UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-13810
SOCKET COMMUNICATIONS, INC.
(Name of small business issuer as specified in its charter)
Delaware 94-3155066
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6500 Kaiser Drive, Fremont, CA 94555
(Address of principal executive offices including zip code)
(510) 744-2700
(Registrant's telephone number, including area code)
Check whether the issuer (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 ___
Number of shares of Common Stock ($0.001 par value) outstanding as of
July 31, 1996 was 3,019,976 shares.
Page 1
<PAGE>
INDEX
PAGE NO.
Part I. Financial information
Condensed Balance Sheets - June 30, 1996 and
December 31, 1995........................................... 3
Condensed Statements of Operations - Three Months and Six
Months Ended June 30, 1996 and 1995......................... 4
Condensed Statements of Cash Flows - Six Months Ended
June 30, 1996 and 1995...................................... 5
Notes to Condensed Financial Statements....................... 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8-11
Part II. Other information
Item 4. Submission of Matters to a Vote of Security Holders... 12
Item 6. Exhibits and Reports on Form 8-K...................... 12
Signatures.................................................... 13
Page 2
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995*
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 666,629 $ 2,406,655
Accounts receivable, net................... 710,283 900,717
Inventories................................ 727,976 510,331
Prepaid expenses........................... 33,418 31,880
------------ ------------
Total current assets..................... 2,138,306 3,849,583
Property and equipment:
Machinery and office equipment............. 380,559 340,108
Computer equipment......................... 423,426 345,571
------------ ------------
803,985 685,679
Accumulated depreciation................... (441,257) (332,300)
------------ ------------
362,728 353,379
Other assets................................. 61,511 72,436
------------ ------------
Total assets............................. $ 2,562,545 $ 4,275,398
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit........................ $ 230,000 $ -
Accounts payable and accrued expenses...... 923,956 1,129,439
Accrued payroll and related expenses....... 229,667 357,771
Deferred revenue........................... 110,742 112,143
Current portion of capital leases and
equipment financing notes................. 132,441 106,629
------------ ------------
Total current liabilities................ 1,626,806 1,705,982
Long-term portion of capital leases and
equipment financing notes................... 144,132 141,121
Stockholders' equity :
Undesignated preferred stock, $0.001 par value:
Authorized shares - 3,000,000
Issued and outstanding shares - none..... - -
Common stock, $0.001 par value:
Authorized shares - 15,000,000
Issued and outstanding shares -
3,019,976 in 1996, and 2,990,870 in 1995. 3,020 2,991
Additional paid-in capital................. 11,397,107 11,393,663
Accumulated deficit........................ (10,608,520) (8,968,359)
------------ -----------
Total stockholders' equity............... 791,607 2,428,295
------------ -----------
Total liabilities and stockholders'
equity.................................. $ 2,562,545 $ 4,275,398
============ ===========
- --------------------------------------------
* Derived from audited financial statements.
</TABLE>
See accompanying notes.
Page 3
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<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Product....................$ 908,397 $1,125,156 $2,125,450 $2,241,307
Royalty.................... 60,000 54,649 136,790 101,389
---------- ---------- ---------- ----------
Total revenue............. 968,397 1,179,805 2,262,240 2,342,696
Cost of revenue............. 569,877 748,918 1,288,049 1,515,662
---------- ---------- ---------- ----------
Gross profit................ 398,520 430,887 974,191 827,034
Operating expenses:
Research and development... 243,517 264,591 514,537 527,139
Sales and marketing ....... 697,263 496,826 1,328,093 1,002,050
General and administrative. 408,042 366,801 775,185 751,788
---------- ---------- ---------- ----------
Total operating expenses.. 1,348,822 1,128,218 2,617,815 2,280,977
---------- ---------- ---------- ----------
Operating loss.............. (950,302) (697,331) (1,643,624) (1,453,943)
Interest income and other
(expense), net............. 5,499 9,369 24,132 6,677
Interest expense............ (10,551) (56,787) (20,669) (101,283)
---------- ---------- ---------- ----------
Net loss................. $(955,354) $(744,749) $(1,640,161) $(1,548,549)
========== ========== ========== ==========
Net loss per share....... $ (0.32) $ (0.92) $ (0.55) $ (1.42)
========== ========== ========== ==========
Weighted average
shares outstanding...... 3,017,052 808,681 3,007,158 1,093,258
========== ========== ========== ==========
</TABLE>
See accompanying notes.
Page 4
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<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1996 1995
----------- -----------
<S> <C> <C>
Operating activities
Net loss......................................... $(1,640,161) $(1,548,549)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 108,957 129,529
Accrued interest on converted notes........... - 110,232
Changes in operating assets and liabilities:
Accounts receivable......................... 190,434 212,306
Inventories................................. (217,645) (104,017)
Prepaid expenses............................ (1,538) 12,737
Other assets................................ 10,925 -
Accounts payable and accrued expenses....... (205,483) (2,192)
Accrued payroll and related expenses........ (128,104) 87,004
Deferred revenue............................ (1,401) 20,197
----------- -----------
Net cash used in operating activities..... (1,884,016) (1,082,753)
Investing activities
Purchase of equipment............................ (118,306) (13,574)
----------- -----------
Net cash used in investing activities..... (118,306) (13,574)
Financing activities
Payments on capital leases and equipment
financing notes................................. (57,038) (34,554)
Proceeds from equipment financing................ 85,861 -
Proceeds from issuance of convertible notes...... - 1,469,000
Repayment of convertible notes................... - (955,000)
Stock options and warrants exercised............. 3,473 2,333
Net proceeds from the sale of common stock....... - 4,884,431
Proceeds from borrowing under bank
line of credit.................................. 230,000 -
----------- -----------
Net cash provided by financing activities. 262,296 5,366,210
----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (1,740,026) 4,269,883
Cash and cash equivalents at beginning of period... 2,406,655 407,602
----------- -----------
Cash and cash equivalents at end of period......... $ 666,629 $ 4,677,485
=========== ===========
Supplemental cash flow information
Cash paid for interest........................... $ 20,669 $ 15,447
Notes payable and accrued interest converted to
common stock.................................... - 1,065,232
</TABLE>
See accompanying notes.
Page 5
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SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying financial statements of Socket Communications, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB item 310(b). Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for fair presentation have been included.
The financial statements have been prepared on a going concern basis.
The Report of Independent Auditors on the Company's financial statements
for the year ended December 31, 1995 included in Form 10-KSB contained an
explanatory paragraph which raised substantial doubt about the Company's
ability to continue as a going concern because of the Company's recurring
operating losses and the need for additional financing. The Company has
an accumulated deficit of $10,608,520. The Company will require additional
financing during 1996 and ultimately will need to achieve profitable
operations. The Company believes that sufficient outside financing sources
will be available, however, there can be no assurance that the Company will
be able to obtain such financing on commercially reasonable terms, if at
all, and such terms may be dilutive to existing stockholders. If the Company
is unable to obtain the necessary funds, other more substantial restructuring
options may be necessary which may have adverse effects on the Company's
operations. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of assets and liabilities that
may result from the outcome of this uncertainty.
Operating results for the three months and six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
NOTE 2 - Cash Equivalents
Cash equivalents consist mainly of money market funds which are highly
liquid financial instruments that are readily convertible to cash. The
Company has not incurred losses related to these instruments. As of June
30, 1996 and December 31, 1995, the Company had no material investments in
debt or equity securities.
NOTE 3 - Inventories
Inventories consist principally of raw materials and sub-assemblies,
which are stated at the lower of cost (first-in, first-out) or market.
June 30, December 31,
1996 1995
----------- -----------
Raw materials and sub-assemblies $ 695,073 $ 481,592
Finished goods 32,903 28,739
----------- -----------
$ 727,976 $ 510,331
=========== ===========
Page 6
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NOTE 4 - Income Taxes
Due to the Company's loss position, there was no provision for income
taxes for the three months and six months ended June 30, 1996 and 1995.
NOTE 5 - Net Loss Per Share
Net loss per share is calculated using the weighted average number of
common shares outstanding during the period. Common equivalent shares are
excluded from the calculation as the effect is antidilutive, however,
pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common stock and common equivalent shares issued by the Company
at prices below the initial public offering price during the twelve-month
period prior to the offering have been included in the calculation as if they
were outstanding for all periods through March 31, 1995 (using the treasury
stock method for warrants and options and the initial public offering
("IPO") price). The Company completed its IPO in June 1995.
NOTE 6 - Bank Financing Arrangements
In June 1996, the Company's credit agreement (the "Agreement") with a bank
was amended to extend the maturity date to June 15, 1997. The Agreement is
secured by the Company's current and future assets. The credit facility
under the Agreement allows the Company to borrow up to $500,000 based on
the level of qualified receivables. The Agreement contains covenants that
require the Company to maintain certain financial ratios. The Company was
not in compliance with the covenants at June 30, 1996 and has obtained a
temporary waiver. As of June 30, 1996 there were $230,000 outstanding in
borrowings under the Agreement. An additional $500,000 in credit secures
a letter of credit with a supplier.
NOTE 7 - Stock Option/Stock Issuance Plan
At the Annual Meeting of Stockholders of the Company, held on May 15, 1996,
the stockholders approved an amendment to the 1995 Stock Plan to reserve an
additional 150,000 shares of Common Stock for issuance thereunder.
Page 7
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SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains forward-looking statements
(identified with an asterisk "*") that involve risks and uncertainties.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. For a more complete discussion
of the factors that might cause such a difference, see "Business" including
"Additional Risk Factors Affecting Future Performance" in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995
(collectively, the "Form 10-KSB Sections").
Overview
The Company's serial and Ethernet card products for PC Card mobile
computers, introduced in 1993, are its principal sources of revenues. The
Company also sells two wireless products, a PageCard PC Card wireless
messaging system introduced in January 1995 and a GPS card. In addition,
the Company earns sales royalties from sale of certain of the Company's
products by the third party manufacturers of those products.
The Company completed its initial public offering ("IPO") in June 1995,
with net proceeds of approximately $4.8 million. Prior to the IPO, the
Company's working capital requirements were met primarily through the
private sale of equity and debt securities. The Company has sustained
significant quarterly operating losses in every fiscal period since its
inception. The Company expects to incur substantial quarterly operating
losses at least through 1996 and possibly longer.* Achieving revenue
growth from the Company's existing and future products will be highly
dependent upon the market acceptance of the PageCard receiver, the market
acceptance and timely release of enhanced PageSoft software products, the
development of page-enabled applications by independent software vendors in
selected vertical markets, continued increases in the market acceptance of
the Company's serial and Ethernet cards and the ability of the Company to
develop successful new products for new and existing markets.* There can be
no assurances that any of these events will occur or that the Company's
revenues will grow. The Company's ability to continue its operations is also
dependent upon the availability of additional capital.* See "Liquidity and
Capital Resources."
The Company believes that its operating results will be subject to
substantial quarterly fluctuations due to several factors, some of which
are outside the control of the Company, including fluctuating market demand
for, and declines in the average selling price of, the Company's products,
the timing of significant orders from distributors and OEM customers,
delays in the introduction of enhancements to existing and new products,
- ----------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial
Condition and Results Of Operations and in the Form 10-KSB Sections.
Page 8
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SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
market acceptance of existing and new products, competitive product
introductions, the mix of products sold, changes in the Company's
distribution network, changes in customer product requirements, changes in
the regulatory environment, the cost and availability of components, the
level of royalties from and to third parties and general economic
conditions. The Company generally does not operate with a significant
order backlog, and a substantial portion of the Company's revenue in any
quarter is derived from orders booked in that quarter. Accordingly, the
Company's sales expectations are based almost entirely on its internal
estimates of future demand and not on firm customer orders. The Company is
making significant investments in sales and marketing and in research and
development, and if orders and sales do not meet expectations, the
Company's operating results could be materially adversely affected.
Results of Operations
Revenue
Revenue for the quarter and six months ended June 30, 1996 of $968,397
and $2,262,240, respectively, decreased 18% and 3% versus the corresponding
periods a year ago. The decrease was primarily due to unit price reductions
and lower sales volumes for the Company's Ethernet card. These decreases
were substantially offset in the first quarter and the six month period by
increases in sales of the Company's serial card. During the quarter ended
June 30, 1996, the Company phased out its old Ethernet card, which had been
shipping since 1993, and replaced it with a new Ethernet card.
Product Gross Profit
Product gross profit, excluding royalty revenue, is equal to product
revenue less the cost of revenue, because the costs of royalty revenue
generally are negligible. The Company's product gross margin for the
second quarter of 1996 was 37% of product revenues compared to 33% for the
same quarter a year ago. The Company's product gross margin for the six
month period in 1996 was 39% of product revenues compared to 32% for the
same period a year ago. The increase resulted primarily from volume price
discounts from certain suppliers offset in part by a selling price
reduction for Ethernet cards.
Research and Development
Research and development expenses for the quarter and six months ended
June 30, 1996 were $243,517 and $514,537, respectively, a 8% and 2%
decrease versus the corresponding periods a year ago, primarily reflecting
decreased staffing and related costs. To date, the Company has not
capitalized any software development costs. The Company expects to increase
its research and development expenses in the second half of 1996.*
- ----------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial
Condition and Results Of Operations and in the Form 10-KSB Sections.
Page 9
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SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and Marketing
Sales and marketing expenses for the quarter and six months ended June
30, 1996 were $697,263 and $1,328,093, respectively, a 40% and 33% increase
over the corresponding periods a year ago. The increase primarily reflected
higher staffing levels, increased advertising activity and increased levels
of travel. The Company expects to further increase its sales and marketing
expenses in the second half of 1996.*
General and Administrative
General and administrative expenses for the quarter and six months ended
June 30, 1996 were $408,042 and $775,185, respectively, a 11% and 3%
increase over the corresponding periods a year ago. The increase primarily
reflected higher recruiting and relocation costs, partially offset by lower
compensation costs in the first quarter associated with a vacancy in the
C.E.O. position, which was filled March 1, 1996. The Company expects moderate
increases in its general and administrative expenses in the second half of
1996.*
Interest and Other Income / Expense
Interest income primarily reflects interest on cash balances, which were
nominal until completion of the IPO in June 1995 after which interest was
earned through investment of the IPO net proceeds in money market funds.
Interest expense for the quarter and six months ended June 30, 1996 was
$10,551 and $20,669, respectively, and related primarily to equipment lease
financing obligations. Interest expense for the quarter and six months
ended June 30, 1995 was $56,787 and $101,283, respectively, and related
primarily to interest expense on convertible notes issued to provide
interim bridge financing prior to the IPO and interest expense related to
equipment lease financing obligations.
Liquidity and Capital Resources
Net cash used for operating activities in the six months ended June 30,
1996 was $1,884,016, resulting primarily from the net loss, an increase in
inventories and decreases in accounts payable and accrued expenses and
accrued payroll and related expenses, partially offset by decreases in
accounts receivable. Net cash used in the six months ended June 30, 1995 was
$1,082,753, resulting primarily from the net loss and an increase in
inventories, partially offset by decreases in accounts receivable and an
increase in accrued payroll and related expenses.
Net cash provided by financing activities during the first half of 1996
primarily reflected borrowings under a revolving credit line with a bank
(see Note 6 of Notes to Condensed Financial Statements) and equipment
- ----------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial
Condition and Results Of Operations and in the Form 10-KSB Sections.
Page 10
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SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
financing notes. Cash provided by financing activities during the first
half of 1995 primarily reflected proceeds from the Company's IPO and
convertible notes issued to provide interim bridge financing prior to the
IPO.
As of June 30, 1996, the Company had cash and cash equivalents of $666,629.
The Company believes its existing capital resources and revenue from
operations will be inadequate to satisfy its working capital requirements
through the end of 1996. The Company will need to raise additional capital
to fund operations in 1996, which the Company intends to seek through the
private sale of equity securities.* The Report of Independent Auditors on
the Company's financial statements for the year ended December 31, 1995
included in Form 10-KSB contains an explanatory paragraph regarding the
Company's need for additional financing and raised substantial doubt about
the Company's ability to continue as a going concern absent such financing.
There can be no assurances that such capital will be available on acceptable
terms, if at all, and such terms may be dilutive to existing stockholders. If
the necessary funding is not obtained, there could be a material adverse
affect on the Company's financial condition and results of operations. The
Company's actual working capital needs will depend upon numerous factors,
however, including the extent and timing of acceptance of the Company's
products in the market, the Company's operating results, the progress of the
Company's research and development activities, the cost of increasing the
Company's sales and marketing activities and the status of competitive
products, none of which can be predicted with certainty.
- ----------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial
Condition and Results Of Operations and in the Form 10-KSB Sections.
Page 11
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PART II. OTHER INFORMATION
Items 1-3. Not applicable.
Item 4. Submission of matters to a vote of Security Holders.
At the Annual Meeting of Stockholders of the Company, held on May 15,
1996, in South San Francisco, CA, the stockholders elected five directors
to serve until the next Annual Meeting of Stockholders, approved an
amendment to the 1995 Stock Plan to reserve an additional 150,000 shares of
Common Stock for issuance thereunder, and ratified the appointment of Ernst
& Young LLP as independent public accountants of the Company for the fiscal
year ending December 31, 1996.
Results of the stockholder vote:
ITEM FOR AGAINST ABSTAIN
----------------------- ---------- ---------- ----------
Election of Directors:
Charlie Bass 1,623,951 7,000
Martin Levetin 1,623,951 7,000
Micheal Gifford 1,623,951 7,000
Jack Carsten 1,623,951 7,000
Gary Kalbach 1,923,951 7,000
Amend 1995 Stock Plan 1,607,851 22,100 1,000
Appoint Ernst & Young LLP 1,630,951
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits are filed herewith:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ----------------
10.14 Loan Agreement between the Company and CivicBank of Commerce
dated July 5, 1995
10.15 Promissory Note payable by the Company to CivicBank of Commerce
dated July 5, 1995
10.16 Promissory Note Change in Terms Agreement by and between
CivicBank of Commerce and the Company dated June 14, 1996
11.1 Statement regarding computation of per share loss
27.1 Financial data schedule for the period ended June 30, 1996
b. Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended June 30, 1996.
Page 12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SOCKET COMMUNICATIONS, INC.
Registrant
Date: August 14, 1996 /s/ David W. Dunlap
-------------- ------------------------
David W. Dunlap
Vice President of Finance
and Administration and
Chief Financial Officer
Page 13
Exhibit 10.14
CivicBank of Commerce
LOAN AGREEMENT
Borrower: SOCKET COMMUNICATIONS, INC. Lender: CivicBank of Commerce
6500 Kaiser Drive Fremont Office
Fremont, CA 94555 2201 Walnut Avenue, Suite 100
Fremont, CA 94538
This LOAN AGREEMENT between SOCKET COMMUNICATIONS, INC. ("Borrower") and
CivicBank of Commerce ("Lender") is made and executed on the following terms
and conditions. Borrower has received prior commercial loans from Lender or
has applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as
the "Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) in granting, renewing, or extending any Loan, Lender is relying
upon Borrowers representations, warranties, and agreements, as set forth in
this Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lenders sole judgment and discretion;
and (c) all such Loans shall be and shall remain subject to the following
terms and conditions of this Agreement
TERM. This Agreement shall be effective as of July 5, 1995, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Loan Agreement as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means SOCKET COMMUNICATIONS, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
Borrowing Base. The words "Borrowing Base" mean 1.) The maximum borrowing
ability as determined by Lender from time to time, the lesser of (a)
$500,000.00; or (b) the sum of (i) 70% of the aggregate amount of
Eligible Accounts. (182000174 only). 2.) The maximum borrowing ability as
determined by Lender from time to time, the lesser of $500,000.00; or (b)
the sum of (i) 75% of the aggregate amount of international Eligible
Accounts Receivable so that the borrowing ability will be greater than or
equal to the total payments due to MITSUBISHI CORPORATION from SOCKET
COMMUNICATIONS, INC. which have not been paid in full within 60 days or
less from original invoice date. (Standby Letter of Credit number 518
only).
Business Day. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise. The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions
acceptable to Lender. The net amount of any Eligible Account against
which Borrower may borrow shall exclude all returns, discounts, credits,
and offsets of any nature. Unless otherwise agreed to by Lender in
writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer,
an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary
of, or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or setoff.
(f) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(g) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account Debtor
to be unsatisfactory.
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07-05-1995 LOAN AGREEMENT Page 2
Loan No 182000174 (Continued)
(h) Accounts of any Account Debtor who has flied or has had flied
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or debtor-
in-relief acts; or who has had appointed a trustee, custodian, or
receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such debts
become due.
(i) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(j) Accounts which have not been paid In full within 90 days
(182000174 only) from the invoice date. The entire balance of any
Account of any single Account debtor will be ineligible whenever the
portion of the Account which has not been paid within 90 days
(182000174 only) from the invoice date is in excess of 20.000% of the
total amount outstanding on the Account.
(k) That portion of the Accounts of any single Account Debtor which
exceeds 25.000% of all of Borrower's Accounts.
(l) (i) Retentions; (ii) Maintenance Contracts; (iii) Prebillings;
(iv) Accounts Receivable where Borrower fails to provide Lender with
requested financial information concerning the subject accounts
receivable.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them, whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means CivicBank of Commerce, its successors and
assigns.
Letter of Credit. The words "Letter of Credit" mean a letter of credit
issued by Lender on behalf of Borrower as described below in the section
titled "Letter of Credit Facility."
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's receivables.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
Security Agreement The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the term of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as new or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in term and substance
acceptable to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar Intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
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O7-O5-1995 LOAN AGREEMENT Page 3
Loan No 182000174 (Continued)
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall
be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, and be in full
force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrowers Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable, including without limitation the following loan fees: If
applicable, Documentation Fee of $250.00; Loan Fee of $1,718.75;
Initial Audit Fee and/or Re-Audit Fees.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for in
the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested
orally subject to the limitations set forth below. All oral requests shall
be confirmed in writing on the day of the request. Each Advance shall be
conclusively deemed to have been made at the request of and for the
benefit of Borrower (a) when credited to any deposit account of Borrower
maintained with Lender or (b) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay
to Lender an amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base. On the
Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid
principal amount of all Advances then outstanding and all accrued unpaid
interest, together with all other applicable fees, costs and charges, if
any, not yet paid.
Minimum Interest Payment. Borrower recognizes that Lender has incurred and
will continue to incur certain costs and expenses in connection with
establishing, maintaining, servicing, and administering the credit
facility. To ensure that Lender is able to recover such costs and
expenses, Borrower agrees that, notwithstanding any other provision of
this Agreement, the promissory note for the Line of Credit, or the Related
Documents, Lender shall be entitled to collect a minimum monthly interest
charge of $250.00, which Borrower hereby promises and agrees to pay.
Loan Account. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrowers
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrowers receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such
property and assets as Lender may require (the "Collateral"), including
without limitation Borrowers present and future Accounts and general
intangibles. Lenders Security Interests in the Collateral shall be continuing
liens and shall include the proceeds and products of the Collateral,
including without limitation the proceeds of any insurance. With respect to
the Collateral, Borrower agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lenders Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lenders interest upon any and all chattel paper if not
delivered to Lender for possession by Lender. Contemporaneous with the
execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the purpose
of executing any documents necessary to perfect or to continue any
Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of Lenders
security interest in the Collateral. Borrower promptly will notify Lender
of any change in Borrowers name including any change to the assumed
business names of Borrower. Borrower also promptly will notify Lender of
any change in Borrowers Social Security Number or Employer Identification
Number. Borrower further agrees to notify Lender in writing prior to any
change in address or location of Borrowers principal governance office or
should Borrower merge or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lenders representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter and at such frequency as Lender shall require, Borrower
shall execute and deliver to Lender such supplemental schedules of
Eligible Accounts and such other matters and information relating to
Borrowers Accounts as Lender may request
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each
Account represented by Borrower to be an Eligible Account for purposes of
this Agreement conforms to the requirements of the definition of an
Eligible Account; (b) All Account information listed on schedules
delivered to Lender will be true and correct, subject to immaterial
variance; and (c) Lender, its assigns, or agents shall have the right at
any time and at Borrowers expense to inspect, examine, and audit
Borrower's records and to confirm with Account Debtors the accuracy of
such Accounts.
Remittance Account. Borrower agrees that Lender may at any time require
Borrower to institute procedures whereby the payments and other proceeds
of the Accounts shall be paid by the Account Debtors under a remittance
account or lock box arrangement with Lender. or Lender's agent, or with
one or more financial institutions designated by Lender. Borrower further
agrees that, if no Event of Default exists under this Agreement, any and
all of such funds received under such a remittance account or lock box
arrangement shall, at Lender's sole election and discretion, either be (a)
paid or turned over to Borrower; (b) deposited into one or more accounts
for the benefit of Borrower (which deposit accounts shall be subject to a
security assignment in favor of Lender); (c) deposited into one or more
accounts for the joint benefit of Borrower and Lender (which deposit
accounts shall likewise be subject to a security assignment in favor of
Lender); (d) paid or turned over to Lender to be applied to the
Indebtedness in such order and priority as Lender may determine within its
sole discretion; or (a) any combination of the foregoing
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07-05-1995 LOAN AGREEMENT Page 4
Loan No 182000174 (Continued)
as Lender shall determine from time to time. Borrower further agrees that,
should one or more Events of Default exist, any and all funds received
under such a remittance account or lock box arrangement shall be paid or
turned over to Lender to be applied to the Indebtedness, again in such
order and priority as Lender may determine within its sole discretion.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available
to Borrower:
Letter of Credit Facility. Subject to the terms of this Agreement, Lender
will issue standby letters of credit letters of credit (each a "Letter of
Credit") on behalf of Borrower. At no time, however, shall the total face
amount of all Letters of Credit outstanding, less any partial draws paid
under the Letters of Credit exceed the sum of $500,000.00.
(a) Upon Lender's request, Borrower promptly shall pay to Lender
issuance fees and such other fees, commissions, costs, and any out-of-
pocket expenses charged or incurred by Lender with respect to any
Letter of Credit.
(b) The commitment by Lender to issue Letters of Credit shall, unless
earlier terminated in accordance with the terms of this Agreement,
automatically terminate on the Expiration Date and no Letter of Credit
shall expire on a date which is after the Expiration Date.
(c) Each Letter of Credit shall be in form and substance satisfactory
to Lender and in favor of beneficiaries satisfactory to Lender,
provided that Lender may refuse to issue a Letter of Credit due to the
nature of the transaction or its terms or in connection with any
transaction where Lender, due to the beneficiary or the nationality
or residence of the beneficiary, would be prohibited by any applicable
law, regulation, or order from issuing such Letter of Credit.
(d) Prior to the issuance of each Letter of Credit, and in all events
prior to any daily cutoff time Lender may have established for
purposes thereof, Borrower shall deliver to Lender a duly executed
form of Lenders standard form of application for issuance of letter
of credit with proper insertions.
Lender's Rights Upon Default. Upon the occurrence of any Event of
Default, Lender may, at its sole and absolute discretion and in
addition to any other remedies available to it under this Agreement or
otherwise, require Borrower to pay immediately to Lender, for
application against drawings under any outstanding Letters of Credit,
the outstanding principal amount of any such Letters of Credit which
have not expired. Any portion of the amount so paid to Lender which is
not applied to satisfy draws under any such Letters of Credit or any
other obligations of Borrower to the Lender shall be repaid to Borrower
without interest.
Lender's Costs and Expenses. Borrower shall, upon Lenders request,
promptly pay to and reimburse Lender for all costs incurred and
payments made by Lender by reason of any future assessment, reserve,
deposit, or similar requirement or any surcharge, tax, or fee imposed
upon Lender or as a result of Lenders compliance with any directive or
requirement of any regulatory authority pertaining or relating to any
Letter of Credit.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which
the failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower: do not require the consent or approval of
any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrowers financial condition as of
the date of the statement, and there has been no material adverse change
in Borrowers financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title
to all of Borrowers properties free and clear of all Security Interests,
and has not executed any security documents or financing statements
relating to such properties. All of Borrowers properties are titled in
Borrowers legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release, and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrowers ownership
of the properties, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or from any of
the properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste
or substance on, under, about or from the properties by any prior owners
or occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(c) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the properties shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on, under,
about or from any of the properties; and any such activity shall be
conducted in compliance with all applicable federal, state, and local
laws, regulations, and ordinances, including without limitation those
laws, regulations and ordinances described above. Borrower authorizes
Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases and
waives any future claims against Lender for indemnity or contribution in
the event Borrower becomes liable for cleanup or other costs under any
such laws, and (b) agrees to indemnify and hold harmless Lender against
any and all claims, losses, liabilities, damages, penalties, and expenses
which Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrowers ownership or interest in the properties,
whether or not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and the
termination or
<PAGE>
7-05-1995 LOAN AGREEMENT Page 5
Loan No 182000174 (Continued)
expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No Litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrowers financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrowers knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrowers Loan and Note and all of the
related Documents are binding upon Borrower as well as upon Borrowers
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, and (iii) no steps have been taken to
terminate any such plan.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 6500 Kaiser Drive, Fremont, CA 94555. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
Information. All Information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to
make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrowers indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes In Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but In no
event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement for the year
ended, audited by a certified public accountant satisfactory to Lender,
and, as soon as available, but in no event later than thirty (30) days
after the end of each month, Borrower's balance sheet and profit and loss
statement for the period ended, prepared and certified as correct to the
best knowledge and belief by Borrower's chief financial officer or other
officer or person acceptable to Lender. All financial reports required to
be provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less
than $1,250,000.00.
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 3.00 to 1.00.
Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities in excess of 1.50 to 1.00. Except as provided above, all
computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be canceled or
diminished without at least thirty (30) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the Insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
<PAGE>
07-05-1995 LOAN AGREEMENT Page 6
Loan No 182000174 (Continued)
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy,
lien or claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any other Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrowers employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrowers books, accounts, and records
and to make copies and memoranda of Borrowers books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrowers expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrowers chief financial officer, or other
officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrowers part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including
any request or policy not having the force of law) shall impose, modify or
make applicable any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Lender), reserve requirements, capital adequacy
requirements or other obligations which would (a) increase the cost to Lender
for extending or maintaining the credit facilities to which this Agreement
relates, (b) reduce the amounts payable to Lender under this Agreement or the
Related Documents, or (c) reduce the rate of return on Lender's capital as a
consequence of Lenders obligations with respect to the credit facilities to
which this Agreement relates, then Borrower agrees to pay Lender such
additional amounts as will compensate Lender therefor, within five (5) days
after Lenders written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and a calculation
in reasonable detail of the additional amounts payable by Borrower, which
explanation and calculations shall be conclusive in the absence of manifest
error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrowers accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrowers stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1906, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; or (d) any Guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantors guaranty of the Loan or any other loan with Lender.
SPECIFIC PROVISIONS FOR FORMAL ACCOUNTS RECEIVABLE LINE OF CREDIT.
<PAGE>
O7-05-1995 LOAN AGREEMENT Page 7
Loan No 182000174 (Continued)
1. Borrower shall provide to Lender monthly Accounts Receivable Agings,
Accounts Payable Agings, and Borrowing Base Certificates within fifteen (15)
days of each month end. In addition, Borrower shall provide to Lender
Borrowing Base Certificates with each advance request.
2. All accounts receivable collections shall be submitted to Lender on a
daily basis, and they shall be applied directly to the loan balance (payment
in kind).
ADDITIONAL PROVISIONS.
1. Borrower shall permit Lender to conduct Business Trade Checks annually.
2. Borrower shall provide to Lender adequate hazard insurance with Lender
named as "Loss Payee" annually.
3. Borrower shall notify Lender immediately in writing if Borrower becomes
involved in any litigation in excess of Twenty Five Thousand and 00/100
Dollars ($25,000.00).
4. CivicBank of Commerce ("Lender") shall remain the primary bank depository.
5. Borrower shall provide to Lender adequate International Trade Credit
Insurance for Standby Letter of Credit number 518 from an accepted insurer
with Lender named as "Loss Payee.
6. Borrower shall provide to Lender a CEFO Guaranty in favor of Lender for
ninety percent (90.00%) of Standby Letter of Credit number 518 or cash
collateral in the amount of Five Hundred Thousand and 00/100 Dollars
($500,000.00) to support Standby Letter of Credit number 518.
7. All of Borrowers debt associated with companies investors to be
subordinated to Lender.
8. Lender retains the right to institute a lock box with direct notification
at Lenders full discretion.
ACCOUNTS RECEIVABLE EXAM PROVISION.
Borrower shall permit Lender, or its designated agent, to conduct Accounts
Receivable Exams semi-annually. Said Accounts Receivable Exams must
be in form and substance satisfactory to Lender. All costs incurred during
the course of said Accounts Receivable Exams are for the account of the
Borrower.
CONDITIONS OF CASH COLLATERAL ACCOUNT NUMBER 1850202358 AND CASH COLLATERAL
ACCOUNT NUMBER 1850202361.
All cash collected from the sale of inventory or the collection of
receivables financed with proceeds from loan number 182000174 shall be
deposited to the Cash Collateral Account number 1850202358. All cash
collected from the sale of inventory or the collection of receivables
financed with the proceeds from Standby Letter of Credit number 518 shall be
deposited to the Cash Collateral Account number 1850202361. These accounts
carry no check writing privileges and withdrawals may only be authorized by
the Lender. At the Lenders option, monies from these accounts may be
transferred to pay down Borrowers indebtedness, to remit other charges due to
Lender, and/or transfer monies to Borrowers separate operational account(s).
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrowers right, title and interest in and to, Borrowers accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA, Keogh,
and trust accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrowers property or
Borrowers or any Grantors ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination of Borrowers existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrowers property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment, or
levy on or of any of Borrowers deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs In Borrowers financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lenders option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lenders right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
<PAGE>
O7-05-1995 LOAN AGREEMENT Page 8
Loan No 182000174 (Continued)
Applicable Law. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of Alameda County, the State of California. Lender and Borrower hereby
waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other.
Subject to the provisions on arbitration, this Agreement shall be governed
by and construed in accordance with the laws of the State of California.
Arbitration. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure
Section 726, or any similar provision in any other state, the commencement
of such an action will not constitute a waiver of the right to arbitrate
and the court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment upon
any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will
be considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrowers obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lenders
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lenders attorneys'
fees and Lenders legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than
one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower agrees to keep Lender informed at
all times of Borrowers current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower'
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made
by Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
<PAGE>
07-05-1995 LOAN AGREEMENT Page 9
Loan No 182000174 (Continued)
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY 5, 1995.
BORROWER:
SOCKET COMMUNICATIONS, INC.
By: /s/ David W. Dunlap
- ---------------------------
David W. Dunlap, Vice President & CFO
LENDER:
CivicBank of Commerce
By: /s/ William S. Keller
- -----------------------------
Authorized Officer
Exhibit 10.15
CivicBank of Commerce
PROMISSORY NOTE
Borrower: SOCKET COMMUNICATIONS, INC. Lender: CivicBank of Commerce
6500 Kaiser Drive Fremont Office
Fremont, CA 94555 2201 Walnut Avenue, Suite 100
Fremont CA 94538
Principal Amount: $500,000.00 Initial Rate: 10.250% Date of Note: July 5,1995
PROMISE TO PAY. SOCKET COMMUNICATIONS, INC. ("Borrower") promises to pay to
CivicBank of Commerce ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance.
Interest shall be calculated from the date of each advance until repayment of
each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on June 15, 1996. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning July 15, 1995, and all subsequent interest payments are due on the
same day of each month after that. Interest on this Note is computed on a
365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lenders address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount
to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the
CIVICBANK OF COMMERCE REFERENCE RATE (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will
not occur more often than each day. The Index currently is 8.750% per annum.
The Interest rate to be applied to the unpaid principal balance of this Note
will be at a rate of 1.500 percentage points over the index, resulting in an
initial rate of 10.250% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is
entitled to a minimum interest charge of $50.00. Other than Borrowers
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrowers obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $10.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the
time and strictly in the manner provided in this Note or any agreement
related to this Note, or in any other agreement or loan Borrower has with
Lender. (c) Borrower defaults under any loan, extension of credit, security
agreement purchase or sales agreement, or any other agreement, in favor of
any other creditor or person that may materially affect any of Borrowers
property or Borrowers ability to repay this Note or perform Borrowers
obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrowers behalf is false or misleading in any material respect (e) Borrower
becomes insolvent, a receiver is appointed for any part of Borrowers
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (f) Any creditor tries to take any of
Borrowers property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrowers accounts with Lender. (g) Any
of the events described in this default section occurs with respect to any
guarantor of this Note.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 3.500
percentage points over the Index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, In addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Alameda
County, the State of California. Lender and Borrower hereby waive the right
to any jury trial in any action, proceeding, or counterclaim brought by
either Lender or Borrower against the other. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with
the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA,
Keogh, and trust accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or as provided in this
paragraph. All oral requests shall be confirmed in writing on the day of the
request. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized as provided in this paragraph to
request advances under the line of credit until Lender receives from Borrower
at Lender's address shown above written notice of revocation of their
<PAGE>
07-05-1995 PROMISSORY NOTE Page 2
Loan No 182000174 (Continued)
authority: Murray L. Dennis, President/Chief Executive Officer. Borrower
shall provide to Lender monthly Accounts Receivable Agings, Accounts Payable
Agings, and Borrowing Base Certificates within fifteen (15) days of each
month end. In addition, Borrower shall provide to Lender Borrowing Base
Certificates with each advance request. Borrower agrees to be liable for all
sums either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced
by endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if: (a) Borrower or any guarantor is in default under the terms of
this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Note or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement.
This includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any collateral securing this Note,
including any claim to rescind, reform, or otherwise modify any agreement
relating to the collateral securing this Note, shall also be arbitrated,
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of any party. Lender and Borrower agree that in
the event of an action for judicial foreclosure pursuant to California Code
of Civil Procedure Section 726, or any similar provision in any other state,
the commencement of such an action will not constitute a waiver of the right
to arbitrate and the court shall refer to arbitration as much of such action,
including counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Note shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
RELATED DOCUMENT.
This Credit is subject to all the terms and conditions of that Loan Agreement
dated July 5, 1995.
PRIOR NOTE. Renewal and additional advance in the principal amount of Three
Hundred Thousand and 00/100 Dollars ($300,000.00) to Promissory Note dated
November 18,1994, executed by Borrower, in the original principal amount of
Two Hundred Thousand and 00/100 Dollars ($200,000.00), as subsequently
amended.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
SOCKET COMMUNICATIONS, INC.
By: /s/ David W. Dunlap
- ------------------------
David W. Dunlap, Vice President & CFO
Exhibit 10.16
CivicBank of Commerce
CHANGE IN TERMS AGREEMENT
Borrower: SOCKET COMMUNICATIONS, INC. Lender: CivicBank of Commerce
6500 Kaiser Drive Fremont Office
Fremont, CA 94555 2201 Walnut Avenue, Suite 100
Fremont, CA 94538
Principal Amount: $500,000.00 Date of Agreement: June 14,1996
DESCRIPTION OF EXISTING INDEBTEDNESS. Promissory Note dated November 18,
1994, executed by Borrower in the original principal amount of Two Hundred
Thousand and 00/100 Dollars ($200,000.00) as subsequently amended March 22,
1995 and July 5,1995.
DESCRIPTION OF COLLATERAL. All of Borrower's assets as further described in
those two (2) Commercial Security Agreements dated November 18,1994.
DESCRIPTION OF CHANGE IN TERMS.
1. The maturity date is hereby changed to June 15, 1997.
2. Borrower shall pay Lender a non-refundable Loan Fee of $1,875.00 and
Documentation Fee of $300.00.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any collateral securing this Agreement shall
constitute a waiver of this arbitration agreement or be prohibited by this
arbitration agreement. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; invoking a power of
sale under any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property with or without judicial process pursuant to Article 9 of the
Uniform Commercial Code. Any disputes, claims, or controversies concerning
the lawfulness or reasonableness of any act, or exercise of any right,
concerning any collateral securing this Agreement, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
collateral securing this Agreement, shall also be arbitrated, provided
however that no arbitrator shall have the right or the power to enjoin or
restrain any act or any party. Lender and Borrower agree that in the event
of an action for judicial foreclosure pursuant to California Code of Civil
Procedure Section 726, or any similar provision in any other state, the
commencement of such an action will not constitute a waiver of the right to
arbitrate and the court shall refer to arbitration as much of such action,
including counterclaims, as lawfully may be referred to arbitration.
Judgment upon any award rendered by any arbitrator may be entered in any
court having jurisdiction. Nothing in this Agreement shall preclude any
party from seeking equitable relief from a court of competent jurisdiction.
The statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the
terms of the original obligation or obligations, including all agreements
evidenced or securing the obligation(s), remain unchanged and in full force
and effect. Consent by Lender to this Agreement does not waive Lender's
right to strict performance of the obligation(s) as changed, nor obligate
Lender to make any future change in terms. Nothing in this Agreement will
constitute a satisfaction of the obligation(s). It is the intention of
Lender to retain as liable parties all makers and endorsers of the original
obligation(s), including accommodation parties, unless a party is expressly
released by Lender in writing. Any maker or endorser, including accommodation
makers, will not be released by virtue of this Agreement. If any person who
signed the original obligation does not sign this Agreement below, then all
persons signing below acknowledge that this Agreement is given conditionally,
based on the representation to Lender that the non-signing party consents
to the changes and provisions of this Agreement or otherwise will not
be released by it. This waiver applies not only to any initial extension,
modification or release, but also to all such subsequent actions.
RELATED DOCUMENT.
This Credit is subject to all the terms and conditions of that Loan
Agreement dated July 5, 1995.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT
AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
SOCKET COMMUNICATIONS, INC.
By: /s/ David W. Dunlap
----------------------------
David W. Dunlap, Vice President and CFO
Exhibit 11.1
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
(In thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ------------------------
1996 1995 1996 1995
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss.................... $(955,354) $(744,749) $(1,640,161) $(1,548,549)
Computations of weighted average common
and common equivalent shares outstanding:
Weighted average common
shares outstanding........ 3,017,052 808,681 3,007,158 538,002
Common equivalent shares
from stock options,
convertible preferred
stock, and convertible
notes granted or issued
during the twelve-month
period prior to the
Company's initial public
offering .................. 0 0 0 555,256
--------- --------- ----------- -----------
Shares used in computing
net loss per share........ 3,017,052 808,681 3,007,158 1,093,258
========= ========= =========== ===========
Net loss per share $ (0.32) $ (0.92) $ (0.55) $ (1.42)
========= ========= =========== ===========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SOCKET COMMUNICATIONS, INC. CONDENSED FINANCIAL STATEMENTS FOR THE INTERIM
PERIOD ENDED JUNE 30, 1996 INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 666,629
<SECURITIES> 0
<RECEIVABLES> 710,283
<ALLOWANCES> 0
<INVENTORY> 727,976
<CURRENT-ASSETS> 2,138,306
<PP&E> 803,985
<DEPRECIATION> 441,257
<TOTAL-ASSETS> 2,562,545
<CURRENT-LIABILITIES> 1,626,806
<BONDS> 0
0
0
<COMMON> 3,020
<OTHER-SE> 788,587
<TOTAL-LIABILITY-AND-EQUITY> 2,562,545
<SALES> 2,125,450
<TOTAL-REVENUES> 2,262,240
<CGS> 1,288,049
<TOTAL-COSTS> 1,288,049
<OTHER-EXPENSES> 2,617,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,669
<INCOME-PRETAX> (1,640,161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,640,161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,640,161)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
