<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-25844
TAITRON COMPONENTS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 95-4249240
(State Or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
25202 ANZA DRIVE
SANTA CLARITA, CALIFORNIA 91355
(Address Of Principal Executive Offices)
(805) 257-6060
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name, Address and Fiscal Year, if Changed Since Last Report)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class A Common Stock, $.001 par value, 5,845,174 shares outstanding as of
June 30, 1997
Class B Common Stock, $.001 par value, 762,612 shares outstanding as of
June 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
- ---- --------
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION 10
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TAITRON COMPONENTS INCORPORATED
Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 167 300
Trade accounts receivable, net 5,677 4,109
Inventory 33,521 35,168
Prepaid expenses and other current assets 387 443
-------- --------
Total current assets 39,752 40,020
Property and equipment, net 1,906 1,660
Deferred income taxes 612 612
Other assets 43 23
-------- --------
Total assets $ 42,313 42,315
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 8,668 10,017
Trade accounts payable 4,970 3,737
Accrued liabilities 896 948
Income taxes payable 19 7
-------- --------
Total current liabilities 14,553 14,709
-------- --------
Long-term debt, less current portion 3,483 3,493
-------- --------
Shareholders' equity:
Preferred stock, $.001 par value. Authorized
5,000,000 shares; none issued or outstanding -- --
Common stock, no par value. Authorized
10,000,000 shares; none issued and outstanding. -- --
Class A common stock, $.001 par value.
Authorized 20,000,000 shares; issued and
outstanding 5,845,878 shares at 6/30/97 and
6,167,341 shares at 12/31/96 6 6
Class B common stock, $.001 par value.
Authorized, issued and outstanding
762,612 shares 1 1
Additional paid-in capital 13,506 14,531
Retained earnings 10,764 9,575
-------- --------
Total shareholders' equity 24,277 24,113
-------- --------
Total liabilities and shareholders' equity $ 42,313 42,315
======== ========
</TABLE>
See accompanying notes to financial statements
Page 3 of 13
<PAGE>
TAITRON COMPONENTS INCORPORATED
Statements of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
------------ ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 8502 $ 7,824 $ 16,518 $ 15,889
Cost of goods sold 5,983 5,402 11,554 10,790
---------- ---------- ---------- ----------
Gross profit 2,519 2,422 4,964 5,099
Selling, general and administrative expenses 1,337 1,244 2,527 2,601
---------- ---------- ---------- ----------
Operating earnings 1,182 1,178 2,437 2,498
Interest expense, net 219 247 456 294
Other expense (income), net (10) 12 (9) 16
---------- ---------- ---------- ----------
Earnings before income taxes 973 919 1,990 2,188
Income tax expense 392 369 800 878
---------- ---------- ---------- ----------
Net earnings $ 581 $ 550 $ 1,190 $ 1,310
========== ========== ========== ==========
Net earnings per share $ .09 $ .08 $ .18 $ .19
========== ========== ========== ==========
Weighted average common shares outstanding 6,662,000 6,998,000 6,662,000 6,998,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
Page 4 of 13
<PAGE>
TAITRON COMPONENTS INCORPORATED
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1996
---------- ------------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net earnings $ 1,190 $ 1,310
------- --------
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 108 56
Deferred income taxes (77)
Changes in:
Trade accounts receivable (1,568) 306
Inventory 1,647 (10,490)
Prepaid expenses and other current assets 55 (106)
Other assets (20) (12)
Trade accounts payable 1,233 (8,486)
Accrued liabilities (52) (230)
Income taxes payable 12 (178)
------- --------
Total adjustments 1,415 (19,217)
------- --------
Net cash provided by (used in) operating activities 2,605 (17,907)
------- --------
Cash flows from investing activities - acquisitions of property
and equipment (354) (142)
------- --------
Cash flows from financing activities:
Net borrowings (repayments) of notes payable (1,350) 14,500
Proceeds from issuance of Convertible, subordinated note 3,000
------- --------
Repurchase of Class A Common Stock (1,026) --
------- --------
Payments on long-term debt (8) (8)
------- --------
Net cash provided by (used in) financing activities (2,384) 17,492
------- --------
Net increase (decrease) in cash and cash equivalents (133) (557)
Cash and cash equivalents, beginning of period 300 1,145
------- --------
Cash and cash equivalents, end of perid $ 167 588
======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 517 301
======= ========
Cash paid for income taxes $ 750 1,134
======= ========
</TABLE>
See accompanying notes to financial statements
Page 5 of 13
<PAGE>
TAITRON COMPONENTS INCORPORATED
Notes to Financial Statements
(All amounts are unaudited except the balance sheet as of December 31, 1996)
(1) BASIS OF PRESENTATION
The financial information furnished herein is unaudited, but, in the
opinion of the management of Taitron Components Incorporated, includes all
adjustments (all of which are normal, recurring adjustments) in conformity
with the accounting principles reflected in the financial statements
included in the Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission for the year ended December 31, 1996. The results of
operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The financial statements and
notes should, therefore, be read in conjunction with the financial
statements and notes thereto in the Annual Report on Form 10-KSB for the
year ended December 31, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized upon shipment of the merchandise. Reserves for sales
allowances and customer returns are established based upon historical
experience and management's estimates as shipments are made. Sales returns
for the quarters ended June 30, 1997 and 1996 aggregated $282,000 and
$645,000, respectively and for the six months ended June 30, 1997 and 1996
aggregated $501,000 and $977,000 respectively.
ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS
The allowance for sales returns and doubtful accounts at June 30, 1997 and
December 31, 1996 aggregated $116,000 and $135,000, respectively.
INVENTORY
Inventory, consisting principally of products for resale, is stated at the
lower of cost or market, using the first-in, first-out method. The value
presented is net of valuation allowances of $1,116,000 and $988,000 at
June 30, 1997 and December 31, 1996, respectively.
(3) NET EARNINGS PER SHARE
Net earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
Common stock equivalents consist of outstanding stock options and warrants
to purchase stock that have a dilutive effect on earnings per share. The
difference between primary and fully diluted earnings per share is
immaterial for all periods presented. The average number of shares of
common stock outstanding has been reduced by 321,463 shares repurchased by
the Company during the first six months of 1997 at an average price of
$3.19 per share.
Page 6 of 13
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(4) SHAREHOLDERS' EQUITY
In March 1995, the Board of Directors authorized the filing of a
registration statement for an initial public offering of the Company's
common stock. In connection with the initial public offering, the Company
recorded a .891-for-1 reverse stock split of its common stock outstanding
at December 31, 1994. Accordingly, all references to the number of shares
outstanding have been adjusted to give effect to the aforementioned reverse
stock split.
Additionally, the Company:
. Authorized the issuance of up to 5,000,000 shares of Preferred
Stock, par value $.001 per share. The terms of the shares are
subject to the discretion of the Board of Directors.
. Authorized the issuance of up to 20,000,000 shares of Class A Common
Stock, par value $.001 per share. Each holder of Class A Common
Stock is entitled to one vote for each share held.
. Authorized the issuance of 762,612 shares of Class B Common Stock,
par value $.001 per share. Each holder of Class B Common Stock is
entitled to ten votes for each share held. The shares of Class B
common stock are convertible at any time at the election of the
shareholder into one share of Class A common stock, subject to
certain adjustments.
. Reclassified all of the shares of the Company's common stock
outstanding at December 31, 1994 for an equal number of shares of
Class A Common Stock.
. Authorized the exchange of all Class A Common Stock (762,612 shares)
held by the Chief Executive Officer/Director for an equal number of
shares of Class B Common Stock. This exchange was effected during
1995.
On April 19, 1995, the Company sold 2,530,000 shares of Class A Common
Stock at $5.25 per share in connection with its initial public offering.
The net proceeds from this offering aggregated approximately $11.3 million,
net of approximately $2 million of issuance costs, which proceeds were used
to pay off the previous bank line of credit, to retire long-term debt, to
expand inventory and for general corporate purposes.
During the six months ended June 30, 1997 the Company repurchased 321,463
shares of Class A Common Stock, reducing the Additional paid in capital by
$1,025,000 from the balance at December 31, 1996.
(5) BORROWINGS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
---------- ------------
1997 1996
---- ----
<S> <C> <C>
Second trust deed loan payable, bearing interest at 6.359%, $ 501,000 $ 510,000
due December 1, 2013
Revolving line of credit, maximum of $20 million, Expires 8,650,000 10,000,000
June, 1999
Convertible subordinated debentures, bearing interest at 8%, 3,000,000 3,000,000
due May 18, 2001 ----------- -----------
12,151,000 13,510,000
----------- -----------
Less current portion 8,668,000 10,017,000
----------- -----------
$ 3,483,000 $ 3,493,000
=========== ===========
</TABLE>
On May 6, 1997 the Company entered into a revolving line of credit
agreement which provided the Company up to $16 million for operating
purposes and up to an additional $4 million for business acquisition
purposes. Both credit facilities are provided by Comerica Bank California
and mature on June 2, 1999. The agreement governing these credit facilities
contains covenants that require the Company to be in compliance with
certain financial ratios.
Page 7 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition And
Results of Operations
Results of Operations
The Company distributes a wide variety of transistors, diodes and other
semiconductors and optoelectronic devices and beginning in 1997 passive
components to other electronic distributors and to original equipment
manufacturers who incorporate them in their products.
The following table sets forth, for the periods indicated, certain operating
amounts and ratios as a percentage of net sales:
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30, June 30,
-------- --------
(Dollars in thousands) 1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net sales $8,502 $7,824 $16,518 $15,889
Cost of goods sold 5,983 5,402 11,554 10,790
Gross profit 2,519 2,422 4,964 5,099
% of net sales 29.6% 31.0% 30.1% 32.1%
Selling, general and administrative expenses 1,337 1,244 2,527 2,601
% of net sales 15.7% 15.9% 15.3% 16.4%
Operating earnings 1,182 1,178 2,437 2,498
% of net sales 13.9% 15.1% 14.8% 15.7%
Interest expense, net 219 247 456 294
% of net sales 2.6% 3.2% 2.8% 1.9%
Net earnings $ 581 $ 550 $ 1,190 $ 1,310
% of net sales 6.8% 7.0% 7.2% 8.2%
</TABLE>
Page 8 of 13
<PAGE>
Three Month Period Ended June 30, 1997 Compared To The Three Month Period Ended
June 30, 1996
Net sales for the three months ended June 30, 1997 were $8,502,000,
compared with net sales for the three months ended June 30, 1996 of $7,824,,000,
an increase of $678,000 or 8.7%. This sales increase was attributable to an
increase in volume of domestic sales and sales of passive components, added to
the Company's product line in the first quarter of 1997. To a lesser extent, the
increase was attributable to an increase in the volume of export sales over the
three months ended March 31, 1996. Competition for sales of passive components
and export sales, require that the Company sell these products at lower prices
and thus lower margins. Gross margins decreased due to the reduction of selling
prices as a result of supply catching up with demand in 1997 (see Supply and
Demand Issues on page 10).
Cost of goods sold increased by $581,000 to $5,983,000 for the three months
ended June 30, 1997, an increase of 10.8% from the three month period ended June
30, 1996. Gross profits increased by $97,000 to $2,519,000 for the three months
ended June 30, 1997 from $2,422,000 for the same period in 1996. Cost of goods
sold as a percentage of net sales was 70.4% in the three months ended June 30,
1997, an increase from 69.1% for the same period in 1996.
Selling, general and administrative expenses increased by $93,000 or 7.5%
for the three months ended June 30, 1997 compared to the same period of 1996.
These costs, as a percentage of net sales, decreased to 15.7% for the three
months ended June 30, 1997 from 15.9% for the three months ended June 30, 1996.
For the reasons discussed above, operating earnings increased by less than
1% for the three months ended June 30, 1997 compared to the same period in 1996,
and declined as a percentage of sales from 15.1% to 13.9% due principally to the
decrease in gross selling selling prices of the Company's products.
Interest expense, net of interest income for the three months ended June
30, 1997 decreased $28,000 compared to the three months ended June 30, 1996.
This decrease is due to lower outstanding borrowings during the three months
ended June 30, 1997 compared to the three months ended June 30, 1996.
Income taxes were $392,000 for the three months ended June 30, 1997,
representing an effective tax rate of 40.3%, compared to $369,000 for the same
period of 1996, an effective tax rate of 40.2%.
The Company had net earnings of $581,000 for the three months ended
June 30, 1997 as compared with net earnings of $550,000 for the three months
ended June 30, 1996, an increase of $31,000 or 5.6% as a result of all the
reasons discussed above. Net earnings as a percentage of net sales decreased to
6.8% from 7.0%.
Six Month Period Ended June 30, 1997 Compared To The Six Month Period Ended June
30, 1996
Net sales for the six months ended June 30, 1997 were $16,518,000, compared
with the six months ended June 30, 1996 of $15,889,000, an increase of $629,000
or 4.0%. This sales increase was attributable to an increase in volume of
domestic sales and sales of passive components, added to the Company's product
line in the first quarter of 1997. To a lesser extent, the increase was
attributable to an increase in volume of export sales over the six months ended
June 30, 1996. Competition for sales of passive components and export sales,
require that the Company sell these products at lower prices and thus lower
margins.
Cost of goods sold increased by $764,000 to $11,554,000 for the six months
ended June 30, 1997, an increase of 7.1% from the six month period ended
June 30, 1996. Gross profits decreased by $135,000 to $4,964,000 for the six
months ended June 30, 1997 from $5,099,000 for the same period in 1996 and
decreased as a percentage of net sales to 30.1% from 32.1%. Cost of goods sold ,
as a percentage of sales was 69.9% in the first six months of 1997 and 67.9% in
the same period of 1996.
Page 9 of 13
<PAGE>
Selling, general and administrative expenses decreased by $74,000 or 2.8%
for the six months ended June 30, 1997 compared to the same period of 1996.
These costs, as a percentage of net sales, were 15.3% for the six months ended
June 30, 1997 and 16.4% for the six months ended June 30, 1996. The decrease in
selling, general and administrative expenses was offset somewhat by increased
expenses as a result of the Company initiating a realignment of its sales
executives resulting in an expansion of its nationwide sales force.
Earnings from operations decreased by $61,000 or 2.4% for the period ended
June 30, 1997 compared to the same period of 1996 and decreased as a percentage
of net sales to 14.8% from 15.7% due principally to lower margins as a result of
lower gross selling prices of the Company's products.
Interest expense, net of interest income, for the six months ended June 30,
1997 increased $162,000 compared to the six months ended June 30, 1996. This
increase is due primarily to higher outstanding borrowings during the first six
months of 1997 compared to the first six months of 1996. The higher outstanding
borrowings occurred principally in the first three months of 1997 compared to
the same period of 1996.
Other expenses, net of other income, decreased $25,000 for the six months
ended June 30, 1997 compared to the same period in 1996.
Income taxes were $800,000 for the six months ended June 30, 1997,
representing an effective tax rate of 40.2% compared to $878,000 for the six
months ended June 30, 1996, an effective tax rate of 40.1%.
The Company had net earnings of $1,190,000 for the six months ended June
30, 1997 compared to net earnings of $1,310,000 for the same period in 1996, a
decrease of $120,000 or 9.2% for the reasons discussed above. Net earnings as a
percentage of net sales decreased to 7.2% for the six months ended June 30, 1997
compared to 8.2% for the same period in 1996.
Supply and Demand Issues
For most of 1995 and continuing into early 1996, the demand for discrete
semiconductors, in general, was greater than the supply. This resulted in
intense competition for the available supply of discrete semiconductors and
therefore higher prices. The Company, from time to time, had to decline some
sales because of the limited supply of certain of these products during 1995.
However, beginning in the second quarter of 1996 and continuing through the six
months ended June 30, 1997 the supply of most discrete semiconductors has been
more than sufficient to meet the Company's demand for these products.
Business Strategy and New Oportunities
During 1996, the Company test marketed passive components, such as
resistors, capacitors and inductors, a type of discrete component manufactured
with non-semiconductor materials. The results of the test marketing was
encouraging, although the sales volume was not significant in 1996. The Company
believes that both passive components and discrete semiconductors compliment
each other and can be marketed through existing channels, which in turn will
reinforce the Company's current relationship with its customers.
During the first six months of 1997, the Company initiated an expansion of
its nationwide sales force and reorganized its sales department into three
separate groups designed to handle the needs of the customer. This
reorganization will allow Group 1 sales to handle customer service and potential
customers. Group 2 sales focus on solidifying relationships with and providing
support to existing key OEM's and key distributors who have more complex needs.
Group 3 sales are assigned to work with strategic OEM's in regions where they
reside and to provide technical support to the Company's network of independent
sales representatives.
Page 10 of 13
<PAGE>
Liquidity and Capital Resources
Since 1993, the Company has satisfied its liquidity requirements
principally through cash generated from operations, short-term commercial loans
and the sale of equity securities, including its initial public offering in
April 1995. A summary of the Company's cash flows provided by (used in)
operating, investing and financing activities for the six months ended June 30,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
(In thousands)
Operating activities......................... $ 2,605 $(17,907)
Investing activities......................... (354) (142)
Financing activities......................... (2,384) 17,492
</TABLE>
In positioning itself as a "Discrete Superstore", the Company has been
required to significantly increase its inventory levels over the past several
years. The Company expects that inventory levels may increase as the Company
adds new lines of product, such as passive components, and new suppliers.
The discrete semiconductor products distributed by the Company are mature
products, used in a wide range of commercial and industrial applications. As a
result, the Company has not experienced any material amounts of product
obsolescence. The Company also attempts to control its inventory risks by
matching large customer orders with simultaneous orders to suppliers.
Nonetheless, the high levels of inventory carried by the Company increase the
risks of price fluctuations and product obsolescence.
On May 6, 1997 the Company entered into a revolving line of credit
agreement which provided the Company up to $16 million for operating purposes
and up to an additional $4 million for business acquisition purposes. Both
credit facilities are provided by Comerica Bank California and mature on June 2,
1999. The agreement governing these credit facilities contains covenants that
require the Company to be in compliance with certain financial ratios.
As of June 30, 1997 the Company's unused sources of funds consisted of
approximately $11.5 million in cash and borrowing capacity under the Company's
$16 million and $4 million revolving lines of credit. Both of these credit
facilities bear interest rates based on Comerica Bank California's prime or
"Base Rate" as set by the bank from time to time, or at the option of the
Company at a fixed rate in excess of LIBOR. Both lines of credit are secured by
substantially all of the Company's assets, other than real property, which is
subject to a Trust Deed.
The Company believes that funds generated from operations and the amended
bank revolving lines of credit will be sufficient to finance its working capital
and capital expenditure requirements for the foreseeable future.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.12 Business Loan Agreement and Addendum, dated May 6, 1997,
between the Registrant and Comerica Bank-California.
10.13 Master Revolving Note and Addendum, dated May 6, 1997,
between the Registrant and Comerica Bank-California
10.14 Security Agreement, dated May 6, 1997, between the
Registrant and Comerica Bank-California.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 12 of 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TAITRON COMPONENTS INCORPORATED
Date: August 13, 1997 By: /s/ David M. Batt
------------------------------------
David M. Batt
Chief Financial Officer
(Principal Financial Officer)
(Chief Accounting Officer)
Page 13 of 13
<PAGE>
EXHIBIT 10.12
BUSINESS LOAN AGREEMENT
-----------------------
This Business Loan Agreement (this "Agreement") is entered into by and
between Comerica Bank-California ("Bank") and Taitron Components Incorporated, a
California corporation ("Borrower") as of this 6th day of May, 1997, at Bank's
headquarters office at 333 West Santa Clara Street, San Jose, California 95113.
1. Loans To Borrower. Bank and Borrower agree that any loans which Bank
-----------------
in its sole discretion has made or may now or hereafter make to Borrower
(sometimes hereinafter collectively referred to as the "Loan") shall be subject
to the terms and conditions of this Agreement unless otherwise agreed to in
writing by Bank and Borrower. In the event there are contradictions between the
provisions of this Agreement and any other written agreement with the Bank, this
Agreement shall prevail. Loan shall be subject to the terms and conditions of
this Agreement, promissory note(s) executed in connection herewith (including,
without limitation, the Revolving Note and Term Notes identified below) and/or
previously or subsequently executed, and all amendments, renewals and extensions
thereof (singularly or collectively, the "Note"), and all those certain security
agreements and/or such other security or other documents as Bank has required or
may now or hereafter require in connection with the Loan (collectively, the
"Loan Documents"). The Loan shall be secured as contemplated by Section 4
below, pursuant to that certain Security Agreement (All Assets) of even date
herewith made by Borrower in favor of Bank.
1A. Revolving Loan. The Loan includes a revolving line of credit in
--------------
the maximum principal amount of SIXTEEN MILLION Dollars ($16,000,000) (the
"Revolving Commitment Limit"), which shall be evidenced by that certain
Revolving Note of even date herewith in such maximum principal amount (the
"Revolving Note"). Principal of and Interest on the Revolving Loan shall be due
and payable upon the terms set forth in the Revolving Note. As a sub-facility
under the Revolving Loan, Bank shall issue for the benefit of Borrower one or
more standby letters of credit (each a "L/C", and collectively the "L/Cs"),
under which the aggregate of all amounts available to be drawn and all unpaid
reimbursement obligations shall not exceed TWO MILLION DOLLARS ($2,000,000). No
L/C shall have an expiration date more than 365 days from its date of issuance
or in any event later than the maturity date of the Revolving Loan. As an
additional sub-facility under the Revolving Loan, Bank shall issue for the
benefit of Borrower one or more standby letters of credit expiring June 1, 1997
(each a "Short Term L/C", and collectively the "Short Term L/Cs"), under which
the aggregate of all amounts available to be drawn and all unpaid reimbursement
obligations shall not exceed NINE MILLION DOLLARS ($9,000,000). The Short Term
L/C sub-facility shall terminate on June 1, 1997. In no event shall the sum
(without duplication) of (i) the face amount of all outstanding L/Cs and Short
Term plus (ii) the amount of all outstanding L/C and Short Term L/C
----
reimbursement obligations plus (iii) the outstanding Revolving Loan advances
----
exceed the Revolving Commitment Limit. All L/Cs and Short Term shall be drawn
on such terms and conditions as are acceptable to Bank, and shall be governed by
the terms of Bank's standard form letter of credit applications and
reimbursement agreements for commercial letters of credit, which applications
and reimbursement agreements Borrower hereby covenants and agrees to execute and
deliver to Bank. Borrower shall pay Bank its usual and customary fees in
connection with the L/Cs and the Short Term L/Cs. Borrower may from time to
time repay all or a portion of the amounts outstanding under the Revolving Loan
upon the terms and conditions set forth in the Revolving Note.
1B. Term Loan. The Loan also includes a facility pursuant to which
---------
Bank may provide Borrower with one or more term loans (each a "Term Loan"), each
of which shall be in a principal amount of not less than five hundred thousand
dollars ($500,000) and the aggregate principal amount of which shall not exceed
FOUR MILLION Dollars ($4,000,000) (the "Term Commitment Limit"). The Term Loan
facility shall expire on May 6, 1999, whereupon Borrower shall no longer be
permitted to request, and Bank shall have no further commitment to fund, Term
Loans. Each Term Loan shall be evidenced by a Term Note on Bank's standard form
(a "Term Note"), dated the date on which such Term Loan is advanced and in an
original principal amount equal to the amount of such Term Loan. Each Term Loan
shall bear interest at Bank's Base Rate (as defined in the Term Note) in effect
from time to time or, at Borrower's option, 6-month LIBOR (as defined in the
Term Note) plus 165 basis points (1.65%). Each Term Note shall provide for
monthly payments of interest and principal on the Term Loan thereunder, with
principal payments amortized based upon a maturity equal to the shorter of (a)
four years from the date of funding of such Term Loan and (b) the maturity
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<PAGE>
date of Borrower's 8% Subordinated Convertible Note dated May 18, 1996 in the
original amount of $3,000,000 (the "Subordinated Note"). Notwithstanding such
amortization or the scheduled maturity of any Term Note, all outstanding Term
Notes shall automatically and immediately become due and payable upon the
expiration or termination (whether at scheduled maturity, by acceleration or
otherwise) of the Revolving Loan. The proceeds of each Term Loan shall be used
by Borrower exclusively for the acquisition of a business entity or division (or
substantially all assets thereof) engaged in the same lines of business as
Borrower. The funding of each Term Loan shall be subject to receipt by Bank of a
written notice from Borrower at least ten (10) business days prior to the date
of the proposed funding, which notice shall (a) describe the acquisition to be
financed with the requested Term Loan, (b) state the proposed funding date,
(c) state the amount of the requested Term Loan, (d) contain representations and
warranties by Borrower to the effect that Borrower will be in compliance with
all of the financial covenants and ratios set forth in this Agreement on a
pro-forma basis after giving effect to the proposed acquisition and Term Loan,
and (e) certify to and attach a pro-forma balance sheet of Borrower giving
effect to the proposed acquisition and Term Loan. As a further condition to the
funding of any Term Loan, Bank shall have received such documents and
instruments as it may request, duly executed and delivered by Borrower, to
ensure that Bank has a valid and perfected first priority security interest in
all of the assets (other than real property) being acquired by Borrower directly
or indirectly in connection with the proposed acquisition. Each Term Loan shall
be subject to prepayment solely upon the terms and conditions set forth in the
applicable Term Note.
2. Legal Effect. This Agreement supplements the terms and conditions of
------------
the Loan Documents. Except as otherwise specified herein, all terms used in this
Agreement shall have the same meaning as given in the Note and/or Loan Documents
which are incorporated herein by this reference. Any and all terms used in this
Agreement, the Note and/or the Loan Documents shall be construed and defined in
accordance with the meaning and definition of such term under and pursuant to
the California Uniform Commercial Code, as amended. Except as specifically
modified hereby, all of the terms and conditions of the Note and/or the Loan
Documents shall remain in full force and effect.
3. Loan fees. Borrowers shall pay to Bank an annual loan fee of $20,000,
---------
payable concurrently with the initial advance under the Revolving Loan and on
each anniversary thereof. Such annual loan fee shall include Bank's audit fees,
for which Borrower shall not be separately charged. Borrower shall also pay Bank
a documentation fee of $2,500 concurrently with the initial Revolving Loan
advance, and shall reimburse Bank for its other costs and expenses incurred in
connection with the preparation and consummation of this Agreement. In addition,
Borrower shall pay Bank's analysis fees on a monthly basis in accordance with
Bank's standard account analysis agreement, which shall be executed and
delivered concurrently herewith and be deemed a "Loan Document" for all purposes
hereunder.
4. Security. As security for Borrower's obligations to Bank under this
--------
Agreement, the Note and/or the Loan Documents and all other indebtedness and
liabilities whatsoever of Borrower to Bank, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising,
evidenced by the Note and/or the Loan Documents (collectively, the
"Indebtedness"). Borrower hereby grants to Bank, prior to or simultaneously with
the borrowing hereunder, a continuing security interest of first priority in all
of Borrower's personal property, including without limitation all accounts
receivable, inventory, equipment and intangibles and all proceeds thereof and in
all collateral provided to Bank pursuant to any security agreement and/or all
collateral that is delivered to Bank and/or which Bank possesses and all
proceeds thereof (collectively, the "Collateral");
5. Representations and Warranties of Borrower. Borrower represents and
------------------------------------------
warrants to Bank that as of the date of acceptance of this Agreement, the Note
and/or Loan Documents, as of the date of borrowing hereunder and at all times
the Loan or any other indebtedness are outstanding hereunder.
(a) If Borrower is a corporation, Borrower is duly organized, validly
existing and in good standing under the laws of the state of its incorporation;
if a partnership, Borrower is duly organized and validly existing under the
partnership agreement and the applicable laws of the state in which the
partnership is formed or exists or if a limited liability company, Borrower is
duly organized and validly existing under the operating agreement and the
applicable laws of the state in which the limited liability company is formed:
2
<PAGE>
(b) Borrower has the legal power and authority, to own its properties
and assets and to carry out its business as now being conducted; it is qualified
to do business in every jurisdiction wherein such qualification is necessary; it
has the legal power and authority to execute and perform this Agreement, the
Note and/or the Loan Documents to borrow money in accordance with its terms, to
execute and deliver this Agreement, the Note and the Loan Documents, and to do
any and all other things required of it hereunder; and this Agreement, the Note
and all the Loan Documents, when executed on behalf of Borrower by its duly
authorized officers, partners or members, as the case may be, shall be its
valid and binding obligations legally enforceable in accordance with their
terms;
(c) The execution, delivery and performance of this Agreement, the
Note and/or the Loan Documents and the borrowings hereunder and thereunder
(i) have been duly authorized by all requisite corporate, partnership or company
action; (ii) do not require governmental approval; (iii) will not result (with
or without notice and/or the passage of time) in any conflict with or breach or
violation of or default under, any provision of law, the articles of
incorporation, articles of organization, operating agreement, bylaws or
partnership agreement of Borrower, any provision of any indenture, agreement or
other instrument to which Borrower is a party, or by which it or any of its
properties or assets are bound; and (iv) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Borrower.
(d) The balance sheet of Borrower as provided to Bank in connection
herewith and the related statement of income of Borrower provided to Bank for
the period ended March 31, 1997, fairly present the financial condition of
Borrower in accordance with generally accepted accounting principles ("GAAP")
consistently applied; and from the date thereof to the date hereof, there has
been no material adverse change in such condition or operations; and
(e) There is not pending nor, to the best of Borrower's knowledge,
threatened, any litigation, proceeding or governmental investigation which could
materially and adversely affect its business or its ability to perform its
obligations, pay the Indebtedness and/or comply with the covenants set forth
herein and/or the Note and/or the other Loan Documents.
6. Affirmative Covenants. Until the Indebtedness is paid in full,
---------------------
Borrower covenants and agrees to do the following:
(a) Furnish to Bank within fifteen days of filing with the Securities
and Exchange Commission, copies of Borrower's quarterly report on form 10-Q and
Borrower's annual report on Form 10-K (provided that if at any time Borrower
ceases to be subject to the periodic reporting requirements of the Exchange Act
of 1934, Borrower shall provide Bank with unaudited quarterly financial
statements and audited annual financial statements);
(b) In addition to the financial statements requested above, Borrower
agrees to provide Bank with the following schedules in a form acceptable to
Bank, in each case on a quarterly basis within 15 days after the end of each
quarter; Accounts Receivable Aging Reports; Accounts Payable Aging Reports; and
Inventory Reports.
(c) Promptly inform Bank of the occurrence of any default or event of
default as defined in the Note and/or the Loan Documents (hereinafter referred
to as "Default") or of any event which could have a materially adverse effect
upon Borrower's business, properties, financial condition or ability to comply
with its obligations hereunder, including without limitation its ability to pay
the Indebtedness;
(d) Furnish such other information as Bank may reasonably request;
(e) Keep in full force and effect its own corporate, company or
partnership existence in good standing; continue to conduct and operate its
business substantially as presently conducted and operated and maintain and
protect all franchises and trade names and preserve all the remainder of its
property used or useful in the conduct of its business and keep the same in good
repair and condition;
3
<PAGE>
(f) Comply with the financial convenants set forth in
Addendum A, attached hereto and made a part hereof,
(g) Maintain a standard and modern system of accounting in
accordance with GAAP consistently applied with ledger and account cards and/or
computer tapes and computer disks, computer printouts and computer records
pertaining to the Collateral which contain information as may from time to time
be requested by Bank, not modify or change its method of accounting without the
written consent of Bank first obtained, permit Bank and any of its employees,
officers, or agents, upon demand, during Borrower's usual business hours, or the
usual business hours of any third person having control thereof, to have access
to and examine all of Borrower's records relating to the Collateral, Borrower's
financial condition and the results of Borrower's operations and in connection
therewith, permit Bank or any of its agents, employees, or officer to copy and
make extracts therefrom:
(h) Maintain Borrower's same place of business or chief
executive office or residence as indicated below, and not relocate said address
without giving Bank 30 days prior written notice;
(i) Maintain insurance with such insurers in such amounts and
of a type satisfactory to Bank, with Bank to be designated as the payee of any
such insurance policies under a payee/secured lender clause acceptable to
Bank; and
(j) On a continuing basis from the date of this Agreement
until the Indebtedness is paid in full and the Borrower has performed all of its
other obligations hereunder, the Borrower represents and agrees that there are
not and will not be Hazardous Materials (as later defined) on, in or under any
real or personal property ("Property") now or at any time owned, occupied or
operated by the Borrower which in any manner violate any Environmental Law (as
later defined). As used herein, "Hazardous Materials" mean all of the following:
any asbestos, petroleum, petroleum by-products, flammable explosives, or
radioactive materials or any hazardous or toxic materials as defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601 et seq.) or in any other Environmental Law. As
used herein, "Environmental Law" means any federal, state, local or other law,
ordinance, statute, directive, rule, order or regulation on object of which is
to regulate or improve health, safety or the environment.
7. Negative Covenants. Borrower shall not, without Bank's prior
------------------
written consent, do any of the following:
(a) Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association, firm,
corporation, entity, governmental agency or instrumentality;
(b) Permit any levy, attachment or restraint to be made
affecting any of Borrower's assets, unless the same is being contested in good
faith by appropriate proceedings, execution is stayed during such proceedings
and Borrower has taken appropriate reserves therefore in accordance with GAAP;
(c) Permit any judicial officer or assignee to be appointed
or to take possession of any or all of Borrower's assets;
(d) Other than sales of inventory in the ordinary course of
Borrower's business, to sell, lease or otherwise dispose of, move or transfer,
whether by sale or otherwise, any of Borrower's assets;
(e) Change its name, business structure, corporate identity
or structure; add any new fictitious name, liquidate, merge or consolidate with
or into any other business organization;
(f) Move or relocate any collateral except in the ordinary
course of Borrower's business;
(g) Acquire any other business organization except as
contemplated by and permitted pursuant to the Term Loan facility;
4
<PAGE>
(h) Enter into any transaction not in the usual course of
Borrower's business;
(i) Make any investment in securities of any person,
association, firm, entity or corporation other than securities of the United
States of America;
(j) Make any change in Borrower's financial structure or in
any of its business objects, purposes or operations which would adversely affect
the ability of Borrower to pay its obligations;
(k) Incur any debt outside the ordinary course of Borrower's
business;
(l) Make any advance or loan except in the ordinary course of
Borrower's business;
(m) Make loans, advances or extensions of credit to any
person, expect for sales on open account and otherwise in the ordinary course of
business;
(n) Guaranty or otherwise, directly or indirectly, in any way
be or become responsible for obligations of any other person, whether by
agreement to purchase the indebtedness of any other person, agreement for the
furnishing of funds to any other person through the furnishing of goods,
supplies or services, by way of stock purchase, capital contribution, advance or
loan, for the purpose of paying and discharging (or causing the payment or
discharge of) the indebtedness of any other person, or otherwise, except for the
endorsement of negotiable instruments by Borrower in the ordinary course of
business for deposit or collection;
(o) Sell, lease, transfer or otherwise dispose of properties
and assets having an aggregate book value of more than two hundred thousand
dollars ($200,000) (whether in one transaction or in a series of transactions)
except as to the sale of the inventory in the ordinary course of business;
change its name, consolidate with or merge into any corporation, permit another
corporation to merge into it, acquire all or substantially all of the properties
or assets of any other person, enter into any reorganization or recapitalization
or reclassify its capital stock, or enter into any sale-lease back transaction;
(p) Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any interest whatsoever in, any
other person, except for the common stock of the subsidiaries owned by Borrower
on the date of this Agreement or other applicable date and except for
certificates of deposit with maturities of one year or less of a United States
commercial bank with capital, surplus and undivided profits in excess of
five hundred million dollars ($500,000,000), and direct obligations of the
United States government maturing within one (1) year from the date of
acquisition thereof;
(q) Allow any fact, condition or event to occur or exist with
respect to any employee, pension or profit sharing plan established or
maintained by it which might constitute grounds for termination of any such plan
or for the court appointment of a trustee to administer any such plan;
(r) Without Bank's prior written consent (except as
contemplated by and permitted pursuant to the Term Loan facility), acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds three hundred thousand
dollars ($300,000) in any fiscal year; or
(s) Without Bank's prior written consent, pledge or otherwise
hypothecate any of its assets except for (i) purchase money security interests
the lien of which is limited to the acquired property and (ii) dispositions of
obsolete or worn out assets in the ordinary course of business or become liable
for borrowed money or finance loans in excess of one hundred thousand dollars
($100,000) during any fiscal year.
8. Default. The terms "Default" or "Event of Default", as used
-------
herein, shall have the meaning given in the Note and/or the Loan Documents. In
addition, the parties agree that any one or more of the
5
<PAGE>
following events shall constitute a default by Borrower under this Agreement,
the Note and/or the Loan Documents:
(a) If Borrower fails or neglects to perform, keep or observe any
term, provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, the Note, the Loan Documents or any other present
or future agreement between Borrower and Bank;
(b) If any material representation, statement, report or certificate
made or delivered by Borrower, or any of its officers, employees or agents to
Bank is not true and correct;
(c) If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the indebtedness (whether or principal, interest,
taxes, reimbursement of Bank expenses, or otherwise);
(d) If there is a material impairment of the prospect of repayment
of all or any portion of Borrower's obligations, including without limitation
the indebtedness or a material impairment of the value or priority of Bank's
security interest in the collateral;
(e) If all or any of Borrower's assets are affected, become subject
to a writ or distress warrant, or are levied upon, or come into the possession
of any judicial officer or assignee and the same are not released, discharged
or bonded against within ten (10) days thereafter;
(f) If any insolvency proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
(g) If any bankruptcy or other proceeding is filed or commenced by or
against Borrower for its reorganization, dissolution or liquidation without
being dismissed within ten (10) days of its commencement;
(h) If Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
(i) If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States Government, or
any department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or
otherwise, upon any or all of the Borrower's assets and the same is not paid on
the payment date thereof, unless the same is being contested in good faith by
appropriate proceedings, execution is stated during such proceedings and
Borrower has taken appropriate reserves therefore in accordance with GAAP;
(j) If a judgment or other claim becomes a lien or encumbrance upon
any or all of Borrower's assets and the same is not satisfied, dismissed or
bonded against within ten (10) days thereafter;
(k) If Borrower's records are prepared and kept by an outside
computer service bureau at the time this Agreement, the Note and/or the Loan
Documents are entered into or during the term of this Agreement, the Note and/or
the Loan Documents, such an agreement with an outside service bureau is entered
into, and at any time thereafter, without first obtaining the written consent of
Bank, Borrower terminates, modifies, amends or changes its contractual
relationship with said computer service bureau or said computer service bureau
fails to provide Bank with any requested information or financial data
pertaining to Bank's Collateral, Borrower's financial condition or the results
of Borrower's operations;
(l) If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration of the
maturity of Borrower's indebtedness to others, whether under any indenture,
agreement or otherwise;
4
<PAGE>
(m) If Borrower makes any payment on account of indebtedness
which has been subordinated to Borrower's obligations to Bank, including without
limitation the indebtedness (other than scheduled payments when due of interest
on the Subordinated Note as in effect on the date hereof);
(n) If any material misrepresentation exists now or
thereafter in any warranty or representation made to Bank by any officer or
director of Borrower, or if any such warranty or representation is withdrawn by
any officer or director;
(o) If any party subordinating its claims to that of Bank's
or any quarantor of Borrower's obligations terminates its subordination or
guaranty, becomes insolvent or an insolvency proceeding is commenced by or
against any such subordinating party or guarantor, or
(p) If any reportable event, which the Bank determines
constitutes grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any such plan, shall
have occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Bank, or any such Plan shall
be terminated within the meaning of Title IV of the Employment Retirement Income
Security Act ("ERISA"), or a trustee shall be appointed by the appropriate
United States District Court to administer any such plan, or the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any plan and in
case of any event described in this Section 8, the aggregate amount of the
Borrower's liability to the Pension Benefit Guaranty Corporation under Sections
4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of Borrower's
Tangible Effective Net Worth.
Bank shall not be obligated to make advances to Borrower during any cure
period provided for in Sections 8(e), 8(f), 8(i), 8(j), and 8(p) above.
9. Rights and Remedies. The parties have agreed as follows with
-------------------
respect to Bank's rights and remedies upon Default:
(a) Bank shall have all rights and remedies available
hereunder and under the Note and the Loan Documents and under applicable law;
(b) Bank may at its option without notice, accelerate the
indebtedness and declare all indebtedness to be due, owing and payable in full;
(c) No Default (as defined in this Agreement, the Note and/or
the Loan Documents) shall be waived by Bank except in writing and a waiver of
any Default shall not be a waiver of any other default or of the same default on
a future occasion;
(d) No single or partial exercise of any right, power or
privilege hereunder, or any delay in the exercise hereof, shall preclude other
or further exercise of the rights of the parties under this Agreement, the Note
and/or the Loan Documents; and
(e) No forbearance on the part of Bank in enforcing any of
its rights under this Agreement, the Note and/or the Loan Documents nor any
renewal, extension or rearrangement of any payment or covenant to be made or
performed by Borrower hereunder shall constitute a waiver of any of the terms of
this Agreement, the Note, and/or the Loan Documents, or of any such right.
10. Cross-Default. A Default under this Agreement shall also be a
-------------
Default under the Note and the Loan Documents, and vice versa. A Default under
this Agreement, the Note and/or the Loan Documents shall also be a Default under
every other note and other agreement between Bank and Borrower, and vice versa.
11. Cross-Collateral. Any collateral for this Agreement, the Note
----------------
and/or the Loan Documents shall also be Collateral for other obligations owing
by Borrower to Bank. Notwithstanding the above, (i)
7
<PAGE>
to the extent that any portion of the indebtedness is a consumer loan, that
portion shall not be secured by any deed of trust or mortgage on or other
security interest in any of the undersigned's principal dwelling or in any of
the undersigned's real property which is not a purchase money security interest
as to that portion, unless expressly provided to the contrary in another place,
or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a
deed of trust or mortgage covering real property, that deed of trust or mortgage
shall not secure this Note or any other indebtedness of the undersigned (or any
of them), unless expressly provided to the contrary in another place.
12. Survival of Covenants, Agreements, Representations and
------------------------------------------------------
Warranties. All convenants, agreements, representations and warranties (a)
- ----------
previously made (except as specifically subsequently modified); (b) made in
connection herewith or with the Note and/or the Loan Documents and/or any
document contemplated hereby; or (c) executed hereafter (unless such document
expressly states that this Agreement does not apply thereto) shall survive the
borrowing hereunder and thereunder and the repayment in full of the Note and/or
the Loan Documents and any amendments, renewals, or extensions thereof and shall
be deemed to have been relied upon by Bank. All statements contained in any
certificate or other document delivered to Bank at any time by or on behalf of
Borrower shall constitute representations and warranties by Borrower.
13. Miscellaneous. The parties agree to the following miscellaneous
-------------
terms:
(a) This Agreement, the Note and the Loan Documents shall be
governed by California law, without regard for the effect of conflict of laws;
(b) Borrower agrees that it will pay all out of pocket costs
of Bank and expenses (including, without limitation, Bank's attorneys' fees and
costs and/or fees, transfer charges and costs of Bank's in-house counsel) in
connection with the preparation of this Agreement, the Note and/or the Loan
Documents and/or the documents contemplated hereby and the closing of the Loan;
(c) This Agreement, the Note and/or the Loan Documents shall
inure to the benefit of and shall be binding upon the parties hereto and their
respective successors and assigns; provided, however, that Borrower shall not
assign or transfer its right or obligations under this Agreement, the Note
and/or the Loan Documents without the prior written consent of Bank;
(d) Borrower acknowledges that Bank may provide information
regarding Borrower and the Loan to Bank's parent, subsidiaries and affiliates
and service providers, and
(e) This Agreement is an integrated agreement and supersedes
all prior negotiations and agreements regarding the subject matter hereof. Any
amendments hereto shall be in writing and be signed by all parties hereto.
[remainder of page intentionally left blank]
8
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14. JURY WAIVER. THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO
-----------
TRIAL BY JURY IS A CONSITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EARCH PARTY,
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS
OR ANY LOAN DOCUMENT.
IN WITNESS, WHEREOF, the parties have executed this Business Loan
Agreeement as of the date first set forth above.
Address of Borrower: Borrower:
25202 Anza Drive TAITRON COMPONENTS INCORPORATED
- --------------------------- -------------------------------
Santa Clarita, CA 91355
- ---------------------------
By: /s/ illegible
- --------------------------- ---------------------------
Title: President & CEO
------------------------
By:
---------------------------
Title:
------------------------
Comerica Bank California
("Bank")
By: /s/ illegible
---------------------------
Title: CBO
------------------------
9
<PAGE>
ADDENDUM A TO BUSINESS LOAN AGREEMENT
-------------------------------------
(FINANCIAL COVENANTS)
1. Definitions Relating to Financial Covenants
-------------------------------------------
Current Assets as used in this Agreement means, as of any applicable
--------------
date of determination, all unrestricted cash, CD's or marketable securities,
non-affiliated accounts receivables, United States Government securities and/or
claims against the United States Government, and inventories (held for sale in
the ordinary course of business) or Borrower and its subsidiaries.
Current Liabilities as used in this Agreement mean, as of any
-------------------
applicable date of determination, (i) all liabilities of Borrower or its
subsidiaries that should be classified as current in accordance with GAAP,
including, without limitation, any portion of the principal of the Indebtedness
under this Agreement, the Note and/or the Loan Documents classified as current,
plus (ii) to the extent not otherwise included, all liabilities of Borrower to
any of its affiliates (including officers, directors, shareholders,
subsidiaries and commonly held companies), whether or not classified as current
in accordance with GAAP unless same shall be the long term portion of
Subordinated Debt (as defined below).
Current Ratio as used in this Agreement means, as of an applicable
-------------
date of determination, Current Assets divided by Current Liabilities.
Debt shall mean, as of any applicable date of determination, all items
----
of indebtedness, obligation or liability of a person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP excepting such liabilities as shall be Subordinated Debt
(as defined below).
Subordinated Debt as used in this Agreement means indebtedness of
-----------------
Borrower to third parties which has been subordinated to all indebtedness owing
by Borrower to Bank pursuant to a subordination agreement in form and content
satisfactory to Bank.
Tangible Effective Net Worth as used in this Agreement means Tangible
----------------------------
Net Work as of any applicable date of determination, increased by the long term
portion of Subordinated Debt (as defined above), if any, of Borrower or its
subsidiaries and decreased by the following: Subscription lists, organization
expenses, trade accounts receivables converted to notes, and money due to
Borrower or its subsidiaries from affiliates (including officers, directors,
subsidiaries and commonly held companies).
Tangible Net Worth as used in this Agreement means, as of any
------------------
applicable date of determination, the excess of:
(a) the net book value of all assets of Borrower and its
subsidiaries (other than patents, patent rights, trademarks, trade names,
franchises, copyrights, licenses, goodwill, and similar intangible assets) after
all appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization), over
(b) all Total Liabilities of Borrower and its subsidiaries.
Total Liabilities as used in this Agreement means, as of any
-----------------
applicable date, the total of all items of indebtedness, obligation or liability
which, in accordance with GAAP consistently applied, would be included in
determining the total liabilities of Borrower or its subsidiaries, including,
without limitation, (a) all obligations secured by any mortgage, pledge,
security interest or other lien on property owned or acquired, whether or not
the obligations secured thereby shall have been assumed; (b) all obligations
which are capitalized lease obligations; and (c) all guaranties, endorsements or
other contingent or surety obligations with respect to the indebtedness of
others, whether or not reflected on the balance sheets of Borrower or its
subsidiaries, including, without limitation, any obligation to furnish funds,
directly or indirectly through the
10
<PAGE>
purchase of goods, supplies, services, or by way of stock purchase, capital
contribution, advance or loan or any obligation to enter into a contract for any
of the foregoing.
Total Liabilities to Tangible Effective Net Worth Ratio means, as of
-------------------------------------------------------
any applicable date, Total Liabilities divided by Tangible Effective Net Worth.
2. Financial Covenants. Borrower shall maintain the following financial
-------------------
ratios and covenants on a consolidated and non-consolidated basis:
(a) Tangible Effective Net Worth in an amount not less than (i)
$26,500,000 at any time through the end of fiscal year 1997, (ii) $28,000,000 at
any time commencing on the first day of fiscal year 1998 and ending on the last
day of fiscal year 1998, and (iii) $29,5000,000 commencing on the first day of
fiscal year 1999 and thereafter;
(b) A ratio of Current Assets to Current Liabilities of not less
than 2.25:1.0; and
(c) A ratio of Total Liabilities (less Subordinated Debt as defined
herein) to Tangible Effective Net Worth of less than 1.25:1.0.
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
11
<PAGE>
Exhibit 10.13
[LOGO OF COMERICA]
MASTER REVOLVING NOTE
Variable Rate-Maturity Date-Obligatory Advances (Business and Commercial Loans
Only)
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
$16,000,000.00 MAY 6, 1997 JUNE 2, 1999 95-4249240
On the Maturity Date, as stated above, for value received, the undersigned
promise(s) to pay to the order of COMERICA BANK-CALIFORNIA ("Bank'), at any
------------------------
office of the Bank in the State of California, SIXTEEN MILLION AND NO/100
--------------------------
Dollars (U.S.) (or that portion of it advanced by the Bank and not repaid as
later provided) with Interest until maturity, whether by acceleration or
otherwise, or an Event of Default, as later defined, at a per annum rate equal
to the Bank's base rate from time to time in effect PLUS 0.000%* per annum and
------------
after that at a rate equal to the rate of interest otherwise prevailing under
this Note plus 3% per annum (but in no event in excess of the maximum rate
permitted by law). The Bank's "base rate" is that annual rate of interest so
designated by the Bank and which is changed by the Bank from time to time,
interest rate changes will be effective for interest computation purposes as
and when the Bank's base rate changes. Interest shall be calculated on the
basis of a 380-day year for the actual number of days the principal is
outstanding. Accrued interest on this Note shall be payable on the 2ND day of
---
each MONTH commencing JULY 2, 1997, until the Maturity Date when all amounts
----- ------------
outstanding under this Note shall be due and payable in full. In the frequency
of interest payments is not otherwise specified, accrued interest on this Note
shall be payable monthly on the first day of each month. If any payment of
principal or interest under this Note shall be payable on a day other than a
day on which the Bank is open for business, this payment shall be extended to
the next succeeding business day and interest shall be payable at the rate
specified in the Note during this extension. A late payment charge equal to 5%
of each late payment may be charged on any payment not received by the Bank
within 10 calendar days after the payment due date, but acceptance of payment of
this charge shall not waive any Default under this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error. No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (of any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"indebtedness") are secured by the Bank is granted a security interest in all
items deposited in any account of any of the undersigned with the Bank and by
all proceeds of these items (cash or otherwise), all account balances of any of
the undersigned from time to time with the Bank, by all property of any of the
undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or any of the undersigned's real property
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the undersigned
(or any of them) has(have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure this
Note or any other indebtedness of the undersigned (or any of them), unless
expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (i) fail(s) to pay any of the
indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply with
any of the terms or provisions of any agreement between the undersigned (or any
of them) or any such guarantor and the Bank; or (iii) become(s) insolvent or the
subject of a voluntary or involuntary proceeding in bankruptcy, or a
reorganization, arrangement or creditor composition proceeding, (if a business
entity) cease(s) doing business as a going concern, (if a natural person) die(s)
or become(s) incompetent, (if a partnership) dissolve(s) or any general partner
of it dies, becomes incompetent or becomes the subject of a bankruptcy
proceeding or (if a corporation of a limited liability company) is the subject
of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, convenant or condition in any document evidencing, securing or relating to
such indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract instrument, or (b) if the title to the mortgaged premises, shall become
vested in any other person or party in any manner whatsoever, or (c) if there is
any disposition (through one or more transactions) of legal or beneficial title
to a controlling interest of said trustor or mortgagor. All payments under this
Note shall be in immediately available United States funds, without setoff or
counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Notes shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waives(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waives(s) all defenses
or right to discharge available under Section 3-605 or the California Uniform
Commerical Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell,
assign, or grant participations, or any interest, in any or all of the
indebtedness, and that, in connection with this right, but without limiting its
ability to make other disclosures to the full extent allowable, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the indebtedness. The undersigned agree(s) that the Bank
may provide information relating to the Note or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
<PAGE>
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or
incurred in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
*SEE ATTACHED ADDENDUM FOR INTEREST RATE OPTION. SEE LOAN AGREEMENT DATED
____________.
For Corporations, Partnerships, Trust or Estates
<TABLE>
<S> <C> <C>
TAITRON COMPONENTS INCORPORATED By: /s/ Illegible Its: President & CEO
- ------------------------------- ------------------------------- -------------------------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
25202 ANZA DRIVE By: Its:
- ------------------------------- ------------------------------- -------------------------------
STREET ADDRESS SIGNATURE OF TITLE
SANTA CLARITA By: Its:
- ------------------------------- ------------------------------- -------------------------------
CITY SIGNATURE OF TITLE
CA 91355 By: Its:
- ------------------------------- ------------------------------- -------------------------------
STATE ZIP CODE SIGNATURE OF TITLE
</TABLE>
For Individuals or Sole Proprietorships
<TABLE>
<CAPTION>
Name(s) of Obligor(s)(Type or Print) Signature(s) of Obligor(s)
<S> <C> <C>
---------------------------------- -----------------------------------
- ------------------------------- ---------------------------------- -----------------------------------
STREET ADDRESS
- ------------------------------- ---------------------------------- -----------------------------------
CITY
- ------------------------------- ---------------------------------- -----------------------------------
STATE ZIP CODE
</TABLE>
- --------------------------------------------------------------------------------
For Bank Use Only CCAR #
- --------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
JASON BROWN VALLEY TAITRON COMPONENTS INCORPORATED
- --------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48226 96550 $16,000,000.00
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.13
Addendum To Master Revolving Note
---------------------------------
This Addendum to Master Revolving Note (this "Addendum") is entered into as
of this 6th day of May, 1997, by and between Comerica Bank-California ("Bank")
and TAITRON COMPONENTS INCORPORATED ("Borrower"). This Addendum supplements the
terms of the Master Revolving Note of even date herewith.
1. Definitions.
-----------
a. Advance. As used herein, "Advance" means a borrowing
------- -------
requested by Borrower and made by Bank under the Note, including a LIBOR Option
Advance and/or a Base Rate Option Advance.
b. Business Day. As used herein, "Business Day" means any day
------------ ------------
except a Saturday, Sunday or any other day designated as a holiday under Federal
or California statute or regulation.
c. LIBOR. As used herein, "LIBOR" means the rate per annum
----- -----
(rounded upward if necessary, to the nearest whole 1/8 of 1%) and determined
pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(1) "Base LIBOR" means the rate per annum determined by
Bank at which deposits for the relevant LIBOR Period would be offered to Bank in
the approximate amount of the relevant LIBOR Option Advance in the inter-bank
LIBOR market selected by Bank, upon request of Bank at 10:00 a.m. California
time, on the date that is the first day of such LIBOR Period.
(2) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable LIBOR Period.
d. LIBOR Business Day. As used herein, "LIBOR Business Day"
------------------
means a Business day on which dealings in Dollar deposits may be carried out in
the interbank LIBOR market.
1
<PAGE>
e. LIBOR Period. As used herein, "LIBOR Period" means, with
------------ ------------
respect to a LIBOR Option Advance:
(1) initially, the period commencing on, as the case may
be, the date the Advance is made or the date on which the Advance is converted
to a LIBOR Option Advance, and continuing for, in every case, a thirty (30),
sixty (60), ninety (90) days thereafter so long as the LIBOR Option is quoted
for such period in the applicable interbank LIBOR market, as such period is
selected by Borrower in the notice of Advance as provided in the Note or in the
notice of conversion as provided in this Addendum; and
(2) thereafter, each period commencing on the last day of
the next preceding LIBOR Period applicable to such LIBOR Option Advance and
continuing for, in every case, a thirty (30), sixty (60), ninety (90) days
thereafter so long as the LIBOR Option is quoted for such period in the
applicable interbank LIBOR market, as such period is selected by Borrower in the
notice of continuation as provided in this Addendum.
f. Note. As used herein, "Note" means the Master Revolving
---- ----
Note of even date herewith.
g. Regulation D. As used herein, "Regulation D" means
------------ ------------
Regulation D of the Board of Governors of the Federal Reserve System as amended
or supplemented from time to time.
h. Regulatory Development. As used herein, "Regulatory
---------------------- ----------
Development" means any or all of the following: (i) any change in any law,
- -----------
regulation or interpretation thereof by any public authority (whether or not
having the force of law); (ii) the application of any existing law, regulation
or the interpretation thereof by any public authority (whether or not having the
force of law); and (iii) compliance by Bank with any request or directive
(whether or not having the force of law) of any public authority.
2. Interest Rate Options. Borrower shall have the following options
---------------------
regarding the interest rate to be paid by Borrower on Advances under the Note:
a. A rate equal to One and One Thirty fifth percent (1.35%)
------------------------ ----
above Bank's LIBOR, (the "LIBOR Option"), which LIBOR Option
shall be in effect during the relevent LIBOR Period; or
b. A rate equal to Zero percent (0.00%) above the "Base Rate"
---- ----
as referenced in the Note and quoted from time to time by
Bank as such rate may change from time to time (the "Base
Rate Option").
2
<PAGE>
3. LIBOR Option Advance. The minimum LIBOR Option Advance will not
--------------------
be less than Five Hundred Thousand and No/100 Dollars ($500,000.00) for any
LIBOR Option Advance.
4. Payment of Interest of LIBOR Option Advances. Interest on each
--------------------------------------------
LIBOR Option Advance shall be payable on the last day of the LIBOR Period
applicable thereto. Interest on such LIBOR Option Advance shall be computed on
the basis of a 360-day year and shall be assessed for the actual number of days
elapsed from the first day of the LIBOR Period applicable thereto but not
including the last day thereof.
5. Bank's Records Re: LIBOR Option Advances. With respect to each
----------------------------------------
LIBOR Option Advance, Bank is hereby authorized to note the date, principal
amount, interest rate and LIBOR Period applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to the Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
6. Selection/Conversion of Interest Rate Options. At the time any
---------------------------------------------
Advance is requested under the Note and/or Borrower wishes to select the LIBOR
Option for all or a portion of the outstanding principal balance of the Note,
and at the end of each LIBOR Period, Borrower shall give Bank notice specifying
(a) the interest rate option selected by Borrower; (b) the principal amount
subject thereto; and (c) if the LIBOR Option is selected, the length of the
applicable LIBOR Period. Any such notice may be given by telephone so long as,
with respect to each LIBOR Option selected by Borrower, (i) Bank receives
written confirmation from Borrower not later than three (3) LIBOR Business Days
after such telephone notice is given; and (ii) such notice is given to Bank
prior to 10:00 a.m., California time, on the first day of the LIBOR Period. For
each LIBOR Option requested hereunder, Bank will quote the applicable fixed
LIBOR Rate to Borrower at approximately 10:00 a.m., California time, on the
first day of the LIBOR Period. If Borrower does not immediately accept the rate
quoted by Bank, any subsequent acceptance by Borrower shall be subject to a
redetermination of the rate by Bank; provided, however, that if Borrower fails
to accept any such quotation is given, then the quoted rate shall expire and
Bank shall have no obligation to permit a LIBOR Option to be selected on such
day. If no specific designation of interest is made at the time any Advance is
requested under the Note or at the end of any LIBOR Period, Borrower shall be
deemed to have selected the Base Rate Option for such Advance or the principal
amount to which such LIBOR Period applied. At any time the LIBOR Option is in
effect, Borrower may, at the end of the applicable LIBOR Period, convert to the
Base Rate Option. At any time the Base Rate Option is in effect, Borrower may
convert to the LIBOR OPTION, and shall designate a LIBOR Period.
7. Default Interest Rate. From and after the maturity date of the
---------------------
Note, or such earlier date as all principal owing hereunder becomes due and
payable by acceleration or otherwise, the outstanding principal balance of the
Note shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to three
percent (3.00%) above the rate of interest from time to time applicable to the
Note.
3
<PAGE>
8. Prepayment. Bank is not under any obligation to accept any
----------
prepayment of any LIBOR Option Advance except as described below or as required
under applicable law. Borrower any prepay a Base Rate Option Advance at any
time, without paying any Prepayment Amount, as defined below. Borrower may
prepay an LIBOR Option Advance in increments of Five Hundred Dollars ($500.00)
prior to the end of the LIBOR Period, as long as (i) Bank is provided written
notice of such prepayment at least five (5) LIBOR Business Days prior to the
date thereof (the "Prepayment Date"); and (ii) Borrower pays the Prepayment
Amount. The notice of prepayment shall contain the following information:
(a) the Prepayment Date; and (b) the LIBOR Option Advance which will be prepaid.
On the Prepayment Date, Borrower shall pay to Bank, in addition to any other
amount that may then be due on the Note, the Prepayment Amount. Bank, in its
sole discretion, may accept any prepayment of a LIBOR Option Advance even if not
required to do so under the Note and may deduct from the amount to be applied
against the LIBOR Option Advance any other amounts required to be paid as part
of the Prepayment Amount.
The Prepaid Principal amount (as defined below) will be applied to the
LIBOR Option Advance being prepaid as Bank shall determine in its sole
discretion.
If Bank exercises its right to accelerate the payment of the Note prior
to maturity based upon an Event of Default under the Note, Borrower shall pay to
Bank, in addition to any other amounts, that may then be due on the Note, on the
date specified by Bank as the Prepayment Date, the Prepayment Amount.
Bank's determination of the Prepayment Amount shall be conclusive in the
absence of obvious error or fraud. If requested in writing by Borrower, Bank
shall provide Borrower a written statement specifying the Prepayment Amount.
The following (the "Prepayment Amount") shall be due and payable in full
on the Prepayment Date.
a. If the principal amount of the LIBOR Option Advance being
prepaid exceeds Seven Hundred Fifty Thousand Dollars
($750,000), then the Prepayment Amount is the sum of:
(i) the amount of the principal balance of the LIBOR Option
Advance which Borrower has elected to prepay or the amount
of the principal balance of the LIBOR Option Advance which
Bank has required Borrower to prepay because of
acceleration, as the case may be (the "Prepaid Principal
Amount"; (ii) interest accruing on the Prepaid Principal
Amount up to, but not including, the Prepayment Date;
(iii) Five Hundred Dollars ($500.00); plus (iv) the present
value, discounted at the Reinvestment Rates (as defined
below) of the positive amount by which (A) the interest
Bank would have earned had the Prepaid Principal Amount not
been paid prior to the end of the LIBOR Period at the
Note's interest rate exceeds (B) the interest Bank would
earn by reinvesting the Prepaid Principal Amount at the
Reinvestment Rates.
4
<PAGE>
b. If the principal amount of the LIBOR Option Advance being
prepaid is Seven Hundred Fifty Thousand Dollars ($750,000) or
less, then the Prepayment Amount is the sum of: (i) the amount
of the LIBOR Option Advance which Borrower has elected to prepay
or the principal amount of the LIBOR Option Advance which Bank
has required Borrower to prepay because of acceleration due to
an Event of Default under the Note, as the case may be (the
"Prepaid Principal Amount"); (ii) interest accruing on the
Prepaid Principal Amount up to, but not including, the
Prepayment Date; plus (iii) an amount equal to two percent (2%)
of the Prepaid Principal Amount.
"Reinvestment Rates" mean the per annum rates of interest equal to one
half percent (1/2%) above the rates of interest reasonably determined by Bank to
be in effect not more than seven (7) days prior to the Prepayment Date in the
secondary market for United States Treasury Obligations in amount(s) and with
maturity(ies) which correspond (as closely as possible) to the LIBOR Option
Advance being prepaid.
BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE
IS NO RIGHT TO PREPAY ANY LIBOR OPTION ADVANCE, IN WHOLE OR IN PART, WITHOUT
PAYING THE PREPAYMENT AMOUNT, EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW;
(B) BORROWER SHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF BANK
EXERCISES ITS RIGHT TO ACCELERATE PAYMENT OF ANY LIBOR OPTION ADVANCE AS PART OR
ALL OF THE OBLIGATIONS OWING UNDER THE NOTE, INCLUDING WITHOUT LIMITATION,
ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) BORROWER WAIVES ANY RIGHTS UNDER
SUCCESSOR STATUTE; AND (D) BANK HAD MADE EACH LIBOR OPTION ADVANCE PURSUANT TO
THE NOTE IN RELIANCE ON THESE AGREEMENTS.
illegible
- ---------------------
BORROWER'S INITIALS
9. Hold Harmless and Indemnification. Borrower agrees to indemnify
---------------------------------
Bank and to hold Bank harmless from, and to reimburse Bank on demand for, all
losses and expenses which Bank sustains or incurs as a result of (i) any payment
of a LIBOR Option Advance prior to the last day of the applicable LIBOR Period
for any reason, including, without limitation, termination of the Note, whether
pursuant to this Addendum or the occurrence of an Event of Default; (ii) any
termination of a LIBOR Period prior to the date it would otherwise end in
accordance with this Addendum; or (iii) any failure by Borrower, for any reason,
to borrow any portion of a LIBOR Option Advance.
5
<PAGE>
10. Funding Losses. The indemnification and hold harmless
--------------
provisions set forth in this Addendum shall include, without limitation, all
losses and expenses arising from interest and fees that Bank pays to lenders of
funds it obtains in order to fund the loans to Borrower on the basis of the
LIBOR Option(s) and all losses incurred in liquidating or re-deploying deposits
from which such funds were obtained and loss of profit for the period after
termination. A written statement by Bank to Borrower of such losses and expenses
shall be conclusive and binding, absent manifest error, for all purposes. This
obligation shall survive the termination of this Addendum and the payment of the
Note.
11. Regulatory Developments Or Other Circumstances Relating To
----------------------------------------------------------
Illegality or Impracticality of LIBOR. If any Regulatory Development or other
- -------------------------------------
circumstances relating to the interbank Euro-dollar markets shall, at any time,
in Bank's reasonable determination, make it unlawful or impractical for Bank to
fund or maintain, during any LIBOR Period, to determine or charge interest rates
based upon LIBOR, Bank shall give notice of such circumstances to Borrower and:
(i) In the case of a LIBOR Period in progress, Borrower shall, if
requested by Bank, promptly pay any interest which had accrued prior
to such request and the date of such request shall be deemed to be
the last day of the term of the LIBOR Period; and
(ii) No LIBOR Period may be designated thereafter until Bank determines
that such would be practical.
12. Additional Costs. Borrower shall pay to Bank from time to time,
----------------
upon Bank's request, such amounts as Bank determines are needed to compensate
Bank for any costs it incurred which are attributable to Bank having made or
maintained a LIBOR Option Advance or to Bank's obligation to make a LIBOR Option
Advance, or any reduction in any amount receivable by Bank hereunder with
respect to any LIBOR Option or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
----------------
resulting from any Regulatory Developments, which (i) change the basis of
taxation of any amounts payable to Bank hereunder with respect to taxation of
any amounts payable to Bank hereunder with respect to any LIBOR Option Advance
(other than taxes imposed on the overall net income of Bank for any LIBOR Option
Advance by the jurisdiction where Bank is headquartered or the jurisdiction
where Bank extends the LIBOR Option Advance; (ii) impose or modify any reserve,
special deposit, or similar requirements relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, Bank (including
any LIBOR Option Advance or any deposits referred to in the definition of
LIBOR); or (iii) impose any other condition affecting this Addendum (or any of
such extension of credit or liabilities). Bank shall notify Borrower of any
event occurring after the date hereof which entitles Bank to compensation
pursuant to this paragraph as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Determinations by Bank for
purposes of this paragraph, shall be conclusive, provided that such
determinations are made on a reasonable basis.
6
<PAGE>
13. Legal Effect. Except as specifically modified hereby, all of
------------
the terms and conditions of the Note remain in full force and effect.
IN WITNESS WHEREOF, the parties have agreed to the foregoing as of the date
first set forth above.
TAITRON COMPONENTS INCORPORATED COMERICA BANK-CALIFORNIA
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Borrower
By: /s/ illegible By: /s/ Jason Brown
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Jason Brown
Title: ------------------------ Corporate Banking Officer
By:
---------------------------
Title: ------------------------
7
<PAGE>
EXHIBIT 10.14
[LOGO OF COMERICA]
SECURITY AGREEMENT (ALL ASSETS)
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As of MAY 6, 1997, for value received, the undersigned ("Debtor") grants to
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COMERICA BANK-CALIFORNIA, ("Bank") a California banking corporation, a
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continuing security interest in the Collateral (as defined below) to secure
payment when due, whether by stated maturity, demand, acceleration or otherwise,
of all existing and future indebtedness ("Indebtedness") to the Bank of TAITRON
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COMPONENTS INCORPORATED ("Borrower") and/or Debtor. Indebtedness includes
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without limit any and all obligations or liabilities of the Borrower and/or
Debtor to the Bank, whether absolute or contingent, direct or indirect,
voluntary or involuntary, liquidated or unliquidated, joint or several, known or
unknown; any and all obligations or liabilities for which the Borrower and/or
Debtor would otherwise be liable to the Bank were it not for the invalidity or
unenforceability of them by reason of any bankruptcy, insolvency or other law,
or for any other reason; any and all amendments, modifications, renewals and/or
extensions of any of the above; all costs incurred by Bank in establishing,
determining, continuing, or defending the validity or priority of its security
interest, or in pursuing its rights and remedies under this Agreement or under
any other agreement between Bank and Borrower and/or Debtor or in connection
with any proceeding involving Bank as a result of any financial accommodation to
Borrower and/or Debtor; and all other costs of collecting indebtedness,
including without limit attorney fees. Debtor agrees to pay Bank all such costs
incurred by the Bank, immediately upon demand and until paid all costs shall
bear interest at the highest per annum rate applicable to any of the
indebtedness, but not in excess of the maximum rate permitted by law. Any
reference in this Agreement to attorney fees shall be deemed a reference to
reasonable fees, costs, and expenses of both in-house and outside counsel and
paralegals, whether or not a suit or action is instituted, and to court costs if
a suit or action is instituted, and whether attorney fees or court costs are
incurred at the trial court level, on appeal, in a bankruptcy, administrative or
probate proceeding or otherwise.
1. collateral shall mean all the following property Debtor now or later owns or
has an interest in, wherever located:
TO EXCLUDE ANY TYPE OR SPECIFIC ITEM OF PROPERTY FROM COLLATERAL, BANK AND
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DEBTOR MUST INITIAL THE LINES IMMEDIATELY FOLLOWING THAT TYPE OR SPECIFIC ITEM
OF PROPERTY.
All Accounts Receivable (For purposes of this Agreement "Accounts Receivable"
consists of all accounts, general intangibles, chattel paper, deposit accounts,
documents and instruments).
------------------------- --------------------
Bank Officer's initials Debtor's Initials
All Inventory. All Equipment and Fixtures.
------ --------- ------ ----------
Bank Debtor's Bank Debtor's
Officer's Initials Officer's Initials
Initials Initials
Specific Items listed below and/or on attached Schedule A, if any, is/are also
included in Collateral.
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All goods, instruments, documents, policies and certificates of insurance,
deposits, money or other property (except real property which is not a fixture)
which are now or later in possession of Bank, or as to which Bank now or later
controls possession by documents or otherwise.
All additions, attachments, accessions, parts, replacements, substitutions,
renewals, interest, dividends, distributions, rights of any kind (including but
not limited to stock splits, stock rights, voting and preferential rights),
products, or proceeds of or pertaining to the above including, without limit,
cash or other property which were proceeds and are recovered by a bankruptcy
trustee or otherwise as a preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, convenants and agrees
as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may request,
any information Bank may reasonably request and allow Bank to examine, inspect,
and copy any of Debtor's books and records. Debtor shall, at the request of
Bank, mark its records and the Collateral to clearly indicate the security
interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject to a
security interest in favor of Bank, Debtor shall be deemed to have warranted
that (a) Debtor is the lawful owner of the Collateral and has the right and
authority to subject it to a security interest granted to Bank; (b) none of the
Collateral is subject to any security interest other than that in favor of Bank
and there are no financing statements on file, other than in favor of Bank; and
(c) Debtor acquired its rights in the Collateral in the ordinary course of its
business.
2.3 Debtor will keep the Collateral free at all times from all claims, liens,
security interests and encumbrances other than those in favor of Bank. Debtor
will not, without the prior written consent of Bank, sell, transfer or lease, or
permit to be sold, transferred or leased, any or all of the Collateral, except
for inventory in the ordinary course of its business and will not return any
inventory to its supplier. Bank or its representatives may at all reasonable
times inspect the Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute all writings requested by Bank to
establish, maintain and continue a perfected and first security interest of Bank
in the Collateral. Debtor agrees that Bank has no obligation to acquire or
perfect any lien on or security interest in any asset(s), whether really or
personally, to secure payment of the indebtedness, and Debtor is not relying
upon assets in which the Bank may have a lien or security interest for payment
of the indebtedness.
2.5 Debtor will pay within the time that they can be paid without interest or
penalty all taxes, assessments and similar charges which at any time are or may
become a lien, charge, or encumbrance upon any Collateral, except to the extent
contested in good faith and bonded in a manner satisfactory to Bank. If Debtor
fails to pay any of these taxes, assessments, or other charges in the time
provided above, Bank has the option (but not the obligation) to do so and Debtor
agrees to repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate which could be charged
by Bank to Debtor on any indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it from
loss, damage, or deterioration from any cause. Debtor has and will maintain at
all times (a) with respect to the Collateral, insurance under an "all risk"
policy against fire and other risks customarily insured against, and (b) public
liability insurance and other insurance as may be required by law or reasonably
required by Bank, all of which insurance shall be in amount, form and content,
and written by companies as may be satisfactory to Bank, containing a lender's
loss payable endorsement acceptable to Bank. Debtor will deliver to Bank
immediately upon demand evidence satisfactory to Bank that the required
insurance has been procured. If Debtor fails to maintain satisfactory insurance,
Bank has the option (but not the obligation) to do so and Debtor agrees to repay
all amounts so expended by Bank immediately upon demand, together with interest
at the highest lawful default rate which could be charged by Bank to Debtor on
any indebtedness.
2.7 If Debtor's Accounts Receivable are pledged as Collateral under this
Agreement, on each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts Receivable, Debtor shall
be deemed to have warranted that except as otherwise indicated (a) each of those
Accounts Receivable is valid and enforceable without performance by Debtor of
any act; (b) each of those account balances are in fact owing, (c) there are no
setoffs, recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other instrument or by any
chattel paper or document, the same have been endorsed and/or delivered by
Debtor to Bank, (e) Debtor has
1.
<PAGE>
not received with respect to any Account Receivable, any notice of the death of
the related account debtor, nor of the dissolution, liquidation, termination of
existence, insolvency, business failure, appointment of a receiver for,
assignment for the benefit of creditors by, or filing of a petition in
bankruptcy by or against, the account debtor, and (f) as to each Account
Receivable, the account debtor is not an affiliate of Debtor, the United States
of America or any department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States. Debtor will do all
acts and will execute all writings requested by Bank to perform, enforce
performance of, and collect all Accounts Receivable. Debtor shall neither make
nor permit any modification, compromise or substitution for any Account
Receivable without the prior written consent of Bank. Debtor shall, at Bank's
request, arrange for verification of Accounts Receivable directly with account
debtors or by other methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all applicable laws,
including without limit any laws, ordinances, directives, orders, statutes, or
regulations an object of which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If marketable securities are pledged as Collateral under this Agreement and
if at any time the outstanding principal balance of the indebtedness exceeds N/A
---
of the value of the Collateral, as such value is determined from time to time by
Bank (herein called the "Margin Requirement"), Debtor shall immediately pay or
cause to be paid to Bank an amount sufficient to reduce the indebtedness such
that the remaining principal outstanding thereunder is equal to or less than the
Margin Requirement. Bank shall apply payments made under this paragraph in
payment of the indebtedness in such order and manner of application as Bank in
its sole discretion elects. In the alternative, Debtor may provide or cause to
be provided to Bank additional collateral in the form of cash or other property
acceptable to Bank and with a value, as determined by Bank, that when added to
the Collateral will constitute compliance with the Margin Requirement.
2.10 If Bank, acting in its sole discretion, redelivers Collateral to Debtor or
Debtor's designee for the purpose of (a) the ultimate sale or exchange thereof;
or (b) presentation, collection, renewal, or registration of transfer thereof;
or (c) loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with it preliminary to sale or exchange; such
redelivery shall be in trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds or products of it
unless Bank specifically so agrees in writing. If Debtor requests any such
redelivery, Debtor will deliver with such request a duly executed financing
statement in form and substance satisfactory to Bank. Any proceeds of Collateral
coming into Debtor's possession as a result of any such redelivery shall be held
in trust for Bank and immediately delivered to Bank for application on the
indebtedness. Bank may (in its sole discretion) deliver any or all of the
Collateral to Debtor, and such delivery by Bank shall discharge Bank from all
liability or responsibility for such Collateral. Bank, at its option, may
require delivery of any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.11 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its nominees; (b)
receive or collect by legal proceedings or otherwise all dividends, interest,
principal payments and other sums and all other distributions at any time
payable or receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the indebtedness, the manner and distribution
of the application to be in the sole discretion of Bank; (c) enter into any
extension, subordination, reorganization, deposit, merger or consolidation
agreement or any other agreement relating to or affecting the Collateral, and
deposit or surrender control of the Collateral, and accept other property in
exchange for the Collateral and hold or apply the property or money so received
pursuant to this Agreement.
2.12 Bank may assign any of the indebtedness and deliver any or all of the
Collateral to its assignee, who then shall have with respect to Collateral so
delivered all the rights and powers of Bank under this Agreement, and after that
Bank shall be fully discharged from all liability and responsibility with
respect to Collateral so delivered.
2.13 Debtor delivers this Agreement bases solely on Debtor's independent
investigation of (or decision not to investigate) the financial condition of
Borrower and is not relying on any information furnished by Bank. Debtor
assumes full responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the indebtedness or any other
matter which the undersigned may deem necessary or appropriate now or later.
Debtor waives any duty on the part of Bank, and agrees that Debtor is not
relying upon nor expecting Bank to disclose to Debtor any fact now or later
known by Bank, whether relating to the operations or condition of Borrower, the
existence, liabilities or financial condition of any guarantor of the
indebtedness, the occurrence of any default with respect to the indebtedness, or
otherwise, notwithstanding any effect such fact may have upon Debtor's risk or
Debtor's rights against Borrower, Debtor knowingly accepts the full range of
risk encompassed in this Agreement, which risk includes without limit the
possibility that Borrower may incur indebtedness to Bank after the financial
condition of Borrower, or Borrower's ability to pay debts as they mature, has
deteriorated.
2.14 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, officers, and directors from and against any and all
claims, damages, fines, expenses, liabilities or causes of action of whatever
kind, including without limit consultant fees, legal expenses, and reasonable
attorneys' fees, suffered by any of them as a direct or indirect result of any
actual or asserted violation of any law, including without limit Environmental
Laws, or of any remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral until Bank
shall direct Debtor to the contrary. Immediately upon notice to Debtor by Bank
and at all times after that, Debtor agrees to fully and promptly cooperate and
assist Bank in the collection and enforcement of all Collateral and to hold in
trust for Bank all payments received in connection with Collateral and from the
sale, lease or other disposition of any Collateral, all rights by way of
suretyship or guaranty and all rights in the nature of a lien or security
interest which Debtor now or later has regarding Collateral. Immediately upon
and after such notice, Debtor agrees to (a) endorse to Bank and immediately
deliver to Bank all payments received on Collateral or from the sale, lease or
other disposition of any Collateral or arising from any other rights or
interests of Debtor in the Collateral, in the form received by Debtor without
commingling with any other funds, and (b) immediately deliver to Bank all
property in Debtor's possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral. Debtor
irrevocably authorizes Bank or any Bank employee or agent to endorse the name of
Debtor upon any checks or other items which are received in payment for any
Collateral, and to do any and all things necessary in order to reduce these
items to money. Bank shall have no duty as to the collection or protection of
Collateral or the proceeds of it, nor as to the preservation of any related
rights, beyond the use of reasonable care in the custody and preservation of
Collateral in the possession of Bank. Debtor agrees to take all steps necessary
to preserve rights against prior parties with respect to the Collateral.
3.2 If Accounts Receivable are pledged as Collateral under this Agreement,
Debtor agrees that immediately upon Bank's request (whether or not any Event of
Default exists), Debtor shall at its sole expense establish and maintain: (a) an
United States Post Office lock box (the "Lock Box"), to which Bank shall have
exclusive access, Debtor expressly authorizes Bank, from time to time to remove
contents from the Lock Box, for disposition in accordance with this Agreement.
Debtor agrees to notify all account debtors and other parties obligated to
Debtor that all payments made to Debtor (other than payments by electronic funds
transfer) shall be remitted, for the credit of Debtor, to the Lock Box, and
Debtor shall include a like statement on all invoices; and (b) a non-interest
bearing deposit account with Bank in the name of Bank for the benefit of Debtor
(the "Cash Collateral Account") as security for payment of the indebtedness to
which Bank shall have exclusive access. Debtor agrees to notify all account
debtors and other parties obligated to Debtor that all payments made to Debtor
by electronic funds transfer shall be remitted, for the credit of Debtor, to the
Cash Collateral Account, and Debtor, at Bank's request, shall include a like
statement on all invoices. Debtor shall execute all documents and authorizations
necessary to establish and maintain the Lock Box and the Cash Collateral
Account.
2.
<PAGE>
3.3 All items of amounts which are remitted to the Lock Box or otherwise
delivered by or for the benefit of Debtor to Bank on account of partial or full
payment of, or with respect to, any Collateral shall, at Bank's option, (i) be
applied to the payment of the Indebtedness, whether then due or not, in such
order of application as Bank may determine in its sole discretion, or, (ii)
shall be deposited to the Cash Collateral Account. Debtor agrees that Bank shall
not be liable for any loss or damage which Debtor may suffer as a result of
Bank's processing of items or its exercise of any other rights or remedies under
this Agreement, including without limitation indirect, special or consequential
damages, loss or revenues or profits, or any claim,, demand or action by any
third party arising out of or in connection with the processing of items or the
exercise of any other rights or remedies under this Agreement. Debtor agrees to
indemnify and hold Bank harmless from and against all such third party claims,
demands or actions, including without limitation attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness when due, or such portion of it as may
be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of, any term of this
Agreement, or any other agreement or commitment between Borrower, Debtor, or any
guarantor of any of the Indebtedness ("guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or other information
made, given or furnished to Bank by or on behalf of Borrower, Debtor, or any
guarantor shall be, or shall prove to have been, false or materially misleading
when made, given, or furnished; or
(d) Any loss, theft, substantial damage or destruction to or of any Collateral,
or the issuance or filing of any attachment, levy, garnishment or the
commencement of any proceeding in connection with any Collateral or of any other
judicial process of, upon or in respect of Borrower, Debtor, any guarantor, or
any Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any guarantor of any
substantial portion of its assets or property or voluntary suspension of the
transaction of business by Borrower, Debtor, or any guarantor, or death,
dissolution, termination of existence, merger, consolidation, insolvency,
business failure, or assignment for the benefit of creditors of or by Borrower,
Debtor, or any guarantor; or commencement of any proceedings under any state or
federal bankruptcy or insolvency laws or laws for the relief of debtors by or
against Borrower, Debtor, or any guarantor; or the appointment of a receiver,
trustee, court appointee, sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any guarantor; or
(f) Bank deems the margin of Collateral insufficient or itself insecure, in good
faith believing that the prospect of payment of the indebtedness or performance
of this Agreement is impaired or shall fear deterioration, removal, or waste of
Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its discretion and
without prior notice to Debtor declare any or all of the Indebtedness to be
immediately due and payable, and shall have and may exercise any one or more of
the following rights and remedies:
(a) exercise all the rights and remedies upon default, in foreclosure and
otherwise, available to secured parties under the provisions of the Uniform
Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and security interest
granted by this Agreement, to recover judgment for all amounts then due and
owing as indebtedness, and to collect the same out of any Collateral or the
proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment or decree of
any court of competent jurisdiction, of any or all Collateral; and/or
(d) personally or by agents, attorneys, or appointment of a receiver, enter upon
any premises where Collateral may then be located, and take possession of all or
any of it and/or render it unusable; and without being responsible for loss or
damage to such Collateral, hold, operate, sell, lease, or dispose of all or any
Collateral at places and times and on terms and conditions as Bank may deem fit,
without any previous demand or advertisement; and except as provided in this
Agreement, all notice of sale, lease or other disposition, and advertisement,
and other notice or demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to inquire as to the power and
authority of Bank to sell, lease, or otherwise dispose of the Collateral or as
to the application by Bank of the proceeds of sale or otherwise, which would
otherwise be required by, or available to Debtor under, applicable are expressly
waived by Debtor to the fullest extent permitted.
At any sale pursuant to this Section 4.2, whether under the power of sale, by
virtue of judicial proceedings or otherwise, it shall not be necessary for Bank
or a public officer under order of a court to have present physical or
constructive possession of Collateral to be sold. The recitals contained in any
conveyances and receipts made and given by Bank or the public officer to any
purchaser at any sale made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish the truth and accuracy of
the matters stated (including, without limit, as to the amounts of the principal
of and interest on the indebtedness, the accrual and nonpayment of it and
advertisement and conduct of the sale); and all prerequisites to the sale shall
be presumed to have been satisfied and performed. Upon any sale of any
Collateral, the receipt of the officer making the sale under judicial
proceedings or of Bank shall be sufficient discharge to the purchaser for the
purchase money, and the purchaser shall not be obligated to see to the
application of the money. Any sale of any Collateral under this Agreement shall
be a perpetual bar against Debtor with respect to that Collateral.
4.3 Debtor shall have at the request of Bank, notify the account debtors or
obligors of Bank's security interest in Accounts Receivable and direct payment
of it to Bank. Bank may, itself, upon the occurrence of any Event of Default so
notify and direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral authorized by
this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable attorney fees and legal expenses
incurred by Bank; the balance of the proceeds of the sale or other disposition
shall be applied in the payment of the indebtedness, first to interest, then to
principal, then to remaining indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled to it under
applicable law. Debtor shall remain liable for any deficiency, which it shall
pay to Bank immediately upon demand.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the collection
of the indebtedness or for the recovery of any other sum to which Bank may be
entitled for the breach of this Agreement by Debtor. Nothing in this Agreement
shall reduce or release in any way any rights or security interests of Bank
contained in any existing agreement between Borrower, Debtor, or any guarantor
and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be effective
unless in writing and signed by an authorized officer of Bank. No waiver of any
default or forbearance on the part of Bank in enforcing any of its rights under
this Agreement shall operate as a waiver of any other default or of the same
default on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which appointment is
coupled with an interest) the true and lawful attorney of Debtor (with full
power of substitution) in the name, place and stead of, and at the expense of,
Debtor:
(a) to demand, receive, sue for, and give receipts or acquittances for any
moneys due or to become due on any Account Receivable and to endorse any item
representing any payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of Debtor all financing
statements or other filings deemed necessary or desirable by Bank to evidence,
perfect, or continue the security interests granted in this Agreement; and
3.
<PAGE>
(c) to do and perform any act on behalf of Debtor permitted or required under
this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon request
of Bank, to assemble the Collateral and make it available to Bank at any place
designated by Bank which is reasonably convenient to Bank and Debtor.
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary, all notices,
requests and demands required under this Agreement or by law shall be given to,
or made upon, Debtor at the address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written notice of all
contemplated changes in Debtor's name, chief executive office location, and/or
location of any Collateral, but the giving of this notice shall not cure any
Event of Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the indebtedness and any
related obligations, including without limit this Agreement. In connection with
the above, but without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and information which
Bank now or later has relating to Debtor, the indebtedness or this Agreement,
however obtained. The undersigned agree(s) that the Bank may provide
information relating to this Security Agreement or to the undersigned to the
Bank's parent, affiliates, subsidiaries and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank to
Debtor can be set off and applied by Bank on any indebtedness at any time(s)
either before or after maturity or demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed against any
person of property; (b) give notice of the terms, time and place of any public
or private sale of personal property security held from Borrower or any other
person, or otherwise comply with the provisions of Section 9-504 of the
California or other applicable Uniform Commercial Code; or (c) pursue any other
remedy in the Bank's power. Debtor waives notice of acceptance of this Agreement
and presentment, demand, protest, notice of protest, dishonor, notice of
dishonor, notice of default, notice of intent to accelerate or demand payment of
any indebtedness, any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any indebtedness, and
agree(s) that the Bank may, once or any number of times, modify the terms of any
indebtedness, compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all indebtedness, or permit Borrower to incur
additional indebtedness, all without notice to Debtor and without affecting in
any manner the unconditional obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense and setoff of any
nature which, under principles of guaranty or otherwise, would operate to impair
or diminish in any way the obligation of Debtor under this Agreement, and
acknowledges that such waiver is by this reference incorporated into each
security agreement, collateral assignment, pledge and/or other document from
Debtor now or later securing the indebtedness, and acknowledges that as of the
date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts paid by Debtor
pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior notice to
Debtor of any action to be taken under this Agreement, Debtor agrees that a
written notice given to it at least five days before the date of the act shall
be reasonable notice of the act and, specifically, reasonable notification of
the time and place of any public sale or of the time after which any private
sale, lease, or other disposition is to be made, unless a shorter notice period
is reasonable under the circumstances. A notice shall be deemed to be given
under this Agreement when delivered to Debtor or when placed in an envelope
addressed to Debtor and deposited, with postage prepaid, in a post office or
official depository under the exclusive care and custody of the United States
Postal Service. The mailing shall be by overnight courier, certified, or first
class mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or discharge
of this Agreement in whole or in part, the effectiveness of this Agreement shall
automatically continue or be reinstated in the event that any payment received
or credit given by Bank in respect of the indebtedness is returned, disgorged,
or rescinded under any applicable law, including, without limitation, bankruptcy
or insolvency laws, in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or credit had not
been received or given by Bank, and whether or not Bank relied upon this payment
or credit or changed its position as a consequence of it in the event of
continuation or reinstatement of this Agreement, Debtor agrees upon demand by
Bank to execute and deliver to Bank those documents which Bank determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of Debtor to do so shall not
affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this Agreement
shall inure to the benefit of Bank's successors and assigns and to any other
holder who derives from Bank title to or an interest in the Indebtedness or any
portion of it, and shall bind Debtor and the heirs, legal representatives,
successors, and assigns of Debtor. Nothing in this Section 5.10 is deemed a
consent by Bank to any assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
convenants made by Debtor and all rights, powers and authorities given to or
conferred upon Bank are made or given jointly and severaly.
5.12 Except as otherwise provided in this Agreement, all terms in this Agreement
have the meanings assigned to them in Division 9 (or, absent definition in
Division 9, in any other Division) of the Uniform Commercial Code, as of the
date of this Agreement. "Uniform Commercial Code" means the California Uniform
Commerical Code, as amended.
5.13 No single or partial exercise, or delay in the exercise, of any right or
power under this Agreement, shall preclude other or further exercise of the
rights and powers under this Agreement. The unenforceability of any provision
of this Agreement shall not affect the enforceability of the remainder of this
Agreement. This Agreement constitutes the entire agreement of Debtor and Bank
with respect to the subject matter of this Agreement. No amendment or
modification of this Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of Bank. This Agreement
shall in all respects be governed by and construed in accordance with the laws
of the State of California without regard to conflict of laws principles.
5.14 To the extent that any of the indebtedness is payable upon demand, nothing
contained in this Agreement shall modify the terms and conditions of that
indebtedness nor shall anything contained in this Agreement prevent Bank from
making demand, without notice and with or without reason, for immediate payment
of any or all of that indebtedness at any time(s), whether or not an Event of
Default has occurred.
5.15 Debtor's chief executive office is located and shall be maintained at
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at
--------------------------------
- --------------------------------------------------------------------------------
Collateral shall be maintained only at the locations identified in this Section
5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement under the Uniform Commercial Code and may be
filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform Commercial
Code, but the obligations contained in Section 2.1a of this Agreement shall
survive termination.
4.
<PAGE>
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
7. Special Provisions Applicable to this Agreement. ("None" if left blank)
DEBTOR: TAITRON COMPONENTS INCORPORATED
/s/ illegible
- -----------------------------------------
BY:
- -----------------------------------------
BY:
- -----------------------------------------
BY:
- -----------------------------------------
BY:
5.
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 167 167
<SECURITIES> 0 0
<RECEIVABLES> 5,959 5,959
<ALLOWANCES> 282 282
<INVENTORY> 33,521 33,521
<CURRENT-ASSETS> 39,752 39,752
<PP&E> 2,556 2,556
<DEPRECIATION> 650 650
<TOTAL-ASSETS> 42,313 42,313
<CURRENT-LIABILITIES> 14,553 14,553
<BONDS> 3,000 3,000
0 0
0 0
<COMMON> 7 7
<OTHER-SE> 24,277 24,277
<TOTAL-LIABILITY-AND-EQUITY> 42,313 42,313
<SALES> 8,502 16,518
<TOTAL-REVENUES> 8,502 16,518
<CGS> 5,983 11,554
<TOTAL-COSTS> 5,983 11,554
<OTHER-EXPENSES> 1,327 2,518
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 219 456
<INCOME-PRETAX> 973 1,990
<INCOME-TAX> 392 800
<INCOME-CONTINUING> 581 1,190
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 581 1,190
<EPS-PRIMARY> .09 .18
<EPS-DILUTED> .09 .18
</TABLE>
