EXHIBIT 10.50
SECURITY AND LOAN AGREEMENT
Domestic Credit
(Accounts Receivable)
This Agreement is entered into between DIGITAL SOUND CORPORATION, a California
corporation, (herein called "Borrower") and IMPERIAL BANK (herein called
"Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
50 % of Eligible Accounts
and in no event more than $2,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on demand and (b) on or before the tenth
day of each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of one-half &
00/100 percent (0.5%) per annum in excess of the rate of interest which
Bank has announced as its prime lending rate ("Prime Rate") which shall
vary concurrently with any change in such Prime Rate. Interest shall be
computed at the above rate on the basis of the actual number of days during
which the principal balance of the loan account is outstanding divided by
360, which shall for interest computation purposes be considered one year.
Bank at its option may demand payment of any or all of the amount due under
the Loan Account including accrued but unpaid interest at any time. Such
notice may be given verbally or in writing and should be effective upon
receipt by Borrower. The amount of interest payable each month by Borrower
shall not be less than a minimum monthly charge of $250.00. Bank is hereby
authorized to charge Borrower's deposit account(s) with Bank for all sums
due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and
receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within
120 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account and (3) any Accounts if
the account debtor or any other person liable in connection therewith
is insolvent, subject to bankruptcy or receivership proceedings or has
made an assignment for the benefit of creditors or whose credit
standing is unacceptable to Bank and Bank has so notified Borrower.
Eligible Accounts shall only include such accounts as Bank in its sole
discretion shall determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security
therefor, and hereby grants to Bank a continuing security interest in all
moneys in the
Collateral Account referred to in Section 6 hereof, as security for any and
all obligations of Borrower to Bank, whether now owing or hereafter
incurred and whether direct, indirect, absolute or contingent. So long as
Borrower is indebted to Bank or Bank is committed to extend credit to
Borrower, Borrower will execute and deliver to Bank such assignments,
including Bank's standard forms of Specific or General Assignment covering
individual Accounts, notices, financing statements, and other documents and
papers as Bank may require in order to affirm, effectuate or further assure
the assignment to Bank of the Collateral or to give any third party,
including the account debtors obligated on the Accounts, notice of Bank's
interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's Accounts,
provided that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts
by Borrower, whether in the form of cash, checks, notes, or other
instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other
funds and property so as to be capable of identification as the property of
Bank and deliver said collections daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be
applied by Bank directly to the payment of Borrower's Loan Account or any
other obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection. Returned
items at Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and such
other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving returns, repossessions, and loss or
damage of or to merchandise represented by the Accounts and of any credits,
adjustments or disputes arising in connection with the goods or services
represented by the Accounts and, in any of such events, Borrower will
immediately pay to Bank from its own funds (and not from the proceeds of
Accounts or Inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes Subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for
either merchandise sold or delivered (or being held Subject to Borrower's
delivery instructions) to, or services rendered, performed and accepted by,
the account debtor; (iv) That there are or will be no defenses,
counterclaims, or setoffs which may be asserted against the Accounts; and
(v) any and all financial information, including information relating to
the Collateral, submitted by Borrower to Bank, whether previously or in the
future, is or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and at such times as Bank may
require, statements showing aging and reconciliation of the Accounts and
collections thereon; (iii) Permit representatives of Bank to inspect the
Borrower's books and records relating to the Collateral and make extracts
therefrom at any reasonable time and to arrange for verification of the
Accounts, under reasonable procedures, acceptable to Bank, directly with
the account debtors or otherwise at Borrower's expense; (iv) Promptly
notify Bank of any attachment or other legal process levied against any of
the Collateral and any information received by Borrower relative to the
Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of
the Collateral or the rights and remedies of Bank in respect thereto; (v)
Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other expense incurred in collecting any
sums payable by Borrower under Borrower's Loan Account or any other
obligation secured hereby, enforcing any term or provision of this Security
Agreement or otherwise or in the checking, handling and collection of the
Collateral and the preparation and enforcement of any agreement relating
thereto; (vi) Notify Bank of each location and of each office of Borrower
at which records of Borrower relating to the Accounts are kept; (vii)
Provide, maintain and deliver to Bank policies
insuring the Collateral against loss or damage by such risks and in such
amounts, forms and companies as Bank may require and with loss payable
solely to Bank, and, in the event Bank takes possession of the Collateral,
the insurance policy or policies and any unearned or returned premium
thereon shall at the option of Bank become the sole property of Bank, such
policies and the proceeds of any other insurance covering or in any way
relating to the Collateral, whether now in existence or hereafter obtained,
being hereby assigned to Bank; (viii) in the event the unpaid balance of
Borrower's Loan Account shall exceed the maximum amount of outstanding
loans to which Borrower is entitled under Section 1 hereof, Borrower shall
immediately pay to Bank, from its own funds and not from the proceeds of
Collateral, for credit to Borrower's Loan Account the amount of such
excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account debtors,
and Borrower does hereby make, constitute and appoint Bank its irrevocable,
true and lawful attorney with power to receive, open and dispose of all
mail addressed to Borrower, to endorse the name of Borrower upon any checks
or other evidences of payment that may come into the possession of Bank
upon the Accounts to endorse the name of the undersigned upon any document
or instrument relating to the Collateral; in its name or otherwise, to
demand, xxx for, collect and give acquittances for any and all moneys due
or to become due upon the Accounts; to compromise, prosecute or defend any
action, claim or proceeding with respect thereto; and to do any and all
things necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral in favor of any
secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower
become insolvent or make an assignment for the benefit of creditors; or (v)
Any proceeding be commenced by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt or moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank
at a place designated by Bank which is reasonably convenient to Borrower
and Bank, and Borrower waives all claims for damages due to or arising from
or connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by
law, or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by Bank
shall be repaid by Borrower and secured hereby. Bank shall have the right
to enforce one or more remedies hereunder successively or concurrently, and
any such action shall not estop or prevent Bank from pursuing any further
remedy which it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all obligations
secured by this Security Agreement, Borrower hereby promises and agrees to
pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section I hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured
hereby and all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time subsequent
to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: See Addendum and Reference Provision attached.
Executed this 28th day of July, 1997
Digital Sound Corporation
/s/ B. Xxxxxx Xxx
B. Xxxxxx Xxx, Vice President, CFO & Corporate Secretary
Imperial Bank
/s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx, Commercial Loan Officer
