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 March 31, 1999.
[ ] 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 0-26392
LEVEL 8 SYSTEMS, INC.
---------------------
(Exact name of registrant as specified in its charter)
New York 11-2920559
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
8000 Regency Parkway, Cary, NC 27511
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(919) 380-5000
--------------
(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 15d of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
8,720,994 common shares, $.01 par value, were outstanding as of March 31, 1999.
1
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
INDEX
<S> <C> <C>
Page
PART I. Financial Information Number
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Item 1. Financial Statements
Consolidated balance sheets as of March 31, 1999 (unaudited)
and December 31, 1998 3
Consolidated statements of operations (unaudited) for the three
months ended March 31, 1999 and 1998 4
Consolidated statements of cash flows (unaudited) for three months
ended March 31, 1999 and 1998 5
Consolidated statements of comprehensive income (unaudited) for
three months ended March 31, 1999 and 1998 6
Notes to consolidated financial statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. Other Information 20
22
SIGNATURES
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
March 31, December 31,
1999 1998
----------- --------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 2,221 $ 6,078
Accounts receivable, less allowance for doubtful accounts
of $1,832 and $3,252 at March 31, 1999 and December 31,
1998, respectively 16,009 16,992
Due from related company 271 271
Note receivable for sale of subsidiary 2,000 2,000
Prepaid expenses and other current assets 2,428 2,606
----------- --------------
Total current assets 22,929 27,947
Property and equipment, net 2,333 2,682
Excess of cost over net assets acquired, net 30,520 32,217
Software development costs, net 6,687 6,753
Other assets 1,212 1,171
----------- --------------
Total assets $ 63,681 $ 70,770
=========== ==============
Liabilities and stockholders' equity
Notes payable, due on demand $ 5,600 $ 12,275
Current maturities of loan from related company 167 628
Current maturities of long-term debt 758 799
Accounts payable 1,985 3,691
Accounts payable to related company 170 82
Accrued expenses:
Compensation 614 318
Commissions 473 1,021
Restructuring 797 973
Merger-related 3,145 4,803
Other 7,387 8,275
Deferred revenue and customer deposits 9,747 13,075
Income taxes payable 1,883 1,781
----------- --------------
Total current liabilities 32,726 47,721
Long-term debt, net of current maturities 11,569 1,541
Loan from related company, net of current maturities 12,484 12,519
Deferred revenue 1,974 97
Stockholders' equity
Preferred stock - -
Common stock 87 87
Additional paid-in-capital 34,070 34,045
Accumulated other comprehensive income (161) -
Accumulated deficit (29,068) (25,240)
----------- --------------
Total stockholders' equity 4,928 8,892
----------- --------------
Total liabilities and stockholders' equity $ 63,681 $ 70,770
=========== ==============
The accompanying notes are an integral part of the consolidated financial statement
</TABLE>
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Revenue:
Software $ 2,712 $ 212
Maintenance 3,883 540
Services 6,610 2,341
-------- --------
Total operating revenue 13,205 3,093
Cost of revenue:
Software 838 426
Maintenance 1,600 101
Services 6,018 1,665
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Total cost of revenue 8,456 2,192
Gross profit 4,749 901
Operating expenses:
Sales and marketing 2,619 200
Research and development 1,679 426
General and administrative 1,753 947
Amortization of intangible assets 1,697 105
Purchased research and development - 1,200
-------- --------
Total operating expenses 7,748 2,878
Loss from operations (2,999) (1,977)
Other income (expense)
Interest income 74 74
Interest expense (701) (4)
-------- --------
Loss before tax provision (3,626) (1,907)
Income tax provision (benefit) 202 (401)
-------- --------
Loss from continuing operations (3,828) (1,506)
Discontinued operations:
Loss from discontinued operation, net
of tax - (135)
Loss on disposal, net of tax - (843)
-------- --------
- (978)
Net loss $(3,828) $(2,484)
======== ========
Net loss per common share:
Loss from continuing operations - basic and diluted $ (0.44) $ (0.21)
Loss from discontinued operations - basic and diluted - (0.14)
-------- --------
Net loss per share - basic and diluted $ (0.44) $ (0.35)
======== ========
Weighted shares outstanding - basic and diluted 8,710 7,110
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,828) $(2,484)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,709 273
Deferred income taxes (2) (760)
Provision for uncollectible accounts 104 50
Loss from discontinued operations - 135
Loss on disposal of discontinued operations - 843
Purchased research and development - 1,200
Write-off of capitalized software costs - 294
Changes in assets and liabilities, net of assets acquired
and liabilities assumed:
Trade accounts receivable 604 1,580
Prepaid expenses and other assets 164 (391)
Accounts payable, accrued expenses and
income taxes payable (4,489) (260)
Deferred revenue (1,350) 480
-------- --------
Net cash provided by (used in) operating activities (6,088) 960
Cash flows from investing activities:
Cash received from acquisition - 362
Purchases of property and equipment (54) (272)
Capitalization of software development costs (544) (118)
-------- --------
Net cash used in investing activities (598) (28)
Cash flows from financing activities:
Issuance of common shares 25 28
Net borrowings on line of credit 3,325 -
Payments on borrowings from related company (496) -
Payments on capital leases (13)
Deferred income taxes - (109)
Payment on other long-term debt - (33)
-------- --------
Net cash provided by (used) in financing activities 2,841 (114)
Effect of exchange rate changes on cash (12) -
Net increase (decrease) in cash and cash equivalents (3,857) 818
Cash and cash equivalents:
Beginning of period 6,078 7,062
-------- --------
End of period $ 2,221 $ 7,880
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
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<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1999 1998
----------- --------
<S> <C> <C>
Net loss $ (3,828) $(2,484)
Other comprehensive income, net of tax
Foreign currency translation adjustment (161) -
----------- --------
Comprehensive loss $ (3,989) $(2,484)
=========== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
6
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LEVEL 8 SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements are unaudited, and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations.
Accordingly, these interim financial statements should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for other interim periods or
for the full fiscal year. In the opinion of management, the information
contained herein reflects all adjustments necessary for a fair statement of the
interim results of operations. All such adjustments are of a normal, recurring
nature.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All of the Company's subsidiaries are
wholly-owned except for Seer Technologies, Inc. ("Seer"). The Company acquired
a 69% interest in Seer on December 31, 1998. Seer had net liabilities of
$24,535 at the acquisition date. The stockholders of the remaining 31% of the
outstanding voting stock were deemed to have shared in the losses of Seer only
for their proportionate share of Seer's net assets. Accordingly, there is no
minority interest in the losses of the Seer subsidiary reflected in the
consolidated financial statements as of and for the period ended March 31, 1999.
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the 1998 presentation. Such reclassifications had no
effect on previously reported net income or stockholders' equity.
Statement of Position 98-9, "Modification of SOP 97-2, 'Software Revenue
Recognition,' with Respect to Certain Transactions" ("SOP 98-9") will be
effective for the Company's fiscal year beginning January 1, 1999. Retroactive
application is prohibited. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all of the undelivered elements that are not accounted for by
means of long -term contract accounting, (2) VSOE of fair value does not exist
for one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97 -2 (other than the requirement for VSOE of the fair value of
each delivered element) are satisfied. The provisions of SOP 98-9 that extend
the deferral of certain passages of SOP 97 -2 became effective December 15,
1998. The Company has implemented SOP 98-9 as of January 1, 1999.
NOTE 2. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed based upon the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is
computed based upon the weighted average number of common shares outstanding and
any potentially dilutive securities. Potentially dilutive securities are not
included in the diluted earnings per share calculations if their inclusion would
be anti-dilutive to the basic earnings (loss) per share calculations.
Potentially dilutive securities outstanding during the first quarter of fiscal
year 1999 include stock options and stock warrants.
NOTE 3. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company's
effective tax rate differs from the statutory rate primarily due to the fact
that no income tax benefit was recorded for the net loss for the first quarter
of fiscal year 1999. Because of the Company's inconsistent earnings history,
the deferred tax assets have been fully offset by a valuation allowance.
7
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The income tax provision for the first quarter of fiscal year 1999 is primarily
related to income taxes from profitable foreign operations and foreign
withholding taxes.
NOTE 4. USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from these estimates.
NOTE 5. SEGMENT INFORMATION
Management of the Company makes operating decisions and assesses performance of
its operations based on the following reportable segments: (1) Software, (2)
Maintenance, (3) Services, and (4) Research and Development.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies," included in the Company's Annual
Report on Form 10-K for year ended December 31, 1998. Segment data includes a
charge allocating all corporate-headquarters costs to each of its operating
segments based on each segment's proportionate share of expenses. The Company
evaluates the performance of its segments and allocates resources to them based
on earnings (loss) before interest, taxes and amortization of goodwill (EBITA).
Comparative information is not available for the same period of 1998 because the
Company previously reviewed its operations as one reportable segment and did not
have international operations.
The table below presents information about reported segments for the quarter
ending March 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Research
And
Software Maintenance Services Development Total
---------- ------------ ---------- ------------- --------
Total Revenue $ 2,712 $ 3,884 $ 6,610 $ - $13,205
Total EBITA $ (1,221) $ 3,020 $ (235) $ (2,867) $(1,303)
</TABLE>
A reconciliation of total segment EBITA to total consolidated income before
taxes for the quarter ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Total EBITA $(1,302)
Amortization of goodwill (1,697)
Interest expense, net (627)
--------
Total loss before income taxes $(3,626)
========
</TABLE>
8
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The following table presents a summary of revenue by geographic region for the
quarter ended March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Australia $ 648
Denmark 1,408
Germany 542
Greece 408
Italy 1,278
Norway 608
Sweden 299
Switzerland 1,000
United Kingdom 1,608
USA 4,511
Other 895
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Total revenue $13,205
=======
</TABLE>
Presentation of revenue by region is based on the country in which the customer
is domiciled.
NOTE 6. CONTINGENCIES
LITIGATION. On April 6, 1998, the Company sold substantially all assets and
operations of its wholly owned subsidiary ProfitKey International, Inc.
("ProfitKey"). According to the terms of the ProfitKey sale agreement, the
purchase price is subject to adjustment to reflect any variance in working
capital from a specified amount. The purchaser has notified the Company that it
believes there are adjustments totaling $1,466 which would require a reduction
in the purchase price. The Company has begun to attempt to negotiate a
settlement with the purchaser and has made provision for its estimate of the
purchase price adjustment and the costs to resolve this matter. Management
believes at this time that any additional provision required to ultimately
resolve this matter will not have a material effect on the financial position,
cash flows, or results of operations of the Company.
In December 1997, Seer filed a lawsuit against Saadi Abbas and Cambridge
Business Solutions (UK) Limited ("CBS") alleging that Mr. Abbas and CBS had
injured Seer by interfering with Seer's ability to market and sublicense the
LightSpeed Financial Model. Seer obtained a preliminary injunction against Mr.
Abbas and CBS halting their actions. Mr. Abbas and CBS filed counterclaims
against Seer claiming wrongful dismissal of Abbas and breach of the license
agreement. Due to the erosion of the market for the LightSpeed Financial Model,
Seer voluntarily dismissed its claims against Mr. Abbas and CBS in the summer of
1998. Mr. Abbas and CBS are continuing to pursue their claims against Seer. At
the present point in the litigation, it is impossible to calculate the chances
of success in this litigation. However, the Company intends to continue to
vigorously defend against the counterclaim. The Company has made provision for
its estimated costs to resolve this matter. Management does not believe at this
point in the litigation that any additional amounts required to ultimately
resolve this matter will have a material effect on the financial position, cash
flows, or results of operations of Seer.
LIQUIDITY. During the first quarter of 1999, the Company incurred a net loss of
$3.8 million and has negative working capital of $9.8 million and an accumulated
deficit of $29.1 million at March 31, 1999. The Company's ability to generate
positive cash flow is dependent upon the Company achieving and sustaining
certain cost reductions and generating sufficient revenues for the year. The
Company already implemented certain steps to, among other things, reduce
headcount, restructure operations and eliminate various costs from the business.
Liraz has committed to provide the Company up to $7.5 million of working capital
on an as needed basis, upon thirty days notice. Advances, if any, made under the
commitment would become due and payable upon the earlier of March 31, 2000 or
the successful completion of an equity financing which provides more than $7.5
million in proceeds to the Company. The advancement of funds under the
commitment is subject to the Company's acceptance of certain terms including
possible conversion of the outstanding balance, if any, to common stock of the
Company and the execution of appropriate documentation. Management's plans also
include the possibility of raising additional equity financing. The Company
believes that existing cash on hand, cash provided by future operations,
additional borrowings under its line of credit and the Liraz commitment will be
sufficient to finance its operations and expected working capital and capital
expenditure requirements for at least the next twelve months so long as the
Company continues to perform to its operating plan. However, there can be no
assurance that the Company will be able to continue to meet its cash
requirements through operations or, if needed, obtain additional financing on
acceptable terms, and the failure to do so may have an adverse impact on the
Company's business and operations.
9
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NOTE 7. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Company renegotiated its line of credit and
converted $10 million of borrowings under its credit facility to a term loan due
on September 1, 2000. The interest rate on the line of credit was increased to
prime plus 2% per annum.
On April 15, 1999, the Company completed its cash tender offer (the "Tender
Offer") that commenced on February 1, 1999 for all of the outstanding shares of
common stock ("Seer Common Stock"), par value $.01 per share, of Seer at a
purchase price of $.35 per share in cash. The Company has accepted for payment
3,375,833 shares of Seer Common Stock validly tendered and not properly
withdrawn pursuant to the Tender Offer. As of April 30, 1999, the Company
acquired the remaining minority interest in Seer, for $0.35 per share of Seer
Common Stock in cash by merger. The total purchase price for the remaining 31%
of Seer acquired through the Tender Offer and merger in April, 1999 was
approximately $1.7 million. As a result of the completion of the Tender Offer
and merger, Seer became a wholly owned subsidiary of the Company.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
- ---------------
GENERAL INFORMATION AND RECENT DEVELOPMENTS
11
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The following table sets forth, for the periods indicated, the Company's
unaudited results of continuing operations expressed as a percentage of revenue:
<TABLE>
<CAPTION>
Three months ended
March 31,
<S> <C> <C>
1999 1998
----- -------
Revenue:
Software products 20.5% 6.9%
Maintenance 29.3% 17.5%
Services 50.2% 75.6%
----- -------
Total
100.0% 100.0%
Cost of revenue:
Software products 6.3% 13.8%
Maintenance 12.1% 3.3%
Services 45.6% 53.8%
----- -------
Total
64.0% 70.9%
Gross profit 36.0% 29.1%
Operating expenses:
Sales and marketing 19.8% 6.5%
Research and product development 12.7% 13.8%
General and administrative 13.3% 30.6%
Amortization of goodwill and intangibles 12.9% 3.4%
Purchased research and development --- 38.8%
----- -------
Total 58.7% 93.1%
Other income (expense), net (4.7%) 2.3%
------ -------
Loss before taxes (27.4%) (61.7%)
Income tax provision (benefit) 1.5% (13.0%)
------- -------
Loss from continuing operations (28.9%) (48.7%)
======= =======
</TABLE>
The following table sets forth unaudited data for total revenue by geographic
origin as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
------ -----
<S> <C> <C>
United States 35 % 99 %
Mexico / Canada 1 % ---
South America 1 % ---
Europe 57 % ---
Middle East / Africa 1 % 1 %
Asia Pacific 7 % ---
----- -----
Total
100 % 100%
</TABLE>
12
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REVENUE AND GROSS MARGIN. The Company has three categories of revenue:
software products, maintenance, and services. Software products revenue is
comprised primarily of fees from licensing the Company's proprietary software
products. Maintenance revenue is comprised of fees for maintaining, supporting,
and providing periodic upgrades to the Company's software products. Services
revenue is comprised of fees for consulting and training services related to the
Company's software products.
The Company's revenues vary from quarter to quarter, with the largest
portion of revenue typically recognized in the last month of each quarter. The
Company believes that these patterns are partly attributable to the Company's
sales commission policies, which compensate sales personnel for meeting or
exceeding quarterly quotas, and to the budgeting and purchasing cycles of
customers. The Company typically does not have any material backlog of unfilled
software orders, and product revenue in any quarter is substantially dependent
upon orders received in that quarter. Because the Company's operating expenses
are based on anticipated revenue levels and are relatively fixed over the short
term, variations in the timing of recognition revenue can cause significant
variations in operating results from quarter to quarter. Fluctuations in
operating results may result in volatility in the price of the Company's common
stock.
Effective January 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of Position
98-4 "Deferral of the Effective Date of Certain Provisions of SOP 97-2." SOP
97-2 requires each element of a software sale arrangement to be separately
identified and accounted for based on the relative fair value of such element.
Revenue cannot be recognized on any element of the sale arrangement if
undelivered elements are essential to the functionality of the delivered
elements.
Statement of Position 98-9, "Modification of SOP 97-2, 'Software Revenue
Recognition,' with Respect to Certain Transactions" ("SOP 98-9") will be
effective for the Company's fiscal year beginning January 1, 1999. Retroactive
application is prohibited. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all of the undelivered elements that are not accounted for by
means of long -term contract accounting, (2) VSOE of fair value does not exist
for one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97 -2 (other than the requirement for VSOE of the fair value of
each delivered element) are satisfied. The provisions of SOP 98-9 that extend
the deferral of certain passages of SOP 97 -2 became effective December 15,
1998. The Company implemented SOP 98-9 as of January 1, 1999.
Total revenues increased significantly for the first quarter of 1999 as
compared to the same period of 1998 primarily due to the acquisitions of
Momentum and Seer during 1998. The gross margin improved to 36% for the quarter
ended March 31, 1999 from 29% for the comparable period of 1998.
On a pro forma combined basis, total revenues for the first quarter of 1998 were
$19.3 million. The $6.1 million decline in revenue on a pro forma combined
basis is primarily due to a decline in consulting resources employed by Seer
from the first quarter of 1998 to the first quarter of 1999. The gross margin
for the quarter ended March 31, 1998 on a pro forma combined basis was
approximately 20%.
SOFTWARE PRODUCTS. Software products revenue increased significantly for
the first quarter of 1999 as compared to the same period of 1998 primarily due
to the sales of products acquired from Momentum and Seer during 1998 coupled
with sales of the Company's new Geneva Integration Server.
In the first quarter of 1998, the Company's software sales were primarily
resales of IBM's MQ Series licenses and sales of Falcon messaging products,
which were commercially released in late 1997. Through its acquisitions in
1998, the Company acquired Momentum's XIPC messaging product and Seer's HPS
products which are used for application development. Additionally, as discussed
above, the Company has developed Geneva Integration Server, an EAI solution,
during late 1998 and early 1999.
Gross margins on software products increased significantly from a negative
margin of 100% for the first quarter of 1998 to 69% for the first quarter of
1999 primarily due to the increase in the Company's software products revenue.
The increase in gross margin was offset somewhat by a $.4 million increase in
cost of software. Cost of software is composed of production and distribution
costs, amortization of capitalized software and royalties to third parties. The
increase in cost of software was primarily due to amortization of capitalized
software from Momentum's and Seer's developed technology valued in the purchase
transactions and royalties for technology acquired in 1998 from Liraz Systems,
Ltd. ("Liraz"), the Company's majority shareholder.
13
<PAGE>
MAINTENANCE. Maintenance revenue increased significantly from the first quarter
of 1998 to the first quarter of 1999 primarily due to addition of Seer*HPS to
the Company's products, which has historically had a significant revenue stream
from maintenance. Maintenance revenue on a pro forma combined basis for the
first quarter of 1998 was $4.2 million.
Cost of maintenance is comprised of personnel costs and related overhead
and the cost of third-party contracts for the maintenance and support of the
Company's software products. Gross margins on maintenance declined from 81% for
the first quarter of 1998 to 59% for the first quarter of 1999 primarily due to
the addition of Seer*HPS to the Company's products. Due to their complexity,
the Seer*HPS products have historically required more resources for maintenance
and support.
SERVICES. Services revenue increased significantly from the first quarter
of 1998 to the first quarter of 1999 primarily due to the acquisition of Seer,
which added approximately 150 consultants to the Company's consulting staff.
Cost of services primarily includes personnel and travel costs related to the
delivery of services. Services gross margins declined from 29% to 9% from the
first quarter of 1998 to the first quarter of 1999 primarily due to lower
utilization of billable resources. Additionally, changes in the composition of
the Company's services revenue have caused margins to decline since the
Seer*HPS-related services has historically generated lower margins than the
Company's other service offerings. The Company is seeking to improve its
consulting margins through better utilization of its consultants and by
retraining the Seer*HPS consulting resources to provide higher margin services
for the Company's Falcon and Geneva Integration Server products.
SALES AND MARKETING. Sales and marketing expenses primarily include personnel
costs for salespeople, travel, and related overhead, as well as trade show
participation and other promotional expenses. Sales and marketing expenses
increased significantly from the first quarter of 1998 to the first quarter of
1999 due to an increase in the size of the Company's sales force, both through
acquisition and recruiting. Sales and marketing expenses have also increased as
a percentage of revenue from 6.5% in the first quarter of 1998 to 19.8% in the
first quarter of 1999. These increases were necessitated by the reorganization
of the Company's sales and promotional activities to correspond with its new
product strategy as well as the Company's expansion into the global marketplace
with the acquisition of Seer. The Company intends to continue to increase its
spending in the sales and marketing area to increase market awareness and
acceptance of its new product Geneva Integration Server and to establish an
indirect distribution network.
RESEARCH AND DEVELOPMENT. Research and development expenses primarily
include personnel costs for product authors, product developers and product
documentation personnel and related overhead. Research and development expense
increased significantly from the first quarter of 1998 to the first quarter of
1999 due to the addition of 90 developers from Momentum and Seer. As a
percentage of revenues, research and development expenses remained relatively
constant at 13% and 14% for the first quarters of 1999 and 1998, respectively.
The Company intends to continue making a significant investment in research and
development while also improving efficiencies in this area.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
of personnel costs for the executive, legal, financial, human resources, and
administrative staff and related overhead and all non-allocable corporate costs
of operating the Company. General and administrative expenses increased 85%
from the first quarter of 1998 to the first quarter of 1999. The increases are
primarily related to the additional infrastructure necessary to support the
Company after the acquisitions of Momentum and Seer, as well as $.5 million in
foreign exchange losses related to Seer's international operations. As a
percentage of revenue excluding the foreign exchange losses, general and
administrative expense has declined from 31% in the first quarter of 1998 to 9%
in the first quarter of 1999 due to synergies obtained through the Company's
1998 acquisitions. The Company intends to begin hedging foreign currency
transactions in an effort to reduce its exposure to changes currency exchange
rates.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Amortization of
goodwill and other intangible assets was $1.7 million in the first quarter of
1999 and $.1 million in the first quarter of 1998. The amortization of goodwill
in the first quarter of 1998 was related to the purchase of Level 8 Technologies
in April of 1995. In the first quarter of 1999, the amortization of goodwill
and other intangible assets related to the purchase of Seer, Momentum and Level
8 Technologies. The Company anticipates that the amortization of goodwill and
other intangible assets will increase due to additional intangible assets
expected to be acquired following the acquisition of the 31% minority interest
in Seer during the second quarter of 1999. The Company will continue to assess
the recoverability of its intangible assets on a quarterly basis based on the
net present value of the expected future cash flows.
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PURCHASED RESEARCH AND DEVELOPMENT. Based on the results of a third-party
appraisal, the Company recorded a charge in the first quarter of 1998 of $1.2
million to expense purchased in-process research and development costs related
to the acquisition of Momentum. There were no similar charges recorded in the
first quarter of 1999. The Company does anticipate recording an expense related
to purchased in-process research and development costs in the second quarter of
1999 as it completes its acquisition of the 31% minority interest in Seer.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate for
continuing operations differs from the statutory rate primarily because an
income tax benefit was not recorded for the net loss incurred in the first
quarter of 1999. Because of the Company's inconsistent earnings history, the
deferred tax assets have been fully offset by a valuation allowance. The income
tax provision for the first quarter of fiscal year 1999 is primarily related to
income taxes from profitable foreign operations and foreign withholding taxes.
DISCONTINUED OPERATIONS. During 1998, the Company disposed of one of its
wholly-owned subsidiaries, ProfitKey International, Inc. The disposal was
accounted for as a discontinued operation. According, the results of operations
for the first quarter of 1998 reflects a $1.0 million loss from discontinued
operations.
IMPACT OF INFLATION. Inflation has not had a significant effect on the
Company's operating results during the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations and for investment in capital during the first
quarter of 1999 was $6.7 million. Payments of approximately $2.0 million for
merger and restructuring costs related to the acquisition of Seer were a primary
component of the net cash outflow in addition to the Company's normal, recurring
operating expenses. Also, both the Company and Seer had lower than anticipated
billings in the fourth calendar quarter of 1998 which contributed to a reduction
in cash received from customers. The Company believes this trend was caused
primarily by internal distractions within both companies in the fourth calendar
quarter of 1998 due to the November announcement of the Seer transaction which
was consummated on December 31, 1998. During the first quarter of 1999, the
Company also paid approximately $.5 million on its outstanding debt obligations
with its majority shareholder Liraz. The Company funded its cash needs during
the first quarter of 1999 with cash on hand at December 31, 1998, through first
quarter operations and through $3.3 million in additional borrowings under its
line of credit.
As of March 31, 1999, the Company had outstanding borrowings of $15.6
million under a credit facility with a commercial bank shared between the
Company and Seer (the "Credit Facility") at an interest rate of 7.75%.
Subsequent to March 31, 1999, the Credit Facility was amended and currently
provides for borrowings up to the lesser of $25 million or the sum of 80% of
eligible receivables and a $10 million term loan payable on September 1, 2000.
The receivables-based borrowings under the Credit Facility are due on demand.
The Credit Facility bears interest at the prime rate plus 2% per annum and has
no financial covenant provisions. The Credit Facility terminates on December
31, 2001; however, it is automatically renewed for successive additional terms
of one year each, unless terminated by either party. The Credit Facility is
collateralized by the Company's accounts receivable, equipment and intangibles,
including intellectual property.
In addition to the Credit Facility, the Company has other outstanding
borrowings at March 31, 1999 including (i) $.2 million under a note payable to
Liraz which bears interest at 4% per year and is payable in equal quarterly
installments of $.035 million, including interest, (ii) $.5 million under a note
payable to Liraz which bears interest at 8% per year and is payable in annual
installments, (iii) $2.3 million of $3 million notes issued to the sellers of
Momentum which bear interest at 10% per year and are payable in annual
installments, and (iv) a $12 million loan from Liraz which bears interest at 12%
and is payable on June 30, 2000. The $12 million note and other debt payable to
Liraz is subordinate in right of payment to the Credit Facility.
Future maturities on the Company's outstanding debt at March 31,1999 include
$6.5 million in 1999, $23.3 million in 2000 and $.7 million in 2001. Of such
amounts, $12.5 million in 2000 are due to Liraz.
The $12 million loan from Liraz was used by the Company to pay off a portion of
Seer's bank debt on the date of the Company's acquisition of its 69% interest in
Seer. In connection with the loan agreement, the Company and Liraz agreed that
the Company would effect a pro rata offering to its shareholders of shares of
preferred stock intended to have an aggregate liquidation preference initially
equal to the principal and accrued interest under the note and to be convertible
into an aggregate number of common stock determined by dividing the aggregate
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liquidation preference (which will accrete at the rate of 12% a year, compounded
quarterly) by the conversion price. The conversion price would be an amount
equal to the greater of $5.00 and two-thirds of the average closing price of a
share of the Company's common stock during the 20 trading days ending on the
fifth trading day before the rights offering. Each share of preferred stock
would be entitled to two votes for each share of common stock into which it is
convertible. The preferred stock would be redeemable at the Company's option at
any time after June 30, 2000, upon at least 30 days' notice, at a redemption
price equal to the preferred stock's accreted liquidation preference. The
purchase price for each share of preferred stock to be offered to the Company's
shareholders would equal its initial liquidation preference. Liraz would be
permitted to pay the purchase price for any preferred stock it purchases in the
offering with cash or by reducing the amount payable to it under the $12 million
note. If the rights offering is consummated before June 30, 1999, the Company is
required to use the net proceeds of the rights offering to prepay the unpaid
balance under the $12 million note. In the context of reviewing other financing
alternatives, the Company and Liraz are currently reevaluating the proposed
rights offering and may determine not to proceed with the rights offering.
As of March 31, 1998, the Company did not have any material commitments for
capital expenditures.
On April 15, 1999, the Company completed its cash tender offer (the "Tender
Offer") that commenced on February 1, 1999 for all of the outstanding shares of
common stock ("Seer Common Stock"), par value $.01 per share, of Seer at a
purchase price of $.35 per share in cash. The Company has accepted
3,375,833 shares of Seer Common Stock validly tendered and not properly
withdrawn pursuant to the Tender Offer. As of April 30, 1999, the Company
acquired the remaining minority interest in Seer, for $0.35 per share of Seer
Common Stock in cash. The total purchase price for the remaining 31% of Seer
acquired through the Tender Offer and merger in April, 1999 was approximately
$1.7 million. As a result of the completion of the Tender Offer and merger,
Seer became a wholly owned subsidiary of the Company.
In early 1999, management began both to effect the various restructuring
actions and to implement other cost control and cost reduction efforts.
Management's planned actions also include the sale of certain technologies that
are not closely related to the Company's current strategic direction and
positioning the Company for the possible rights offering discussed above or an
alternative financing transaction.
During the first quarter of 1999, the Company incurred a net loss of $3.8
million and has negative working capital of $9.8 million and an accumulated
deficit of $29.1 million at March 31, 1999. The Company's ability to generate
positive cash flow is dependent upon the Company achieving and sustaining
certain cost reductions and generating sufficient revenues for the year. The
Company already implemented certain steps to, among other things, reduce
headcount, restructure operations and eliminate various costs from the business.
Liraz has committed to provide the Company up to $7.5 million of working capital
on an as needed basis, upon thirty days notice. Advances, if any, made under the
commitment would become due and payable upon the earlier of March 31, 2000 or
the successful completion of an equity financing which provides more than $7.5
million in proceeds to the Company. The advancement of funds under the
commitment is subject to the Company's acceptance of certain terms including
possible conversion of the outstanding balance, if any, to common stock of the
Company and the execution of appropriate documentation. Management's plans also
include the possibility of raising additional equity financing. The Company
believes that existing cash on hand, cash provided by future operations and
additional borrowings under the Credit Facility and Liraz commitment will be
sufficient to finance its operations and expected working capital and capital
expenditure requirements for at least the next twelve months so long as the
Company continues to perform to its operating plan. However, there can be no
assurance that the Company will be able to continue to meet its cash
requirements through operations or, if needed, obtain additional financing on
acceptable terms, and the failure to do so may have an adverse impact on the
Company's business and operations.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The "Year
2000 Problem" is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
Software Sold to Consumers. The Company believes that it has substantially
identified potential Year 2000 Problems with the software products that it
develops and markets. See "Item 1. Business - Products and Services," of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 for a
further discussion of the Company's products. The Company's Seer*HPS toolset
products are designed to allow developers to develop applications that are Year
2000 compliant, through the use of four-digit year fields which can accept and
accurately represent dates both before and after the Year 2000. Once a
four-digit year is properly input, applications built with the Seer*HPS toolset
can properly process the dates.
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Dates may be input into these applications either by entering a four-digit year
or, as a shortcut, by entering the last two digits of the year. In the latter
case, the application assigns a century to the date and "feeds back" a
four-digit year to the user by displaying it on the screen. For all versions of
Seer*HPS above 5.2.3K, the century is assigned according to a moving 100-year
window. The Company has made available documentation to its customers that
explains how this moving 100-year window can be adjusted, both on the
workstation platform and on the host. For version 5.2.3K, the century is
assigned a default value of "19". In either case, the user can either accept the
proposed four-digit date or correct it, if the application has assigned the
wrong century in a particular case.
The foregoing description related to Seer*HPS versions 5.2.4S and higher
(for the workstation) and 5.2.3K and higher (for the host), which were released
in December 1995. The Company believes that if operated properly, applications
constructed with these versions in accordance with the product documentation
should not manifest Year 2000-related errors traceable to the Seer*HPS product.
The Company does not believe any of its customers are using earlier versions of
the software.
The Company cannot, however, eliminate the possibility of input errors,
where input is in the form of two-digit years. Among other potential errors, it
is possible to introduce incorrect dates into applications using the shortcut
mentioned above if the operator is inattentive to the feedback, or if the
operator or batch data inputs dates represented as two-digit years, without any
way for the operator to determine which century a given year falls in. The
Company has attempted to identify the possible errors by making documentation
available to its customers.
With respect to the Company's Seer*HPS development environment itself, the
Company is not aware of any Year 2000 issues except the following. The tools
store certain information with respect to objects created using the tools (such
as the dates the object was created or last modified) as two-digit dates.
Because of the way the tools use these dates, the Company does not believe this
will cause any Year 2000-related problems except in the limited instance of
migrations spanning the century boundary. The Company has made available to its
customers documentation calling their attention to this issue and a workaround.
Accordingly, the Company believes that it has fulfilled its obligations to
its customers with respect to Year 2000 functionality. However, the law in this
area is still evolving and lawsuits are being filed against software companies
on an ongoing basis, many of them asserting novel theories of damage and
liability. Accordingly, no assurance can be given that claims will not be made
against the Company relating to date-processing issues or that the effect of
such claims on the Company will not be material.
Internal Infrastructure. The Company is currently identifying
substantially all of the major computers, software applications, and related
equipment used in connection with its internal operations that must be modified,
upgraded, or replaced to minimize the possibility of a material disruption to
its business and has commenced the process of modifying, upgrading, and
replacing major systems that have been identified as adversely affected, and
expects to complete this process by the middle of 1999.
Systems Other Than Information Technology Systems. In addition to
computers and related systems, the operation of office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems,
elevators, and other common devices may be affected by the Year 2000 Problem.
The Company is currently assessing the potential effect of, and costs of
remediating, the Year 2000 Problem on its office and facilities equipment.
The Company's assessment of its internal systems is approximately 85%
complete. Based on its current assessment, the Company does not believe the
total cost to the Company of completing any required modifications, upgrades, or
replacements of these internal systems will have a material adverse effect on
the Company's financial condition, cash flows, or results of operations.
Suppliers. The Company has reviewed information from third party suppliers
of the major computers, software, and other equipment used, operated, or
maintained by the Company to identify and, to the extent possible, to resolve
issues involving the Year 2000 Problem. However, the Company has limited or no
control over the actions of these third party suppliers. Thus, there can be no
assurance that these suppliers will resolve any or all Year 2000 Problems with
these systems before the occurrence of a material disruption to the business of
the Company or any of its customers. Any failure of these third parties to
resolve Year 2000 problems with their systems in a timely manner could have a
material adverse effect on the Company's business, financial condition, and
results of operation.
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Most Likely Consequences of Year 2000 Problems. The Company does not
believe that the Year 2000 Problem will have a material adverse effect on the
Company's business or results of operations. However, management believes that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting the Company have been identified or corrected. The number of
devices that could be affected and the interactions among these devices are
simply too numerous. In addition, one cannot accurately predict how many Year
2000 Problem-related failures will occur or the severity, duration, or financial
consequences of these perhaps inevitable failures. As a result, management
expects that the Company could suffer the following consequences:
1. a significant number of operational inconveniences and inefficiencies for
the Company and its clients that may divert management's time and attention and
financial and human resources from its ordinary business activities; and
2. a lesser number of serious system failures that may require significant
efforts by the Company or its clients to prevent or alleviate material business
disruptions.
Contingency Plans. The Company is currently developing contingency plans
to be implemented as part of its efforts to identify and correct Year 2000
Problems affecting its internal systems. The Company expects to complete its
contingency plans by the middle of 1999. Depending on the systems affected,
these plans could include accelerated replacement of affected equipment or
software, short to medium-term use of backup equipment and software, increased
work hours for Company personnel or use of contract personnel to correct on an
accelerated schedule any Year 2000 Problems that arise or to provide manual
workarounds for information systems, and similar approaches. If the Company is
required to implement any of these contingency plans, it could have a material
adverse effect on the Company's financial condition and results of operations.
Disclaimer. The discussion of the Company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely impacted by, among
other things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review.
EURO CONVERSION
Several European countries adopted a Single European Currency (the "Euro")
as of January 1, 1999 with a transition period continuing through January 1,
2002. The Company is reviewing the anticipated impact the Euro may have on its
internal systems and on its competitive environment. The Company believes its
internal systems will be Euro capable without material modification cost.
Further, the Company does not presently expect the introduction of the Euro
currency to have an adverse material impact on the Company's financial
condition, cash flows, or results of operations.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This report contains forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities, the pending
transaction with Seer, liquidity and capital resources, Year 2000 issues and
similar matters within the meaning of the Private Securities Reform Act of 1995
("Reform Act"). The Company may also make forward looking statements in other
reports filed with the Securities and Exchange Commission, in materials
delivered to shareholders, in press releases and in other public statements. In
addition, the Company's representatives may from time to time make oral forward
looking statements. Forward looking statements provide current expectations of
future events based on certain assumptions and include any statement that does
not directly relate to any historical or current fact. Words such as
"anticipates," "believes," "expects," "estimates," "intends," "plans,"
"projects," and similar expressions, may identify such forward looking
statements. In accordance with the Reform Act, set forth below are cautionary
statements that accompany those forward looking statements. Readers should
carefully review these cautionary statements as they identify certain important
factors that could cause actual results to differ materially from those in the
forward looking statements and from historical trends. The following cautionary
statements are not exclusive and are in addition to other factors discussed
elsewhere in the Company's filings with the Securities and Exchange Commission
and in materials incorporated therein by reference: the Company's future success
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depends on the market acceptance of the new Geneva Integration Server; an
unexpected revenue shortfall may adversely affect the Company's business because
its expenses are largely fixed; the Company's quarterly operating results may
vary significantly because the Company cannot accurately predict the amount and
timing of individual sales and this may adversely impact the Company's stock
price; trends in sales of the Company's products and general economic conditions
may affect investors' expectations regarding the Company's financial performance
and may adversely affect the Company's stock price; because a substantial amount
of the Company's revenues have historically been derived from Seer*HPS,
decreased demand for services relating to this product could adversely affect
the Company's business; the Company's future results may depend upon the
continued growth and business use of the Internet; the Company may lose market
share and be required to reduce prices as a result of competition from its
existing competitors, other vendors and information systems departments of
customers; the Company may not have the resources to successfully manage the
integration of Seer; the Company's future results may depend upon the successful
integration of acquisitions; the Company may not have the resources to
successfully manage additional growth; rapid technological change could render
the Company's products obsolete; if the Company's relationship with Microsoft
weakens, it could adversely affect the Company's business; the loss of any one
of the Company's major customers could adversely affect the Company's business;
the Company's business is subject to a number of risks associated with doing
business abroad including the effect of foreign currency exchange fluctuations
on the Company's results of operations; the Company's products may contain
undetected software errors, which could adversely affect its business; because
the Company's technology is complex, the Company may be exposed to liability
claims; year 2000 issues may cause problems with the Company's systems and
expose the Company to liability; the failure of the Company to meet product
delivery dates could adversely affect its business; the Company may be unable to
enforce or defend its ownership and use of proprietary technology; because the
Company is a technology company, its Common Stock may be subject to erratic
price fluctuations; and the Company may not have sufficient liquidity and
capital resources to meet changing business conditions. See the Company's Form
10-K filed on April 1, 1999 for a more detailed description of certain risks
presented by the Company's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------
Approximately 65% of the Company's first quarter 1999 revenues were
generated by sales outside the United States. The Company is exposed to
significant risks of foreign currency fluctuation primarily from receivables
denominated in foreign currency and are subject to transactions gains and
losses, which are recorded as a component in determining net income.
Additionally, the assets and liabilities of the Company's non-U. S. operations
are translated into U.S. dollars at exchange rates in effect as of the
applicable balance sheet dates, and revenue and expense accounts of these
operations are translated at average exchange rates during the month the
transactions occur. Unrealized translation gains and losses will be included as
an adjustment to shareholders' equity. Based upon the foregoing, the Company
intends to begin hedging transactions in an effort to reduce its exposure to
currency exchange rates. However, as a matter of procedure, the Company will not
invest in speculative financial instruments as a means of hedging against such
risk.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1997, Seer filed a lawsuit against Saadi Abbas and Cambridge
Business Solutions (UK) Limited ("CBS") alleging that Mr. Abbas and CBS had
injured Seer by interfering with Seer's ability to market and sublicense the
LightSpeed Financial Model. Seer obtained a preliminary injunction against Mr.
Abbas and CBS halting their actions. Mr. Abbas and CBS filed counterclaims
against Seer claiming wrongful dismissal of Abbas and breach of the license
agreement. Due to the erosion of the market for the LightSpeed Financial Model,
Seer voluntarily dismissed its claims against Mr. Abbas and CBS in the summer of
1998. Mr. Abbas and CBS are continuing to pursue their claims against Seer. At
the present point in the litigation, it is impossible to calculate the chances
of success in this litigation. However, the Company intends to continue to
vigorously defend against the counterclaim. The Company has made provisions for
its estimated costs to resolve this matter. Management does not believe at this
point in the litigation that any additional amounts required to ultimately
resolve this matter will have a material effect on the financial position, cash
flows, or results of operations of the Company.
From time to time, the Company is a party to routine litigation incidental
to its business. As of the date of this Report, the Company was not engaged in
any legal proceedings that are expected, individually or in the aggregate, to
have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.30 Amendment dated Mach 31,1999, to the Loan and Security Agreement among
Seer, the Company and Greyrock Capital, a division of NationsCredit Commercial
Corporation.
10.31 Amendment dated April 21, 1999, to the Loan Documents among Seer,
the Company and Greyrock Capital, a division of NationsCredit Commercial
Corporation.
10.32 Amendment dated April 21, 1999, to amend the Schedule to Loan and
Security Agreement among Seer, the Company and Greyrock Capital, a division of
NationsCredit Commercial Corporation.
10.33 Amendment dated April 29, 1999, to amend the Amendment to Schedule
Agreement between Seer, the Company, and Greyrock, a division of NationsCredit
Commercial Corporation.
(b) Reports on Form 8-K
On January 11, 1999, the Company filed a report on Form 8-K/A relating to the
dismissal of Grant Thornton LLP as the Company's certifying accountants.
On January 15, 1999, the Company filed a report on Form 8-K reporting the
acquisition of Seer Technologies, Inc.
On January 21, 1999, the Company filed a report on Form 8-K reporting the
appointment of PricewaterhouseCoopers as the Company's certifying accountants.
On March 16, 1999, the Company filed a Form 8-K/A including pro forma financial
information in connection with the acquisition of Seer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Level 8 Systems, Inc.
Date: May 13, 1999
/s/ Steven Dmiszewicki
Steven Dmiszewicki
Chief Operating Officer
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EXHIBIT 10.30
LOAN AND SECURITY AGREEMENT
BORROWERS: SEER TECHNOLOGIES, INC. ("SEER")
LEVEL 8 SYSTEMS, INC. ("LEVEL 8")
ADDRESS: 8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
DATE: MARCH 31, 1999
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of NationsCredit Commercial Corporation
("Greyrock"), whose address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA
90024 and the borrowers named above (jointly and severally, the "Borrower"),
whose chief executive office is located at the above address ("Borrower's
Address"). The Schedule to this Agreement (the "Schedule") being signed
concurrently is an integral part of this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 8 below.) *
*AS TO SEER, THIS AGREEMENT AMENDS AND RESTATES IN ITS ENTIRETY THE LOAN AND
SECURITY AGREEMENT BETWEEN SEER AND GREYROCK DATED MARCH 26, 1997. ALL OTHER
SECURITY AGREEMENTS AND OTHER DOCUMENTS AND AGREEMENTS BETWEEN SEER AND GREYROCK
CONTINUE IN FULL FORCE AND EFFECT.
<PAGE>
-40-
-5-
1. LOANS.
1.1 LOANS. Greyrock will make loans to Borrower (the "Loans"), in amounts
determined by Greyrock in its * dis-cretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing. If at any time or for any reason the total of all
outstanding Loans and all other Obligations ex-ceeds the Credit Limit, Borrower
shall immediately pay the amount of the excess to Greyrock, with-out notice or
demand.
* REASONABLE BUSINESS
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement or in another written agreement signed by Greyrock
and Borrower. Interest shall be payable monthly, on the last day of the month.
Interest may, in Greyrock's discre-tion, be charged to Borrower's loan account,
and the same shall thereafter bear interest at the same rate as the other Loans.
1.3 FEES. Borrower shall pay Greyrock the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Greyrock and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and per-formance of all of
the Obligations when due, Borrower hereby grants to Greyrock a security interest
in all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, all money, all collateral in which Greyrock
is granted a security interest pursuant to any other present or future
agreement, all property now or at any time in the future in Greyrock's
pos-session, and all pro-ceeds (including proceeds of any insurance policies,
pro-ceeds of proceeds and claims against third parties), all products of the
foregoing, and all books and records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Greyrock to enter into this Agreement and to make Loans,
Borrower represents and warrants to Greyrock as follows, and Borrower covenants
that the fol-lowing representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will con-tinue
to be qualified and licensed to do business in all ju-risdictions in which any
failure to do so would have a ma-terial adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
en-forcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instru-ment which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instru-ment which is binding upon Borrower or
its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Greyrock 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The ad-dress set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Greyrock at least 30 days prior
written notice before opening any additional place of business, changing its
chief execu-tive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule*.
*, WHICH WRITTEN NOTICE SHALL BE DEEMED AUTOMATICALLY TO AMEND THE SCHEDULE
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Greyrock now has,
and will continue to have, a first-priority perfected and enforceable security
in-terest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Greyrock and the Collateral against all claims
of others. So long as any Loan is outstanding which is a term loan, none of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or im-pair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Greyrock, use its best efforts to cause such third party to
exe-cute and deliver to Greyrock, in form acceptable to Greyrock, such waivers
and subordinations as Greyrock shall specify, so as to ensure that Greyrock's
rights in the Collateral are, and will continue to be, superior to the rights of
any such third party. Borrower will keep in full force and effect, and will
comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the * Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the * Collateral for any unlawful purpose. Borrower will immediately ** advise
Greyrock in writing of any material loss or damage to the * Collateral.
* EQUIPMENT
** PROMPTLY
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's
Address complete and accurate books and records, comprising an accounting system
in ac-cordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Greyrock have been, and will be, prepared in
conformity with generally accepted accounting principles * and now and in the
future will completely and fairly reflect the fi-nancial condition of Borrower,
at the times and for the pe-riods therein stated**. Between the last date
covered by any such statement provided to Greyrock and the date hereof, there
has been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.
* (GAAP)
**, EXCEPT THAT UNAUDITED FINANCIAL STATEMENTS MAY NOT CONTAIN ALL THE NOTES
REQUIRED BY GAAP AND ARE SUBJECT TO NORMAL YEAR-END ADJUSTMENTS
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
as-sessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer pay-ment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently insti-tuted and conducted, (ii)
notifies Greyrock in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any
of Borrower's prior tax years which could result in * additional taxes becoming
due and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all pre-sent and future pension, profit sharing and
deferred com-pensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, in-cluding any
liability to the Pension Benefit Guaranty Corporation or any other governmental
agency. Borrower shall, at all times, utilize the services of an outside
payroll service providing for the automatic de-posit of all payroll taxes
payable by Borrower.
* ANY MATERIAL AMOUNT OF
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal prop-erty, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investiga-tion pending or (to best of Borrower's
knowledge) threat-ened by or against or affecting Borrower in any court or
before any governmental agency (or any basis therefor known to Borrower) which
may result, either separately or in the aggregate, in any material adverse
change in the fi-nancial condition or business of Borrower, or in any mate-rial
impairment in the ability of Borrower to carry on its business in substantially
the same manner as it is now be-ing conducted. Borrower will promptly inform
Greyrock in writing of any claim, proceeding, litigation or investigation in the
future threatened or instituted by or against Borrower involving any single
claim of $50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Greyrock as follows: Each Receivable with respect to which Loans
are requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed, bona fide, existing, un-conditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, in the ordinary course of Borrower's business*.
*, EXCEPT FOR RECEIVABLES WITH RESPECT TO MAINTENANCE, SERVICES AND CUSTOM
DEVELOPMENT WORK, FOR WHICH BORROWER CUSTOMARILY BILLS IN ADVANCE, AS TO WHICH
RECEIVABLES BORROWER REPRESENTS AND WARRANTS TO GREYROCK THAT SUCH RECEIVABLES
ARE THE UNDISPUTED, BONA FIDE, EXISTING OBLIGATIONS OF THE ACCOUNT DEBTORS AND
BORROWER HAS NO REASON TO BELIEVE SUCH RECEIVABLES WILL NOT BE COLLECTED.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Greyrock as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and cor-rect and all such
invoices, instruments and other docu-ments and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all * signatories and endorsers ** have the capacity to contract. All sales
and other transactions underlying or giving rise to each Receivable shall comply
with all applicable laws and governmental rules and regulations. All *
signatures and endorsements *** on all documents, instru-ments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accor-dance
with their terms.
* BORROWER
** AND, TO BORROWER'S KNOWLEDGE, ALL OTHER SIGNATORIES AND ENDORSERS
*** AND, TO BORROWER'S KNOWLEDGE, ALL OTHER SIGNATURES AND ENDORSEMENTS
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to
Greyrock transaction reports and loan requests, schedules and assignments of all
Receivables, and schedules of collections, all on Greyrock's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Greyrock's security interest and other rights in all of
Borrower's Receivables, nor shall Greyrock's failure to ad-vance or lend against
a specific Receivable affect or limit Greyrock's security interest and other
rights therein.* by Greyrock, Borrower shall furnish Greyrock with copies (or,
at Greyrock's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the fore-going. Borrower shall also furnish to Greyrock
an aged ac-counts receivable trial balance in such form and at such intervals as
Greyrock shall request. In addition, Borrower shall deliver to Greyrock the
originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
indorsements.
* UPON REASONABLE REQUEST
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred. Borrower shall
hold all payments on, and proceeds of, Receivables in trust for Greyrock, and
Borrower shall deliver all such payments and proceeds to Greyrock, within one
business day after receipt of the same, in their original form, duly endorsed,
to be applied to the Obligations in such order as Greyrock shall determine.
4.5 DISPUTES. Borrower shall notify Greyrock promptly of all disputes or
claims relating to Receivables on the regular reports to Greyrock. Borrower
shall not forgive, or settle any Receivable for less than payment in full, or
agree to do any of the foregoing, except that Borrower may do so, provided that:
(i) Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
re-ported to Greyrock on the regular reports provided to Greyrock; (ii) no Event
of Default has occurred and is con-tinuing; and (iii) taking into account all
such set-tlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has oc-curred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Greyrock). In the event any attempted return oc-curs
after the occurrence of any Event of Default*, Borrower shall (i) not accept any
return without Greyrock's prior written consent, ** (ii) hold the returned
Inventory in trust for Greyrock.
* THAT IS CONTINUING
** AND
4.7 VERIFICATION. Greyrock may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Greyrock or such other name as Greyrock may choose, and Greyrock or
its designee may, at any time, notify Account Debtors that it has a security
interest in the Receivables.
4.8 NO LIABILITY. Greyrock shall not under any circum-stances be responsible
or liable for any shortage or dis-crepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring * in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Greyrock be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Greyrock from liability for
its own gross negligence or willful misconduct.
* IN GOOD FAITH
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably accept-able to Greyrock, in such form and amounts as
Greyrock may reasonably require, and Borrower shall provide evidence of such
insurance to Greyrock, so that Greyrock is satisfied that such insurance is, at
all times, in full force and effect. All such insurance policies shall name
Greyrock as an additional loss payee, and shall contain a lenders loss payee
en-dorsement in form reasonably acceptable to Greyrock. Upon receipt of the
proceeds of any such insurance, Greyrock shall apply such proceeds in reduction
of the Obligations as Greyrock shall determine in its sole discretion, except
that, provided no Default or Event of Default has occurred and is continuing,
Greyrock shall release to Borrower insurance proceeds which shall be utilized
by Borrower for the re-placement of the Equipment with respect to which the
in-surance proceeds were paid. Greyrock may require reason-able assurance that
the insurance proceeds so released will be so used. If Borrower fails to
provide or pay for any in-surance, Greyrock may, but is not obligated to, obtain
the same at Borrower's expense. Borrower shall promptly de-liver to Greyrock
copies of all reports made to insurance companies.
5.2 REPORTS. Borrower, at its expense, shall provide Greyrock with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Greyrock shall from time to time reasonably
specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At rea-sonable times, and on one
business day's notice, Greyrock, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Greyrock shall take reasonable steps to keep confi-dential all information
obtained in any such inspection or audit, but Greyrock shall have the right to
disclose any such information * to its auditors, regulatory agencies, and
attor-neys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $600 per person per day (or such higher amount as shall repre-sent
Greyrock's then current standard charge for the same), plus reasonable
out-of-pockets expenses. Borrower shall not be charged more than $3,000 per
audit (plus reasonable out-of-pockets expenses), nor shall audits be done more
frequently than four times per calendar year, provided that the foregoing limits
shall not apply after the occurrence of ** Event of Default, nor shall they
restrict Greyrock's right to conduct audits at its own expense (whether or not
** Event of Default has occurred). Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address, without first
obtaining Greyrock's written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give Greyrock
the same rights with respect to access to books and records and related rights
as Greyrock has under this Agreement.
* IN CONFIDENCE
** AN
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to
Greyrock in the original form in which re-ceived by Borrower not later than the
following business day after receipt by Borrower, to be applied to the
Obligations in such order as Greyrock shall determine; pro-vided that, if no
Default or Event of Default has occurred and is continuing, and if no term loan
is outstanding hereunder, then Borrower shall not be obligated to remit to
Greyrock the pro-ceeds of the sale of Equipment * which is sold in the ordinary
course of business, in a good-faith arm's length transaction. Except for the
proceeds of the sale of Equipment * as set forth above, Borrower shall not
commingle proceeds of Collateral with any of Borrower's other funds or property,
and shall hold such proceeds separate and apart from such other funds and
property and in an express trust for Greyrock. Nothing in this Section limits
the restrictions on disposi-tion of Collateral set forth elsewhere in this
Agreement.
* COLLATERAL
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower
shall not, without Greyrock's prior written consent *, do any of the following:
(i) merge or con-solidate with another corporation or entity **; (ii) acquire
any assets, except in the ordinary course of business; (iii) enter into any
other *** transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except that, provided no Event of Default has occurred
and is continuing, Borrower may (a) sell finished Inventory in the ordinary
course of Borrower's business, and (b)sell Equipment in the ordinary course of
business, in good-faith arm's length transactions; (v) store any Inventory or
other Collateral with any ware-houseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other
con-tingent basis; (vii) make any loans of any money or other assets****; (viii)
incur any debts, outside the ordinary course of business, which would have a
material, adverse effect on Borrower or on the prospect of repayment of the
Obligations; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on
Borrower's stock (except for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower's stock*****; (xii) make any change in Borrower's capital structure
which would have a material adverse effect on Borrower or on the prospect of
repayment of the Obligations; or (xiii) dissolve or elect to dissolve; or (xiv)
agree to do any of the foregoing.
* NOT TO BE UNREASONABLY WITHHELD
** (EXCEPT FOR A SUBSIDIARY OF BORROWER)
*** MATERIAL
**** OTHER THAN ADVANCES TO EMPLOYEES IN THE ORDINARY COURSE OF BUSINESS NOT TO
EXCEED, IN THE AGGREGATE TOTAL, $250,000
*****, EXCEPT FOR ORDINARY COURSE REPURCHASES FROM EMPLOYEES UPON TERMINATION OF
EMPLOYMENTS IN AN AMOUNT NOT TO EXCEED, IN THE AGGREGATE TOTAL, $1,000,000 PER
CALENDAR YEAR
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Greyrock with re-spect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Greyrock, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Greyrock may deem them
reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify Greyrock in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, and any material adverse change in the
business or financial affairs of Borrower.
5.8 FURTHER ASSURANCES. Borrower agrees, at its ex-pense, on request by
Greyrock, to execute all documents and take all actions, as Greyrock * may deem
neces-sary or useful in order to perfect and maintain Greyrock's perfected
security interest in the Collateral, and in order to fully consummate the
transactions contemplated by this Agreement.
* REASONABLY
5.9 INDEMNITY. Borrower hereby agrees to indemnify Greyrock and hold Greyrock
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
* attor-neys' fees), of every nature, character and description, which Greyrock
may sustain or incur based upon or arising out of any of the Obligations, any
actual or alleged failure to collect and pay over any withholding or other tax
relating to Borrower or its employees, any relationship or agreement between
Greyrock and Borrower, any actual or alleged failure of Greyrock to comply with
any writ of at-tachment or other legal process relating to Borrower or any of
its property, or any other matter, cause or thing whatsoever occurred, done,
omitted or suffered to be done by Greyrock ** relating to Borrower or the
Obligations (except any such amounts sus-tained or in-curred as the result of
the gross negligence or willful misconduct of Greyrock or any of its directors,
officers, employees, agents, attorneys, or any other person affiliated with or
represent-ing Greyrock). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
* REASONABLE
** IN GOOD FAITH
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be termi-nated prior to the Maturity
Date as follows: (i) by Borrower, effective three business days after written
notice of termination is given to Greyrock; or (ii) by Greyrock at any time
after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is termi-nated by Borrower or by Greyrock under
this Section 6.2, Borrower shall pay to Greyrock a termination fee (the
"Termination Fee") in the amount shown on the Schedule. The Termination Fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate appli-cable to any of
the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit is-sued based upon an application, guarantee, indemnity or similar
agreement on the part of Greyrock, then on such date Borrower shall provide to
Greyrock cash collateral in an amount equal to * of the face amount of all such
letters of credit plus all interest, fees and costs due or (in Greyrock's **
estimation) likely to become due in connection there-with, to secure all of the
Obligations relating to said letters of credit, pursuant to Greyrock's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Greyrock's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; pro-vided
that, without limiting the fact that Loans are subject to the discretion of
Greyrock, Greyrock may, in its sole discre-tion, refuse to make any further
Loans after termination. No termination shall in any way affect or impair any
right or remedy of Greyrock, nor shall any such termination re-lieve Borrower of
any Obligation to Greyrock, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the Obligations
and termination of this Agreement, Greyrock shall promptly de-liver to Borrower
termination statements, requests for re-conveyances and such other documents as
may be reasonably required to terminate Greyrock's security interests.
* 100%
** REASONABLE
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" un-der this Agreement, and Borrower shall
give Greyrock im-mediate written notice thereof: (a) Any warranty,
represen-tation, statement, report or certificate made or delivered to Greyrock
by Borrower or any of Borrower's officers, em-ployees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation; or (c) the total Loans and other Obligations outstanding at
any time shall exceed the Credit Limit ; or (d) Borrower shall fail to
perform any non-monetary Obligation which by its nature cannot be cured; or (e)
Borrower shall fail to per-form any other non-monetary Obligation, which failure
is not cured within 5* business days after the date performance is due; or (f)
any levy, assessment, attachment, seizure, lien or encum-brance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not cured
within ** days af-ter the occurrence of the same; or (g) any default or event of
default occurs under any obligation secured by a Permitted Lien, which is not
cured within any applicable cure period or waived in writing by the holder of
the Permitted Lien; or (h) dissolution, termina-tion of existence, ***
insolvency of Borrower or any Guarantor; or appointment of a receiver, trustee
or custo-dian, for all or any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding by Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
juris-diction, now or in the future in effect; or (j) the com-mencement of any
proceeding against Borrower or any Guarantor under any reorganiza-tion,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any juris-diction, now or in the future in effect,
which is not cured by the dismissal thereof within 45 days after the date
commenced; or (k) revocation or termination **** of, or ***** limita-tion or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing; or (l) revocation or termination **** of, or *****
limitation or denial of liability upon, any pledge of any certificate of
deposit, securities or other property or asset pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (m) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits or terminates its subordina-tion agreement or (n) ; or (o)
Borrower shall generally not pay its debts as they become due, or Borrower shall
conceal, remove or transfer any part of its property, with intent to hinder,
delay or defraud its creditors, or make or suffer any transfer of any of its
prop-erty which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or (p) there shall be a material adverse change in Borrower's
business or fi-nancial condition . Greyrock may cease making any Loans
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred.
AND SUCH EXCESS SHALL NOT BE REPAID BY BORROWER ON DEMAND BY GREYROCK
* 10
** 20 BUSINESS
*** OR
**** (WITHOUT GREYROCK'S CONSENT)
***** MATERIAL
, WHICH LIMITATION OR TERMINATION HAS A MATERIALLY ADVERSE EFFECT ON GREYROCK
LEVEL 8 SHALL OWN LESS THAN 70% OF THE ISSUED AND OUTSTANDING SHARES OF STOCK
OF SEER, OR THERE SHALL BE A CHANGE IN THE RECORD OR BENEFICIAL OWNERSHIP OF AN
AGGREGATE OF MORE THAN 40% OF THE OUTSTANDING SHARES OF STOCK OF LEVEL 8, IN ONE
OR MORE TRANSACTIONS, COMPARED TO THE OWNERSHIP OF OUTSTAND-ING SHARES OF ITS
STOCK IN EFFECT ON THE DATE HEREOF
; PROVIDED THAT NO OCCURRENCE OR CONDITION SHALL BE DEEMED TO BE A MATERIAL
ADVERSE CHANGE IN BORROWER'S BUSINESS OR FINANCIAL CONDITION HEREUNDER TO THE
EXTENT THAT SUCH OCCURRENCE OR CONDITION IS CONSISTENT IN ALL MATERIAL RESPECTS
WITH BORROWER'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE
12-MONTH PERIOD ENDED DECEMBER 31, 1996; OR (Q) THE FAILURE OF SEER TECHNOLOGIES
BENELUX B.V. OR SEER TECHNOLOGIES IRELAND LIMITED (COLLECTIVELY "SUBSIDIARIES")
TO EXECUTE AND DELIVER TO GREYROCK A CONTINUING GUARANTY OF ALL OBLIGATIONS OF
BORROWER TO GREYROCK, COLLATERALIZED BY A WRITTEN SECURITY INTEREST IN THOSE
ASSETS OF SUBSIDIARIES DESIGNATED BY GREYROCK AND ANY RELATED DOCUMENTS
REASONABLY REQUESTED BY GREYROCK ON OR BEFORE 10 DAYS AFTER THE DATE HEREOF (IF
NOT ALREADY COMPLETED).
AND SUCH EXCESS SHALL NOT BE REPAID BY BORROWER ON DEMAND BY GREYROCK
7.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, Greyrock, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower),
may do any one or more of the following*: (a) Cease making Loans or other-wise
extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and de-clare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any de-ferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take posses-sion of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Greyrock without
judicial process to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain on the premises or cause a custo-dian to remain on the premises in
exclusive control thereof, without charge for so long as Greyrock ** deems it
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should Greyrock seek
to take posses-sion of any of the Collateral by Court process, Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that Greyrock
retain possession of, and not dis-pose of, any such Collateral until after trial
or final judg-ment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to Greyrock at places desig-nated by Greyrock
which are reasonably convenient to Greyrock and Borrower, and to remove the
Collateral to such locations as Greyrock may deem advisable; (e) Complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Greyrock shall
have the right to use Borrower's premises, vehicles, hoists, lifts, cranes,
equip-ment and all other property without charge; (f) Sell, lease or otherwise
dispose of any of the Collateral, in its condi-tion at the time Greyrock obtains
possession of it or after further manufacturing, processing or repair, at one or
more public and/or private sales, in lots or in bulk, for cash, ex-change or
other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale.
Greyrock shall have the right to conduct such disposition on Borrower's premises
without charge, for such time or times as Greyrock deems reasonable, or on
Greyrock's premises, or elsewhere and the Collateral need not be located at the
place of dis-position. Greyrock may directly or through any affiliated company
purchase or lease any Collateral at any such pub-lic disposition, and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability Borrower
may have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (g) Demand payment of, and collect any
Receivables and General Intangibles comprising Collateral and, in connec-tion
therewith, Borrower irrevocably authorizes Greyrock to endorse or sign
Borrower's name on all collections, re-ceipts, instruments and other documents,
to take posses-sion of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Greyrock's sole dis-cretion, to grant extensions of time to pay,
compromise claims and settle Receivables, General Intangibles and the like for
less than face value; and (h) Demand and receive possession of any of Borrower's
federal and state income tax returns and the books and records utilized in the
preparation thereof or re-ferring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by Greyrock with respect
to the foregoing shall be added to and become part of the Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations. Without limiting any of Greyrock's
rights and remedies, *** of any Event of Default, the interest rate applicable
to the Obligations shall be increased by an additional four percent per annum.
*, SUBJECT, IN EACH CASE, TO COMPLIANCE WITH THE CODE
** REASONABLY
*** DURING THE CONTINUATION
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Greyrock
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclu-sively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Greyrock, with or without the Collateral
being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00
p.m; (v) Payment of the purchase price in cash or by cashier's check or wire
transfer is required; (vi) With respect to any sale of any of the Collateral,
Greyrock may (but is not obligated to) direct any prospective purchaser to
ascertain directly from Borrower any and all information concerning the same.
Greyrock shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any
Event of Default, without limiting Greyrock's other rights and remedies,
Borrower grants to Greyrock an irrevocable power of attorney coupled with an
interest, authorizing and permitting Greyrock (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Greyrock
agrees to exer-cise the following powers in a commercially reasonable manner:
(a) Execute on behalf of Borrower any docu-ments that Greyrock may, in its *
discretion, deem advis-able in order to perfect and maintain Greyrock's security
in-terest in the Collateral, or in order to exercise a right of Borrower or
Greyrock, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements; (b) Execute
on be-half of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Greyrock's Collateral or
in which Greyrock has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Receivable, any draft against any Account Debtor and
any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice
of Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
en-dorse the name of Borrower upon any instruments, or doc-uments, evidence of
payment or Collateral that may come into Greyrock's possession; (e) Endorse all
checks and other forms of remittances received by Greyrock; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both; (i) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or con-trol of any books
or records belonging to, or relating to, Borrower to give Greyrock the same
rights of access and other rights with respect thereto as Greyrock has under
this Agreement; and (k) Take any action or pay any sum re-quired of Borrower
pursuant to this Agreement and any other present or future agreements. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
lia-bilities, obligations and reasonable attorneys' fees incurred by Greyrock
with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Greyrock's rights under the foregoing power of attorney or any of
Greyrock's other rights under this Agreement be deemed to indicate that Greyrock
is in control of the busi-ness, management or properties of Borrower.
* REASONABLE
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by Greyrock first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Greyrock for any deficiency.
If Greyrock, in its sole discretion, directly or indirectly en-ters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discre-tion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Greyrock shall have all the other rights and remedies accorded a
secured party un-der the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Greyrock and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from sub-sequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and ef-fect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the fol-lowing terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
---------------
"Affiliate" means, with respect to any Person, a director, officer, or any
---------
parent or subsidiary of such Person, or any Person controlling, controlled by or
---
under common control with such Person.
"Agreement" and "this Agreement" means this Loan and Security Agreement and all
- ---------- --------------
modifications and amendments thereto, extensions thereof, and replacements
therefor.
"Business Day" means a day on which Greyrock is open for business.
-------------
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
----------
"Default" means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
-
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
----------------
"ELIGIBLE RECEIVABLES" MEANS RECEIVABLES ARISING IN THE ORDINARY COURSE OF
---------------------
BORROWER'S BUSINESS FROM THE SALE OF GOODS OR RENDITION OF SERVICES, WHICH
----
GREYROCK, IN ITS REASONABLE BUSINESS JUDGMENT, SHALL DEEM ELIGIBLE FOR
----
BORROWING, BASED ON SUCH CONSIDERATIONS AS GREYROCK MAY FROM TIME TO TIME DEEM
----
APPROPRIATE. WITHOUT LIMITING THE FACT THAT THE DETERMINA-TION OF WHICH
RECEIVABLES ARE ELIGIBLE FOR BORROWING IS A MATTER OF GREYROCK'S REASONABLE
BUSINESS DISCRETION, THE FOLLOWING (THE "MINIMUM ELIGIBILITY REQUIREMENTS") ARE
--------------------------------
THE MINIMUM REQUIREMENTS FOR A RECEIVABLE TO BE AN ELIGIBLE RECEIVABLE: (I)
THE RECEIVABLE MUST NOT BE OUTSTANDING FOR MORE THAN 90 DAYS FROM ITS DUE DATE,
(II) THE RECEIVABLE MUST NOT BE SUBJECT TO ANY CONTINGENCIES (INCLUDING
RECEIVABLES ARISING FROM SALES ON CONSIGNMENT, GUARANTEED SALE OR OTHER TERMS
PURSUANT TO WHICH PAYMENT BY THE ACCOUNT DEBTOR MAY BE CONDI-TIONAL) EXCEPT FOR
RECEIVABLES WITH RESPECT TO MAINTENANCE, SERVICES AND CUSTOM DEVELOPED WORK, FOR
WHICH BORROWER CUSTOMARILY BILLS IN ADVANCE, (III) THE RECEIVABLE MUST NOT BE
OWING FROM AN ACCOUNT DEBTOR WITH WHOM THE BORROWER HAS ANY DISPUTE (WHETHER OR
NOT RELATING TO THE PARTICULAR RECEIVABLE), (IV) THE RECEIVABLE MUST NOT BE
OWING FROM AN AFFILIATE OF BORROWER, (V) THE RECEIVABLE MUST NOT BE OWING FROM
AN ACCOUNT DEBTOR WHICH IS SUBJECT TO ANY INSOLVENCY OR BANKRUPTCY PROCEEDING,
OR WHOSE FINANCIAL CONDITION IS NOT ACCEPTABLE TO GREYROCK, OR WHICH, FAILS OR
GOES OUT OF A MATE-RIAL PORTION OF ITS BUSINESS, (VI) THE RECEIVABLE MUST NOT BE
OWING FROM AN ACCOUNT DEBTOR TO WHOM BORROWER IS OR MAY BE LIABLE FOR GOODS
PURCHASED FROM SUCH ACCOUNT DEBTOR OR OTHERWISE. IF MORE THAN 50% OF THE
RECEIVABLES OWING FROM AN ACCOUNT DEBTOR ARE OUTSTANDING MORE THAN 90 DAYS FROM
THEIR DUE DATE (WITHOUT REGARD TO UNAPPLIED CREDITS) OR ARE OTHERWISE NOT
ELIGIBLE RECEIVABLES, THEN ALL RECEIVABLES OWING FROM THAT ACCOUNT DEBTOR WILL
BE DEEMED INELIGIBLE FOR BORROWING. GREYROCK MAY, FROM TIME TO TIME, IN ITS
DISCRETION, REVISE THE MINIMUM ELIGIBILITY REQUIREMENTS, UPON WRITTEN NOTICE TO
THE BORROWER.
"Equipment" means all of Borrower's present and here-after acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
forego-ing, and all attachments, accessories, accessions, replace-ments,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 7.1 of this
------------------
Agreement.
---
"General Intangibles" means all general intangibles of Borrower, whether now
--------------------
owned or hereafter created or ac-quired by Borrower, including, without
--
limitation, all choses in action, causes of action, corporate or other busi-ness
--
records, Deposit Accounts, inventions, designs, draw-ings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or here-after pending for any cause or claim (whether
in contract, tort or otherwise), and all judgments now or hereafter aris-ing
therefrom, all claims of Borrower against Greyrock, rights to purchase or sell
real or personal property, rights as a li-censor or licensee of any kind,
royalties, telephone numbers, proprietary informa-tion, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnifica-tion and all other intangible property of
every kind and nature (other than Receivables).
"Guarantor" means any Person who has guaranteed any of the Obligations.
---------
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
---
any con-tract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in con-nection with the manufacture,
packing, shipping, advertis-ing, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, docu-ments of title and
other documents representing any of the foregoing.
"LIBOR Rate" means (i) the one-month London Interbank Offered Rate for deposits
-----------
in U.S. dollars, as shown each day in The Wall Street Journal (Eastern Edition)
under the caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or
(ii) if the Wall Street Journal does not publish such rate, the offered
one-month rate for deposits in U.S. dollars which appears on the Reuters Screen
LIBO Page as of 10:00 a.m., New York time, each day, provided that if at least
--------
two rates appear on the Reuters Screen LIBO Page on any day, the "LIBOR Rate"
for such day shall be the arithmetic mean of such rates; or (iii) if the Wall
Street Journal does not publish such rate on a particular day and no such rate
appears on the Reuters Screen LIBO Page on such day, the rate per annum at which
deposits in U.S. dollars are offered to the principal London office of The Chase
Manhattan Bank, in the London interbank market at approximately 11:00 A.M.,
London time, on such day in an amount approximately equal to the outstanding
principal amount of the Loans, for a period of one month, in each of the
foregoing cases as determined in good faith by Greyrock, which determination
shall be conclusive absent manifest error.
"Obligations" means all present and future Loans, ad-vances, debts, liabilities,
-----------
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Greyrock, whether evidenced by this Agreement or any note or other
instrument or document, whether aris-ing from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnifica-tion or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Greyrock in Borrower's debts
owing to oth-ers), absolute or contingent, due or to become due, includ-ing,
without limitation, all interest, charges, expenses, fees, attorney's fees,
expert witness fees, audit fees, letter of credit fees, loan fees, termination
fees, minimum interest charges and any other sums chargeable to Borrower under
this Agreement or under any other present or future instrument or agree-ment
between Borrower and Greyrock.
"Permitted Liens" means the following: (i) purchase money security interests in
---------------
* specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
which are subordinate to the security interest in favor of Greyrock and are
consented to in writing by Greyrock (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, ware-housemen,
carriers, or other similar liens arising in the or-dinary course of business and
securing obligations which are not delinquent; ** liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by liens
of the type described above in clauses (i) (ii) *** above, provided that any
extension, renewal or re-placement lien is limited to the property encumbered by
the existing lien and the principal amount of the indebted-ness being extended,
renewed or refinanced does not in-crease; **** Liens in favor of customs and
revenue author-ities which secure payment of customs duties in connec-tion with
the importation of goods. Greyrock will have the right to require, as a
condition to its consent under sub-paragraph (iv) above, that the holder of the
additional se-curity interest or lien sign an intercreditor agreement on
Greyrock's then standard form, acknowledge that the secu-rity interest is
subordinate to the security interest in favor of Greyrock, and agree not to take
any action to enforce its subordinate security interest so long as any
Obligations remain outstanding, and that Borrower agree that any un-cured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.
* INVENTORY AND
** (VII) LIENS INCURRED AGAINST DEPOSITS MADE IN THE ORDINARY COURSE OF BUSINESS
IN CONNECTION WITH WORKER'S COMPENSATION, UNEMPLOYMENT INSURANCE AND SOCIAL
SECURITY BENEFITS;
(VIII) LIENS AGAINST CASH SECURING THE PERFORMANCE OF BIDS, TENDERS, STATUTORY
OBLIGATIONS, SURETY AND OTHER OBLIGATIONS OF A LIKE NATURE INCURRED IN THE
ORDINARY COURSE OF BUSINESS;
(IX) LIENS UPON ANY REAL PROPERTY ACQUIRED OR IMPROVED BY BORROWER OR AN
AFFILIATE THEREOF THAT ARE INCURRED WITHIN SIX (6) MONTHS AFTER SUCH ACQUISITION
OR IMPROVEMENT TO SECURE OR PROVIDE FOR THE PAYMENT OF ANY PART OF THE PURCHASE
PRICE OF SUCH REAL PROPERTY OR THE COST OF SUCH IMPROVEMENT;
(X) LIENS IN FAVOR OF GREYROCK;
(XI)
*** (IV) OR (IX)
**** (XII)
"Person" means any individual, sole proprietorship, partnership, joint venture,
------
trust, unincorporated organiza-tion, association, corporation, government, or
any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired accounts
-----------
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, in-struments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
Other Terms. All accounting terms used in this Agreement, unless otherwise
- ------------
indicated, shall have the meanings given to such terms in accordance with
- ----
generally accepted accounting principles, consistently applied. All other terms
- ----
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Greyrock
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Greyrock on account of the Obligations three Business Days
after receipt by Greyrock of immediately available funds. Greyrock shall not,
however, be required to credit Borrower's account for the amount of any item of
payment which is unsatisfactory to Greyrock in its * discretion, and Greyrock
may charge Borrower's Loan account for the amount of any item of payment which
is returned to Greyrock unpaid.
* REASONABLE
9.2 APPLICATION OF PAYMENTS. All payments with re-spect to the Obligations may
be applied, and in Greyrock's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Greyrock shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNT. Greyrock may, in its discretion, require that Borrower
pay monetary Obligations in cash * to Greyrock, or charge them to Borrower's
Loan account, in which event they will bear interest at the same rate
appli-cable to the Loans.
* IMMEDIATELY AVAILABLE FUNDS
9.4 MONTHLY ACCOUNTINGS. Greyrock shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be * correct, accurate and bind-ing on Borrower
and an account stated (except for reverses and reapplications of payments made
and corrections of er-rors discovered by Greyrock), unless Borrower notifies
Greyrock in writing to the contrary within sixty days after each account is
rendered, describing the nature of any al-leged errors or admissions.
* REBUTTABLY PRESUMED
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt re-quested,
addressed to Greyrock or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All no-tices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expira-tion of one business
day following delivery to the private delivery service, or two business days
following the de-posit thereof in the United States mail, with postage pre-paid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be exe-cuted in connection herewith are the final, entire
and com-plete agreement between Borrower and Greyrock and super-sede all prior
and contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
--------------------
under-standings, representations or agreements between the par-ties which are
----------------------------------------------------------------------
not set forth in this Agreement or in other written agreements signed by the
------------------------------------------------------------------------------
parties in connection herewith.
--------------------------------
9.8 WAIVERS. The failure of Greyrock at any time or times to require Borrower
to strictly comply with any of the pro-visions of this Agreement or any other
present or future agreement between Borrower and Greyrock shall not waive or
diminish any right of Greyrock later to demand and re-ceive strict compliance
therewith. Any waiver of any de-fault shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Greyrock shall be deemed to have been
waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of de-fault or dishonor, notice of payment and nonpayment, re-lease,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Greyrock on which Borrower is or may in any way be liable, and notice of any
action taken by Greyrock, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by Borrower and a duly authorized offi-cer
of Greyrock.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Borrower shall reim-burse Greyrock for all
reasonable attorneys' fees and all fil-ing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Greyrock, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Greyrock incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; en-force, or seek to enforce, any of
its rights; prosecute ac-tions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceed-ing; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim;
exam-ine, audit, copy, and inspect any of the Collateral or any of Borrower's
books and records; protect, obtain possession of, lease, dispose of, or
otherwise enforce Greyrock's secu-rity interest in, the Collateral; and
otherwise represent Greyrock in any litigation relating to Borrower. If either
Greyrock or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reason-able costs and attorneys' fees, including (but not limited
to) reasonable attorneys' fees and costs incurred in the en-forcement of,
execution upon or defense of any order, de-cree, award or judgment. All
attorneys' fees and costs to which Greyrock may be entitled pursuant to this
Paragraph shall immediately become part of Borrower's Obligations, shall be due
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Greyrock; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Greyrock, and any prohibited assignment
shall be void. No consent by Greyrock to any assignment shall re-lease Borrower
from its liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the re-lease of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Greyrock, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Greyrock,
its directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Greyrock, or on any other person
authorized to accept service on behalf of Greyrock, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Greyrock in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Greyrock acknowledge that the
headings may not describe completely the subject matter of the applica-ble
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", when-ever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Borrower under any
rule of construction or otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Greyrock and Borrower
shall be governed by the laws of the State of California. As a ma-terial part
of the consideration to Greyrock * to enter into this Agreement, Borrower (i)
agrees that all actions and pro-ceedings relating directly or indirectly to this
Agreement shall, at Greyrock's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal de-livery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
* THE PARTIES
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GREYROCK EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FU-TURE
INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GREYROCK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
In witness whereof, the parties hereto have executed and delivered this
Agreement under seal the date first above written.
BORROWER:
SEER TECHNOLOGIES, INC.
BY /s/Steven Dmiszewicki
------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/Dennis McKinnie
-------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER:
LEVEL 8 SYSTEMS, INC.
BY /s/Steven Dmiszewicki
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/Dennis McKinnie
-------------------------------
SECRETARY OR ASS'T SECRETARY
GREYROCK:
GREYROCK CAPITAL,
A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
BY /S/ LISA NAGANO
--------------------------
TITLE SENIOR VICE PRESIDENT
-----------------------
<PAGE>
-8-
-9-
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: SEER TECHNOLOGIES, INC.
LEVEL 8 SYSTEMS, INC.
ADDRESS: 8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
DATE: MARCH 31, 1999
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK CAPITAL, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
("Greyrock") and the above-borrower ("Borrower") of even date.
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: $25,000,000 (the
"Dollar Limit") at any one time outstanding; or the sum of the following
subparagraphs (a), (b) and (c):
(a) Receivable Loans. Loans ("Receivable Loans") up to the sum of
------------------
the following percentages of Borrower's Eligible Receivables (as defined in
Section 8 above):
(i) 80% of the amount of eligible U.S. accounts; plus
----
(ii) the lesser of 80% of Unbilled Receivables (as defined below) or
$7,000,000; plus
----
(iii) the lesser of 80% of the amount of eligible Australian Receivables or
$2,000,000; plus
----
(iv) 80% of the amount of eligible Irish Receivables; plus
----
(V) 80% of the amount of eligible Netherlands Receivables.
As used herein "Unbilled Receivables" shall mean Receivables with respect to
which the invoice and other necessary billing documentation have not been
submitted to the applicable Account Debtor in connection with a completed (or
contracted) sale of goods, rendition of services or licensing of software but
which otherwise qualify as Eligible Receivables for purposes of the Loan
Agreement.
Receivable Loans will be made separately to each Borrower based on the
Receivables of each Borrower. Loans with respect, but subject to the dollar
limits set forth above, which shall apply to the total Receivable Loans to all
Borrowers.
(b) Term Loan. A Loan (the "Term Loan") in the original principal
-----------
amount of $7,000,000, which shall be made concurrently herewith to Seer.
(c) Equipment Loan. A Loan (the "Equipment Loan") in the original
----------------
principal amount of $2,500,000, which shall be made concurrently herewith to
Seer.
(d) Foreign Accounts. Notwithstanding the foregoing, Loans will not be made with
-----------------
respect to Australian, Irish or Netherlands Receivables unless and until the
following conditions are satisfied:
(i) Borrower or one of its subsidiaries has good title to the Receivables, free
and clear of all liens, security interests and encumbrances (other than in favor
of Greyrock);
(ii) if the Receivables are owned by a subsidiary of Borrower, such subsidiary
shall execute and deliver to Greyrock a continuing guaranty in form and
substance satisfactory to Greyrock with respect to all of the Obligations and a
security agreement or other documentation specified by Greyrock, granting to
Greyrock a first priority perfected security interest in all of such Receivables
and all such subsidiary's other assets, and Greyrock shall receive such
opinions, certificates and other documents in connection therewith as it shall
specify; and
(iii) if the Receivables are owned by Borrower, Borrower shall execute and
deliver to Greyrock a security agreement or other supplemental or additional
documentation specified by Greyrock, confirming the grant to Greyrock a first
priority perfected security interest in all of such Receivables and Greyrock
shall receive such opinions, certificates and other documents in connection
therewith as it shall specify.
Borrower shall cause all of the foregoing documents and agreements and security
interests to continue in full force and effect throughout the term of this
Agreement.
(e) Term Loan and Equipment Loan-Repayment Terms
-------------------------------------------------
(1) The Term Loan shall be disbursed concurrently herewith and shall be repaid
in 24 equal monthly installments of $291,667 each, commencing on JANUARY 1, 2000
and continuing on the same day of each month thereafter until paid in full;
provided that as provided in Section 6.3 above the entire unpaid principal
balance of the Term Loan and all other Obligations shall be due an payable on
termination of this Agreement.
(2) The Equipment Loan shall be disbursed concurrently herewith and shall be
repaid in 30 equal monthly installments of $83,333 each, commencing on APRIL 1,
1999 and continuing on the same day of each month thereafter until paid in full;
provided that as provided in Section 6.3 above the entire unpaid principal
balance of the Equipment Loan and all other Obligations shall be due an payable
on termination of this Agreement.
(3) Accrued interest on the Term Loan and the Equipment Loan shall be paid
monthly on the last day of each month as provided in Section 1.2 above and
Section 2 below.
(4) The Term Loan and Equipment Loan after being repaid in whole or in part may
not be reborrowed.
LETTER OF CREDIT SUBLIMIT Greyrock, in its reasonable business
discretion, will from time to time during the term of this Agreement issue
letters of credit for the account of the Borrower ("Letters of Credit"), in
accordance with a Letter of Credit Agreement of even date, in an aggregate
amount at any one time outstanding not to exceed $500,000, upon the request of
the Borrower, provided that, on the date the Letters of Credit are to be issued,
Borrower has available to it Loans in an amount equal to or greater than the
face amount of the Letters of Credit to be issued, and provided that no further
LCs will be issued after SEPTEMBER 30, 1999. Fees for the Letters of Credit
shall be as provided in said Letter of Credit Agreement.
The Credit Limit set forth above and the Loans available under this Agreement at
any time shall be reduced by the face amount of Letters of Credit from time to
time outstanding.
2. INTEREST.
INTEREST RATE (Section 1.2):
The interest rate in effect throughout each calendar month during the term of
this Agreement shall be the following, which shall be applicable to all Loans
(including without limitation the Receivable Loans, the Term Loan and the
Equipment Loan) and all other Obligations:
Period Interest Rate
- ------ --------------
Date hereof through June 30, 1999 Prime Rate
July 1, 1999 through June 30, 2000 Prime Rate plus 1% per annum
July 1, 2000 and thereafter Prime Rate plus 2% per annum
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and the interest to be
charged for each month shall be based on the highest "Prime Rate" in effect
during said month.
"Prime Rate" shall mean the actual "Reference Rate' or the substitute therefor
of the Bank of America NT & SA (or its successor) whether or not that rate is
the lowest interest rate charged by said bank. If the Prime Rate, as defined,
is unavailable, "Prime Rate" shall mean the highest of the prime rates published
in the Wall Street Journal on the first business day of the month, as the base
rate on corporate loans at large U.S. money center commercial banks."
3. FEES (Section 1.3/Section 6.2):
Loan Fee: NOT APPLICABLE
Termination Fee: NOT APPLICABLE
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
4. MATURITY DATE
(Section 6.1): DECEMBER 31, 1999, subject to automatic renewal as
provided in Section 6.1 above, and early termination as provided in Section 6.2
above.
5. REPORTING.
(Section 5.2):
Borrower shall provide Greyrock with the following:
1. Annual financial statements, as soon as available, and in any event
within 90 days following the end of Borrower's fiscal year, certified by
independent certified public accountants acceptable to Greyrock.
2. Quarterly unaudited financial statements, as soon as available, and in
any event within 45 days after the end of each fiscal quarter of Borrower.
3. Monthly unaudited financial statements, as soon as available, and in any
event within 30 days after the end of each month.
4. Monthly Receivable agings, aged by invoice date, within 10 Business Days
after the end of each month which is not a fiscal quarter end and 15 Business
Days after the end of each month which is a fiscal quarter end.
5. Monthly accounts payable agings, aged by invoice date, and outstanding or
held check registers within 10 Business Days after the end of each month which
is not a fiscal quarter end and 15 Business Days after the end of each month
which is a fiscal quarter end.
<PAGE>
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit A hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
7. OTHER COVENANTS:
Borrower shall at all times comply with all of the following
additional covenants:
(1) SEER COPYRIGHT FILINGS. Seer has previously executed and delivered to
Greyrock a Security Agreement in Copyrighted Works (the "Seer Copyright
Agreement"), which shall continue in full force and effect. Borrower represents
and warrants to Greyrock that the Seer Copyright Agreement covers all of Seer's
computer software, the licensing of which results in Receivables and that all
such software has been registered with the United States Copyright Office.
Without limiting the generality of the foregoing, Borrower represents and
warrants that all of the software listed on Exhibit B to the Seer Copyright
Agreement is included in the software listed on Exhibit A to the Seer Copyright
Agreement, which is registered with the United States Copyright Office.
(2) LEVEL 8 COPYRIGHT FILINGS. Concurrently, Level 8 is executing and
delivering to Greyrock a Security Agreement in Copyrighted Works (the "Level 8
Copyright Agreement"). Within 45 days after the date hereof, Borrower shall (i)
cause all of Level 8's computer software, the licensing of which results in
Receivables, to be filed for registration with the United States Copyright
Office, (ii) complete the Exhibits to the Level 8 Copyright Agreement with all
of the information called for with respect to such software, (iii) cause the
Level 8 Copyright Agreement to be filed for recordation in the United States
Copyright Office, and (iv) provide evidence of such recordation to Greyrock.
(3) EQUITY. On or before MAY 31, 1999, Borrower shall raise not less than
$10,000,000 cash proceeds of the issuance by Borrower of equity or subordinated
debt securities, and on or before said date, Borrower shall provide Greyrock
with written evidence of the same satisfactory to Greyrock in its discretion.
Without limiting any of the other terms of this Agreement, a breach of this
Section 7(3) shall constitute an Event of Default under this Agreement.
(4) GUARANTIES. Concurrently each Borrower shall execute an unlimited
Cross-Corporate Continuing Guaranty with respect to the other Borrower, and
Borrower shall cause the same to continue in full force and effect throughout
the term of this Agreement. Borrower represents and warrants that (i) each of
its subsidiaries is listed on Exhibit B hereto, (ii) the subsidiaries shown
thereon as foreign subsidiaries (other than the subsidiaries incorporated in
Ireland, Australia and the Netherlands) are and shall at all times continue to
be sales offices only without significant assets, and (iii) the subsidiaries
shown thereon as U.S. subsidiaries are and shall at all times continue to be
dormant corporations without assets. Each Borrower shall, within 45 days after
the date hereof, cause all of the subsidiaries listed on Exhibit B to execute
and deliver to Greyrock Continuing Guaranties with respect to Borrower and
security agreements and other documents as Greyrock shall specify in order to
grant Greyrock a first-priority security interest in all of the assets of said
subsidiaries.
(5) UCC FILINGS. Borrower represents and warrants that all indebtedness
secured by the following UCC-1 Financing Statements has been paid and performed
in full, and Borrower shall cause the following UCC-1 Financing Statements to be
terminated of record and shall provide evidence of the same to Greyrock within
10 days after the date hereof:
Filing Office Filing Date File No. Secured Party
------------- ----------- -------- -------------
Florida Secy of State. 06/12/96 960000121248 Tech Data Corporation
- ------------------------ -------- ------------ ---------------------
New York Secy of State 09/14/94 188514 Merrill Lynch Business
-------- ------ ------------------------
Financial Services Inc.
-------------------
New York Secy of State 06/13/96 118047 Tech Data Corporation
- -------------------------- -------- ------ -----------------------
(6) BANK ACCOUNTS. Within 30 days after the date hereof, Borrower shall
cause its banks located in the United States, to execute and deliver such
documentation as Greyrock shall reasonably specify in order to provide Greyrock
with a first-priority perfected security interest in the same.
Borrower:
SEER TECHNOLOGIES, INC.
By /s/ Steven Dmiszewicki
---------------------------------
President or Vice President
By /s/ Dennis McKinnie
--------------------------------
Secretary or Ass't Secretary
Borrower:
LEVEL 8 SYSTEMS, INC.
By_/s/ Steven Dmiszewicki
--------------------------------
President or Vice President
By/s/ Dennis McKinnie
--------------------------------
Secretary or Ass't Secretary
Greyrock:
GREYROCK CAPITAL,
a Division of NationsCredit Commercial Corporation
By /s/ Lisa Nagano
-----------------------------
Title Senior Vice President
---------------------------------
EXHIBIT A
SEER TECHNOLOGIES, INC.-LOCATIONS
LEVEL 8 SYSTEMS, INC.-LOCATIONS
<PAGE>
EXHIBIT B
U.S. SUBSIDIARIES
FOREIGN SUBSIDIARIES
<PAGE>
EXHIBIT 10.31
GREYROCK CAPITAL SCHEDULE TO LOAN AND SECURITY AGREEMENT
AMENDMENT TO LOAN DOCUMENTS
BORROWERS: SEER TECHNOLOGIES, INC. AND LEVEL 8 SYSTEMS, INC.
DATE: APRIL 21, 1999
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between GREYROCK CAPITAL,
A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION (formerly Greyrock Business
Credit) ("Greyrock"), whose address is 10880 Wilshire Blvd., Suite 950, Los
Angeles, CA 90024 and the borrower named above ("Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated March 31, 1999 (the "Loan Agreement"), as follows. (This Amendment, the
Loan Agreement, the amended Schedule of even date, any prior written amendments
to said agreements signed by Greyrock and the Borrower, and all other written
documents and agreements between Greyrock and the Borrower are referred to
herein collectively as the "Loan Documents". Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)
1. AMENDED SCHEDULE The Schedule to the Loan Agreement is hereby amended in
its entirety to read as set forth on the Schedule to Loan Agreement of even date
being signed concurrently herewith, effective on the date hereof (except that
the interest rate provided in said Amended Schedule shall be effective May 1,
1999).
2. REPRESENTATIONS TRUE. Borrower represents and warrants to Greyrock that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
3. GENERAL PROVISIONS. This Amendment, the Loan Agreement, and the other
Loan Documents set forth in full all of the representations and agreements of
the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and under-standings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and the same are hereby ratified and
confirmed.
Borrower:
SEER TECHNOLOGIES, INC.
By Steven Dmiszewicki
-----------------------------
President or Vice President
By Dennis McKinnie
------------------------------
Secretary or Ass't Secretary
Borrower:
LEVEL 8 SYSTEMS, INC.
By Steven Dmiszewicki
---------------------------
President or Vice President
By Dennis McKinnie
----------------------------
Secretary or Ass't Secretary
Greyrock:
GREYROCK CAPITAL,
a Division of NationsCredit Commercial Corporation
By Lisa Nagano
--------------------------
Title Senior Vice President
<PAGE>
EXHIBIT 10.32
AMENDED SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: SEER TECHNOLOGIES, INC.
LEVEL 8 SYSTEMS, INC.
ADDRESS: 8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
DATE: APRIL 21, 1999
This Amended Schedule to Loan and Security Agreement is an integral part of the
Loan and Security Agreement between GREYROCK CAPITAL, A DIVISION OF
NATIONSCREDIT COMMERCIAL CORPORATION ("Greyrock") and the above-borrower
("Borrower") dated MARCH 31, 1999.
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: $25,000,000 (the
"Dollar Limit") at any one time outstanding; or the sum of the outstanding
Receivable Loans under subparagraph (a) below, minus the Reserve under
subparagraph (b) below, plus the outstanding Replacement Term Loan under
subparagraph (c) below.
(a) Receivable Loans. Loans ("Receivable Loans") up to the sum of
------------------
the following percentages of Borrower's Eligible Receivables (as defined in
Section 8 above):
(i) 80% of the amount of eligible U.S. accounts; plus
----
(ii) the lesser of 80% of Unbilled Receivables (as defined below) or
$7,000,000; plus
----
(iii) the lesser of 80% of the amount of eligible Australian Receivables or
$2,000,000; plus
----
(iv) 80% of the amount of eligible Irish Receivables; plus
----
(V) 80% of the amount of eligible Netherlands Receivables.
As used herein "Unbilled Receivables" shall mean Receivables with respect to
which the invoice and other necessary billing documentation have not been
submitted to the applicable Account Debtor in connection with a completed (or
contracted) sale of goods, rendition of services or licensing of software but
which otherwise qualify as Eligible Receivables for purposes of the Loan
Agreement.
Receivable Loans will be made separately to each Borrower based on the
Receivables of each Borrower. Loans with respect, but subject to the dollar
limits set forth above, which shall apply to the total Receivable Loans to all
Borrowers.
(b) Receivable Loans-Reserve. From the Receivable Loans available to
--------------------------
Borrower under subparagraph (a) above, Greyrock shall withhold a reserve (the
"Reserve") in an initial amount of $583,333, concurrently herewith. The Reserve
shall increase by $83,333 per month, commencing on May 31, 1999, and continuing
on the last day of each succeeding month. If, on a date on which the amount of
the Reserve is to be increased, the Borrower does not have Receivable Loans
available to it in an amount equal to the amount of the increase in the Reserve,
then Borrower shall immediately make a payment to Greyrock to be applied to the
outstanding Receivable Loans, so that, after giving effect to such payment,
Borrower will have Receivable Loans available to it in an amount equal to the
amount of the increase in the Reserve.
(c) Replacement Term Loan. A Loan (the "Replacement Term Loan") in
------------------------
the original principal amount of $10,000,000. The present unpaid balance of the
Term Loan and the Equipment Loan outstanding under the Schedule to Loan
Agreement dated March 31, 1999 between Borrower and Greyrock shall be converted
into the Replacement Term Loan, and any remaining balance of the Replacement
Term Loan will be disbursed to Seer concurrently herewith. The Replacement Term
Loan shall be subject to the following terms:
(1) The Replacement Term Loan shall be due and payable, in full, on the earlier
of (A) SEPTEMBER 1, 2000, or (B) any termination of this Agreement.
(2) Accrued interest on the Replacement Term Loan shall be paid monthly on the
last day of each month as provided in Section 1.2 above and Section 2 below.
(3) The Replacement Term Loan after being repaid in whole or in part may not be
reborrowed.
(d) Foreign Accounts. Notwithstanding the foregoing, Loans will not be made with
-----------------
respect to Australian, Irish or Netherlands Receivables unless and until the
following conditions are satisfied:
(i) Borrower or one of its subsidiaries has good title to the Receivables, free
and clear of all liens, security interests and encumbrances (other than in favor
of Greyrock);
(ii) if the Receivables are owned by a subsidiary of Borrower, such subsidiary
shall execute and deliver to Greyrock a continuing guaranty in form and
substance satisfactory to Greyrock with respect to all of the Obligations and a
security agreement or other documentation specified by Greyrock, granting to
Greyrock a first priority perfected security interest in all of such Receivables
and all such subsidiary's other assets, and Greyrock shall receive such
opinions, certificates and other documents in connection therewith as it shall
specify; and
(iii) if the Receivables are owned by Borrower, Borrower shall execute and
deliver to Greyrock a security agreement or other supplemental or additional
documentation specified by Greyrock, confirming the grant to Greyrock a first
priority perfected security interest in all of such Receivables and Greyrock
shall receive such opinions, certificates and other documents in connection
therewith as it shall specify.
Borrower shall cause all of the foregoing documents and agreements and security
interests to continue in full force and effect throughout the term of this
Agreement.
LETTER OF CREDIT SUBLIMIT Greyrock, in its reasonable business
discretion, will from time to time during the term of this Agreement issue
letters of credit for the account of the Borrower ("Letters of Credit"), in
accordance with a Letter of Credit Agreement of even date, in an aggregate
amount at any one time outstanding not to exceed $500,000, upon the request of
the Borrower, provided that, on the date the Letters of Credit are to be issued,
Borrower has available to it Loans in an amount equal to or greater than the
face amount of the Letters of Credit to be issued, and provided that no further
LCs will be issued after MAY 31, 2000. Fees for the Letters of Credit shall be
as provided in said Letter of Credit Agreement.
The Credit Limit set forth above and the Loans available under this Agreement at
any time shall be reduced by the face amount of Letters of Credit from time to
time outstanding.
2. INTEREST.
INTEREST RATE (Section 1.2):
The interest rate in effect throughout each calendar month during the term of
this Agreement shall be a rate equal to the Prime Rate plus 2% per annum. Said
interest rate shall be applicable to all Loans (including without limitation the
Receivable Loans and the Replacement Term Loan) and all other Obligations:
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month, and the interest to be
charged for each month shall be based on the highest "Prime Rate" in effect
during said month.
"Prime Rate" shall mean the actual "Reference Rate' or the substitute therefor
of the Bank of America NT & SA (or its successor) whether or not that rate is
the lowest interest rate charged by said bank. If the Prime Rate, as defined,
is unavailable, "Prime Rate" shall mean the highest of the prime rates published
in the Wall Street Journal on the first business day of the month, as the base
rate on corporate loans at large U.S. money center commercial banks."
3. FEES (Section 1.3/Section 6.2):
Loan Fee: NOT APPLICABLE
Termination Fee: NOT APPLICABLE
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
4. MATURITY DATE
(Section 6.1): SEPTEMBER 1, 2000, subject to automatic renewal as
provided in Section 6.1 above, and early termination as provided in Section 6.2
above.
5. REPORTING.
(Section 5.2):
Borrower shall provide Greyrock with the following:
1. Annual financial statements, as soon as available, and in any event
within 90 days following the end of Borrower's fiscal year, certified by
independent certified public accountants acceptable to Greyrock.
2. Quarterly unaudited financial statements, as soon as available, and in
any event within 45 days after the end of each fiscal quarter of Borrower.
3. Monthly unaudited financial statements, as soon as available, and in any
event within 30 days after the end of each month.
4. Monthly Receivable agings, aged by invoice date, within 10 Business Days
after the end of each month which is not a fiscal quarter end and 15 Business
Days after the end of each month which is a fiscal quarter end.
5. Monthly accounts payable agings, aged by invoice date, and outstanding or
held check registers within 10 Business Days after the end of each month which
is not a fiscal quarter end and 15 Business Days after the end of each month
which is a fiscal quarter end.
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit A hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
7. OTHER COVENANTS:
Borrower shall at all times comply with all of the following
additional covenants:
(1) SEER COPYRIGHT FILINGS. Seer has previously executed and delivered to
Greyrock a Security Agreement in Copyrighted Works (the "Seer Copyright
Agreement"), which shall continue in full force and effect. Borrower represents
and warrants to Greyrock that the Seer Copyright Agreement covers all of Seer's
computer software, the licensing of which results in Receivables and that all
such software has been registered with the United States Copyright Office.
Without limiting the generality of the foregoing, Borrower represents and
warrants that all of the software listed on Exhibit B to the Seer Copyright
Agreement is included in the software listed on Exhibit A to the Seer Copyright
Agreement, which is registered with the United States Copyright Office.
(2) LEVEL 8 COPYRIGHT FILINGS. Level 8 has previously executed and delivered
to Greyrock a Security Agreement in Copyrighted Works (the "Level 8 Copyright
Agreement"). On or before MAY 14, 1999, Borrower shall (i) cause all of Level
8's computer software, the licensing of which results in Receivables, to be
filed for registration with the United States Copyright Office, (ii) complete
the Exhibits to the Level 8 Copyright Agreement with all of the information
called for with respect to such software, (iii) cause the Level 8 Copyright
Agreement to be filed for recordation in the United States Copyright Office, and
(iv) provide evidence of such recordation to Greyrock.
(3) EQUITY. On or before MAY 31, 1999, Borrower shall raise not less than
$10,000,000 cash proceeds of the issuance by Borrower of equity or subordinated
debt securities (the "Private Placement Proceeds"), and on or before said date,
Borrower shall provide Greyrock with written evidence of the same satisfactory
to Greyrock in its discretion. Without limiting any of the other terms of this
Agreement, a breach of this Section 7(3) shall constitute an Event of Default
under this Agreement. Without limiting any of the other terms of this Agreement,
Borrower shall at all times maintain the Private Placement Proceeds in Borrower
for use in its business, and Borrower shall not in any manner transfer the
Private Placement Proceeds to any Person whether by loan, dividend, repayment of
any indebtedness or obligation, redemption, stock repurchase, distribution or
any other transaction of any kind whatsoever, other than payment of Borrower's
current normal expenses of operation in the ordinary course of business.
(4) GUARANTIES. Concurrently each Borrower shall execute an unlimited
Cross-Corporate Continuing Guaranty with respect to the other Borrower, and
Borrower shall cause the same to continue in full force and effect throughout
the term of this Agreement. Borrower represents and warrants that (i) each of
its subsidiaries is listed on Exhibit B hereto, (ii) the subsidiaries shown
thereon as foreign subsidiaries (other than the subsidiaries incorporated in
Ireland, Australia and the Netherlands) are and shall at all times continue to
be sales offices only without significant assets, and (iii) the subsidiaries
shown thereon as U.S. subsidiaries are and shall at all times continue to be
dormant corporations without assets. Each Borrower shall, on or before MAY 14,
1999, cause all of the subsidiaries listed on Exhibit B to execute and deliver
to Greyrock Continuing Guaranties with respect to Borrower and security
agreements and other documents as Greyrock shall specify in order to grant
Greyrock a first-priority security interest in all of the assets of said
subsidiaries.
(5) UCC FILINGS. Borrower represents and warrants that all indebtedness
secured by the following UCC-1 Financing Statements has been paid and performed
in full, and Borrower has caused the following UCC-1 Financing Statements to be
terminated of record and Borrower shall concurrently provide evidence of the
same to Greyrock:
Filing Office Filing Date File No. Secured Party
------------- ----------- -------- -------------
Florida Secy of State. 06/12/96 960000121248 Tech Data Corporation
- ------------------------ -------- ------------ ---------------------
New York Secy of State 09/14/94 188514 Merrill Lynch Business
-------- ------ ------------------------
Financial Services Inc.
-------------------
New York Secy of State 06/13/96 118047 Tech Data Corporation
- -------------------------- -------- ------ -----------------------
(6) BANK ACCOUNTS. On or before APRIL 30, 1999, Borrower shall cause its
banks located in the United States, to execute and deliver such documentation as
Greyrock shall reasonably specify in order to provide Greyrock with a
first-priority perfected security interest in the same.
Borrower:
SEER TECHNOLOGIES, INC.
By /s/ Steven Dmiszewicki
---------------------------
President or Vice President
By Dennis McKinnie
------------------------------
Secretary or Ass't Secretary
Borrower:
LEVEL 8 SYSTEMS, INC.
By /s/ Steven Dmiszewicki
--------------------------
President or Vice President
By Dennis McKinnie
------------------------------
Secretary or Ass't Secretary
Greyrock:
GREYROCK CAPITAL,
a Division of NationsCredit Commercial Corporation
By Lisa Nagano
------------
Title Senior Vice President
EXHIBIT A
SEER TECHNOLOGIES, INC.-LOCATIONS
LEVEL 8 SYSTEMS, INC.-LOCATIONS
EXHIBIT B
U.S. SUBSIDIARIES
FOREIGN SUBSIDIARIES
<PAGE>
EXHIBIT 10.33
AMENDMENT TO SCHEDULE TO LOAN AGREEMENT
APRIL 29, 1999
Seer Technologies, Inc.
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, NC 27511
Gentlemen:
Reference is made to the Loan and Security Agreement between us dated March
31, 1999 (as amended, the "Loan Agreement"). (Capitalized terms used in the
Agreement, which are not defined, shall have the meanings set forth in the Loan
Agreement. The Loan Agreement and all other present and future documents and
agreements relating thereto are collectively referred to herein as the "Loan
Documents".)
This will conform our agreement to amend Section 1(b) of the Schedule to
the Loan Agreement to read as follows:
"(b) Receivable Loans-Reserve. From the Receivable Loans available
--------------------------
to Borrower under subparagraph (a) above, Greyrock shall withhold a reserve (the
"Reserve") in an initial amount of $583,333, concurrently herewith. The Reserve
shall increase by $83,333 per month, commencing on May 31, 1999, and continuing
on the last day of each succeeding month until December 31, 1999; commencing on
December 31, 1999 and continuing on the on the last day of each succeeding
month, the Reserve shall increase by $375,000 per month. If on a date on which
the amount of the Reserve is to be increased, the Borrower does not have
Receivable Loans available to it in an amount equal to the amount of the
increase in the Reserve, then Borrower shall immediately make a payment to
Greyrock to be applied to the outstanding Receivable Loans, so that, after
giving effect to such payment, Borrower will have Receivable Loans available to
it in an amount equal to the amount of the increase in the Reserve."
As herein expressly modified the Loan Agreement shall continue in full
force and effect and the same is hereby ratified and confirmed. The Amendment
and the other Loan Documents set forth in full all of the representations and
agreements of the parties with respect to the subject matter hereof and
supersede all prior discussions, oral representations, oral agreements and oral
understandings between the parties with respect to the subject matter hereof.
This Amendment may not be modified or amended, nor may any rights hereunder
be waived, except in writing signed by the parties hereto. This Amendment is
being entered into, and shall be governed by the laws of the State of
California.
Sincerely yours,
GREYROCK CAPITAL,
a Division of NationsCredit Commercial
Corporation
By /s/Lisa Nagano
------------------------
Title Senior Vice President
Accepted and agreed
SEER TECHNOLOGIES, INC LEVEL 8 SYSTEMS, INC.
By /s/Steven Dmiszewicki By /s/Steven Dmiszewicki
----------------------------- ----------------------------
President or Vice President President or Vice President
By /s/Dennis McKinnie By /s/Dennis McKinnie
----------------------------- ----------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FIELD AS PART OF
THE ANNYUAL REPORT ON FORM 10-k AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,221
<SECURITIES> 0
<RECEIVABLES> 17,841
<ALLOWANCES> 1,832
<INVENTORY> 0
<CURRENT-ASSETS> 22,929
<PP&E> 2,926
<DEPRECIATION> 593
<TOTAL-ASSETS> 63,681
<CURRENT-LIABILITIES> 32,726
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 4,841
<TOTAL-LIABILITY-AND-EQUITY> 63,681
<SALES> 0
<TOTAL-REVENUES> 13,205
<CGS> 0
<TOTAL-COSTS> 8,456
<OTHER-EXPENSES> 7,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 627
<INCOME-PRETAX> (3,626)
<INCOME-TAX> 202
<INCOME-CONTINUING> (3,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,828)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
