EXHIBIT 10.3
CREDIT AGREEMENT
BETWEEN
SIMPLE TECHNOLOGY, INC.
AND
COMERICA BANK
AUGUST 3, 1999
CREDIT AGREEMENT
THIS AGREEMENT, made as of the 3rd day of August 1999, by and between
SIMPLE TECHNOLOGY, INC, a California corporation ("Borrower") and COMERICA BANK,
a Michigan banking corporation ("Bank").
1. DEFINITIONS
For purposes of this Agreement the following terms will have the
following meanings:
1.1 "ACCOUNTS," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT," "FIXTURES,"
"GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS" AND "INVENTORY" shall have the
meanings assigned to them in the Uniform Commercial Code as in effect in
Michigan on the date of this Agreement.
1.2 "ACCOUNT DEBTOR" shall mean the party who is obligated on or under
any Account Receivable.
1.3 "ACCOUNTS RECEIVABLE" shall mean and include Accounts, Chattel
Paper and General Intangibles (including, but not limited to tax refunds, trade
names, trade styles and goodwill, trade marks, copyrights and patents, and
applications therefor, trade and proprietary secrets, formulae, designs,
blueprints and plans, customer lists, literary rights, licenses and permits,
receivables, insurance proceeds, beneficial interests in trusts and minute books
and other books and records) to the extent they evidence, consist of, or relate
to rights of payment or related rights now owned or hereafter acquired by a
Borrower.
1.4 "ADVANCE" shall mean a borrowing requested by Borrower and made by
Bank under this Agreement.
1.5 "AFFILIATE" shall mean, when used with respect to any person, any
other person which, directly or indirectly, controls or is controlled by or is
under common control with such person. For purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
1.6 "APPLICABLE INTEREST RATE" shall mean with respect to any Advance,
the Prime-based Rate or the Eurocurrency-based Rate, subject to the terms and
conditions of this Agreement.
1.7 "BORROWING BASE REPORT" shall mean a report in form and content
satisfactory to Bank setting forth the Formula Amount applicable to a Facility.
1.8 "BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or
holiday, on which Bank is open for all or substantially all of its business in
Detroit, Michigan.
1.9 "CANADIAN NOTE" shall mean a Note issued by Borrower under this
Agreement as evidence of Advances under the Canadian Subfacility.
1.10 "CANADIAN PRIME RATE" shall mean the per annum interest rate
established by Comerica Bank-Canada as its prime rate for its borrowers as such
rate may vary from time to time, which rate is not necessarily the lowest rate
on loans made by Comerica Bank-Canada at any such time.
1.11 "CANADIAN SUBFACILITY" shall mean a subfacility for advances under
the Facility provided for in Article 2 of this Agreement up to the Canadian Sub
facility Maximum.
1.12 "CANADIAN SUBFACILITY MAXIMUM" shall mean as of any date, the
lesser of (a) the Formula Amount with respect to the Canadian Subfacility; or
(b) CAN $1,000,000.
1.13 "CASH COLLATERAL" shall mean good funds on deposit with Bank in
the name of Borrower and pledged to Bank as security for indebtedness of
Borrower to Bank.
1.14 "COLLATERAL" shall mean all property of the Borrower now or
hereafter in the possession of the Bank or any Affiliate of the Bank (or as to
which the Bank or any Affiliate of the Bank now or hereafter controls possession
by documents or otherwise), all amounts in all deposit or other accounts
(including without limit an account evidenced by a certificate of deposit) of
the Borrower now or hereafter with the Bank or any Affiliate of the Bank and all
of Borrower's Accounts, Chattel Paper, Documents, Equipment, Fixtures, General
Intangibles, Goods, Instruments and Inventory, wherever located and whether now
owned or hereafter acquired, together with all replacements of any of the
foregoing, substitutions therefor, accessions thereto, and all proceeds and
products of all the foregoing, and all additional property (real or personal) of
the Borrower which is now or hereafter subject to a security interest, mortgage,
lien, claim or other encumbrance granted by the Borrower to, or in favor of, the
Bank.
1.15 "DEBT" shall mean, as of any applicable date of determination, all
items of indebtedness, obligation or liability of a person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP.
1.16 "DEFAULT" shall mean, an event or occurrence which, with the
giving of notice and/or the passage of time, would constitute an Event of
Default hereunder.
1.17 "EFFECTIVE TANGIBLE NET WORTH" shall mean Total Assets plus
Subordinated Debt less Total Liabilities and Soft Assets.
1.18 "EFFECTIVE TANGIBLE NET WORTH RATIO" shall mean a ratio, the
numerator of which is the Total Liabilities less Subordinated Debt and the
denominator of which is Effective Tangible Net Worth.
1.19 "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean Accounts Receivable
which meet the following requirements:
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(a) it is not owing more than ninety (90) days from the invoice
date on the invoice evidencing such Account;
(b) it arises from the sale or lease of goods and such goods
have been shipped or delivered to the Account Debtor under such Account; or
it arises from services rendered and such services have been performed,
excluding however, Accounts representing customer deposits due but not yet
paid;
(c) it is evidenced by an invoice, dated not later than the
date of shipment or performance, rendered to such Account Debtor or some
other evidence of billing reasonably acceptable to Bank;
(d) it is not evidenced by any note, trade acceptance, draft or
other negotiable instrument or by any chattel paper;
(e) it is a valid, legally enforceable obligation of the
Account Debtor thereunder, and is not subject to any defense on the part of
such Account Debtor and, if subject to any claim on the part of such Account
Debtor denying liability thereunder in whole or in part only the undisputed
portion shall only be thereof included as an Eligible Account receivable;
(f) it is not subject to any sale of accounts, any rights of
offset (except as set forth in Section 1.19(o) below), assignment, lien or
security interest whatsoever;
(g) it is not owing by an Account Debtor which is a Foreign
Person;
(h) it is not a Government Account, except to the extent that
(i) not more the Two Hundred Fifty Thousand Dollars ($250,000) is includable
in the calculation of the Formula Amount with respect to Government Accounts,
or (ii) the Federal Assignment of Claims Act of 1940 applies thereto, and all
necessary steps are taken to comply with the Federal Assignment of Claims Act
of 1940, as amended, and with any comparable state law, if applicable, and
all other necessary steps are taken to perfect Bank's security interest in
such account;
(i) it is not owing by an Account Debtor for which a
Borrower has received any notice of (i) the death of the Account Debtor, (ii)
the dissolution, liquidation, termination of existence, insolvency or
business failure of the Account Debtor, (iii) the appointment of a receiver
for any part of the property of the Account Debtor, or (iv) an assignment for
the benefit of creditors, the filing of a petition in bankruptcy, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against the Account Debtor (which notice, in the case of a notice of an event
described in clauses (ii) through (iv), has not been revoked or annulled);
(j) it is not an Account payable at a future date in accordance
with its terms (other than an Account payable within sixty (60) days of the
invoice date), billed in advance, payable on delivery, for goods which are
placed on consignment, guaranteed sale or other terms by reason of which the
payment by the Account Debtor may be conditional, for guaranteed sales, for
unbilled sales, for progress xxxxxxxx, subject to a retainage or holdback by
the Account Debtor or insured by a surety company, wherein the primary
recourse is to such surety company rather than the Account Debtor;
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(k) it is not owing by any Account Debtor whose obligations
Bank, acting in its reasonable business discretion, shall have notified
Borrower are not deemed to constitute Eligible Accounts;
(l) it is not an Eligible Foreign Account Receivable;
(m) it is not an Account with respect to which the Account
Debtor is an officer, employee, partner, joint venturer or agent of Borrower;
(n) it is not an Account with respect to which the Account
Debtor is a subsidiary of, related to, affiliated or has common shareholders,
officers or directors with Borrower;
(o) if it is an Account with respect to which Borrower is
liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower only the portion thereof exceeding Borrower's
obligation to such Account Debtor shall be included as an Eligible Account;
and
(p) it is not an Account due from a particular Account Debtor
as to which over twenty-five percent (25%) of the aggregate amount owing from
such Account Debtor is greater than ninety (90) days from the date of
invoice, other than Accounts which are supported by a commercial letter of
credit or credit insurance satisfactory to Bank or Accounts with an Account
Debtor satisfactory to Bank.
An Account Receivable which is at any time an Eligible Account Receivable,
but which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be an Eligible Account Receivable unless and until it
meets all of the foregoing requirements again.
1.20 "ELIGIBLE FOREIGN ACCOUNT RECEIVABLE" shall mean an Account
Receivable which meets each of the following requirements:
(a) it arises from an Account Receivable where the Account
Debtor is a Foreign Person;
(b) the payment of such Account Receivable is (i) insured by an
export credit insurance policy satisfactory to Bank or (ii) one hundred
percent (100%) supported by a commercial letter of credit, unless as to both
subsections (b)(i) and (ii) if the Foreign Person is Canadian or the Account
Receivable is specifically approved by Bank; and
(c) it meets requirements (a) through (f), (i) through (k), and
(m) through (o) of Eligible Account Receivable; provided, however, that with
respect hereto, Section 1.19(j) shall be subject to Section 1.20(b)(i).
An Account Receivable which is at any time an Eligible Foreign Account
Receivable, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible Foreign Account Receivable
unless and until it meets all of the foregoing requirements again.
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1.21 "ELIGIBLE INVENTORY" shall mean all Inventory which is in good and
merchantable condition, is not obsolete or discontinued, and which would
properly be classified as "work-in-process", "raw materials", or as "finished
goods inventory" under generally accepted accounting principles, consistently
applied, excluding (a) consigned goods and inventory located outside the United
States of America, (b) inventory covered by or subject to a seller's right to
repurchase, or any consensual or nonconsensual lien or security interest
(including without limitation purchase money security interests) other than in
favor of Bank, whether senior or junior to Bank's security interest, (c)
inventory that Bank, acting in its reasonable discretion, after having notified
Borrower, excludes. Inventory which is at any time Eligible Inventory, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be Eligible Domestic Inventory unless and until it meets all of the
foregoing requirements again.
1.22 "ENVIRONMENTAL LAWS" shall mean all federal, state and local laws
including statutes, regulations, ordinances, codes, rules, and other
governmental restrictions and requirements, relating to environmental pollution,
contamination or other impairment of any nature, any hazardous or other toxic
substances of any nature, whether liquid, solid and/or gaseous, including smoke,
vapor, fumes, soot, acids, alkalis, chemicals, wastes, by-products, and recycled
materials.
1.23 "EQUIVALENT AMOUNT" shall mean (i) with respect to each advance
made or carried (or to be carried) in Dollars under the principal amount thereof
and (ii) with respect to each Advance made or carried (or to be carried) in
Canadian Dollars, the amount of United States Dollars which is equivalent to
such amount at the spot exchange determined by Bank making or carrying such
Advance to be available at approximately 11:00 a.m. (Bank time) two (2) Business
Days before such Advance is made.
1.24 "EVENT OF DEFAULT" shall mean the occurrence of any of the events
described in Section 8 hereof.
1.25 "EUROCURRENCY-BASED LOAN" shall mean a Loan at any time during
which such Loan bears interest at a Eurocurrency-based Rate.
1.26 "EUROCURRENCY-BASED RATE" shall mean a per annum interest rate
equal to the Eurocurrency Rate, plus 3.25% per annum.
1.27 "EUROCURRENCY RATE" shall mean, for any Eurocurrency-based Loan:
(a) (i) in the case of Eurocurrency-based Loans denominated in
Canadian Dollars under the Canadian Subfacility, the per annum interest rate at
which the Bank's eurocurrency lending office offers deposits in the Canadian
Dollars to prime banks in the eurocurrency market in an amount comparable to the
relevant Eurocurrency-based Loan and for a period equal to the relevant Interest
Period at approximately 11:00 a.m. Detroit time two (2) Business Days prior to
the first day of such Interest Period; and
(ii) in the case of Eurocurrency-based Loans denominated in
United States Dollars, under the Facility the per annum interest rate at which
the Bank's eurocurrency lending office offers deposits in applicable
Eurocurrency to prime banks in the Eurocurrency market in an amount comparable
to the relevant Eurocurrency-based Loan and for a period equal
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to the Interest Period therefore at approximately 11:00 a.m. Detroit time two
(2) Business Days prior to the first day of such Interest Period; divided by,
(b) a percentage (expressed as a decimal) equal to one hundred
percent (100%) minus that percentage which is in effect on the date for an
Advance of a Eurocurrency-based Loan, as prescribed by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirements for a member bank of the Federal Reserve System with
deposits exceeding five billion dollars in respect of "Euro-currency
Liabilities" (or in respect of any other category of liabilities which
includes deposits by reference to which the interest rate on
Eurocurrency-based Loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United States
Eurocurrency Lending Office of such a bank to United States residents).
1.28 "FACILITY" shall mean the facility for Advances to Borrower
provided for in Section 2 of this Agreement.
1.29 "FACILITY MAXIMUM" shall mean as of any date, the lesser of (a)
the Formula Amount; or (b) $20,000,000 (inclusive of amounts advanced under the
Canadian Subfacility).
1.30 "FOREIGN PERSON" shall mean any person, entity, firm or
corporation (i) whose principal office is located outside of the United States,
(ii) is not incorporated or organized under the laws of the United States of
America or any state thereof, or (iii) is the government of any foreign country
or sovereign state, or of any state, province, municipality or other political
subdivision thereof or any department or agency thereof.
1.31 "FORMULA AMOUNT" shall mean, as of the date of any determination
thereof, the sum of:
(a) in the case of the Canadian Subfacility eighty percent
(80%) of Borrower's Canadian Dollar denominated Eligible Accounts Receivable
(exclusive of any Government Accounts);
(b) in the case of the Facility the sum (without
duplication) of (1) eighty percent (80%) of its Eligible Accounts Receivable,
plus (2) eighty percent (80%) of its Eligible Foreign Accounts Receivable up
to $3,000,000, plus (3) the lesser of eighty percent (80%) of the Orderly
Liquidation Value of its Eligible Inventory or $10,000,000.
1.32 "GAAP" shall mean generally accepted accounting principles in the
United States of America, applied consistently.
1.33 "GOVERNMENT ACCOUNT" shall mean an Account owing by the United
States of America or any state or political subdivision thereof, or by any
department, agency, public body corporate or other instrumentality of any of the
foregoing.
1.34 "INDEBTEDNESS" " shall mean all loans, advances, indebtedness,
obligations and liabilities of the Borrower to the Bank under the Note(s), this
Agreement and the Loan Documents, together with all other indebtedness,
obligations and liabilities whatsoever of the Borrower to the Bank, whether
matured or unmatured, liquidated or unliquidated, direct or
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indirect, absolute or contingent, joint or several, due or to become due, now
existing or hereafter arising.
1.35 "INTEREST PERIOD" shall mean an interest period for a
Eurocurrency-based Loan of one (1), three (3), or six (6) months, provided
however, that:
(a) any Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding Business
Day unless the next succeeding Business Day falls in another calendar month,
in which case, such Interest Period shall end on the immediately preceding
Business Day; and
(b) no Interest Period may end after the Maturity Date.
1.36 "LOAN DOCUMENTS" shall mean this Agreement, the Notes, the
Security Agreements, and all other documents, instruments or agreements executed
and/or delivered to Bank pursuant hereto or pursuant to any of the foregoing.
1.37 "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect,
or the occurrence of any event or the existence of any condition that has or
could reasonably be expected to have a material adverse effect, on (a) the
business or financial condition or performance of Borrower and its subsidiaries
taken as a whole, (b) the ability of Borrower to pay the Debt when due, (c) the
validity or enforceability of any of the Loan Documents, and lien created or
purported to be created by any of the Loan Documents or the required priority of
any such lien, or (d) any material right or remedy of Bank under any of the Loan
Documents.
1.38 "MATURITY DATE" shall mean: August 3, 2001.
1.39 "NET WORTH" shall mean the net worth of Borrower, determined in
accordance with GAAP.
1.40 "NOTE" shall mean a Note issued by Borrower in the form attached
as Exhibit "A" hereto as evidence of Advances under the Facility.
1.41 "NOTE(S)" shall mean the Note and any other promissory note
heretofore or hereafter made by Borrower to Bank as evidence of indebtedness, or
any one or more of the foregoing, including, but not limited to any note
executed by Borrower to evidence an Advance under the Canadian Subfacility.
1.42 "ORDERLY LIQUIDATION VALUE" shall mean the estimated probable
price which could typically be realized at a properly advertised and conducted
public auction sale, held under orderly sale conditions and under present day
economic trends determined by Bank on the basis of appraisals thereof delivered
to Bank in form, content and cost satisfactory to Bank and otherwise subject to
the following schedule:
(a) delivery of desk top appraisals on DRAM and memory
modules on the first business day of each consecutive calendar month;
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(b) delivery of desk top appraisals for all Inventory on a
semi-annual basis; and
(c) delivery of complete on-site/physical appraisal for all
Inventory annually.
1.43 "PERMITTED LIENS" shall mean:
(a) liens and encumbrances in favor of Bank;
(b) liens for taxes, assessments or other governmental
charges incurred in the ordinary course of business and not yet past due or
being contested in good faith by appropriate proceedings and with proper
reserves therefor maintained in accordance with GAAP;
(c) liens not delinquent created by statute in connection
with worker's compensation, unemployment insurance, social security and
similar statutory obligations;
(d) liens of mechanics, materialmen, carriers, warehousemen
or other like statutory or common law liens securing obligations incurred in
good faith in the ordinary course of business that are not yet due and
payable or that are being contested in good faith by appropriate proceedings
and with proper reserves therefor maintained in accordance with GAAP;
(e) encumbrances consisting of easements, rights of way,
zoning restrictions or other similar restrictions on the use of real
property, none of which materially impairs the use of such property by
Borrower in the operation of the business for which it is used and none of
which is violated in any material respect by any existing or proposed
structure or land use;
(f) liens on real estate, furniture, fixtures and equipment
for purchase money financing (including loans and leases) hereafter existing
used for capital expenditures permitted under Section 7.10 hereof;
(g) liens arising by operation of law in connection with
judgments being appealed;
(h) liens on property acquired by a Borrower or any
subsidiary to the extent such Liens are in existence when such property or
subsidiary was acquired and were not made in anticipation of such
acquisition; and
(i) liens described on Schedule 1.43(i) hereof.
1.44 "PRIME RATE" shall mean the per annum interest rate established by
Bank as its prime rate for its borrowers as such rate may vary from time to
time, which rate is not necessarily the lowest rate on loans made by Bank at any
such time.
1.45 "PRIME-BASED ADVANCE" shall mean an Advance which bears interest
at the Prime-based Rate or the Canadian Prime Rate, with respect to the Canadian
Subfacility, as the case may be.
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1.46 "PRIME-BASED RATE" shall mean a per annum interest rate which is
equal to the Prime Rate or the Canadian Prime Rate, with respect to the Canadian
Subfacility, plus .5%.
1.47 "SECURITY AGREEMENTS" shall mean security agreements in form and
content satisfactory to Bank pursuant to which Borrower grants to Bank a
security interest in all of its tangible and intangible personal property,
whether now owned or hereafter existing or arising.
1.48 "SOFT ASSETS" shall mean patents, patent rights, trademarks, trade
names, copyrights, franchises, licenses, goodwill and other intangible assets
(other than Accounts Receivable) of Borrower.
1.49 "SUBORDINATED DEBT" shall mean the indebtedness of Borrower, the
repayment of which has been subordinated to the prior payment and performance of
all of Borrower's indebtedness and obligations to Bank, pursuant to a written
subordination agreement in form and content satisfactory to Bank.
1.50 "TOTAL ASSETS" shall mean the assets of Borrower, determined in
accordance with GAAP.
1.51 "TOTAL LIABILITIES" shall mean shall mean the liabilities of
Borrower, determined in accordance with GAAP.
1.52 "WIP" shall mean shall mean the work in process of Borrower,
determined in accordance with GAAP.
1.53 "YEAR 2000 ISSUE" shall mean the risk of computer hardware,
software or equipment containing imbedded micro chips which perform functions
relevant to the business or operation of a Borrower which will not, in the
case of dates occurring after December 31, 1999, function as effectively and
reliably as in the case of dates occurring prior to such date.
2. INDEBTEDNESS: FACILITY
2.1 Bank agrees to make Advances under the Note(s) from time to time
from the effective date hereof until the Maturity Date, in aggregate
principle amount at any time outstanding not to exceed the Facility Maximum.
All of the Advances hereunder shall be evidenced by the Note(s) under which
advances, repayments and re-advances may be made, subject to the terms and
conditions of this Agreement.
2.2 Borrower may request an Advance by delivery to Bank of a Request
for Loan executed by an authorized officer of Borrower (which delivery may be
made by facsimile with original following within a week by courier or mail)
and subject to the following:
(a) each such Request for Loan shall set forth the
information required on the Request for Loan form and shall set forth whether
the request is for an Advance under the Canadian Subfacility;
(b) each such Request for Loan shall be delivered to Bank
by 3:00 p.m. three (3) Business Days prior to the proposed date of Advance,
except if the Applicable Interest Rate
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for such Advance is to be the Prime-based Rate, such Request for Loan must be
delivered by 3:00 p.m. (Detroit time) on such proposed date;
(c) if the Request for Loan is a request for a
Eurocurrency-based Loan, the principal amount of the Advance requested shall
be at least Five Hundred Thousand Dollars ($500,000) or an integral multiple
thereof; and
(d) each Request for Loan shall constitute a certification
by the Borrower as of the date thereof that all of the conditions set forth
in Section 4 hereof are satisfied as of the date of such request and shall be
satisfied as of the date such Advance is requested.
2.3 The Note(s) shall mature on the Maturity Date when all outstanding
principal and interest shall be due, and each Advance from time to time
outstanding thereunder shall bear interest at the Applicable Interest Rate. The
amount and date of each Advance, and the amount and date of any repayment shall
be noted on Bank's records, which records will be conclusive evidence thereof
absent manifest error.
2.4 Interest shall be payable on all Prime-based Advances, monthly, on
the first Business Day of each month. Interest shall be payable on each
Eurocurrency-based Advance on the last day of its Interest Period and, if such
Interest Period has a duration of longer than three (3) months, also at each
three month interval from the first day of such interest period.
2.5 Borrower shall pay to Bank:
(a) concurrently with the execution of this Agreement, the
amount of the expenses (including without limit reasonable attorneys' fees,
whether of inside or outside counsel, and disbursements) incurred by the Bank in
connection with the preparation and closing of this Agreement and related
instruments and/or making of advances hereunder, including but not limited to
costs to conduct audits, monitoring and appraisals;
(b) concurrently with the execution of this Agreement, a
non-refundable closing fee in the amount of Seventy Five Thousand Dollars
($75,000);
(c) on an ongoing basis, (i) all audit costs, limited to
four (4) audits per annum, in the amount of $750 per day per auditor and (ii)
collateral monitoring costs of Bank in the amount of $500 per month, with
such audit and monitoring costs subject to periodic increases by Bank as are
usual and customary in connection with the Bank's cost of doing business.
Borrower shall pay all inventory appraisal fees directly to
such appraiser(s).
2.6 The amount of all interest and fees hereunder shall be computed for
the actual number of days elapsed on the basis of a year consisting of three
hundred sixty (360) days.
2.7 Any payment of the Indebtedness made by mail will be deemed
tendered and received only upon actual receipt by the Bank at the address
designated for such payment, whether or not the Bank has authorized payment by
mail or any other manner, and shall not be deemed to have been made in a timely
manner unless received on the date due for such payment, time being of the
essence. The Borrower expressly assumes all risks of loss or liability resulting
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from non-delivery or delay of delivery of any item of payment transmitted by
mail or in any other manner. Acceptance by the Bank of any payment in an amount
less than the amount then due shall be deemed an acceptance on account only.
2.8 Notwithstanding anything herein to the contrary, in the event and
so long as an Event of Default shall exist, all principal outstanding under the
Note shall bear interest, payable on demand, from the date of such Event of
Default at a rate per annum equal to:
(a) in the case of a Prime-based Loan, two and one half
percent (2.5%) above the Prime-base Rate; and
(b) in the case of a Eurocurrency-based Loan, two and one
half percent (2.5%) above the Eurocurrency-based Rate until the end of the
then current Interest Period, at which time such Eurocurrency-based Loans
shall be automatically converted into Prime-based Loans and bear interest at
the rate provided for in clause (a) above.
2.9 Providing that no Event of Default shall have occurred and be
continuing, the Borrower may elect to renew or convert Applicable Interest Rates
applicable to Advances from the Prime-based Rate to the Eurocurrency-based Rate
or from the Eurocurrency-based Rate to the Prime-based Rate, provided that any
conversion of a Eurocurrency-based Loan shall be made only on the last Business
Day of the Interest Period applicable to such Eurocurrency-based Loan. If the
Borrower desires such a renewal or conversion, it shall give Bank not less than
three (3) Business Days' prior notice in the manner provided in Section 2.2
hereof, specifying the date of such renewal or conversion, the Advances to be
converted and the type of Advances elected. If with respect to any
Eurocurrency-based Loan outstanding at any time the Bank does not receive notice
of the election from a Borrower not less than three (3) Business Days prior to
the last day of the Interest Period therefor, the Borrower shall be deemed to
have elected to convert such Eurocurrency-based Loan to a Prime-based Loan at
the end of the then current Interest Period unless such Eurocurrency-based Loan
is repaid upon the last day of such Interest Period.
2.10 In the event that Borrower shall terminate this Agreement on or
before the Maturity Date, Borrower shall be obligated to pay to Bank, as a
condition to such termination and prior to the release of Bank's liens and
encumbrances, the amount of: (a) Four Hundred Thousand Dollars ($400,000) if
such termination occurs before the first anniversary hereof; or (b) Two Hundred
Thousand Dollars ($200,000) if such termination occurs on or after the first
anniversary hereof but before the second anniversary of this Agreement. This
Early Termination Compensation shall be waived if the Loan is replaced by
another credit facility with Bank.
2.11 If the Equivalent Amount of Advances outstanding under the Loan
exceeds the Facility Maximum, then Borrower shall immediately repay Advances by
the amount necessary so that, after payment, the Equivalent Amount of Advances
shall not be greater than the Facility Maximum.
3. SPECIAL PROVISIONS FOR EUROCURRENCY-BASED LOANS
3.1 As to any Advances, if any prepayment thereof shall occur on any
day other than the last day of an Interest Period (in the case of a
Eurocurrency-based Loan) or the first day of an Interest Period (with regard to
a Prime-Based Loan) (whether pursuant to this Article, or by
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acceleration, or otherwise), or if an Applicable Interest Rate shall be changed
during any Interest Period pursuant to this Article, the Borrower agrees to
reimburse Bank any costs incurred by Bank as a result of the timing thereof
including but not limited to any net costs incurred in liquidating or employing
deposits from third parties, upon Bank's delivery to Borrower of a certificate
setting forth in reasonable detail the basis for determining such costs, which
certificate shall be conclusively presumed correct save for manifest error.
3.2 For any Advance for which the Applicable Interest Rate is the
Eurocurrency-based Rate, if Bank shall designate a Eurocurrency lending office
which maintains books separate from those of the rest of Bank, Bank shall have
the option of maintaining and carrying the relevant advance on the books of such
office.
3.3 If Bank determines that, by reason of circumstances affecting the
foreign exchange and interbank markets generally, deposits in Eurocurrencys in
the applicable amounts are not being offered to Bank for an Interest Period,
then Bank shall forthwith give notice thereof to the Borrower. Thereafter, the
obligation of Bank to make Eurocurrency-based Loans, and the right of Borrower
to convert an Advance to or refund an Advance as a Eurocurrency-based Loan shall
be suspended and all subsequent Loans, and renewals and conversions of then
outstanding Loans shall be Prime-based Loans bearing interest at the Prime-based
Rate until the Bank notifies Borrower that such circumstance no longer exists.
3.4 If, after the date hereof, the introduction of, or any change in,
any applicable law, rule or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by Bank (or its
Eurocurrency lending offices) with any request or directive (whether or not
having the force of law) of any such authority, shall make it unlawful or
impossible for Bank to honor its obligations hereunder to make or maintain any
Advance with interest at the Eurocurrency-based Rate, Bank shall forthwith give
notice thereof to Borrower. Thereafter: (a) the obligations to make
Eurocurrency-based Loans and the right of Borrower to convert an Advance or
refund an Advance as a Eurocurrency-based Loan shall be suspended; and (b) if
Bank may not lawfully continue to maintain a Eurocurrency-based Loan to the end
of the then current Interest Period, the Prime-based Rate shall be the
Applicable Interest Rate for such Eurocurrency-based Loan for the remainder of
such Interest Period.
3.5 In the event that any change after the date hereof in applicable
law, treaty or governmental regulation, or in the interpretation or application
thereof, or compliance by Bank with any request or directive (whether or not
having the force of law) from any central bank or other financial, monetary or
other authority:
(a) shall subject Bank (or its Eurocurrency lending office)
to any tax, duty or other charge with respect to any Advance or shall change
the basis of taxation of payments to Bank (or its Eurocurrency lending
office) of the principal of or interest on any Advance or any other amounts
due under this Agreement (except for changes in the rate of tax on the
overall net income or gross receipts of Bank or its Eurocurrency lending
office imposed by the jurisdiction in which Bank's principal executive office
or Eurocurrency lending office is located); or
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(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System but excluding with respect to any Eurocurrency-based
Loan any such requirement included in an applicable Eurocurrency Reserve
Requirement), special deposit, or similar requirement against assets of,
deposits with or for the account of, or credit extended by Bank (or its
Eurocurrency lending offices) or shall impose on Bank (or its Eurocurrency
lending offices) or the foreign exchange and interbank markets or other
condition affecting any Advance or any commitment of Bank under this
Agreement; and the result of any of the foregoing is to increase the cost to
Bank of making, renewing or maintaining any Advance or its commitments
hereunder or to reduce the amount or rate of return on any sum received or
receivable by Bank under this Agreement, or under any Note, then Bank may
promptly notify Borrower of such fact and demand compensation therefor and
Borrower agrees to pay to Bank (so long as such event or circumstance
continues to exist) such additional amount or amounts as will compensate Bank
for such increased costs or reduced return within thirty (30) days of such
notice; provided, however that, to the extent doing so would eliminate or
decrease Borrower's liability for increased costs hereunder, and to the
extent that doing so would not otherwise be disadvantageous to Bank, Bank
will attempt to designate a Eurocurrency lending office for which the tax,
duty, reserve, deposit requirement, or other circumstance giving rise to
Bank's demand for increased compensation, is not applicable. A certificate of
the Bank demanding such compensation setting forth in reasonable detail the
basis for determining such additional amount or amounts necessary to
compensate shall be conclusively presumed to be correct save for manifest
error.
3.6 At no time shall there be greater than three (3) outstanding
Advances on a Eurocurrency-based Loan.
4. CONDITIONS AND SECURITY
4.1 Borrower shall have executed and delivered to Bank, or caused to
have been executed and delivered to the Bank, this Agreement, the Note(s) and
all other applicable Loan Documents (including all schedules, exhibits,
certificates, opinions, financial statements and other documents to be delivered
pursuant hereto), and the Note(s) and other applicable Loan Documents (when
executed and delivered to Bank) shall be in full force and effect and binding
and enforceable obligations of Borrower and any other persons who may be parties
thereto, except to the extent limited by applicable bankruptcy, insolvency or
other insolvency laws.
4.2 Bank shall have received: (a) certified copies of resolutions of
the Board of Directors of Borrower evidencing approval of the borrowings
hereunder and the transactions contemplated hereby, (b) certified copies of
Borrower's Articles of Incorporation and Bylaws; and (c) a certificate of good
standing from the state or other jurisdiction of Borrower's incorporation, and
from each state or other jurisdiction in which Borrower is required, under
applicable law, to be qualified to do business.
4.3 Bank shall have received copies of each authorization, license,
permit, consent, order or approval of, or registration, declaration or filing
with, any governmental authority or any securities exchange or other person
obtained or made by Borrower in connection with the transactions contemplated by
this Agreement or the Loan Documents.
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4.4 Bank shall have received evidence of satisfaction of the Federal
Assignment of Claims Act required for any Government Account included in the
Formula Amounts set forth therein, if applicable.
4.5 The representations and warranties made by Borrower under this
Agreement or any of the Loan Documents, and the representations and warranties
of any of the foregoing made to Bank which are contained in any certificate,
document or financial or other statement furnished at any time hereunder or
thereunder or in connection herewith or therewith, shall have been true and
correct in all material respects when made.
4.6 Bank shall have received duly executed Loan Documents and Borrower
shall have performed and complied in all material respects with all agreements
and conditions contained in the Loan Documents applicable to it which are then
in effect.
4.7 No Default or Event of Default shall have occurred and be
continuing and there shall have been no material adverse change in the condition
(financial or otherwise), properties, business, results or operations of
Borrowers since the date of the financial statements mentioned in Section 4.9
hereof.
4.8 Bank shall have received such other instruments and documents (not
inconsistent with the terms hereof) as Bank may request in connection with the
making of the Advances hereunder, and all such instruments and documents shall
be reasonably satisfactory in form and substance to the Bank.
4.9 Bank shall have received and be satisfied with Borrower's final
draft of the financial statement for the fiscal year ending 1998 unqualified
audited by an independent certified public accountants of recognized standing.
Notwithstanding the foregoing, within five (5) business days of the effective
date of this Agreement, Bank shall have received and be satisfied with
Borrower's financial statement for the fiscal year ending 1998 audited, without
qualifications, by an independent certified public accountants of recognized
standing, together with delivery to Bank of a typical "management letter"
within 10 business days with respect to the Borrower.
4.10 Bank shall have received and be satisfied with a completed updated
appraisal of the Orderly Liquidation Value of the Inventory prepared by
independent licensed appraisers satisfactory to Bank.
4.11 The obligations of Bank to make Advances under this Agreement
shall be subject to the continuing condition that all documents, instruments and
agreements executed or submitted pursuant hereto shall be reasonably
satisfactory in form and substance to Bank; Bank shall have received all
information, and such counterpart originals or such certified or other copies of
such materials, as Bank and its counsel may reasonably request; and all other
legal matters relating to the transactions contemplated by this Agreement
(including, without limitation, matters arising from time to time as a result of
changes occurring with respect to any statutory, regulatory or decisional law
applicable hereto) shall be reasonably satisfactory to Bank.
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5. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants and such representations and
warranties shall be deemed to be continuing representations and warranties
during the entire life of this Agreement:
5.1 Borrower is a corporation duly organized and existing in good
standing under the laws of the State of California; is duly qualified and
authorized to do business in each jurisdiction where the character of its assets
or the nature of its activities makes such qualification necessary; execution,
delivery and performance of this Agreement, and any other documents and
instruments required under this Agreement, and the issuance of the Note(s) are
within its corporate powers, have been duly authorized, are not in contravention
of law or the terms of the Articles of Incorporation or Bylaws of Borrower and
do not require the consent or approval of any governmental body, agency or
authority that has not been obtained; and this Agreement, and any other
documents and instruments required under this Agreement, when issued and
delivered under this Agreement, will be valid and binding upon Borrower in
accordance with their terms subject only to applicable bankruptcy, insolvency
laws and equitable principles.
5.2 The execution, delivery and performance of this Agreement, and any
other documents and instruments required under this Agreement, and the issuance
of the Note(s), are not in contravention of the unwaived terms of any indenture,
agreement or undertaking to which Borrower is a party or by which it is bound
the breach of which could have a material adverse effect on the properties,
business or prospects of Borrower.
5.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of the officers of
Borrower is threatened against Borrower other than as set forth on Schedule 5.3
the outcome of which could have a material adverse effect on the properties,
business or prospects of Borrower. Borrower shall notify Bank of all litigation
commenced or threatened after the date of this Agreement that would have a
material adverse effect on the properties, business or prospects of Borrower.
5.4 There are no security interests in, liens, mortgages, or other
encumbrances on any of Borrower's assets, except to Bank or except for Permitted
Liens.
5.5 There are no subsidiaries of Borrower except for those in
attached Schedule 5.5.
5.6 There exists no default under the provisions of any instrument
evidencing any debt of Borrower or of any agreement relating thereto (other than
to Bank), that would have a Material Adverse Effect.
5.7 Borrower is not a party to any litigation or administrative
proceeding, nor so far as is known by Borrower is any litigation or
administrative proceeding threatened against Borrower, in either case, the
outcome of which if determined adversely would materially impair the financial
condition of Borrower or its ability to carry on its business, which in either
case (A) asserts or alleges that Borrower violated Environmental Laws, (B)
asserts or alleges that Borrower is required to clean up, remove, or take
remedial or other response action due to the disposal, depositing, discharge,
leaking or other release of any hazardous substances of materials,
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(C) asserts or alleges that Borrower is required to pay all or a portion of the
cost of any past, present, or future cleanup, removal or remedial or other
response action which arises out of or is related to the disposal, depositing,
discharge, making or other release of any hazardous substances or materials by
Borrower.
5.8 There are no conditions existing currently or likely to exist
during the term of this Agreement which would subject Borrower to material
damages, penalties, injunctive relief or cleanup costs under any applicable
Environmental Laws or which require or are likely to require material cleanup,
removal, remedial action or other response pursuant to applicable Environmental
Laws by Borrower.
5.9 Borrower is not subject to any judgment, decree, order or citation
related to or arising out of applicable Environmental Laws and to the best
knowledge of Borrower after due inquiry, Borrower has not been named or listed
as a potentially responsible party by any governmental body or agency in a
matter arising under any applicable Environmental Laws.
5.10 Borrower has all permits, licenses and approvals required under
applicable Environmental Laws.
5.11 Borrower has reviewed its operations and is in the process of
reviewing its major commercial counterparts with a view to assessing whether it
will, in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data, be vulnerable to a Year
2000 Issue. Based on such review, Borrower has no reason to believe that any
Material Adverse Effect will occur with respect to its businesses or operations
resulting from a Year 2000 Issue.
6. AFFIRMATIVE COVENANTS OF BORROWER
On a continuing basis from the date of this Agreement until the
Indebtedness is paid in full and the Borrower has performed all of its other
obligations hereunder, the Borrower covenants and agrees that it will:
6.1 Financial and Other Information.
(a) Furnish to the Bank, in form and reporting basis satisfactory to
the Bank, not later than ninety (90) days after the close of each fiscal year of
the Borrower, financial statements of the Borrower containing the balance sheet
of the Borrower of the close of each such fiscal year, statements of income and
retained earnings and a statement of cash flows for each such fiscal year, and
such other comments and financial details as are usually included in similar
reports. Such reports shall be prepared in accordance with GAAP by independent
certified public accountants of recognized standing selected by the Borrower and
acceptable to the Bank and shall contain (i) unqualified opinions as to the
fairness of the statements therein contained and (ii) a typical "management
letter" with respect to Borrower. These statements shall be prepared on an
audited basis.
(b) Furnish to the Bank not later than thirty (30) days after the close
of each month of each fiscal year of the Borrower, unaudited financial
statements on a consolidated basis containing the balance sheet of the Borrower
as of the end of each such period, statements of
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income and retained earnings of the Borrower and a statement of cash flows of
the Borrower for the portion of the fiscal year up to the end of such period,
and such other comments and financial details as are usually included in similar
reports. The statements shall be in such detail as the Bank may reasonably
require, and the accuracy of the statements shall be certified by the chief
executive or financial officer of the Borrower.
(c) Furnish to the Bank on a quarterly basis, a certificate of its
chief executive or financial officer certifying compliance with the financial
covenants set forth in Section 6.8.
(d) Together with each delivery of the financial statements required by
Sections 6.1(a) and 6.1(b) of this Agreement, furnish to the Bank a certificate
of its chief executive or financial officer stating that no Event of Default or
Default has occurred, or if any such Event of Default or Default exists, stating
the nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto.
(e) Furnish to Bank not later than ten (10) days after and as of the
end of each month, Inventory reports, agings of the Accounts and any accounts
payable of Borrower, and a schedule identifying each Eligible Account and
identifying for each Eligible Account, the portions thereof which constitute
Eligible Foreign Accounts. Any such schedule, certificate or report shall be
executed by a duly authorized officer of Borrower and shall be in such form and
detail as Bank may specify.
(f) Furnish to the Bank upon presentment of each Request for Loan but
in any event no later than five (5) days after and as of the end of each week,
in form, content, and reporting basis satisfactory to the Bank, a Borrowing Base
report.
(g) Furnish to the Bank, in form and reporting basis satisfactory to
the Bank, prior to the commencement of each fiscal year of the Borrower,
projected financial statements of the Borrower containing the balance sheet of
the Borrower of the beginning of each such fiscal year, statements of income and
retained earnings and a statement of cash flows for each such fiscal year, and
such other comments and financial details as are usually included in similar
reports prepared by management of Borrower utilizing their then current
knowledge and reasonable expectations with respect to the periods covered
thereby.
(h) Promptly inform the Bank of the occurrence of any Event of Default
or Default, or of any other occurrence which has or could reasonably be expected
to have a materially adverse effect upon the Borrower's business, properties, or
financial condition or upon the Borrower's ability to comply with its
obligations under the Documents.
(i) Promptly furnish to the Bank such other information regarding the
operations, business affairs and financial condition of the Borrower and its
subsidiaries as the Bank may reasonably request from time to time, including,
but not limited to monthly DRAM desktop inventory appraisal updates, semi-annual
desk top Inventory appraisals (as provided in Section 1.42 above) and weekly
Inventory reporting and permit the Bank, its employees, attorneys and agents,
upon 72 hours prior notice (except in case of emergency or during the existence
of an Event of Default) to inspect all of the books, records and properties of
the Borrower and its subsidiaries during normal business hours.
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6.2 In the event that at any time, the aggregate principal amount of
Advances exceeds the Facility Maximum, immediately pay to Bank for application
against such Advances, an amount sufficient to eliminate such excess.
6.3 Keep its insurable properties (including but not limited to the
Collateral) adequately insured and maintain (a) insurance against fire and other
risks customarily insured against under an "all-risk" policy and such additional
risks customarily insured against by companies engaged in the same or a similar
business to that of the Borrower, (b) necessary worker's compensation insurance,
(c) public liability and product liability insurance, and (d) such other
insurance as may be required by law or as may be reasonably required in writing
by the Bank, all of which Insurance shall be in such amounts, containing such
terms, in such form, for such purposes, prepaid for such time period, and
written by such companies as shall be satisfactory to the Bank. All such
policies shall contain a provision whereby they may not be canceled or amended
except upon thirty (30) days' prior written notice to the Bank. The Borrower
will promptly deliver to the Bank, at the Bank's request, evidence satisfactory
to the Bank that such insurance has been so procured and, with respect to
casualty insurance, made payable to the Bank. If the Borrower fails to maintain
satisfactory insurance as herein provided, the Bank shall have the option to do
so, and the Borrower agrees to repay the Bank upon demand, with interest at the
Prime-based Rate then in effect for the Revolving, all amounts so expended by
the Bank. The Borrower hereby appoints the Bank or any employee or agent of the
Bank as the Borrower's attorney-in-fact, which appointment is coupled with an
interest and irrevocable, and authorizes the Bank or any employee or agent of
the Bank, on behalf of the Borrower, to adjust and compromise any loss under
said insurance and to endorse any check or draft payable to the Borrower in
connection with returned or unearned premiums on said insurance or the proceeds
of said insurance, and any amount so collected shall be applied toward repair
and/or replacement of the Collateral to which such casualty occurred or
satisfaction of the Indebtedness in accordance in accordance with the provisions
governing such application in the Documents pursuant to which Bank's Liens on
such Collateral were granted.
6.4 Pay in accordance with commercially reasonable practices and within
the time that they can be paid without late charge, penalty or interest all
taxes, assessments and similar imposts and charges of every kind and nature
lawfully levied, assessed or imposed upon the Borrower, and its property, except
to the extent being contested in good faith and, if requested by the Bank,
bonded in an amount and manner satisfactory to the Bank. If the Borrower shall
fail to pay such taxes and assessments within the time they can be paid without
penalty, late charge or interest the Bank shall have the option to do so, and
the Borrower agrees to repay the Bank upon demand, with interest at the
Prime-based Rate from time to time in effect under the Note, all amounts so
expended by the Bank.
6.5 Do or cause to be done all things necessary to preserve and keep in
full force and effect the Borrower's corporate existence, and material rights
and franchises and comply with all material respects with applicable laws,
continue to conduct and operate its business substantially as conducted and
operated during the present and preceding calendar year, at all times maintain,
preserve and protect all material franchises and trade names and property and
keep the same in good repair, working order and condition, and from time to time
make, or cause to be made, all needed and proper repairs, renewals,
replacements, betterments and improvements thereto so that
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the business carried on in connection therewith may be properly and
advantageously conducted at all times.
6.6 (a) At all times meet the minimum funding requirements of ERISA
with respect to the Borrower's employee benefit plans subject to ERISA, (b)
promptly after the Borrower knows or has reason to know (i) of the occurrence of
any event, which would constitute a reportable event or prohibited transaction
under ERISA, or (ii) that the PBGC or the Borrower has instituted or will
institute proceedings to terminate an employee pension plan, deliver to the Bank
a certificate of the chief financial officer of the Borrower setting forth
details as to such event or proceedings and the action which the Borrower
proposes to take with respect thereto, together with a copy of any notice of
such event which may be required to be filed with the PBGC, and (c) furnish to
the Bank (or cause the plan administrator to furnish the Bank) a copy of the
annual return (including all schedules and attachments) for each plan covered by
ERISA, and filed with the Internal Revenue Service by the Borrower not later
than ten (10) days after such report has been so filed.
6.7 Cause credit extended by Borrower to QualCenter and XYZ, Inc. to be
reduced to $300,000 by December 31, 1999.
6.8 Financial Covenants:
(a) Maintain an Effective Tangible Net Worth of not less than
$5,000,000;
(b) Maintain an Effective Tangible Net Worth Ratio of not more than 7
to 1.
6.9 In the event that, at any time, Borrower has or acquires any
Subsidiary which has assets or revenues equal to or greater than 3% of the
consolidated assets or revenues, respectively, of Borrower, Borrower shall cause
such Subsidiary to, immediately upon Bank's request execute and deliver to Bank
such guaranties, security agreements, pledges, mortgages and financial
statements as Bank shall require for the purpose of having such Subsidiary
guaranty the payment of the Indebtedness and having the obligation of such
Subsidiary under such guaranty secured by first priority perfected liens on
substantially all assets of such Subsidiary, in favor of Bank; provided, that,
in the case only of Simple Technology Europe, such documents shall only be
required to be delivered if (a) there occurs any Event of Default, or (b) such
entity has in excess of 3% of the consolidated assets or revenues of Borrower as
of June 30, 2000.
7. NEGATIVE COVENANTS OF BORROWER
On a continuing basis from the date of this Agreement until the
Indebtedness is paid in full and the Borrower has performed all of its other
obligations hereunder, the Borrower covenants and agrees that it will not,
without the Bank's prior written consent:
7.1 Declare or pay any cash dividends on, or make any other cash
distribution (whether by reduction of capital or otherwise) with respect to any
shares of its capital stock except dividends or distributions necessary to cover
tax liability to shareholders of Borrower resulting from Borrower.
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7.2 Purchase, redeem, retire or otherwise acquire any of the shares of
its capital stock, or make any commitment to do so.
(a) Create, incur, assume or suffer to exist any mortgage,
pledge, encumbrance, security interest, lien or charge of any kind upon any
of its property or assets (including without limit any charge upon property
purchased or acquired under a conditional sales or other title retaining
agreement or lease required to be capitalized under GAAP) whether now owned
or hereafter acquired, other than to Bank or except for the Permitted Liens.
(b) Incur, create, assume or permit to exist any indebtedness
or liability on account of deposits or advances or any indebtedness or
liability for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, or any other
indebtedness whatsoever, except for the Debt on the obligations from time to
time secured by the Permitted Liens.
7.3 Make loans, advances or extensions of credit to any Person, except
(a) loans to officers to cover tax liabilities; and (b) other loans and advances
to officers, employees and sales representatives in aggregate amount at any time
outstanding not to exceed Fifty Thousand Dollars ($50,000).
7.4 Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other Person, whether by agreement to
purchase the indebtedness of any other Person, agreement for the furnishing of
funds to any other Person through the furnishing of goods, supplies or services,
by way of stock purchase, capital contribution, advance or loan, for the purpose
of paying or discharging (or causing the payment or discharge of) the
indebtedness of any other Person, or otherwise, except for the endorsement of
negotiable instruments by the Borrower in the ordinary course of business for
deposit for collection.
7.5 (a) Sell, lease, transfer or otherwise dispose of properties and
asset, having an aggregate book value of more than Two Hundred Thousand Dollars
($200,000) (whether in one transaction or in a series of transactions) except
(i) as to the sale of inventory in the ordinary course of business and (ii)
sales, subleases and transfers of the assets of Simple Technology Europe; (b)
change its name, consolidate with or merge into any other corporation, permit
another corporation to merge into it, acquire all or substantially all the
properties or assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock or (c) enter into any
sale-leaseback transaction.
7.6 Purchase or hold beneficially any stock or other securities of, or
make any investment or acquire any interest whatsoever in, any other Person,
except for: (a) certificates of deposit with maturities of one year or less of
United States commercial banks with capital, surplus and undivided profits in
excess of $100,000,000 and direct obligations of the United States Government
maturing within one year from the date of acquisition thereof; and (b)
investments in majority-owned subsidiaries.
7.7 (a) Allow any fact, condition or event to occur or exist with
respect to any employee pension or profit sharing plans established or
maintained by it which might constitute
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grounds for termination of any such plan or for the court appointment of a
trustee to administer any such plan, or (b) permit any such plan to be the
subject of termination proceedings (whether voluntary or involuntary) from which
termination proceedings there may result a liability of the Borrower to the PBGC
which, in the opinion of the Bank, will have a materially adverse effect upon
the operations, business, property, assets, financial condition or credit of the
Borrower.
7.8 Increase salaries and/or compensation to officers of Borrower in
excess of 5% per annum.
7.9 Allow the credit referenced in Section 6.7 to be greater than
$300,000 after December 31, 1999.
7.10 Make or incur, or become obligated to make or incur, expenditures
for the purchase or lease of fixed assets in amount which, in aggregate, would
exceed the amount of Two Million Five Hundred Thousand Dollars ($2,500,000)
during any fiscal year.
8. DEFAULTS
8.1 The occurrence of any of the following events shall constitute an
Event of Default hereunder:
(a) If the Borrower shall fail to pay, when due, any principal
or interest under any Note or other Indebtedness when due or shall default in
an obligation described in Section 6.1 or 6.2 hereof and such failure or
default shall continue for a period in excess of three (3) Business Days
after notice by Bank to Borrower thereof.
(b) If any warranty or representation in connection with or
contained in this Agreement or any Loan Document, or if any Financial
Statements now or hereafter furnished to the Bank by or on behalf of the
Borrower, shall prove to be false or misleading in any material respect as of
the date made or deemed made hereunder.
(c) If the Borrower shall fail to perform in the time and
manner required any of its obligations or covenants under, or shall fail to
comply with any of the provisions of, this Agreement or any other Loan
Document and, in the case of a failure to perform obligations other than
those described in Section 6.3 or Sections 7.1 through 7.9 above, such
failure shall continue for a period in excess of thirty (30) days after the
earlier of Bank's notice to Borrower thereof or the date Borrower actually
becomes aware thereof.
(d) If the Borrower shall default in the payment when due of
any of its borrowed money indebtedness (other than to the Bank) in amounts in
excess of Two Hundred Fifty Thousand Dollars ($250,000) or in the observance
or performance of any term, covenant or condition in any agreement or
instrument evidencing, securing or relating to such indebtedness, and such
default be continued for a period sufficient to permit acceleration of the
indebtedness, irrespective of whether any such default shall be forgiven or
waived or there has been acceleration by the holder thereof.
(e) If there shall be rendered against the Borrower one or more
judgments or decrees involving an aggregate liability of Two Hundred Fifty
Thousand Dollars ($250,000) or
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more, which has or have become non-appealable and shall remain undischarged,
unsatisfied by insurance and unstayed for more than thirty (30) days, whether or
not consecutive, or if a writ of attachment or garnishment against the property
of the Borrower shall be issued and levied in an action claiming Two Hundred
Fifty Thousand Dollars ($250,000) or more and not released or appealed and
bonded in an amount and manner satisfactory to the Bank within thirty (30) days
after such issuance and levy.
(f) If the Borrower shall voluntarily suspend transaction of
its business, or if the Borrower shall not pay its debts as they mature or
shall make a general assignment for the benefit of creditors, or proceedings
in bankruptcy, or for reorganization or liquidation of the Borrower under the
Bankruptcy Code or under any other, state federal or other applicable law for
the relief of debtors shall be commenced by Borrower, or shall be commenced
against the Borrower and shall not be discharged within sixty (60) days of
commencement, or a receiver, trustee or custodian shall be appointed for the
Borrower or for any substantial portion of their respective properties or
assets.
(g) If a majority of the persons serving on the board of
directors of Borrower as of the date of this Agreement shall cease to serve
on such board of directors and Bank considers (in its reasonable discretion)
such change to affect materially and adversely the prospects of Borrower.
(h) If the Borrower shall fail to meet its minimum funding
requirements under ERISA with respect to any employee benefit plan
established or maintained by it, or if any such plan shall be subject of
termination proceedings (whether voluntary or involuntary) and there shall
result from such termination proceedings a liability of Borrower to the PBGC
which in the opinion of the Bank will have a materially adverse effect upon
the operations, business, property, assets, financial condition or credit of
the Borrower.
(i) If there shall occur, with respect to any pension plan
maintained by the Borrower any reportable event (within the meaning of
Section 4043(b) of ERISA) which the Bank shall determine constitutes a ground
for the termination of any such plan, and if such event continues for thirty
(30) days after the Bank gives written notice to the Borrower, provided that
termination of such plan or appointment of such trustee would, in the opinion
of the Bank, have a materially adverse effect upon the operations, business,
property, assets, financial condition or credit of the Borrower, as the case
may be.
(j) If Borrower repudiates, contests, revokes or purports to
revoke any of its obligations to Bank, or any rights or remedies of Bank,
under Loan Documents to which they are party.
8.2 Upon the occurrence of an Event of Default, all Indebtedness shall
be due and payable in full immediately (without notice or demand in the case of
an Event of Default of the type described in Section 8.1.(f) above, and upon
written notice from Bank in the case of any other Event of Default) without
presentation, demand, protest, notice of dishonor or other further notice of any
kind, all of which are hereby expressly waived, and Bank shall have no further
commitment to make Advances. Unless all of the Indebtedness is then immediately
fully paid, the Bank shall have and may exercise any one or more of the rights
and remedies for which
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provision is made for a secured party under the UCC, under the or for which
provision is provided by law or in equity, including, without limitation, the
right to take possession and sell, lease or otherwise dispose of any or all of
the Collateral and to set off against the Indebtedness any amount owing by the
Bank to the Borrower and/or any property of the Borrower in possession of the
Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral
and make it available to the Bank at any place designated by the Bank.
8.3 All of the Indebtedness shall constitute one loan secured by the
Bank's security interest in the Collateral and by all other security interests,
mortgages, liens, claims, and encumbrances now and from time to time hereafter
granted from the Borrower to the Bank. Upon the occurrence of an Event of
Default which is not cured within the cure period, if any, provided under
Section 8.1, the Bank may in its sole discretion apply the Collateral to any
portion of the Indebtedness. The proceeds of any sale or other disposition of
the Collateral authorized by this Agreement shall be applied by the Bank, first
upon all expenses authorized by the UCC or otherwise in connection with the sale
and all reasonable attorneys' fees and legal expenses incurred by the Bank, the
balance of the proceeds of such sale or other disposition shall be applied in
the payment of the Indebtedness, first to interest, then to principal, then to
other Indebtedness and the surplus, if any, shall be paid over to the Borrower
or to such other Person or Persons as may be entitled thereto under applicable
law. The Borrower shall remain liable for any deficiency, which the Borrower
shall pay to the Bank immediately upon demand.
8.4 The remedies provided for herein are cumulative to the remedies for
collection of the Indebtedness as provided by law, in equity or by any Loan
Document. Nothing herein contained is intended, nor shall it be construed, to
preclude the Bank from pursuing any other remedy for the recovery of any other
sum to which the Bank may be or become entitled for the breach of this Agreement
by the Borrower.
9. MISCELLANEOUS
9.1 This Agreement shall be binding upon and shall inure to the benefit
of Borrowers and Bank and their respective successors and assigns, except that
the credit provided for under this Agreement and no part thereof and no
obligation of Bank hereunder shall be assignable or otherwise transferable by
Borrowers.
9.2 Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any other accounting
computation is required to be made for the purposes of this Agreement, unless
the calculation of such item, amount or computation is specifically defined to
the contrary herein, it shall be done in accordance with GAAP.
9.3 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any right or remedies which Bank
would otherwise have.
9.4 Until Borrowers or Bank, as the case may be, shall notify one
another in writing that notices shall be sent to some other address, in which
case subsequent notice shall be given,
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all notices with respect to this Agreement shall be deemed to be completed two
Business Days after mailing, or upon delivery by overnight courier, or
confirmation of facsimile transmission to the following:
TO BORROWERS:
Simple Technology, Inc.
Attn: Xxx Xxxxx
0000 Xxxxxxx Xxxxxx
Xxxxx Xxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
TO BANK:
Comerica Business Credit
Attn: Xxxx Xxxxx
000 Xxxxx Xxxx., 0xx Xxxxx
Xxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
All agreements between the Borrowers and the Bank pertaining to the
indebtedness described herein are expressly limited so that in no event
whatsoever shall the amount of interest paid or agreed to be paid to the Bank
exceed the highest rate of interest permissible under applicable law. If, from
any circumstances whatsoever, fulfillment of any provision of this Agreement,
the Loan Documents, the Note(s) or any other instrument securing the Note(s) or
all or any part of the indebtedness secured thereby, at the time performance of
such provision shall be due, shall involve exceeding the interest limitation
validly prescribed by law which a court of competent jurisdiction may deem
applicable thereto, then, the obligation to be fulfilled shall be reduced to an
amount computed at the highest rate of interest permissible under such
applicable law, and if, for any reason whatsoever, the Bank shall ever receive
as interest an amount which would be deemed unlawful under such applicable law,
such interest shall be automatically applied to the payment of the principal
amount described herein or otherwise owed by the relevant Borrowers to Bank
(whether or not then due and payable) and not to payment of interest.
9.5 This Agreement, the Loan Documents and the Notes shall be governed
by, and construed and enforced in accordance with, Michigan law.
9.6 Borrowers hereby indemnify, save and hold Bank and any of its past,
present and future officers, directors, shareholders, employees, representatives
and consultants harmless from any and all loss, damages, suits, penalties,
costs, liabilities and expenses (including but not limited to reasonable
investigation, environmental audit(s), and legal expenses) arising out of any
claim, loss or damage of any property, injuries to or death of persons,
contamination of or adverse affects on the environment, or any violation of any
applicable Environmental Laws, caused by or in any way related to the real
property owned by Borrowers, or due to any acts of Borrowers, its officers,
directors, shareholders, employees, consultants and/or representatives. In no
event shall the Borrowers be liable hereunder for any loss, damages, suits,
penalties, costs,
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liabilities or expenses arising from any act of gross negligence or willful
misconduct of Bank, or its agents or employees.
9.7 It is expressly understood and agreed that the indemnifications
granted herein are intended to protect Bank, its past, present and future
officers, directors, shareholders, employees, consultants and representatives
from any claims that may arise by reason of the security interest, liens and/or
mortgages granted to Bank, or under any other document or agreement given to
secure repayment of any indebtedness from Borrowers, whether or not such claims
arise before or after Bank has foreclosed upon and/or otherwise become the owner
of any such property. All obligations of indemnity as provided hereunder shall
be secured by the Loan Documents.
9.8 It is expressly agreed and understood that the provisions hereof
shall and are intended to be continuing and shall survive the repayment of any
indebtedness from Borrowers to the Bank.
9.9 Borrowers and the Bank acknowledge that the right to trial by jury
is a constitutional one, but that it may be waived, and, after consulting with
counsel of their choice, knowingly and voluntarily, and for their mutual
benefit, waive any right to trial by jury in the event of litigation regarding
the performance or enforcement of, or in any way related hereto.
[signature page follows]
-25-
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK SIMPLE TECHNOLOGY, INC.
By: [ILLEGIBLE] By: [ILLEGIBLE]
Its: [ILLEGIBLE] Its: CEO
-26-
EXHIBIT "A"
REVOLVING NOTE
$20,000,000 Detroit, Michigan
August 3, 1999
FOR VALUE RECEIVED, on or before the Maturity Date, SIMPLE TECHNOLOGY,
INC., a California corporation promises to pay to the order of COMERICA BANK, a
Michigan banking corporation ("Bank") at its main office at One Detroit Center,
Detroit, Michigan, in lawful money of the United States of America so much of
the principal sum of _______________ ($____________) as shall have been advanced
and then be outstanding hereunder and all the accrued and unpaid interest
thereon.
Capitalized terms used herein and not defined to the contrary have the
meanings given them in the Credit Agreement of even date herewith between the
undersigned and Bank ("Agreement") to which reference is hereby made.
Interest on the Advances from time to time outstanding shall bear
interest at their Applicable Interest Rates; provided, however, that in the
event and so long as there shall exist an Event of Default, the principal
balance from time to time outstanding shall bear interest at the rates provided
in Section 2.8 of the Agreement. Interest shall be computed on the basis of a
360 day year and assessed for the actual number of days elapsed.
This Note is a note under which advances, repayments and readvances may
be made subject to the terms and conditions of the Agreement. This Note
evidences borrowing under, is subject to, is secured in accordance with, and may
be matured under, the terms of the Agreement, to which reference is hereby made.
As additional security for this Note, Company grants Bank a lien on all property
and assets including deposits and other credits of the Company, at any time in
possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, release,
or forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note. Any transferees of,
or endorser, guarantor or surety paying this Note in full may succeed to all
rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted Bank by other instrument or by law.
This Note shall be governed by and construed in accordance with the
laws of the State of Michigan.
SIMPLE TECHNOLOGY, INC.
By: [ILLEGIBLE]
Its: CEO
- 2 -
FIRST AMENDMENT TO
CREDIT AGREEMENT
This Amendment is entered into as of this 29th day of December, 1999,
by and between COMERICA BANK, a Michigan banking corporation ("Bank"), with
offices at One Detroit Center, 000 Xxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000 and
SIMPLE TECHNOLOGY, INC., a California corporation ("Company"), whose principal
office is located at 0000 Xxxxxxx Xxxxxx, Xxxxx Xxx, XX 00000.
RECITALS:
A. On August 3, 1999, the parties entered into a certain Credit
Agreement (the "Agreement") and in connection therewith, Company executed and
delivered to Bank a certain Revolving Note in the principal amount of
$20,000,000 and Canadian Subfacility Note in the principal amount of CAD
$1,000,000 both of even date therewith (collectively, the "Note").
B. The parties desire to amend the Agreement, upon the following terms
and conditions.
NOW THEREFORE, for good and valuable consideration, the parties agree
as follows:
1. Section 6.7 of the Agreement is amended and restated in its entirety
as follows:
"6.7 Cause advance(s) by Borrower to its shareholders not to exceed in
the aggregate $1,400,000 (the "Distribution"); provided, however, that a portion
of the Distribution shall be applied by the shareholders first to outstanding
debts due and owing from XYZ, Inc. and QualCenter to Borrower and any remaining
amount of the Distribution will be earmarked for the benefit of XYZ, Inc. by the
shareholders , and it is agreed that no further advances shall be distributed by
Borrower or its shareholders to XYZ, Inc. and QualCenter ".
2. Section 7.9 of the Agreement is deleted in its entirety.
3. Company hereby ratifies and reaffirms the representations,
warranties and covenants set forth in the Agreement.
4. Company certifies that no Event of Default or default (as defined in
the Agreement) has occurred and is continuing.
5. Company represents and warrants that its Articles of Incorporation
and Bylaws delivered to Bank as of August 3, 1999 in connection with the
Agreement, are in
full force and effect and have not been modified, repealed or amended since the
date thereof.
6. If any provision of this Amendment shall be held invalid or
unenforceable, such invalidity or unenforceability shall affect only such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this Amendment, and this Amendment shall be enforced as
if any such invalid or unenforceable provision were not contained herein.
7. Except as specifically amended hereby, the Agreement shall remain
unchanged and shall be in full force and effect, enforceable in accordance with
its terms.
IN WITNESS WHEREOF, this Amendment has been executed as of the day
first stated above.
SIMPLE TECHNOLOGY, INC.
By: _________________________
Its:_________________________
COMERICA BANK
By: _________________________
Xxxx X. Xxxxx
Its: Vice President
-2-
