice to Proceed.
Installation of sanitary sewer lines are "On Hold" pending
further study by the City. Refer to attached drawing
SK-C11 dated 12/15/97 for location of sanitary sewer lines
"On Hold."
B. Foundation Work and Level One Structural Slab Work including Crawl
Space Grading and Drainage and Under Floor Mechanical/Electrical Work
- all in accordance with the following documents.
PROJECT MANUAL (Specifications) Titled - STRUCTURAL FOUNDATIONS AND
FIRST FLOOR PACKAGE - Dated November 17,1997 - Consisting of
Divisions and Sections listed in the Table of Contents.
DRAWINGS - Titled - FOUNDATION AND FIRST FLOOR PACKAGE FOR
CONSTRUCTION - Consisting of the following Sheets having latest
date indicated:
Sheet No. and Title Latest Date
------------------- -----------
---- Cover Sheet & Index of Drawings 11/21/97 (1)
S1.01 General Notes 11/21/97
S2.01 Foundation Plan 11/21/97
S2.02 Level 1 Framing Plan 11/21/97
S3.01 Foundation Details 11/21/97
S4.01 Concrete Details 11/21/97
S5.01 Column Schedule 11/21/97
S6.01 Misc. Schedules 11/21/97
S6.02 Misc. Schedules 11/21/97
ME1.03 Under Floor Plan-Mechanical/Electrical 11/21/97
C1 Crawl Space Grading and Drainage 11/21/97
For Information Only
--------------------
S2.03 Level 2 Framing Plan 11/21/97
S2.04 Level 3&4 Framing Plan 11/21/97
S2.05 Roof Framing Plan 11/21/97
A1.01 Project Standards 11/21/97
A2 Level 1 Floor Plan 11/21/97
A3 Level 2 Floor Plan 11/21/97
A4 Typical Floor Plan 11/21/97
A6 Roof Plan 11/21/97
A9 Building Elevations 11/21/97
A11 Building Sections 11/21/97
DD-1 Typical Floor Plan - Mechanical 11/03/97
DD-2 Roof Plan - Mechanical/Electrical 11/03/97
DD-3 Mechanical Details 11/03/97
DD-4 Electrical Riser 11/03/97
(1) Disregard drawings listed on this sheet.
A-2
<PAGE>
ATTACHMENT 'A' TO LIMITED NOTICE TO PROCEED NO. 1
WATERVIEW TECHNOLOGY CENTER PHASE I - RICHARDSON, TEXAS
General Note
(A) A "Jack Hole" for the future hydraulic elevator near
column line C-4 is included in the scope of this Limited
Notice to Proceed.
C. Light Pole Bases and Underground Conduit for Site Lighting and
Electrical Work - all in accordance with the following drawing:
Sheet No. and Title Latest Date
------------------- -----------
ME1.1 Site Plan Electrical 12/02/97
D. Contractors General Conditions Work for the Project, including
necessary Mobilization, Permits, Insurance, Drawing Reproduction,
Materials Testing and Construction of Exterior Mock-up Panel. NOTE:
This Limited Notice to Proceed incorporates all work authorized in
attached December 1, 1997 letter.
E. Preparation of Miscellaneous Shop Drawings and Prepurchases not
required for this Limited Notice to Proceed Work but which may be
required prior to contracting for the Work. The Maximum Cost to Owner
for this Authorization is limited to $55,000. The sum of which is
included in the Guaranteed Maximum Cost of this Limited Notice to
Proceed.
NOTE: ATTACHED IS A BREAKDOWN OF THE GUARANTEED MAXIMUM COST
APPLICABLE TO THIS LIMITED NOTICE TO PROCEED. THE FOLLOWING ALLOWANCES
ARE INCLUDED.
Printing and Reproduction Charges $ 30,000 (1)
Permits & Fees $ 10,000 (2)
Utility Charges $ 30,000 (3)
Materials Testing $ 60,000
Misc. Shop Drawing Preparation and Prepurchases $ 55,000 (4)
(1) Allowance subject to increase for printing and reproduction
charges in excess of $35,000.
(2) For permits and fees (if any) that have not been waived by the
City. Development Fees waived by the City consist of: Platting
Fee, Site Plan Fee, Plan - Review Fee and Landscape Plan Review
Fee.
Building/Engineering Inspections Fees waived by the City
consist of: Engineering Inspection Fees, Building Permit Fees.
(3) For temporary and check out power charges.
(4) For preparation of misc. shop drawings and prepurchases not
required for this Limited Notice to Proceed work but which may
be required prior to contracting for the Work.
II. CONDITIONS OF THIS LIMITED NOTICE TO PROCEED
A. Upon receipt of this "Limited Notice to Proceed", Contractor shall
proceed with the Work and shall continue with the performance of the
Work upon receipt of either subsequent Limited Notices to Proceed or
an Unlimited Notice to Proceed.
Contractor agrees to achieve substantial completion of the Work
consisting of the construction of a four story shell office building
containing a gross floor area of approximately 210,000 SF and all
related site improvements not later than 300 calendar days after date
of this Limited Notice to Proceed.
A-3
<PAGE>
ATTACHMENT 'A' TO LIMITED NOTICE TO PROCEED NO. 1
WATERVIEW TECHNOLOGY CENTER PHASE I - RICHARDSON, TEXAS
Additionally, Contractor agrees to substantially complete the Work as
necessary to allow the Interior Finish Out Work (other than Shell
Building Finishes) to commence by Contractor or by Owner's other
contractor(s) not later than 190 calendar days after date of this
Limited Notice to Proceed. Contractor is in agreement that if
Contractor is authorized in a timely manner to perform this Interior
Finish Out Work (in excess of Shell Building Finishes) that
substantial completion of both the Shell Office Building Work and the
Interior Finish Out Work (in excess of Shell Building Finishes) can be
achieved simultaneously.
Contractor shall notify Owner in a timely manner if and when
subsequent Limited Notices to Proceed are required in order to
maintain Contractor's Schedule.
B. During the performance of this or subsequent Limited Notice to Proceed
Work, Owner and Contractor expect to execute a Construction Contract
for all Work in connection with the construction of the Phase I Shell
Office Building and Site Improvements. The form of Contract shall be
substantially similar to the Construction Contract Dated November 19,
1997. Applicable terms and conditions of referenced Construction
Contract apply to this "Limited Notice to Proceed."
C. Certificates evidencing the insurance coverage required of Contractor
by the attachment titled CONTRACTOR'S INSURANCE REQUIREMENTS are to be
submitted to Owner before commencing work. Additionally, Contractor
shall take out an All Risk Builder's Risk Insurance policy insuring
the interest of Owner, Contractor, Subcontractor and
Sub-subcontractors and which shall include but not be limited to, the
perils of Fire, Lightning, Wind storm, Hurricane, Hail, Explosion,
Riot, Civil Commotion, Smoke, Aircraft, Land Vehicles, Vandalism and
Malicious Mischief, etc., in an amount equal to 100% of the contract
sum (but not including non-insurable items). Contractor shall provide
Certificates of such insurance to Owner.
D. Contractor is not required by this "Limited Notice to Proceed" to
provide a performance bond or labor and material payment bond.
However, prior to execution of the Construction Contract, Owner may
require Contractor to provide such bonds.
E. Prior to execution of the Construction Contract for the Phase I Shell
Office Building and Site Improvements, Owner and Contractor shall
mutually agree upon a Guaranteed Maximum Price for the Work which is
currently estimated at $13,760,000, including budget allowance of
$350,000 for Landscape Improvements/Graphics and $160,000 for
extension of city water and sanitary sewer utilities serving the
building, the cost of which is to be reimbursed to Owner by the City.
The following is not included in above estimated amount.
Contractors Payment Performance Bonds
Interior Finish Out Work (in excess of Shell Building Finishes)
A-4
<PAGE>
A Schematic of the Construction Site.
<PAGE>
BREAKDOWN OF GUARANTEED MAXIMUM COST
APPLICABLE TO LIMITED NOTICE TO PROCEED NO. 1
WATERVIEW TECHNOLOGY CENTER PHASE I - RICHARDSON, TEXAS
<TABLE>
<S> <C>
A. Layout Work, Civil and Site Work including Clearing, Grading, Fill,
Utilities, Paving, etc. $1,394,625
(Amount includes $160,000 for extension of City water and sanitary
sewer utilities serving the building, the cost of which is to be
reimbursed to Owner by the City).
B. Foundation Work and Level One Structural Slab Work including Crawl
Space Grading and Drainage and Under Floor Mechanical/Electrical Work. 1,396,150
C. Lightpole Bases and Underground Conduit for Site Lighting and
Electrical Work. 25,000
D. Contractors General Conditions Work for the Project, including
Necessary Mobilization, Permits, Insurance, Drawing Reproduction,
Materials Testing and Construction of Exterior Mock-up Panel. 778,910
E. Preparation of Misc. Shop Drawings and Prepurchases not required for
this Limited Notice to Proceed Work but which may be required prior
to Contracting. 55,000
----------
$3,649,685
Contractor's Fee 127,735
----------
Guaranteed Maximum Cost - LIMITED NOTICE TO PROCEED NO. 1 $3,777,420
</TABLE>
<PAGE>
[LETTERHEAD]
December 1, 1997
Mr. Bruce Lane
Austin Commercial, Inc.
3335 Travis Street, Suite 300
Dallas, Texas 75204-1466
RE: WATERVIEW TECHNOLOGY CENTER PHASE 1 - RICHARDSON, TEXAS
Dear Mr. Lane:
This letter shall serve as your authorization to:
- Move trailers and other temporary structures onto the site and set up
your office compound and staging area where shown on attached site
plan. Install construction fence as necessary.
- Construct Exterior Mock-up Panel in accordance with attached HKS
Memorandum dates November 25, 1997, and drawing A-1. Mock-up Panel to
be located where shown on attached site plan.
- Perform general layout and field engineering work.
- In preparation for the December 4th Ground Breaking Ceremony, mow
grass and place gravel fill material within area shown on attached
site plan.
It is understood that you will secure permits related to this authorized work
and will submit Certificates evidencing the insurance coverage typically
provided by Austin Commercial, Inc to STB Systems, Inc., prior to moving onto
the site.
During the week of December 8, 1997, STB anticipates authorizing Austin by
Limited Notice to Proceed No. One to commence Site and Building Foundation
Work. It is understood that prior to the issuance of Limited Notice to
Proceed No. One the amount STB is obligated to pay Austin related to this
authorization work shall not exceed $75,000.00.
Sincerely,
STB Systems, Inc.
/s/ Bryan F. Keyes
Bryan F. Keyes Accepted December 2, 1997
Treasurer AUSTIN COMMERCIAL, INC.
/s/ Bruce Lane
cc: Garth Hodge - The Amend Group By: Bruce Lane
Ray Wood - The Amend Group Project Manager
<PAGE>
Contractor's
Insurance Requirements
The contractor shall purchase from and maintain in a company or companies
lawfully authorized to do business in the state of Texas and with an A.M.
Best's rating acceptable to the owner, the following insurance, in the
following amounts, which shall, with the exception of the worker's
compensation policy, be endorsed in all policies to include STB Systems, Inc.
as additional insured. All policies shall be endorsed to include a waiver of
subrogation in favor of STB Systems, Inc. its directors, officers and
employees. Policy shall provide that STB Systems, Inc. shall be given thirty
days prior written notice of any alteration or termination of coverage.
Contractor shall be responsible to verify that subcontractors are in
compliance with the insurance provisions of this Agreement. Owner reserves
the right to reject any subcontractor who cannot demonstrate proof of the
insurance coverage required hereunder.
1. COMMERCIAL GENERAL LIABILITY
Policy is to be written on a standard ISO occurrence version of the
Commercial General Liability form, or its equivalent, which includes coverage
for premises operations, products-completed operations, independent
contractors liability, personal injury liability, contractual liability, and
explosion, collapse and underground coverage.
Limits:
$1,000,000 per occurrence bodily injury and property damage
$1,000,000 personal and advertising injury
$2,000,000 general aggregate (to apply on a per project basis)
$2,000,000 products/completed operations limit
$10,000 Medical Expense (any one person)
COMPLETED OPERATIONS COVERAGE WILL BE MAINTAINED FOR AT LEAST 5 YEARS AFTER
PROJECT COMPLETION.
2. BUSINESS AUTOMOBILE COVERAGE
Policy shall cover all owned, non-owned and hired vehicles used in
connection with the work.
Limits:
$1,000,000 per occurrence combined single limit for bodily injury and
property damage.
<PAGE>
3. WORKERS COMPENSATION
Coverage placed as required by Texas State Law and including Employer's
Liability Insurance with a limit of not less than $500,000 per occurrence.
4. EXCESS LIABILITY COVERAGE
Coverage placed shall be at least as broad as primary Commercial General
Liability, Business Automobile Liability and Employer's Liability policies
with an occurrence limit of liability of no less than $10,000,000.
Certificates of Insurance shall be sent to STB Systems, Inc prior to
commencement of the Work and shall provide for thirty (30) calendar days
prior written notice of cancellation be given to STB Systems, Inc.
Certificate should note that applicable policies have been endorsed to name
STB Systems, Inc. as an additional insured and that policies have been
endorsed with waivers of subrogation in favor of STB Systems, Inc.
<PAGE>
===============================================================================
CREDIT AGREEMENT
-------------------------------------------------------
STB SYSTEMS, INC.
and
BANK ONE, TEXAS, N.A.
-------------------------------------------------------
$30,000,000
November 21, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
CREDIT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS AND REFERENCES . . . . . . . . . . . . . . . . . . . 1
Section 1.1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. EXHIBITS AND SCHEDULES; ADDITIONAL DEFINITIONS. . . . . . . . 12
Section 1.3. AMENDMENT OF DEFINED INSTRUMENTS. . . . . . . . . . . . . . . 12
Section 1.4. REFERENCES AND TITLES . . . . . . . . . . . . . . . . . . . . 12
Section 1.5. CALCULATIONS AND DETERMINATIONS . . . . . . . . . . . . . . . 12
ARTICLE II - THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.1. COMMITMENTS TO LEND; NOTES. . . . . . . . . . . . . . . . . . 13
Section 2.2. REQUESTS FOR NEW LOANS. . . . . . . . . . . . . . . . . . . . 13
Section 2.3. CONTINUATIONS AND CONVERSIONS OF EXISTING LOANS . . . . . . . 14
Section 2.4. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.5. FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.6. [RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.7. MANDATORY PREPAYMENTS . . . . . . . . . . . . . . . . . . . . 16
Section 2.8. SUBSEQUENT DETERMINATIONS OF BORROWING BASE . . . . . . . . . 17
ARTICLE III - PAYMENTS TO LENDERS. . . . . . . . . . . . . . . . . . . . . . 17
Section 3.1. GENERAL PROCEDURES. . . . . . . . . . . . . . . . . . . . . . 17
Section 3.2. CAPITAL REIMBURSEMENT . . . . . . . . . . . . . . . . . . . . 18
Section 3.3. INCREASED COST OF EURODOLLAR LOANS. . . . . . . . . . . . . . 18
Section 3.4. AVAILABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.5. FUNDING LOSSES. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.6. REIMBURSABLE TAXES. . . . . . . . . . . . . . . . . . . . . . 19
Section 3.7. [RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.8. REPLACEMENT OF LENDERS. . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV - CONDITIONS PRECEDENT TO LENDING . . . . . . . . . . . . . . . . 21
Section 4.1. DOCUMENTS TO BE DELIVERED . . . . . . . . . . . . . . . . . . 21
Section 4.2. ADDITIONAL CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 22
ARTICLE V - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 23
Section 5.1. NO DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.2. ORGANIZATION AND GOOD STANDING. . . . . . . . . . . . . . . . 24
Section 5.3. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.4. NO CONFLICTS OR CONSENTS. . . . . . . . . . . . . . . . . . . 24
Section 5.5. ENFORCEABLE OBLIGATIONS . . . . . . . . . . . . . . . . . . . 24
Section 5.6. INITIAL FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 25
Section 5.7. OTHER OBLIGATIONS AND RESTRICTIONS. . . . . . . . . . . . . . 25
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Section 5.8. FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.9. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.10. LABOR DISPUTES AND ACTS OF GOD. . . . . . . . . . . . . . . . 25
Section 5.11. ERISA PLANS AND LIABILITIES . . . . . . . . . . . . . . . . . 25
Section 5.12. ENVIRONMENTAL AND OTHER LAWS. . . . . . . . . . . . . . . . . 26
Section 5.13. NAMES AND PLACES OF BUSINESS. . . . . . . . . . . . . . . . . 26
Section 5.14. BORROWER'S SUBSIDIARIES . . . . . . . . . . . . . . . . . . . 26
Section 5.15. TITLE TO PROPERTIES; LICENSES . . . . . . . . . . . . . . . . 27
Section 5.16. GOVERNMENT REGULATION . . . . . . . . . . . . . . . . . . . . 27
Section 5.17. INSIDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI - AFFIRMATIVE COVENANTS OF BORROWER . . . . . . . . . . . . . . . 27
Section 6.1. PAYMENT AND PERFORMANCE . . . . . . . . . . . . . . . . . . . 27
Section 6.2. BOOKS, FINANCIAL STATEMENTS AND REPORTS . . . . . . . . . . . 28
Section 6.3. OTHER INFORMATION AND INSPECTIONS . . . . . . . . . . . . . . 29
Section 6.4. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS . . . . . . . 29
Section 6.5. MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . . . . . . 30
Section 6.6. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS . . . . . . . . . 30
Section 6.7. PAYMENT OF TRADE LIABILITIES, TAXES, ETC. . . . . . . . . . . 30
Section 6.8. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.9. PERFORMANCE ON BORROWER'S BEHALF. . . . . . . . . . . . . . . 31
Section 6.10. INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.11. COMPLIANCE WITH AGREEMENTS AND LAW. . . . . . . . . . . . . . 31
Section 6.12. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . 31
Section 6.13. EVIDENCE OF COMPLIANCE. . . . . . . . . . . . . . . . . . . . 32
Section 6.14. SOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.15. AGREEMENT TO DELIVER SECURITY DOCUMENTS . . . . . . . . . . . 32
Section 6.16. BANK ACCOUNTS; OFFSET.. . . . . . . . . . . . . . . . . . . . 32
Section 6.17. GUARANTIES OF BORROWER'S SUBSIDIARIES . . . . . . . . . . . . 33
Section 6.18. AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII - NEGATIVE COVENANTS OF BORROWER . . . . . . . . . . . . . . . . 33
Section 7.1. INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.2. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . . . . 34
Section 7.3. HEDGING . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.4. LIMITATION ON MERGERS, ISSUANCES OF SECURITIES. . . . . . . . 34
Section 7.5. LIMITATION ON SALES OF PROPERTY . . . . . . . . . . . . . . . 35
Section 7.6. LIMITATION ON DIVIDENDS AND REDEMPTIONS . . . . . . . . . . . 35
Section 7.7. LIMITATION ON INVESTMENTS AND NEW BUSINESSES. . . . . . . . . 35
Section 7.8. LIMITATION ON CREDIT EXTENSIONS . . . . . . . . . . . . . . . 35
Section 7.9. TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . . . 35
Section 7.10. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA PLANS. . . 35
Section 7.11. MINIMUM NET WORTH . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.12. RATIO OF DEBT TO NET WORTH. . . . . . . . . . . . . . . . . . 36
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Section 7.13. CURRENT RATIO . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.14. FIXED CHARGE COVERAGE RATIO . . . . . . . . . . . . . . . . . 36
ARTICLE VIII - EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . 36
Section 8.1. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.2. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IX - AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.1. APPOINTMENT AND AUTHORITY . . . . . . . . . . . . . . . . . . 39
Section 9.2. EXCULPATION, AGENT'S RELIANCE, ETC. . . . . . . . . . . . . . 39
Section 9.3. CREDIT DECISIONS. . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.4. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.5. RIGHTS AS LENDER. . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.6. SHARING OF SET-OFFS AND OTHER PAYMENTS. . . . . . . . . . . . 41
Section 9.7. INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.8. BENEFIT OF ARTICLE IX . . . . . . . . . . . . . . . . . . . . 42
Section 9.9. RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE X - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 10.1. WAIVERS AND AMENDMENTS; ACKNOWLEDGMENTS . . . . . . . . . . . 42
Section 10.2. SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE . . . . . . . . . . 44
Section 10.3. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.4. PAYMENT OF EXPENSES; INDEMNITY. . . . . . . . . . . . . . . . 45
Section 10.5. JOINT AND SEVERAL LIABILITY; PARTIES IN INTEREST;
ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.6. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.7. GOVERNING LAW; SUBMISSION TO PROCESS. . . . . . . . . . . . . 48
Section 10.8. LIMITATION ON INTEREST. . . . . . . . . . . . . . . . . . . . 49
Section 10.9. TERMINATION; LIMITED SURVIVAL . . . . . . . . . . . . . . . . 50
Section 10.10. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.11. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.. . . . . . . . . 51
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SCHEDULES AND EXHIBITS:
- -----------------------
Lender Schedule
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Exhibit A - Promissory Note
Exhibit B - Request for Loan
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - Assignment and Acceptance
Exhibit F - Opinion of Counsel for Borrower
Exhibit G - Subsidiary Guaranty
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of NOVEMBER, 1997, by and among STB
Systems, Inc., a Texas corporation (herein called "BORROWER"), Bank One, Texas,
N.A., individually and as agent (herein called "AGENT") and the Lenders referred
to below. In consideration of the mutual covenants and agreements contained
herein the parties hereto agree as follows:
ARTICLE I - DEFINITIONS AND REFERENCES
Section 1.1. DEFINED TERMS. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"AFFILIATE" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 50% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"AGENT" means Bank One, Texas, N.A., as Agent hereunder, and its successors
in such capacity.
"AGREEMENT" means this Credit Agreement.
"APPLICABLE EURODOLLAR MARGIN" means one and three-fourths percent (1.75%)
per annum.
"BANK ONE" means Bank One, Texas, N.A., in its capacity as a Lender
hereunder.
"BANK PARTIES" means Agent and all Lenders.
"BASE RATE" means the higher of (a) Agent's Prime Rate and (b) the Federal
Funds Rate plus one-half percent (0.5%) per annum. As used in this paragraph,
Agent's "Prime Rate" means the base commercial rate of interest as announced
from time to time by Agent (which may not be the lowest, best or most favorable
rate of interest which Agent may charge on loans to its customers). If Agent's
Prime Rate or the Federal Funds Rate changes after the date hereof the Base Rate
shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective time of each change in
Agent's Prime Rate. The Base Rate shall in no event, however, exceed the
Highest Lawful Rate.
<PAGE>
"BASE RATE LOAN" means a Loan which does not bear interest at the
Eurodollar Rate.
"BORROWER" means STB Systems, Inc., a Texas corporation.
"BORROWING" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a continuation or conversion of existing Loans into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.3.
"BORROWING BASE" means at the particular time in question, an amount equal
to the lesser of (1) the amount determined by Agent from time to time in its
reasonable judgment (which judgment shall be exercised in good faith) equal to
eighty-five percent (85%) of the net amount (after deduction of such reserves as
Agent deems, in its reasonable judgment, proper and necessary) of Eligible
Receivables, or (2) the Commitment.
"BORROWING BASE DEFICIENCY" has the meaning given it in Section 2.7(b).
"BORROWING BASE REPORT" means a report describing the Eligible Receivables
in a form acceptable to Agent, together with a detailed aged schedule of all
Eligible Receivables as of the date specified in such report, listing face
amounts and dates of invoices of each such Eligible Receivable and the name and
address of each account debtor obligated on such Eligible Receivable (and, upon
request of Agent, copies of invoices, credit reports, and any other matters and
information relating to the Eligible Receivables).
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Dallas, Texas. Any
Business Day in any way relating to Eurodollar Loans (such as the day on which
an Interest Period begins or ends) must also be a day on which, in the judgment
of Agent, significant transactions in dollars are carried out in the interbank
eurocurrency market.
"COLLATERAL" means all property of any kind which is subject to a Lien in
favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"COMMITMENT" means the amount of $30,000,000.
"COMMITMENT PERIOD" means the period from and including the date hereof
until and including the Maturity Date (or, if earlier, the day on which the
Notes first become due and payable in full).
"CONCENTRATION PERCENTAGE" means (i) with respect to Dell, Gateway, IBM or
Compaq, thirty-five percent (35%); and (ii) with respect to all other account
debtors twenty-five percent (25%).
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"CONSOLIDATED" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"CONSOLIDATED DEBT" means all Consolidated Indebtedness of Borrower that
would under GAAP be shown on Borrower's Consolidated balance sheet as a
liability.
"CONSOLIDATED NET INCOME" means, for any period, the net income as
reported on Borrower's Consolidated Financial Statement as reported to the
Securities and Exchange Commission and/or Shareholders, or if Borrower's net
income is not so reported, Borrower's Consolidated net income calculated in
accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means the remainder of (1) all
Consolidated assets of Borrower, other than intangible assets (including,
without limitation, as intangible assets such assets as patents, copyrights,
licenses, franchises, goodwill, trade names, trade secrets and leases other than
oil, gas or mineral leases or leases required to be capitalized under GAAP)
MINUS (2) Borrower's Consolidated Debt, in each case calculated in accordance
with GAAP. For purposes of this definition, "Consolidated assets" shall not
include prepaid items
such as deposits.
"CONTINUATION/CONVERSION NOTICE" means a written or telephonic request, or
a written confirmation, made by Borrower which meets the requirements of Section
2.3.
"DEFAULT" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"DELINQUENCY PERCENTAGE" means (i) with respect to Dell, Gateway, IBM or
Compaq, twenty-five percent (25 %), and (ii) with respect to all other account
debtors, twenty percent (20%), in each case measured by dollar amount.
"DISCLOSURE REPORT" means either a notice given by Borrower under Section
6.4 or a certificate given by Borrower's chief financial officer under Section
6.2(b).
"DISCLOSURE SCHEDULE" means Schedule 1 hereto.
"EBITDA" means, for any period, the sum of (1) the Consolidated Net Income
during such period, plus (2) all interest paid or accrued during such period on
Indebtedness (including amortization of original issue discount and the interest
component of any deferred payment obligations and capital lease obligations)
which was deducted in determining such Consolidated Net Income, plus (3) all
income taxes which were deducted in determining such Consolidated Net Income,
plus (4) all depreciation and amortization (including amortization of good will
and
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<PAGE>
debt issue costs) which were deducted in determining such Consolidated Net
Income, minus (5) all non-cash items of income which were included in
determining such Consolidated Net Income.
"ELIGIBLE RECEIVABLES" means at any time an amount equal to the aggregate
net invoice or ledger amount owing on all trade accounts receivable of Borrower
for goods sold or services rendered, in which Agent has a perfected, first
priority security interest after deducting (a) the amount of all such accounts
unpaid for more than ninety (90) days after the invoice date, (b) the amount of
all discounts, allowances, rebates, credits and adjustments to such accounts,
(c) all contra accounts, setoffs, defenses or counterclaims asserted by or
available to the Persons obligated on such accounts, (d) all such accounts owed
by account debtors which are insolvent or otherwise not satisfactory to Agent,
(e) all accounts that arise out of a sale of goods made or services performed
outside of the United States or that are owed by an account debtor located
outside the United States, unless: (i) such account is insured by the Foreign
Credit Insurance Association ("FCIA") under a policy collaterally assigned to
Lender and duly acknowledged by the FCIA; (ii) such account debtor is the
subsidiary of a creditworthy corporation incorporated in the United States (such
determination of creditworthiness to be made in the reasonable discretion of
Agent; (iii) payment of such account is backed by a letter of credit issued by a
bank acceptable to Agent (banks with a Rating Agency credit rating of "AA" or
better shall be deemed acceptable by Agent); or (iv) such account is guaranteed
pursuant to a guaranty program provided by the Export-Import Bank; (f) all
accounts owed by an account debtor if more than the Delinquency Percentage of
such account debtor's accounts are ninety (90) or more days past due, (g) to the
extent that the aggregate amount of outstanding accounts owed by any single
account debtor exceeds the Concentration Percentage for such account debtor of
the aggregate amount of outstanding accounts of all of Borrower's account
debtors, the amount of such excess, (h) any account that is owed by the United
States or any department, agency or instrumentality thereof, unless the right to
payment under such account is assigned to Agent as Collateral in full compliance
with the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727), (i) all
such accounts owing by Affiliates of Borrower or by officers or employees of
Borrower or any such Affiliate; and (j) all such accounts owing by Symmetric
Simulation Systems, Inc.
"ELIGIBLE TRANSFEREE" means a Person which either (a) is a Lender or an
Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by Agent
(provided that no Person organized outside the United States may be an Eligible
Transferee if Borrower would be required to pay withholding taxes on interest or
principal owed to such Person).
"ENVIRONMENTAL LAWS" means any and all Laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA PLAN" means any employee pension benefit plan subject to Title IV of
ERISA maintained by any Restricted Person with respect to which any Restricted
Person has a fixed or contingent liability.
"EURODOLLAR LOAN" means a Loan which is properly designated as a Eurodollar
Loan pursuant to Section 2.2 or 2.3.
"EURODOLLAR RATE" means, with respect to each particular Eurodollar Loan
and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR RATE + Applicable Eurodollar Rate Margin
---------------------------
100.0% - Reserve Percentage
The Eurodollar Rate for any Eurodollar Loan shall change whenever the Applicable
Eurodollar Rate Margin or the Reserve Percentage changes. No Eurodollar Rate
shall ever exceed the Highest Lawful Rate.
"EVENT OF DEFAULT" has the meaning given it in Section 8.1.
"FACILITY USAGE" means, at the time in question, the aggregate amount of
outstanding Loans at such time.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.
"FISCAL QUARTER" means a three-month period ending on January 31, April 30,
July 31 or October 31 of any year.
"FISCAL YEAR" means a twelve-month period ending on October 31 of any year.
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<PAGE>
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and its
Consolidated subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the audited Initial Financial Statements. If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder with respect to Borrower or
with respect to Borrower and its Consolidated subsidiaries.
"GUARANTOR" means any Person who has guaranteed the Obligations pursuant to
a guaranty listed on the Security Schedule or any other Person who has
guaranteed the Obligations and who has been accepted by Agent as a Guarantor or
any Subsidiary of Borrower which now or hereafter executes and delivers a
guaranty to Agent pursuant to Section 6.17.
"HAZARDOUS MATERIALS" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"HIGHEST LAWFUL RATE" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately for
each Lender as appropriate to assure that the Loan Documents are not construed
to obligate any Person to pay interest to any Lender at a rate in excess of the
Highest Lawful Rate applicable to such Lender.
"INDEBTEDNESS" of any Person means Liabilities in any of the following
categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities which would under GAAP be shown on such Person's balance
sheet as a liability,
(e) Liabilities arising under futures contracts, forward contracts, swap,
cap or collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements,
(f) Liabilities constituting principal under leases capitalized in
accordance with GAAP,
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(g) Liabilities arising under conditional sales or other title retention
agreements,
(h) Liabilities owing under direct or indirect guaranties of Liabilities
of any other Person or constituting obligations to purchase or acquire or to
otherwise protect or insure a creditor against loss in respect of Liabilities of
any other Person (such as obligations under working capital maintenance
agreements, agreements to keep-well, or agreements to purchase Liabilities,
assets, goods, securities or services), but excluding endorsements in the
ordinary course of business of negotiable instruments in the course of
collection,
(i) Liabilities (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Liabilities arises
out of or in connection with the sale of the same or similar securities or
property,
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor, or
(k) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "INDEBTEDNESS" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until such
Liabilities are outstanding more than 90 days past the original invoice or
billing date therefor.
"INITIAL FINANCIAL STATEMENTS" means (i) the audited annual Consolidated
financial statements of Borrower dated as of October 31, 1996, and (ii) the
unaudited quarterly Consolidated financial statements of Borrower dated as of
July 31, 1997.
"INSURANCE SCHEDULE" means Schedule 3 attached hereto.
"INTEREST PERIOD" means, with respect to each particular Eurodollar Loan in
a Borrowing, a period of 1, 2, or 3 months, as specified in the Request for Loan
applicable thereto, beginning on and including the date specified in such
Request for Loan (which must be a Business Day), and ending on but not including
the same day of the month as the day on which it began (e.g., a period beginning
on the third day of one month shall end on but not include the third day of
another month), provided that each Interest Period which would otherwise end on
a day which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day). No Interest Period may be elected which would extend
past the date on which the associated Note is due and payable in full.
"INVENTORY" means all goods, now owned or hereafter acquired by the
Borrower and wherever located, which are held for sale or lease or are to be
furnished under any contract of
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service (including, but not limited to raw materials and work in process,
finished goods and materials used or consumed in the manufacture or
production thereof, goods in which the Borrower has an interest in mass or a
joint or other interest or rights of any kind, and goods which have been
returned to or repossessed or stopped in transit by the Borrower).
"INVESTMENT" means any investment, in cash or by delivery of property made,
directly or indirectly in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise.
"LATE PAYMENT RATE" means, at the time in question, four percent (4.0%)]
per annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "LATE PAYMENT RATE" shall mean four
percent (4.0%) per annum plus the related Eurodollar Rate. The Late Payment
Rate shall never exceed the Highest Lawful Rate.
"LAW" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LENDERS" means each signatory hereto (other than Borrower and Restricted
Persons a party hereto), including Bank One and the successors of each such
party as holder of a Note.
"LENDING OFFICE" means, with respect to any Lender, the office, branch, or
agency through which it funds its Eurodollar Loans; and, with respect to Agent
or Collateral Agent, the office, branch, or agency through which it administers
this Agreement.
"LIABILITIES" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent and whether or not required to be considered pursuant to GAAP.
"LIBOR RATE" means, with respect to each particular Eurodollar Loan and the
related Interest Period, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) reported, on the date two Business Days prior to the
first day of such Interest Period, on Reuters Service as the London Interbank
Offered Rate for dollar deposits having a term comparable to such Interest
Period and in an amount of $1,000,000 or more (or by any other publicly
available source of market data selected by Agent that, in Agent's sole
judgment, accurately reflects such London Interbank Offered Rate.
"LIEN" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to him or any other arrangement
with such creditor which provides for the payment of such Liabilities out of
such property or assets or which allows him to have such Liabilities satisfied
out of such property or assets prior to the general creditors of any
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owner thereof, including any lien, mortgage, security interest, pledge,
deposit, production payment, rights of a vendor under any title retention or
conditional sale agreement or lease substantially equivalent thereto, tax
lien, mechanic's or materialman's lien, or any other charge or encumbrance
for security purposes, whether arising by Law or agreement or otherwise, but
excluding any right of offset which arises without agreement in the ordinary
course of business. "LIEN" also means any filed financing statement, any
registration of a pledge (such as with an issuer of uncertificated
securities), or any other arrangement or action which would serve to perfect
a Lien described in the preceding sentence, regardless of whether such
financing statement is filed, such registration is made, or such arrangement
or action is undertaken before or after such Lien exists.
"LOANS" has the meaning given it in Section 2.1.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security Documents,
and all other agreements, certificates, documents, instruments and writings at
any time delivered in connection herewith or therewith (exclusive of term
sheets, commitment letters, correspondence and similar documents used in the
negotiation hereof, except to the extent the same contain information about
Borrower or its Affiliates, properties, business or prospects).
"MAJORITY LENDERS" means Bank One in its individual capacity if it is the
only Lender hereunder, otherwise Lenders whose aggregate Percentage Shares equal
or exceed one hundred percent (100 %).
"MATERIAL ADVERSE CHANGE" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements, to
(a) Borrower's and its Subsidiaries' Consolidated financial condition, (b) the
operations or properties of Borrower and its Subsidiaries, considered as a
whole, (c) Borrower's ability to timely pay the Obligations, or (d) the
enforceability of the material terms of any Loan Documents.
"MATURITY DATE" means November 21, 1999.
"NOTES" has the meaning given it in Section 2.1.
"OBLIGATIONS" means all Liabilities from time to time owing by any
Restricted Person to any Bank Party under or pursuant to any of the Loan
Documents. "OBLIGATION" means any part of the Obligations.
"PERCENTAGE SHARE" means, with respect to any Lender (a) when used in
Sections 2.1 or 2.5, in any Request for Loan or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on Lender
Schedule attached hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Lender's Loans
at the time in question, by (ii) the sum of the aggregate unpaid principal
balance of all Loans at such time.
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"PERMITTED INVESTMENTS" means Investments in:
(a) marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America and securities purchased within the Bank One
Investment Advisors program.
(b) demand deposits, and time deposits (including certificates of deposit)
maturing within 12 months from the date of deposit thereof, with any office of
Bank One or with a domestic office of any national or state bank or trust
company which is organized under the Laws of the United States of America or any
state therein, which has capital, surplus and undivided profits of at least
$500,000,000, and whose certificates of deposit have at least the third highest
credit rating given by either Rating Agency.
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any commercial bank meeting the specifications of clause (b) above
(d) open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating given
by either Rating Agency.
(e) investments in money market or other mutual funds substantially all of
whose assets comprise securities of the types described in clauses (a) through
(d) above.
(f) in joint ventures, so long as Agent is given 10 days advance notice of
each such investment and the aggregate amount paid, contributed, lent or
otherwise invested after the date hereof by the Restricted Persons in joint
ventures does not exceed $1,000,000.
"PERMITTED LIEN" has the meaning given to such term in Section 7.2.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, Tribunal, or any
other legally recognizable entity.
"RATING AGENCY" means either Standard & Poor's Ratings Group (a division of
McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their respective
successors.
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect.
"REQUEST FOR LOAN" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"RESTRICTED PERSON" means any of Borrower, Guarantor and each Subsidiary of
Borrower.
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"RESERVE PERCENTAGE" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "EUROCURRENCY
LIABILITIES", as such term is defined in Regulation D, of $1,000,000 or more.
If such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"SANWA" means Sanwa Business Credit Corporation, in its capacity as a
Lender hereunder.
"SECONDARY PUBLIC OFFERING" means the first secondary public offering of
Borrower's common stock to occur after the date hereof.
"SECURITY DOCUMENTS" means the instruments listed in the Security Schedule
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Restricted Person to Agent 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 Restricted Person's other
duties and obligations under the Loan Documents.
"SECURITY SCHEDULE" means Schedule 2 hereto.
"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.
"TRIBUNAL" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted and/or existing.
"TYPE" means, with respect to any Loans, the characterization of such Loans
as either Base Rate Loans or Eurodollar Loans.
"VOTING STOCK" means, with respect to any Person, securities of any class
or classes of capital stock in such Person normally entitling the holders
thereof to vote in the election of members of the Board of Directors or other
governing body of such Person.
Section 1.2. EXHIBITS AND SCHEDULES; ADDITIONAL DEFINITIONS. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby
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made to the Security Schedule for the meaning of certain terms defined
therein and used but not defined herein, which definitions are incorporated
herein by reference.
Section 1.3. AMENDMENT OF DEFINED INSTRUMENTS. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. REFERENCES AND TITLES. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions 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. The words "THIS
AGREEMENT", "THIS INSTRUMENT", "HEREIN", "HEREOF", "HEREBY", "HEREUNDER" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "THIS SECTION"
and "THIS SUBSECTION" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "OR" is not exclusive,
and the word "INCLUDING" (in its various forms) means "INCLUDING WITHOUT
LIMITATION". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. CALCULATIONS AND DETERMINATIONS. All calculations under the
Loan Documents of interest chargeable with respect to Eurodollar Loans and of
fees shall be made on the basis of actual days elapsed (including the first day
but excluding the last) and a year of 360 days. Each determination by a Bank
Party of amounts to be paid under Sections 3.2 through 3.6 or any other matters
which are to be determined hereunder by a Bank Party (such as any Eurodollar
Rate, LIBOR Rate, Business Day, Interest Period, or Reserve Percentage) shall,
in the absence of manifest error, be conclusive and binding. Unless otherwise
expressly provided herein or unless Majority Lenders otherwise consent all
financial statements and reports furnished to any Bank Party hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance with GAAP.
ARTICLE II - THE LOANS
Section 2.1. COMMITMENTS TO LEND; NOTES. Subject to the terms and
conditions hereof, each Lender agrees to make advances to Borrower (herein
called such Lender's "LOANS") upon request from time to time during the
Commitment Period so long as (a) each Loan by such Lender does not exceed such
Lender's Percentage Share of the aggregate amount of Loans then requested from
all Lenders, and (b) the aggregate amount of such Lender's Loans outstanding at
any time does not exceed such Lender's Percentage Share of the Borrowing Base
determined as
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of the date on which the requested Loan is to be made. The aggregate amount
of all Loans requested of all Lenders in any Request for Loan must be greater
than or equal to $500,000 or must equal the unadvanced portion of the
Borrowing Base. Borrower may have no more than *[five] Borrowings of
Eurodollar Loans outstanding at any time. The obligation of Borrower to
repay to each Lender the aggregate amount of all Loans made by such Lender
together with interest accruing in connection therewith, shall be evidenced
by a single promissory note (herein called such Lender's "NOTE") made by
Borrower payable to the order of such Lender in the form of Exhibit A with
appropriate insertions. The amount of principal owing on any Lender's Note at
any given time shall be the aggregate amount of all Loans theretofore made by
such Lender minus all payments of principal theretofore received by such
Lender on such Note. Interest on each Note shall accrue and be due and
payable as provided herein and therein, with Eurodollar Loans bearing
interest at the Eurodollar Rate and Base Rate Loans bearing interest at the
Base Rate (subject to the applicability of the Late Payment Rate. Subject to
the terms and conditions hereof, Borrower may borrow, repay, and reborrow
hereunder.
Section 2.2. REQUESTS FOR NEW LOANS. Borrower must give to Agent written
notice (or telephonic notice promptly confirmed in writing) of any requested
Borrowing of new Loans to be advanced by Lenders. Each such notice constitutes
a "REQUEST FOR LOAN" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of new
Base Rate Loans and the date on which such Base Rate Loans are to be
advanced, or (ii) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is to
apply thereto), and the length of the applicable Interest Period; and
(b) be received by Agent not later than 1:00 p.m., Dallas, Texas
time, on (i) the day on which any such Base Rate Loans are to be made, or
(ii) the third Business Day preceding the day on which any such Eurodollar
Loans are to be made.
Each such written request or confirmation must be made in the form and substance
of the "REQUEST FOR LOAN" attached hereto as Exhibit B, duly completed. Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. Upon receipt of any such Request for
Loan, Agent shall give each Lender prompt notice of the terms thereof. If all
conditions precedent to such new Loans have been met, each Lender will on the
date requested promptly remit to Agent at Agent's office in Dallas, Texas the
amount of such Lender's new Loan in immediately available funds, and upon
receipt of such funds, unless to its actual knowledge any conditions precedent
to such Loans have been neither met nor waived as provided herein, Agent shall
promptly make such Loans available to Borrower. Unless Agent shall have
received prompt notice from a Lender that such Lender will not make available to
Agent such Lender's new Loan, Agent may in its discretion assume that such
Lender has made such Loan available to Agent in accordance with this section and
Agent may if it chooses, in reliance upon such assumption, make such Loan
available to Borrower. If and to the extent such Lender shall not so make its
new Loan available to Agent, such Lender and Borrower severally agree to pay or
repay
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to Agent within three days after demand the amount of such Loan together with
interest thereon, for each day from the date such amount was made available
to Borrower until the date such amount is paid or repaid to Agent, with
interest at (i) the Federal Funds Rate, if such Lender is making such payment
and (ii) the interest rate applicable at the time to the other new Loans made
on such date, if Borrower is making such repayment. If neither such Lender
nor Borrower pay or repay to Agent such amount within such three-day period,
Agent shall in addition to such amount be entitled to recover from such
Lender and from Borrower, on demand, interest thereon at the Late Payment
Rate, calculated from the date such amount was made available to Borrower.
The failure of any Lender to make any new Loan to be made by it hereunder
shall not relieve any other Lender of its obligation hereunder, if any, to
make its new Loan, but no Lender shall be responsible for the failure of any
other Lender to make any new Loan to be made by such other Lender.
Section 2.3. CONTINUATIONS AND CONVERSIONS OF EXISTING LOANS. Borrower
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to Base
Rate Loans on the last day of the Interest Period applicable thereto, or to
continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such expiration.
In making such elections, Borrower may combine existing Loans made pursuant to
separate Borrowings into one new Borrowing or divide existing Loans made
pursuant to one Borrowing into separate new Borrowings. To make any such
election, Borrower must give to Agent written notice (or telephonic notice
promptly confirmed in writing) of any such conversion or continuation of
existing Loans, with a separate notice given for each new Borrowing. Each such
notice constitutes a "CONTINUATION/CONVERSION NOTICE" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
(b) specify (i) the aggregate amount of any Borrowing of Base Rate
Loans into which such existing Loans are to be continued or converted and
the date on which such continuation or conversion is to occur, or (ii) the
aggregate amount of any Borrowing of Eurodollar Loans into which such
existing Loans are to be continued or converted, the date on which such
continuation or conversion is to occur (which shall be the first day of the
Interest Period which is to apply to such Eurodollar Loans), and the length
of the applicable Interest Period; and
(c) be received by Agent not later than 10:00 a.m., Dallas, Texas
time, on (i) the day on which any such continuation or conversion to Base
Rate Loans is to occur, or (ii) the third Business Day preceding the day on
which any such continuation or conversion to Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and substance
of the "CONTINUATION/CONVERSION NOTICE" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation.
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Upon receipt of any such Request for Loan, Agent shall give each Lender
prompt notice of the terms thereof. Each Request for Loan shall be
irrevocable and binding on Borrower. During the continuance of any Default,
Borrower may not make any election to convert existing Loans into Eurodollar
Loans or continue existing Loans as Eurodollar Loans. If (due to the
existence of a Default or for any other reason) Borrower fails to timely and
properly give any notice of continuation or conversion with respect to a
Borrowing of existing Eurodollar Loans at least three days prior to the end
of the Interest Period applicable thereto, such Eurodollar Loans shall
automatically be converted into Base Rate Loans at the end of such Interest
Period. No new funds shall be repaid by Borrower or advanced by any Lender
in connection with any continuation or conversion of existing Loans pursuant
to this section, and no such continuation or conversion shall be deemed to be
a new advance of funds for any purpose; such continuations and conversions
merely constitute a change in the interest rate applicable to already
outstanding Loans.
Section 2.4. USE OF PROCEEDS. Borrower shall use all Loans to
refinance existing revolving debt, to provide working capital for its
operations and for other general business purposes. In no event shall the
funds from any Loan be used directly or indirectly by any Person for
personal, family, household or agricultural purposes or for the purpose,
whether immediate, incidental or ultimate, of purchasing, acquiring or
carrying any "margin stock" or any "margin securities" (as such terms are
defined respectively in Regulation U and Regulation G promulgated by the
Board of Governors of the Federal Reserve System) or to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any
such margin stock or margin securities. Borrower represents and warrants
that Borrower is not engaged principally, or as one of Borrower's important
activities, in the business of extending credit to others for the purpose of
purchasing or carrying such margin stock or margin securities.
Section 2.5. FEES.
(a) COMMITMENT FEES. (i) In consideration of Bank One's commitment to
make Loans, Borrower will pay to Agent for the account of Bank One a
commitment fee determined on a daily basis by applying a rate of twenty-five
basis points (0.25%) per annum to Bank One's Percentage Share of the unused
portion of the Commitment on each day during the Commitment Period,
determined for each such day by deducting from the amount of the Commitment
at the end of such day the Facility Usage. This commitment fee shall be due
and payable in arrears on the tenth day of each Fiscal Quarter for the
immediately preceding Fiscal Quarter and at the end of the Commitment Period.
(ii) In consideration of Sanwa's commitment to make Loans, Borrower
will pay to Agent for the account of Sanwa a commitment fee determined on a
daily basis by applying a rate of twenty-five basis points (0.25%) per annum
to Sanwa's Percentage Share of the unused portion of the Commitment on each
day during the Commitment Period, determined for each such day by deducting
from the amount of the Commitment at the end of such day the Facility Usage.
This commitment fee shall be due and payable in arrears on the tenth day of
each Fiscal Quarter for the immediately preceding Fiscal Quarter and at the
end of the Commitment Period.
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(iii) In consideration of Agent's obligations hereunder, Borrower
will pay to Agent for its own account a fee determined on a daily basis by
applying a rate of twelve and one-half basis points (0.125%) per annum to the
unused portion of the Commitment on each day during the Commitment Period,
determined for each such day by deducting from the amount of the Commitment
at the end of such day the Facility Usage. This fee shall be due and payable
in arrears on the tenth day of each Fiscal Quarter for the immediately
preceding Fiscal Quarter and at the end of the Commitment Period.
(b) AGENT'S FEES. In addition to all other amounts due to Agent under
the Loan Documents, Borrower will pay additional fees to Agent as mutually
agreed by Agent and Borrower from time to time.
Section 2.6. [RESERVED].
Section 2.7. MANDATORY PREPAYMENTS.
(a) If at any time the Facility Usage exceeds the Commitment (whether
due to a reduction in the Commitment in accordance with this Agreement, or
otherwise), Borrower shall immediately upon demand prepay the principal of
the Loans in an amount at least equal to such excess.
(b) If at any time the Facility Usage is less than the Commitment but
in excess of the Borrowing Base (such excess being herein called a "BORROWING
BASE DEFICIENCY"), Borrower shall, within one Business Day after Agent gives
notice of such fact to Borrower, prepay the principal of the Loans in an
aggregate amount at least equal to such Borrowing Base Deficiency.
(c) Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be
in addition to, and not in lieu of, all payments otherwise required to be
paid under the Loan Documents at the time of such prepayment.
Section 2.8. SUBSEQUENT DETERMINATIONS OF BORROWING BASE. Promptly
after receiving each Borrowing Base Report, Agent shall determine the
Borrowing Base, which determination shall take effect immediately and remain
in effect until the Agent receives the next Borrowing Base Report and
determines the next Borrowing Base. In the event Agent has not received an
appropriately completed Borrowing Base Report (with all attachments) within
the time period specified therein, Agent shall have no obligation to
redetermine the Borrowing Base and no Lender shall have any obligation to
make any additional Advances until such time as Agent shall have received
such information.
ARTICLE III - PAYMENTS TO LENDERS
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Section 3.1. GENERAL PROCEDURES. Borrower will make each payment
which it owes under the Loan Documents to Agent for the account of the Bank
Party to whom such payment is owed. Each such payment must be received by
Agent not later than 11:00 a.m., Dallas, Texas time, on the date such payment
becomes due and payable, in lawful money of the United States of America,
without set-off, deduction or counterclaim, and in immediately available
funds. Any payment received by Agent after such time will be deemed to have
been made on the next following Business Day. Should any such payment become
due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the
case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the period of such extension as provided in the
Loan Document under which such payment is due. Each payment under a Loan
Document shall be due and payable at the place provided therein and, if no
specific place of payment is provided, shall be due and payable at the place
of payment of Agent's Note. When Agent collects or receives money on account
of the Obligations, Agent shall distribute all money so collected or
received, and each Bank Party shall apply all such money so distributed, as
follows:
(a) first, for the payment of all Obligations which are then due
under the Loan Documents (and if such money is insufficient to pay all such
Obligations, first to any reimbursements due Agent under Section 6.9 or
10.4 and then to the partial payment of all other Obligations then due in
proportion to the amounts thereof, or as Bank Parties shall otherwise
agree);
(b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other obligations
secured by the Security Documents.
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Sections 2.6 and 2.7. All distributions of amounts described in any of
subsections (b), (c) or (d) above shall be made by Agent pro rata to each
Bank Party then owed Obligations described in such subsection in proportion
to all amounts owed to all Bank Parties which are described in such
subsection.
Section 3.2. CAPITAL REIMBURSEMENT. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or
the compliance with any request, directive or guideline from any central bank
or other governmental authority (whether or not having the force of Law)
affects or would affect the amount of capital required or expected to be
maintained by any Bank Party or any corporation controlling any Bank Party,
then, upon demand by such Bank Party,
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Borrower will pay to Agent for the benefit of such Bank Party, from time to
time as specified by such Bank Party, such additional amount or amounts which
such Bank Party shall determine to be appropriate to compensate such Bank
Party or any corporation controlling such Bank Party in light of such
circumstances, to the extent that such Bank Party reasonably determines that
the amount of any such capital would be increased or the rate of return on
any such capital would be reduced by or in whole or in part based on the
existence of the face amount of such Bank Party's Loans, or participations in
commitments under this Agreement.
Section 3.3. INCREASED COST OF EURODOLLAR LOANS. If any applicable
Law (whether now in effect or hereinafter enacted or promulgated, including
Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof (whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any Bank Party
of any principal, interest, or other amounts attributable to any Eurodollar
Loan or otherwise due under this Agreement in respect of any Eurodollar
Loan (other than taxes imposed on the overall net income of such Bank Party
or any lending office of such Bank Party by any jurisdiction in which such
Bank Party or any such lending office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan (excluding those for which such Bank Party is fully
compensated pursuant to adjustments made in the definition of Eurodollar
Rate) or against assets of, deposits with or for the account of, or credit
extended by, such Bank Party; or
(c) shall impose on any Bank Party or the interbank eurocurrency
deposit market any other condition affecting any Eurodollar Loan, the
result of which is to increase the cost to any Bank Party of funding or
maintaining any Eurodollar Loan or to reduce the amount of any sum
receivable by any Bank Party in respect of any Eurodollar Loan by an amount
deemed by such Bank Party to be material,
then such Bank Party shall promptly notify Agent and Borrower in writing of
the happening of such event and of the amount required to compensate such
Bank Party for such event (on an after-tax basis, taking into account any
taxes on such compensation), whereupon (i) Borrower shall pay such amount to
Agent for the account of such Bank Party and (ii) Borrower may elect, by
giving to Agent and such Bank Party not less than three Business Days'
notice, to convert all (but not less than all) of any such Eurodollar Loans
into Base Rate Loans.
Section 3.4. AVAILABILITY. If (a) any change in applicable Laws, or
in the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for
any Bank Party to fund or maintain Eurodollar Loans, or shall materially
restrict the authority of any Bank Party to purchase or take offshore
deposits of dollars (i.e., "eurodollars"), or (b) any Bank Party determines
that matching deposits appropriate to fund or maintain any Eurodollar Loan
are not available to it, or (c) any Bank Party determines that the
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formula for calculating the Adjusted Eurodollar Rate does not fairly reflect
the cost to such Bank Party of making or maintaining loans based on such
rate, then, upon notice by such Bank Party to Borrower and Agent, Borrower's
right to elect Eurodollar Loans from such Bank Party shall be suspended to
the extent and for the duration of such illegality, impracticability or
restriction and all Eurodollar Loans of such Bank Party which are then
outstanding or are then the subject of any Request for Loan and which cannot
lawfully or practicably be maintained or funded shall immediately become or
remain, or shall be funded as, Base Rate Loans of such Bank Party. Borrower
agrees to reimburse each Bank Party for all costs, expenses, claims,
penalties, liabilities and damages which may result from any such change in
Law, interpretation or administration. Such reimbursement shall be on an
after-tax basis, taking into account any taxes imposed on the amounts
reimbursed.
Section 3.5. FUNDING LOSSES. In addition to its other obligations
hereunder, Borrower will reimburse each Bank Party on demand for, any loss or
expense incurred or sustained by such Bank Party (including any loss or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by a Bank Party to fund or maintain Eurodollar Loans),
as a result of (a) any payment or prepayment (whether authorized or required
hereunder or otherwise) of all or a portion of a Eurodollar Loan on a day
other than the day on which the applicable Interest Period ends, (b) any
payment or prepayment, whether required hereunder or otherwise, of a Loan
made after the delivery, but before the effective date, of a
Continuation/Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure
of any Loan to be made or of any Continuation/Conversion Notice to become
effective due to any condition precedent not being satisfied or due to any
other action or inaction of any Restricted Person, or (d) any conversion
(whether authorized or required hereunder or otherwise) of all or any portion
of any Eurodollar Loan into a Base Rate Loan or into a different Eurodollar
Loan on a day other than the day on which the applicable Interest Period
ends. Such reimbursement shall be on an after-tax basis, taking into account
any taxes imposed on the amounts reimbursed.
Section 3.6. REIMBURSABLE TAXES. Borrower covenants and agrees that:
(a) Borrower will reimburse each Bank Party for all present and
future income, stamp and other taxes, levies, costs and charges whatsoever
imposed, assessed, levied or collected on or in respect of this Agreement
or any Eurodollar Loans (whether or not legally or correctly imposed,
assessed, levied or collected), excluding, however, any taxes imposed on or
measured by the overall net income of Agent or such Bank Party or any
lending office of such Bank Party by any jurisdiction in which such Bank
Party or any such lending office is located (all such non-excluded taxes,
levies, costs and charges being collectively called "REIMBURSABLE TAXES" in
this section). Such reimbursement shall be on an after-tax basis, taking
into account any taxes imposed on the amounts reimbursed.
(b) All payments on account of the principal of, and interest on,
each Bank Party's Loans and Note, and all other amounts payable by Borrower
to any Bank Party
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hereunder, shall be made in full without set-off or counterclaim and shall
be made free and clear of and without deductions or withholdings of any
nature by reason of any Reimbursable Taxes, all of which will be for the
account of Borrower. In the event of Borrower being compelled by Law to
make any such deduction or withholding from any payment to any Bank Party,
Borrower shall pay on the due date of such payment, by way of additional
interest, such additional amounts as are needed to cause the amount
receivable by such Bank Party after such deduction or withholding to equal
the amount which would have been receivable in the absence of such
deduction or withholding. If Borrower should make any deduction or
withholding as aforesaid, Borrower shall within 60 days thereafter forward
to such Bank Party an official receipt or other official document
evidencing payment of such deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loan, Borrower may elect, by giving to Agent and
such Bank Party not less than three Business Days' notice, to convert all
(but not less than all) of any such Eurodollar Loan into a Base Rate Loan,
but such election shall not diminish Borrower's obligation to pay all
Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by Law,
to deduct or withhold (and not to make any reimbursement for) income or
other similar taxes imposed by the United States of America (other than any
portion thereof attributable to a change in federal income tax Laws
effected after the date hereof) from interest, fees or other amounts
payable hereunder for the account of any Bank Party, other than a Bank
Party (i) who is a U.S. person for Federal income tax purposes or (ii) who
has the Prescribed Forms on file with Agent (with copies provided to
Borrower) for the applicable year to the extent deduction or withholding of
such taxes is not required as a result of the filing of such Prescribed
Forms, provided that if Borrower shall so deduct or withhold any such
taxes, it shall provide a statement to Agent and such Bank Party, setting
forth the amount of such taxes so deducted or withheld, the applicable rate
and any other information or documentation which such Bank Party may
reasonably request for assisting such Bank Party to obtain any allowable
credits or deductions for the taxes so deducted or withheld in the
jurisdiction or jurisdictions in which such Bank Party is subject to tax.
As used in this section, "Prescribed Forms" means such duly executed forms
or statements, and in such number of copies, which may, from time to time,
be prescribed by Law and which, pursuant to applicable provisions of (x) an
income tax treaty between the United States and the country of residence of
the Bank Party providing the forms or statements, (y) the Internal Revenue
Code of 1986, as amended from time to time, or (z) any applicable rules or
regulations thereunder, permit Borrower to make payments hereunder for the
account of such Bank Party free of such deduction or withholding of income
or similar taxes.
Section 3.7. [RESERVED].
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Section 3.8. REPLACEMENT OF LENDERS. If any Bank Party seeks
reimbursement for increased costs under Sections 3.2 through 3.6, then within
ninety days thereafter -- provided no Event of Default then exists --
Borrower shall have the right (unless such Bank Party withdraws its request
for additional compensation) to replace such Bank Party by requiring such
Bank Party to assign its Loans and Notes and its commitments hereunder to an
Eligible Transferee reasonably acceptable to Agent and to Borrower, provided
that: (i) all Obligations of Borrower owing to such Bank Party being replaced
(including such increased costs, but excluding principal and accrued interest
on the Notes being assigned) shall be paid in full to such Bank Party
concurrently with such assignment, and (ii) the replacement Eligible
Transferee shall purchase the Note being assigned by paying to such Bank
Party a price equal to the principal amount thereof plus accrued and unpaid
interest thereon. In connection with any such assignment Borrower, Agent,
such Bank Party and the replacement Eligible Transferee shall otherwise
comply with Section 10.5. Notwithstanding the foregoing rights of Borrower
under this section, however, Borrower may not replace any Bank Party which
seeks reimbursement for increased costs under Section 3.2 through 3.6 unless
Borrower is at the same time replacing all Bank Parties which are then
seeking such compensation.
ARTICLE IV - CONDITIONS PRECEDENT TO LENDING
Section 4.1. DOCUMENTS TO BE DELIVERED. No Lender has any obligation
to make its first Loan, unless Agent shall have received all of the
following, at Agent's office in Dallas, Texas, duly executed and delivered
and in form, substance and date satisfactory to Agent:
(a) This Agreement and any other documents that Lenders are to
execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of the
Chairman of the Board or President of Borrower, which shall contain
the names and signatures of the officers of Borrower authorized to
execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of
Directors of Borrower and in full force and effect at the time this
Agreement is entered into, authorizing the execution of this Agreement
and the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the charter documents
of Borrower and all amendments thereto, certified by the appropriate
official of Borrower's state of organization, and (3) a copy of any
bylaws of Borrower; and
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(ii) A "Compliance Certificate" of the Chairman of the Board or
President and of the chief financial officer of Borrower, of even date
with such Loan, in which such officers certify to the satisfaction of
the conditions set out in subsections (a), (b), (c) and (d) of Section
4.2.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction, and
certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which Borrower
owns property subject to Security Documents.
(f) Documents similar to those specified in subsections (d)(i) and
(e) of this section with respect to each Guarantor and the execution by it
of its guaranty of Borrower's Obligations.
(g) A favorable opinion of Locke Purnell Rain Harrell, counsel for
Restricted Persons, substantially in the form set forth in Exhibit F.
(h) The Initial Financial Statements.
(i) Certificates or binders evidencing Restricted Persons' insurance
in effect on the date hereof.
(j) An aging report of the accounts receivable of Borrower for the
months of May, June and July of 1997.
Section 4.2. ADDITIONAL CONDITIONS PRECEDENT. No Lender has any
obligation to make any Loan (including its first), unless the following
conditions precedent have been satisfied:
(a) All representations and warranties made by any Restricted Person
in any Loan Document shall be true on and as of the date of such Loan
(except to the extent that the facts upon which such representations are
based have been changed by the extension of credit hereunder) as if such
representations and warranties had been made as of the date of such Loan.
(b) No Default shall exist at the date of such Loan.
(c) No Material Adverse Change shall have occurred to, and no event
or circumstance shall have occurred that could cause a Material Adverse
Change to, Borrower's Consolidated financial condition or businesses since
the date of this Agreement.
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(d) Each Restricted Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Loan.
(e) The making of such Loan shall not be prohibited by any Law and
shall not subject any Lender to any penalty or other onerous condition
under or pursuant to any such Law.
(f) Agent shall have received all documents and instruments which
Agent has then requested, in addition to those described in Section 4.1
(including opinions of legal counsel for Restricted Persons and Agent;
corporate documents and records; documents evidencing governmental
authorizations, consents, approvals, licenses and exemptions; and
certificates of public officials and of officers and representatives of
Borrower and other Persons), as to (i) the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Restricted Person in this Agreement and the other Loan Documents, (ii) the
satisfaction of all conditions contained herein or therein, and (iii) all
other matters pertaining hereto and thereto. All such additional documents
and instruments shall be satisfactory to Agent in form, substance and date.
(g) Lenders shall have determined that the Initial Financial
Statements do not show any adverse change from the preliminary financial
statements prepared by Borrower and heretofore furnished to Lenders for
Borrower's Fiscal Year ended October 31, 1996.
(h) Payment of all commitment, facility, agency and other fees
required to be paid to any Bank Party pursuant to any Loan Documents or any
commitment agreement heretofore entered into.
(i) Agent shall have received and reviewed, in its sole and absolute
discretion, a field examination of Borrower.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
To confirm each Bank Party's understanding concerning Restricted Persons
and Restricted Persons' businesses, properties and obligations and to induce
each Bank Party to enter into this Agreement and to extend credit hereunder,
Borrower represents and warrants to each Bank Party that:
Section 5.1. NO DEFAULT. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. To the best of Borrower's knowledge, no event has occurred and is
continuing which constitutes a Default.
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Section 5.2. ORGANIZATION AND GOOD STANDING. Each Restricted Person
is duly organized, validly existing and in good standing under the Laws of
its jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to
do business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Restricted Person
has taken all actions and procedures customarily taken in order to enter, for
the purpose of conducting business or owning property, each jurisdiction
outside the United States wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes such actions
and procedures desirable.
Section 5.3. AUTHORIZATION. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. NO CONFLICTS OR CONSENTS. The execution and delivery by
the various Restricted Persons of the Loan Documents to which each is a
party, the performance by each of its obligations under such Loan Documents,
and the consummation of the transactions contemplated by the various Loan
Documents, do not and will not (i) conflict with any provision of (1) any
Law, (2) the organizational documents of any Restricted Person, or (3) any
agreement, judgment, license, order or permit applicable to or binding upon
any Restricted Person, (ii) result in the acceleration of any Indebtedness
owed by any Restricted Person, or (iii) result in or require the creation of
any Lien upon any assets or properties of any Restricted Person 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 Tribunal or third party is
required in connection with the execution, delivery or performance by any
Restricted Person of any Loan Document or to consummate any transactions
contemplated by the Loan Documents.
Section 5.5. ENFORCEABLE OBLIGATIONS. This Agreement is, and the
other Loan Documents when duly executed and delivered will be, legal, valid
and binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency or similar Laws of
general application relating to the enforcement of creditors' rights.
Section 5.6. INITIAL FINANCIAL STATEMENTS. Borrower has heretofore
delivered to each Bank Party true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present
Borrower's Consolidated financial position at the respective dates thereof
and the Consolidated results of Borrower's operations and Borrower's
Consolidated cash flows for the respective periods thereof. Since the date
of the annual Initial Financial Statements no Material Adverse Change has
occurred. All Initial Financial Statements were prepared in accordance with
GAAP.
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Section 5.7. OTHER OBLIGATIONS AND RESTRICTIONS. No Restricted Person
has any outstanding Liabilities of any kind (including contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, material to Borrower or material with respect to
Borrower's Consolidated financial condition and not shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report. Except as shown in the Initial Financial Statements or disclosed in
the Disclosure Schedule or a Disclosure Report, no Restricted Person is
subject to or restricted by any franchise, contract, deed, charter
restriction, or other instrument or restriction which could cause a Material
Adverse Change.
Section 5.8. FULL DISCLOSURE. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Bank Party in connection with the negotiation of this Agreement or in
connection with any transaction contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact known to any
Restricted Person (other than industry-wide risks normally associated with
the types of businesses conducted by Restricted Persons) necessary to make
the statements contained herein or therein not misleading as of the date made
or deemed made. There is no fact known to any Restricted Person that has not
been disclosed to each Bank Party in writing which could cause a Material
Adverse Change.
Section 5.9. LITIGATION. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to
the knowledge of any Restricted Person threatened, against any Restricted
Person before any Tribunal which could cause a Material Adverse Change, and
(ii) there are no outstanding judgments, injunctions, writs, rulings or
orders by any such Tribunal against any Restricted Person or any Restricted
Person's stockholders, partners, directors or officers which could cause a
Material Adverse Change.
Section 5.10. LABOR DISPUTES AND ACTS OF GOD. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section 5.11. ERISA PLANS AND LIABILITIES. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
All Restricted Persons are in compliance with ERISA in all material respects.
No Restricted Person is required to contribute to, or has any other absolute
or contingent liability in respect of, any "multiemployer plan" as defined in
Section 4001 of ERISA. Except as set forth in the Disclosure Schedule or a
Disclosure Report: (i) no "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) exists with
respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, and (ii) the current value of each ERISA Plan's
benefits does not exceed the current value of such ERISA Plan's assets
available for the payment of such benefits by more than $500,000.
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Section 5.12. ENVIRONMENTAL AND OTHER LAWS. Except as disclosed in the
Disclosure Schedule or a Disclosure Report: (a) Restricted Persons are
conducting their businesses in material compliance with all applicable Laws,
including Environmental Laws, and have and are in compliance with all
licenses and permits required under any such Laws; (b) none of the operations
or properties of any Restricted Person is the subject of federal, state or
local investigation evaluating whether any material remedial action is needed
to respond to a release of any Hazardous Materials into the environment or to
the improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) no Restricted Person (and to the
best knowledge of Borrower, no other Person) has filed any notice under any
Law indicating that any Restricted Person is responsible for the improper
release into the environment, or the improper storage or disposal, of any
material amount of any Hazardous Materials or that any Hazardous Materials
have been improperly released, or are improperly stored or disposed of, upon
any property of any Restricted Person; (d) no Restricted Person has
transported or arranged for the transportation of any Hazardous Material to
any location which is (i) listed on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, listed for possible inclusion on such National Priorities List by
the Environmental Protection Agency in its Comprehensive Environmental
Response, Compensation and Liability Information System List, or listed on
any similar state list or (ii) the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against
any Restricted Person for clean-up costs, remedial work, damages to natural
resources or for personal injury claims (whether under Environmental Laws or
otherwise); and (e) no Restricted Person otherwise has any known material
contingent liability under any Environmental Laws or in connection with the
release into the environment, or the storage or disposal, of any Hazardous
Materials.
Section 5.13. NAMES AND PLACES OF BUSINESS. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade
or fictitious name, except as disclosed in the Disclosure Schedule. Except
as otherwise indicated in the Disclosure Schedule or a Disclosure Report, the
chief executive office and principal place of business of each Restricted
Person are (and for the preceding five years have been) located at the
address of Borrower set out in Section 10.3. Except as indicated in the
Disclosure Schedule or a Disclosure Report, no Restricted Person has any
other office or place of business.
Section 5.14. BORROWER'S SUBSIDIARIES. Borrower does not presently
have any Subsidiary or own any stock in any other corporation or association
except those listed in the Disclosure Schedule or a Disclosure Report.
Neither Borrower nor any Restricted Person is a member of any general or
limited partnership, joint venture or association of any type whatsoever
except those listed in the Disclosure Schedule or a Disclosure Report.
Except as otherwise revealed in a Disclosure Report, Borrower owns, directly
or indirectly, the equity interest in each of its Subsidiaries which is
indicated in the Disclosure Schedule.
Section 5.15. TITLE TO PROPERTIES; LICENSES. Each Restricted Person
has good and to the best of Borrower's knowledge, defensible title to all of
its material properties and assets, free and clear of all Liens other than
Permitted Liens and of all impediments to the use of such properties
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and assets in such Restricted Person's business. Each Restricted Person
possesses all licenses, permits, franchises, patents, copyrights, trademarks
and trade names, and other intellectual property (or otherwise possesses the
right to use such intellectual property without violation of the rights of
any other Person) which are necessary to carry out its business as presently
conducted and as presently proposed to be conducted hereafter, and no
Restricted Person is in violation in any material respect of the terms under
which it possesses such intellectual property or the right to use such
intellectual property.
Section 5.16. GOVERNMENT REGULATION. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of
electricity, gas, steam, water or other public utility services.
Section 5.17. INSIDER. To the best of Borrower's knowledge, no
Restricted Person, nor any Person having "control" (as that term is defined
in 12 U.S.C. Section 375b(9) or in regulations promulgated pursuant thereto)
of any Restricted Person, is a "director" or an "executive officer" or
"principal shareholder" (as those terms are defined in 12 U.S.C. Section
375b(8) or (9) or in regulations promulgated pursuant thereto) of any Bank
Party, of a bank holding company of which any Bank Party is a Subsidiary or
of any Subsidiary of a bank holding company of which any Bank Party is a
Subsidiary.
ARTICLE VI - AFFIRMATIVE COVENANTS OF BORROWER
To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party
to enter into this Agreement and extend credit hereunder, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Majority Lenders have
previously agreed otherwise:
Section 6.1. PAYMENT AND PERFORMANCE. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents. Borrower will cause each other Restricted
Person to observe, perform and comply with every such term, covenant and
condition.
Section 6.2. BOOKS, FINANCIAL STATEMENTS AND REPORTS. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Borrower will maintain and will cause its Subsidiaries to maintain
a standard system of accounting, will maintain its Fiscal Year, and will
furnish the following statements and reports to each Bank Party at Borrower's
expense:
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(a) As soon as available, and in any event within 120 days after the
end of each Fiscal Year, complete Consolidated financial statements of
Borrower together with all notes thereto, prepared in reasonable detail in
accordance with GAAP, together with an unqualified opinion, based on an
audit using generally accepted auditing standards, by Price Waterhouse, LLP
or other independent certified public accountants selected by Borrower and
reasonably acceptable to Agent, stating that such Consolidated financial
statements have been so prepared. These financial statements shall contain
a Consolidated balance sheet as of the end of such Fiscal Year and
Consolidated statements of earnings, of cash flows, and of changes in
owners' equity for such Fiscal Year, each setting forth in comparative form
the corresponding figures for the preceding Fiscal Year.
(b) Upon the reasonable request of Agent, complete consolidating
financial statements of Borrower, prepared by Borrower, together with all
notes thereto, prepared in reasonable detail in accordance with GAAP.
These financial statements shall contain a consolidating balance sheet as
of the end of such Fiscal Year and consolidating statements of earnings for
such Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year.
(c) As soon as available, and in any event within forty-five (45)
days after the end of each Fiscal Quarter Borrower's Consolidated balance
sheet as of the end of such Fiscal Quarter and Consolidated statements of
Borrower's earnings and cash flows for the period from the beginning of the
then current Fiscal Year to the end of such Fiscal Quarter, all in
reasonable detail and prepared in accordance with GAAP, subject to changes
resulting from normal year-end adjustments. In addition Borrower will,
together with each such set of financial statements, furnish a certificate
in the form of Exhibit D signed by the chief financial officer of Borrower
stating that such financial statements are accurate and complete, stating
that he has reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with the
requirements of Sections 7.11, 7.12, 7.13, and 7.14, and stating that no
Default exists at the end of such Fiscal Quarter or at the time of such
certificate or specifying the nature and period of existence of any such
Default.
(d) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by any Restricted
Person to its stockholders and all registration statements, periodic
reports and other statements and schedules filed by any Restricted Person
with any securities exchange, the Securities and Exchange Commission or any
similar governmental authority.
(e) As soon as available, and in any event within forty-five (45)
days after the end of each Fiscal Quarter, a Borrowing Base Report of
Borrower duly completed by an authorized officer of Borrower.
(f) Concurrently with any Request for Loan, and in any event at least
weekly, a Borrowing Base Report, appropriately completed and with all
attachments.
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Section 6.3. OTHER INFORMATION AND INSPECTIONS. Each Restricted
Person will furnish to each Bank Party any information which Agent may from
time to time reasonably request in writing concerning the Eligible
Receivables (such as face amounts and dates of invoices and the name and
address of each account debtor obligated on such Eligible Receivable) and any
covenant, provision or condition of the Loan Documents or any matter in
connection with Restricted Persons' businesses and operations. Each
Restricted Person will permit representatives appointed by Agent (including
independent accountants, auditors, agents, attorneys, appraisers and any
other Persons) to visit and inspect during normal business hours any of such
Restricted Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra
copies therefrom and photocopies and photographs thereof, and to write down
and record any information such representatives obtain, and each Restricted
Person shall permit Agent or its representatives to investigate and verify
the accuracy of the information furnished to Agent or any Lender in
connection with the Loan Documents and to discuss all such matters with its
officers, employees and representatives.
Section 6.4. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS.
Borrower will promptly notify each Bank Party in writing, stating that such
notice is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed by any
Restricted Person or of any default by any Restricted Person under any
indenture, mortgage, agreement, contract or other instrument to which any
of them is a party or by which any of them or any of their properties is
bound, if such acceleration or default could cause a Material Adverse
Change,
(d) any claim of $100,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against any Restricted Person or with
respect to any Restricted Person's properties, and
(e) the filing of any suit or proceeding against any Restricted
Person in which an adverse decision could cause a Material Adverse Change.
Upon the occurrence of any of the foregoing Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, or default, to protect against any such
adverse claim, to defend any such suit or proceeding, and to resolve all
controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to
the date that any Restricted Person changes its name or the location of its
chief executive office or principal place of business or the place where it
keeps its books and records concerning the Collateral, furnishing with such
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notice any necessary financing statement amendments or requesting Agent and
its counsel to prepare the same.
Section 6.5. MAINTENANCE OF PROPERTIES. Each Restricted Person will
maintain, preserve, protect, and keep all Collateral and all other property
used or useful in the conduct of its business in good condition (ordinary
wear and tear excepted) and in compliance with all applicable Laws, and will
from time to time make all repairs, renewals and replacements needed to
enable the business and operations carried on in connection therewith to be
promptly and advantageously conducted at all times.
Section 6.6. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change. Borrower
will maintain and preserve or cause to be maintained and preserved the
existence and rights and franchises in full force and effect of any
management service organization that is not a Restricted Person, but which
enters into a management service agreement on behalf of any Restricted
Person.
Section 6.7. PAYMENT OF TRADE LIABILITIES, TAXES, ETC. Each
Restricted Person will (a) timely file all required tax returns; (b) timely
pay all taxes, assessments, and other governmental charges or levies imposed
upon it or upon its income, profits or property; (c) within ninety (90) days
after the same becomes due pay all Liabilities owed by it on ordinary trade
terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (d) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (e) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
GAAP. Each Restricted Person may, however, delay paying or discharging any
of the foregoing so long as it is in good faith contesting the validity
thereof by appropriate proceedings and has set aside on its books adequate
reserves therefor.
Section 6.8. INSURANCE. Each Restricted Person will keep or cause to
be kept insured by financially sound and reputable insurers its property in
accordance with the Insurance Schedule. Borrower will maintain the
additional insurance coverage as described in the respective Security
Documents. Upon demand by Agent any insurance policies covering Collateral
shall be endorsed (a) to provide for payment of losses to Agent as its
interests may appear, (b) to provide that such policies may not be canceled
or reduced or affected in any material manner for any reason without fifteen
days prior notice to Agent, (c) to provide for any other matters specified in
any applicable Security Document or which Agent may reasonably require; and
(d) 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. Each Restricted
Person shall at all times maintain insurance against its liability for injury
to persons or property in accordance with the Insurance Schedule, which
insurance shall be by financially sound and
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reputable insurers. Without limiting the foregoing, each Restricted Person
shall at all time maintain liability insurance in the amounts set out on the
Insurance Schedule.
Section 6.9. PERFORMANCE ON BORROWER'S BEHALF. If any Restricted
Person fails to pay any taxes, insurance premiums, expenses, attorneys' fees
or other amounts it is required to pay under any Loan Document, Agent may pay
the same. Borrower shall immediately reimburse Agent for any such payments
and each amount paid by Agent shall constitute an Obligation owed hereunder
which is due and payable on the date such amount is paid by Agent.
Section 6.10. INTEREST. Borrower hereby promises to each Bank Party to
pay interest at the Late Payment Rate on all Obligations (including
Obligations to pay fees or to reimburse or indemnify any Bank Party) which
Borrower has in this Agreement promised to pay to such Bank Party and which
are not paid when due. Such interest shall accrue from the date such
Obligations become due until they are paid.
Section 6.11. COMPLIANCE WITH AGREEMENTS AND LAW. Each Restricted
Person will perform all material obligations it is required to perform under
the terms of each indenture, mortgage, deed of trust, security agreement,
lease, franchise, agreement, contract or other instrument or obligation to
which it is a party or by which it or any of its properties is bound. Each
Restricted Person will conduct its business and affairs in compliance with
all Laws applicable thereto.
Section 6.12. ENVIRONMENTAL MATTERS.
(a) Each Restricted Person will comply in all material respects with
all Environmental Laws now or hereafter applicable to such Restricted Person
and shall obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits, licenses
and other authorizations necessary for its operations and will maintain such
authorizations in full force and effect.
(b) Borrower will promptly furnish to Agent all written notices of
violation, orders, claims, citations, complaints, penalty assessments, suits
or other proceedings received by Borrower, or of which it has notice, pending
or threatened against Borrower, by any governmental authority with respect to
any alleged violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or use
of its properties or the operation of its business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other notifications,
received by Borrower in connection with its ownership or use of its
properties or the conduct of its business, relating to potential
responsibility with respect to any investigation or clean-up of Hazardous
Material at any location.
Section 6.13. EVIDENCE OF COMPLIANCE. Each Restricted Person will
furnish to each Bank Party at such Restricted Person's or Borrower's expense
all evidence which Agent from
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time to time reasonably requests in writing as to the accuracy and validity
of or compliance with all representations, warranties and covenants made by
any Restricted Person in the Loan Documents, the satisfaction of all
conditions contained therein, and all other matters pertaining thereto.
Section 6.14. SOLVENCY. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation
of the transactions contemplated hereby, Borrower will be solvent (as such
term is used in applicable bankruptcy, liquidation, receivership, insolvency
or similar laws).
Section 6.15. AGREEMENT TO DELIVER SECURITY DOCUMENTS. Borrower agrees
to deliver and to cause each other Restricted Person to deliver, to further
secure the Obligations whenever requested by Agent in its reasonable
discretion, security agreements, financing statements and other Security
Documents in form and substance satisfactory to Agent for the purpose of
granting, confirming, and perfecting first and prior liens or security
interests in any real or personal property which is at such time Collateral
or which was intended to be Collateral pursuant to any Security Document
previously executed and not then released by Agent. Borrower will from time
to time deliver, and will cause each other Restricted Person from time to
time to deliver, to Agent any financing statements, continuation statements,
extension agreements and other documents, properly completed and executed
(and acknowledged when required) by Restricted Persons in form and substance
reasonably satisfactory to Agent, which Agent requests for the purpose of
perfecting, confirming, or protecting any Liens or other rights in Collateral
securing any Obligations.
Section 6.16. BANK ACCOUNTS; OFFSET. To secure the repayment of the
Obligations Borrower hereby grants to each Bank Party a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of any Bank Party at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any
and all moneys, securities or other property (and the proceeds therefrom) of
Borrower now or hereafter held or received by or in transit to any Bank Party
from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, (b) any and all deposits
(general or special, time or demand, provisional or final) of Borrower with
any Bank Party, and (c) any other credits and claims of Borrower at any time
existing against any Bank Party, including claims under certificates of
deposit and excluding Borrower's account number 8334001710 established with
Bank One and all funds on deposit therein which shall have the sole purpose
of providing collateral to secure Borrower's obligations under the lease
covering its corporate headquarters. At any time and from time to time after
the occurrence of any Default, each Bank Party is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in
either case without notice to Borrower), any and all items hereinabove
referred to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
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Section 6.17. GUARANTIES OF BORROWER'S SUBSIDIARIES. Each Subsidiary
of Borrower, other than Borrower's Mexican Subsidiary, now existing or
created, acquired or coming into existence after the date hereof shall,
promptly upon request by Agent, execute and deliver to Agent an absolute and
unconditional guaranty of the timely repayment of the Obligations and the due
and punctual performance of the obligations of Borrower hereunder, which
guaranty shall be in the form of Exhibit G attached hereto. Each Subsidiary
of Borrower existing on the date hereof shall duly execute and deliver such a
guaranty prior to the making of any Loan hereunder. Borrower will cause each
of its Subsidiaries to deliver to Agent, simultaneously with its delivery of
such a guaranty, written evidence satisfactory to Agent and its counsel that
such Subsidiary has taken all corporate or partnership action necessary to
duly approve and authorize its execution, delivery and performance of such
guaranty and any other documents which it is required to execute.
Section 6.18. AUDIT. Allow (and cause each other Restricted Person to
allow) Agent, (upon reasonable notice and during such Restricted Person's
usual business hours) (i) to inspect any Restricted Person's books, records,
accounts, and properties (including, without limitation, a field examination
by Lender's secured lending group to test systems and controls it deems
appropriate in its own reasonable discretion), (ii) to make and take away
copies of those books, records, and accounts, (iii) to discuss any Restricted
Person's affairs, conditions, finances, and prospects with any Restricted
Person's directors, officers, employees, or general or limited partners (or
their respective directors, officers, employees, or partners). If no Default
or Potential Default exists, any such audit shall be at the expense of
Borrower only once during each twelve month period during the term hereof.
During any time when a Default or Potential Default exists each such audit
performed hereunder shall be at the expense of Borrower.
ARTICLE VII - NEGATIVE COVENANTS OF BORROWER
To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party
to enter into this Agreement and make the Loans, Borrower warrants, covenants
and agrees that until the full and final payment of the Obligations and the
termination of this Agreement, unless Majority Lenders have previously agreed
otherwise:
Section 7.1. INDEBTEDNESS. No Restricted Person will in any manner
owe or be liable for Indebtedness except:
(a) the Obligations.
(b) Indebtedness outstanding under the instruments and agreements
described on the Disclosure Schedule, excluding any renewals or extensions of
such Indebtedness and providing that the original principal amount of any
such Indebtedness is not in excess of the purchase price of the asset
acquired thereby and such Indebtedness is secured only by the acquired asset.
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(c) purchase money Indebtedness or capital lease obligations in an
aggregate Consolidated principal amount not to exceed $500,000 at any time,
provided that the original principal amount of any such Indebtedness shall not
be in excess of the purchase price of the asset acquired thereby and such
Indebtedness shall be secured only by the acquired asset; provided that if
Borrower requests that Lenders consent to an increase in such amount, Lenders'
consent shall not be unreasonably withheld.
Section 7.2. LIMITATION ON LIENS. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which it
now owns or hereafter acquires, except, to the extent not otherwise forbidden by
the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) Statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not secure
Indebtedness and secure only Indebtedness which is not delinquent or which is
being contested as provided in Section 6.6.
(c) Liens securing Indebtedness described in Section 7.1(c) and leases
with Bank One Leasing described in the Disclosure Schedule..
Section 7.3. HEDGING. No Restricted Person will be a party to or in any
manner be liable on any forward, future, swap or hedging contract.
Section 7.4. LIMITATION ON MERGERS, ISSUANCES OF SECURITIES. Except as
expressly provided in this subsection no Restricted Person will merge or
consolidate with or into any other business entity. Any Subsidiary of Borrower
may, however, be merged into or consolidated with (i) another Subsidiary of
Borrower, so long as a Guarantor is the surviving business entity, or
(ii) Borrower, so long as Borrower is the surviving business entity. No
Restricted Person will issue any additional shares of its capital stock or other
securities or any options, warrants or other rights to acquire such additional
shares or other securities, except that Borrower's wholly-owned Subsidiaries may
issue such shares, options, warrants or other rights to Borrower, and Borrower
may issue its common stock and warrants to purchase its common stock, but only
to the extent not otherwise forbidden under the terms hereof. No Subsidiary of
Borrower which is a partnership will allow any diminution of Borrower's interest
(direct or indirect) therein.
Section 7.5. LIMITATION ON SALES OF PROPERTY. No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except equipment which is
worthless or obsolete or which is replaced by equipment of equal suitability and
value. Neither Borrower nor any of Borrower's Subsidiaries will sell, transfer
or otherwise dispose of capital stock of any of Borrower's Subsidiaries except
that any Subsidiary of Borrower may sell or issue its own capital stock to the
extent not otherwise prohibited hereunder. No Restricted Person will discount,
sell, pledge or assign any
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notes payable to it, accounts receivable or future income except to the
extent expressly permitted under the Loan Documents.
Section 7.6. LIMITATION ON DIVIDENDS AND REDEMPTIONS. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the capital
stock of or partnership interests in any Restricted Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Restricted
Person. The foregoing provisions of this Section 7.6 notwithstanding, Borrower
may declare and pay dividends in its common stock.
Section 7.7. LIMITATION ON INVESTMENTS AND NEW BUSINESSES. No Restricted
Person will (i) make any expenditure or commitment or incur any obligation or
enter into or engage in any transaction except in the ordinary course of
business, (ii) engage directly or indirectly in any business or conduct any
operations except in connection with or incidental to its present businesses and
operations, (iii) make any acquisitions of or capital contributions to or other
investments in any Person, other than Permitted Investments.
Section 7.8. LIMITATION ON CREDIT EXTENSIONS. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than normal and prudent extensions of credit to customers buying
goods and services in the ordinary course of business, which extensions shall
not be for longer periods than those extended by similar businesses operated in
a normal and prudent manner.
Section 7.9. TRANSACTIONS WITH AFFILIATES. Neither Borrower nor any of
its Subsidiaries will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would have
been obtainable at the time in arm's-length dealing with Persons other than such
Affiliates, provided that such restriction shall not apply to transactions among
Borrower and its wholly owned Subsidiaries.
Section 7.10. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA PLANS.
Except as expressly provided for in the Loan Documents, no Restricted Person
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Subsidiary of
Borrower to: (i) pay dividends or make other distributions to Borrower, (ii) to
redeem equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Restricted Person will amend or permit any amendment to any
contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the rights and benefits of Agent or any Lender
under or acquired pursuant to any Security Documents. No Restricted Person will
establish or incur any obligation to contribute to any ERISA Plan.
Section 7.11. MINIMUM NET WORTH. The Consolidated Tangible Net Worth at
the end of each Fiscal Quarter will not be less than the sum of (i) $30,000,000
plus (ii) seventy percent
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(70%) of the Consolidated Net Income (but only if a positive number) for the
period beginning on April 30, 1997 and ending on the last day of such Fiscal
Quarter plus (iii) the aggregate amount of capital contributions or proceeds
of equity offerings (after expenses) received by Borrower after the date
hereof, all calculated in accordance with GAAP.
Section 7.12. RATIO OF DEBT TO NET WORTH. Prior to the Secondary Public
Offering, the ratio of (1) Consolidated Debt to (2) Consolidated Tangible Net
Worth will never be greater than (A) 1.75 to 1.0 at any time. Following the
Secondary Public Offering and provided that the Secondary Public Offering is
fully subscribed, the ratio of (1) Consolidated Debt in excess of $20,000,000 to
(2) Consolidated Tangible Net Worth will never be greater than 1.0 to 1.0 at any
time, all calculated in accordance with GAAP.
Section 7.13. CURRENT RATIO. The ratio of: (a) Borrower's Consolidated
current assets minus Inventory to (b) Borrower's Consolidated current
liabilities, all calculated in accordance with GAAP plus outstanding Loans will
never be less than .8 to 1.0.
Section 7.14. FIXED CHARGE COVERAGE RATIO. At the end of any Fiscal
Quarter, the ratio of (a) Borrower's Adjusted EBITDA (as defined below) for the
last four Fiscal Quarters of Borrower then ended to (b) Borrower's Fixed Charges
(as defined below) for such Fiscal Quarters will not be less than 1.75 to 1.0
all calculated in accordance with GAAP. For purposes of this section, "ADJUSTED
EBITDA" means for any period, Borrower's EBITDA for such period plus operating
lease payments made by Borrower during such period, calculated in accordance
with GAAP. "FIXED CHARGES" means for any period, the sum of (i) principal and
interest payments on Borrower's Consolidated Indebtedness (including payments
under capital leases) due during such period (whether or not paid), (ii)
payments under operating leases due during such period (whether or not paid),
and (iii) dividends and distributions made by Borrower during such period (if
for any reason this Agreement is modified to permit any such dividends or
distributions), calculated in accordance with GAAP.
ARTICLE VIII - EVENTS OF DEFAULT AND REMEDIES
Section 8.1. EVENTS OF DEFAULT. Each of the following events constitutes
an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay any Obligation within five (5)
Business Days after the date when due, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable or
as a result of acceleration or otherwise;
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(b) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;
(c) Any Restricted Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 6.4 or Article VII and such
failure remains unremedied for a period of fifteen (15) days after the earlier
to occur of: (i) written notice thereof is given by Agent to the Borrower or
(ii) any Restricted Person otherwise becomes aware of such failure;
(d) Any Restricted Person fails (other than as referred to in subsections
(a), (b), (c) or (d) above) to duly observe, perform or comply with any
covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after written notice
of such failure is given by Agent to Borrower;
(e) Any representation or warranty previously, presently or hereafter made
in writing by or on behalf of any Restricted Person in connection with any Loan
Document shall prove to have been false or incorrect in any material respect on
any date on or as of which made, or any Loan Document at any time ceases to be
valid, binding and enforceable as warranted in Section 5.5 for any reason other
than its release or subordination by Agent;
(f) Any Restricted Person fails to duly observe, perform or comply with
any agreement with any Person or any term or condition of any instrument, if
such agreement or instrument is materially significant to Borrower or to
Borrower and its subsidiaries on a Consolidated basis or materially significant
to any Guarantor, and such failure is not remedied within the applicable period
of grace (if any) provided in such agreement or instrument;
(g) Subject to Section 6.7, any Restricted Person (i) fails to pay any
portion, when such portion is due, of any of its Indebtedness in excess of
$350,000 or (ii) breaches or defaults in the performance of any agreement or
instrument by which any such Indebtedness is issued, evidenced, governed, or
secured, and any such failure, breach or default continues beyond any applicable
period of grace provided therefor;
(h) Any Restricted Person:
(i) suffers the entry against it of a judgment, decree or order for
relief by a Tribunal of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar Law
of any jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such proceeding
commenced against it which remains undismissed for a period of thirty days;
or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from
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time to time amended; or applies for or consents to the entry of an order
for relief in an involuntary case under any such Law; or makes a general
assignment for the benefit of creditors; or fails generally to pay (or
admits in writing its inability to pay) its debts as such debts become due;
or takes corporate or other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets or of any part of the
Collateral in a proceeding brought against or initiated by it, and such
appointment or taking possession is neither made ineffective nor discharged
within thirty days after the making thereof, or such appointment or taking
possession is at any time consented to, requested by, or acquiesced to by
it; or
(iv) suffers the entry against it of a final judgment for the payment
of money in excess of $1,000,000 (not covered by insurance satisfactory to
Agent in its discretion), unless the same is discharged within thirty days
after the date of entry thereof or an appeal or appropriate proceeding for
review thereof is taken within such period and a stay of execution pending
such appeal is obtained; or
(v) suffers a writ or warrant of attachment or any similar process to
be issued by any Tribunal against all or any substantial part of its assets
or any part of the Collateral, and such writ or warrant of attachment or
any similar process is not stayed or released within thirty days after the
entry or levy thereof or after any stay is vacated or set aside; and
(i) Any Material Adverse Change occurs.
Upon the occurrence of an Event of Default described in subsection (h)(i),
(h)(ii) or (h)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Restricted Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any obligation
of any Lender to make any further Loans shall be permanently terminated. During
the continuance of any other Event of Default, Agent at any time and from time
to time may (and upon written instructions from Majority Lenders, Agent shall),
without notice to Borrower or any other Restricted Person, do either or both of
the following: (1) terminate any obligation of Lenders to make Loans hereunder,
and (2) declare any or all of the Obligations immediately due and payable, and
all such Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Restricted Person who at any time
ratifies or approves this Agreement.
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Section 8.2. REMEDIES. If any Default shall occur and be continuing,
each Bank Party may protect and enforce its rights under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and each Bank Party
may enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Bank Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
ARTICLE IX - AGENT
Section 9.1. APPOINTMENT AND AUTHORITY. Each Lender which becomes a
party to this Agreement hereby irrevocably authorizes Agent, and Agent hereby
undertakes, to receive payments of principal, interest and other amounts due
hereunder as specified herein and to take all other actions and to exercise such
powers under the Loan Documents as are specifically delegated to Agent by the
terms hereof or thereof, together with all other powers reasonably incidental
thereto. The relationship of Agent to the other Bank Parties is only that of
one commercial lender acting as administrative agent for others, and nothing in
the Loan Documents shall be construed to constitute Agent a trustee or other
fiduciary for any holder of any of the Notes or of any participation therein nor
to impose on Agent duties and obligations other than those expressly provided
for in the Loan Documents. With respect to any matters not expressly provided
for in the Loan Documents and any matters which the Loan Documents place within
the discretion of Agent, Agent shall not be required to exercise any discretion
or take any action, and it may request instructions from Lenders with respect to
any such matter, in which case it shall be required to act or to refrain from
acting (and shall be fully protected and free from liability to all Lenders in
so acting or refraining from acting) upon the instructions of Majority Lenders
(including itself), provided, however, that Agent shall not be required to take
any action which exposes it to a risk of personal liability that it considers
unreasonable or which is contrary to the Loan Documents or to applicable Law.
Upon receipt by Agent from Borrower of any communication calling for action on
the part of Lenders or upon notice from any other Bank Party to Agent of any
Default or Event of Default, Agent shall promptly notify each other Bank Party
thereof.
Section 9.2. EXCULPATION, AGENT'S RELIANCE, ETC. Neither Agent nor any
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent (a) may treat the payee
of any Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof in accordance with this Agreement, signed by such
payee and in form satisfactory to Agent; (b) may consult with legal counsel
(including counsel for Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants
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or experts; (c) makes no warranty or representation to any other Bank Party
and shall not be responsible to any other Bank Party for any statements,
warranties or representations made in or in connection with the Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of the
Loan Documents on the part of any Restricted Person or to inspect the
property (including the books and records) of any Restricted Person; (e)
shall not be responsible to any other Bank Party for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of any
Loan Document or any instrument or document furnished in connection
therewith; (f) may rely upon the representations and warranties of each
Restricted Person and the Lenders in exercising its powers hereunder; and (g)
shall incur no liability under or in respect of the Loan Documents by acting
upon any notice, consent, certificate or other instrument or writing
(including any telecopy, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper Person or Persons.
Section 9.3. CREDIT DECISIONS. Each Bank Party acknowledges that it has,
independently and without reliance upon any other Bank Party, made its own
analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Bank Party also acknowledges that it will, independently and without
reliance upon any other Bank Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.
Section 9.4. INDEMNIFICATION. Each Lender agrees to indemnify Agent (to
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Agent growing out of, resulting from or in any other way associated with
any of the Collateral, the Loan Documents and the transactions and events
(including the enforcement thereof) at any time associated therewith or
contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Person or any liabilities or duties of any Person with
respect to Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual
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gross negligence or willful misconduct, as determined in a final judgment.
Cumulative of the foregoing, each Lender agrees to reimburse Agent promptly
upon demand for such Lender's Percentage Share of any costs and expenses to
be paid to Agent by Borrower under Section 10.4(a) to the extent that Agent
is not timely reimbursed for such expenses by Borrower as provided in such
section. As used in this section the term "Agent" shall refer not only to
the Person designated as such in Section 1.1 but also to each director,
officer, agent, attorney, employee, representative and Affiliate of such
Person.
Section 9.5. RIGHTS AS LENDER. In its capacity as a Lender, Agent shall
have the same rights and obligations as any Lender and may exercise such rights
as though it were not Agent. Agent may accept deposits from, lend money to, act
as Trustee under indentures of, and generally engage in any kind of business
with any Restricted Person or their Affiliates, all as if it were not Agent
hereunder and without any duty to account therefor to any other Lender.
Section 9.6. SHARING OF SET-OFFS AND OTHER PAYMENTS. Each Bank Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section 3.1,
causes such Bank Party to have received more than it would have received had
such payment been received by Agent and distributed pursuant to Section 3.1,
then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Bank Parties to share all payments as provided for in Section 3.1, and (b) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Agent and all Lenders share all payments of Obligations as provided
in Section 3.1; provided, however, that nothing herein contained shall in any
way affect the right of any Bank Party to obtain payment (whether by exercise of
rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness
other than the Obligations. Borrower expressly consents to the foregoing
arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker's lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
section is thereafter recovered from the seller under this section which
received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to Tribunal order to be paid on account of
the possession of such funds prior to such recovery.
Section 9.7. INVESTMENTS. Whenever Agent in good faith determines that
it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment
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shall be distributed upon the distribution of such investment and in the same
proportion and to the same Persons as such investment. All moneys received
by Agent for distribution to Lenders (other than to the Person who is Agent
in its separate capacity as a Lender) shall be held by Agent pending such
distribution solely as Agent for such Lenders, and Agent shall have no
equitable title to any portion thereof.
Section 9.8. BENEFIT OF ARTICLE IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Bank Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Bank
Party. Bank Parties may waive or amend such provisions as they desire without
any notice to or consent of Borrower or any Restricted Person.
Section 9.9. RESIGNATION. Agent may resign at any time by giving written
notice thereof to Lenders and Borrower. Each such notice shall set forth the
date of such resignation. Upon any such resignation Lenders having aggregate
Percentage Shares of at least one hundred percent (100%) shall have the right to
appoint a successor Agent. A successor must be appointed for any retiring
Agent, and such Agent's resignation shall become effective when such successor
accepts such appointment. If, within thirty days after the date of the retiring
Agent's resignation, no successor Agent has been appointed and has accepted such
appointment, then the retiring Agent may appoint a successor Agent, which shall
be a commercial bank organized or licensed to conduct a banking or trust
business under the Laws of the United States of America or of any state thereof.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any retiring Agent's
resignation hereunder the provisions of this Article IX shall continue to inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under the Loan Documents.
ARTICLE X - MISCELLANEOUS
Section 10.1. WAIVERS AND AMENDMENTS; ACKNOWLEDGMENTS.
(a) WAIVERS AND AMENDMENTS. No failure or delay (whether by course of
conduct or otherwise) by any Bank Party in exercising any right, power or remedy
which such Bank Party may have under any of the Loan Documents shall operate as
a waiver thereof or of any other right, power or remedy, nor shall any single or
partial exercise by any Bank Party of any such right, power or remedy preclude
any other or further exercise thereof or of any other right, power or remedy.
No waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as provided
below in this section, and then such waiver or consent shall be effective only
in the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Restricted Person
shall in any case of itself entitle any Restricted Person to any other or
further notice or demand in similar or other circumstances. This Agreement and
the other Loan Documents set forth the entire understanding between the parties
hereto with respect to the
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transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof and
thereof, and no waiver, consent, release, modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed
by (i) if such party is Borrower, by Borrower, (ii) if such party is Agent,
by Agent, and (iii) if such party is a Lender, by such Lender or by Agent on
behalf of such Lender with the written consent of Majority Lenders (which
consent has already been given as to the termination of the Loan Documents as
provided in Section 10.9). Anything to the contrary herein notwithstanding,
Agent shall not, without the prior consent of each individual Lender, execute
and deliver on behalf of such Lender any waiver or amendment which would: (1)
waive any of the conditions specified in Article IV (provided that Agent may
in its discretion withdraw any request it has made under Section 4.2(f)), (2)
increase the Commitment of such Lender or subject such Lender to any
additional obligations, (3) reduce any fees payable to such Lender hereunder,
or the principal of, or interest on, such Lender's Note, (4) postpone any
date fixed for any payment of any such fees, principal or interest, or (5)
release Borrower from its obligation to pay such Lender's Note or any
Guarantor from its guaranty of such payment or, (6) release any Collateral,
or (7) amend the definition of Eligible Receivables set forth in Section 1.1.
(b) ACKNOWLEDGMENTS AND ADMISSIONS. Borrower hereby represents, warrants,
acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Lender,
whether written, oral or implicit, other than as expressly set out in this
Agreement or in another Loan Document delivered on or after the date hereof,
(iii) there are no representations, warranties, covenants, undertakings or
agreements by any Bank Party as to the Loan Documents except as expressly set
out in this Agreement or in another Loan Document delivered on or after the date
hereof, (iv) no Bank Party has any fiduciary obligation toward Borrower with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower and the other
Restricted Persons, on one hand, and each Bank Party, on the other hand, is and
shall be solely that of debtor and creditor, respectively, (vi) no partnership
or joint venture exists with respect to the Loan Documents between any
Restricted Person and any Bank Party, (vii) Agent is not Borrower's Agent, but
Agent for Lenders, (viii) should an Event of Default or Default occur or exist,
each Bank Party will determine in its sole discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that time,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Bank Party, or any representative thereof, and
no such representation or covenant has been made, that any Bank Party will, at
the time of an Event of Default or Default, or at any other time, waive,
negotiate, discuss, or take or refrain from taking any action permitted under
the Loan Documents with respect to any such Event of Default or Default or any
other provision of the Loan Documents, and (x) all Bank Parties have relied upon
the truthfulness of the acknowledgments in this section in deciding to execute
and deliver this Agreement and to become obligated hereunder.
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(c) REPRESENTATION BY LENDERS. Each Lender hereby represents that it will
acquire its Note for its own account in the ordinary course of its lending
business; however, the disposition of such Lender's property shall at all times
be and remain within its control and, in particular and without limitation, such
Lender may sell or otherwise transfer its Note, any participation interest or
other interest in its Note, or any of its other rights and obligations under the
Loan Documents.
(d) JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 10.2. SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to each Bank Party and all of Bank Parties'
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Restricted Person to any
Bank Party under any Loan Document shall be deemed representations and
warranties by Borrower or agreements and covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and privileges
granted to Bank Parties in the Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be construed in
the context of another to diminish, nullify, or otherwise reduce the benefit to
any Bank Party of any such representation, warranty, indemnity, covenant, right,
power or privilege. In particular and without limitation, no exception set out
in this Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Loan Document, and each such similar
representation, warranty, indemnity, or covenant shall be subject only to those
exceptions which are expressly made applicable to it by the terms of the various
Loan Documents.
Section 10.3. NOTICES. All notices, requests, consents, demands and other
communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Bank Parties), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto and
to each Bank Party at its address specified on the signature pages hereto
(unless changed by similar notice in writing given by the particular Person
whose address is to be changed). Any such notice or
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communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery
during normal business hours at the address provided herein, (b) in the case
of telecopy or telex, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail; provided,
however, that no Request for Loan shall become effective until actually
received by Agent.
Section 10.4. PAYMENT OF EXPENSES; INDEMNITY.
(a) PAYMENT OF EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, Borrower will promptly (and in any event, within
30 days after any invoice or other statement or notice) pay: (i) all transfer,
stamp, mortgage, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Loan Documents or any other document referred to herein or
therein, (ii) all reasonable costs and expenses incurred by or on behalf of
Agent (including reasonable attorneys' fees, consultants' fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Loan Documents, and any
and all consents, waivers or other documents or instruments relating thereto,
(2) the filing, recording, refiling and re-recording of any Loan Documents and
any other documents or instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms of any Loan Document, (3) the
borrowings hereunder and other action reasonably required in the course of
administration hereof, (4) monitoring or confirming (or preparation or
negotiation of any document related to) Borrower's compliance with any covenants
or conditions contained in this Agreement or in any Loan Document, and (iii) all
reasonable costs and expenses incurred by or on behalf of any Bank Party
(including reasonable attorneys' fees, consultants' fees and accounting fees) in
connection with the defense or enforcement of any of the Loan Documents with
respect to the obligations of Borrowers (including this section) or the defense
of any Bank Party's exercise of its rights thereunder with respect to the
obligations of Borrower. In addition to the foregoing, until and all
Obligations have been paid in full, Borrower will also pay or reimburse Agent
for all reasonable out-of-pocket costs and expenses of Agent or its agents or
employees in connection with the continuing administration of the Loans and the
related due diligence of Agent, including travel and miscellaneous expenses and
fees and expenses of Agent's outside counsel, reserve engineers and consultants
engaged in connection with the Loan Documents.
(b) INDEMNITY. Borrower agrees to indemnify each Bank Party, upon demand,
from and against any and all liabilities, obligations, claims, losses, damages,
penalties, fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, accountants, experts and
advisors) of any kind or nature whatsoever (in this section collectively called
"liabilities and costs") which to any extent (in whole or in part) may be
imposed on, incurred by, or asserted against such Bank Party growing out of,
resulting from or in any other way associated with any of the Collateral, the
Loan Documents and the transactions and events (including the enforcement or
defense thereof) at any time associated therewith or contemplated therein
(including any violation or noncompliance with any Environmental Laws
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by any Restricted Person or any liabilities or duties of any Restricted
Person or any Bank Party with respect to Hazardous Materials found in or
released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY,
provided only that no Bank Party shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment. If any Person (including Borrower or any of
its Affiliates) ever alleges such gross negligence or willful misconduct by any
Bank Party, the indemnification provided for in this section shall nonetheless
be paid upon demand, subject to later adjustment or reimbursement, until such
time as a court of competent jurisdiction enters a final judgment as to the
extent and effect of the alleged gross negligence or willful misconduct. As
used in this section the term "Bank Parties" shall refer not only to the Persons
designated as such in Section 1.1 but also to each director, officer, agent,
attorney, employee, representative and Affiliate of such Persons.
Section 10.5. JOINT AND SEVERAL LIABILITY; PARTIES IN INTEREST;
ASSIGNMENTS. All Obligations which are incurred by two or more Restricted
Persons shall be their joint and several obligations and liabilities. All
grants, covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that no Restricted Person may assign or transfer any
of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of Agent. Neither Borrower nor any
Affiliates of Borrower shall directly or indirectly purchase or otherwise retire
any Obligations owed to any Lender nor will any Lender accept any offer to do
so, unless each Lender shall have received substantially the same offer with
respect to the same Percentage Share of the Obligations owed to it. If Borrower
or any Affiliate of Borrower at any time purchases some but less than all of the
Obligations owed to all Bank Parties, such purchaser shall not be entitled to
any rights of any Bank Party under the Loan Documents unless and until Borrower
or its Affiliates have purchased all of the Obligations.
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess
of those payable to such Lender under such sections (determined without regard
to the sale of such participation), and (iii) unless such participant is
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an Affiliate of such Lender, that such participant shall not be entitled to
require such Lender to take any action under any Loan Document or to obtain
the consent of such participant prior to taking any action under any Loan
Document, except for actions which would require the consent of all Lenders
under the next-to-last sentence of subsection (a) of Section 10.1. No Lender
selling such a participation shall, as between the other parties hereto and
such Lender, be relieved of any of its obligations hereunder as a result of
the sale of such participation. Each Lender which sells any such
participation to any Person (other than an Affiliate of such Lender) shall
give prompt notice thereof to Agent and Borrower.
(c) Except for sales of participations under the immediately preceding
subsection (b), no Lender shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing to
the assignor Lender hereunder and to the unused portion of the
assignor Lender's commitments, so that after such assignment is made
the assignor Lender shall have a fixed (and not a varying) Percentage
Share in its Loans and Note and be committed to make that Percentage
Share of all future Loans, the assignee shall have a fixed Percentage
Share in such Loans and Note and be committed to make that Percentage
Share of all future Loans, and the Percentage Share of the Commitment
of both the assignor and assignee shall equal or exceed $10,000,000.
(ii) The parties to each such assignment shall execute and deliver to
Agent, for its acceptance and recording in the "Register" (as defined below
in this section), an Assignment and Acceptance in the form of Exhibit E,
appropriately completed, together with the Note subject to such assignment
and a processing fee payable to Agent of $2,500. Upon such execution,
delivery, and payment and upon the satisfaction of the conditions set out
in such Assignment and Acceptance, then (i) Borrower shall issue new Notes
to such assignor and assignee upon return of the old Notes to Borrower, and
(ii) as of the "Settlement Date" specified in such Assignment and
Acceptance the assignee thereunder shall be a party hereto and a Lender
hereunder and Agent shall thereupon deliver to Borrower and each Lender a
schedule showing the revised Percentage Shares of such assignor Lender and
such assignee Lender and the Percentage Shares of all other Lenders.
(iii) Each assignee Lender which is not a United States person (as
such term is defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended) for Federal income tax purposes, shall (to the extent it
has not already done so) provide Agent and Borrower with the "Prescribed
Forms" referred to in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any Lender
from assigning or pledging all or any portion of its Loans and Note to any
Federal Reserve Bank as
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collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank; provided that no such assignment or pledge shall relieve such
Lender from its obligations hereunder.
(e) By executing and delivering an Assignment and Acceptance, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Agents and each other Lender hereunder that such assignee understands and agrees
to the terms hereof, including Article IX hereof.
(f) Agent shall maintain a copy of each Assignment and Acceptance and a
register for the recordation of the names and addresses of Lenders and the
Percentage Shares of, and principal amount of the Loans owing to, each Lender
from time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower and
each Bank Party may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes. The Register shall be available for
inspection by Borrower or any Bank Party at any reasonable time and from time to
time upon reasonable prior notice.
Section 10.6. CONFIDENTIALITY. Each Bank Party agrees that it will take
all reasonable steps to keep confidential any proprietary information given to
it by any Restricted Person, provided, however, that this restriction shall not
apply to information which (i) has at the time in question entered the public
domain, (ii) is required to be disclosed by Law (whether valid or invalid) of
any Tribunal, (iii) is disclosed to any Bank Party's Affiliates, auditors,
attorneys, or agents, (iv) is furnished to any other Bank Party or to any
purchaser or prospective purchaser of participations or other interests in any
Loan or Loan Document, or (v) is disclosed in the course of enforcing its rights
and remedies during the existence of an Event of Default.
Section 10.7. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE EXTENT
THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT,
THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS
OF THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF
AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. CHAPTER 15 OF TEXAS
REVISED CIVIL STATUTES ANNOTATED ARTICLE 5069 (WHICH REGULATES CERTAIN REVOLVING
CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) DOES NOT APPLY TO THIS
AGREEMENT OR TO THE NOTES. BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH
OTHER RESTRICTED PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT OR ANY RESTRICTED PERSON IN ANY LEGAL
PROCEEDING RELATING TO THE LOAN DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS
ALLOWED UNDER TEXAS OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN
ANY WAY
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RELATED TO ANY OF THE LOAN DOCUMENTS SHALL BE BROUGHT AND LITIGATED
EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
TEXAS, DALLAS DIVISION, TO THE EXTENT IT HAS SUBJECT MATTER JURISDICTION, AND
OTHERWISE IN THE TEXAS DISTRICT COURTS SITTING IN DALLAS COUNTY, TEXAS. THE
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREE TO A TRANSFER
OF ANY SUCH PROCEEDING TO A FEDERAL COURT SITTING IN THE STATE OF TEXAS TO
THE EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A STATE
COURT IN DALLAS, TEXAS. IN FURTHERANCE THEREOF, BORROWER AND BANK PARTIES
EACH HEREBY ACKNOWLEDGE AND AGREE THAT IT WAS NOT INCONVENIENT FOR THEM TO
NEGOTIATE AND RECEIVE FUNDING OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT IN SUCH COUNTY AND THAT IT WILL BE NEITHER INCONVENIENT NOR UNFAIR
TO LITIGATE OR OTHERWISE RESOLVE ANY DISPUTES OR CLAIMS IN A COURT SITTING IN
SUCH COUNTY.
Section 10.8. LIMITATION ON INTEREST. Bank Parties, Restricted Persons
and any other parties to the Loan Documents intend to contract in strict
compliance with applicable usury law from time to time in effect. In
furtherance thereof such Persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to create a
contract to pay, for the use, forbearance or detention of money, interest in
excess of the maximum amount of interest permitted to be charged by applicable
law from time to time in effect. Neither any Restricted Person nor any present
or future guarantors, endorsers, or other Persons hereafter becoming liable for
payment of any Obligation shall ever be liable for unearned interest thereon or
shall ever be required to pay interest thereon in excess of the maximum amount
that may be lawfully charged under applicable law from time to time in effect,
and the provisions of this section shall control over all other provisions of
the Loan Documents which may be in conflict or apparent conflict herewith. Bank
Parties expressly disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or
(c) any Bank Party or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount in
excess of that permitted to be charged by applicable law then in effect, then
all sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at such Bank Party's or holder's option, promptly
returned to Borrower or the other payor thereof upon such determination. In
determining whether or not the interest paid or payable, under any specific
49
<PAGE>
circumstance, exceeds the maximum amount permitted under applicable law, Bank
Parties and Restricted Persons (and any other payors thereof) shall to the
greatest extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
In the event applicable law provides for an interest ceiling, the ceiing shall
be the "weekly ceiling" as defined in Section 303 of the Texas Finance Code and
Chapter 1D of Title 79, Tex. Rev. Civ. Stats. 1925, as amended and shall be
used when appropriate in determining the Highest Lawful Rate. As used in this
section the term "applicable Law" means the Laws of the State of Texas or the
Laws of the United States of America, whichever Laws allow the greater interest,
as such Laws now exist or may be changed or amended or come into effect in the
future.
Section 10.9. TERMINATION; LIMITED SURVIVAL. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under Sections 3.2
through 3.6, and any obligations which any Person may have to indemnify or
compensate any Bank Party shall survive any termination of this Agreement or any
other Loan Document. At the request and expense of Borrower, Agent shall
prepare and execute all necessary instruments to reflect and effect such
termination of the Loan Documents. Agent is hereby authorized to execute all
such instruments on behalf of all Lenders, without the joinder of or further
action by any Lender.
Section 10.10. SEVERABILITY. If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 10.11. COUNTERPARTS. This Agreement may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same agreement.
Section 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
BORROWER AND EACH BANK PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
AND IRREVOCABLY (a) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION
WITH THE LOAN DOCUMENTS OR ANY TRANSACTION
50
<PAGE>
CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b)
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED
BELOW, (c) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR
IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (d) ACKNOWLEDGES THAT IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION,
"SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE
DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO.
51
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
STB SYSTEMS, INC.
Borrower
By: /s/ James L. Hopkins
----------------------------------
Name: James L. Hopkins
Title: VP-CFO
Address:
1651 North Glenville
----------------------------------
Richardson, Texas 75081
----------------------------------
----------------------------------
Attention: President
------------------------
Telephone: (972) 234-8750
------------------------
Telecopy: (972)680-7153
-------------------------
BANK ONE, TEXAS, N.A.
Agent and Lender
By: /s/ Richard L. Rogers
----------------------------------
Name: Richard L. Rogers
Title: Vice President
Address:
1717 Main Street
Dallas, Texas 75201
Attention: Richard L. Rogers
Telephone: (214) 290-2305
Telecopy: (214) 290-2540
52
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
Lender
By: /s/ John P. Thacker
----------------------------------
Name: John P. Thacker
Title: First Vice President
Address:
Sanwa Business Credit Corporation
----------------------------------
One S. Wachker Drive
----------------------------------
Chicago, Illinois
----------------------------------
Attention: Cindy Bertsch
------------------------
Telephone: (312) 853-1320
------------------------
Telecopy: (312) 853-1438
-------------------------
53
<PAGE>
SCHEDULE 1
DISCLOSURE SCHEDULE
To supplement the following sections of the Agreement of which this
Schedule is a part, Borrower hereby makes the following disclosures:
1. Section 5.6 INITIAL FINANCIAL STATEMENTS:
2. Section 5.7 OTHER OBLIGATIONS:
3. Section 5.9 LITIGATION:
4. Section 5.11 ERISA LIABILITIES:
5. Section 5.12 ENVIRONMENTAL:
6. Sections 5.13 and 10.3 NAMES AND PLACES OF BUSINESS:
7. Section 5.14 BORROWER'S SUBSIDIARIES AND STOCKHOLDINGS:
<PAGE>
SCHEDULE 2
SECURITY SCHEDULE
1. Security Agreement dated of even date herewith executed by Borrower
(the "Security Agreement").
2. Guaranty dated of even date herewith executed by STB Assembly, Inc.
3. Guaranty dated of even date herewith executed by Symmetric Simulation
Systems, Inc.
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$30,000,000 Dallas, Texas November 21, 1997
FOR VALUE RECEIVED, the undersigned, STB Systems, Inc., a Texas
corporation (herein called "Borrower"), hereby promises to pay to the order
of Bank One, Texas, N.A., a national banking association (herein called
"Lender"), the principal sum of Thirty Million Dollars ($30,000,000), or, if
greater or less, the aggregate unpaid principal amount of the Loan made under
this Note by Lender to Borrower pursuant to the terms of the Credit Agreement
(as hereinafter defined), together with interest on the unpaid principal
balance thereof as hereinafter set forth, both principal and interest payable
as herein provided in lawful money of the United States of America at the
offices of the Agent under the Credit Agreement, 1717 Main Street, Dallas,
Texas or at such other place within Dallas County, Texas, as from time to
time may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain Credit
Agreement of even date herewith among Borrower, Bank One, Texas, N.A., as
Agent, and the lenders (including Lender) referred to therein (herein, as
from time to time supplemented, amended or restated, called the "Credit
Agreement"), and is a "Note" as defined therein, (b) is subject to the terms
and provisions of the Credit Agreement, which contains provisions for
payments and prepayments hereunder and acceleration of the maturity hereof
upon the happening of certain stated events, and (c) is secured by and
entitled to the benefits of certain Security Documents (as identified and
defined in the Credit Agreement). Payments on this Note shall be made and
applied as provided herein and in the Credit Agreement. Reference is hereby
made to the Credit Agreement for a description of certain rights, limitations
of rights, obligations and duties of the parties hereto and for the meanings
assigned to terms used and not defined herein and to the Security Documents
for a description of the nature and extent of the security thereby provided
and the rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the first day of each calendar
month, beginning January 1, 1998, and (ii) any day on which past due
interest or principal is owed hereunder and is unpaid. If the terms hereof
or of the Credit Agreement provide that payments of interest or principal
hereon shall be deferred from one Base Rate Payment Date to another day,
such other day shall also be a Base Rate Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
Loan: (i) the day on which the related Interest Period ends and (ii) any
day on which past due interest or past due principal is owed hereunder with
respect to such Eurodollar Loan and
<PAGE>
is unpaid. If the terms hereof or of the Credit Agreement provide that
payments of interest or principal with respect to such Eurodollar Loan
shall be deferred from one Eurodollar Rate Payment Date to another day,
such other day shall also be a Eurodollar Rate Payment Date.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on the Maturity Date.
Base Rate Loans (exclusive of any past due principal or interest) from
time to time outstanding shall bear interest on each day outstanding at the
Base Rate in effect on such day. On each Base Rate Payment Date Borrower
shall pay to the holder hereof all unpaid interest which has accrued on the
Base Rate Loans to and including the last day of the Fiscal Quarter
immediately preceding such Base Rate Payment Date. Each Eurodollar Loan
(exclusive of any past due principal or interest) shall bear interest on each
day during the related Interest Period at the related Eurodollar Rate in
effect on such day. On each Eurodollar Rate Payment Date relating to such
Eurodollar Loan, Borrower shall pay to the holder hereof all unpaid interest
which has accrued on such Eurodollar Loan to but not including such
Eurodollar Rate Payment Date. All past due principal of and past due
interest on the Loan shall bear interest on each day outstanding at the Late
Payment Rate in effect on such day, and such interest shall be due and
payable daily as it accrues. Notwithstanding the foregoing provisions of
this paragraph: (a) this Note shall never bear interest in excess of the
Highest Lawful Rate, and (b) if at any time the rate at which interest is
payable on this Note is limited by the Highest Lawful Rate (by the foregoing
clause (a) or by reference to the Highest Lawful Rate in the definitions of
Base Rate, Eurodollar Rate, and Late Payment Rate), this Note shall bear
interest at the Highest Lawful Rate and shall continue to bear interest at
the Highest Lawful Rate until such time as the total amount of interest
accrued hereon equals (but does not exceed) the total amount of interest
which would have accrued hereon had there been no Highest Lawful Rate
applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law,
may be charged on this Note, and this Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations
on how interest accrues hereon. In the event applicable law provides for an
interest ceiling, as defined in Section 303 of the Texas Finance Code and
Chapter 1D of Title 79, Tex. Rev. Civ. Stats. 1925, as amended, that ceiling
shall be the "weekly ceiling" and shall be used in this Note for calculating
the Highest Lawful Rate and for all other purposes. The term "applicable
law" as used in this Note shall mean the laws of the State of Texas or the
laws of the United States, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally
agree to pay reasonable
2
<PAGE>
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration
of the maturity of this Note, diligence in collecting, the bringing of any
suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
STB SYSTEMS, INC.
By:
----------------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT B
REQUEST FOR LOAN
Reference is made to that certain Credit Agreement dated as of NOVEMBER
21, 1997 (as from time to time amended, the "Agreement"), by and among STB
Systems, Inc. ("Borrower"), Bank One, Texas, N.A., as Agent, and certain
financial institutions ("Lenders"). Terms which are defined in the Agreement
are used herein with the meanings given them in the Agreement. Pursuant to
the terms of the Agreement Borrower hereby requests Lenders to make Loans to
Borrower in the aggregate principal amount of $ __________ and specifies
____________, 19__, as the date Borrower desires for Lenders to make such
Loans and for Agent to deliver to Borrower the proceeds thereof.
To induce Lenders to make such Loans, Borrower hereby represents,
warrants, acknowledges, and agrees to and with Agent and each Lender that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereto having all necessary authority to act for
Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the extension
of credit under the Agreement), with the same effect as though such
representations and warranties had been made on and as of the date hereof.
(c) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 10.1(a) of the Agreement; nor will any such Default
exist upon Borrower's receipt and application of the Loans requested
hereby. Borrower will use the Loans hereby requested in compliance with
Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in Section
10.1(a) of the Agreement, Borrower has performed and complied with all
agreements and conditions in the Agreement required to be performed or
complied with by Borrower on or prior to the date hereof, and each of the
conditions precedent to Loans contained in the Agreement remains satisfied.
(e) The Facility Usage, after the making of the Loans requested
hereby, will not be in excess of the Borrowing Base on the date requested
for the making of such Loans.
(f) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course of
dealing, or by any other
<PAGE>
means not provided for in Section 10.1(a) of the Agreement. The Agreement
and the other Loan Documents are hereby ratified, approved, and confirmed
in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________, 19__.
STB SYSTEMS, INC.
By:
-----------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
Reference is made to that certain Credit Agreement dated as of November
21, 1997 (as from time to time amended, the "Agreement"), by and among STB
Systems, Inc. ("Borrower"), Bank One, Texas, N.A., as Agent, and certain
financial institutions ("Lenders"). Terms which are defined in the Agreement
and which are used but not defined herein are used herein with the meanings
given them in the Agreement. Pursuant to the terms of the Agreement Borrower
hereby elects Eurodollar Loans in the aggregate amount of $ __________ with
an Interest Period beginning on __________________ and continuing for a
period of __________________.
To meet the conditions set out in the Agreement for the making of such
election, Borrower hereby represents, warrants, acknowledges and agrees that:
(a) The officer of Borrower signing this instrument is a duly
elected, qualified and acting ____________ of Borrower, having all
necessary authority to act for Borrower in making the election herein
contained.
(b) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 10.1(a) of the Agreement.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course of
dealing, or by any other means not provided for in Section 10.1(a) of the
Agreement. The Agreement and the other Loan Documents are hereby ratified,
approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF this instrument is executed as of __________________.
STB SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Credit Agreement dated as of [DATE],
1997 (as from time to time amended, the "Agreement"), by and among STB
Systems, Inc. ("Borrower"), Bank One, Texas, N.A., as Agent, and certain
financial institutions ("Lenders"), which Agreement is in full force and
effect on the date hereof. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.
This Certificate is furnished pursuant to Section 6.2(b) of the
Agreement. Together herewith Borrower is furnishing to Agent and each Lender
Borrower's *[AUDITED/UNAUDITED] financial statements (the "Financial
Statements") as at ____________ (the "Reporting Date"). Borrower hereby
represents, warrants, and acknowledges to Agent and each Lender that:
(a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting ____________ of Borrower and as such is
Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing Borrower's
compliance as of the Reporting Date with the requirements of Sections
[7.11, 7.12, 7.13, 7.14] of the Agreement *[AND BORROWER'S NON-COMPLIANCE
AS OF SUCH DATE WITH THE REQUIREMENTS OF SECTION(S) 7.11, 7.12, 7.13, 7.14
OF THE AGREEMENT];
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements of Section
6.4 of the Agreement, and no Default otherwise existed on the Reporting
Date or otherwise exists on the date of this instrument *[EXCEPT FOR
DEFAULT(S) UNDER SECTION(S) ____________ OF THE AGREEMENT, WHICH *[IS/ARE]
more fully described on a schedule attached hereto].
(e) *[UNLESS OTHERWISE DISCLOSED ON A SCHEDULE ATTACHED HERETO,] The
representations and warranties of Borrower set forth in the Agreement and
the other Loan Documents are true and correct on and as of the date hereof
(except to the extent that the facts on which such representations and
warranties are based have been changed by the extension of credit under the
Agreement), with the same effect as though such representations and
warranties had been made on and as of the date hereof.
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable
him to express an informed opinion with respect to the above
<PAGE>
representations, warranties and acknowledgments of Borrower and, to the best
of his knowledge, such representations, warranties, and acknowledgments are
true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________, 19__.
STB SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT E
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of November 21, 1997
(the "CREDIT AGREEMENT") among STB Systems, Inc., a Texas corporation (the
"BORROWER"), the Lenders (as defined in the Credit Agreement) and Bank One,
Texas, N.A., as agent for the Lenders (the "AGENT"). Terms defined in the
Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Loan Documents. After
giving effect to such sale and assignment, the Assignee's Commitment and the
amount of the Loans owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or
document furnished pursuant thereto; (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of any Loan Party or the performance or observance by any Loan
Party of any of its obligations under the Loan Documents or any other
instrument or document furnished pursuant thereto; and (iv) attaches the Note
held by the Assignor and requests that the Agent exchange such Note for new
Notes payable to the order of the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto and to the Assignor in an
amount equal to the Commitment retained by the Assignor, if any, as specified
on Schedule 1.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 5.6 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under the Credit Agreement as are delegated to the Agent by the terms
thereof, together with such powers and discretion as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations that by the terms of the Credit Agreement are
required to be performed by it as a Lender; and (v) attaches any other forms
required by Agent.
<PAGE>
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "EFFECTIVE DATE")
shall be the date of acceptance hereof by the Agent, unless otherwise
specified on Schedule 1.
5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the
rights and obligations of a Lender thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement
and the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with
respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the Notes
for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Texas.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of a manually executed counterpart
of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to
this Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date specified thereon.
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
Percentage interest assigned: %
--------
Assignee's Commitment: $
-------
Aggregate outstanding principal amount
of Loans assigned: $
-------
Principal amount of Note payable to Assignee: $
-------
Principal amount of Note payable to Assignor: $
-------
Effective Date (if other than date
of acceptance by Agent): * , 19
------- --
[NAME OF ASSIGNOR], as Assignor
By:
--------------------------------------------
Title:
Dated: , 19
-------------- --
Domestic Lending Office:
Eurodollar Lending Office:
<PAGE>
EXHIBIT F
OPINION OF LOCKE PURNELL
Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Attn: Richard L. Rogers
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 4.1(g) of the
Credit Agreement dated November 21, 1997 (the "Agreement"), by and between STB
Systems, Inc., a Texas corporation ("Borrower"), and Bank One, Texas, N.A., as
Agent ("Agent"), and certain lenders named therein ("Lenders"). Capitalized
terms which are defined in the Agreement and which are used but not defined
herein shall have the meanings given them in the Agreement. Terms defined in
Schedule 1 hereto shall have the same meanings when used in the body of this
opinion.
We have acted as counsel for Borrower in connection with the transactions
provided for in the Agreement. As such counsel we have assisted in the
negotiation of the Agreement and the other Loan Documents. We have examined
executed counterparts (or, where indicated, photostatic copies of executed
counterparts) of the documents listed in Schedule 1. (The documents listed in
Section I of Schedule 1 are hereinafter referred to as the "Principal
Documents".) We have discussed the matters addressed in this opinion with
officers and representatives of Borrower to the extent we have deemed
appropriate to enable us to render this opinion.
In preparing this opinion we have also examined original counterparts or
photostatic or certified copies of all other instruments, agreements,
certificates, records and other documents (whether of Borrower, its officers,
directors, shareholders and representatives, public officials, or other persons)
which we have considered relevant to the opinions hereinafter expressed. In
making this examination we have assumed, with respect to all documents (other
than the Principal Documents) which we have examined: the genuineness of all
signatures thereon the authenticity of all documents submitted to us as
originals, the conformity to the originals of all documents submitted to us as
copies, and the authenticity of the originals of such copies.
Based upon the foregoing, and subject to the qualifications and limitations
hereinafter set forth, we are of the opinion that:
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1. Borrower is duly incorporated, validly existing and in good
standing under the laws of the State of Texas. Each Guarantor is duly
incorporated, validly existing and in good standing under the laws of the State
of _______________.
2. Each of Borrower and Guarantors has the corporate power and
authority to execute and deliver each Principal Document to which it is a party
and to perform its obligations thereunder. Each Principal Document has been
duly authorized, executed and delivered by Borrower and Guarantors (to the
extent that each is a party thereto). The Principal Documents constitute the
legal, valid and binding obligations of Borrower and Guarantors (to the extent
that each is a party thereto) and are enforceable in accordance with their
terms.
3. Subject to the filing requirements described in paragraph 4
below, the Security Agreement creates to secure the Note a perfected security
interest in the "Collateral" and proceeds of "Collateral" (as such term is
defined in the Security Agreement) with respect to which a security interest can
be created under the Code the Uniform Commercial Code of Texas (the "Code") and
perfected by the filing of financing statements in such state pursuant to the
Code.
4. A fully executed counterpart of the Financing Statement is
required to be filed in the office of the Secretary of State of Texas. Once the
Financing Statement is so filed, no further or subsequent filing or refiling
will be necessary in the State of Texas in order to continue the perfection of
the security interest referred to in paragraph 4 above except that (a) a
continuation statement with respect to the Financing Statement must be filed
under the Code in the office where such financing statement was filed within six
months prior to the expiration of five years from the date of such filing, and
subsequent continuation statements must be filed within six months prior to the
end of each subsequent five-year period, and (b) amendments or supplements to
the Financing Statement or additional financing statements may be required to be
filed in the event of a change in the name, identity, or corporate structure of
Borrower or in the event the Financing Statement otherwise becomes inaccurate or
incomplete.
5. The execution, delivery and performance by Borrower and
Guarantors of the Principal Documents and the consummation of the
transactions contemplated by the Principal Documents, will not and did not
(a) violate any provision of the charter or bylaws of Borrower or any
Guarantor, or
(b) to our knowledge, breach or result in a default under or result in the
maturing of any indebtedness pursuant to any indenture, mortgage, deed of trust,
note or loan agreement, material license agreement, or other material agreement
or instrument to which Borrower or any Guarantor is a party or by which any of
its properties are bound, or
(c) result in a violation of any law, rule or regulation or, to the best
of our knowledge, any judgment, order, decree, determination or award of any
court or governmental authority which is now in effect and applicable to
Borrower or any Guarantor or any of their properties.
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To the best of our knowledge, neither Borrower nor any Guarantor is in default
under or in violation of any law, rule, regulation, judgment, order, decree,
determination, award, indenture, mortgage, deed of trust, note, loan agreement,
license agreement or other material agreement or instrument of which we have
knowledge or in violation of its charter or bylaws.
6. Except for any which have been obtained or completed, to our
knowledge no consent, approval, waiver, license, authorization or action by or
filing with any court or governmental authority or any third party is or was
required for the execution and delivery by Borrower or any Guarantor of any of
the Principal Documents, or the consummation of the transactions contemplated
thereby.
7. Other than as revealed in the Disclosure Schedule, to our
knowledge there are no actions, suits, proceedings or investigations pending or
threatened in writing against or affecting Borrower or any of its properties in
any court, governmental agency or arbitrator (a) seeking to affect the
enforceability or performance by Borrower of any Principal Document, or (b)
which are otherwise required to be disclosed under Section 5.9 of the Agreement.
8. Neither Borrower nor any Guarantor is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
This opinion is limited by, subject to and based on the following:
a. This opinion is limited in all respects to the laws of the
State of Texas and applicable federal law.
b. In rendering this opinion we have assumed that each of the
Principal Documents in which Lender's execution is provided for has been duly
authorized, executed and delivered by Lender and that Lender is concurrently
herewith advancing funds to Borrower or otherwise "giving value" as contemplated
in Section 9.203of the Code.
c. The qualification of any opinion or statement herein by the
use of the words "to our knowledge" or "known to us" means that during the
course of our representation as described in this opinion letter, no information
has come to the attention of the attorneys in this firm involved in the
transactions described which would give such attorneys current actual knowledge
of the existence of the facts so qualified. Except as set forth herein, we have
not undertaken any investigation to determine the existence of such facts, and
no inference as to our knowledge thereof shall be drawn from the fact of our
representation of any party or otherwise.
d. The enforceability of the Principal Documents is subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and (ii) general principles of
equity. The opinion expressed herein that the Principal Documents are
enforceable against Borrower and Guarantors is also subject to the
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qualification that certain of the remedial, waiver and other provisions of the
Principal Documents may not be enforceable; but such unenforceability will
not, in our judgment, render the Principal Documents invalid as a whole, or
substantially interfere with the realization of the principal legal benefits
provided by the Principal Documents, except to the extent of any procedural
delay which may result therefrom.
The opinions herein expressed are for the benefit of Agent and Lenders and
may be relied upon only by Agent and Lenders and by Thompson & Knight, P.C. in
connection with any opinion delivered by them to Agent and Lenders.
Respectfully submitted,
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SCHEDULE 1
SECTION I. PRINCIPAL DOCUMENTS
SECTION II. CORPORATE DOCUMENTS
AND PROCEEDINGS
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EXHIBIT G
GUARANTY
THIS GUARANTY is made as of November 21, 1997, by_____________________
___________________________________, a ___________________________________
("Guarantor"), in favor of BANK ONE, TEXAS, N.A., a national banking
association, as agent for Lenders, as such term is defined in the Credit
Agreement described below (in such capacity "Agent").
RECITALS:
1. STB System, Inc., a Texas corporation ("Borrower") has executed in
favor of Lenders those certain promissory notes of even date herewith, payable
to the order of Lenders in the aggregate principal amount of $30,000,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of even date
herewith, (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), by and between Borrower, Agent and Lenders,
pursuant to which Lenders have agreed to advance funds to Borrower under the
Note.
3. It is a condition precedent to Lenders' obligations to advance funds
pursuant to the Credit Agreement that Guarantor shall execute and deliver to
Agent a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.
4. Borrower owns directly, or indirectly through one or more
subsidiaries, ____________ percent (___%) of the outstanding shares of
___________ stock of Guarantor.
5. Borrower, Guarantor, and the other direct and indirect subsidiaries of
Borrower are mutually dependent on each other in the conduct of their respective
businesses, with the credit needed from time to time by each often being
provided by another or by means of financing obtained by one such affiliate with
the support of the others for their mutual benefit and the ability of each to
obtain such financing being dependent on the successful operations of the
others.
6. The board of directors of Guarantor has determined that Guarantor's
execution, delivery and performance of this Guaranty may reasonably be expected
to benefit Guarantor, directly or indirectly, and are in the best interests of
Guarantor.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantor from Lenders' advances of funds to Borrower under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Lenders to advance funds under the Credit
<PAGE>
Agreement, Guarantor hereby agrees with Agent, for the benefit of Agent and
Lenders as follows:
AGREEMENTS
Section 1. DEFINITIONS. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Guaranty which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Obligation Document, Loan
Document, or other document or instrument refer to the same as from time to time
amended, supplemented or restated. As used herein the following terms shall
have the following meanings:
"AGENT" means the Person who, at the time in question, is the "Agent" under
the Credit Agreement. Whenever there is only one Lender under the Credit
Agreement, "Agent" shall also refer to such Lender in such capacity as the only
Lender.
"LENDERS" means Bank One, Texas, N.A. and all other Persons who at any time
are "Lenders" under the Credit Agreement.
"OBLIGATIONS" means collectively all of the indebtedness, obligations, and
undertakings which are guaranteed by Guarantor and described in subsections (a)
and (b) of Section 2.
"OBLIGATION DOCUMENTS" means this Guaranty, the Note, the Credit Agreement,
the Loan Documents, all other documents and instruments under, by reason of
which, or pursuant to which any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other documents,
instruments, agreements, certificates, legal opinions and other writings
heretofore or hereafter delivered in connection herewith or therewith.
"OBLIGORS" means Borrower, Guarantor and any other endorsers, guarantors or
obligors, primary or secondary, of any or all of the Obligations.
"SECURITY" means any rights, properties, or interests of Agent or Lenders,
under the Obligation Documents or otherwise, which provide recourse or other
benefits to Agent or Lenders in connection with the Obligations or the
non-payment or non-performance thereof, including collateral (whether real or
personal, tangible or intangible) in which Agent or Lenders have rights under or
pursuant to any Obligation Documents, guaranties of the payment or performance
of any Obligation, bonds, surety agreements, keep-well agreements, letters of
credit, rights of subrogation, rights of offset, and rights pursuant to which
other claims are subordinated to the Obligations.
Section 2. GUARANTY.
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(a) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Agent and each Lender the prompt, complete, and full payment when
due, and no matter how the same shall become due, of:
(i) the Note, including all principal, all interest thereon and all
other sums payable thereunder; and
(ii) All other sums payable under the other Obligation Documents,
whether for principal, interest, fees or otherwise; and
(iii) Any and all other indebtedness or liabilities which Borrower
may at any time owe to Agent or any Lender, whether incurred heretofore or
hereafter or concurrently herewith, voluntarily or involuntarily, whether
owed alone or with others, whether fixed, contingent, absolute, inchoate,
liquidated or unliquidated, whether such indebtedness or liability arises
by notes, discounts, overdrafts, open account indebtedness or in any other
manner whatsoever, and including interest, attorneys' fees and collection
costs as may be provided by law or in any instrument evidencing any such
indebtedness or liability.
Without limiting the generality of the foregoing, Guarantor's liability
hereunder shall extend to and include all post-petition interest, expenses, and
other duties and liabilities of Borrower described above in this subsection (a),
or below in the following subsection (b), which would be owed by Borrower but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization, or similar proceeding involving Borrower.
(b) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Agent and each Lender the prompt, complete and full performance,
when due, and no matter how the same shall become due, of all obligations and
undertakings of Borrower to Agent or such Lender under, by reason of, or
pursuant to any of the Obligation Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantor will, forthwith upon demand by Agent, pay such Obligation in full to
Agent for the benefit of Agent or the Lender to whom such Obligation is owed.
If Borrower shall for any reason fail to perform promptly any Obligation,
Guarantor will, forthwith upon demand by Agent, cause such Obligation to be
performed or, if specified by Agent, provide sufficient funds, in such amount
and manner as Agent shall in good faith determine, for the prompt, full and
faithful performance of such Obligation by Agent or such other Person as Agent
shall designate.
(d) If either Borrower or Guarantor fails to pay or perform any Obligation
as described in the immediately preceding subsections (a), (b), or (c) Guarantor
will incur the additional obligation to pay to Agent, and Guarantor will
forthwith upon demand by Agent pay to Agent, the amount of any and all
reasonable expenses, including fees and disbursements of
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Agent's counsel and of any experts or agents retained by Agent, which Agent
may incur as a result of such failure.
(e) As between Guarantor and Agent or Lenders, this Guaranty shall be
considered a primary and liquidated liability of Guarantor.
(f) the liability of Guarantor hereunder shall be limited to the maximum
amount of liability that can be incurred without rendering this Guaranty, as it
relates to Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer, and not for any greater amount.
Section 3. UNCONDITIONAL GUARANTY.
(a) No action which Agent or any Lender may take or omit to take in
connection with any of the Obligation Documents, any of the Obligations (or any
other indebtedness owing by Borrower to Agent or any Lender), or any Security,
and no course of dealing of Agent or any Lender with any Obligor or any other
Person, shall release or diminish Guarantor's obligations, liabilities,
agreements or duties hereunder, affect this Guaranty in any way, or afford
Guarantor any recourse against Agent or any Lender, regardless of whether any
such action or inaction may increase any risks to or liabilities of Agent or any
Lender or any Obligor or increase any risk to or diminish any safeguard of any
Security. Without limiting the foregoing, Guarantor hereby expressly agrees
that Agent and Lenders may, from time to time, without notice to or the consent
of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in part, any one or more of
the Obligation Documents and give or refuse to give any waivers or other
indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any action
for the collection or enforcement of any of the Obligations, to foreclose
or take or prosecute any action in connection with any Security or
Obligation Document, to bring suit against any Obligor or any other Person,
or to take any other action concerning the Obligations or the Obligation
Documents.
(iii) Accelerate, change, rearrange, extend, or renew the time,
rate, terms, or manner for payment or performance of any one or more of the
Obligations (whether for principal, interest, fees, expenses,
indemnifications, affirmative or negative covenants, or otherwise).
(iv) Compromise or settle any unpaid or unperformed Obligation or any
other obligation or amount due or owing, or claimed to be due or owing,
under any one or more of the Obligation Documents.
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(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations, accept
additional or substituted Security therefor, and perfect or fail to perfect
Agent's or Lenders' rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or from
any Security for any of the Obligations, as Agent or Lenders may determine
to be in their best interest, without in any way being required to marshall
Security or assets or to apply all or any part of such monies upon any
particular Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford Guarantor any recourse against Agent or any Lender.
Without limiting the foregoing, the obligations, liabilities, agreements, and
duties of Guarantor under this Guaranty shall not be released, diminished,
impaired, reduced, or affected by the occurrence of any or all of the following
from time to time, even if occurring without notice to or without the consent of
Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of any
Obligor or any other proceedings involving any Obligor or any of the assets
of any Obligor under laws for the protection of debtors, or any discharge,
impairment, modification, release, or limitation of the liability of, or
stay of actions or lien enforcement proceedings against, any Obligor, any
properties of any Obligor, or the estate in bankruptcy of any Obligor in
the course of or resulting from any such proceedings.
(ii) The failure by Agent or any Lender to file or enforce a claim in
any proceeding described in the immediately preceding subsection (I) or to
take any other action in any proceeding to which any Obligor is a party.
(iii) The release by operation of law of any Obligor from any of
the Obligations or any other obligations to Agent or any Lender.
(iv) The invalidity, deficiency, illegality, or unenforceability of
any of the Obligations or the Obligation Documents, in whole or in part,
any bar by any statute of limitations or other law of recovery on any of
the Obligations, or any defense or excuse for failure to perform on account
of force majeure, act of God, casualty, impossibility, impracticability, or
other defense or excuse whatsoever.
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(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of any
Obligor, Agent or any Lender.
(vi) The fact that Guarantor may have incurred directly part of the
Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or event
(whether or not similar to any of the foregoing) which in the absence of
this provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a guarantor or surety other than the
actual payment and performance by Guarantor under this Guaranty.
(c) Agent and Lenders may invoke the benefits of this Guaranty before
pursuing any remedies against any Obligor or any other Person and before
proceeding against any Security now or hereafter existing for the payment or
performance of any of the Obligations. Agent and Lenders may maintain an action
against Guarantor on this Guaranty without joining any other Obligor therein and
without bringing a separate action against any other Obligor.
(d) If any payment to Agent or any Lender by any Obligor is held to
constitute a preference or a voidable transfer under applicable state or federal
laws, or if for any other reason Agent or any Lender is required to refund such
payment to the payor thereof or to pay the amount thereof to any other Person,
such payment to Agent or such Lender shall not constitute a release of Guarantor
from any liability hereunder, and Guarantor agrees to pay such amount to Agent
or such Lender on demand and agrees and acknowledges that this Guaranty shall
continue to be effective or shall be reinstated, as the case may be, to the
extent of any such payment or payments. Any transfer by subrogation which is
made as contemplated in [Section 6] prior to any such payment or payments shall
(regardless of the terms of such transfer) be automatically voided upon the
making of any such payment or payments, and all rights so transferred shall
thereupon revert to and be vested in Agent and Lenders.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. WAIVER. Guarantor hereby waives, with respect to the
Obligations, this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by Borrower, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) Guarantor shall take full responsibility for
informing itself of such matters, (ii) neither Agent nor any Lender shall have
any responsibility of any kind to inform Guarantor of such matters, and (iii)
Agent and Lenders are hereby authorized to assume that Guarantor, by virtue of
its relationships with Borrower which are independent of this Guaranty, has full
and complete knowledge of such matters
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whenever Lenders extend credit to Borrower or take any other action which may
change or increase Guarantor's liabilities or losses hereunder).
(b) notice that Agent, any Lender, any Obligor, or any other Person has
taken or omitted to take any action under any Obligation Document or any other
agreement or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty and all rights of Guarantor
under Section 34.02 of the Texas Business and Commerce Code.
(d) demand, presentment for payment, and notice of demand, dishonor,
nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. EXERCISE OF REMEDIES. Agent and each Lender shall have the
right to enforce, from time to time, in any order and at Agent's or such
Lender's sole discretion, any rights, powers and remedies which Agent or such
Lender may have under the Obligation Documents or otherwise, including judicial
foreclosure, the exercise of rights of power of sale, the taking of a deed or
assignment in lieu of foreclosure, the appointment of a receiver to collect
rents, issues and profits, the exercise of remedies against personal property,
or the enforcement of any assignment of leases, rentals, oil or gas production,
or other properties or rights, whether real or personal, tangible or intangible;
and Guarantor shall be liable to Agent and each Lender hereunder for any
deficiency resulting from the exercise by Agent or any Lender of any such right
or remedy even though any rights which Guarantor may have against Borrower or
others may be destroyed or diminished by exercise of any such right or remedy.
No failure on the part of Agent or any Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Agent and each Lender provided
herein and in the other Obligation Documents are cumulative and are in addition
to, and not exclusive of, any other rights, powers or remedies provided by law
or in equity. The rights of Agent and each Lender hereunder are not conditional
or contingent on any attempt by Agent or any Lender to exercise any of its
rights under any other Obligation Document against any Obligor or any other
Person.
Section 6. LIMITED SUBROGATION. Until all of the Obligations have been
paid and performed in full Guarantor shall have no right to exercise any right
of subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty (including any right of subrogation
under Section 34.04 of the Texas Business and Commerce Code), and Guarantor
hereby waives any rights to enforce any remedy which Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall
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be paid to Guarantor on account of any such subrogation or other rights, any
such other remedy, or any Security at any time when all of the Obligations and
all other expenses guaranteed pursuant hereto shall not have been paid in
full, such amount shall be held in trust for the benefit of Agent, shall be
segregated from the other funds of Guarantor and shall forthwith be paid over
to Agent to be held by Agent as collateral for, or then or at any time
thereafter applied in whole or in part by Agent against, all or any portion of
the Obligations, whether matured or unmatured, in such order as Agent shall
elect. If Guarantor shall make payment to Agent of all or any portion of the
Obligations and if all of the Obligations shall be finally paid in full, Agent
will, at Guarantor's request and expense, execute and deliver to Guarantor
(without recourse, representation or warranty) appropriate documents necessary
to evidence the transfer by subrogation to Guarantor of an interest in the
Obligations resulting from such payment by Guarantor; provided that such
transfer shall be subject to Section 3(d) above and that without the consent
of Agent (which Agent may withhold in its reasonable discretion) Guarantor
shall not have the right to be subrogated to any claim or right against any
Obligor which has become owned by Agent or any Lender, whose ownership has
otherwise changed in the course of enforcement of the Obligation Documents, or
which Agent otherwise has released or wishes to release from its Obligations.
Section 7. SUCCESSORS AND ASSIGNS. Guarantor's rights or obligations
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of Guarantor,
as well as Guarantor. This Guaranty shall apply to and inure to the benefit of
Agent and Lenders and their successors or assigns. Without limiting the
generality of the immediately preceding sentence, Agent and each Lender may
assign, grant a participation in, or otherwise transfer any Obligation held by
it or any portion thereof, and Agent and each Lender may assign or otherwise
transfer its rights or any portion thereof under any Obligation Document, to any
other Person, and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to Agent or such Lender hereunder unless
otherwise expressly provided by Agent or such Lender in connection with such
assignment or transfer.
Section 8. SUBORDINATION AND OFFSET. Guarantor hereby subordinates and
makes inferior to the Obligations any and all indebtedness now or at any time
hereafter owed by Borrower to Guarantor. Guarantor agrees that after the
occurrence of any Default or Event of Default it will neither permit Borrower to
repay such indebtedness or any part thereof nor accept payment from Borrower of
such indebtedness or any part thereof without the prior written consent of Agent
and Lenders. If Guarantor receives any such payment without the prior written
consent of Agent and Lenders, the amount so paid shall be held in trust for the
benefit of Lenders, shall be segregated from the other funds of Guarantor, and
shall forthwith be paid over to Agent to be held by Agent as collateral for, or
then or at any time thereafter applied in whole or in part by Agent against, all
or any portions of the Obligations, whether matured or unmatured, in such order
as Agent shall elect. Guarantor hereby grants to Lenders a right of offset to
secure the payment of the Obligations and Guarantor's obligations and
liabilities hereunder, which right of offset shall be upon any and all monies,
securities and other property (and the proceeds therefrom) of Guarantor now or
hereafter held or received by or in transit to Agent or any Lender from or for
the account
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of Guarantor, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or
special), credits and claims of Guarantor at any time existing against Agent
or any Lender. Upon the occurrence of any Default or Event of Default Agent
and each Lender is hereby authorized at any time and from time to time,
without notice to Guarantor, to offset, appropriate and apply any and all
items hereinabove referred to against the Obligations and Guarantor's
obligations and liabilities hereunder irrespective of whether or not Agent or
such Lender shall have made any demand under this Guaranty and although such
obligations and liabilities may be contingent or unmatured. Agent and each
Lender agrees promptly to notify Guarantor after any such offset and
application made by Agent or such Lender, provided that the failure to give
such notice shall not affect the validity of such offset and application. The
rights of Agent and each Lender under this section are in addition to, and
shall not be limited by, any other rights and remedies (including other rights
of offset) which Agent and Lenders may have.
Section 9. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents
and warrants to Agent and each Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true and correct in
all respects.
(b) Guarantor is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation as set forth in
the Recitals to this Guaranty; and Guarantor has all requisite power and
authority to execute, deliver and perform this Guaranty.
(c) The execution, delivery and performance by Guarantor of this Guaranty
have been duly authorized by all necessary corporate action and do not and will
not contravene its certificate or articles of incorporation or bylaws.
(d) The execution, delivery and performance by Guarantor of this Guaranty
do not and will not contravene any law or governmental regulation or any
contractual restriction binding on or affecting Guarantor or any of its
Affiliates or properties, and do not and will not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.
(e) To the best of Guarantor's knowledge, no authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
other regulatory body or third party is required for the due execution, delivery
and performance by Guarantor of this Guaranty.
(f) This Guaranty is a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights.
(g) There is no action, suit or proceeding pending or, to the knowledge of
Guarantor, threatened against or otherwise affecting Guarantor before any court,
arbitrator or governmental
9
<PAGE>
department, commission, board, bureau, agency or instrumentality which may
materially and adversely affect Guarantor's financial condition or its ability
to perform its obligations hereunder.
(h) The direct or indirect value of the consideration received and to be
received by Guarantor in connection herewith is reasonably worth at least as
much as the liability and obligations of Guarantor hereunder, and the incurrence
of such liability and obligations in return for such consideration may
reasonably be expected to benefit Guarantor, directly or indirectly.
(i) Guarantor's capital is adequate for the businesses in which Guarantor
is engaged and intends to be engaged. Guarantor has not incurred (whether
hereby or otherwise), nor does Guarantor intend to incur or believe that it will
incur, debts which will be beyond its ability to pay as such debts mature.
(j) All balance sheets, earning statements, financial data and other
information concerning Guarantor which have been furnished to Agent and each
Lender to induce it to accept this Guaranty (or otherwise furnished to Agent and
each Lender in connection with the transactions contemplated hereby or
associated herewith) fairly represent the financial condition of Guarantor as of
the dates and the results of Guarantor's operations for the periods for which
the same are furnished. None of such balance sheets, earnings and cash flow
statements, financial data and other information contains any untrue statement
of a material fact or omits to state any material fact which is necessary to
make any statements contained therein not misleading.
Section 10. NO ORAL CHANGE. No amendment of any provision of this
Guaranty shall be effective unless it is in writing and signed by Guarantor and
Lenders, and no waiver of any provision of this Guaranty, and no consent to any
departure by Guarantor therefrom, shall be effective unless it is in writing and
signed by Lenders, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
Section 11. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision
of this Guaranty shall be determined to be illegal or unenforceable all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
Section 12. HEADINGS AND REFERENCES. The headings used herein are for
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions
10
<PAGE>
hereof in which such phrases occur. The word "or" is not exclusive, and the
word "including" (in its various forms) means "including without limitation".
Pronouns in masculine, feminine and neuter genders shall be construed to include
any other gender, and words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.
Section 13. TERM. This Guaranty shall be irrevocable until all of the
Obligations have been completely and finally paid and performed, no Lender has
any obligation to make any loans or other advances to Borrower, and all
obligations and undertakings of Borrower under, by reason of, or pursuant to the
Obligation Documents have been completely performed, and this Guaranty is
thereafter subject to reinstatement as provided in Section 3(d). All extensions
of credit and financial accommodations heretofore or hereafter made by Agent or
Lenders to Borrower shall be conclusively presumed to have been made in
acceptance hereof and in reliance hereon.
Section 14. NOTICES. Any notice or communication required or permitted
hereunder shall be given in writing, sent by personal delivery, by telecopy, by
delivery service with proof of delivery, or by registered or certified United
States mail, postage prepaid, addressed to the appropriate party as follows:
To Guarantor: **
To Agent: 1717 Main Street
Dallas, Texas 75201
Attn: Richard L. Rogers
Fax: (214) 296-2492
or to such other address or to the attention of such other individual as
hereafter shall be designated in writing by the applicable party sent in
accordance herewith. Any such notice or communication shall be deemed to have
been given (a) in the case of personal delivery or delivery service, as of the
date of first attempted delivery at the address or in the manner provided
herein, (b) in the case of telecopy, upon receipt, or (b) in the case of
registered or certified United States mail, three days after deposit in the
mail.
Section 15. LIMITATION ON INTEREST. Agent, Lenders and Guarantor intend
to contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantor is obligated are expressly incorporated herein by reference.
Section 16. LOAN DOCUMENT. This Guaranty is a Loan Document, as defined
in the Credit Agreement, and is subject to the provisions of the Credit
Agreement governing Loan
11
<PAGE>
Documents. Guarantor hereby ratifies, confirms and approves the Credit
Agreement and the other Loan Documents and, in particular, any provisions
thereof which relate to Guarantor.
Section 17. COUNTERPARTS. This Guaranty may be executed in any number of
counterparts, each of which when so executed shall be deemed to constitute one
and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE STATE
OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
GUARANTOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS OF TEXAS. IN FURTHERANCE OF THE FOREGOING, GUARANTOR
HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEMS, AS GENT OF
GUARANTOR TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST GUARANTOR WITH
RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN TEXAS, SUCH SERVICE BEING
HEREBY ACKNOWLEDGED BY GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY LAW,
BE SENT BY REGISTERED MAIL TO GUARANTOR AT ITS ADDRESS SET FORTH ABOVE, BUT THE
FAILURE OF GUARANTOR TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE
SERVICE OF SUCH PROCESS AS AFORESAID. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
[NAME OF GUARANTOR]
By:
--------------------------------
Name:
Title:
12
<PAGE>
Exhibit 11.1
STB SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
OCTOBER 31,
------------------------
1997 1996
------------------------
<S> <C> <C>
Net income $ 10,770 $ 6,077
------------------------
------------------------
PRIMARY:
Weighted average number of shares outstanding 6,865,286 6,754,038
Additional weighted average shares from assumed exercise of
dilutive stock options, net of shares assumed to be repurchased with
exercise proceeds 600,881 66,096
------------------------
Net income per share $ 1.44 $ 0.89
------------------------
------------------------
FULLY DILUTIVE
Weighted average number of shares outstanding 6,865,286 6,754,038
Additional weighted average shares from assumed exercise of
dilutive stock options, net of shares assumed to be repurchased with
exercise proceeds 696,906 304,382
------------------------
Net income per share $ 1.42 $ 0.86
------------------------
------------------------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of STB Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and
of cash flows present fairly, in all material respects, the consolidated
financial position of STB Systems, Inc. and subsidiaries at October 31, 1997
and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
December 8, 1997
<PAGE>
STB SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,869 $ 3,420
Accounts receivable--trade, net of allowance for
doubtful accounts of $465 and $332, respectively 47,208 28,032
Inventories, net 41,295 27,148
Other current assets 1,970 1,348
-------------------------
Total current assets 94,342 59,948
Property and equipment, net 12,348 5,231
Other assets 2,864 450
-------------------------
Total assets $ 109,554 $ 65,629
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 21,520 $ 11,760
Accounts payable--trade 36,801 19,538
Accrued wages, commissions and bonuses 1,466 1,144
Other accrued liabilities 2,027 1,609
Current portion of long-term liabilities 1,167 705
-------------------------
Total current liabilities 62,981 34,756
-------------------------
Long-term Liabilities:
Long-term notes payable 500 1,000
Obligations under capital leases and other
long-term liabilities 2,611 276
-------------------------
Total long-term liabilities 3,111 1,276
-------------------------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 6,968,315 and 6,770,397 shares issued
and outstanding, respectively 70 68
Additional paid-in capital 25,392 22,295
Retained earnings 18,245 7,479
-------------------------
43,707 29,842
Treasury stock, 35 shares, at cost (245) (245)
-------------------------
Total shareholders' equity 43,462 29,597
-------------------------
Total liabilities and shareholders' equity $ 109,554 $ 65,629
-------------------------
-------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
STB SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Net sales $ 199,485 $ 180,155 $ 129,603
Cost of sales 149,439 144,879 110,129
---------------------------------------
Gross profit 50,046 35,276 19,474
---------------------------------------
Operating expenses:
Research and development 6,740 4,428 2,719
Sales and marketing 14,788 10,986 7,437
General and administrative 10,618 9,486 6,172
---------------------------------------
Total operating expenses 32,146 24,900 16,328
---------------------------------------
Income from operations 17,900 10,376 3,146
Interest expense, net 1,649 1,113 818
---------------------------------------
Income before income taxes 16,251 9,263 2,328
Provision for income taxes 5,481 3,186 330
---------------------------------------
Net income $ 10,770 $ 6,077 $ 1,998
---------------------------------------
---------------------------------------
Net income per share $ 1.44 $ 0.89
-------------------------
-------------------------
Weighted average shares outstanding 7,466,167 6,820,134
-------------------------
-------------------------
Pro forma data (unaudited):
Net income $ 1,998
Pro forma adjustment to general and
administrative expenses 220
Pro forma adjustment to reflect interest
on Founding Shareholder Notes (52)
Pro forma adjustment to reflect federal
income taxes (483)
----------
Pro forma net income $ 1,683
----------
-----------
Pro forma net income per share $ 0.45
-----------
-----------
Weighted average shares outstanding
used in the pro forma net income per
share calculation 5,619,593
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
STB SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,770 $ 6,077 $ 1,998
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation and amortization 2,550 1,252 733
Changes in assets and liabilities:
Accounts receivable--trade (18,506) (7,397) (9,542)
Inventories, net (13,652) 727 (17,923)
Other current assets (621) (479) (347)
Other assets (763) 151 2
Accounts payable--trade 15,543 1,807 9,029
Accrued wages, commissions, and bonuses 322 585 (182)
Other accrued liabilities 419 817 453
---------------------------------------
Net cash provided by (used in) operating activities (3,938) 3,540 (15,779)
---------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (9,580) (3,086) (2,470)
Investment in subsidiary (236) -- --
---------------------------------------
Net cash used in investing activities (9,816) (3,086) (2,470)
---------------------------------------
Cash flows from financing activities:
Borrowings on (payments of) short-term debt 9,760 (351) 4,727
Payments of Founding Shareholder Notes -- -- (1,340)
Borrowings on (payments of) long-term debt 2,297 (1,003) 436
Issuance of common stock, net of issue costs 1,218 158 21,678
Distribution of S Corporation earnings -- -- (2,082)
Payment of dividends -- -- (1,285)
Tax benefit from exercise of stock options 928 -- --
---------------------------------------
Net cash provided by (used in) financing activities 14,203 (1,196) 22,134
---------------------------------------
Net increase (decrease) in cash and cash equivalents 449 (742) 3,885
Cash and cash equivalents at beginning of period 3,420 4,162 277
---------------------------------------
Cash and cash equivalents at end of period $ 3,869 $ 3,420 $ 4,162
---------------------------------------
---------------------------------------
</TABLE>
Supplemental disclosure of cash flow information:
- Cash paid for interest in 1997, 1996 and 1995 was $1,640, $1,243, and $1,023,
respectively.
- Cash paid for income taxes in 1997, 1996 and 1995 was $4,375, $2,775 and $507
respectively.
For additional disclosure of non-cash investing and financing activities, see
Note 3, Acquisition.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STB SYSTEMS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------- PAID-IN RETAINED -----------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1994 3,750,000 $38 $489 $3,914 35 ($245) $4,196
Dividends declared (851) (851)
Establishment of deferred tax asset 455 455
Distribution of S Corporation earnings (4,122) (4,122)
Net proceeds from initial public offering 3,000,000 30 21,648 21,678
Cumulative translation gain 8 8
Net Income 1,998 1,998
------------------------------------------------------------------------------------
BALANCE, OCTOBER 31, 1995 6,750,000 68 22,137 1,402 35 (245) 23,362
Issuance of common stock 20,397 -- 158 158
Net Income 6,077 6,077
------------------------------------------------------------------------------------
BALANCE, OCTOBER 31, 1996 6,770,397 68 22,295 7,479 35 (245) 29,597
Issuance of common stock 154,553 2 1,219 1,221
Investment in Subsidiary 43,365 -- 950 950
Cumulative translation gain (4) (4)
Tax benefit from exercise of Stock Options 928 928
Net Income 10,770 10,770
------------------------------------------------------------------------------------
BALANCE, OCTOBER 31, 1997 6,968,315 $70 $25,392 $18,245 35 ($245) $43,462
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
STB Systems, Inc. develops, manufactures and sells a wide selection of
multimedia accelerators, other multimedia subsystem products and specialized
technology products designed for use in mid-range and high-end personal
computers ("PCs"). STB Assembly, Inc. is a wholly owned subsidiary and provides
manufacturing services to STB Systems, Inc. Symmetric Simulation Systems, Inc.
(see Note 3), also a wholly owned subsidiary of STB Systems, Inc., designs
high-end 3D graphics acceleration products.
PRINCIPLES OF CONSOLIDATION--In conjunction with the Stock Offering (see
Note 2), STB Assembly, Inc. became a wholly owned subsidiary of STB Systems,
Inc. Consequently, the accompanying financial statements include the
consolidated accounts of STB Systems, Inc., STB Assembly, Inc. and Symmetric
Simulation Systems, Inc. (see Note 3), (collectively referred to as the
"Company"; see also Note 2). STB Assembly, Inc. has two majority owned
subsidiaries, STB de Mexico S.A. de C.V. ("STB de Mexico") and Maquilados
Continentales de Chihuahua ("MCC"). STB de Mexico is a Mexican corporation
operated as a maquiladora and performs assembly services for STB Systems,
Inc. As of December 1992, MCC became an inactive entity. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Minority interests in the subsidiaries are insignificant for financial
reporting purposes.
MANAGEMENT ESTIMATES--In preparing the consolidated financial statements
in conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Actual results may differ from
those estimates.
CASH AND CASH EQUIVALENTS--Cash equivalents are short-term, highly liquid
investments that are both readily convertible to known amounts of cash and so
near to their maturity that they present insignificant risk of changes in value
because of changes in interest rates. Investments with initial maturities of
three months or less qualify as cash equivalents.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE--The Company recognizes
revenue from product sales upon shipment. Sales to original equipment
manufacturers ("OEMs") account for a significant portion of the Company's
sales. The Company offers its OEM customers a limited warranty for a period
of typically 15 to 36 months. Costs associated with the warranty program are
accrued when revenue is recognized and are determined on the basis of
estimated future costs to fulfill the warranty commitment.
Stock rotation returns, under specified conditions, are allowed to certain
retail customers for recently purchased products, provided an equivalent dollar
amount of other products is purchased at the time of the return. Also, in the
event the Company reduces its selling prices, certain retail customers receive
price protection credit for the difference between the original purchase price
of product remaining in specified levels of their inventories and the Company's
reduced price for such products. Sales adjustments resulting from stock rotation
returns and price protection programs are made as determined by management and
have historically been minor. Management's estimates of the costs associated
with the price protection and stock rotation programs are based on the Company's
historical experience with such arrangements and its evaluation of exposure at
each balance sheet
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
date resulting from these policies. The Company's sales are presented net of
stock rotation returns and price adjustments.
The Company participates in cooperative advertising programs with certain
distributors. These programs are used by the Company to reimburse distributors
for certain forms of advertising. In general, the programs allow distributors
credits up to a specified percentage of net purchases. The Company's costs
associated with these programs are estimated and accrued at the time of sale and
are included in sales and marketing expenses.
INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined on a first-in, first-out basis using a moving weighted average
methodology.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed for financial statement purposes using an
accelerated method over the estimated useful lives of the assets, which range
from three to five years. Amortization of assets recorded under capital
leases is included in depreciation expense. Depreciation and amortization
expense for each of the years ended October 31, 1997, 1996 and 1995 was
$2,550,000, $1,252,000 and $733,000, respectively.
RESEARCH AND DEVELOPMENT--Research and development costs are charged to
expense as incurred.
INCOME TAXES--Effective February 21, 1995 and in connection with the
Company's initial public offering ("Stock Offering"), the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) on a prospective basis (see Note 2). Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities measured using estimated tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.
Prior to the Stock Offering (see Note 2), the Company had been treated
for federal and certain state income tax purposes as an S Corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result,
the income of the Company for federal and certain state income tax purposes
was included in the income tax returns of the individual shareholders
("Founding Shareholders"). Accordingly, prior to February 21, 1995, no
recognition of federal and certain state income taxes has been given in the
accompanying financial statements. Prior to the conversion to C Corporation
status, in connection with the Stock Offering, the Company paid dividends to
its shareholders in an amount equal to the taxable earnings of the Company
multiplied by the current personal income tax rate.
ACCOUNTING FOR STOCK-BASED COMPENSATION--In October 1995, Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based
Compensation" (SFAS 123) was issued. This statement requires the fair value
2
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
of stock options and other stock-based compensation issued to employees to
either be included as compensation expense in the statement of operations, or
the pro forma effect on net income and earnings per share of such
compensation expense to be disclosed in the footnotes to the Company's
financial statements commencing with the Company's 1997 fiscal year.
Accordingly, the Company has adopted SFAS 123 on a disclosure basis only.
FINANCIAL INSTRUMENTS--As of October 31, 1997 and 1996 the fair values
of the Company's revolving credit balance and the fair values of the
Company's fixed-rate debt approximates the related carrying values.
STOCK SPLIT--During the period, the Company declared a three-for-two
split of the Company's common stock. The stock split was effected in the form
of a stock dividend on July 17, 1997, and resulted in the issuance of
2,302,674 additional shares. Share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect the stock
split.
PRO FORMA NET INCOME AND NET INCOME PER SHARE (UNAUDITED) - Pro forma
net income and net income per share have been determined assuming that (1)
the Company had adopted the revised profit sharing plan effective November 1,
1994 (see Note 10), (2) the Founding Shareholder Notes in the aggregate
amount of $2,040,000 had been outstanding since November 1, 1994 bearing
interest at 9% per annum (see Note 12), and (3) the Company had been taxed as
a C corporation for federal and certain state income tax purposes since
November 1, 1994 (see Note 12).
Pro forma net income per share has been computed using the weighted
average number of common shares outstanding after giving retroactive effect
to the stock split (see Note 2). Common equivalent shares are also increased
to reflect the number of shares which would have been necessary to fund the
$2.04 million distribution paid to the Founding Shareholders from the
proceeds of the Stock Offering of the Company's common stock (see Note 6).
EARNINGS PER SHARE--Earnings per share are computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, in accordance with the provisions of
Accounting Principles Board Opinion No. 15, "Earnings Per Share". The earnings
per share computation is based on the assumption that outstanding options and
warrants to purchase common stock with exercise prices below fair market
value were exercised, unless antidilutive, and the proceeds were used to
repurchase outstanding common stock.
FOREIGN CURRENCY TRANSLATION--The U.S. dollar is the functional currency
for the Company's foreign operations. Gains and losses on the translation
into U.S. dollars of amounts denominated in foreign currencies are included
in net income.
NOTE 2--STOCK SPLIT, REORGANIZATION AND STOCK OFFERING
Effective December 20, 1994, the Company consummated a common stock
split at a ratio of 8,333 to one which resulted in common stock with $.01 par
value, 20,000,000 shares authorized, 2,500,000 shares issued and outstanding
prior to the Stock Offering (see below). The stock split, which was effected
in the form of a stock dividend, has been given retroactive effect in the
accompanying financial statements.
3
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
STB Systems, Inc. entered into a Share Exchange Agreement on December
16, 1994 with the shareholders of STB Assembly, Inc., providing for the
issuance of STB Systems, Inc. common stock in exchange for the outstanding
common stock of STB Assembly, Inc. on a one-for-333 basis immediately prior
to consummation of the Stock Offering. For purposes of these consolidated
financial statements, these shares are treated as outstanding for all periods
presented. As STB Systems, Inc. and STB Assembly, Inc. were under common
control, there was no change in basis for financial reporting purposes as a
result of the Share Exchange Agreement. As a result of the reorganization,
STB Assembly, Inc. became a wholly-owned subsidiary of STB Systems, Inc.
Effective February 21, 1995, STB Systems, Inc. terminated its S Corporation
status and became a C Corporation and as a result, the Company became subject
to all federal and state taxes pursuant to the C Corporation rules of the
Internal Revenue Code.
On December 16, 1994, the Board of Directors of the Company authorized
an initial public offering of the Company's common stock ("Stock Offering").
Accordingly, the Company filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission for the sale of common stock. On February
14, 1995, 2,000,000 shares of common stock were offered to the public at a
price of $12.00 per share. Proceeds from the Company's Stock Offering totaled
$24,000,000, net of $2,322,000 of Stock Offering expenses. The Company's
stock is listed on the NASDAQ National Market under the symbol "STBI".
NOTE 3--ACQUISITION
During the quarter ended April 30, 1997, STB Systems, Inc. acquired all
of the outstanding shares of Symmetric Simulation Systems, Inc.
("Symmetric"). Symmetric designs and builds high-end 3D graphics acceleration
products for use in applications such as computer-aided design, product
visualization and animation. This transaction was accounted for as a
purchase, in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations". As consideration, the Company issued 43,365 shares
of stock at a fair market value of $950,000 and cash in the amount of
$236,000. As a result of the acquisition, the Company recorded goodwill in
the amount of $1,648,000, which is included in other assets and is being
amortized on a straight line basis over seven years. Unamortized goodwill at
October 31, 1997 was $1,548,000.
The purchase prices have been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows:
(In Thousands) 1997
---------
Working capital, other than cash 1,166
Property, plant and equipment 89
Other assets 4
Goodwill 1,648
Other liabilities (1,720)
---------
Purchase price, net of cash received 1,187
---------
---------
4
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
NOTE 4--INVENTORIES
Inventories at October 31 consist of the following:
(in thousands)
--------------------
1997 1996
--------- ---------
Raw materials $ 22,416 $ 10,667
Work-in-process 13,416 14,358
Finished goods 5,463 2,123
--------- ---------
Inventories, net $ 41,295 $ 27,148
--------- ---------
--------- ---------
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment at October 31 consist of the following:
(in thousands)
--------------------
1997 1996
--------- ---------
Furniture and equipment $ 16,485 $ 5,822
Leasehold improvements 746 419
--------- ---------
17,231 6,241
Less: accumulated depreciation (4,883) (2,844)
--------- ---------
Property and equipment, net $ 12,348 $ 3,397
--------- ---------
--------- ---------
NOTE 6--SHORT TERM DEBT AND NOTES PAYABLE TO RELATED PARTIES
On January 5, 1996, the Company increased its borrowing capacity under its
revolving credit facility ("Revolving Credit Facility") from $13,000,000 to
$25,000,000. The Revolving Credit Facility is with a bank, payable upon demand,
with interest at prime plus .75% (9.25% at October 31, 1997). Outstanding
balances under the Revolving Credit Facility were $21,520,000 and $11,760,000,
at October 31, 1997 and 1996, respectively. All indebtedness under the Revolving
Credit Facility matures on November 1, 1999.
Availability under the Revolving Credit Facility is subject to limitations
determined by the Company's borrowing base, which is calculated based on
eligible accounts receivable and inventory, as defined in the Revolving Credit
Facility agreement.
Subsequent to the balance sheet date, the Company entered into a new
credit agreement with a bank, increasing its borrowing capacity from
$25,000,000 to $30,000,000 on a new Revolving Credit Facility. All debt under
the existing facility was repaid with the increased capacity expected to be
used to support increased working capital needs. The new Revolving Credit
Facility bears interest at Libor plus 175 basis points (7.406% at October 31,
1997). In addition, the Company will incur a fee on the unused portion of the
commitment, at an annual rate of .375%, payable quarterly, in arrears. All
indebtedness under the new Revolving Credit Facility matures on
5
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
November 21, 1999. In connection with the new Revolving Credit Facility, the
Company incurred line of credit fees in the amount of $76,000 in the first
quarter of fiscal 1998.
NOTE 7--LONG-TERM LIABILITIES
Long-term liabilities at October 31 consist of the following:
(in thousands)
---------------------
1997 1996
---------- ---------
Mezzanine Facility, interest at
prime plus .75%, (prime plus 3%
prior to January 5, 1996) payable
in monthly installments of
interest only through November 1,
1995 and principal and interest
from December 1, 1995 through
November 1,1999, collateralized by
certain assets of the Company $1,000 $ 1,500
Other loans, interest at 9.8%,
payable in monthly installments of
principal and interest through
July 1997, collateralized by
certain assets of the Company -- 4
Obligations under capital leases 3,278 477
---------- ---------
4,278 1,981
Less: current portion (1,167) (705)
---------- ---------
Long-term liabilities $3,111 $ 1,276
---------- ---------
---------- ---------
In connection with the new Revolving Credit Facility, the Mezzanine
Facility of $1,000,000 was repaid in full subsequent to the balance sheet
date. In addition to the new Revolving Credit Facility, the Company entered
into a long term loan agreement ("Term Loan") in the amount of $3,000,000
which is structured as a sale/leaseback transaction and is included in
obligations under capital leases. The Term Loan is collateralized by certain
assets of the Company, and bears interest at the rate of Libor plus 250 basis
points (8.156% at October 31, 1997). The Term Loan is payable in monthly
installments of principal and interest over five years.
6
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
The Company leases certain equipment under capital leases. Future
minimum lease payments under capital leases and the present value of the
minimum capital lease payments at October 31, 1997 are:
Years Ending October 31, (in thousands)
- --------------------------------------------------------------------------
1998 $ 845
1999 786
2000 754
2001 690
2002 690
------
3,765
Less: amount representing interest (487)
------
Present value of the minimum capital lease payments $ 3,278
------
------
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various
noncancelable operating lease agreements extending through 1999. Rental
expense for each of the years ended October 31, 1997, 1996 and 1995 was
$2,136,000, $856,000, and $773,000, respectively. In the first quarter of
fiscal 1998 the Company moved its manufacturing operations to a new 137,000
square foot facility in Juarez, Mexico. Future minimum lease payments for the
new facility are included in the table below.
At October 31, 1997, future minimum lease payments for such operating leases
are:
Years Ending October 31, (in thousands)
- ----------------------------------------- --------------
1998 $ 3,976
1999 3,345
2000 2,202
2001 2,180
2002 2,169
-------
Total $ 13,872
-------
-------
7
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
The Company installed two new high speed surface-mount assembly lines at
its new facility in Juarez, Mexico during the fourth quarter of fiscal 1997,
at a total cost of $6.3 million. The equipment was financed by two separate
operating leases. The first of the two lines was placed in service in
September 1997 and the financing was arranged prior to fiscal year end. The
second line was placed in service late in the fourth quarter of fiscal 1997,
therefore, the financing of this lease was not finalized until December 1997.
For purposes of this footnote, the minimum lease payments have been included
for both leases. Under the operating lease arrangements, the Company must
make 60 monthly payments of $60,775 and $53,691, respectively.
In December 1997, the Company entered into a 5 year agreement to
construct and lease a new corporate headquarters. Construction on the 210,000
square foot facility began in December 1997, and the total cost is estimated
to be approximately $22.8 million (including land). The lessor has agreed to
fund the cost of the land and construction of the building (subject to
reductions based on certain conditions in the lease agreement). The Company
plans to occupy the facility during the first fiscal quarter of 1999 with
rental payments commencing upon occupancy. The Company has the option to
renew the lease for an additional 5 years, payoff the underlying debt or
cause the building to be sold.
NOTE 9--MAJOR CUSTOMERS
Sales to major customers, as a percentage of net sales, were as follows
for each of the years ended October 31:
Customer 1997 1996 1995
- --------------- ----- ----- -----
A 35% 47% 42%
B 20% 8% --
C 11% -- --
D -- -- 10%
Net sales to customers within the United States and to customers in
foreign countries were as follows for each of the years ended October 31:
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
United States $ 144,665 $ 144,761 $ 98,742
Europe 42,510 32,654 30,000
Other 12,310 2,740 861
---------- -------------- ----------
$ 199,485 $ 180,155 $ 129,603
---------- -------------- ----------
---------- -------------- ----------
</TABLE>
NOTE 10--EMPLOYEE BENEFIT PLAN AND PROFIT SHARING PLAN
The Company has a 401(K) plan for all full-time employees. During the
period, the Company modified the plan contribution amount. The new plan
provides for the Company to make contributions of up to 50% of the amount of
an employee's contribution, but not more than 2% of an employee's total cash
compensation. Prior to the change, the Company made contributions of up to
25% of the amount of an employee's contribution, up to 1% of the employee's
total cash compensation. The Company incurred expense of $149,000, $43,000
and $34,000 for the years ended October 31, 1997, 1996 and 1995,
respectively, for its contributions to this plan.
8
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
The Company's profit sharing plan provides for a portion of the
Company's income before taxes to be paid as additional compensation to
participants in this plan. Concurrent with the Stock Offering, the profit
sharing percentage was reduced from 25% to 10%. Employees meeting eligibility
requirements participate in the plan. The Company incurred compensation
expense of $1,464,000, $991,000 and $503,000 in the years ended October 31,
1997, 1996 and 1995, respectively, as a result of the Company's obligations
under the profit sharing plan.
NOTE 11--EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued FAS
No. 128, "Earnings per Share", (SFAS 128). The Company will adopt SFAS 128,
which establishes standards for computing and presenting earnings per share
(EPS), in the first quarter of fiscal 1998. This statement requires dual
presentation of basic and diluted EPS on the face of the income statement for
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes the effect of
potentially dilutive securities while diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue common
stock were exercised, converted into or resulted in the issuance of common
stock. The following table sets forth the basic and diluted EPS computation,
on a pro forma basis, for the years ended October 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income (in thousands) $ 10,770 $ 6,077 $ 1,998
---------- ---------- ----------
BASIC
Weighted average number of shares outstanding 6,865,286 6,772,535 5,878,767
---------- ---------- ----------
Net income per share $ 1.57 $ 0.90 $ 0.34
---------- ---------- ----------
---------- ---------- ----------
DILUTED
Weighted average number of shares outstanding 6,865,286 6,772,535 5,878,767
Additional weighted average shares from assumed exercise of dilutive stock
options, net of shares assumed to be repurchased with exercise
proceeds 565,782 100,302 22,051
---------- ---------- ----------
Net income per share $ 1.45 $ 0.88 $ 0.34
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 12--CHANGE IN S CORPORATION STATUS AND INCOME TAXES
Immediately preceding the Stock Offering (see Note 2), STB Systems, Inc.
terminated its S Corporation status, and accordingly, the Company is subject to
federal and state income taxes.
9
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
The Company paid cash distributions to its Founding Shareholders in the
aggregate amount of $1,285,000 for the fiscal year ended October 31, 1995.
Following the Stock Offering, the Company made final distributions of the
Company's undistributed S Corporation earnings to its Founding Shareholders.
Such undistributed S Corporation earnings aggregated $4,100,000. The Company
paid approximately one-half of the undistributed S Corporation earnings from
the proceeds of the Stock Offering, and the remainder in the form of Founding
Shareholder Notes. As of October 31, 1997, these notes had been repaid in
full.
As a result of the termination of STB Systems, Inc.'s S Corporation
status, the Company is required to provide deferred income taxes for
cumulative temporary differences between income for financial and income tax
reporting purposes at the date of termination. A deferred tax asset of
$455,000 was recorded at the date of change in tax status resulting primarily
from differing methods of recognizing inventory reserves and bad debt
allowances for financial and income tax reporting purposes. The deferred tax
assets at October 31 are composed of the following and included in other
current assets in the consolidated balance sheets:
<TABLE>
<CAPTION>
(in thousands)
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Bad debt reserves $ 163 $ 113 $ 153
Inventory reserves 490 476 340
Depreciation 87 62 55
Various expense accruals 216 408 80
Stock Option tax benefit 903 -- --
--------- --------- ---------
Deferred tax asset $ 1,859 $ 1,059 $ 628
--------- --------- ---------
--------- --------- ---------
</TABLE>
PROVISION FOR INCOME TAXES--The components of the income tax provision
for the C Corporation period for the years ended October 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
(in thousands)
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Current Provision:
Federal $ 5,018 $ 3,468 $ 485
State 95 81 18
Foreign 265 68 --
--------- --------- ---------
5,378 3,617 503
--------- --------- ---------
Deferred (benefit)expense
Federal (800) (431) (173)
Effect of stock option exercises 903 -- --
--------- --------- ---------
103 (431) (173)
--------- --------- ---------
Provision for income taxes $ 5,481 $ 3,186 $ 330
--------- --------- ---------
--------- --------- ---------
</TABLE>
10
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
A reconciliation of taxes based on the federal statutory rate and the
provision for income taxes is summarized as follows for the years ended
October 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at the federal statutory rate 35.0% 34.0% 34.0%
S Corporation earnings -- -- (17.5%)
State income taxes, net of federal benefit 0.4% 0.6% 0.5%
Foreign tax credit, net (1.6%) ( .1%) --
R&D credit (1.9%) (1.5%) (3.4%)
Other, net 1.8% 1.4% .6%
--- --- ---------
Provision for income taxes 33.7% 34.4% 14.2%
--- --- ---------
--- --- ---------
</TABLE>
NOTE 13--RELATED PARTY TRANSACTIONS
In July 1993, the Company entered into an agreement with a financial consulting
firm to provide advisory services and arrange certain credit facilities for the
Company. The president of this firm, who is also an equity holder in the firm,
serves as a member of the Company's board of directors. The Company incurred
costs of $58,000 for the year ended October 31, 1996, related to these services.
In April 1994, this financial consulting firm agreed to provide certain advisory
services, including services relating to the Stock Offering. A flat fee of
$150,000 was paid to the firm in connection with the Stock Offering. The Company
recognized costs of $133,000 with respect to these services in 1995.
A business consulting firm has provided consulting services to the Company since
March 1990, for which the Company incurred fees of $21,000 in 1995. A general
partner in this consulting firm is an officer of the Company and a member of the
Company's board of directors.
NOTE 14--STOCK PLANS
The Company's 1995 Long Term Incentive Plan provides for the granting of
incentive stock options and non-qualified stock options to purchase common
stock, stock appreciation rights, restricted stock and performance units to key
executives and other key employees of the Company. In April 1997, the plan
increased its number of authorized shares of common stock to be used for stock
options, stock appreciation rights, or restricted stock from 1,275,000 to
1,500,000. All options vest at the rate of 20% per year on each of the first
five anniversaries of the date of grant. At October 31, 1997, options to
purchase 221,698 shares were exercisable. The plan will terminate on December
31, 2004. Stock option activity during fiscal 1997, 1996 and 1995 is as follows:
11
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES RANGE PER SHARE EXERCISE PRICE
---------- ----------------- -----------------
<S> <C> <C> <C>
Balance at October 31, 1994 -- -- --
Granted 724,500 $ 8.00--$ 9.25 $ 8.04
Terminated (66,000) $ 8.00--$ 9.17 $ 8.13
Exercised -- -- --
---------- ----------------- -----------------
Balance at October 31, 1995 658,500 $ 8.00--$9.25 $ 8.03
---------- ----------------- -----------------
Granted 611,250 $ 6.17--$15.59 $12.65
Terminated (48,750) $ 6.92--$ 8.00 $ 7.58
Exercised (16,500) $ 8.00--$ 8.00 $ 8.00
---------- ----------------- -----------------
Balance at October 31, 1996 1,204,500 $ 6.17--$15.59 $10.39
---------- ----------------- -----------------
Granted 91,750 $ 13.00--$38.50 $22.88
Terminated (21,000) $ 8.00--$11.50 $10.38
Exercised (132,150) $ 6.17--$15.58 $ 8.17
---------- ----------------- -----------------
Balance at October 31, 1997 1,143,100 $ 6.17--$38.50 $11.65
---------- ----------------- -----------------
</TABLE>
The following table summarizes information about stock options outstanding at
October 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
EXERCISE AVERAGE AVERAGE AVERAGE
PRICE SHARES REMAINING EXERCISE NUMBER EXERCISE
RANGE OUTSTANDING CONTRACUAL LIFE PRICE OF SHARES PRICE
- ----------------- ----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 6.17--$ 9.00 592,851 7.5 $ 7.91 130,699 $ 7.97
$ 9.01--$13.50 49,450 8.4 $ 10.23 8,950 $ 9.50
$13.51--$20.25 435,300 9.0 $ 14.85 82,049 $ 14.69
$20.26--$30.38 51,750 9.4 $ 22.35 -- --
$30.39--$38.50 13,750 9.9 $ 36.61 -- --
----------- ----- ----------- ----------- -----------
1,143,101 8.2 $ 11.65 221,698 $ 10.52
</TABLE>
The fair value of each option was estimated on the date of grant based on the
Black-Sholes option pricing model assuming, among other things, no dividend
yield, a risk free interest rate of 6.0%, expected volatility of 71% and
expected life of 4 years. The weighted average grant date fair value for
options granted during the fiscal years ended October 31, 1997 and 1996 was
$13.34 and $7.34, respectively. Had the Company recorded compensation expense
based on the fair value at the date of grant for its stock options under SFAS
123, the Company's income would have been reduced to the pro forma amounts
indicated below, net of taxes:
12
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
AS REPORTED:
Net income $ 10,770 $ 6,077
--------- ---------
Net income per share $ 1.44 $ 0.89
--------- ---------
PRO FORMA:
Net income $ 10,127 $ 6,000
--------- ---------
Net income per share $ 1.36 $ 0.88
--------- ---------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN--The 1995 Employee Stock Option Purchase Plan
provides a method whereby eligible employees may purchase common stock through
voluntary payroll deductions, not to exceed 10% of the employee's base salary.
Payroll deductions are made over a twelve month period. At the end of the
deduction period, employees will have a subsequent twelve month period during
which they may either exercise their options in whole or in part, or withdraw
their funds with interest at a rate determined by the Stock Option Committee.
The purchase price under the plan will be determined by the Stock Option
Committee, however, the option price will not be less than 85% of the fair
market value of the common stock on the date the option is granted or, such
price will not be less than 85% of the fair market value of the Common Stock on
the date the option is exercised. As of October 31, 1997, 26,287 shares have
been issued under this plan.
NOTE 15--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
31-OCT 31-JUL 30-APR 31-JAN 31-OCT 31-JUL 30-APR 31-JAN
THREE MONTHS ENDED 1997 1997 1997 1997 1996 1996 1996 1996
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 60,674 $ 42,019 $ 48,700 $ 48,092 $ 48,122 $ 42,537 $ 44,592 $ 44,905
Gross profit 15,211 12,425 11,778 10,633 10,996 8,616 8,403 7,262
Net income 3,630 2,469 2,418 2,252 2,131 1,380 1,351 1,214
Net income per share $ 0.47 $ 0.33 $ 0.33 $ 0.31 $ 0.30 $ 0.20 $ 0.20 $ 0.18
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated statements of operations and consolidated
balance sheet data of the Company for the fiscal years ended October 31, 1997,
1996, 1995, 1994 and 1993 are derived from the Company's Consolidated Financial
Statements that were audited by Price Waterhouse LLP, independent accountants,
whose report for the fiscal years ended October 31, 1997, 1996 and 1995 is
included herein. The pro forma data set forth below, as of and for the year
ended October 31, 1995, is unaudited.
The Selected Consolidated Financial Data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and related Notes, and other financial information included
herein.
<TABLE>
<CAPTION>
(In thousands except per share amounts)
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales $ 199,485 $ 180,155 $ 129,603 $ 89,836 $ 39,236
Cost of sales 149,439 144,879 110,129 73,213 30,726
---------- ---------- ---------- --------- ---------
Gross profit 50,046 35,276 19,474 16,623 8,510
---------- ---------- ---------- --------- ---------
Operating expenses:
Research and development 6,740 4,428 2,719 1,795 1,079
Sales and marketing 14,788 10,986 7,437 5,529 3,835
General and administrative 10,618 9,486 6,172 5,190 2,810
---------- ---------- ---------- --------- ---------
Total operating expenses 32,146 24,900 16,328 12,514 7,724
---------- ---------- ---------- --------- ---------
Income from operations 17,900 10,376 3,146 4,109 786
Interest expense, net 1,649 1,113 818 588 226
---------- ---------- ---------- --------- ---------
Income before income tax 16,251 9,263 2,328 3,521 560
---------- ---------- ---------- --------- ---------
Provision for income tax (1) 5,481 3,186 330 -- --
Net income $ 10,770 $ 6,077 $ 1,998 $ 3,521 $ 560
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Net income per share $ 1.44 $ 0.89
---------- ----------
---------- ----------
Pro forma data: (unaudited):
Pro forma adjustments (2) (315)
----------
Pro forma net income $ 1,683
----------
----------
Pro forma net income per share (3) $ 0.45
----------
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
AS OF OCTOBER 31,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 31,361 $ 25,192 $ 21,621 $ 4,373 $ 1,480
Total assets 109,554 65,629 57,539 23,651 14,777
Accounts payable-trade 36,801 19,538 17,731 8,710 8,446
Short-term bank borrowings, including Current maturities 22,687 12,465 12,138 6,793 3,679
Long-term debt 500 1,000 1,982 2,164 38
Total shareholders' equity 43,462 29,597 23,362 4,196 2,088
</TABLE>
- ------------------------
(1) The Company operated as an S corporation from November 1, 1986 until
February 21, 1995, at which time the Company became fully subject to federal
and state income taxes.
(2) Reflects certain pro forma adjustments assuming (a) the company's
profit-sharing allocation to employees had been reduced from 25% to 10% of
income before taxes (as calculated prior to profit sharing expenses)
effective November 1, 1994; (b) the portion of indebtedness evidenced by
notes issued to the founding shareholders of the Company relating to
approximately one-half of the Company's undistributed S corporation
earnings, or $2.04 million, had been outstanding effective
November 1, 1994 and bearing interest at 9% per annum; and (c) the Company
had been treated as a C corporation rather than as an S corporation for
federal and state income tax purposes, effective November 1, 1994 (and
assuming an effective tax rate of approximately 33%).
(3) Pro forma net income per share is based on the Company's weighted average
number of shares outstanding, plus the common equivalent number of shares
that the Company would have had to issue to distribute to the founding
shareholders of the Company $2.04 million, which amount equals approximately
one-half of the Company's undistributed S corporation earnings at October
31, 1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company currently sells two broad categories of products, which the
Company refers to as multimedia subsystem products and specialized technology
products. The Company's multimedia subsystem product line includes a wide
selection of multimedia accelerators designed for use in mid-range to high-end
personal computers ("PCs") and also features several complementary products,
including digital video products such as DVD products, a PC/TV convergence
subsystem product, sound cards, and flat panel display subsystem products. STB's
specialized technology products incorporate graphics technologies and are
primarily designed to enable one computer to simultaneously control the display
of multiple monitors.
The Company sells it products to original equipment manufacturers ("OEMs"),
the commercial market and the specialized technology market. Multimedia
subsystem products are sold both to OEMs as subsystems for their PC products and
to the commercial market. Sales of multimedia accelerators and other multimedia
subsystems to OEMs have typically been characterized by higher unit volumes and
lower gross profit margins. Sales of multimedia products to the commercial
market have typically been characterized by modest unit volumes and higher gross
profit margins than the sale of similar products to OEMs. Although sales volumes
of specialized technology products are relatively low, the Company realizes
higher gross profit margins from the sale of these products than from the sale
of multimedia subsystem products.
For the fiscal years 1997 and 1996, sales of the Company's products to OEMs
represented approximately 79% and 81%, respectively. Sales to the commercial
market represented approximately 12% and 11% of total net sales for fiscal years
1997 and 1996, respectively, and sales to specialized technology product markets
constituted approximately 8% for fiscal 1997 and 6% for fiscal 1996. The balance
of total net sales was derived primarily from third party assembly services,
which comprised approximately 1% and 2%, respectively, of total net sales for
fiscal years 1997 and 1996. Export sales of the Company's products, which are
made through all of the Company's sales channels, have grown substantially in
recent periods, and as a result, increased as a percentage of net sales to 27%
in fiscal 1997 from 20% in fiscal 1996. The Company's total gross profit margins
and gross profits will likely fluctuate from period to period as a result of the
Company's product mix, sales channel mix, component costs and competitive
pricing pressures on the Company's products.
The Company recognizes revenue upon shipment of its products. For products
sold through the commercial channel, the Company generally allows returns in the
form of stock rotation and price protection in the form of credits. The
Company's current stock rotation policies permit a commercial channel customer
to return approximately 10% of products purchased within the previous 90 days if
the customer places an order for other Company products of equal or greater
value. The Company also provides price protection to commercial channel
customers in the form of credits for price reductions on products remaining in
customer inventories at the time of the price reduction. The Company maintains
reserves related to these programs, which it believes are adequate.
The Company has no guaranteed supply arrangements with any of its suppliers.
The Company obtains most of the primary components of its products, consisting
mainly of controller chips and memory chips, directly from the component
manufacturers. The prices of such components can change significantly from time
to time. In the past the Company has experienced, and may in the future
experience, increases in its unit component costs without being able to increase
the price of the related products. Such an increase in component costs could
negatively impact the Company's gross profit margins and results of operations.
In particular, occasional world-wide shortages of memory and controller chips
and international tariff disputes have in the past resulted in substantial unit
component cost increases that have materially adversely affected the Company's
gross profit margins and its results of operations. In recent periods, a decline
in the price of memory chips, together with the Company's inventory management
practices and other factors, has contributed to improved gross profit margins.
<PAGE>
During the quarter ended April 30, 1997, the Company acquired all of the
outstanding shares of Symmetric Simulation Systems, Inc., ("Symmetric").
Symmetric designs and builds high-end 3D graphics acceleration technology used
in applications such as computer-aided design, product visualization,
architectural walkthroughs and multimedia authoring. The Company believes that
the Symmetric product line complements the Company's existing products and
establishes the Company in the high-end 3D market. See "Note 3 to Notes to
Consolidated Financial Statements".
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's Consolidated
Statements of Operations as a percentage of net sales:
Percentage of Net Sales
Year Ended October 31,
1997 1996 1995
--------- --------- ---------
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.9% 80.4% 85.0%
--------- --------- ---------
Gross profit 25.1% 19.6% 15.0%
--------- --------- ---------
Operating expenses:
Research and development 3.4% 2.4% 2.1%
Sales and marketing 7.4% 6.1% 5.7%
General and administrative 5.3% 5.3% 4.8%
--------- --------- ---------
Total operating expenses 16.1% 13.8% 12.6%
--------- --------- ---------
Income from operations 9.0% 5.8% 2.4%
Interest expense, net 0.8% 0.6% 0.6%
--------- --------- ---------
Income before income taxes 8.2% 5.2% 1.8%
Provision for income taxes (1) 2.8% 1.8% 0.3%
--------- --------- ---------
Net income 5.4% 3.4% 1.5%
--------- --------- ---------
Pro forma data: (unaudited):
Pro forma adjustments (2) (0.2%)
---------
Pro forma net income 1.3%
---------
- ------------------------
(1) The Company operated as an S corporation from November 1, 1986 until
February 21, 1995, at which time the Company became fully subject to federal
and state income taxes.
(2) Reflects certain pro forma adjustments assuming (a) the Company's
profit-sharing allocation to employees had been reduced from 25% to 10% of
income before taxes (as calculated prior to profit sharing expenses)
effective November 1, 1994; (b) the portion of indebtedness evidenced by
notes issued to the founding shareholders of the Company relating to
approximately one-half of the Company's undistributed S corporation
earnings, or $2.04 million, had been outstanding effective November 1, 1994
and bearing interest at 9% per annum; and (c) the Company had been treated
as a C corporation rather than as an S corporation for federal and state
income tax purposes, effective November 1, 1994 (and assuming an effective
tax rate of approximately 33%).
<PAGE>
FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED
OCTOBER 31, 1996
NET SALES. Net sales increased by $19.3 million, or 10.7%, from $180.2
million in fiscal 1996 to $199.5 million in fiscal 1997. This increase is a
result of continued growth in all sales channels. Unit volume for fiscal 1997
increased by 27.4% over fiscal 1996, while the Company's average unit selling
prices continued to decline primarily as a result of declines in component
costs. OEM channel sales increased $8.0 million, or 5.5%, from approximately
$145.5 million in fiscal 1996 to approximately $153.5 million in fiscal 1997.
Sales growth in the OEM channel is primarily the result of increased sales to
existing customers. Commercial channel sales increased $4.1 million, or 20.8%,
from approximately $19.8 million in fiscal 1996 to approximately $23.9 million
in fiscal 1997. This moderate increase in sales to the commercial channel
resulted primarily from increased sales to established customers. Sales in the
specialized technology market experienced significant growth, increasing from
approximately $10.9 million in fiscal 1996 to approximately $15.2 million in
fiscal 1997, an increase of $4.3 million, or 38.9%. The increase in sales of
specialized technology products is a result of increased sales to existing
customers, as well as the sale of products to workstation groups of OEM
customers.
GROSS PROFIT. Gross profit increased by $14.7 million, or 41.9%, to $50.0
million in fiscal 1997, as compared to $35.3 million in fiscal 1996. For the
period, gross profit as a percentage of net sales increased to 25.1% from 19.6%.
The increase in gross profit margin resulted primarily from increased sales of
higher margin specialized technology products and to a lesser degree, increased
sales to the commercial channel. In addition, declines in component costs,
economies of scale resulting from higher production volumes and greater
manufacturing efficiencies, partially offset by decreasing unit prices, also
contributed to the increase in gross profit margin.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $2.3 million, or 52.2%, to $6.7 million in fiscal 1997, as compared
to $4.4 million in fiscal 1996. This increase resulted primarily from additional
staffing levels at the Company's headquarters in Richardson, Texas, as well as
at its design centers in Houston, Texas and Eugene, Oregon. During 1997 the
Company expanded its research and development efforts by establishing and
staffing a design center in Belfast, Northern Ireland. Expenses associated with
new product development, software development and continued enhancement and
support of the Company's existing products also contributed to the increase.
Research and development expenses as a percentage of net sales increased from
2.4% to 3.4%, for the periods.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$3.8 million, or 34.6%, to $14.8 million in fiscal 1997, as compared to $11.0
million in fiscal 1996. This increase resulted from additional staffing and
commissions paid as a result of the Company's growth and higher sales levels, as
well as increased travel and operating costs. Increased trade show expense, as
well as increased advertising and promotional expenses in the commercial
channel, the specialized technology market and the international market also
contributed to the overall increase in sales and marketing expense. Sales and
marketing expense as a percentage of net sales increased from 6.1% in 1996 to
7.4% in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $1.1 million, or 11.9%, to $10.6 million in fiscal 1997, as
compared to $9.5 million in fiscal 1996. The increase is due primarily to
expenses associated with the Company's growth, including increased staffing
and related expenses and data processing costs, partially offset by an
increase in the allocation of certain costs related to the Mexican
manufacturing operation to cost of goods sold. Facility expansion at the
Company's headquarters and related occupancy costs, including rent and
insurance, also contributed to the overall increase in general and
administrative expenses. As a result of the increase in operating income,
expenses associated with the Company's profit sharing plan also increased.
For the periods, general and administrative expense as a percentage of net
sales remained unchanged at 5.3%.
NET INCOME. As a result of the foregoing factors, net income increased by
$4.7 million, or 77.2%, to $10.8 million in fiscal 1997, as compared to $6.1
million in fiscal 1996.
<PAGE>
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED
OCTOBER 31, 1995
NET SALES. Net sales increased by $50.6 million, or 39.0%, from $129.6
million in fiscal 1995 to $180.2 million in fiscal 1996. This increase in
revenues was achieved primarily as a result of a 58% increase in unit volume
shipments, and despite a significant decrease in the average unit sales price of
the Company's products. This increase resulted primarily from continuing growth
in sales of the Company's products to established OEM customers, as well as to
new OEM customers. The Company also experienced continued growth in the
commercial channel from sales of the Company's products to new commercial
customers and increased sales to established customers. Sales in the specialized
technology market experienced moderate growth, primarily as a result of
increased sales to existing customers.
GROSS PROFIT. Gross profit increased by $15.8 million, or 81.1%, to $35.3
million in fiscal 1996, as compared to $19.5 million in fiscal 1995. For the
period, gross profit margin increased to 19.6% from 15.0%. The increase in gross
profit margin resulted primarily from economies of scale resulting from higher
production volumes, as well as from lower memory chip prices. Increased sales of
higher margin products sold in the commercial channel and increased specialized
technology product sales also contributed to the increase in gross profit
margin.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $1.7 million, or 62.8%, to $4.4 million in fiscal 1996, as compared
to $2.7 million in fiscal 1995. This increase resulted from additional staffing
and related expenses associated with new product development, software
development and continued enhancement and support of the Company's existing
products. Research and development expenses as a percentage of net sales
increased from 2.1% to 2.4%, for the period.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$3.5 million, or 47.7%, to $11.0 million in fiscal 1996, as compared to $7.4
million in fiscal 1995. The increase resulted from additions to the Company's
sales staff in both the domestic and international sales forces and increased
commission payments due to higher sales levels. Increased trade show expense,
advertising and promotional efforts to support the higher sales levels in the
commercial channel and specialized technology product sales also contributed to
the increase. For the period, sales and marketing expense as a percentage of net
sales increased from 5.7% in 1995 to 6.1% in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $3.3 million, or 53.7%, to $9.5 million in fiscal 1996, as compared
to $6.2 million in fiscal 1995. General and administrative expenses, excluding
profit sharing expense, increased by $2.8 million, or 49.9%, to $8.5 million in
fiscal 1996, as compared to $5.7 million in fiscal 1995. The increase is due
primarily to increased occupancy costs and increased insurance, personnel, legal
and data processing expenses associated with the Company's growth.
NET INCOME. As a result of the foregoing factors, net income increased by
$4.4 million, or 259%, to $6.1 million in fiscal 1996, as compared to $1.7
million in fiscal 1995.
SEASONALITY
The Company's quarterly operating results vary significantly depending on
factors such as the timing of new product introductions, adequacy of
component supply, changes in component costs, variations in the Company's
product mix, seasonal promotions by the Company and it customers and
competitive pricing pressures. Because the timing of these factors may vary,
the results of any particular quarter may not be indicative of results for
the entire year or any future period. In addition, the PC market generally
experiences weaker sales during the summer months. Although the Company has
experienced sales growth for each year since fiscal 1990, there can be no
assurance that this growth will continue on a quarterly or annual basis.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs are for inventory and
accounts receivable financing, and manufacturing and other equipment
expenditures. The Company has generally financed these requirements, and its
operations, through a combination of cash generated from operations, trade
credit from vendors, bank borrowings and proceeds from its initial public
offering. As a result of the Company's rapid growth in recent years, its capital
requirements have increased substantially. The Company recognizes that any
future growth will require additional capital, particularly to support increased
working capital needs, staffing requirements, promotional expenses and
manufacturing facilities and equipment requirements. The Company has addressed
these increasing requirements through each of its sources of financing and
believes these to be adequate to meet its capital requirements for the next
twelve months, although the Company may consider expanding its capital resources
through additional debt or equity financings.
Cash used in operating activities was $3.9 million in fiscal 1997, primarily
attributable to increases in inventory and accounts receivable, as a result of
higher sales, partially offset by increased earnings and increases in accounts
payable. Cash provided by operating activities was $3.5 million in fiscal 1996,
resulting primarily from earnings and a reduction in inventory costs along with
increased accounts payable, partially offset by increased accounts receivable,
as a result of higher sales. At October 31, 1997, the Company's working capital
was $31.4 million, compared to $25.2 million at October 31, 1996. Cash and cash
equivalents was $3.9 million and $3.4 million at October 31, 1997 and 1996,
respectively.
In fiscal 1997, the Company invested $9.6 million in capital equipment,
compared with net purchases of equipment aggregating $3.1 million during fiscal
1996. The Company's investment in equipment is primarily attributable to
manufacturing equipment additions and upgrades of existing equipment to support
the increased demand for the Company's products. During the first quarter of
fiscal 1998, the Company completed a move to a new 137,000 square foot
manufacturing facility in Juarez, Mexico, immediately adjacent to its previous
facility. The Company has retained one-half of the previous facility for
expansion, with an option to occupy, vacate or sub-let the remaining half.
During the fourth quarter of fiscal 1997, the Company installed two new high
speed surface-mount assembly lines at its new facility, at a total cost of
approximately $6.3 million. This equipment was financed by two separate
operating leases. During the fourth quarter of fiscal 1996, the Company
installed four new surface-mount technology assembly lines, at an approximate
cost totaling $4.2 million. This equipment was also financed through
traditional lease financing arrangements. The Company's aggregate obligations
under all such equipment lease financing arrangements totaled approximately
$9.5 million at October 31, 1997 (see Note 8 of Notes to Consolidated
Financial Statements). The Company expects that additional capital
expenditures for similar types of equipment may be necessary to support any
additional future customer demand and production requirements.
At October 31, 1997, the Company had a $25 million line of credit under a
revolving credit facility ("Revolving Credit Facility"), which included a $2.0
million term loan ("Mezzanine Facility"). Subsequent to fiscal year end, the
Company secured a new financing arrangement with a new bank, increasing its
Revolving Credit Facility to $30 million. In addition to the new Revolving
Credit Facility, the Company also secured a $3.0 million long term loan ("Term
Loan"). As of October 31, 1997 the Company had $21.5 million and $1.0 million
outstanding under the Revolving Credit Facility and the Mezzanine Facility,
respectively. Principal amounts outstanding under the new Revolving Credit
Facility bear interest at Libor plus 175 basis points. Amounts outstanding under
the $3.0 million Term Loan bear interest at Libor plus 250 basis points and is
payable in 60 monthly installments of principal and interest, which began
November 1, 1997. Availability under the new Revolving Credit Facility is
calculated on formulas based on eligible accounts receivable as defined by the
Revolving Credit Facility agreement. All indebtedness under this facility
matures on November 21, 1999.
In December 1997, the Company entered into a 5 year agreement to
construct and lease a new corporate headquarters. Construction on the 210,000
square foot facility began in December 1997, and the total cost is estimated
to be approximately $22.8 million (including land). The lessor has agreed to
fund the cost of the land and construction of the building (subject to
reductions based on certain conditions in the lease agreement). The Company
plans to occupy the facility during the first fiscal quarter of 1999 with
rental payments commencing upon occupancy. The Company has the option to
renew the lease for an additional 5 years, payoff the underlying debt or
cause the building to be sold. The Company estimates it will pay monthly
rent in the approximate amount of $225,000 for a four year period following
completion of the facility. The monthly rent currently paid on the Company's
headquarters facility will be eliminated with the move to the new facility.
At the end of the lease, the Company has the option to elect to either renew
the lease, pay off the underlying debt on the facility or cause the building
to be sold. In the event of a sale, the proceeds are first used to retire the
underlying debt with any excess to be paid to the Company. The Company is
responsible for any remaining unpaid balance owing on the underlying
obligation after the sale of the facility.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of our report dated December 8, 1997, which appears in the 1997
Annual Report to Shareholders of STB Systems, Inc., which is incorporated by
reference in STB Systems, Inc.'s Annual Report on Form 10-K for the year
ended October 31, 1997. We also consent to the incorporation by reference in
the Registration Statement on Form S-8 of STB Systems, Inc. of our report
dated December 8, 1997, which appears in the 1997 Annual Report to
shareholders of STB Systems, Inc., which is incorporated by reference in STB
Systems, Inc.'s Annual Report on Form 10-K for the year ended October 31,
1997. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears in such Annual Report on Form
10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
January 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF STB SYSTEMS, INC. INCLUDED IN ITS ANNUAL
REPORT ON FORM 10K.
</LEGEND>
<CIK>0000934596
<NAME> STB SYSTEMS, INC.
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> OCT-31-1997
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