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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to __________
Commission file number: 0-26208
-------------------------------
BUSINESS RESOURCE GROUP
(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0150337
(State or Other Jurisdiction (I.R.S Employer of Incorporation or
Organization) Identification No.)
2150 NORTH FIRST STREET, SUITE 101
SAN JOSE, CA 95131
(Address of Principal Executive Offices)
(408) 325-3200
(Registrant's Telephone Number, Including Area Code)
-------------------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
------ ------
At July 31, 1997 there were 4,913,712 shares of the Registrant's Common Stock
outstanding.
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PART I. FINANCIAL INFORMATION PAGE
Item 1: Condensed Financial Statements
Condensed Balance Sheets
July 31, 1997 and October 31, 1996 ............. 3
Condensed Statements of Operations for the Three
Months and Nine Months ended July 31, 1997
and 1996 ....................................... 4
Condensed Statements of Cash Flows for the
Nine Months ended July 31, 1997 and 1996 ....... 5
Notes to Condensed Financial Statements ........ 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operation
Introduction ................................... 7
Results of Operations .......................... 7
Liquidity and Capital Resources ................ 10
Item 3: Quantitative and Qualitative Disclosures
about Market Risks ............................. 11
PART II. OTHER INFORMATION
Item 1: Legal Proceedings .............................. 11
Item 2: Changes in Securities .......................... 11
Item 3: Defaults Upon Senior Securities ................ 11
Item 4: Submission of Matters to a Vote of
Security Holders ............................... 11
Item 5: Other Information .............................. 11
Item 6: Exhibits and Reports on Form 8-K ............... 12
SIGNATURES ................................................ 13
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS:
BUSINESS RESOURCE GROUP
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,926 $ 1,011
Accounts receivable, net 10,303 16,122
Inventory 1,247 974
Prepaids and other current assets 1,416 1,387
------- -------
Total current assets 14,892 19,494
Property and equipment, net 2,540 2,017
Other assets 944 1,049
------- -------
$18,376 $22,560
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $-- $ 476
Accounts payable 2,579 5,935
Accrued liabilities 2,418 2,877
Income taxes payable -- 31
Current portion of notes payable and
capital lease obligations 15 112
------- -------
Total current liabilities 5,012 9,431
Deferred income tax liability 127 127
Shareholders' equity:
Preferred stock -- --
Common stock 49 49
Additional paid-in-capital 10,878 10,685
Retained earnings 2,310 2,268
------- -------
Total shareholders' equity 13,237 13,002
======= =======
$18,376 $22,560
======= =======
</TABLE>
Note: The balance sheet at October 31, 1996 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
--------------------------- ---------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Workspace products $ 9,541 $ 18,495 $ 46,540 $ 49,623
Workspace services 3,301 2,766 11,045 6,580
Vendor commissions 42 79 137 280
-------- -------- -------- --------
Total net revenues $ 12,884 $ 21,340 $ 57,722 $ 56,483
-------- -------- -------- --------
Cost of net revenues:
Workspace products 7,910 15,039 37,511 40,504
Workspace services 2,487 2,002 8,053 4,760
-------- -------- -------- --------
Total cost of net revenues 10,397 17,041 45,564 45,264
-------- -------- -------- --------
Gross profit 2,487 4,299 12,158 11,219
Selling, general and
administrative expenses 3,968 3,597 11,894 9,006
Other operating expenses 276 -- 276 --
-------- -------- -------- --------
Total operating expenses 4,244 3,597 12,170 9,006
-------- -------- -------- --------
Income / (loss) from operations (1,757) 702 (12) 2,213
Interest income - net 49 13 83 94
-------- -------- -------- --------
Income / (loss) before income taxes (1,708) 715 71 2,307
Provision / (benefit) for income taxes (707) 296 29 955
-------- -------- -------- --------
Net income / (loss) $ (1,001) $ 419 $ 42 $ 1,352
======== ======== ======== ========
Net income / (loss) per common
and common equivalent share $ (0.20) $ 0.09 $ 0.01 $ 0.28
======== ======== ======== ========
Shares used in computation 4,904 4,914 4,894 4,864
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
-------------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42 $ 1,352
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 541 257
Changes in operating assets and liabilities:
Accounts receivable 5,819 (5,895)
Inventory (273) (99)
Prepaids and other current assets (29) (498)
Accounts payable (3,356) 496
Accrued liabilities (459) 1,094
Income taxes payable (31) 245
------- -------
Net cash provided (used) by operating activities 2,254 (3,048)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (938) (1,166)
Cash paid for acquisitions -- (300)
Other assets (21) (47)
------- -------
Net cash used by investing activities (959) (1,513)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft (476) 11
Repayment of notes payable & capital lease obligations (97) (236)
Issuance of common stock 193 128
------- -------
Net cash used by financing activities (380) (97)
------- -------
NET INCREASE (DECREASE) IN CASH 915 (4,658)
CASH AND EQUIVALENTS:
Beginning of period 1,011 5,326
------- -------
End of period $ 1,926 $ 668
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1 $ 29
======= =======
Income taxes $ 471 $ 670
======= =======
Noncash investing transactions:
Sale of distribution rights for note receivable $ -- $ 177
======= =======
Cash flow for acquisitions:
Tangible assets acquired $ -- $ 333
Intangible assets acquired $ -- $ 255
Liabilities assumed $ -- $ (288)
------- -------
Cash paid for acquisitions $ -- $ 300
======= =======
</TABLE>
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information as of July 31, 1997 and for the three and
nine month periods ended July 31, 1997 and 1996 is unaudited. In the opinion of
management, such information reflects all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of the
results of such periods. The accompanying condensed financial statements should
be read together with the audited financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended October
31, 1996. The financial statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission, but omit certain
information and footnote disclosure necessary to present the statements in
accordance with generally accepted accounting principles.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the first quarter of
fiscal 1998 and will restate at that time earnings per share (EPS) data for
prior periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been a loss per share of $.20 for the period
ending July 31, 1997 and earnings per share of $.09 for the quarter ending July
31, 1996. Diluted EPS under SFAS 128 would not have been significantly different
than primary EPS currently reported for the periods.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION:
Except for the historical information contained in this Quarterly
Report on Form 10-Q, the matters discussed herein are forward-looking statements
that are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include the timely availability, delivery
and acceptance of new products and services, the impact of competitive products
and pricing, the management of growth and acquisitions, and other risks detailed
below and included from time to time in the Company's other SEC reports and
press releases, copies of which are available from the Company upon request.
Additionally, the results of operations for the three and nine month periods
ended July 31, 1997 are not necessarily indicative of the results to be expected
for the full fiscal year. Operating results are subject to the successful close
of large project business and related vendor lead times. The Company's revenues
are generally the result of a consultative selling process and the precise
timing of the issuance of customer purchase orders is often contingent upon
customer site development and move-in schedules. In order to minimize risk of
procurement errors and obsolete inventory, the Company generally does not issue
vendor purchase orders until final product configurations are documented in a
formal customer purchase order. As a result, the short-term timing of product
delivery can be impacted, which in turn may affect the specific quarter in which
revenue is recognized on particular projects. Vendor delivery lead times also
affect product availability and the resulting time at which the Company delivers
product and recognizes revenue; lead times for many of the products sold by the
Company average 4 to 12 weeks. Consequently, these factors can affect quarter to
quarter results. The Company assumes no obligation to update any forward-looking
statements contained herein.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996.
Net revenues were $12.9 million for the three months ended July 31,
1997, a decrease of 39.4% from $21.3 million for the three months ended July 31,
1996. Decreases in product revenue ($9.0 million or 48.6%) and vendor commission
($37,000 or 46.8%) offset an increase in service revenue ($535,000 or 19.3%).
The overall decrease in revenue was primarily the result of a decrease in
purchases of the Company's products by Cisco Systems from $10.5 million in the
three months ended July 31, 1996 to $1.5 million in the three months ended July
31, 1997. Slightly offsetting the decline in business from Cisco Systems, during
the quarter ended July 31, 1997 the Company received new large project business
from both new and existing customers (including Versant Technologies, Sony,
Infoseek, National Semiconductor and World
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Savings). Also contributing to the Company's results for the third fiscal
quarter of 1997 was an aggregate increase of $662,000 in product revenue
generated primarily from projects by the Company's Texas Division for Bank One
and Abbott Diagnostics Division. This contribution was offset by a reduction in
revenue from the Southwest Division of $153,000.
During the three months ended July 31, 1997 Cisco Systems and National
Semiconductor, which historically have been significant customers of the
Company, contributed an aggregate of $2.0 million or 15.5% of total revenue,
down from $11.3 million or 53.1% of total revenue in the comparable period in
1996. Cisco represented approximately 11.6% of the Company's revenue for
the quarter ended July 31, 1997. The Company maintains an excellent working
relationship with Cisco Systems and expects Cisco Systems to continue to order
product. However, the order rate will be below historical levels due to the
uncertainty in the computer networking market. There can also be no assurance
that the Company's financial results for future quarters will not be materially
and adversely affected should there be any continued reduction in orders.
Service revenue increased 17.9% during the quarter ended July 31, 1997
to $3.3 million from $2.8 million in the quarter ended July 31, 1996 due to
increases in delivery and workspace management services. Such increases along
with the lower overall revenue base contributed to the increase in service
revenue as a percentage of total revenue, which rose to 25.6% of total revenue
during the quarter ended July 31, 1997, compared to 13.1% during the quarter
ended July 31, 1996.
Commission revenue declined as most vendors have discontinued their
policies of billing customers directly and only paying a commission to the
Company.
Gross profit decreased to $2.5 million during the third fiscal quarter
of 1997 from $4.3 million during the same period of fiscal 1996, a 41.9%
decrease, while decreasing as a percentage of net revenues to 19.4% during the
third fiscal quarter of 1997 from 20.2% during the same fiscal quarter of 1996.
This decrease was attributable to a $390,000 negative impact of the Department
of Energy Project in Las Vegas, Nevada due to cost overruns. Service margins
also decreased as a percentage of service revenue, to 24.7% in the third quarter
of 1997 from 27.6% in the third quarter of 1996. The decrease was due to the
underabsorption of overhead in the Company's installation services group.
Selling, general and administrative expenses increased 11.1% to $4.0
million from $3.6 million for the same period of the prior year. As a percentage
of net revenue, expenses increased to 31.0% in the third quarter of fiscal 1997
from 16.9% in the third quarter of fiscal 1996. The large increase in percentage
of net revenue can be attributed to a lower revenue base from period to period.
The increase in spending was primarily attributable to the continued expansion
of our Texas, Arizona and San Jose operations, particularly in the areas of
sales and project management personnel, the continued building of
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the Company's business systems and wide-area-network infrastructure, and the
hiring of key management personnel.
In the third quarter of 1997, the Company incurred other operating
expenses of $276,000 mainly for the closure of sales offices in Tucson, Arizona
and Las Vegas, Nevada.
Interest income, net of interest expense and the Company's other
expenses, totaled $49,000 for the three months ended July 31, 1997 versus
interest income, net of interest expense, of $13,000 for the same period of
fiscal 1996.
The Company used a tax rate of 41.4% for both periods reported.
NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31, 1996.
Net revenues were $57.7 million for the nine months ended July 31,
1997, an increase of 2.2% from $56.5 million for the nine months ended July 31,
1996. Decreases in product revenue ($3.1 million or 6.2%) and commission revenue
of ($143,000 or 51.1%), were offset by an increase in service revenue of ($4.4
million or 66.7%). The overall decrease in revenue was primarily the result of a
decrease of sales to Cisco Systems and National Semiconductor, with combined
revenue of $21.4 million for the nine months ended July 31, 1997, down from
$25.4 million for the same period of 1996. The Company did however have new
large project business from both new and existing customers (including S3, Sony,
HMT Technologies, Network Appliance, Duplan, Versant Technologies, Infoseek,
World Savings, Legato and Varilease Corporation which combined accounted for
approximately $11.7 million in net revenues), and revenue generated by the
Company's Southwestern United States and Texas regional business units ($10.8
million, including large projects from Comp USA, Gadzooks, Titan, Department of
Energy, Motorola, BABN Technologies and Triwest Healthcare Alliance. As noted
above, the Company maintains an excellent working relationship with Cisco
Systems and expects Cisco Systems to continue to order product. However, the
order rate will be below historical levels due to the uncertainty in the
computer networking market. There can also be no assurance that the Company's
financial results for the future quarters will not be materially and adversely
affected should there be any continued reduction in orders.
The increase in service revenue in the first nine months of fiscal 1997
as compared to the year earlier period was primarily attributable to increases
in delivery services, installation and workspace management services.
Commission revenue declined as most vendors have discontinued their
policies of billing customers directly and only paying a commission to the
Company.
Gross profit increased to $12.2 million for the first nine months of
fiscal 1997 from $11.2 million during the same period a year ago, an 8.9%
increase. As a percentage of net revenues, gross profit increased
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from 19.9% for the first nine months of fiscal 1996 to 21.1% during the same
period of fiscal 1997. The impact of higher product margin (19.4% in the first
nine months of fiscal 1997 versus 18.4% in the same period of fiscal 1996)
offset by lower service margin (27.0% in the first nine months of fiscal 1997
versus 27.7% in the same period of fiscal 1996) and lower commission revenue
($137,000 in the first nine months of 1997 versus $280,000 in the same period of
fiscal 1996) accounted for the increase in gross profit.
Selling, general and administrative expenses increased 32.2% to $11.9
million for the nine months ended July 31, 1997 from $9.0 million for the same
period of the prior year. As a percentage of net revenue selling, general and
administrative expenses increased from 15.9% for the first nine months of fiscal
1996 to 20.6% for the first nine months of fiscal 1997. The increase in spending
is primarily attributable to increased sales commissions relating to the
addition and expansion of operations in the Company's Texas, Arizona and San
Jose business units, the continued building of the Company's business systems
infrastructure, and the hiring of key management personnel.
In the third quarter of 1997, the Company incurred other operating
expenses of $276,000 mainly for the closure of sales offices in Tucson, Arizona
and Las Vegas, Nevada.
Interest income, net of interest expense totaled $83,000 for the nine
months ended July 31, 1997 versus interest income, net of interest expense of
$94,000 for the same period of fiscal 1996. The decrease was due to lower
average cash balances experienced during the nine month period.
The Company used a tax rate of 41.4% for both periods reported.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at July 31, 1997 was $9.9 million, down slightly from
$10.1 million at October 31, 1996.
In the nine months ended July 31, 1997 the Company generated $2.3
million in cash from operations compared to using $3.0 million in cash from
operations in the first nine months ended July 31, 1996. Cash generated from
operations in the first nine months of 1997 included non-cash charges of
$541,000 relating to depreciation and amortization. In addition, positive cash
flows from operations were due to net income of $42,000 and a decrease in
accounts receivable of $5.8 million. These positive cash flows from operations
were partially offset by decreases of $3.4 million and $459,000 in accounts
payable and accrued liabilities, respectively, and an increase in inventory of
$273,000.
Net cash used in investing activities was $959,000 in the first nine
months ended July 31, 1997 primarily resulting from the purchase of property and
equipment for $938,000.
Net cash used in financing activities in the first nine months of 1997
was $380,000. The primary financing activity during this period
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was the payback of the Company's bank overdraft of $476,000 offset by the
issuance of common stock under the Company's 1995 Employee Stock Purchase Plan
(which generated $193,000 in cash).
The Company's $8.0 million credit facility expired in September 1997 and
was replaced with a new $15.0 million credit facility with an option on a $1.0
million term loan. As of July 31, 1997 the Company had no bank borrowings under
the existing credit facility. The Company believes existing cash, together with
cash generated from operations and the Company's available borrowing capacity
will provide sufficient funds to meet the Company's anticipated working capital
requirements for the foreseeable future.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On January 24, 1997 Neil A. Armstrong filed a complaint against the
Company, one of its vendors and another third party in the United States
District Court for the Northern District of California. In general, this
complaint asserted claims for the alleged unauthorized use of the name and
images of Mr. Armstrong. The parties in this case have reached an oral agreement
to settle all claims. The Company is in the process of reducing this settlement
to writing, pursuant to which all claims against the Company will be dismissed
with prejudice. The terms of the proposed settlement will have no material
impact on the Company's financial results or results of operations.
ITEM 2: CHANGES IN SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5: OTHER INFORMATION
Not applicable
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.29: Revolving Credit Loan and Security Agreement between
the Company and Comerica Bank dated August 8, 1997.
(b) Exhibit 11.1: Computation of Net Income Per Share
(c) Exhibit 27: Financial data schedule
(d) Reports on Form 8-K
None
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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.
BUSINESS RESOURCE GROUP
-----------------------
Registrant
Date: 9/12/97 /s/ Charles J. Winter
--------------------- ---------------------------------
Charles J. Winter
President and
Chief Executive Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit Description
--------- -------------
10.29 Revolving Credit Loan and Security Agreement between
the Company and Comerica Bank dated August 8, 1997.
11.1 Computation of Net Income Per Share
27 Financial data schedule
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EXHIBIT 10.29
[COMERICA LOGO]
REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS & INVENTORY)
OBLIGOR # NOTE # AGREEMENT DATE August 8, 1997
<TABLE>
<CAPTION>
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
<S> <C> <C>
Base Rate or Alternative Rates
$15,000,000 (Overnight Cots of Funds Plus 1.75 % or
LIBOR Plus 1.75 % As Set Forth in 48117 JMG
-------------
Addendum B Hereto)
</TABLE>
THIS AGREEMENT is entered into as of August 8, 1997, between Comerica
Bank-California ("Bank") as secured party, whose Headquarters Office is 333
Santa Clara Street, San Jose, CA 95113 and Business Resource Group
("Borrower"), a corporation whose sole place of business (if it has only one),
chief executive office (if it has more than one place of business) or residence
(if an individual) is located at 2150 North First Street, San Jose, California
95131.
The parties agree as follows:
1. DEFINITIONS.
1.1 "Agreement" as used in this Agreement means and includes this
Revolving Credit Loan & Security Agreement (Accounts & Inventory), any
concurrent or subsequent rider to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and any extensions, supplements, amendments
or modifications to this Revolving Credit Loan & Security Agreement (Accounts &
Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes:
all costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication and
search fees, appraiser fees, auditor fees and costs, and title insurance
premiums paid or incurred by Bank in connection with Bank's transactions with
Borrower; costs and expenses incurred by Bank in collecting the Receivables
(with or without suit) to correct any default or enforce any provision of this
Agreement, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, disposing of, preparing for sale and/or advertising
to sell the Collateral, whether or not a sale is consummated; costs and
expenses of suit incurred by Bank in enforcing or defending this Agreement or
any portion hereof, including, but not limited to, expenses incurred by Bank in
attempting to obtain relief from any stay, restraining order, injunction or
similar process which prohibits Bank from exercising any of its rights or
remedies; and attorneys' fees and expenses incurred by Bank in advising,
structuring, drafting, reviewing, amending, terminating, enforcing, defending
or concerning this Agreement, or any portion hereof or any agreement related
hereto, whether or not suit is brought. Bank Expenses shall include Bank's
in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate
of interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as a basis
upon which effective rates of interest are calculated for those loans making
reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and
includes all of Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing Borrower's
assets, liabilities, Receivables, business operations or financial conditions,
and all information relating thereto; computer programs; computer disk or tape
files; computer printouts; computer runs; and other computer prepared
information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of
(1) eighty percent (80.00%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable thereto
("Accounts Receivable Borrowing Base"); and (2) the amount, if any, of the
advances against inventory agreed to be made pursuant to any Inventory Rider
("Inventory Borrowing Base"), and other rider, amendment or modification to
this Agreement, that may now or hereafter be entered into by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means, for any
applicable period of determination, the Net Income (after deduction for income
taxes and other taxes of such person determined by reference to income or
profits of such person) for such period, plus, to
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the extent deducted in computation of such Net Income, the amount of
depreciation and amortization expenses and the amount of deferred tax liability
during such period, all as determined in accordance with GAAP. Cash Flow will
be determined on a year to date basis, beginning with the quarter ending
October 31, 1997.
1.7 "Collateral" as used in this Agreement means and includes each
and all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets of
Borrower in which Bank receives a security interest or which hereafter come
into the possession, custody or control of Bank; and the proceeds of any of the
foregoing, including, but not limited to, proceeds of insurance covering the
collateral and any and all Receivables, Intangibles, negotiable collateral,
inventory, equipment, money, deposit accounts or other tangible and intangible
property of borrower resulting from the sale of other disposition of the
collateral, and the proceeds thereof. Notwithstanding anything to the contrary
contained herein, collateral shall not include any waste or other materials
which have been or may be designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations,
except those obligations arising pursuant to any other separate contract,
instrument, note, or other separate agreement which, by its terms, provides for
a specified interest rate and term.
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer
receivables, United States government securities, claims against the United
States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of
any applicable date of determination (i) all liabilities of a person that
should be classified as current in accordance with GAAP; plus (ii) all amounts
outstanding hereunder at any time; plus (iii) to the extent not otherwise
included, all liabilities of Borrower to any of its affiliates whether or not
classified as current in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a given
day, adding any new Credit advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid and are applied by Bank
in reduction of the Credit on that date under the provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and
includes those accounts of Borrower which are due an payable within thirty (30)
days, or less, from the date of invoice, have been validly assigned to Bank and
strictly comply with all of Borrower's warranties and representations to Bank;
but Eligible Accounts shall not include the following: (a) accounts with
respect to which the account debtor is an officer, employee, partner, joint
venturer or agent of Borrower; (b) 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; (c) accounts with respect to
which the account debtor is not a resident of the United States; (d) accounts
with respect to which the account debtor is the United States or any
department, agency or instrumentality of the United States; (e) accounts with
respect to which the account debtor is any State of the United States or any
city, county, town municipality or division thereof; (f) accounts with respect
to which the account debtor is a subsidiary of, related to, affiliated or has
common shareholders, officers or directors with Borrower; (g) 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; (h) accounts
not paid by an account debtor within ninety (90) days from the date of the
invoice; (i) accounts with respect to which account debtors dispute liability
or make any claim, have any defense, crossclaim, counterclaim, or offset; (j)
accounts with respect to which any Insolvency Proceeding is filed by or against
the account debtor, or if an account debtor becomes insolvent, fails or goes
out of business; and (k) accounts owed by any single account debtor which
exceed fifty percent (50%) of all of the Eligible Accounts other than Cisco
Systems, National Semiconductor and Motorola; and (l) accounts with a
particular account debtor on which over fifty percent (50%) of the aggregate
amount owing is greater than ninety (90) days from the date of the invoice.
1.13 "Event of Default" as used in this Agreement means those
events described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes,
for any applicable period of determination, the sum, without duplication, of
(a) all interest paid or payable during such period by a person on debt of such
person, plus (b) all payments of principal or other sums paid or payable during
such period by such person with respect to debt of such person having a final
maturity more than one year from the date of creation of such debt, plus (c)
all debt discount and expense amortized or required to be amortized during such
period by such person, plus (d) the maximum amount of all rents and other
payments paid or required to be paid by such person during such period under
any lease or other contract or arrangement providing for use of real or
personal property in respect of which such person is obligated as a lessee, use
or obligor, (e) all loans or other advances
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made by such person during such period to any Affiliate of such person. The
applicable period of determination will be N/A, beginning with the period from
N/A, 19____ to N/A, 199____.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against Borrower, or any
guarantor of Borrower's Obligations, or any borrower's account debtors, under
any provisions of the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law, including but not limited to assignments for the benefit of
creditors, formal or informal moratoriums, composition or extensions with some
or all creditors, any proceeding seeking reorganization, arrangement or any
other relief under the Bankruptcy Code, as amended, or any other bankruptcy or
insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all
Borrower's present and future general Intangibles and other personal property
(including, without limitation, any and all rights in any legal proceeding,
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes, literature,
reports, catalogs and deposit accounts) other than goods and Receivables, as
well as Borrower's Books relating to any of the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including, but
not limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials and packing
and shipping materials, wherever located and any documents of title
representing any of the above, and any equipment, fixtures or other property
used in the storing, moving, preserving, identifying, accounting for and
shipping or preparing for the shipping of inventory, and any and all other
items hereafter acquired by Borrower by way of substitution, replacement,
return, repossession or otherwise, and all additions and accessions thereto,
and the resulting product or mass, and any documents of title respecting any of
the above.
1.19 "Net Income" as used in this Agreement means the net income
(or loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition,
not in the ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or credits
on account on any excluded losses; and
(b) in the case of Borrower, net earnings of any Person
in which Borrower has an ownership interest, unless such net earnings shall
have actually been received by Borrower in the form of cash distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means
and includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties like
or similar to the powers and duties of trustee, receiver, controller, custodian
or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any
and all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), obligations, lease
payments, guaranties, covenants and duties owing by Borrower to Bank of any
kind and description whether advanced pursuant to or evidenced by this
Agreement; by any note or other instrument; or by any other agreement between
Bank and Borrower and whether or not for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including,
without limitation, all interest not paid when due and all Bank Expenses which
Borrower is required to pay or reimburse by this Agreement, by law, or
otherwise.
1.22 "Person" or "person" as used in this Agreement means and
includes any individual, corporation, partnership, joint venture, association,
trust unincorporated association, joint stock company, government,
municipality, political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all merchandise
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returned to or reclaimed by Borrower and Borrower's books (except minute books)
relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means
Indebtedness of Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination Agreement in form satisfactory to Bank making all present and
future Indebtedness of the Borrower to third parties subordinate to the
Obligations.
1.26 "Tangible Effective Net Worth" as used in the Agreement means
net worth as determined in accordance with GAAP consistently applied, increased
by Subordinated Debt, if any, and decreased by the following: patents,
licenses, goodwill, subscription lists, organization expenses, trade
receivables converted to notes, money due from affiliates (including officers,
directors, subsidiaries and commonly held companies).
1.27 "Tangible Net Worth" as used in the Agreement means, as of any
applicable date of determination, the excess of
a. the net book value of all assets of a person (other
than patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill, and similar tangible assets) after all appropriate
deductions in accordance with GAAP (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization), over
b. Total Liabilities of such person.
1.28 "Total Liabilities" as used in this Agreement means the total
of all items of Indebtedness, obligation or liability which, in accordance with
GAAP consistently applied, would be included in determining the total
liabilities of Borrower as of the date total Liabilities is to be determined,
including without limitation (a) all obligations secured by any mortgage,
pledge, security interest or other lien on property owned or acquired, whether
or not the obligations secured thereby shall have been assumed; (b) all
obligations which are capitalized lease obligations; and (c) all guaranties,
endorsements or other contingent or surety obligations with respect to the
Indebtedness of others, whether or not reflected on the balance sheets of
Borrower, including any obligation to furnish funds, directly or indirectly
through the purchase of goods, supplies, services, or by way of stock purchase,
capital contribution, advance or loan or any obligation to enter into a
contract for any of the following.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed
and defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter referred to
as the "Code") as amended.
2. LOAN AND TERMS OF PAYMENTS
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for below.
2.1 Upon the request of Borrower, made at any time and from time
to time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing Base;
provided, however, that in no event shall Bank be obligated to make advances to
or under this Section 2.1 whenever the Daily Balance exceeds, at any time,
either the Borrowing Base or the sum of Fifteen Million and 00/100 Dollars
($15,000,000), such amount being referred to herein as an "Overadvance".
Notwithstanding the foregoing, Borrower's ability to obtain advances hereunder
shall only be tied to the Borrowing Base if the advances hereunder exceed at
any one time an aggregate of Ten Million Dollars ($10,000,000).
2.2 Except as provided in Addendum B hereto, which provides for
optional alternative interest rates available to Borrower, the Credit shall
bear interest, on the Daily Balance owing, at a rate equal to the Base Rate
(the "Rate"). The Credit shall bear interest, from and after the occurrence of
an Event of Default and without constituting a waiver of any such Event of
Default, on the Daily Balance owing, at a rate of three (3) percentage points
per annum above the Rate. All interest chargeable under this Agreement that is
based upon a per annum calculation shall be computed on the basis of a three
hundred sixty (360) day year for actual days elapsed.
The Base Rate as of the date of this Agreement is eight and
50/1000 percent (8.50%) per annum. In the event that the Base Rate announced
is, from time to time hereafter changed, adjustment in the Rate shall be made
and based on the Base Rate in effect on the
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date of such change. The Rate, as adjusted, shall apply to the Credit until
the Base Rate is adjusted again. The minimum interest payable by Borrower
under this Agreement shall in no event be less than N/A per month. All
interest payable by Borrower under the Credit shall be due and payable on the
first day of each calendar month during the term of the Agreement and Bank may,
at its option, elect to treat such interest and any and all Bank Expenses as
advances under the Credit, which amounts shall thereupon constitute Obligations
and shall thereafter accrue interest at the rate applicable to the Credit under
the terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately
any Overadvance in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to three (3%)
percentage points per month in excess of the interest rate set forth in Section
2.2, from the date incurred and for each month thereafter, until repaid in
full.
3. TERM
3.1 This Agreement shall remain in full force and effect until
August 8, 1999, or until terminated by notice by Borrower. Notice of such
termination by Borrower shall be effectuated by mailing of a registered or
certified letter not less than thirty (30) days prior to the effective date of
such termination, addressed to Bank at the address set forth herein and the
termination shall be effective as of the date so fixed to such notice.
Notwithstanding the foregoing, should Borrower be in default of one or more of
the provisions of the Agreement, Bank may terminate this Agreement at any time
without notice. Notwithstanding the foregoing, should either Bank or Borrower
become insolvent or unable to meet its debts as they mature, or fail, suspend,
or go out of business, the other party shall have the right to terminate this
Agreement at any time without notice. On the date of termination all
Obligations shall become immediately due and payable without notice or demand;
no notice of termination by Borrower shall be effective until Borrower shall
have paid all Obligations to Bank in full. Notwithstanding termination, until
all Obligations have been fully satisfied, Bank shall retain its security
interest in all existing Collateral and Collateral arising thereafter, and
Borrower shall continue to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full
of Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
Agreements and security interests given by Borrower to Bank, upon the execution
and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest
in all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its covenants
and obligations under the Agreement and otherwise created. Bank's security
interest in the Collateral, including proceeds, is evidenced by or consists of
a letter of credit, advance of credit, instrument, money, negotiable documents,
chattel paper or similar property (collectively "Negotiable Collateral"),
Borrower shall, immediately upon receipt thereof, endorse and assign such
Negotiable Collateral over to Bank and deliver actual physical possession of
the Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attached to all
Receivables without further act on the part of Bank or Borrower. Upon request
from Bank, Borrower shall provide Bank with schedules describing all
Receivables created or acquired by Borrower (including without limitation
agings listing the names and addresses of, and amounts owing by date by account
debtors), and shall execute and deliver written assignments of all Receivables
to Bank all in a form acceptable to Bank, provided, however, Borrower's failure
to execute and deliver such schedules and/or assignments shall not affect or
limit Bank's security interest and other rights in and to the Receivables.
Together with each schedule, Borrower shall furnish Bank with copies of
Borrower's customers' invoices or the equivalent, and original shipping or
delivery receipts for all merchandise sold, and Borrower warrants the
genuineness thereof. Bank or Bank's designee may notify customers or account
debtors of collection costs and expenses to Borrower's account but, unless and
until Bank does so or gives Borrower other written instructions, Borrower shall
collect all Receivables for Bank, receive in trust all payments thereon as
Bank's trustee, and, if so requested to do so from Bank, Borrower shall
immediately deliver said payments to Bank in their original form as received
from the account debtor and all letters of credit, advices of credit,
instruments, documents, chattel paper or any similar property evidencing or
constituting Collateral. Notwithstanding anything to the contrary contained
herein, if sales of Inventory are made for cash, Borrower shall immediately
deliver to Bank, in identical form, all such cash, checks, or other forms of
payment which Borrower receives. The receipt of any check or other item of
payment by Bank shall not be considered a payment on account until such check
or other item of payment is honored when presented for payment, in which event,
said check or other item of payment shall be deemed to have been paid to Bank
two (2) calendar days after the date Bank actually receives such check or other
item of payment.
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4.3 Bank's security interest in Inventory shall attach to all
inventory without further act on the part of Bank or Borrower. Upon Bank's
request Borrower will from time to time at Borrower's expense pledge, assemble
and deliver such inventory to Bank's name; or deliver to Bank documents of
title representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a default by Borrower under this
Agreement or any other Agreement between Borrower and Bank, Borrower may,
subject to the provisions hereof and consistent herewith, sell the Inventory,
but only in the ordinary course of Borrower's business. A sale of Inventory in
Borrower's ordinary course of business does not include an exchange or a
transfer in partial or total satisfaction of a debt owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of the Agreement, and at any time or times hereafter at
the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of title,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents that Bank may request, in form satisfactory to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and
in order to fully consummate all of the transactions contemplated under this
Agreement. Borrower hereby irrevocably makes, constitutes and appoints Bank
(and any of Bank's officers, employees or agents designated by Bank) as
Borrower's true and lawful attorney-in-fact with owner to sign the name of
Borrower on any financing statements, continuation financing statement,
security agreement, mortgage, assignment, certificate of title, affidavit,
letter of authority, notice of other similar documents which must be executed
and/or filed in order to perfect or continue perfected Bank's security interest
in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its
officers, employees or agents) all have the right at any time or times
hereafter during Borrower's usual business hours, or during the usual business
hours of any third party having control over the records of Borrower, to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter, relating to, said Collateral and Borrower's financial
condition.
4.5 Borrower appoints Bank, effective upon the occurrence of an
Event of Default hereunder or any other person whom Bank may designate as
Borrower's attorney-in-fact, with power to endorse Borrower's name on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Bank's possession; to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against
account debtors, on schedules and assignments of Receivables, on verifications
of Receivables and on notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of Borrower's mail addressed to Borrower to an address designated
by Bank, to receive and open all mail addressed to Borrower, and to retain all
mail related to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of Receivables;
and to do all things necessary to carry out this Agreement. Borrower ratifies
and approves all acts of the attorney-in-fact. Neither Bank nor its
attorney-in-fact will be liable for any acts or omissions or for any error of
judgement or mistake of fact or law. This power being coupled with an
interest, is irrevocable so long as any Receivables in which Bank has a
security interest remain unpaid and until the Obligations have been fully
satisfied.
4.6 In order to protect or perfect any security interest which
Borrower is grated hereunder, Bank may, in its sole discretion, discharge any
lien or encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added to
the Obligation and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to
this Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and services providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the
extension of the financial accommodations hereunder, Borrower shall execute, or
cause to be executed, and deliver to Bank, in form and substance satisfactory
to Bank and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1) in form
satisfactory to Bank for filing and recording with the appropriate governmental
authorities;
c. If Borrower is a corporation, the certified extracts
from the minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for herein and
authorizing specific officers to execute and deliver the agreements provided
for herein;
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d. If Borrower is a corporation, then a certificate of
good standing showing that Borrower is in good standing under the laws of the
state of its incorporation and certificates indicating that Borrower is
qualified to transact business and is in good standing in any other state in
which it conducts business;
e. If Borrower is a partnership, then a copy of
Borrower's partnership agreement certified by each general partner of Borrower;
f. UCC searches, tax lien and litigation searches,
fictitious business statement filings, insurance certificates, notices or other
similar documents which Bank may require and in such form as Bank may require,
in order to reflect, perfect or protect Bank's first priority security interest
in the Collateral and in order to fully consummate all of the transactions
contemplated under the Agreement;
g. Evidence that Borrower has obtained insurance and
acceptable endorsements;
h. Waivers executed by landlords and mortgages of any
real property on which any Collateral is located and
i. Pre-loan accounts receivable audit and inventory
audit with results satisfactory to Bank; and
j. Termination of Silicon Valley Bank's lien against the
assets of Borrower.
6. WARRANTIES REPRESENTATIONS AND COVENANTS
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less than
the advances made hereunder. Bank shall have the right to recompute Borrower's
Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account
is not paid in full by an account debtor within ninety (90) days from the date
of invoice, or an account debtor disputes liability or makes any claim with
respect thereto, or a petition in bankruptcy or other application for relief
under the Bankruptcy Code or any other insolvency law is filed by or against an
account debtor, or an account debtor makes an assignment for the benefit of
creditors, becomes insolvent, fails or goes out of business, then Bank may deem
ineligible any and all accounts owing by that account debtor, and reduce
Borrower's Borrowing Base by the amount thereof. Bank may retain its security
interest in all Receivables and accounts, whether eligible or ineligible, until
all Obligations have been fully paid and satisfied. Returns and allowances, if
any, as between Borrower and its customers, will be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at
this time. Any merchandise which is returned by an account debtor or otherwise
recovered shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all disputes
and claims and settle or adjust them on terms approved by Bank. After default
by Borrower hereunder, no discount, credit or allowance shall be granted to any
account debtor by Borrower and no return of merchandise shall be accepted by
Borrower without Bank's consent. Bank may, after default by Borrower, settle
or adjust disputes and claims directly with account debtors for amounts and
upon terms which Bank considers advisable, and in such cases Bank will credit
Borrower's account with only the net amounts received by Bank in payment of the
accounts, after deducting all Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the
Collateral. Bank has and shall continue to have a first priority perfected
security interest in and to the Collateral. The Collateral shall at all times
remain free and clear of all liens, encumbrances and security interests (except
those in favor of Bank).
b. All accounts are and will, at all times pertinent
hereto, be bona fide existing obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the ordinary
course of business, free of liens, claims, encumbrances and security interests
(except as held by Bank and except as may be consented to, in writing, by Bank)
and are unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, rights of return or cancellation, and Borrower shall have
received no notice of actual or imminent bankruptcy or insolvency of any
account debtor at the time an account due from such account debtor is assigned
to Bank.
c. At the time each account is assigned to Bank, all
property giving rise to such account shall have been delivered to the account
debtor or to the agent for the account debtor for immediate shipment to, and
unconditional acceptance by, the account debtor.
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Borrower shall deliver to Bank, as Bank may from time to time require, delivery
receipts, customer's purchase orders, shipping instruction, bills of lading and
any other evidence of shipping arrangements. Absent such a request by Bank,
copies of all such documentation shall be held by Borrower as custodian of
Bank.
6.4 At the time each eligible account is assigned to Bank, all
such eligible accounts will be due and payable on terms set forth in Section
1.12, or on such other terms approved in writing by Bank in advance of the
creation of such accounts and which are expressly set forth on the face of all
invoices, copies of which shall be held by Borrower as custodian for Bank, and
no such eligible account will then be past due.
6.5 Borrower shall keep the inventory only at the following
location: See Schedule A and the owner or mortgagor of such location is: See
Schedule A.
a. Borrower, immediately upon demand by Bank therefor,
shall now and from time to time hereafter, at such intervals as are requested
by Bank, deliver to Bank, designations of Inventory specifying Borrower's cost
of inventory, the wholesale market value thereof and such other matters and
information relating to the Inventory as Bank may request;
b. Borrower's Inventory, valued at the lower of
Borrower's cost or the wholesale market value thereof, at all times pertinent
hereto shall not be less than N/A and ____/100 Dollars ($N/A) of which no less
than N/A and N/A and ____/100 Dollars ($N/A) shall be in raw materials and
finished goods;
c. All of the Inventory is and shall remain free from
all purchase money or other security interests, liens or encumbrances, except
as held by Bank.
d. Borrower does now keep and hereafter at all times
shall keep correct and accurate records itemizing and describing the kind,
type, quality and quantity of the Inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions thereto, all
of which records shall be available upon demand to any of Bank's officers,
agents and employees for inspection and copying.
e. All Inventory, now and hereafter at all times, shall
be new Inventory of good and merchantable quality free from defects.
f. Except as listed in Schedule A hereto, Inventory is
not now and shall not at any time or times hereafter be located or stored with
a bailee, warehouseman or other third party without Bank's prior written
consent, and, in such event, Borrower will concurrently therewith cause any
such bailee, warehouseman or other third party to issue and deliver to Bank, in
a form acceptable to Bank, warehouse receipts in Bank's name evidencing the
storage of Inventory or other evidence of Bank's prior rights in the Inventory.
In any event, Bank shall instruct any third party to hold all such Inventory
for Bank's account subject to Borrower's security interests and its
instructions; and
g. Bank shall have the right upon demand now and/or at
all times hereafter, during Borrower's usual business hours, to inspect and
examine the Inventory and to check and test the same as to quality, quantity,
value and condition and Borrower agrees to reimburse Bank for Bank's reasonable
costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
a. Grant a security interest in or permit a lien, claim
or encumbrance upon any of the Collateral to any person, association, firm,
corporation, entity or government agency or instrumentality;
b. Permit any levy, attachment or restraint to be made
affecting any of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be
appointed or to take possession of any or all of Borrower's assets;
d. Other than sales of Inventory in the ordinary course
of Borrower's business, to sell, lease, or otherwise dispose of, move, or
transfer, whether by sale or otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate
identity or structure; add any new fictitious names, liquidate, merge or
consolidate with or into any other business organization;
f. Move or relocate any Collateral;
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g. Acquire any other business organization;
h. Enter into any transaction not in the usual course of
Borrower's business;
i. Make any investment in securities of any person,
association, firm, entity, or corporation other than the securities of the
United States of America;
j. Make any change in Borrower's financial structure or
in any of its business objectives, purposes or operations which would adversely
affect the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of
Borrower's business except renewals or extensions of existing debts and
interest thereof;
l. Make any advance or loan except in the ordinary
course of Borrower's business as currently conducted;
m. Make loans, advances or extensions of credit to any
Person, except for sales on open account and otherwise in the ordinary course
of business;
n. Guarantee or otherwise, directly or indirectly, in
any way be or become responsible for obligations of any other Person, whether
by agreement to purchase the indebtedness of any other Person, agreement for
furnishing of funds to any other Person through the furnishing of goods,
supplies or services, by way of stock purchase, capital contribution, advance
or loan, for the purpose of paying or discharging (or causing the payment or
discharge of) the indebtedness of any other Person, or otherwise, except for
the endorsement of negotiable instruments by Borrower in the ordinary course of
business for deposit or collection;
o. (a) Sell, lease, transfer or otherwise dispose in any
one year of properties and assets having an aggregate book value of more than
One Hundred Thousand and 00/100 Dollars ($100,000) (whether in one transaction
or in a series of transactions) except as to the sale of inventory in the
ordinary course of business; (b) change its name, consolidate with or merge
into any other corporation, permit another corporation to merge into it,
acquire all or substantially all the properties or assets of any other Person,
enter into any reorganization or recapitalization or reclassify its capital
stock; or (c) enter into any sale-leaseback transaction;
p. Subordinate any indebtedness due to it from a person
to indebtedness of other creditors of such person;
q. Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any interest whatsoever in,
any other Person, except for investment grade securities pursuant to a
investment policy that has been provided to Bank prior to the execution hereof,
the common stock of the Subsidiaries owned by Borrower on the date of this
Agreement and except for certificates of deposit with maturities of one year or
less of United States commercial banks with capital, surplus and undivided
profits in excess of $100,000,000 and direct obligations of the United States
Government maturing within one year from the date of acquisition thereof; or
r. Allow any fact, condition or event to occur or exist
with respect to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of any such
plan or for the court appointment of a trustee to administer any such plan.
6.7 Borrower is in the business of providing work space products,
work space product services and work space management services.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants
and covenants as follows:
a. Borrower will not make any distribution or declare or
pay any dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or purchase,
acquire, repurchase, redeem or retire any such capital stock;
b. Borrower is and shall at all times hereafter be a
corporation duly organized and existing in good standing under the laws of the
state of its incorporation and
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<PAGE> 10
qualified and licensed to do business in California or any other state in which
it conducts its business;
c. Borrower has the right and power and is duly
authorized to enter into this Agreement; and
d. The execution by Borrower of this Agreement shall not
constitute a breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the
terms and provisions contained in this Agreement shall not result in a breach
of or constitute an event of default under any agreement to which Borrower is
now or hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its
acquisition by purchase, lease or otherwise of any after acquired property of
the type included in the Collateral, with the exception of purchase of
inventory in the ordinary course of business.
6.12 All assessments and taxes, whether real, personal or
otherwise, due or payable by, or imposed, levied or assessed against, Borrower
or any of its property have been paid, and shall hereafter be paid in full,
before delinquency. Borrower shall make due and timely payment or deposit of
all federal, state and local taxes, assessments or contributions required of it
by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will make
timely payment or deposit of all F.I.C.A. payments and withholding taxes
required of it by applicable laws, and will upon request furnish Bank with
proof satisfactory to it that Borrower has made such payments or deposit. If
Borrower fails to pay any such assessment, tax, contribution, or make such
deposit, or furnish the required proof, Bank may, in its sole and absolute
discretion, and without notice to Borrower, (i) make payment of the same or any
part thereof; or (ii) set up such reserves in Borrower's account as Bank deems
necessary to satisfy the liability therefor, or both. Bank may conclusively
rely on the usual statements of the amount owing or other official statements
issued by the appropriate governmental agency. Each amount so paid or
deposited by Banks shall constitute a Bank Expense and an additional advance to
Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative agency
and Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower or any guarantor of Borrower, except as
heretofore specifically disclosed in writing to Bank. If any of the foregoing
arise during the term of the Agreement, Borrower shall immediately notify Bank
in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its
assets insured against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners who use
such properties in similar businesses for the full insurable value thereof.
Borrower shall also keep and maintain business interruption insurance and
public liability and property damage insurance relating to Borrower's ownership
and use of the Collateral and its other assets. All such policies of insurance
shall be in such form, with such companies, and in such amounts as may be
satisfactory to Bank. Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor.
All such policies of insurance (except those of public liability and property
damage) shall contain an endorsement in a form satisfactory to Bank showing
Bank as a loss payee thereof, with a waiver of warranties (Form 438-BFU), and
all proceeds payable thereunder shall be payable to Bank and, upon receipt by
Bank, shall be applied on account of the Obligations owing to Bank. To secure
the payment of the Obligations, Borrower grants Bank a security interest in and
to all such policies of insurance (except those of public liability and
property damage) and the proceeds thereof, and Borrower shall direct all
insurers under such policies of insurance to pay all proceeds thereof directly
to Bank.
b. Borrower hereby irrevocably appoints Bank (and any of
Bank's officers, employees or agents designated by Bank) as Borrower's attorney
for the purpose of making, selling and adjusting claims under such policies of
insurance, endorsing the name of Borrower or any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. Borrower will not cancel any of such policies without Bank's prior
written consent. Each such insurer shall agree by endorsement upon the policy
or policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank, that it will give Bank at least ten
(10) days' written notice before any such policy or policies of insurance shall
be altered or canceled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or policies
of insurance required above or to pay any premium in whole or in part relating
thereto. Bank, without waiving or releasing any Obligations or any Event of
Default, may, but shall have no obligation to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems
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<PAGE> 11
advisable. All sums so disbursed by Bank, as well as reasonable attorneys'
fees, court costs, expenses and other charges relating thereto, shall
constitute Bank Expenses and are payable on demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true and
correct and have been prepared in accordance with GAAP consistently applied and
there has been no material adverse change in the financial condition since the
submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a
standard and modern system of accounting in accordance with GAAP consistently
applied with ledger and account cards and/or computer tapes and computer disks,
computer printouts and computer records pertaining to the Collateral which
contain information as may from time to time be requested by Bank, not modify
or change its method of accounting or enter into, modify or terminate any
agreement presently existing, or at any time hereafter entered into with any
third party accounting firm and/or service bureau for the preparation and/or
storage of Borrower's accounting records without the written consent of Bank
first obtained and without said accounting firm and/or service bureau agreeing
to provide information regarding the Receivables and Inventory and Borrower's
financial condition to Bank; permit Bank and any of its employees, officers or
agents, upon demand, during Borrower's usual business hours, or the usual
business hour of third persons having control thereof, to have access to and
examine all of Borrower's Books relating to the Collateral, Borrower's
Obligations to Bank, Borrower's financial condition and the results of
Borrower's operations and in connection therewith, permit Bank or any of its
agents, employees or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30)
days after the end of each quarter, a company prepared balance sheet and profit
and loss statement covering Borrower's operations, including actual results
against Borrower's plan of operations and deliver to Bank within ninety (90)
days after the end of each of Borrower's fiscal years a(n) CPA reviewed
statement of the financial condition of Borrower for 1996 and thereafter,
including but not limited to, a balance sheet and profit and loss statement and
any other report requested by Bank relating to the Collateral and the financial
condition of Borrower, and a certificate signed by an authorized employee of
Borrower to the effect that all reports, statements, computer disk or tape
files, computer printouts, computer runs, or other computer prepared
information of any kind or nature relating to the foregoing or documents
delivered or caused to be delivered to Bank under this subparagraph are
complete, correct and thoroughly present the financial condition of Borrower
and that there exists on the date of delivery to Bank no condition or event
which constitutes a breach or Event of Default under this Agreement.
c. In addition to the financial statements requested
above, Borrower agrees to provide Bank with the following schedules:
<TABLE>
<S> <C>
X Accounts Receivable Aging Reports on a monthly basis
- -------------------------- within fifteen (15) days of month end.
X Accounts Payable Aging Reports on a monthly basis
- -------------------------- within fifteen (15) days of month end.
N/A Job Progress Reports on a N/A basis.
- --------------------------
N/A Inventory Reports on a N/A basis.
- --------------------------
X Borrowing Base Certificate on a monthly basis within
- -------------------------- fifteen (15) days of month end if advances hereunder
exceed $10,000,000.
N/A Federal Tax Returns on an ________ basis within thirty
- -------------------------- (30) days of filing with the Internal Revenue Service.
X Backlog Reports on a quarterly basis within fifteen
- -------------------------- (15) days of quarter end.
X Annual Report on Form 10-K within thirty (30) days after
- -------------------------- filing with the Securities and Exchange Commission
(the "SEC").
X Quarterly Report on Form 10-Q within thirty (30) days
- -------------------------- after filing with the SEC.
</TABLE>
6.17 Borrower shall maintain the following financial ratios and
covenants on a consolidated and non-consolidated basis to be tested on a
quarterly basis:
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<PAGE> 12
a. Effective Net Worth in an amount not less than Eleven
Million Seven Hundred Fifty Thousand and 00/100 Dollars ($11,750,000).
b. A ratio of Current Assets to Current Liabilities of
not less than 1.0:1.0.
c. A quick ratio of cash plus securities plus
Receivables to Current Liabilities not less than N/A.
d. A ratio of Total Liabilities (less debt subordinated
to Bank) to Tangible Effective Net Worth of less than 1.25:1.
e. Beginning as of the fiscal quarter ending October 31,
1997, Net Income after taxes of not less than One Dollar ($1.00) for each of
Borrower's fiscal years, with no losses in two (2) consecutive fiscal quarters.
f. Cash Flow Coverage of not less than 1.50:1 at such
time as Borrower has obtained advances under a Variable Rate- Single Payment
Note described in Addendum A hereto.
g. Borrower shall not without Bank's prior written
consent acquire or expend for or commit itself to acquire or expend for fixed
assets by lease, purchase or otherwise in an aggregate amount that exceeds Five
Hundred Thousand and 00/100 Dollars ($500,000) in any fiscal year.
h. The total aggregate outstanding principal balance
shall not exceed one hundred percent (100%) of net accounts receivable of
Borrower calculated in accordance with GAAP at each of Borrower's fiscal
quarter ends.
i. The obligations under this Agreement are
cross-collateralized and cross-defaulted to all present and future indebtedness
of Borrower.
j. Borrower shall not merge with or acquire any entities
without Bank's prior approval.
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor
to supply Bank) with such other information (including tax returns) concerning
its financial affairs (or that of any guarantor) as Bank may request from time
to time hereafter, and shall promptly notify Bank of any material adverse
change in Borrower's financial condition and of any condition or event which
constitutes a breach of or an event which constitutes or which will with the
passage of time constitute an Event of Default under this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent
and able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank
for all sums expended by Bank in connection with any act brought by Bank to
correct any default or enforce any provision of this Agreement, including all
Bank Expenses; Borrower authorizes and approves all advances and payments by
Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with
Bank and shall notify Bank immediately in writing of the existence of any other
bank account, or any other account into which money can be deposited.
6.23 Borrower shall furnish to Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has reason to
know that any reportable event with respect to any deferred compensation plan
has occurred, a statement of chief financial officer of Borrower setting forth
the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual
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<PAGE> 13
report with respect to each deferred compensation plan; (c) promptly after
receipt thereof, a copy of any notice Borrower may receive from the Pension
Benefit Guaranty Corporation or the Internal Revenue Service; and (d) when the
same is made available to participants in the deferred compensation plan, all
notices and other forms of information from time to time disseminated to the
participants by the administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits.
6.25 Borrower shall maintain insurance on the life of N/A in an
amount not to be less than N/A and ____/100 Dollars ($N/A) under one or more
policies issued by insurance companies satisfactory to Bank, which policies
shall be assigned to Bank as security for the Obligations and on which Bank
shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to
the following employees: N/A to an aggregate of N/A and N/A and ____/100
Dollars ($N/A) per N/A.
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement, or any other present or future
agreement between Borrower and Bank;
b. If any representation, statement, report or
certificate made or delivered by Borrower, or any of its officers, employees or
agents to Bank is not true and correct;
c. If Borrower fails to pay when due and payable or
declared due and payable, all or any portion of Borrower's obligations (whether
of principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of
repayment of all or any portion of Borrower's Obligations or a material
impairment of the value or priority of Bank's security interest in the
Collateral;
e. If all or any of Borrower's assets are attached,
seized, subject to a writ or distress warrant, or are levied upon, or come into
the possession of any Judicial Officer or Assignee and the same are not
released, discharged or bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by
or against Borrower without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against
Borrower for its dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
i. If a notice of lien, levy or assessment is filed of
record with respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other government agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any or all of Borrower's assets and the same
is not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or
encumbrance upon any or all of Borrower's assets and the same is not satisfied,
dismissed or bonded against within ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an
outside computer service bureau at the time this Agreement is entered into or
during the term of this Agreement such an agreement with an outside service
bureau is entered into, and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies, amends or changes its
contractual relationship with said computer service bureau or said computer
service bureau fails to provide Bank with any request information or
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<PAGE> 14
financial data pertaining to Bank's Collateral, Borrower's financial condition
or the results of Borrower's operations;
l. If Borrower permits a default in any material
agreement to which Borrower is a party with third parties so as to result in an
acceleration of the maturity of Borrower's indebtedness to others, whether
under any indenture, agreement or otherwise;
m. If Borrower makes any payment on account of
indebtedness which has been subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in
any warranty or representation made by Bank by any officer or director of
Borrower, or if any such warranty or representation is withdrawn by any officer
or director;
o. If any party subordinating its claims to that of
Bank's or any guarantor of Borrower's Obligations dies or terminates its
subordination or guaranty, becomes insolvent or an Insolvency Proceeding is
commenced by or against any such subordinating party or guarantor;
p. If Borrower is an Individual and Borrower dies;
q. If there is a change of ownership or control of any
percent of or more of the issued and outstanding stock of Borrower; or
r. If any reportable event, which Bank determines
constitutes grounds for the termination of any deferred compensation plan by
the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any such
plan, shall have occurred and be continuing thirty (30) days after written
notice of such determination shall have been given to Borrower by Bank, or any
such Plan shall be terminated within the meaning of Title IV of the Employment
Retirement Income Security Act ("ERISA"), or a trustee shall be appointed by
the appropriate United States District Court to administer any such plan, or
the Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any plan and in case of any event described in this Section 7.0, the
aggregate amount of Borrower's liability to the Pension Benefit Guaranty
Corporation under Sections 4062, 4063 or 4064 of ERISA shall exceed five
percent (5.00%) of Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the
contrary, Bank shall refrain from exercising its rights and remedies and an
Event of Default shall thereafter not be deemed to have occurred by reason of
the occurrence of any of the events set forth in Sections 7.e, 7.f or 7.j of
this Agreement if, within ten (10) days from the date thereof, the same is
released, discharged, dismissed, bonded against or satisfied; provided,
however, that if any such events occur, Bank shall not be obligated to make any
advances to Borrower during any such ten (10) day cure period.
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under
this Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced by
this Agreement, installment notes, demand notes or otherwise, immediately due
and payable to Bank;
b. Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, or any other agreement between
Borrower and Bank;
c. Terminate this Agreement as to any future liability
or obligation of Bank, but without affecting Bank's rights and security
interests in the Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, take and maintain possession of the
Collateral and the premises (at no charge to Bank), or any part thereof, and to
pay, purchase, contest or compromise any encumbrance, charge or lien which in
the opinion of Bank appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith;
e. Without limiting Bank's rights under any security
interest, Bank is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secret, trade names, trademarks and advertising matter, or any property
of a similar nature as it pertains to the Collateral, in completing
14
<PAGE> 15
production of, advertising for sale and selling any Collateral and Borrower's
rights under all licenses and all franchise agreement shall inure to Bank's
benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sales and sell (in the manner provided
for herein) the inventory;
g. Sell or dispose the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as is commercially reasonable in the opinion of Bank. It is not
necessary that the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the
Collateral as follows:
(1) Bank shall give Borrower and each holder of a
security interest in the collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public sale, or, if
the sale is a private sale or some disposition other than a public sale is to
be made of the Collateral, the time on or after which the private sale or the
disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower's address appearing in this Agreement, at
least five (5) calendar days before the date fixed for the sale, or at least
five (5) calendar days before the date on or after which the private sale or
other disposition is to be made, unless the Collateral is perishable or
threatens to decline speedily in value. Notice to persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Bank;
(3) If the sale is to be a public sale, Bank
shall also give notice of the time and place by publishing a notice one time at
least five (5) calendar days before the date of this sale in a newspaper of
general circulation in the county in which the sale is to be held; and
(4) Bank may credit bid and purchase at any
public sale.
i. Borrower shall pay all Bank Expenses incurred in
connection with Bank's enforcement and exercise of any of its rights and
remedies as herein provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third parties,
to Borrower by Bank, or, in Bank's discretion, to any party who Bank believes,
in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in
satisfaction of an obligation within the meaning of Section 9505 of the Uniform
Commercial Code or an action under California Code of Civil Procedure Section
726, apply any and all amounts maintained by Borrower as deposit accounts (as
that term is defined under Section 9105 of the Uniform Commercial Code) or
other accounts that Borrower maintains with Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any default on Borrower's part shall be deemed a continuing waiver. No delay
by Bank shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor,
and Borrower shall promptly reimburse Bank. All such sums shall become
additional indebtedness owing to Bank, shall bear interest at the rate
hereinabove provided, and shall be secured by all Collateral. Any payments
made by Bank shall not constitute (i) an agreement by it to make similar
payments in the future; or (ii) a waiver by Bank of any default under this
Agreement. Bank need not inquire as to, or contest the validity of, any such
expense, tax security interest, encumbrance or lien and the receipt of the
usual official notice of the payment thereof shall be conclusive evidence that
the same was validly due and owing. Such payments shall constitute Bank
Expenses and additional advances to Borrower.
10. WAIVERS
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<PAGE> 16
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and Borrower
waives the right to direct the application of any and all payments at any time
or times hereafter received by Bank on account of Borrower's Obligations and
Borrower agrees that Bank shall have the continuing exclusive right to apply
and reapply such payments in any manner as Bank may deem advisable,
notwithstanding any entry by Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal
of any or all commercial paper, accounts, documents, instruments chattel paper,
and guarantees at any time held by Bank on which Borrower may in any way be
liable.
10.3 Bank shall not in any way or manner be liable or responsible
for (a) the safekeeping of the inventory; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All risk
of loss, damage or destruction of inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a
confidential relationship, if any, it may have with any accountant, accounting
firm and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and agrees
that Bank may contact directly any such accountants, accounting firm and/or
service bureau or consultant in order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER,
OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any terms, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time or times
hereafter made by Bank to Borrower under this Agreement or any other agreement
between Bank and Borrower, shall constitute one loan secured by Bank's security
interests in the Collateral and by all other security interests, liens,
encumbrances heretofore, now or from time to tome hereafter granted by Borrower
to Bank.
Notwithstanding the above, (i) to the extent that any portion of the
Obligations are a consumer loan, that portion shall not be secured by any deed
or trust or mortgage on or other security interest in Borrower's principal
dwelling which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place; or (ii) if Borrower
(or any of them) has (have) given to or give(s) Bank a deed of trust or
mortgage covering real property, that deed of trust or mortgage shall not
secure the loan and any other Obligation of Borrower (or any of them), unless
expressly provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
either party on the other relating to this Agreement shall be in writing and
sent by regular United States mail, postage prepaid, properly addressed to
Borrower or to Bank at the addresses stated in this Agreement, or to such other
addresses as Borrower or Bank may from time to time specify to the other in
writing. Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE
Bank is hereby authorized to make loans and advances hereunder upon
telephonic or other instructions received from anyone purporting to be an
officer, employee, or representative of Borrower, or at the discretion of Bank
if said loans and advances are necessary to meet any Obligations of Borrower to
Bank. Bank shall have no duty to make inquiry or verify the authority of any
such party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
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<PAGE> 17
Any documents, schedules, invoices or other papers delivered to Bank,
may be destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement or the documents executed in connection herewith
shall be tried and litigated only in the state and federal courts in the
Northern District of California or the County of Santa Clara.
16. GENERAL PROVISIONS
16.1 This Agreement shall be binding and deemed effective when
executed by Borrower and accepted and executed by Bank at its Headquarters
Office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided, however,
that Borrower may not assign this Agreement or any rights hereunder without
Bank's prior written consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Bank shall release Borrower or any
guarantor from their Obligations to Bank. Bank may assign this Agreement and
its rights and duties hereunder. Bank reserves the right to sell, assign,
transfer, negotiate or grant participation in all or any part of, or any
interest in Bank's rights and benefits hereunder. In connection therewith,
Bank may disclose all documents and information which Bank now or hereafter may
have relating to Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire
Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise; on the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto. When permitted by the context, the singular
includes the plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except
as to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations, if
any, with respect to the subject matter hereof, are merged into this Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers liabilities, obligations and discretions shall be performed,
carried out, discharged and exercised reasonably and in good faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving
Credit Loan & Security Agreement (Accounts & Inventory) to be executed as of
the date first hereinabove written.
This Agreement is supplemented by the terms and conditions of that
certain Addendum A and that certain Addendum B, both of even date herewith,
attached hereto and
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<PAGE> 18
made a part hereof.
BORROWER: Business Resource Group
By:_________________________________
Title:______________________________
By:_________________________________
Title:______________________________
Accepted and effective as of
August 8, 1997
Comerica Bank-California
By:_________________________________
John M. Greene
Title: Vice President
18
<PAGE> 19
SCHEDULE A
Business Resource Group Locations and Landlords/Mortgagors
<TABLE>
<CAPTION>
Locations Landlord/Mortgagors
--------- -------------------
<S> <C> <C> <C>
1. 2150 North First Street, Suite 101 1. __________________________________
San Jose, CA 95131 __________________________________
Telephone No. 408 441-3700 __________________________________
Fax No. 408 441-3737 Telephone No. 408 ________________
Fax No. 408 ______________________
Attention: _______________________
2. 2010 East University No.1 2. P. Schubert Properties
Tempe, AZ 85281 c/o ATI Properties
Telephone No. 602 212-6000 5615 N. 7th Street
Fax No. 602 966-8861 Phoenix, AZ 85014
Telephone No. 602 ________________
Fax No. 602 ______________________
Attention: _______________________
3. 670 Fifth Street 3. __________________________________
San Francisco, CA 94107 __________________________________
Telephone No. 415 974-5505 __________________________________
Fax No. 415 974-5564 Telephone No. 415 ________________
Fax No. 415 ______________________
Attention: _______________________
4. 2811 McKinney Avenue, Suite 18 4. Breurig Commercial
Dallas, TX 75204 c/o 2811 McKinney Avenue, Suite 18
Telephone No. 415 953-1233 Dallas, TX 75204
Fax No. 415 953-1112 Telephone No. 214 ________________
Fax No. 214 ______________________
Attention: _______________________
</TABLE>
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<PAGE> 20
ADDENDUM A
ADDENDUM TO REVOLVING CREDIT LOAN & SECURITY AGREEMENT
(ACCOUNTS & INVENTORY) RE: ADDITIONAL TERMS
This ADDENDUM TO REVOLVING CREDIT LOAN & SECURITY AGREEMENT (ACCOUNTS
& INVENTORY) RE: ADDITIONAL TERMS (this "Addendum") is entered into by and
between Comerica Bank-California ("Bank") and Business Resource Group
("Borrower") as of the 8th day of August, 1997 (the "Effective Date"), at
Bank's headquarters office in San Jose, California.
RECITALS
A. Concurrently herewith, Borrower and Bank is executing that
certain Revolving Loan & Security Agreement (Accounts and Inventory) (as
amended from time to time, the "Agreement"), Equipment Rider and other
documents. all of even date herewith. Pursuant to the Agreement, Bank has
agreed, subject to certain conditions, to advance a line of credit (the "Line
of Credit") to Borrower in a principal amount not to exceed an aggregate of
Fifteen Million and 00/100 Dollars ($15,000,000) at any one time, as set forth
more completely in the Agreement.
B. Subsequent to the date hereof, Borrower may execute that
certain Variable Rate-Single Payment Note (the "Note") in favor of Bank.
Pursuant to the Note, Bank will make available to Borrower a line of credit to
fund the purchase of certain equipment, as set forth more completely in the
Note to be executed, with the advances under the Note not to exceed eighty
percent (80%) of the invoice costs of the equipment being purchased.
C. In addition to the terms set forth in the Agreement, and the
documents related thereto, the parties have agreed to the additional terms set
forth herein.
AGREEMENT
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as set forth below:
1. Incorporation By Reference of Recitals. The Recitals are
incorporated herein by this reference as though set forth in full herein.
2. Incorporation of Agreement and Documents Executed in
Connection Therewith. The Agreement, and the documents executed in connection
therewith are incorporated herein by this reference. All terms not defined
herein shall have the meanings given in the Agreement, or the documents
executed in connection therewith, as the case may be.
3. Annual Loan Fees. Borrower shall pay to Bank annual loan fees
in connection with the Line of Credit in the amount of Fifteen Thousand and
00/100 Dollars ($15,000) per year, payable upon execution hereof and annually
thereafter on the 8th day of August of each year.
4. Accounts Receivable Audits. Bank may perform, at its option,
on one (1) occasion in each year, an accounts receivable audit, at Borrower's
cost in an amount not to exceed Three Thousand Dollars ($3,000). If an Event
of Default occurs or has occurred under the Agreement or any of the documents
executed in connection therewith or subsequent thereto, Bank may perform such
additional audits as Bank may reasonably require, at Borrower's cost.
5. Legal Effect. This Addendum shall supplement the terms of the
Agreement and documents executed in connection therewith. Except as expressly
set forth herein, all of the terms and conditions of the Agreement, the Note
and the documents executed in
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<PAGE> 21
connection therewith shall remain in full force and effect.
6. Integration. This Addendum is an integrated agreement and
supersedes all prior written agreements regarding the subject matter hereof.
All amendments hereto shall be in writing and shall be in writing and shall be
signed by all parties.
IN WITNESS WHEREOF, the parties have executed this Addendum to
Revolving Credit Loan & Security Agreement (Accounts & Inventory) Re:
Additional Terms as of the Effective Date.
BUSINESS RESOURCE GROUP
By:________________________________
Title:_____________________________
COMERICA BANK-CALIFORNIA
By:________________________________
John M. Greene
Title: Vice President
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<PAGE> 22
LIBOR AND COST OF FUNDS-OVERNIGHT RATE
ADDENDUM TO REVOLVING CREDIT LOAN & SECURITY AGREEMENT
This LIBOR AND COST OF FUNDS-OVERNIGHT RATE ADDENDUM TO REVOLVING
CREDIT LOAN & SECURITY AGREEMENT (this "Addendum") is entered into as of this
8th day of August, 1997, by and between Comerica Bank-California ("Bank") and
Business Resource Group ("Borrower"). This Addendum supplements the terms of
the Revolving Credit Loan & Security Agreement of even date herewith.
1. Definitions.
a. Advance. As used herein, "Advance" means a
borrowing requested by Borrower and made by Bank under the Note, including a
LIBOR Option Advance, a COST OF FUNDS-Overnight Rate Option Advance and/or a
Base Rate Option Advance.
b. Business Day. As used herein, "Business Day"
means any day except a Saturday, Sunday or any other day designated as a
holiday under Federal or California statute or regulation.
c. COST OF FUNDS-Overnight Rate. As used
herein, "COST OF FUNDS-Overnight Rate" means the rate per annum (rounded upward
if necessary, to the nearest whole 1/8 of 1%) and determined for its funds as
of the night prior to the date on which COST OF FUNDS-OVERNIGHT RATE is to be
determined.
d. LIBOR. As used herein, "LIBOR" means the
rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%)
and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(1) "Base LIBOR" means the rate per
annum determined by Bank at which deposits for the relevant LIBOR Period would
be offered to Bank in the approximate amount of the relevant LIBOR Option
Advance in the inter-bank LIBOR market selected by Bank, upon request of Bank
at 10:00 a.m. California time, on the day that is the first day of such LIBOR
Period.
(2) "LIBOR Reserve Percentage" means the
reserve percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for "Eurocurrency Liabilities" (as defined in
Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for
expected changes in such reserve percentage during the applicable LIBOR Period.
e. LIBOR Business Day. As used herein, LIBOR
Business Day means a Business Day on which dealings in Dollar deposits may be
carried out in the interbank LIBOR market.
f. LIBOR Period. As used herein, "LIBOR Period"
means a period commencing on a Business Day, and continuing for, in every case,
no greater than thirty (30), sixty (60), or ninety (90) days, as designated by
Borrower, during which all or a portion of the outstanding principal balance of
the Note bears interest determined in relation to Bank's LIBOR, provided that:
(1) If any LIBOR Period would end on a
day that is not a Business Day, then
such LIBOR Period shall be extended
to the next succeeding Business Day;
and
(2) No LIBOR Period shall extend beyond
the Maturity Date of the Note.
g. Note. As used herein, "Note" means the
Revolving Credit Loan & Security Agreement of even date herewith.
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<PAGE> 23
h. Regulation D. As used herein, "Regulation D"
means Regulation D of the Board of Governors of the Federal Reserve System as
amended or supplemented from time to time.
i. Regulatory Development. As used herein
"Regulatory Development" means any or all of the following: (i) any change in
any law, regulation or interpretation thereof by any public authority (whether
or not having the force of law); (ii) the application of any existing law,
regulation or the interpretation thereof by any public authority (whether or
not having the force of law); and (iii) compliance by Bank with any request or
directive (whether or not having the force of law) of any public authority.
2. Interest Rate Options. Borrower shall have the
following options regarding the interest rate to be paid by Borrower on
Advances under the Note:
a. A rate equal to one and three quarter percent
(1.75%) above Bank's LIBOR, (the "LIBOR
Option"), which LIBOR Option shall be in
effect during the relevant LIBOR Period; or
b. A rate equal to one and three quarter percent
(1.75%) above Bank's COST OF FUNDS-OVERNIGHT
RATE, (the "COST OF FUNDS-OVERNIGHT RATE
Option"); as such rate may change from time
to time; or
c. A rate equal to the "Base Rate" as referenced
in the Note and quoted from time to time by
Bank, as such rate may change from time to
time (the "Base Rate Option").
3. Minimum LIBOR Option Advance. The minimum LIBOR
Option Advance will not be less than One Hundred Thousand and 00/100 Dollars
($100,000) for any LIBOR Option Advance.
4. Payment of Interest on LIBOR Option Advance.
Interest on each LIBOR Option Advance shall be payable on the last day of the
LIBOR Period applicable thereto. Interest on such LIBOR Option Advance shall
be computed on the basis of a 360-day year and shall be assessed for the actual
number of days elapsed from the first day of the LIBOR Period applicable
thereto but not including the last day thereof.
5. Payment of Interest on COST OF FUNDS-OVERNIGHT RATE
Option. Interest on each COST OF FUNDS-OVERNIGHT RATE Option Advance shall be
payable monthly on the date as set forth in the Note. Interest on such COST OF
FUNDS-OVERNIGHT RATE shall be computed on the basis of a 360-day year.
6. Bank's Records Re: LIBOR Option Advances. With
respect to each LIBOR Option Advance, Bank is hereby authorized to note the
date, principal amount, interest rate and LIBOR Period applicable thereto and
any payments made thereon on Bank's books and records (either manually or by
electronic entry) and/or on any schedule attached to the Note, which notations
shall be prima facie evidence of the accuracy of the information noted.
7. Bank's Records Re: COST OF FUNDS-OVERNIGHT RATE
Option Advances. With respect to each COST OF FUNDS-OVERNIGHT RATE Option
Advance, Bank is hereby authorized to note the date, principal amount, interest
rate and COST OF FUNDS-OVERNIGHT RATE applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to the Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
8. Selection/Conversion of Interest Rate Options.
a. LIBOR. At the time each Advance is requested
under the Note and/or Borrower wishes to select the LIBOR Option for all or a
portion of the outstanding principal balance of the Note, and at the end of
each LIBOR Period, Borrower shall give Bank notice specifying (a) the interest
rate option selected by Borrower; (b) the principal amount subject thereto; and
(c) if the LIBOR Option is selected, the length of the applicable LIBOR Period.
Any such notice may be given by telephone so long as, with respect to each
LIBOR
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<PAGE> 24
Option selected by Borrower, such notice is given to Bank prior to 3:00 p.m.,
California time, on the first day of the LIBOR Period. For each LIBOR Option
requested hereunder, Bank will quote the applicable fixed LIBOR rate to
Borrower at approximately 3:00 p.m., California time, on the first day of the
LIBOR Period. If Borrower does not immediately accept the rate quoted by Bank,
any subsequent acceptance by Borrower shall be subject to a redetermination by
Bank; provided however, that if Borrower fails to accept any such quotation as
given, then the quoted rate shall expire and Bank shall have no obligation to
permit a LIBOR Option to be selected on such day. If no specific designation
of interest is made at the time any Advance is requested under the Note or at
the end of any LIBOR Period, Borrower shall be deemed to have selected the Base
Rate Option for such advance or the principal amount to which such LIBOR Period
applied. At any time the LIBOR Option is in effect, Borrower may, at the end
of the applicable LIBOR Period, convert to the Base Rate Option. At any time
the Base Rate Option is in effect, Borrower may convert to the LIBOR Period
designated by Borrower.
b. COST OF FUNDS-OVERNIGHT RATE. At the time
each Advance is requested under the Note and/or Borrower wishes to select the
COST OF FUNDS-OVERNIGHT RATE Option for all or a portion of the outstanding
principal balance of the Note, Borrower shall give Bank notice specifying (a)
the interest rate option selected by Borrower; and (b) the principal amount
subject thereto. Any such notice may be given by telephone so long as, with
respect to each COST OF FUNDS-OVERNIGHT RATE Option selected by Borrower, such
notice is given to Bank prior to 3:00 p.m., California time, on the day the
COST OF FUNDS-OVERNIGHT RATE is requested. For each COST OF FUNDS-OVERNIGHT
RATE Option requested hereunder, Bank will quote the applicable COST OF
FUNDS-OVERNIGHT RATE to Borrower at approximately 3:00 p.m., California time,
on the day the COST OF FUNDS-OVERNIGHT RATE is requested. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank; provided, however, that
if Borrower fails to accept any such quotation is given, then the quoted rate
shall expire and Bank shall have no obligation to permit a COST OF
FUNDS-OVERNIGHT RATE Option to be selected on such date. If no specific
designation of interest is made at the time any Advance is requested under the
Note, Borrower shall be deemed to have selected the Base Rate Option for such
advance or the principal amount to which such COST OF FUNDS-OVERNIGHT RATE
applies. At any time the COST OF FUNDS-OVERNIGHT RATE Option is in effect,
Borrower may convert to the Base Rate Option. At any time the Base Rate Option
is in effect, Borrower may convert to the COST OF FUNDS-OVERNIGHT RATE
designated by Borrower.
9. Default Interest. From and after the maturity date
of the Note, or such earlier date as all principal owing hereunder becomes due
and payable by acceleration or otherwise, the outstanding principal balance of
the Note shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to three
percent (3.00%) above the rate of interest from time to time applicable to the
Note.
10. Prepayment. Bank does not have to accept any
prepayment of any LIBOR Option Advance except as described below or as required
under applicable law. Borrower may prepay a Base Rate Option Advance or COST
OF FUNDS-OVERNIGHT RATE Option Advance at any time without paying any
Prepayment Amount, as defined below. Borrower may prepay a LIBOR Option
Advance at any time, as long as Bank is provided written notice of the
prepayment at least five (5) business days prior to the date of prepayment (the
"Prepayment Date"). The notice of prepayment shall contain the following
information: (a) the Prepayment Date; and (b) the amount of principal to be
prepaid. On the Prepayment Date, Borrower shall pay to Bank, in addition to
the other amounts then due on the Note, the Prepayment Amount described below.
Bank, in its sole discretion, may accept any prepayment of principal even if
not required to do so under the Note and may deduct from the amount to be
applied against the LIBOR Option Advance the other amounts required as part of
the Prepayment Amount.
The Prepaid Principal Amount (as defined below) will be applied to the
LIBOR Option Advance as Bank shall determine in its sole discretion.
If Bank exercises its right to accelerate the payment of the Note
prior to maturity based upon an Event of Default under the Note, Borrower shall
pay to Bank, in addition to the other amounts then due on the Note, on the date
specified by Bank as the Prepayment Date, the Prepayment Amount.
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<PAGE> 25
Bank's determination of the Prepayment Amount shall be conclusive in
the absence of obvious error or fraud. If requested in writing by Borrower,
Bank shall provide Borrower a written statement specifying the Prepayment
Amount.
The following (the "Prepayment Amount") shall be due and payable in
full on the Prepayment Date:
a. If the face amount of the LIBOR Option
Advance exceeds Seven Hundred Fifty Thousand
Dollars ($750,000) then the Prepayment Amount
is the sum of: (i) the amount of the
principal balance of the LIBOR Option Advance
which Borrower has elected to prepay or which
Bank has required Borrower to prepay because
of acceleration, as the case may be (the
"Prepaid Principal Amount"); (ii) interest
accruing on the Prepaid Principal Amount up
to, but not including, the Prepayment Date;
(iii) Five Hundred Dollars ($500.00); plus
(iv) the present value, discounted at the
Reinvestment Rates (as defined below) of the
positive amount by which (A) the interest
Bank would have earned had the Prepaid
Principal Amount not been paid prior to the
end of the LIBOR Period at the Note's
interest rate exceeds (B) the interest Bank
would earn by reinvesting the Prepaid
Principal Amount at the Reinvestment Rates.
b. If the principal amount of the LIBOR Option
Advance being prepaid is Seven Hundred Fifty
Thousand Dollars ($750,000) or less, then the
Prepayment Amount is the sum of: (i) the
amount of the LIBOR Option Advance which
Borrower has elected to prepay or the LIBOR
Option Advance which Bank has required
Borrower to prepay because of acceleration,
as the case may be (the "Prepaid Principal
Amount"); (ii) interest accruing on the
Prepaid Principal Amount up to, but not
including, the Prepayment Date; plus (iii) an
amount equal to two percent (2%) of the
Prepaid Principal Amount.
"Reinvestment Rates" mean the per annum rates of interest equal to one
half percent (1/2%) above the rates of interest reasonably determined by Bank
to be in effect not more than seven (7) days prior to the Prepayment Date in
the secondary market for United States Treasury Obligations in amount(s) and
with maturity (ies) which correspond (as closely as possible) to the LIBOR
Option Advance being prepaid.
BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A)
THERE IS NO RIGHT TO PREPAY THE LIBOR OPTION ADVANCE IN WHOLE OR IN PART,
WITHOUT PAYING THE PREPAYMENT AMOUNT, EXCEPT AS OTHERWISE REQUIRED UNDER
APPLICABLE LAW; (B) BORROWER SHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT
AMOUNT IF BANK EXERCISES ITS RIGHT TO ACCELERATE PAYMENT OF THE NOTE, INCLUDING
WITHOUT LIMITATION, ACCELERATION UNDER A DUE-ON- SALE PROVISION; (C) BORROWER
WAIVE(S) ANY RIGHTS UNDER SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE, OR ANY
SUCCESSOR STATUTE; AND (D) BANK HAS MADE EACH LIBOR OPTION ADVANCE THE NOTE IN
RELIANCE ON THESE AGREEMENTS.
______________
BORROWER'S INITIALS
11. Hold Harmless and Indemnification. Borrower agrees
to indemnify Bank and to hold Bank harmless from, and to reimburse Bank on
demand for, all losses and expenses which Bank sustains or incurs as a result
of (i) any payment of a LIBOR Option Advance prior to the last day of the LIBOR
Period for such LIBOR Option Advance for any reason, including termination of
the Note, whether pursuant to this Addendum or the occurrence of an Event of
Default for any reason; (ii) any termination of a LIBOR Period in accordance
with this Addendum; or (iii) any failure by Borrower, for any reason, to borrow
any portion of a LIBOR Option Advance after having given notice to Bank that it
had selected such LIBOR Option Advance.
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<PAGE> 26
12. Funding Losses. The indemnification and hold
harmless provisions set forth in this Addendum shall include, without
limitation, all losses and expenses arising from interest and fees that Bank
pays to lenders of funds it obtains in order to fund the loans to Borrower on
the basis of the LIBOR Option(s) and all losses incurred in liquidating or
re-deploying deposits from which such funds were obtained and loss of profit
for the period after termination. A written statement by Bank to Borrower of
such losses and expenses shall be conclusive and binding, absent manifest
error, for all purposes. This obligation shall survive the termination of this
Addendum and the payment of the Note.
13. Regulatory Developments Or Other Circumstances
Relating To Illegality or Impracticality of LIBOR. If any Regulatory
Development or other circumstances relating to the interbank Euro-dollar
markets shall, at any time, in Bank's reasonable determination, make it
unlawful or impractical for Bank to fund or maintain, during any LIBOR Period,
to determine or charge interest rates based upon LIBOR, Bank shall give notice
of such circumstances to Borrower and:
(i) In the case of a LIBOR Period in progress, Borrower shall, if
requested by Bank, promptly pay any interest which had accrued
prior to such request and the date of such request shall be
deemed to be the last day of the term of the LIBOR Period; and
(ii) No LIBOR Period may be designated thereafter until Bank
determines that such would be practical.
14. Additional Costs. Borrower shall pay to Bank from
time to time, upon Bank's request, such amounts as Bank determines are needed
to compensate Bank for any costs it incurred resulting from Regulatory
Developments which are attributable to Bank having made or maintained a LIBOR
Option Advance or to Bank's obligation to make a LIBOR Option Advance, or any
reduction in any amount receivable by Bank hereunder with respect to any LIBOR
Option or such receivable (being herein called "Additional Costs"), resulting
from any Regulatory Developments, which (i) change the basis of taxation of any
amounts payable to Bank hereunder with respect to net income of Bank for any
LIBOR Option Advance by the jurisdiction where Bank is headquartered or the
jurisdiction where Bank extends the LIBOR Option Advance; (ii) impose or modify
any reserve, special deposit, or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, Bank (including any LIBOR Option Advance or any deposits
referred to in the definition of LIBOR); or (iii) impose any other condition
affecting this Addendum (or any of such extension of credit or liabilities).
Bank shall notify Borrower of any event occurring after the date hereof which
entitles Bank to compensation pursuant to this paragraph as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. Determinations by Bank for purposes of this paragraph, shall be
conclusive, provided that such determinations are made on a reasonable basis.
15. Legal Effect. Except as specifically modified
hereby, all of the terms and conditions of the Note remain in full force and
effect.
16. Integration. This Addendum is an integrated
agreement and supersedes all prior negotiations and agreements, whether written
or oral. Any amendments hereto shall be in writing and shall be executed by
all parties.
IN WITNESS WHEREOF, the parties have agreed to the foregoing as of
the date first set forth above.
COMERICA BANK-CALIFORNIA
By:__________________________________
Title:_______________________________
BUSINESS RESOURCE GROUP
(Borrower)
5
<PAGE> 27
By:__________________________________
Title:_______________________________
6
<PAGE> 1
EXHIBIT 11.1
BUSINESS RESOURCE GROUP
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 31, July 31,
------------------------- ------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY
Net income / (loss) $(1,001) $ 419 $ 42 $ 1,353
======= ======= ======= =======
Weighted average shares outstanding-
Common shares 4,904 4,914 4,894 4,864
Common equivalent shares -
Stock options -- -- -- --
------- ------- ------- -------
Total common stock and common
stock equivalents 4,904 4,914 4,894 4,864
======= ======= ======= =======
Net income per common and
common share equivalent $ (0.20) $ 0.09 $ 0.01 $ 0.28
======= ======= ======= =======
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,926
<SECURITIES> 0
<RECEIVABLES> 10,365
<ALLOWANCES> 62
<INVENTORY> 1,247
<CURRENT-ASSETS> 14,892
<PP&E> 3,584
<DEPRECIATION> 1,044
<TOTAL-ASSETS> 18,376
<CURRENT-LIABILITIES> 5,012
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 13,188
<TOTAL-LIABILITY-AND-EQUITY> 18,376
<SALES> 9,541
<TOTAL-REVENUES> 12,884
<CGS> 7,910
<TOTAL-COSTS> 10,397
<OTHER-EXPENSES> 4,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,708)
<INCOME-TAX> (707)
<INCOME-CONTINUING> (1,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,001)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
