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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999 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
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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 April 30, 1999 there were 5,150,240 shares of the Registrant's Common Stock
outstanding.
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<PAGE>
PART I. FINANCIAL INFORMATION PAGE
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1999 and October 31, 1998 .....................
Condensed Consolidated Statements of Income for the
Three and Six Months ended April 30, 1999 and 1998 ......
Condensed Consolidated Statements of Cash Flows for the
Six Months ended April 30, 1999 and 1998 ................
Notes to Condensed Consolidated Financial
Statements...............................................
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction ............................................
Results of Operations ...................................
Liquidity and Capital Resources..........................
Item 3: Quantitative and Qualitative Disclosures
about Market Risks ......................................
PART II. OTHER INFORMATION
Item 1: Legal Proceedings .......................................
Item 2: Changes in Securities and Use of Proceeds................
Item 3: Defaults Upon Senior Securities .........................
Item 4: Submission of Matters to a Vote of Security Holders .....
Item 5: Other Information .......................................
Item 6: Exhibits and Reports on Form 8-K ........................
SIGNATURES........................................................
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............... $133 $412
Accounts receivable, net........... 16,032 10,662
Inventory.......................... 11,319 8,279
Prepaids and other current assets.. 3,782 2,411
------------ ------------
Total current assets........... 31,266 21,764
Property and equipment, net.............. 3,316 3,107
Other assets............................. 5,206 3,107
------------ ------------
$39,788 $27,978
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit..................... $13,104 $3,858
Accounts payable................... 2,010 3,369
Accrued liabilities................ 5,191 4,789
Income taxes payable............... 893 337
Current portion of long-term debt.. 883 336
------------ ------------
Total current liabilities...... 22,081 12,689
Long-term debt........................... 1,903 733
Deferred income tax liability............ 160 160
Shareholders' equity:
Common stock....................... 51 50
Additional paid in capital......... 11,660 11,337
Retained earnings.................. 3,933 3,009
------------ ------------
Total shareholders' equity..... 15,644 14,396
------------ ------------
$39,788 $27,978
============ ============
</TABLE>
The balance sheet at October 31, 1998 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 consolidated financial statements.
<PAGE>
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Workspace products............... $23,813 $17,213 $45,161 $32,530
Workspace services............... 5,557 4,597 10,226 7,563
---------- ---------- ---------- ----------
Total net revenues 29,370 21,810 55,387 40,093
---------- ---------- ---------- ----------
Cost of net revenues:
Workspace products............... 18,301 13,723 35,474 25,939
Workspace services............... 4,218 3,358 7,689 5,626
---------- ---------- ---------- ----------
Total cost of net revenue... 22,519 17,081 43,163 31,565
---------- ---------- ---------- ----------
Gross profit....................... 6,851 4,729 12,224 8,528
Selling, general and
administrative expenses.......... 5,676 4,203 10,297 7,761
---------- ---------- ---------- ----------
Income from operations 1,175 526 1,927 767
Other income/expense:
Net interest income/expense...... (214) (42) (352) (51)
Gain on sale of assets........... -- 50 2 50
---------- ---------- ---------- ----------
Total other income/expense..... (214) 8 (350) (1)
---------- ---------- ---------- ----------
Income before income tax........... 961 534 1,577 766
Provision for income taxes......... 398 221 653 316
---------- ---------- ---------- ----------
Net income......................... $563 $313 $924 $450
========== ========== ========== ==========
Net earnings per share:
Basic........................ $0.11 $0.06 $0.18 $0.09
========== ========== ========== ==========
Diluted...................... $0.11 $0.06 $0.18 $0.09
========== ========== ========== ==========
Shares used in computation:
Basic........................ 5,138 4,914 5,084 4,913
========== ========== ========== ==========
Diluted...................... 5,147 4,930 5,129 4,951
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings....................................... $924 $450
Adjustments to reconcile to net cash used
by operating activities:
Depreciation and amortization................... 488 372
Gain on sale of property and equipment.......... (2) (50)
Warrants issued for services.................... -- 119
Changes in operating assets and liabilities:
Accounts receivable......................... (4,613) (1,102)
Inventory................................... (1,707) (6,813)
Prepaids and other current assets........... (1,369) (34)
Accounts payable............................ (2,030) 2,681
Accrued liabilities......................... (109) (330)
Income taxes payable........................ 556 316
---------- ----------
Net cash used by operating activities.... (7,862) (4,391)
---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment................. (537) (287)
Proceeds from sale of property and equipment....... 2 50
Acquisition of business, net of cash received...... (1,940) --
Change in other assets............................. 105 --
---------- ----------
Net cash used by investing activities.... (2,370) (237)
---------- ----------
FINANCING ACTIVITIES:
Increase in debt................................... 1,717 --
Repayment of debt.................................. (1,010) --
Borrowings against line of credit.................. 9,246 4,990
---------- ----------
Net cash provided by financing activities.. 9,953 4,990
---------- ----------
Net increase (decrease) in cash and equivalents......... (279) 362
CASH AND EQUIVALENTS BALANCES:
Beginning of period................................ 412 274
---------- ----------
End of period...................................... $133 $636
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................ $327 $57
========== ==========
Income taxes.................................... $976 $ --
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
BUSINESS RESOURCE GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation and Significant Accounting Policies
The financial information as of April 30 1999, and for the three and
six-month periods ended April 30, 1999 and 1998, respectively, 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
consolidated 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, 1998. 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. Basic and Diluted Share Information
Basic Earnings Per Share ("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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net income ........................ $563 $313 $924 $450
========= ========= ========= =========
Weighted average common shares
outstanding .................... 5,138 4,914 5,084 4,913
Common equivalent shares:
Stock options .............. 9 16 45 38
--------- --------- --------- ---------
Total common stock and common
stock equivalents .............. 5,147 4,930 5,129 4,951
</TABLE> ========= ========= ========= =========
Options to purchase 1,233,144 and 172,381 shares of common stock were
outstanding during the second quarters of the Company's fiscal years 1999 and
1998, respectively, but were not included in the computation of diluted EPS for
such quarters because the exercise price of such outstanding options was
greater than the average fair market value of common shares for such period.
Note 3. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") adopted
Statements of Financial Accounting Standards ("SFAS") 130, (Reporting
Comprehensive Income), which requires that an enterprise report, by major
components and as a single total, the change in its net assets during the
period from non-owner sources; and SFAS 131, (Disclosures about Segments of an
Enterprise and Related Information), which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's financial position,
results of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. Both statements are effective for the fiscal
year beginning November 1, 1998. The Company is currently conducting
evaluations to determine if it has reportable segments under SFAS 131. With
respect to SFAS 130, the Company had no items of comprehensive income other
than net income during either quarter ended April 30, 1999 or 1998.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was issued
which defines derivatives, requires all derivatives be carried at fair value,
and provides for hedging accounting when certain conditions are met. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Although the Company has not fully assessed the implications of
this new statement, the Company does not believe adoption of this statement
will have a material impact on the Company's financial statements.
Note 4. Acquisition
On February 1, 1999, the Company, through its wholly owned subsidiary RN
Acquisition Corp, acquired substantially all of the assets of Re'Nu Office
Systems, Inc., a California Corporation, Re'Nu South, Inc., a California
Corporation and wholly owned subsidiary of Re'Nu Office Systems, and Re'Nu
Office Systems, Inc., a Nevada Corporation and wholly owned subsidiary of Re'Nu
Office Systems (collectively "Re'Nu"). The purchase price paid by the Company
was 100,000 shares of Common Stock of the Company, $2.0 million in cash and an
earn out of up to the aggregate amount of $2.0 million to be paid over three
years based upon annual operating income objectives of RN Acquisition Corp. In
connection with this purchase, the Company borrowed $2,000,000 against the
Company's $18.0 million credit facility. The Company also acquired $2,152,000
of goodwill in connection with the Re'Nu acquisition. The annual amortization
resulting from the recognition of goodwill will be approximately $108,000 and
is being amortized on a straight line basis over a useful life of 20 years.
<PAGE>
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
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and are subject to certain risks and uncertainties that could cause
the actual results to differ materially from those projected. Such
forward-looking statements include, without limitation, statements relating to
the Company's future revenue, gross margins, operating expenses, management's
plans and objectives for the Company's future operations and the sufficiency of
financial resources to support future operations and expenditures. Factors
that could cause actual results to differ materially include, but are not
limited to, the timely availability, delivery and acceptance of new products
and services, the continued strength of sales to Cisco Systems, Inc. (one of
the Company's principal customers), 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 reports filed with
the Securities and Exchange Commission ("SEC") and press releases, copies of
which are available from the Company upon request. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date hereof. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
References made in this Quarterly Report on Form 10-Q to "BRG," the
"Company" or the "Registrant" refer to Business Resource Group.
Results of Operations (three months ended April 30, 1999):
Net revenues were $29.4 million for the three months ended April 30, 1999
as compared to $21.8 million reported for the three months ended April 30,
1998, an increase of 35%. Product revenues for the second quarter of fiscal
1999 were $23.8 million, an increase of $6.2 million, or 38%, from product
revenues of $17.2 million reported for the second quarter of fiscal 1998. The
higher product revenues in the second quarter of fiscal 1999 were due to
increased revenues of $5.9 million from Cisco Systems, Inc. in addition to
increased revenues of $1.7 million from other new and existing customers.
Service revenues for the second quarter of fiscal 1999 were $5.6 million, an
increase of $1.0 million, or 22%, from service revenues of $4.6 million
reported in the same quarter of fiscal 1998. The higher service revenues
reflect increased product-related services on higher product revenues and
increased facilities services revenues.
Gross profit for the second quarter of fiscal 1999 was $6.9 million, or
23.5% of revenues, as compared to $4.7 million, or 21.6% of revenues, for the
comparable quarter of fiscal 1998. As a percentage of net revenues, gross
profits from product revenues were 23.1% for the quarter ended April 30, 1999
as compared to 20.4% for the second quarter ended April 30, 1998. The higher
product gross profit percentage was primarily due to a change in sales mix as a
result of a higher proportion of revenues in the second quarter of fiscal 1999
from higher margin revenues from refurbished products as compared to the second
quarter of fiscal 1998. Gross profits for the second quarter of fiscal 1999
from service revenues were 24.1% as compared to 26.1% for the second quarter of
fiscal 1998. Fiscal 1999 second quarter services gross profits were negatively
impacted by several large projects for new customers with lower initial
services gross profits.
Selling, general and administrative expenses were $5.7 million, or 19.4%,
of revenues, for the three months ended April 30, 1999 as compared to $4.2
million, or 19.3%, of revenues, for the three months ended April 30, 1998.
Selling, general and administrative expenses increased over the second quarter
of fiscal 1998 due to $0.9 million of incremental costs related to the OFN and
Re'Nu refurbishment operations, in addition to higher sales compensation costs
and support costs on increased revenues.
Interest and other expense, net was $214,000 for the three months ended
April 30, 1999 as compared to $8,000 for the same period of fiscal 1998. The
increased expense was primarily due to interest expense on the Company's
outstanding line of credit balance during the quarter.
Results of Operations (six months ended April 30, 1999):
Net revenues were $55.4 million for the six months ended April 30, 1999 as
compared to $40.1 million reported for the six months ended April 30, 1998, an
increase of 38%. Product revenues for the six months ended April 30, 1999 were
$45.1 million, an increase of $12.6 million, or 39%, from product revenues of
$32.5 million reported for the six months ended April 30, 1998. The higher
product revenues for the first six months of fiscal 1999 were due to increased
revenues of $10.0 million from Cisco Systems, Inc. in addition to increased
revenues of $5.3 million from other new and existing customers. Service
revenues for the six months ended April 30, 1999 were $10.2 million, an
increase of $2.6 million, or 34%, from service revenues of $7.6 million
reported in the same period of fiscal 1998. The higher service revenues
reflect increased product-related services on higher product revenues and
increased facilities services revenues.
Gross profit for the six months ended April 30, 1999 was $12.2 million, or
22.1%, of revenues, as compared to $8.5 million, or 21.3%, of revenues, for the
comparable period of fiscal 1998. As a percentage of net revenues, gross
profits from product revenues were 21.5% for the six months ended April 30,
1999 as compared to 20.3% for the six months ended April 30, 1998. The higher
product gross profit percentage was primarily due to a change in sales mix as a
result of a higher proportion of revenues during the first six months of fiscal
1999 from higher margin revenues from refurbished products as compared to the
first six months of fiscal 1998. Gross profits for the first six months of
fiscal 1999 from service revenues were 24.5% as compared to 26.3% for the first
six months of fiscal 1998. Fiscal 1999 services gross profits were negatively
impacted by several large projects for new customers with lower initial
services gross profits.
Selling, general and administrative expenses were $10.3 million, or 18.6%,
of revenues, for the first six months of fiscal 1999 as compared to $7.8
million, or 19.5%, of revenues, for the first six months of fiscal 1998.
Selling, general and administrative expenses increased over the first six
months of fiscal 1998 due to incremental costs of $1.2 million related to the
OFN and Re'Nu refurbishment operations, in addition to higher sales
compensation costs on increased revenues and increased support costs associated
with investments made in project management and customer service.
Interest and other expense, net was $350,000 for the six months ended April 30,
1999 as compared to $1,000 for the same period of fiscal 1998. The increased
expense was primarily due to interest expense on the Company's outstanding line
of credit balance during the first six months of fiscal 1999.
Liquidity and Capital Resources:
Working capital at April 30, 1999 was $9.2 million, up slightly from $9.1
million at October 31, 1998. At April 30, 1999, the Company had net borrowings
of $15.9 million as compared to $4.9 million reported October 31, 1998
primarily due to higher inventory and accounts receivable balances, a lower
accounts payable balance and the Re'Nu acquisition in early February.
Inventories at April 30, 1999 were $11.3 million, an increase of $3.0 million
from the $8.3 million reported at October 31, 1998. The increased inventories
were the result of an increase of $1.8 million in in- transit inventories at
April 30, 1999 representing payments made to vendors on product that is either
in-transit to customers or awaiting installation at the customer's facility, in
addition to $1.3 million of inventory acquired through the Re'Nu acquisition.
Accounts receivable at April 30, 1999 were $16.0 million, an increase of $5.3
million from the $10.7 million reported at October 31, 1998. The increased
accounts receivable balance reflects the timing differences of customer
delivery requirements within a particular quarter, in addition to accounts
receivable acquired through the Re'Nu acquisition. Accounts payable at April
30, 1999 were $2.0 million, a decrease of $1.4 million from the $3.4 million
reported at October 31, 1998. The decrease in payables was attributable to a
change in vendor mix due to the timing of payments made within the quarter.
Net cash used in investing activities in the six months ended April 30,
1999 was $2.4 million and resulted from its acquisition of Re'Nu and
investments in property and equipment which primarily related to the purchases
of showroom furniture for our new San Francisco and Phoenix locations. At
April 30, 1999, the Company had an outstanding capital expenditure commitment
of approximately $425,000 in connection with the implementation of its new
enterprise resource planning management information system.
In February 1999, the Company replaced its existing $15.0 million credit
facility with a new $18.0 million credit facility with a bank which expires on
February 15, 2001. The new credit facility is comprised of a $15.0 million
line of credit and a $3.0 million acquisition loan facility. The Company
maintains an irrevocable stand-by letter of credit in the amount of $3.0
million against the line of credit. As of April 30, 1999, the Company had bank
borrowings of $15.1 million 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 forseeable future.
Year 2000
The Company continues to monitor and assess the impact of the Year 2000 issue
on its critical systems, devices, applications or business relationships. The
Company's overall goal is to be prepared for the year 2000, meaning that
critical systems, devices, applications or business relationships have been
evaluated and are expected to be suitable for continued use into and beyond the
year 2000, or when contingency plans are put into place. In May 1998, after an
extensive review of systems, the Company selected an enterprise resource
planning system from SAP America, Inc. ("SAP"), a system capable of
accommodating the year 2000. This new enterprise resource planning system is
expected to be in production during the company's third quarter of fiscal 1999.
The Company is reviewing the readiness of third parties which provide goods or
services to the Company to determine whether a year 2000 related event will
impede the ability of such suppliers to continue to provide such goods and
services as the year 2000 is reached.
Costs: The Company does not expect the costs associated with its year 2000
efforts to be material. The Company estimates that the total cost of replacing
its information systems and achieving year 2000 readiness for its internal
systems and equipment will range from $1.5 to $2.0 million, of which $958,000
has been incurred by April 30, 1999. Based on its current estimates and
information currently available, the Company does not anticipate that the costs
associated with this project will have a material adverse affect on the
Company's consolidated financial position, results of operations or cash flows
in future periods. The Company's aggregate cost estimate does not include time
and costs that may be incurred by the Company as a result of the failure of any
third parties, including suppliers, to be prepared for the year 2000 or costs
to implement any contingency plans.
Risks/Contingency Plans: Based on assessment efforts to date, the Company does
not believe that the year 2000 issue will have a material adverse effect on its
financial condition or results of operations. The Company believes that the
distribution and service nature of the Company's operations and its large
supplier base should mitigate any adverse impact. The Company's beliefs and
expectations, however, are based on certain assumptions and expectations that
ultimately may prove to be inaccurate. Because the Company has not completed
systems integration testing with respect to its SAP implementation, it
accordingly has not fully assessed the risks from potential year 2000 failures
and therefore, has not yet developed year 2000 contingency plans. If, as a
result of systems implementation, a business function is determined to be at
risk, contingency plans will be developed no later than October 31, 1999.
As a normal course of business, potential sources of risk include the inability
of principal suppliers to be year 2000 ready, which could result in delays in
product deliveries, or the ability to provide services from such suppliers. The
Company's contingency plans will include, among other things, (1) manual
workarounds, (2) use of temporary replacement or alternative products,(3)
reliance on temporary or alternative sources of supply, and (4) engagement of
temporary, extra staffing to complete deliveries. In the event of year 2000
failures by common-carrier infrastructure suppliers such as utilities,
telecommunications, transportation and the like, the Company has significantly
less ability to pre-emptively assess and prepare for such failures. In such
scenarios the Company's response is uncertain.
The Company is not in a position to identify or to avoid all possible year 2000
scenarios. Based upon assessments to date the Company believes the most
reasonably likely worst case scenario would be the inability of suppliers to
deliver products and/or services in time frames required by the Company's
customers. In the event of such delays the Company would attempt to provide
temporary replacement products, alternative products or extra staffing to
complete deliveries in order to mitigate the impact upon our customers.
The preceding year 2000 discussion contains various forward-looking statements
which represent the Company's beliefs or expectations regarding future events.
When used in the year 2000 discussion, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Forward- looking statements include, but are not limited to, the
Company's expectations as to when it will complete the implementation and
testing phases of its year 2000 program as well as its year 2000 contingency
plans; its estimated cost of achieving year 2000 readiness; the Company's
belief that its internal systems and equipment will be year 2000 compliant in a
timely manner; and the availability of replacement or alternative products in
sufficient quantities should the need arise. All forward-looking statements
involve a number of risks and uncertainties that could cause the actual results
to differ materially from the projected results. Factors that may cause these
differences include, but are not limited to, the availability of qualified
personnel and other information technology resources; the ability to identify
and remediate all date sensitive lines of computer code or to replace embedded
computer chips in affected systems or equipment; and the actions of
governmental agencies or other third parties with respect to year 2000
problems.
Item 3: Quantitative and Qualitative Disclosures about Market Risks
There have been no significant changes to the Company's market risks
since the end of the preceding fiscal year.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
The Company is not a party to any lawsuit or proceeding which, in the
opinion of management, is likely to have a material adverse affect on the
Company. The Company may from time to time become a party to various legal
proceedings arising in the normal course of its business.
Item 2: Changes in Securities and Use of Proceeds
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
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 10.42: Revolving Credit Loan and Security Agreement between
the Company and Comerica Bank dated February 15, 1999.
(b) Exhibit 27: Financial data schedule
(c) Reports on Form 8-K
The Company filed a report on From 8-K dated February 16, 1999
related to the acquisition of Re'Nu Office Systems, Inc., a
California Corporation, Re'Nu South, Inc., a California Corporation
and wholly owned subsidiary of Re'Nu Office Systems, and Re'Nu
Office Systems, Inc., a Nevada Corporation and wholly owned
subsidiary of Re'Nu Office Systems.
<PAGE>
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: June 14, 1999 /s/ John M. Palmer
John M. Palmer
Vice President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS & INVENTORY)
OBLIGOR # NOTE # AGREEMENT DATE March 25, 1999
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
Base Rate or Alternative
$15,000,000 Rates (Overnight Cots of
Funds Plus 1.75 % or LIBOR 48117 JMG
Plus 1.75 % As Set Forth
in Addendum A Hereto)
THIS AGREEMENT is entered into as of March 25, 1999, 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 chief executive office 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
Amended and Restated Revolving Credit Loan & Security Agreement (Accounts &
Inventory), any concurrent or subsequent rider hereto and any extensions,
supplements, amendments or modifications hereto 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 (whether or not
suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding
or otherwise) 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 reasonable 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.
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 "Borrower's Receivables" means Receivables owned by Borrower now
or in the future.
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 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 rolling four (4)
quarter basis, beginning with the quarter ending April 30,1999.
1.7 "Cash Flow Coverage Ratio" as used in this Agreement means the
ratio, as of any applicable period of determination, the numerator of which is
net income plus depreciation plus amortization plus (or minus) the increase
(or decrease) in the deferred tax liability minus dividends, at the greater of
net income times the highest prevailing personal tax rate, and the denominator
of which is the current portion of long term debt plus the current portion of
capital lease payments for the same period of determination.
1.8 "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 or Guarantor, as the case may be, 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.
1.9 "Consolidated Inventory" as used in this Agreement means the
combined Borrower's and Guarantor's Inventory.
1.10 "Consolidated Receivables" as used in this Agreement means the
combined Borrower's Receivables and Guarantor's Receivables.
1.11 "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.
1.12 "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.
1.13 "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 at any time under this Agreement, the Term Note and under any
loans that Bank has made or may now or hereafter make to Borrower; 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.
1.14 "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.
1.15 "Effective Tangible 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).
1.16 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.17 "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 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 .
1.18 "Formula" as used in this Agreement means the sum of (1) eighty
percent (80.00%) of the net of Consolidated Receivables after deducting
therefrom all payments, adjustments and credits applicable thereto; and (2)
thirty percent (30.00%) of the advances against Consolidated Inventory made
pursuant to the Inventory Rider, and other rider, amendment or modification to
this Agreement, that may now or hereafter be entered into by Bank and
Borrower.
1.19 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such period.
1.20 "Guarantor" as used in this Agreement means, collectively, RN
Acquisition Corp. and OFN, Inc.
1.21 "Guarantor's Books" as used in this Agreement means and includes
all of Guarantor's books and records including but not limited to: minute
books; ledgers; records indicating, summarizing or evidencing Guarantor'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.
1.22 "Guarantor's Receivables" means Receivables owned by Guarantor
now or in the future.
1.23 "Guaranty" as used in this Agreement means, collectively, that
certain Guaranty (RN Acquisition Corp.) and that certain Guaranty (OFN, Inc.),
each of even date herewith.
1.24 "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.
1.25 "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.
1.26 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower or Guarantor has any interest,
including, but not limited to, goods held by Borrower or Guarantor for sale or
lease or to be furnished under a contract of service and all of Borrower's or
Guarantor'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 or
Guarantor 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.
1.27 "Inventory Rider" as used in this Agreement means that certain
Inventory Rider of even date herewith, as same may be amended hereafter,
executed by Borrower and Guarantor.
1.28 "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.
1.29 "Letter of Credit Subfeature" as used in this Agreement means
standby letters of credit issued by Bank for the account of Borrower in an
aggregate amount not to exceed at any one time Three Million and 00/100
Dollars ($3,000,000), which Letter of Credit Subfeature shall be used by
Borrower to obtain letters of credit having terms not to exceed twelve (12)
months and which shall mature not more than forty-five (45) days prior to the
maturity date set forth in this Agreement.
1.30 "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.
1.31 "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.
1.32 "Permitted Liens" as used in this Agreement means and includes
all of the following:
a0 Liens in favor of Bank securing the Obligations of Borrower
or any obligations of Guarantor to Bank;
b0 Liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons imposed without
action of such parties, provided that the payment thereof is not yet required;
c0 Liens incurred or deposits made in the ordinary course of
business of Borrower or Guarantor in connection with workers' compensation,
unemployment insurance, social security and other like laws;
d0 Additional purchase money security interests in the personal
property of Borrower or Guarantor acquired after the date of this Agreement
with the consent of Bank;
e0 Any liens existing as of the date hereof as reflected on
Schedule A hereto;
f0 Leases, subleases, licenses and sublicenses granted to
others in the ordinary course of business not interfering in any material
respect with the conduct of the business of Borrower or Guarantor, and any
interest or title of a lessor, sublessor, licensor or sublicensor or under any
lease, sublease, license or sublicense;
g0 Liens arising from judgments, decrees or attachments to the
extent and only so long as such judgment, decree or attachment has not caused
or resulted in an Event of Default;
h0 Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar liens affecting real
property not interfering in any material respect with the ordinary conduct of
the business of Borrower or Guarantor;
i0 Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods;
j0 Liens which constitute rights of set-off of a customary
nature of bankers' liens with respect to amounts on deposit, whether arising
by operation of law or by contract, in connection with arrangements entered
into with banks in the ordinary course of business; and
k0 Liens incurred in connection with the extension, renewal or
refinancing of the Obligations secured by liens of the type described herein
above, provided that any extension, renewal or replacement lien shall be
limited to the property encumbered by the existing lien and the principal
amount of the Obligations being extended, renewed or refinanced does not
increase.
1.33 "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.
1.34 "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 or Guarantor, all of Borrower's or Guarantor's rights in, to and
under all purchase orders heretofore or hereafter received, all moneys due to
Borrower or Guarantor under all contracts or agreements (whether or not yet
earned or due), all merchandise returned to or reclaimed by Borrower or
Guarantor and Borrower's or Guarantor's books (except minute books) relating
to any of the foregoing.
1.35 "Report of Accounts Receivable" as used in this Agreement means a
report of Borrower's Receivables or Guarantor's Receivables, as the case may
be, in form satisfactory to Bank.
1.36 "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.
1.37 "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.
1.38 "Surviving Indemnities" as used in this Agreement means any
Obligations in the nature of any indemnity, hold harmless or warranty by
Borrower or Guarantor in favor of Bank, arising under or pursuant to this
Agreement or the Guaranty, which by its terms survives the latest of the
following dates (the "Cut-off Date"): (i) the termination of this Agreement
or the Guaranty; (ii) the cancellation of all letters of credit; or (iii) the
payment of all principal, interest, prepayment penalties, fees and all other
Obligations (not in the nature of any indemnity, hold harmless or warranty)
due at the time of such payment under this Agreement, provided that there
shall be excluded from such indemnity, hold harmless, or warranty obligations
all amounts that are due and payable thereunder upon the Cut-off Date.
1.39 "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.
1.40 "Term Loan Agreement" as used in this Agreement means that certain
Term Loan Agreement of even date herewith, as same may be amended hereafter.
1.41 "Term Note" as used in this Agreement means and includes that
certain Variable Rate-Installment Note of even date herewith, as same may be
amended hereafter.
1.42 "Total Borrowings" as used in this Agreement means the total
principal indebtedness of Borrower to Bank under the Term Note and this
Agreement, including, without limitation, any issued and outstanding letters
of credit issued under the "Letter of Credit Subfeature".
1.43 "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.
1.44 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.45 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.
20. 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 a principal amount not to exceed at any one time
Fifteen Million and 00/100 Dollars ($15,000,000). At such time as the Total
Borrowings exceed the principal sum of Fifteen Million and 00/100 Dollars
($15,000,000), then the line of credit plus any issued and outstanding or if
not outstanding, unreimbursed letters of credit issued under the Letter of
Credit Subfeature shall not be in excess of the amount permitted under the
Formula (in which case any amount in excess of that permitted by the Formula
shall be referred to herein as an "Overadvance"). Subject to the terms and
conditions of this Agreement, and so long as no Event of Default has occurred
and is continuing, amounts borrowed pursuant to this Section 2.1 may be repaid
and reborrowed at any time during the term of this Agreement.
2.2 Except as provided in Addendum A 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 but only while such Event of Default is continuing 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 seven and three-
quarters percent (7.75%) 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 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, Bank has the right to
require that 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 the Overadvance no longer exists.
30. TERM
3.1 This Agreement shall remain in full force and effect until
February 15, 2001, or until terminated by notice by Borrower. Notwithstanding
the foregoing, after an Event of Default occurs and is continuing, 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 (other than
Surviving Indemnities) 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 (other than Surviving Indemnities) to Bank, Bank shall
promptly 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.
40. 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.
Guarantor has granted to Bank a security interest pursuant to those certain
Security Agreements (All Assets) of even date herewith. If Bank's security
interest in the Collateral, including proceeds, is evidenced by or consists of
letters of credit, advances of credit, instruments, money, negotiable
documents, chattel paper or similar property (collectively "Negotiable
Collateral"), Borrower shall, promptly upon request of Bank, endorse and
assign such Negotiable Collateral over to Bank and deliver actual physical
possession of the Negotiable Collateral to Bank to the extent possession
thereof is reasonably necessary to perfect Bank's security interest therein.
4.2 Bank's security interest in Borrower's Receivables and Guarantor's
Receivables shall attach to all Borrower's Receivables and Guarantor's
Receivables without further act on the part of Bank, Borrower or Guarantor, as
the case may be. Upon request from Bank, Borrower and Guarantor, as the case
may be, shall provide Bank with schedules describing all Receivables created
or acquired by Borrower or Guarantor, as the case may be, (including without
limitation agings listing the names and addresses of, and amounts owing by
date by account debtors), provided, however, the failure of Borrower or
Guarantor to execute and deliver such schedules shall not affect or limit
Bank's security interest and other rights in and to the Borrower's Receivables
and the Guarantor's Receivables. Together with each schedule, Borrower and
Guarantor shall furnish Bank with copies of Borrower's or Guarantor's, as the
case may be, customers' invoices or the equivalent, and original shipping or
delivery receipts for all merchandise sold, and Borrower and Guarantor, as the
case may be, warrant the genuineness thereof. After an Event of Default
occurs and is continuing, Bank or Bank's designee may notify customers or
account debtors to direct all payments of Receivables to Bank but, unless and
until Bank does so or gives Borrower other written instructions, Borrower and
Guarantor shall collect all Borrower's Receivables and Guarantor's
Receivables, respectively, for Bank, receive in trust all payments thereon as
Bank's trustee, and, if so requested to do so from Bank, Borrower and
Guarantor 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, after an
Event of Default occurs and is continuing, Borrower and Guarantor 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.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank, Borrower or Guarantor, as
the case may be. After an Event of Default occurs and is continuing, upon
Bank's request Borrower and Guarantor, as the case may be, will from time to
time at Borrower's or Guarantor's, as the case may be, 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. Borrower and Guarantor may,
subject to the provisions hereof and consistent herewith, sell the Inventory,
but only in the ordinary course of Borrower's or Guarantor's, as the case may
be, business. A sale of Inventory in Borrower's or Guarantor's, as the case
may be, ordinary course of business does not include an exchange or a transfer
in partial or total satisfaction of a debt owing by Borrower or Guarantor, as
the case may be.
4.4 Borrower and Guarantor, as the case may be, shall execute and
deliver to Bank concurrently with Borrower's execution of this 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 as is reasonably necessary to
fully consummate all of the transactions contemplated under this Agreement.
Borrower and Guarantor hereby irrevocably make, constitute and appoint Bank
(and any of Bank's officers, employees or agents designated by Bank) as
Borrower's and Guarantor's true and lawful attorney-in-fact with owner to sign
the name of Borrower or Guarantor, as the case may be, on any financing
statements, continuation financing statement, security agreement or 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 and Guarantor shall make appropriate entries in Borrower's
Books and Guarantor's Books, respectively, disclosing Bank's security interest
in Borrower's Receivables and Guarantor's Receivables, respectively. Bank
(through any of its officers, employees or agents) shall have the right at any
time or times hereafter, upon reasonable prior notice, during Borrower's or
Guarantor's, as the case may be, usual business hours, or during the usual
business hours of any third party having control over the records of Borrower
or Guarantor, as the case may be, to inspect and verify Borrower's Books or
Guarantor's Books, as the case may be, in order to verify the amount or
condition of, or any other matter, relating to, said Collateral and Borrower's
or Guarantor's, as the case may be, financial condition.
4.5 Borrower and Guarantor appoint Bank, effective upon the occurrence
of an Event of Default and while such default is continuing hereunder or any
other person whom Bank may designate as Borrower's or Guarantor's, as the case
may be, attorney-in-fact, with power to endorse Borrower's or Guarantor's, as
the case may be, 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 or Guarantor's, as the case may be, 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; and/or to establish a lock box arrangement;
to send, whether in writing or by telephone, requests for verification of
Receivables; and to do all things reasonably necessary to carry out this
Agreement. Borrower and Guarantor, as the case may be, ratify and approve all
acts of the attorney-in-fact taken in accordance with this Agreement. Neither
Bank nor its attorney-in-fact will be liable for any acts or omissions or for
any error of judgment 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 After an Event of Default occurs and is continuing Bank may, in
order to protect or perfect any security interest which Bank is granted
hereunder, 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 as reasonably
necessary relating to this Agreement or relating to Borrower to Bank's parent,
affiliates, subsidiaries and services providers such as attorneys, auditors,
document review specialists, and similar service providers.
50. CONDITIONS PRECEDENT
5.1 As conditions precedent to the funding of the initial loan
hereunder, all of the conditions precedent set forth below shall have occurred
to the satisfaction of Bank and its counsel unless waived by Bank:
a. receipt by Bank of (a) this Agreement; (b) the Amended and
Restated Libor and Cost of Funds-Overnight Rate Addendum to Amended and
Restated Revolving Credit Loan and Security Agreement; (c) the Amended and
Restated Equipment Rider; (d) the Amended and Restated Environmental Rider;
(e) the Inventory Rider; (f) the Term Loan Agreement; (g) the Term Note; (h)
the Corporate Resolutions and Incumbency Certification-Authority to Procure
Loans; (i) the Borrower's Authorizations; (j) the Borrower's Telephone and
Facsimile Authorization; (k) the Automatic Loan Payment Authorization; (l) the
Agreement to Furnish Insurance; (m) the Security Agreement (All Assets) (OFN,
Inc.); (n) the Security Agreement (All Assets) (RN Acquisition Corp.); (o) the
Guaranty (OFN, Inc.); (p) the Guaranty (RN Acquisition Corp.); (q) the UCC-1
Financing Statement (OFN, Inc.); (r) the UCC-1 Financing Statement (RN
Acquisition Corp.); (s) the Corporate Resolutions and Incumbency
Certification-Authority to Support Another's Borrowing (OFN, Inc.); (t) the
Corporate Resolutions and Incumbency Certification-Authority to Support
Another's Borrowing (RN Acquisition Corp.); and (u) such other documents
required by Bank, all duly executed by the appropriate party;
b. receipt by Bank of financing statements (Form UCC-1) in form
satisfactory to Bank for filing and recording with the appropriate
governmental authorities;
c. receipt by Bank of 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;
d. receipt by Bank of 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 where failure to so qualify would have a material adverse
effect on Borrower ;
e. receipt by Bank of 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 this Agreement;
f. receipt by Bank of UCC searches, tax lien and litigation
searches, fictitious business statement filings, insurance certificates,
notices or other similar documents for OFN, Inc. and RN Acquisition Corp.
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
certain collateral and in order to fully consummate all of the transactions
contemplated under this Agreement;
g. receipt by Bank of evidence that Borrower has obtained
insurance and acceptable endorsements;
h. Borrower shall have taken reasonable action to seek to
obtain waivers executed by landlords and mortgages of any real property on
which any Collateral is located;
i. receipt by Bank of pre-loan accounts receivable audit and
inventory audit with results satisfactory to Bank;
j. payment by Borrower of all attorneys' fees and expenses
incurred by Bank in preparing and negotiating this Agreement, the Term Note,
or any portion thereof, and preparing and/or receiving any documents to be
executed in connection therewith;
k. payment of the annual loan fee in the amount of Fifteen
Thousand and 00/100 Dollars ($15,000) for the line of credit associated with
this Agreement; and
l. payment of the loan fee in the amount of Fifteen Thousand
and 00/100 Dollars ($15,000) in connection with the Term Note.
60. 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. The
Formula shall be established in conformity with the Report of Accounts
Receivable, if such report is reasonably acceptable to Bank. Bank shall
recompute the Formula in conformity with the Report of Accounts Receivable if
reasonably acceptable to Bank.
6.2 Bank shall retain its security interest in all Receivables and
accounts until all Obligations (other than Surviving Indemnities) have been
fully paid and satisfied. Returns and allowances, if any, as between Borrower
or Guarantor, as the case may be, and its customers, will be on the same basis
and in accordance with the usual customary practices of Borrower or Guarantor,
as the case may be, as they exist at this time. After an Event of Default
occurs and is continuing hereunder, no material discount, credit or allowance
shall be granted to any account debtor by Borrower or Guarantor, as the case
may be, and no material return of merchandise shall be accepted by Borrower or
Guarantor, as the case may be, without Bank's consent, which shall not be
unreasonably withheld. Bank may, after an Event of Default occurs and is
continuing, settle or adjust material 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 is in the business of providing work space products, work
space product services and work space management services.
6.4 Borrower and Guarantor, as the case may be, warrant, represent,
covenant and agree that:
a. Borrower or Guarantor, as the case may be, has good and
marketable title to the Collateral. It is the intention of the parties that
Bank has and shall continue to have a first priority perfected security
interest in and to the Collateral. The Collateral including, without
limitation, the Inventory, Receivables and Intangibles shall at all times
remain free and clear of all liens, encumbrances and security interests except
Permitted Liens.
b. All Receivables 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 Permitted Liens and except as may be consented to, in writing, by
Bank). Substantially all Receivables are unconditionally owed to Borrower or
Guarantor, as the case may be, without material defenses, disputes, offsets,
counterclaims, rights of return or cancellation, and Borrower or Guarantor, as
the case may be, shall have received no notice of actual or imminent
bankruptcy or insolvency of any material account debtor of Borrower or
Guarantor, as the case may be, without Borrower or Guarantor, as the case may
be, having given notice to Bank within ten (10) days of learning of such
actual or imminent bankruptcy or insolvency.
c. All Receivables 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. Borrower or Guarantor, as
the case may be, shall deliver to Bank, as Bank may from time to time require,
copies of 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
or Guarantor, as the case may be.
6.5 All Receivables are due and payable on reasonable commercial terms
applicable to the industry of Borrower or Guarantor, as the case may be.
6.6 Borrower and Guarantor shall keep the Inventory only at the
locations specified on Schedule B and the owner or mortgagor of such location
are: See Schedule B.
a. Borrower or Guarantor, as the case may be, upon demand by
Bank therefor, shall now and from time to time hereafter, at such intervals as
are reasonably requested by Bank, deliver to Bank, designations of Inventory
specifying Borrower's or Guarantor's, as the case may be, cost of Inventory,
the wholesale market value thereof and such other matters and information
relating to the Inventory as Bank may request;
b. Borrower and Guarantor do now keep and hereafter at all
times in all material respects shall keep correct and accurate records
itemizing and describing in all material respects the kind, type, quality and
quantity of the Inventory, their 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 upon reasonable prior notice;
c. All Inventory, now and hereafter at all times, shall be in
all material respects new Inventory of good and merchantable quality free from
material defects with the exception of refurbished goods sold in the ordinary
course of Borrower's or Guarantor's, as the case may be, business;
d. Except as listed in Schedule B hereto, Inventory is not now
and shall not at any time or times hereafter be located or stored for more
than two (2) weeks with a bailee, warehouseman or other third party without
Bank's prior written consent. In the event that Inventory is stored or with a
Bailee, warehouseman or other third party for more than two (2) weeks,
Borrower or Guarantor, as the case may be, will promptly 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 security interests in the
Inventory; and
e. Upon reasonable prior notice, Bank shall have the right upon
demand now and/or at all times hereafter, during Borrower's or Guarantor's, as
the case may be, 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 or Guarantor, as the case may be, agrees to reimburse Bank for
Bank's reasonable costs and expenses in so doing.
6.7 Borrower and Guarantor represent, warrant and covenant with Bank
that Borrower or Guarantor, as the case may be, will not, without Bank's prior
written consent:
a. Grant a security interest in or permit a lien, claim or
encumbrance except Permitted Liens 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 the assets of Borrower or Guarantor, as the case may be;
c. Permit any Judicial Officer or Assignee to be appointed or
to take possession of any or all of the assets of Borrower or Guarantor, as
the case may be;
d. Other than sales of Inventory in the ordinary course of
Borrower's or Guarantor's, as the case may be, business, to sell, lease, or
otherwise dispose of, move, or transfer, whether by sale or otherwise, any of
the assets of Borrower or Guarantor, as the case may be;
e. Without Bank's prior consent, which shall not be
unreasonably withheld, change their respective names, identities or corporate
structures; add any new fictitious names, liquidate, merge or consolidate with
or into any other business organization;
f. Move or relocate any Collateral;
g. Without Bank's prior consent, which shall not be
unreasonably withheld, acquire any other business organization;
h. Without Bank's prior consent, which shall not be
unreasonably withheld, enter into any transaction not in the usual course of
Borrower's business in excess of Five Hundred Thousand and 00/100 Dollars
($500,000) in the aggregate per year;
i. Make any material change in Borrower's financial structure
or operations which would adversely affect the ability of Borrower to repay
Borrower's Obligations;
j. Incur any debts outside the ordinary course of Borrower's
business except renewals or extensions of existing debts and interest thereof;
k. Make any advance or loan not in the ordinary course of
Borrower's business as currently conducted in excess of Two Hundred Thousand
and 00/100 Dollars ($200,000) in principal amount outstanding at any given
time;
l. Make loans, advances or extensions of credit to any Person
not in the ordinary course of Borrower's business as currently conducted in
excess of Two Hundred Thousand and 00/100 Dollars ($200,000) in principal
amount outstanding at any given time, except for sales on open account which
are not subject to the restrictions in this paragraph 6.7(l);
m. 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;
n. (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
without Bank's prior consent, which shall not be unreasonably withheld, enter
into any reorganization or recapitalization or reclassify its capital stock;
or (c) enter into any sale-leaseback transaction;
o. Subordinate any indebtedness due to it from a person to
indebtedness of other creditors of such person without Bank's prior consent,
which shall not be unreasonably withheld; or
p. 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.
6.8 Borrower is not a merchant which resells a substantial amount of
goods for personal, family or household purposes.
6.9 Borrower's chief executive office 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 chief executive office.
6.10 Borrower further represents, warrants and covenants as set forth
below:
a. Borrower will not make any distribution or declare or pay
any cash dividend 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 qualified and licensed to do business in
California and in any other state in which it conducts its business and where
the failure to so qualify would have a material adverse effect on Borrower;
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.
6.11 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.
6.12 Borrower or Guarantor, as the case may be, 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 in an aggregate
amount in excess of Five Hundred Thousand and 00/100 Dollars ($500,000) per
year, with the exception of purchase of inventory in the ordinary course of
business.
6.13 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or
Guarantor, as the case may be, or any of its property have been paid, and
shall hereafter be paid in full, before delinquency, except for any amounts
that are the subject to good faith dispute by Borrower or Guarantor, as the
case may be, and adequate reserves are established therefor to the reasonable
satisfaction of Bank. Borrower or Guarantor, as the case may be, 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 or Guarantor, as the case may be, 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 or Guarantor, as the case may be, has
made such payments or deposit. After an Event of Default occurs and is
continuing, if Borrower or Guarantor, as the case may be, 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 or Guarantor, as the case may be, (I) make payment of the
same or any part thereof; or (ii) set up such reserves in Borrower's or
Guarantor's account, as the case may be, 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 or
Guarantor.
6.14 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 promptly notify Bank in
writing.
6.15 a. Borrower and Guarantor at their expense, shall keep and
maintain their 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 and Guarantor shall also keep and
maintain business interruption insurance and public liability and property
damage insurance relating to the ownership and use of the Collateral and other
assets of Borrower or Guarantor, respectively. All such policies of insurance
shall be in such form, with such companies, and in such amounts customary in
Borrower's or Guarantor's, as the case may be, business. Borrower and
Guarantor 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 business interruption, 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 and Guarantor grant 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
and Guarantor shall direct all insurers under such policies of insurance to
pay all proceeds thereof directly to Bank.
b. After the occurrence of an Event of Default and during the
continuance thereof, Borrower and Guarantor hereby irrevocably appoint Bank
(and any of Bank's officers, employees or agents designated by Bank) as
Borrower's or Guarantor's, as the case may be, attorney for the purpose of
making, selling and adjusting claims under such policies of insurance,
endorsing the name of Borrower or Guarantor, as the case may be, on 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 or Guarantor, as the case may be, 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 or Guarantor, as the case may be, 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 Guarantor, as the case may be, 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.
After the occurrence of an Event of Default and during the continuance
thereof, 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 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.
6.16 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true and
correct in all material respects 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.
6.17 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 reasonably requested by Bank;
permit upon reasonable prior notice Bank and any of its employees, officers or
agents, upon demand, during Borrower's usual business hours, or the usual
business hours 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 audited statement of
the financial condition of Borrower for 1998 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 and Guarantor agree to provide Bank with the following schedules:
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.
X Inventory Reports on a monthly
basis within fifteen (15) days of month end.
X Formula Certificate on a monthly basis
within fifteen (15) days of month end.
X Federal Tax Returns on an annual basis within thirty (30)
days of filing with the Internal Revenue Service.
X Backlog Reports on a quarterly basis within thirty (30) days
of quarter end.
6.18 Borrower and Guarantor agree that Bank may upon reasonable prior
notice perform accounts receivable audits at Bank's discretion, at the expense
of Borrower.
6.19 Borrower shall maintain the following financial ratios and
covenants on a consolidated basis to be tested on a quarterly basis:
a. Effective Tangible Net Worth in an amount not less than Nine
Million Five Hundred Thousand and 00/100 Dollars ($9,500,000); to increase by
seventy-five percent (75%) of net profit after tax on a semi-annual basis,
measured as of January 31, 1999 and quarterly thereafter.
b. A ratio of Current Assets to Current Liabilities of not less
than 1.25:1.0.
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 Effective Tangible Net Worth of less than 2.00:1.0.
e. 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 and no losses in any one (1) fiscal quarter in excess of One
Million and 00/100 Dollars ($1,000,000).
f. Cash Flow Coverage Ratio of not less than 1.50:1.0.
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 Seven
Hundred Fifty Thousand and 00/100 Dollars ($750,000) in any fiscal year.
h. The obligations under this Agreement are cross-
collateralized and cross-defaulted to all present and future indebtedness of
Borrower to Bank.
i. Borrower shall not merge with or acquire any entities
without Bank's prior approval, which shall not be unreasonably withheld.
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.
6.20 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 reasonably
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.
6.21 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.22 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 Event of 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.
6.23 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 or Guarantor, as the case may be, shall give, or cause to be given,
to Bank either now or hereafter.
6.24 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.
6.25 Borrower shall furnish to Bank: (a) as soon as possible, but in no
event later than thirty (30) days after Borrower knows or becomes aware of
information sufficient to give 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 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.
6.26 Borrower and Guarantor are now and shall at all times hereafter
remain in compliance in all material respects 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.
6.27 Borrower shall pay commitment fees ("Commitment Fee" or
"Commitment Fees") on the face amount of letters of credit issued under the
Letter of Credit Subfeature in the amount of one and one quarter percent
(1.25%) per annum.
6.28 Borrower shall pay an annual fee in the amount of Fifteen Thousand
and 00/100 Dollars ($15,000), payable upon the execution hereof.
6.30 Borrower shall perform all acts reasonable necessary to ensure
that Borrower and any business in which Borrower holds a majority interest
become Year 2000 Compliant in a timely manner. Such acts shall include,
without limitation, performing a comprehensive review and assessment of all of
Borrower's systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. Borrower shall also use
reasonable efforts to assure itself that all customers, suppliers and vendors
of Borrower that are material to Borrower's business, become Year 2000
Compliant in a timely manner. As used in this paragraph, "Year 2000
Compliant" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date-
sensitive functions before, during and after the year 2000 in all material
respects. Borrower shall, promptly upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms of
this section as Bank may from time to time require.
7.. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement and by Guarantor under the Guaranty:
a. If Borrower or Guarantor, as the case may be, fails or
neglects to perform, keep or observe any material term, provision, condition,
covenant, agreement, warranty or representation contained in this Agreement,
or the Guaranty, as the case may be, or any other present or future agreement
between Borrower or Guarantor, as the case may be, and Bank;
b. If any representation, statement, report or certificate made
or delivered by Borrower or Guarantor, as the case may be, or any of their
officers, employees or agents to Bank is not true and correct in all material
respects;
c. If Borrower or Guarantor, as the case may be, 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 the assets of Borrower or Guarantor, as the
case may be, 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;
f. If any Insolvency Proceeding is filed or commenced by or
against Borrower or Guarantor, as the case may be;
g. If any proceeding is filed or commenced by or against
Borrower or Guarantor, as the case may be, for its dissolution or liquidation;
h. If Borrower or Guarantor, as the case may be, 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 or Guarantor's, as the case may be,
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 or Guarantor'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 the assets of Borrower or Guarantor, as the case may be;
k. If Borrower or Guarantor, as the case may be, permits a
default in any material agreement to which Borrower or Guarantor, as the case
may be, is a party with third parties so as to result in an acceleration of
the maturity of the indebtedness of Borrower or Guarantor, as the case may be,
to others, whether under any indenture, agreement or otherwise;
l. If Borrower or Guarantor, as the case may be, makes any
payment on account of indebtedness which has been expressly subordinated to
Borrower's Obligations or Guarantor's obligations, as the case may be, to
Bank, if any, which isn't permitted in a subordination agreement signed by
Bank;
m. If any material misrepresentation exists now or thereafter
in any warranty or representation made to Bank by any officer or director of
Borrower or Guarantor, as the case may be, or if any such warranty or
representation is withdrawn by any officer or director;
n. If any party subordinating its claims to that of Bank's or
any guarantor of Borrower's Obligations dies (if a natural person) or
terminates its subordination or guaranty, becomes insolvent or an Insolvency
Proceeding is commenced by or against any such subordinating party or
guarantor;
o. If there is an aggregate change of ownership or control of
more than fifty percent (50.00%) percent of the issued and outstanding stock
of Borrower or Guarantor, as the case may be; or
p. 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 or Guarantor, as the case may
be, 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 7.0 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 Section 7.0 of this Agreement
if, within thirty (30) days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; provided that there is no
fraud, or conversion of assets or other actions by Borrower to cause a
dissipation of collateral value; and further provided, however, that if any
such events occur, Bank shall not be obligated to make any advances to
Borrower during any such thirty (30) 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 and Guarantor'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
production of, advertising for sale and selling any Collateral and Borrower's
and Guarantor'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:
(10 Bank shall give Borrower, Guarantor 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;
(20 The notice shall be personally delivered or mailed,
postage prepaid, to the addresses of Borrower and Guarantor 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 and Guarantor claiming an interest in the Collateral shall be
sent to such addresses as they have furnished to Bank;
(30 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
(40 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
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 presentment, demand, protest, notice of protest,
notice of default or dishonor, notice of demand or intent to demand, notice of
acceleration or intent to accelerate, notice of payment and nonpayment, notice
of any default, and all other notices, 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. Borrower agrees that
no extension or indulgence to Borrower or release, substitution or
nonenforcement of any security, or release or substitution of Borrower, any
guarantor or any other party, whether with or without notice, shall affect the
Obligations of Borrower. Borrower waives all defenses or right to discharge
available under Section 3-605 of the Code and waives all other suretyship
defenses or right to discharge.
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 except for loss or damage
caused by the gross negligence or willful misconduct of Bank; (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 or
Guarantor, as the case may be.
10.4 BORROWER, GUARANTOR 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.
10.5 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; CROSS-COLLATERALIZATION; CROSS-DEFAULT.
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. All loans and advances
heretofore, now or at any time or times hereafter made by Bank to Borrower
under this Agreement, and any other lending agreement between Bank and
Borrower shall be secured by Bank's security interests in the Collateral, as
defined in this Agreement, and by all other security interests, liens,
encumbrances heretofore, now or from time to time hereafter granted by
Borrower to Bank. Notwithstanding the foregoing, to the extent that any other
indebtedness may be secured by any real property collateral, such real
property collateral shall not secure any Obligation hereunder. At Bank's
option, a default or an Event of Default, as the case may be, under this
Agreement shall be a default or an Event of Default, as the case may be, under
the Term Note, the Term Loan Agreement, or under any other indebtedness to
Bank now existing or existing in future between Bank and Borrower, and vice
versa.
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.
13.. AUTHORIZATION TO DISBURSE
Bank is hereby authorized to make loans and advances hereunder to
Borrower's account upon telephonic, facsimile or other instructions received
from anyone purporting to be an authorized 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
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, without regard to conflict of laws principles. 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 which shall not be unreasonably withheld 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
unless specifically so agreed in writing by Bank. Bank reserves the right to
sell, assign, transfer, negotiate or grant participations 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.
16.8 This Agreement is supplemented by the terms and conditions of that
certain Term Loan Agreement and that certain Addendum A of even date herewith,
attached hereto and made a part hereof. This Agreement supersedes that
certain Revolving Credit Loan & Security Agreement (Accounts & Inventory)
dated August 8, 1997, as amended from time to time thereafter, which shall be
of no further force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Revolving Credit Loan & Security Agreement (Accounts & Inventory) to
be executed as of the date first hereinabove written.
BORROWER: Business Resource Group
By:
Title:
By:
Title:
Accepted and effective as of
March 25, 1999
Comerica Bank-California
By:
John M. Greene
Title: Vice President
<PAGE>
ACKNOWLEDGMENT BY GUARANTORS
For good and valuable consideration, including, without limitation, the
terms and conditions of the foregoing Amended and Restated Revolving Credit
Loan and Security Agreement (Accounts and Inventory) (the "Agreement"), the
undersigned hereby acknowledge and agree to the foregoing provisions of the
Agreement, and agree to be bound thereby.
Address: OFN, Inc.
2150 North First Street, Suite 101
San Jose, California 95131 By:
Title:
Address: RN Acquisition Corp.
2150 North First Street, Suite 101
San Jose, California 95131 By:
Title:
<PAGE>
SCHEDULE A
Permitted Liens
1. UCC-1 Financing Statement executed by Borrower, providing for a security
interest in favor of Winthrop Resources Corporation in certain
collateral described therein, filed with the California Secretary of
State, a copy of which is attached hereto as Schedule A1.
2. UCC-1 Financing Statement executed by Borrower, providing for a security
interest in favor of Winthrop Resources Corporation in certain
collateral described therein, filed with the Arizona Secretary of State,
a copy of which is attached hereto as Schedule A2.
3. UCC-1 Financing Statement executed by Borrower, providing for a security
interest in favor of Winthrop Resources Corporation in certain
collateral identified therein, filed with the Texas Secretary of State,
a copy of which is attached hereto as Schedule A3.
<PAGE>
SCHEDULE B
Business Resource Group, OFN, Inc. and RN Acquisition Corp. Locations and
Landlords/Mortgagors
Location: Landlord/Mortgagors:
1. Business Resource Group Orchard Properties
2150 North First Street, Suite 101 2290 North First Street, Suite 300
San Jose, CA 95131 San Jose, CA 95131
Telephone No. 408-325-3200 Telephone No. 408-922-0400
Fax No. 408-325-3228 Fax No. 408-922-0157
Attention: Marni Bohlscheid
2. Business Resource Group Blue Jeans Equities West,
1225 Battery Street, Suite 100 a California Partnership
San Francisco, CA 94111 c/o Interland-Jalson
Telephone No. 415-875-8300 201 Filbert Street
Fax No. 415-875-8310 San Francisco, CA 94111
Fax No. 415-956-8097
Attention: Michael D. Franklin
3. Business Resource Group Scottsdale Spectrum, L.L.C.
6720 North Scottsdale Road c/o Opus West Management
Scottsdale, AZ 85253 Corporation
Telephone No. 602-367-5000 2415 East Camelback Road, Suite 840
Fax No. 602-367-5001 Phoenix, AZ 85016
4. Business Resource Group Breurig Commercial
2811 McKineey Avenue, Suite 18 c/o 2811 McKinney Avenue
Dallas, TX 75204 Dallas, TX 75204
Telephone No. 415 953-1233
Fax No. 415 953-1112
5. Office Furniture Networking MBP Associates
8060 Arjons Drive 900 Fort Street Mall, Suite 1450
San Diego, CA 92126 Honolulu, Hawaii 96813
Telephone No. 619-271-6500
Fax No. 619-271-5190
6. Re'Nu (RN Acquisition Corp) Pera Valley View, Inc.
14061 and 14027 Borate Street c/o Reef Management Company
Santa Fe Springs, CA 90670 1630 South Sunkist Street, Suite A
Telephone No. 562-921-3130 Anaheim, California 92806
Fax No. 562-921-7013
7. Re'Nu (RN Acquisition Corp) Adaya Asset Milroy, L.P.
13720 Rosecrans Avenue c/o Investment Development Services
Santa Fe Springs, CA 90670 P.O. Box 60990
Telephone No. 562-921-3130 Los Angeles, CA 90060-0990
Fax No. 562-921-7013
8. Re'Nu (RN Acquisition Corp) Blair Company
1950 E. Edinger Avenue 1946 E. Edinger Avenue
Santa Ana, CA 92705 Santa Ana, CA 92705
Telephone No. 562-921-3130
Fax No. 562-921-7013
9. Re'Nu (RN Acquisition Corp) Store and Lock
3340 Sirius Avenue 3350 Sirius Avenue
Las Vegas, NV 89101 Las Vegas, NV 89102
Telephone No. 562-921-3130
Fax No. 562-921-7013
10. Re'Nu (RN Acquisition Corp) Ron-Don Enterprises
4525 Sepulveda Blvd. 5811 West 77th Place
Sherman Oaks, CA 91403 Westchester, CA 90045-1707
Telephone No. 562-921-3130
Fax No. 562-921-7013
Third Party Warehouses/Delivery Services for Business Resource Group
1. Connections
14124 N.E. 186th Street
Suite G
Woodinville, WA 98072
2. Friant
4901 E. 12th Street
Oakland, CA 94601
3. Service West
2121 E. 12th Street
Oakland, CA 94606
4. QAT
880 N. 8th Street
Suite B
San Jose, CA 95112
5. ADT
P.O. Box 360194
Milpitas, CA 95036
6. Fine Gem
620 Dubuque Avenue
South San Francisco, CA 94080
7. Cal Star
2465 Verna Court
San Leandro, CA 94577
8. Beltmann Moving and Storage
3925 West Adams Street
Phoenix, AZ 85009
602-484-7665
Fax: 602-484-0185
9. Interstate Systems Installation
1150 West Alameda Drive, Suite 6
Tempe, AZ 85282
602/986-9392
Fax: 602/986-9907
10. Precision Installation
1302 West 23rd Street, Suite 116
Tempe, AZ 85282
602-968-9481
Fax: 602-968-9482
11. Move Solutions
1473 Terri Colony Court
Dallas, TX 75212
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED APRIL 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 133
<SECURITIES> 0
<RECEIVABLES> 16,032
<ALLOWANCES> 0
<INVENTORY> 11,319
<CURRENT-ASSETS> 31,266
<PP&E> 3,316
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,788
<CURRENT-LIABILITIES> 22,081
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 15,593
<TOTAL-LIABILITY-AND-EQUITY> 39,788
<SALES> 23,813
<TOTAL-REVENUES> 29,370
<CGS> 18,301
<TOTAL-COSTS> 22,519
<OTHER-EXPENSES> 5,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 961
<INCOME-TAX> 398
<INCOME-CONTINUING> 563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
