EXHIBIT 10.17
BUSINESS LOAN AGREEMENT
This Business Loan Agreement (this "Agreement") is entered into as of the date
set forth below between Union Bank of California, N.A. ("Bank") and Xxxx Systems
Inc. ("Borrower") with respect to each and every extension of credit (whether
one or more, collectively referred to as the "Loan") from Bank to Borrower.
This Agreement amends and restates in its entirety that certain loan agreement
dated September 16, 1996 between Bank and Borrower. In consideration of the
Loan, Bank and Borrower agree to the following terms and conditions:
1. THE LOAN.
1.1. THE NOTE. The Loan is evidenced by one or more promissory notes
or other evidences of indebtedness, including each amendment, extension,
renewal or replacement thereof, which are incorporated herein by this
reference (whether one or more, collectively referred to as the "Note").
1.2. BORROWING BASE. An amount of the Loan equal to $3,500,000,*
evidenced by a Note dated May 28, 1997 is a revolving loan subject to a
borrowing base ("Borrowing Base Loan"). Notwithstanding any other
provision of this Agreement or any other Loan Document, Bank shall not be
obligated to advance funds under the Borrowing Base Loan, if the principal
amount of such Borrowing Base Loan including such advance exceeds 80% of
Borrower's Eligible Accounts plus 85% of Specified Accounts. In no event,
however, shall the aggregate amount of the advances based on Eligible
Inventory exceed, at any time, the sum of $500,000. As a sublimit to the
Borrowing Base Loan, Bank shall issue, for the account of Borrower, one or
more irrevocable, standby letters of credit (individually, an "L/C" and
collectively, the "L/Cs"). All such standby L/Cs shall be drawn on such
terms and conditions as are acceptable to Bank. The aggregate amount
available to be drawn under all outstanding L/Cs and the aggregate amount
of unpaid reimbursement obligations under drawn L/Cs shall not exceed Four
Hundred Thousand Dollars ($400,000) and shall reduce, dollar for dollar,
the maximum amount available under the Borrowing Base Loan. Each L/C shall
be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for standby L/C applications and reimbursement agreements.
No L/C shall expire after May 1, 1998.
* Wherever "N/A" appears in a blank in this Agreement, it means the
Subsection in which it appears is deemed deleted from this Agreement.
The term "Accounts" means all presently existing and hereafter arising
accounts receivable, contract rights, chattel paper, and all other forms of
obligations owing to Borrower, payable in U.S. Dollars, arising out of the
sale or lease of goods, or the rendition of services by Borrower, whether
or not earned by performance, and any and all credit insurance, guaranties
and other security, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's books and records relating to any of the foregoing.
The term "Eligible Accounts" means those Accounts, net of finance charges,
which are due and payable within ninety (90) days, or less, from the date
of the invoice, have been validly assigned to Bank and strictly comply with
all of Borrower's warranties and representations to Bank. Eligible
Accounts shall also include those accounts which have extended terms to
Borrower's
international distributors evidencing the purchase of parts and supplies in
an amount not to exceed Thirty Five Thousand Dollars ($35,000) provided,
however, the aggregate amount of these accounts shall not exceed Four
Hundred Thousand Dollars ($400,000). Eligible Accounts shall also include
Specified Accounts, which are approved by the Bank in its sole discretion
and are more fully described in Exhibit I herein. Total Eligible Accounts
shall be reduced by $300,000 as long as monies are owed by Borrower to its
affiliate, Xxxxxx Companies, Inc. ("Xxxxxx") and these monies are
considered eligible accounts up to $300,000 under Xxxxxx'x line of credit
with Bank. Eligible Accounts shall not include the following:
(a) Any Account with respect to which the account debtor is an
officer, shareholder, director, employee or agent of Borrower;
(b) Any Account with respect to which the account debtor is a
subsidiary of, related to, or affiliated or has common officers
or directors with Borrower;
(c) Any Account with respect to which goods are placed on
consignment, guaranteed sale or other terms by reason of which
the payment by the account debtor may be conditional;
(d) Except as provided above, any Account with respect to which the
account debtor is not a resident of the United States or Canada
unless such debtor account is supported by a letter of credit;
(e) Any Account with respect to which the account debtor is the
United States or any department, agency or instrumentality of the
United States;
(f) Any Account with respect to which Borrower is or may become
liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower;
(g) Any Account with respect to which there is asserted a defense,
counterclaim, discount or setoff, whether well-founded or
otherwise, except for those discounts, allowances and returns
arising in the ordinary course of Borrower's business;
(h) Any Account with respect to which the account debtor becomes
insolvent, fails to pay its debts as they mature or goes out of
business or is owed by an account debtor which has become the
subject of a proceeding under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for
the benefit of creditors, formal or informal moratoriums,
compositions or extensions with all or substantially all of its
creditors;
(i) Any Account owed by any account debtor with respect to which 25%
or more of the aggregate dollar amount of its Accounts is not
paid within 90 days from the date of the invoice;
(j) Any Account that is not paid by the account debtor within 90 days
of the date of invoice;
(k) Any Account that is not paid by the account debtor and for which
a credit memo has been issued which is over 90 days old;
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(l) That portion of any Account owed by any single account debtor
which exceeds 20% of all of the Accounts, provided, however
Accounts owed by International Business Machines cannot exceed
thirty-five percent (35%);
(m) Any Account which Bank deems not to be an Eligible Account.
1.3. ELIGIBLE INVENTORY. The term "Eligible Inventory" means and
includes: (a) 50% of total purchased inventory of Standard Desktop Laser
Printers plus (b) 25% of the sum of finished goods inventory, excluding
Desktop Laser Printers, plus raw materials less the general ledger
obsolescence reserve, less finished goods returned, less demonstration
inventory, less any finished foods subject to consignment sales not to
exceed $500,000.
1.4. TERM LOAN AVAILABILITY PERIOD. For any portion of the Loan which
is a term loan, loan proceeds shall be available for a single disbursement
from June 1, 1997, through June 30,1997, only.
1.5. THE STANDBY LETTERS OF CREDIT. Bank shall issue, for the account
of Borrower, one or more irrevocable, standby letters of credit
(individually, an "L/C" and collectively, the "L/Cs"). All such standby
L/Cs shall be drawn on such terms and conditions as are acceptable to Bank.
The aggregate amount available to be drawn under all outstanding L/Cs and
the aggregate amount of unpaid reimbursement obligations under drawn L/Cs
shall not exceed Five Hundred Thousand Dollars ($500,000). Each L/C shall
be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for standby L/C applications and reimbursement agreements. No
L/C shall expire after May 1, 1998.
1.6. COLLATERAL. The payment and performance of all obligations of
Borrower under the Loan Documents is and shall be during the term of the
Loan secured by a perfected security interest in such real or personal
property collateral as is required by Bank and each security interest shall
rank in first priority unless otherwise specified in writing by Bank.
1.7. GUARANTY. The payment and performance of all obligations of
Borrower under the Loan Documents are and shall be during the term of the
Loan guaranteed by: Xxxxxxx Xxxx, Xxxx Xxxx, and The Dirk Family Trust, in
the amount of Five Hundred Thousand Dollars ($500,000).
1.8. SUBORDINATION. Certain other obligations of Borrower are and
shall be during the term of the Loan subordinated, to the repayment of the
Loan and all other obligations of Borrower to Bank, pursuant to one or more
subordination agreement(s) in favor of Bank executed and delivered by:
N/A.
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2. CONDITIONS TO AVAILABILITY OF THE LOAN. Before bank is obligated to
disburse all or any portion of the loan, bank must have received (a) the Note
and every other document required by Bank in connection with the Loan, each of
which must be in form and substance satisfactory to Bank (together with this
Agreement, referred to as the "Loan Documents"), (b) confirmation of the
perfection of its security interest in any collateral for the Loan, and (c)
payment of any fee required in connection with the Loan.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants (and
each request for a disbursement of the proceeds of the Loan shall be deemed a
representation and warranty made on the date of such request) that:
3.1. Borrower is an individual or Borrower is duly organized and
existing under the laws of the state of its organization and is duly
qualified to conduct business in each jurisdiction in which its business is
conducted;
3.2. The execution, delivery and performance of the Loan Documents
executed by Borrower are within Borrower's power, have been duly
authorized, are legal, valid and binding obligations of Borrower, and are
not in conflict with the terms of any charter, bylaw, or other organization
papers of Borrower or with any law, indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is bound or affected;
3.3. All financial statements and other financial information
submitted by Borrower to Bank are true and correct in all material
respects, and there has been no material adverse change in Borrower's
financial condition since the date of the latest of such financial
statements;
3.4. Borrower is properly licensed and in good standing in each state
in which Borrower is doing business, and Borrower has complied with all
laws and regulations affecting Borrower, including without limitation, each
applicable fictitious business name statute;
3.5. There is no event which is, or with notice or lapse of time or
both would be, an Event of Default (as defined in Article 5);
3.6. Borrower is not engaged in the business of extending credit for
the purpose of, and no part of the Loan will be used, directly or
indirectly, for purchasing or carrying margin stock within the meaning of
Federal Reserve Board Regulation U; and
3.7. Borrower is not aware of any fact, occurrence or circumstance
which Borrower has not disclosed to Bank in writing which has, or could
reasonably be expected to have, a material adverse effect on Borrower's
ability to repay the Loan or perform its obligations under the Loan
Documents.
4. COVENANTS. Borrower agrees, so long as the Loan or any commitment to
make any advance under the Loan is outstanding and until full and final payment
of all sums outstanding under any Loan Document, that borrower will:
4.1. MAINTAIN:
(a) Working Capital equal to at least $ N/A . As used
herein, "Working Capital" means the excess of current assets over
current liabilities);
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(b) A ratio of current assets to current liabilities of at least N/A
:1.00;
(c) A quick ratio of cash, accounts receivable and marketable
securities to current liabilities of at least .65:1.0 as of May
31, 1997, .70:1.0 as of August 31, 1997, and .75:1.0 as of
November 30, 1997 and thereafter;
(d) Tangible Net Worth of at least $2,500,000 as of May 31, 1997,
$2,700,000 as of August 31, 1997, and $3,000,000 as of November
30, 1997 and thereafter (As used herein "Tangible Net Worth"
means net worth increased by indebtedness of Borrower
subordinated to Bank and decreased by patents, licenses,
trademarks, trade names, goodwill and other similar intangible
assets, organizational expenses, and monies due from affiliates
including officers, shareholders and directors);
(e) A ratio of total liabilities to Tangible Net Worth of not greater
than 2.0:1.0 as of May 31, 1997, 1.75:1.0 as of August 31, 1997,
and 1.5:1.0 as of November 30, 1997 and thereafter (As used
herein "Tangible Net Worth" means net worth increased by
indebtedness of Borrower subordinated to Bank and decreased by
patents, licenses, trademarks, trade names, goodwill and other
similar intangible assets, organizational expenses, and monies
due from affiliates including officers, shareholders and
directors);
(f) A profit after taxes of not less than $1, to be measured as of
the end of each fiscal quarter of Borrower for the three month
period immediately preceding the date of measurement;
(g) A ratio of Cash Flow to Debt Service of 1.75:1.00. Compliance
with this subsection to be measured as of the end of each fiscal
year of Borrower. (As used herein, "Debt Service" means that
portion of long-term liabilities and capital leases coming due
within twelve months of the date of calculation, and "Cash Flow"
means net profit after taxes, to which depreciation, amortization
and other non-cash expenses are added and shareholder
distributions or loans to shareholders are subtracted for the
twelve month period immediately preceding the date of
calculation); and
All accounting terms used in this Agreement shall have the definitions given
them by generally accepted accounting principles, unless otherwise defined
herein.
4.2. Give written notice to Bank within 15 days of the following:
(a) Any litigation or arbitration proceeding affecting Borrower where
the amount in controversy is $200,000 or more;
(b) Any material dispute which may exist between Borrower and any
government regulatory body or law enforcement body;
(c) Any Event of Default or any event which, upon notice, or lapse of
time, or both, would become an Event of Default;
(d) Any other matter which has resulted or is likely to result in a
material adverse change in Borrower's financial condition or
operation; and
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(e) Any change in Borrower's name or the location of Borrower's
principal place of business, or the location of any collateral
for the Loan, or the establishment of any new place of business
or the discontinuance of any existing place of business.
4.3. Furnish to Bank an income statement, balance sheet, and statement
of retained earnings, with supportive schedules ("Financial Statement"),
and any other financial information requested by Bank, prepared in
accordance with generally accepted accounting principles and in a form
satisfactory to Bank as follows:
(a) Within 30 days after the close of each quarter except for the
final quarter of each fiscal year, Borrower's Financial Statement
as of the close of such period;
(b) Within 90 days after the close of each fiscal year, a copy of
Borrower's annual Financial Statement prepared by an independent
certified public accountant on an audited basis. Any independent
certified public accountant who prepares Borrower's Financial
Statement shall be selected by Borrower and reasonably
satisfactory to Bank;
(c) Within 90 days after the close of each fiscal year, a copy of
each guarantor's annual Financial Statement;
(d) If any portion of the Loan is a Borrowing Base Loan, within 30
days after each calendar month end, a copy of Borrower's monthly
accounts receivable, inventory listing, and accounts payable
agings, and a certification of compliance with the borrowing base
described in Section 1.2 above, executed by Borrower, which
certificate shall accurately report Borrower's Accounts and
Eligible Accounts, and Eligible Inventory; and
(e) Promptly upon request, any other financial information requested
by Bank.
4.4. Furnish to Bank, on Bank's request, a copy of each guarantor's
most recently filed federal income tax return with all accompanying
schedules.
4.5. Pay or reimburse Bank for all costs, expenses and fees incurred
by Bank in preparing and documenting this Agreement and the Loan, and all
amendments and modifications thereof, including but not limited to all
filing and recording fees, costs of appraisals, insurance and attorney's
fees, including the reasonable estimate of the allocated costs and expenses
of in-house legal counsel and staff.
4.6. Maintain and preserve Borrower's existence, present form of
business and all rights, privileges and franchises necessary or desirable
in the normal course of its business, and keep all of Borrower's properties
in good working order and condition.
4.7. Maintain and keep in force insurance with companies acceptable to
Bank and in such amounts and types, including without limitation fire and
public liability insurance, as is usual in the business carried on by
Borrower, or as Bank may reasonably request. Such insurance policies must
be in form and substance satisfactory to Bank.
4.8. Maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally
accepted accounting principles, and in compliance with the regulations of
any governmental regulatory body having jurisdiction over Borrower or
Borrower's business and permit employees or agents of Bank at any
reasonable time
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to inspect Borrower's assets and properties, and to examine or audit
Borrower's books, accounts and records and make copies and memoranda
thereof.
4.9. At all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business, and all
material agreements to which Borrower is a party.
4.10. Except as provided in this Agreement, or in the ordinary course
of its business as currently conducted, not make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any
manner, or extend credit.
4.11. Not purchase the debt or equity of another person or entity
except for savings accounts and certificates of deposit of Bank, direct
U.S. Government obligations and commercial paper issued by corporations
with top ratings of Xxxxx'x or Standard & Poor's, provided that all such
permitted investments shall mature within one year of purchase.
4.12. Not create, assume or suffer to exist any mortgage, encumbrance,
security interest, pledge or lien ("Lien") on Borrower's real or personal
property, whether nor owned or hereafter acquired, or upon the income or
profits thereof except the following: (a) Liens in favor of Bank, or (b)
Liens for taxes or other items not delinquent or contested in good faith.
4.13. Not sell or discount any account receivable or evidence of
indebtedness, except to Bank or not borrow any money or become contingently
liable for money borrowed, except pursuant to agreements made with Bank.
4.14. Neither liquidate, dissolve, enter into any consolidation,
merger, partnership, or other combination; nor convey, sell or lease all or
the greater part of its assets or business; nor purchase or lease all or
the greater part of the assets or business of another.
4.15. Not engage in any business activities or operations substantially
different from or unrelated to present business activities and operations.
4.16. Not, in any single fiscal year of Borrower, expend or incur
obligations of more than $500,000 for the acquisition of fixed or capital
assets.
4.17. Not, in any single fiscal year of Borrower, enter into any lease
of real or personal property which would cause Borrower's aggregate annual
obligations under all such real and personal property leases to exceed
$N/A.
4.18. Borrower will promptly, upon demand by Bank, take such further
action and execute all such additional documents and instruments in
connection with this Agreement as Bank in its reasonable discretion deems
necessary, and promptly supply Bank with such other information concerning
its affairs as Bank may request from time to time.
4.19. Not declare or pay any dividends, other than a dividend payable
in its own common stock, or authorize or make any other distribution with
respect to any of its stock now or hereafter outstanding; except to the
extent necessary to satisfy Subchapter S tax liabilities of Borrower's
shareholders.
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5. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any obligation on the part of Bank to make
or continue the Loan and automatically, unless otherwise provided under the Loan
Documents, shall make all sums of interest and principal and any other amounts
owing under the Loan immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or any other notices or demands:
5.1. Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the Loan Documents;
5.2. Any default shall occur under the Note;
5.3. Borrower shall default in the due performance or observance of
any covenant or condition of the Loan Documents;
5.4. Any guaranty or subordination agreement required hereunder is
breached or becomes ineffective, or any guarantor or subordinating creditor
dies or disavows or attempts to revoke or terminate such guaranty or
subordination agreement; or
5.5. There is a change in ownership or control of 10% or more of the
issued and outstanding stock of Borrower or any guarantor, or (if the
Borrower is a partnership) there is a change in ownership or control of any
general partner's interest.
6. MISCELLANEOUS.
6.1. The rights, powers and remedies given to Bank hereunder shall be
cumulative and not alternative and shall be in addition to all rights,
powers, and remedies given to Bank by law against Borrower or any other
person, including but not limited to Bank's rights of setoff or banker's
lien.
6.2. Any forbearance or failure or delay by Bank in exercising any
right, power or remedy hereunder shall not be deemed a waiver thereof and
any single or partial exercise of any right, power or remedy shall not
preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
6.3. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assignees of Borrower, and
any assignment by Borrower without Bank's consent shall be null and void.
6.4. This Agreement and all other agreements and instruments required
by Bank in connection herewith shall be governed by and construed according
to the laws of the State of California.
6.5. Should any one or more provisions of this Agreement be determined
to be illegal or unenforceable, all other provisions nevertheless shall be
effective. In the event of conflict between the provisions of this
Agreement and the provisions of any note or reimbursement agreement
evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.
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6.6 Except for documents and instruments specifically referenced
herein, this Agreement constitutes the entire agreement between Bank and
Borrower regarding the Loan and all prior communications, verbal or
written, between Borrower and Bank shall be of no further effect or
evidentiary value.
6.7. The section and subsection headings herein are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
6.8. This Agreement may be amended only in writing signed by all
parties hereto.
6.9. Borrower and Bank may execute one or more counterparts to this
Agreement, each of which shall be deemed an original, but taken together
shall be one and the same instrument.
6.10. Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have
been validly given: (a) upon delivery, if delivered personally; (b) upon
receipt, if mailed, first class postage prepaid, with the United States
Postal Service; (c) on the next business day if sent by overnight courier
service of recognized standing; and (d) upon telephoned confirmation of
receipt, if telecopied.
7. ADDITIONAL PROVISIONS. The following additional provision, if any,
are hereby made part of this Agreement:
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
June 19, 1997.
Union Bank of California, Xxxx Systems Inc. ("Borrower")
N.A. ("Bank")
By: /s/ Xxxxxxxx Xxxxxxx By: /s/ Xxxxxxx X. Xxxx
-------------------------------- --------------------------------
Title: Vice President Title: CEO
----------------------------- -----------------------------
Printed Name: Xxxxxxxx Xxxxxxx Printed Name: Xxxxxxx X. Xxxx
---------------------- ----------------------
By: /s/ Xxxx Xxxx By:
-------------------------------- --------------------------------
Title: Vice President Title:
----------------------------- -----------------------------
Printed Name: Xxxx Xxxx Printed Name:
---------------------- ----------------------
Address where notices to Bank are to Address to where notices to Borrower are
be sent: to be sent:
000 X. Xxxx Xx. Xxx. 000 0000 X. Xxxxxxx Xx.
Xxxxxx, XX 00000 Xxxxx Xxx, XX 00000
Fax Number: (000) 000-0000 Fax Number: (000) 000-0000
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EXHIBIT 1
SPECIFIC ACCOUNTS'
Automatic Data Processing N.Y. Life Insurance
Bank of New York National Bank of Detroit
Bank of America National Casualty Co.
Banker's Life & Casualty North American Reinsurance
Blue Cross/Blue Shield Northrop Corp.
Blue Cross/Blue Shield of TX Norwest Bank of MN
Canada Life Ohio Bureau Employment Svcs
Chase Manhattan Bank Penn Mutual Life Ins.
Chase Bankcard Services Philadelphia Electric Co.
Coca Cola Bottling Xxxxxxx & Xxxxxx
Colgate Palmolive Corp. Progressive Insurance
Commerce Bank of Kansas City Q.M.S. Inc.
Commonwealth of PA Quaker Oats Co.
Commonwealth of VA Rand XxXxxxx
Del Xxxxx Foods Seafirst Bank
Dept. of the Treasury Sears, Xxxxxxx & Co.
Dfas-Columbus Shawmut Bank CT
Dillards Dept. Stores Shell Oil
Equitable Life Assurance Siemens Nixdorf Info Systems
Farmers Insurance Exchange State Farm Insurance
First Nat'l Bank of Maryland State of Louisiana
Xxxxxx-Xxxxx Toys State of Arkansas
Ford Motor Co. State of Idaho (Auditor's Office)
GTE Xxxx Distribution State of New Jersey
Hewlett Packard Target Stores
Home Mutual Insurance Co. Tennessee Community Bank
IBM Corp. U.S. Treasury
IBM Canada U.S. West Communications
IBM Credit Corp. Union Carbide Corp.
Isuzu Motors of America, Inc. Unisys Corp.
L.A. Dept. Water & Power Unum
Loral Aerospace Venture Stores
Mellon Bank Wal-Mart Stores
Mitsubishi Corp. Wawanesa Mutual Ins. Co.
Mobil Oil Xxxxx Fargo Bank
Motorola Corp. Woolworth Corp.
N.Y. Central Mutual
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