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EXHIBIT 10.1
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CREDIT AGREEMENT
BY AND BETWEEN
DIAMOND MULTIMEDIA SYSTEMS, INC.
AND
S3 INCORPORATED
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DATED AS OF JUNE 11, 1999
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TABLE OF CONTENTS
Page
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ARTICLE 1 DEFINITIONS...................................................................1
1.1 Definitions...................................................................1
1.2 Accounting Terms..............................................................6
ARTICLE 2 LOANS.........................................................................6
2.1 Loans.........................................................................6
(a) Loans..................................................................6
(b) Note...................................................................6
(c) Borrowing Procedures for Loan..........................................6
2.2 Interest......................................................................6
(a) Interest Rate..........................................................6
(b) Payment of Interest....................................................6
(c) Computation of Interest................................................7
(d) Excess Interest........................................................7
2.3 Payments of Principal.........................................................8
(a) Repayment..............................................................8
(b) Prepayment of Loan.....................................................8
(c) Payments...............................................................8
(d) Offset.................................................................8
ARTICLE 3 CONDITIONS OF CLOSING AND LOANS...............................................8
3.1 Closing.......................................................................8
3.2 Conditions to First Loan......................................................8
(a) Closing Documents......................................................9
(b) No Existing Default....................................................9
(c) Representations and Warranties Correct.................................9
(d) Consents and Approvals.................................................9
(e) Litigation.............................................................9
3.3 Conditions to Second Loan.....................................................9
(a) Merger Agreement and Warrant......................................... 10
(b) No Existing Default.................................................. 10
(c) Representations and Warranties Correct............................... 10
(d) Borrowing Request and Note........................................... 10
(e) No Material Adverse Change........................................... 10
3.4 Conditions to Third Loan.................................................... 10
(a) Closing Documents.................................................... 10
(b) No Existing Default.................................................. 11
(c) Representations and Warranties Correct............................... 11
(d) Borrowing Request and Note........................................... 11
(e) No Material Adverse Change........................................... 11
(f) Payment of Taxes..................................................... 11
3.5 Conditions for the Benefit of the Lender.................................... 11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BORROWER.............................. 11
4.1 Organization of Borrower.................................................... 11
4.2 Requisite Power............................................................. 11
4.3 No Conflict................................................................. 12
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4.4 Authorities................................................................. 12
4.5 No Event of Default......................................................... 12
4.6 Subsidiaries................................................................ 12
4.7 Indebtedness................................................................ 13
4.8 Intellectual Property Rights................................................ 13
4.9 Litigation.................................................................. 13
4.10 Taxes....................................................................... 13
4.11 Title to Property........................................................... 14
4.12 Leaseholds.................................................................. 14
4.13 Insurance................................................................... 14
4.14 Labor Matters............................................................... 14
4.15 SEC Filings................................................................. 15
4.16 Financial Statements........................................................ 15
4.17 Absence of Certain Changes.................................................. 15
4.18 No Undisclosed Material Liabilities......................................... 16
4.19 Employee Benefit Plans...................................................... 16
4.20 Compliance With Laws........................................................ 17
4.21 Environmental Laws.......................................................... 17
4.23 Statutory Regulation........................................................ 18
4.24 Use of Proceeds............................................................. 18
ARTICLE 5 AFFIRMATIVE COVENANTS....................................................... 18
5.1 Accounting Records.......................................................... 18
5.2 Financial Statements and Notices............................................ 18
5.3 Access...................................................................... 19
5.4 Maintenance of Existence.................................................... 19
5.5 Qualifications To Do Business............................................... 19
5.6 Insurance................................................................... 19
5.7 Collateral.................................................................. 20
5.8 Taxes and Other Liabilities................................................. 20
5.9 Governmental Approvals...................................................... 20
5.10 Compliance With Governmental Approvals and Governmental Requirements........ 20
5.11 Prevent Contamination....................................................... 20
5.12 Liens and Perfection........................................................ 20
5.13 Change of Location.......................................................... 21
ARTICLE 6 NEGATIVE COVENANTS.......................................................... 21
6.1 Mergers..................................................................... 21
6.2 Restricted Payments......................................................... 21
6.3 Change of Name, Etc......................................................... 21
6.4 Accounting Policies......................................................... 21
6.5 Liens....................................................................... 21
6.6 Contingent Obligations...................................................... 21
6.7 Indebtedness................................................................ 22
6.8 Sale of Assets.............................................................. 22
6.9 Loans to Affiliates......................................................... 22
6.10 Certain ERISA Payments...................................................... 22
6.11 No Solicitation............................................................. 22
ARTICLE 7 EVENTS OF DEFAULT........................................................... 23
7.1 Events of Default........................................................... 23
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7.2 Termination of Commitment and Acceleration.................................. 25
ARTICLE 8 MISCELLANEOUS............................................................... 25
8.1 Successors and Assigns...................................................... 25
8.2 No Implied Waiver........................................................... 25
8.3 Amendments; Waivers......................................................... 25
8.4 Remedies Cumulative......................................................... 25
8.5 Severability................................................................ 25
8.6 Costs, Expenses and Attorneys' Fees......................................... 25
8.7 Indemnification............................................................. 26
8.8 Notices..................................................................... 26
8.9 Interpretation.............................................................. 27
8.10 Governing Law and Consent to Jurisdiction................................... 27
8.11 Counterparts................................................................ 28
8.12 Headings.................................................................... 28
8.13 Survival.................................................................... 28
8.14 Calculations................................................................ 28
8.15 Confidential................................................................ 28
Exhibit A Note
Exhibit B Borrowing Request
Exhibit C Security Agreement
Exhibit D Patent, Trademark and Copyright Collateral Assignment
Exhibit E Pledge Agreement
Exhibit F Officer's Certificate
Exhibit G Opinion of Counsel to Borrower
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of June 11, 1999, by and between
DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware corporation, and S3 INCORPORATED, a
Delaware corporation,
W I T N E S S E T H:
WHEREAS, Diamond Multimedia Systems, Inc. desires to borrow an amount
not exceeding in the aggregate twenty million dollars ($20,000,000) from S3
Incorporated, and S3 Incorporated is prepared to make such a loan upon the terms
and conditions hereof:
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. Except as otherwise expressly provided or unless the
context otherwise requires, the terms defined in this Section 1.1 shall, for all
purposes of this Agreement, have the meanings herein specified, the following,
definitions being equally applicable to the singular and plural forms of any of
the terms herein defined:
"Acceleration" means that the Loans (i) shall not have been paid at the
Final Maturity Date or (ii) shall have become due and payable prior to their
stated maturity pursuant to Section 7.2 hereof.
"Affiliate" means with respect to any Person (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of the capital stock
having ordinary voting power in the election of directors of such Person, (ii)
each Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purposes of this definition,
the term "control" (including with correlative meanings the terms "controlling,"
"controlled by" and "under common control with") as applied to any Person shall
mean the possession, directly or indirectly beneficially, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit Agreement between the Borrower and the
Lender (including the Schedules and Exhibits hereto), as originally executed or
as it may from time to time be supplemented, modified or amended as provided
herein.
"Authorized Officer" means an officer of the Borrower designated in the
latest Certificate of Incumbency executed by or on behalf of the Borrower. The
Lender shall be entitled to conclusively rely on the latest such Certificate of
Incumbency delivered to it.
"Borrower" means Diamond Multimedia Systems, Inc., a Delaware
corporation.
"Borrowing Request" means each request by the Borrower for a Loan as
specified in such request, which shall be in the form of Exhibit B attached
hereto. Each Borrowing Request shall be accompanied by the documents which are
required to substantiate such request.
"Business Day" means a day other than a Saturday, Sunday or any other
day on which commercial
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banks in San Francisco, California are required or authorized to be closed.
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"Certificate of Incumbency" means the latest Certificate of Incumbency
executed by or on behalf of the Borrower and delivered to the Lender.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the property, real or personal, in which the Lender
has a security interest under the Security Documents.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or lease
regardless of the nondelivery or nonfurnishing thereof, in any such case if the
purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof. The amount of any Contingent
Obligation shall be equal to the actual amount of the obligation so guaranteed
or otherwise supported.
"Disclosure Letter" means the letter delivered by the Borrower to the
Lender immediately prior to the execution of this Agreement, and signed by an
Authorized Officer of the Borrower.
"Effective Date" means the date specified as such in Section 3.1 hereof.
"Environmental Laws" means any federal, state, local and foreign
statutes, laws (including, without limitation, common law), judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits,
governmental agreements or governmental restrictions relating to human health
and safety, the environment or to pollutants, contaminants, wastes, or
chemicals.
"Existing Debt" means the Indebtedness of the Borrower and its
Subsidiaries (a) to Finova Capital Corporation ("FINOVA") under the Loan and
Security Agreement dated January 21, 1999 between Finova and the Borrower, the
Secured Revolving Credit Note in an original principal amount of $50,000,000
dated January 21, 1999 by the Borrower in favor of Finova, (b) loans in a
principal amount not to exceed DM10,000,000 to the Borrower and Spea Software
Gmbh from BHF Bank, and (c) loans in a principal amount of 350,000,000 Japanese
Yen (approximately $2,900,000) to the Borrower's Japanese Subsidiary, Diamond
MultiMedia Systems, KK from Sanwa Bank, Ltd., which loans are guaranteed by the
Borrower and for which the Borrower has posted a standby letter of credit issued
by Imperial Bank.
"Event of Default" shall have the meaning set forth in Article 7 hereof.
"Final Maturity Date" means June 10, 2000.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and
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statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of determination.
"Incipient Default" means any event which, upon the lapse of time or the
giving of notice or both, would constitute an Event of Default.
"Indebtedness" of a Person means (a) any obligation of such Person for
borrowed money; (b) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation of such
Person to pay the deferred purchase price of property or for services (other
than in the ordinary course of business); (d) any Capitalized Lease Obligation
of such Person; (e) any obligation or liability of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed; (f) indebtedness of such Person consisting of reimbursement obligations
under letters of credit issued for the account of such person; and (g) any other
obligation or liability which is required by GAAP to be shown as part of the
Consolidated Liabilities on a consolidated balance sheet of such Person.
"Lender" means S3 Incorporated, a Delaware corporation.
"Lien" means any interest in property securing an obligation, whether
such interest is based on common law, statute or contract, and including but not
limited to any security interest or lien arising from a mortgage, encumbrance,
pledge, charge, easement, servitude, security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes. The
term "Lien" shall also include reservations, exceptions, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property.
"Loan" means a loan made pursuant to Section 2.1 hereof.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, powers of attorney, consents, assignments, contracts, notices,
leases, financing statements, reimbursement agreements, certificates,
statements, reports and notices and all other writings heretofore, now or
hereafter executed by, on behalf of or for the benefit of the Borrower and
delivered to the Lender pursuant to or in connection with this Agreement or the
transactions contemplated hereby, together with all amendments, modifications
and supplements thereto.
"Material Adverse Change" means any change, violation, inaccuracy,
circumstance or effect that is materially adverse to the business, properties,
assets (including intangible assets), liabilities, capitalization or financial
condition of the Borrower and its Subsidiaries, taken as a whole, as the case
may be; provided, however, that the following shall not be taken into account in
determining whether there has been or could or would be a "Material Adverse
Effect" on or with respect to a party: (i) any occurrences relating to the
economy of the United States in general or the economies in which such entity
operates or the multimedia and connectivity products for personal computer
industry in general and not specifically relating to such party, (ii) the delay
or cancellation of orders for such party's products from customers or
distributors (or other resellers) directly attributable to the announcement of
this Agreement, the Merger Agreement or the consummation of the transactions
thereunder, (iii) the lack of or delay in availability of components or raw
materials from such party's suppliers directly attributable to the announcement
of this Agreement or the Merger Agreement, (iv) any litigation brought or
threatened against a party or any officer or member of the Board of Directors of
such party in respect of this Agreement or the Merger Agreement (including any
stockholder class action litigation arising from allegations or a breach of
fiduciary duty relating to this Agreement), (v) changes in trading prices for
such party's securities, and (vi) the loss of employees as a result of reduction
in force that are mutually agreed upon by the Borrower and the Lender.
"Maturity" means any date on which the Loan or any portion thereof
becomes due and payable whether as stated, by acceleration or otherwise.
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"Maturity Triggering Event" shall mean an event or series of related
events as a result of which (i) any person or "group" (as such term is defined
under section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations thereunder), other than the Lender or any Affiliate of the Lender,
becomes the beneficial owner of shares of the Borrower representing more than
fifty percent (50%) of the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors of the
Borrower ("Voting Securities"), or (ii) the Borrower consolidates with or merges
with or into or effects a business combination or similar transaction with
another entity, or conveys, transfers or leases all or substantially all of its
assets to any person, other than in each case with the Lender or any affiliate
of the Lender, and, in the case of any such transaction, the stockholders of the
Borrower immediately prior to such transaction do not own, immediately after
such transaction, at least a majority of the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction in substantially the same proportion as their ownership of Voting
Securities immediately before such transaction.
"Note" means one of the Borrower's promissory notes substantially in the
form of Exhibit A attached hereto, evidencing the Loan as provided in Section
2.1(b) hereof.
"Obligations" means all loans, advances, debts, liabilities obligations,
covenants and duties owing to the Lender by the Borrower of any kind or nature,
present or future, whether or not evidenced by any note, guaranty or other
instrument, arising under this Agreement, either of the Notes, the Security
Documents, or any of the other Loan Documents, whether or not for the payment of
money, arising by reason of an extension of credit, absolute or contingent, due
or to become due, now existing or hereafter arising, including all principal,
interest, charges, expenses, fees, attorneys' fees and disbursements and any
other sum chargeable to the Borrower under this Agreement or any other Loan
Document.
"Other Assurances" means any agreement, instrument, conveyance,
mortgage, pledge, hypothecation or other document executed and delivered
pursuant to Section 5.12 hereof (as amended, modified or supplemented from time
to time).
"Patent, Trademark and Copyright Assignment" means the Patent Collateral
Assignment in the form attached hereto as Exhibit D.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
to all or any part of such corporation's functions under ERISA.
"Permitted Liens" means: (a) the Liens created under the Security
Documents; (b) carriers', warehousemen's, mechanics', landlords', materialmen's,
suppliers', tax, assessment, governmental and other like liens and charges
arising in the ordinary course of business securing obligations that are not
incurred in connection with the obtaining of any advance or credit and which are
not overdue, or are being contested in good faith by appropriate proceedings,
provided that, in accordance with GAAP, adequate reserves have been set aside on
the books of the Borrower for the eventual payment thereof in the event it is
determined that such obligations are payable by the Borrower; (c) Liens arising
in connection with worker's compensation, unemployment insurance, appeal and
release bonds and progress payments under government contracts; (d) any
"banker's lien" or similar right of offset; (e) any lien arising in connection
with a Capitalized Lease Obligation not prohibited hereunder on the asset which
is the subject of the related lease; (f) Liens for any Taxes, or other
governmental charges, either not delinquent or secured by a bond reasonably
acceptable to the Lender or not yet due and being contested in good faith and by
appropriate proceedings, so long as (x) such proceedings shall not involve any
substantial danger of the sale, forfeiture or loss of a material portion of the
Collateral or have a Material Adverse Effect on the Borrower, or (y) a bond or
other security acceptable to the Lender, in its sole discretion, has been posted
or provided in such manner and amount as to assure the Lender that any amounts
determined to be due will be promptly paid in full when such contest is
determined; and (g) Liens existing on the Effective Date in favor of holders of
Existing Debt, (h) purchase money security interests in specific equipment, (i)
leases of specific equipment, (j) Liens existing
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on equipment at the time of its acquisition or lease by the Borrower, provided
that the Lien is confined solely to equipment and improvements acquired prior to
January 21, 1999, (k) any judgment that does not otherwise cause an Event of
Default, unless the judgment is not discharged or the execution thereof
effectively stayed and bonded against pending appeal within 30 days of the entry
thereof, (l) licenses granted to others on the Borrower's intellectual property
that do not interfere in any material respect with the business of the Borrower,
and (m) easements, rights of way, servitudes or zoning or building restrictions
and other minor encumbrances on real property and irregularities in the title to
such property which do not in the aggregate materially impair the use or value
of such property or risk the loss or forfeiture of title thereto.
"Person" means any individual, corporation, partnership, trust, joint
stock company, unincorporated organization, association or other entity or
organization, including any government, political subdivision, agency or
instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement substantially in the form
attached hereto as Exhibit E.
"Restricted Payment" means, as applied to the Borrower, (a) any dividend
or other distribution on any of the shares now or hereafter outstanding of the
capital stock of the Borrower or return of capital to its stockholders as such;
and (b) any purchase or other acquisition for value of (i) any shares of the
capital stock of the Borrower (except shares acquired solely upon the conversion
thereof into other shares of its capital stock) or (ii) any security convertible
into, or any option, warrant or other right to acquire, shares of the capital
stock of the Borrower.
"Security Agreement" means the Security Agreement substantially in the
form of Exhibit C attached hereto.
"Security Documents" means the Security Agreement, the Pledge Agreement,
the Patent, Trademark and Copyright Security Agreement and the Other Assurances.
"Subsidiary" means any corporation, partnership, joint venture,
association or other business entity of which the Borrower now or hereafter
owns, directly or indirectly, securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
governing body thereof.
"Taxes" means any and all governmental or quasi-governmental fees
(including, without limitation, license, filing and registration fees), taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, social security (or similar), unemployment,
occupation, use, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording, employment, premium, windfall profits,
environmental (including taxes under section 59A of the Code, as amended),
customs duties, capital stock, profits, disability, sales, registration, value
added, alternative or add-on minimum, estimated or other taxes, assessments or
charges imposed by any federal, state, local or foreign governmental entity and
any interest, penalties, or additions to tax attributable thereto.
1.2 Accounting Terms. Each accounting term not defined herein and each
accounting term partly defined herein to the extent not defined shall be
construed in accordance with GAAP.
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ARTICLE 2
LOANS
2.1 Loans.
(a) Loans. Subject to all of the terms and conditions of this Agreement,
the Lender agrees to make three loans (the "LOANS") to the Borrower in the
aggregate amount not to exceed twenty million dollars ($20,000,000) each to be
governed by the terms and conditions of, and repaid in accordance with, this
Agreement. The first Loan, in an amount not to exceed five million dollars
($5,000,000), will be made upon satisfaction of the conditions specified in
Section 3.2. The second Loan, in an amount not to exceed five million dollars
($5,000,000), will be made as soon as reasonably practicable after the
conditions set forth in Section 3.3 have been satisfied. The third Loan, in an
amount not to exceed ten million dollars ($10,000,000), will be made as soon as
reasonably practicable after the conditions set forth in Section 3.4 have been
satisfied. The Lender shall have no obligation to make the second Loan after
July 1, 1999 and the third Loan after September 30, 1999. Amounts repaid in
respect of the Loans (whether repaid when due or prepaid) may not be reborrowed.
(b) Notes. Each Loan made by the Lender shall be evidenced by a single
promissory note of the Borrower, such note to be substantially in the form
attached hereto as Exhibit A, dated the date on which such Loan is made, payable
to the order of the Lender and in a principal amount equal to the amount of such
Loan and otherwise duly completed. On the date on which the Borrower submits a
Borrowing Request for a Loan, the Borrower shall deliver the Note to the Lender.
(c) Borrowing Procedures for Loan. The Borrower shall give the Lender
written notice of its request for the first and second Loans no later than 11
a.m. on the Business Day on which the Loan requested is to be made and two (2)
Business Days' written notice of its request for the third Loan, specifying in
each case the information required by the form of Borrowing Request attached
hereto as Exhibit B. No Borrowing Request may be delivered to the Lender after
the date falling thirty (30) days after the Effective Date. Subject to the
Lender's receipt of a Borrowing Request, and satisfaction of the other
conditions specified in Article 3 hereof on the date requested, the Lender shall
wire transfer the portion of the Loan so requested as specified in the Borrowing
Request.
2.2 Interest.
(a) Interest Rate. The Obligations shall bear interest from the date of
disbursement on the unpaid principal amount thereof until such amount shall
become due and payable (whether upon Maturity, by Acceleration or otherwise) at
the lesser of the "Prime Rate" or the maximum permitted by law. Upon Maturity,
the Loans (or such portion thereof as has so become due and payable) shall, to
the extent permitted by applicable law, bear interest at a rate equal to the
lesser of the Prime Rate plus two percentage points per annum or the maximum
permitted by law. "Prime Rate" is a per annum rate equal to the rate of interest
published in the "Money Rates" section of The Wall Street Journal as the "prime
rate" (the "PRIME RATE"). The interest rate chargeable hereunder in respect of
the Loans shall be increased or decreased, as the case may be, without notice or
demand of any kind, upon the announcement of any change in the Prime Rate. Each
change in the Prime Rate shall be effective hereunder on the first day following
the announcement of such change.
(b) Payment of Interest. Interest on the average daily balance of the
principal outstanding on the Loan shall be payable in arrears on the last day of
each month and on the Final Maturity Date.
(c) Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year consisting of three hundred
sixty-five (365) days.
(d) Excess Interest. The contracted for rate of interest of the Loans
contemplated hereby, without
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limitation, shall consist of the following: (i) the interest rate set forth in
Section 2.1(a), calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
after an Event of Default, calculated and applies to the amount of the
Obligations in accordance with the provisions hereof, and (iii) all Additional
Sums (as herein defined), if any. The Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The other charges, goods, things in action or any other sums or things
of value paid or payable by Borrower (collectively, the "ADDITIONAL SUMS"),
whether pursuant to this Agreement or any other documents or instruments in any
way pertaining to this lending transaction or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
(e) It is the intent of the parties to comply the usury laws of the
State of California (the "APPLICABLE USURY LAW"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "MAXIMUM INTEREST RATE"). In the event (i) any such
excess of interest otherwise would be contracted for, charged or received from
the Borrower or otherwise in connection with the loan evidenced hereby, or (ii)
the maturity of the Obligations is accelerated in whole or in part, or (iii) all
or part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (A) the provisions of this paragraph shall govern
and control, (B) neither Borrower nor any other Person now or hereafter liable
for the payment of the Obligations shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Interest Rate, (C)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount of the Obligations or refunded
to the Borrower, at the Lender's option, and (D) the effective rate of interest
shall be automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the extent
permitted by the Applicable Usury Law; (x) all calculations of interest which
are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from the
Borrower or otherwise in connection with such loan: and (y) in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to the
Lender's from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
The Borrower further agrees that should the Maximum Interest Rate be increased
at any time hereafter because of a change in the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by, the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
2.3 Payments of Principal.
(a) Repayment. The Borrower shall repay the principal amount of the Loan
on the Final Maturity Date.
(b) Prepayment of Loan. The Loans are subject to prepayment as follows:
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(i) The Borrower may prepay the Loans in part or whole at any
time without penalty or premium.
(ii) The Borrower shall promptly prepay the interest accrued on
and the principal outstanding of the Loans upon the occurrence of a
Maturity Triggering Event or a sale by the Borrower of substantially all
of its assets.
(iii) The Borrower shall, to the extent permitted by the Existing
Debt, promptly prepay the interest accrued on and the principal
outstanding of the Loans from the net cash proceeds of any equity in the
Borrower issued thereby or of any Indebtedness incurred by the Borrower
which is subordinate to the Obligations.
(c) Payments. All payments of interest on and principal amounts of the
Loans and other amounts payable by the Borrower hereunder shall be in United
States Dollars, in immediately available funds, to Xxxxx Fargo Bank, 000 Xxxx
Xxxxxx Xxxxx, Xxx Xxxx, XX 00000, ABA Routing No. 000000000, for credit to the
Lender's account No. 4572045219, not later than 2:00 p.m. San Francisco,
California time on the date on which such payment is due. All (whether or not
scheduled) payments received after 2:00 p.m. San Francisco, California time
shall be considered to have been received the next Business Day. The Borrower
shall give the Lender notice on the date of any prepayments. Whenever any
payment falls on a day which is not a Business Day, such payment shall be made
the next succeeding Business Day, such extension of time shall be included in
the computation of interest. The Lender is hereby authorized to note the date,
amount and interest rate of the Loan and each payment of principal and interest
with respect thereto on the Lender's books and records (either manually or by
electronic entry), which notation shall be presumptive evidence of the
information noted absent manifest error.
(d) Offset. In addition to and not in limitation of all rights of offset
that the Lender may have under applicable law, the Lender, upon the occurrence
and during the continuance of an Acceleration, shall have the right to
appropriate and apply to the payment of all Obligations any and all balances,
credits or moneys of the Borrower then or thereafter with the Lender.
ARTICLE 3
CONDITIONS OF CLOSING AND LOANS
3.1 Closing. The execution and delivery of the Loan Documents by all of
the parties thereto shall take place on June 11, 1999 or such later date as
shall be agreed to by the Lender and the Borrower (the "EFFECTIVE DATE"), at the
offices of Pillsbury Madison & Sutro LLP, 0000 Xxxxxxx Xxxxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000.
3.2 Conditions to First Loan. The obligation of the Lender to disburse
any portion of the first Loan shall be subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate) and dated as of the Effective
Date (or such earlier date as shall be satisfactory to the Lender), in form and
substance satisfactory to the Lender:
(i) This Agreement.
(ii) The Borrowing Request for the first Loan.
(iii) The Note for the first Loan.
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(iv) The Common Stock Purchase Warrant granted by the Borrower,
as issuer, to the Lender, as purchaser.
(v) A certificate of the Secretary or an Assistant Secretary of
the Borrower as to (A) the Borrower's bylaws, (B) authorization of the
execution, delivery and performance of this Agreement and all of the
other Loan Documents executed by the Borrower (including action of
shareholders where required) and (C) the incumbency and signatures of
Authorized Officers authorized to act hereunder and thereunder.
(vi) A certificate, in the form of Exhibit F attached hereto,
signed by a Authorized Officer of the Borrower, stating (A) that the
representations and warranties contained in Article 4 hereof are then
true and accurate as though made on and as of such date, and (B) that
there has then occurred no Event of Default or Incipient Default which
is continuing.
(vii) Articles of Incorporation of the Borrower, certified to by
the Secretary of State of Delaware not more than ten (10) days before
the Effective Date.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist on the Effective Date, or after giving effect to the transactions
contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 shall be true and correct in all material
respects on the Effective Date, and after giving effect to the transactions
contemplated to occur on such date.
(d) Consents and Approvals. The consents of the holders of the Existing
Debt and all Governmental Approvals required to be taken, given or obtained for
the execution and delivery of, and the performance of the obligations under, the
Loan Documents executed on the Effective Date shall have been taken, given or
obtained, as the case may be, and shall be in full force and effect on the
Effective Date and the time for appeal or challenge with respect to any thereof
shall have expired (or, if an appeal or challenge shall have been taken or
brought, the same shall have been dismissed) and shall not be subject to any
pending proceedings or appeals, administrative, judicial or otherwise.
(e) Litigation. No action, proceeding or investigation shall have been
instituted nor shall governmental action before any Governmental Authority be
threatened, nor shall any order, judgment or decree have been issued or proposed
to be issued by any Governmental Authority to set aside, restrain, enjoin or
prevent the consummation of this Agreement, the transactions contemplated hereby
or by any other Loan Document.
3.3 Conditions to Second Loan. The obligation of the Lender to advance
any portion of the second Loan is subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Merger Agreement and Warrant. The Borrower shall have issued a
common stock purchase warrant on terms agreed between the Borrower and the
Lender and entered into an agreement ("MERGER AGREEMENT") with the Lender
pursuant to which the Borrower will merge into, combine its business and assets
with or transfer substantially all of its business and assets to the Lender.
Nothing in this Agreement, however, shall be deemed to imply an obligation for
the Lender or the Borrower to negotiate the terms of such warrant or for the
Borrower or Lender to agree as to the terms of such warrant or to enter into any
agreement pursuant to which the Borrower will merge into, combine its business
and assets with or transfer substantially all of its business and assets to the
Lender.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of making such advance or after giving effect to the
transactions contemplated to take place hereunder on such date.
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(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 hereof shall be true and correct at the date
of making such advance, and after giving effect to the transactions contemplated
to take place hereunder on such date (except that to the extent that such
representations and warranties by their terms relate solely to an earlier date,
in which such case such representations and warranties shall have been true and
correct in all material respects as of the date when made).
(d) Borrowing Request and Note. The Lender shall have received a
Borrowing Request and the Note in connection with the request for the second
Loan.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since the Effective Date.
3.4 Conditions to Third Loan. The obligation of the Lender to advance
any portion of the third Loan is subject to the prior or contemporaneous
satisfaction of each of the following conditions:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate), in form and substance
satisfactory to the Lender:
(i) The Security Agreement.
(ii) The Patent, Trademark and Copyright Security Agreement.
(iii) The Pledge Agreement.
(iv) Uniform Commercial Code financing statements naming the
Borrower as debtor and the Lender as secured party for filing in the
offices as the Lender shall reasonably request.
(v) Certificates of existence or good standing for the Borrower
from the offices of the Secretaries of State of Delaware, California,
Oregon, Washington, Massachusetts, and other states as the Lender shall
reasonably request.
(vi) A written opinion by Messrs. Xxxxxx Xxxxxxx Xxxxxxxx and
Xxxxxx, as counsel to the Borrower, covering the matters set forth in
Exhibit G attached hereto.
(vii) Any other document, instrument, undertaking or certificate
stated in any of the Loan Documents to be delivered on the Effective
Date.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist at the date of making such advance or after giving effect to the
transactions contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 hereof and the other Loan Documents shall be
true and correct in all material respects at the date of making such advance,
and after giving effect to the transactions contemplated to take place hereunder
on such date (except that to the extent that such representations and warranties
by their terms relate solely to an earlier date, in which such case such
representations and warranties shall have been true and correct in all material
respects as of the date when made).
(d) Borrowing Request and Note. The Lender shall have received a
Borrowing Request and the Note in connection with the request for the third
Loan.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred since the Effective Date.
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(f) Payment of Taxes. All fees payable in connection with the execution,
delivery, recordation and filing of all the documents and instruments referred
to in this Agreement shall have been fully paid.
3.5 Conditions for the Benefit of the Lender. The conditions set forth
in this Article 3 are for the exclusive benefit of the Lender and may be waived,
for purposes of this Agreement, only by the Lender.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to enter into or become a party to this
Agreement and to make the Loan, the Borrower makes the following representations
and warranties to the Lender except as disclosed in the Disclosure Letter:
4.1 Organization of Borrower and Subsidiaries.
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. The Borrower is
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which the nature of its business
requires such qualification, except where the failure to be so qualified or in
good standing which, taken together with all other such failures, would not have
a Material Adverse Effect on the Borrower.
(b) The chief executive office of the Borrower is located at Diamond
Multimedia Systems, Inc., 0000 Xxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000-0000.
4.2 Requisite Power. The Borrower has full corporate power and authority
to execute and deliver this Agreement and the other Loan Documents to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized and approved by the Borrower's Board of Directors, and except as set
forth in the Disclosure Letter, no other corporate proceedings are necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement and the Note have been duly and validly executed and
delivered by the Borrower. Each of this Agreement and the Note constitute, and
the other Loan Documents, when executed and delivered by the Borrower will
constitute, a legal, valid and binding agreement of the other parties hereto, it
constitutes a legal, valid and binding agreement of the Borrower, enforceable
against it in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4.3 No Conflict. The execution, delivery and performance by the Borrower
of this Agreement and the other Loan Documents and the consummation by the
Borrower of the transactions contemplated hereby and thereby do not and will not
(a) contravene or conflict with the certificate of incorporation or bylaws of
the Borrower, (b) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Borrower or any of its Subsidiaries, (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Borrower or any of its
Subsidiaries or to a loss of any benefit to which the Borrower or any of its
Subsidiaries is entitled under any provision of any agreement, contract or other
instrument binding upon the Borrower or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by the Borrower or any of
its Subsidiaries, or (d) result in the creation or
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imposition of any Lien on any asset of the Borrower or any of its Subsidiaries,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, or losses
or Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on the Borrower.
4.4 Authorities. The execution, delivery and performance by the Borrower
of this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby require no consent of, or filing
with, any governmental body, agency, official or authority other than (a)
compliance with any applicable requirements of the 1933 Act and state securities
laws, and (b) other actions or filings which if not taken or made would not,
individually or in the aggregate, have a Material Adverse Effect on the
Borrower.
4.5 No Event of Default. No Event of Default or Incipient Default has
occurred and is continuing or would result from the execution of this Agreement.
4.6 Subsidiaries.
(a) Except as set forth on the Disclosure Letter, the Borrower does not
have any subsidiaries, or any interests, direct or indirect, in any corporation,
partnership, joint venture or other business entity. The Disclosure Letter shows
for each subsidiary (i) the respective jurisdictions of their corporation; and
(ii) the jurisdictions in which they are qualified to do business as a foreign
corporation.
(b) Each of the Borrower's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each of the Subsidiaries is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Material Adverse Effect on the Borrower.
All of the outstanding shares of capital stock of the Subsidiaries are validly
issued, fully paid and nonassessable and, other than directors' qualifying
shares in the case of foreign Subsidiaries, are owned by the Borrower or by a
wholly owned Subsidiary of the Borrower free and clear of all Liens except for
the Lien in favor of Finova, and there are no irrevocable proxies with respect
to such shares. Except as set forth in the Disclosure Letter and except for the
capital stock of its Subsidiaries, the Borrower does not own, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture, limited liability company or other entity which is
material to the business of the Borrower and its Subsidiaries, taken as a whole.
There are no material restrictions on the Borrower to vote the stock of any of
its Subsidiaries.
4.7 Indebtedness. The Borrower is not liable for any Indebtedness except
for the Existing Debt and Indebtedness incurred under the Loan Documents.
4.8 Intellectual Property Rights.
(a) The Disclosure Letter accurately lists and describes in summary form
all United States and foreign letters patent and pending applications, patent,
trade name and trademark registrations and pending applications, service xxxx
registrations and pending applications, copyright registrations and pending
applications, those trade names and common law trademarks which are currently in
use by the Borrower or any Subsidiary, now owned in whole or in part by the
Borrower or any Subsidiary.
(b) The Borrower or its Subsidiaries owns each of the patents and patent
applications referred to in the Borrower SEC Documents and, except as set forth
in the Borrower SEC Documents, (i) to the knowledge of the Borrower, each of the
Borrower and its Subsidiaries owns or possesses, or could obtain ownership or
possession of (on terms not materially adverse to the consolidated financial
position, stockholders' equity, or results of operations of the Borrower and its
Subsidiaries taken as a whole) adequate
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and enforceable rights to use all other Intellectual Property (as defined below)
necessary for the conduct of their businesses, (ii) no claims are pending or, to
the knowledge of the Borrower, threatened that the Borrower or any Subsidiary is
infringing on or otherwise violating the rights of any Person with regard to any
Intellectual Property that, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to (or, with respect to any pending patent
litigation, the Borrower does not believe will) have a Material Adverse Effect
and the Borrower knows of no basis therefor, and (iii) to the knowledge of the
Borrower, no person is infringing on or otherwise violating any right of the
Borrower or any Subsidiary with respect to any Intellectual Property owned by or
licensed to the Borrower or any Subsidiary. Except as set forth in the Borrower
SEC Documents, the Borrower has received no notice of potential indemnity claims
from customers based upon a notice of infringement any such customer has
received from a patent owner relating to an assertion of infringement of a
patent other than potential indemnity claims that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
The Borrower's policy is to require that its employees execute agreements
assigning to the Borrower all rights such employees otherwise would have in
Intellectual Property developed by such employees while in the employ of the
Borrower.
For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean, with
respect a Person, patents, copyrights, trademarks (registered and unregistered),
service marks, brand names, trade names, and registrations in any jurisdiction
of, and applications in any jurisdiction to register, the foregoing, technology,
know-how, software, and tangible or intangible proprietary information or
materials and any other trade secrets related thereto.
4.9 Litigation. Except as disclosed in the Borrower SEC Documents filed
prior to the date hereof, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which would reasonably be expected to have a Material Adverse Effect on
the Borrower.
4.10 Taxes. Except as set forth in the Borrower Balance Sheet (including
the notes thereto) or as otherwise set forth in the Disclosure Letter and except
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Borrower, (a) all Borrower Tax Returns required to be filed with any
taxing authority by, or with respect to, the Borrower and its Subsidiaries have
been filed in accordance with all applicable laws; (b) the Borrower and its
Subsidiaries have timely paid all Taxes shown as due and payable on the Borrower
Tax Returns that have been so filed, and, as of the time of filing, the Borrower
Tax Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of the Borrower and its
Subsidiaries (other than Taxes which are being contested in good faith and for
which adequate reserves are reflected on the Borrower Balance Sheet); (c) the
Borrower and its Subsidiaries have made provision for all Taxes payable by the
Borrower and its Subsidiaries for which no Borrower Tax Return has yet been
filed; (d) the charges, accruals and reserves for Taxes with respect to the
Borrower and its Subsidiaries reflected on the Borrower Balance Sheet are
adequate under GAAP to cover the Tax liabilities accruing through the date
thereof; (e) there is no action, suit, proceeding, audit or claim now proposed
or pending against or with respect to the Borrower or any of its Subsidiaries in
respect of any Tax where there is a reasonable possibility of an adverse
determination; and (f) to the best of the Borrower's knowledge and belief,
neither the Borrower nor any of its Subsidiaries is liable for any Tax imposed
on any entity other than such Person, except as the result of the application of
Treas. Reg. section 1.1502-6 (and any comparable provision of the tax laws of
any state, local or foreign jurisdiction) to the affiliated group of which the
Borrower is the common parent. For purposes of this Agreement, "TAX RETURNS"
shall mean any return, report, form or similar statement required to be filed
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
4.11 Title to Property. The Borrower and each of its Subsidiaries has
good and marketable title to all of its material properties and assets, free and
clear of all Liens, except for Permitted Liens.
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4.12 Leaseholds. Neither the Borrower nor any of its Subsidiaries has
given or received notice of any material default under any material lease under
which the Borrower or any of its Subsidiaries is the lessee of real property
(each a "BORROWER LEASE" and collectively the "BORROWER LEASES") and, to the
knowledge of the Borrower, neither the Borrower nor any of its Subsidiaries nor
any other party thereto is in default in any material respect under any of the
Borrower Leases. All of the Borrower Leases are in full force and effect, and
are valid, binding and enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' or
lessors' rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in the Disclosure Letter, neither the Borrower nor
any of its Subsidiaries has leased, subleased, licensed or assigned, as the case
may be, all or any portion of its leasehold interest under any Borrower Lease to
any person.
4.13 Insurance. The insurance carried by the Borrower and its
Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Borrower and its Subsidiaries.
Except as would not have a Material Adverse Effect on the Borrower, all such
insurance is in full force and effect and none of the Borrower nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on the Borrower, all claims thereunder have been filed in a due
and timely fashion. Except as would not have a Material Adverse Effect on the
Borrower, neither the Borrower nor any of its Subsidiaries has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including renewals of any such products liability coverage) by any
insurance carrier to which it has applied for insurance during the past three
(3) years.
4.14 Labor Matters. There are no controversies pending or, to the best
knowledge of each of the Borrower and its respective Subsidiaries, threatened,
between the Borrower or any of its Subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect of the Borrower. As of the Effective Date, neither the
Borrower nor any of its Subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Borrower or its Subsidiaries nor does the Borrower or its Subsidiaries know of
any activities or proceedings of any labor union to organize any such employees
as of the Effective Date which have or could reasonably be expected to have a
Material Adverse Effect on the Borrower and its Subsidiaries. As of the
Effective Date, neither the Borrower nor any of its Subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats
thereof, by or with respect to any employees of the Borrower or any of its
Subsidiaries as of the Effective Date which have or could reasonably be expected
to have a Material Adverse Effect on the Borrower and its Subsidiaries.
4.15 SEC Filings.
(a) The Borrower has made available to the Lender (i) its annual reports
on Form 10-K for its fiscal years ended December 31, 1996, 1997 and 1998, (ii)
its quarterly reports on Form 10-Q for its quarter ended Xxxxx 00, 0000, (xxx)
its proxy or information statements relating to meetings of, or actions taken
without a meeting by, the stockholders of the Borrower held since December 31,
1998, and (iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 1998 (the documents referred to
in this Section 4.15(a) being referred to collectively as the "BORROWER SEC
DOCUMENTS"). The Borrower's quarterly report on Form 10-Q for its fiscal quarter
ended March 31, 1998 is referred to herein as the "BORROWER 10-Q."
(b) As of its filing date, each Borrower SEC Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the 1933 Act.
(c) As of its filing date, each Borrower SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
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(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
4.16 Financial Statements. The audited consolidated financial statements
and unaudited consolidated interim financial statements of the Borrower
(including any related notes and schedules) included in its annual reports on
Form 10-K and the quarterly report on Form 10-Q referred to in Section 4.15
fairly present in all material respects, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Borrower and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended (subject
to normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"BORROWER BALANCE SHEET" means the consolidated balance sheet of the Borrower as
of March 31, 1999 set forth in the Borrower 10-Q and "BORROWER BALANCE SHEET
DATE" means March 31, 1999.
4.17 Absence of Certain Changes. Except as set forth in the Disclosure
Letter, since Borrower Balance Sheet Date, the Borrower and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Borrower;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Borrower or any
repurchase, redemption or other acquisition by the Borrower or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Borrower or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Borrower or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Borrower or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Borrower or any of its Subsidiaries of any contract or other right, in
either case, material to the Borrower and its Subsidiaries taken as a whole,
other than transactions, commitments, contracts, agreements or settlements
(including without limitation settlements of litigation and tax proceedings) in
the ordinary course of business consistent with past practice, those
contemplated by this Agreement, or as agreed to in writing by the Borrower;
(e) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by the Borrower or any of its Subsidiaries,
except for any such change which is not significant or which is required by
reason of a concurrent change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment
to any such existing arrangement with) any director, officer or employee of the
Borrower or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Borrower or
any of its Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in (or amendments to the terms of) compensation, bonus or other benefits payable
to directors, officers or employees of the Borrower or any of its Subsidiaries,
other than in the ordinary course of business consistent with past practice, as
permitted by this Agreement, or as agreed to in
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writing by the Borrower.
4.18 No Undisclosed Material Liabilities. There are no liabilities of
the Borrower or any Subsidiary of the Borrower of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Borrower Balance Sheet
or in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected
to have a Material Adverse Effect on the Borrower;
(c) liabilities disclosed in Borrower SEC Documents filed prior to the
date hereof or set forth in the Disclosure Letter; and
(d) liabilities under this Agreement.
4.19 Employee Benefit Plans.
(a) Prior to the date hereof, the Borrower has provided the Borrower
with a list (set forth in the Disclosure Letter) identifying each material
"employee benefit plan," as defined in section 3(3) of ERISA, each material
employment, severance or similar contract, plan, arrangement or policy
applicable to any director, former director, employee or former employee of the
Borrower and each material plan or arrangement (written or oral), providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered or contributed to by the Borrower and covers
any employee or director or former employee or director of the Borrower, or
under which the Borrower has any liability. Such material plans (excluding any
such plan that is a "multiemployer plan," as defined in section 3(37) of ERISA)
are referred to collectively herein as the "BORROWER EMPLOYEE PLANS."
(b) Except as set forth in the Disclosure Letter, each Borrower Employee
Plan has been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (including but
not limited to ERISA and the Code) which are applicable to such Plan, except
where failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect on the Borrower.
(c) Neither the Borrower nor any affiliate of the Borrower has incurred
a liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Borrower or any affiliate
of the Borrower of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) All Borrower Employee Plans that are intended to be qualified under
section 401(a) of the Code have been the subject of determination, opinion,
notification or advisory letters from the Internal Revenue Service ("IRS") which
the company has made available to the Lender. Each such letter as the effect of
stating that each such Borrower Employee Plan is qualified and is exempt from
Federal income taxes under section 501(a) of the Code. The remedial amendment
period with respect to each such Borrower Employee Plan has not expired for any
amendment to any such Borrower Employee Plan that was made on or after the date
of the application for the determination, opinion, notification or advisory
letter. No such determination, opinion, notification or advisory letter has been
revoked, nor has any event occurred since the date of the most recent such
letter that would adversely affect its qualification, other than as set forth in
the Disclosure Letter.
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(e) Except as set forth in the Disclosure Letter, no director or officer
or other employee of the Borrower or any of its Subsidiaries will become
entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any employee stock option or
other benefit under any stock option plan or compensation plan or arrangement of
the Borrower) solely as a result of the transactions contemplated hereby.
(f) Except as reflected in Disclosure Letter, no Borrower Employee Plan
provides post-retirement health and medical, life or other insurance benefits
for retired employees of the Borrower or any of its Subsidiaries (other than
benefit coverage mandated by applicable statute, including benefits provided
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
codified in Code section 4980B and ERISA section 601 et seq., as amended from
time to time ("COBRA")).
(g) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not written) by
the Borrower or any of its affiliates relating to, or change in employee
participation or coverage under, any Borrower Employee Plan which would increase
materially the expense of maintaining such Borrower Employee Plan above the
level of the expense incurred in respect thereof for the twelve (12) months
ended on the Borrower Balance Sheet Date.
4.20 Compliance With Laws. Neither the Borrower nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Borrower.
4.21 Environmental Laws. Except for such exceptions as, individually or
in the aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Borrower, (a) no notice, notification, demand,
request for information, citation, summons, complaint or order has been received
by, and no investigation, action, claim, suit, proceeding or review is pending
or, to the knowledge of the Borrower or any of its Subsidiaries, threatened by
any Person against, the Borrower or any of its Subsidiaries, and no penalty has
been assessed against the Borrower or any of its Subsidiaries, in each case,
with respect to any matters relating to or arising out of any Environmental Law;
(b) the Borrower and its Subsidiaries are and have been in compliance with all
Environmental Laws; and (c) there are no liabilities of or relating to the
Borrower or any of its Subsidiaries relating to or arising out of any
Environmental Law of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability.
4.22 Year 2000 Compliance. Except as would not reasonably be expected to
have a Material Adverse Effect on the Borrower, all of the Borrower's
Information Technology (as defined below) is effectively addresses the Year 2000
issues, and will not cause an interruption in the ongoing operations of the
Borrower's business on or after January 1, 2000. For purposes of this Agreement,
the term "Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by the Borrower
in the conduct of its business, and the term "Year 2000 Issues" shall mean the
question of whether product or software accurately processes and stores
date/time data (including, but not limited to calculating, comparing,
displaying, recording and sequencing operations involving date/time data)
during, from and into and between the twentieth and twenty-first centuries, and
the years 1999 and 2000, including correct processing of leap year data.
4.23 Statutory Regulation. The Borrower is not an investment company
within the meaning of the Investment Borrower Act of 1940, as amended, and to
the Borrower's knowledge, is not, directly or indirectly, controlled by or
acting on behalf of any person which is an investment company, within the
meaning of said Act. The Borrower is not subject to any Governmental Requirement
regulating public utilities or similar entities, and is not, within the meaning
of the Public Utility Holding Borrower Act of
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1935, as amended, (a) a holding company; (b) a subsidiary or affiliate of a
holding company; or (c) a public utility. The Borrower is not subject to
regulation under the Federal Power Act or to any other Governmental Requirement
limiting or placing conditions upon their respective power or right to borrow
money.
4.24 Use of Proceeds. The proceeds of the Loans will be used solely for
working capital purposes.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply with the following provisions; provided that the
Borrower shall have no obligation under this Article 5 if the Borrower and the
Lender enter into the Merger Agreement so long as that agreement remains in full
force and effect:
5.1 Accounting Records. The Borrower shall maintain adequate books and
accounts in accordance with sound business practices and GAAP consistently
applied. The Borrower shall promptly furnish to the Lender any information
regarding their business or finances as the Lender may reasonably request,
provided that nothing in this Section 5.1 shall entitle the Lender to any
information which would result in a disclosure of the Borrower's proprietary
information or trade secrets.
5.2 Financial Statements and Notices. The Borrower shall furnish to the
Lender all of the following financial statements, information and notices:
(a) The Borrower shall, within thirty (30) days after it is required to
file the same with the Securities and Exchange Commission, deliver copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Securities and Exchange Commission
may from time to time by rules and regulations prescribe) which the Borrower may
be required to file with the Securities and Exchange Commission pursuant to
section 23 or section 15(d) of the Securities Exchange Act of 1934, as amended.
(b) Promptly but in no event later than one (1) Business Day after (i)
the occurrence of an Event of Default or an Incipient Default, or (ii) any
default or Event of Default as defined in any evidence of Indebtedness or under
any agreement, indenture or other instrument under which such evidence of
Indebtedness has been issued, whether or not such Indebtedness is accelerated or
such default waived, the Borrower shall notify the Lender thereof, and within
five (5) calendar days after obtaining such an occurrence, a statement of a
Authorized Officer setting forth details of such Event of Default or Incipient
Default and the action which the Borrower proposes to take with respect thereto.
(c) As soon as practicable written notice of any actual or threatened
claims, litigation, suits, investigations, proceedings or disputes against or
affecting the Borrower, including, without limitation: (i) any claims,
litigations, suits, investigations, proceedings or disputes involving in
aggregate a monetary amount in excess of fifty thousand dollars ($50,000),
whether or not covered by insurance; (ii) any labor controversy which is
reasonably expected to result in a strike against the Borrower; (iii) any
proposal by any Governmental Authority to acquire any of the assets or business
of the Borrower; (iv) any investigation or proceeding before or by any
Governmental Authority, the effect of which could reasonably be expected
materially to limit, prohibit or restrict the manner in which the Borrower
currently conducts its business or to declare any substance contained in the
products manufactured or distributed by the Borrower to be dangerous; (v) any
summons, citation, directive, notice, complaint, letter or other communication,
whether oral or written, from any person concerning any alleged violation by the
Borrower, or any predecessor of the Borrower, of any Environmental Law, or any
alleged noncompliance of any of the properties or the operations of the Borrower
therewith; or (vi) any investigation of or request for information from the
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Borrower relating to the handling, storage or disposal of any Hazardous
Substance, or the release thereof into the environment, by the Borrower or any
of their predecessors or any other Person, which investigation or request is
other than routine.
5.3 Access. Following the occurrence and during the continuance of an
Event of Default, the Borrower shall permit the Lender, at such reasonable times
and intervals as the Lender may designate upon reasonable notice, at its own
expense (unless as part of an audit of the Collateral as provided in Section 5.1
hereof), by and through the representatives and agents of the Lender, to
inspect, audit and examine its books and records, to make copies thereof, to
discuss its affairs, finances and accounts with its officers and independent
public accountants, and to visit and inspect its properties; provided, however,
that nothing in this Section 5.3 shall entitle the Lender to make inquiries
which would result in disclosure of the Borrower's proprietary information or
trade secrets.
5.4 Maintenance of Existence. The Borrower shall preserve and maintain
its corporate existence.
5.5 Qualifications To Do Business. The Borrower shall qualify to do
business and shall be and (in the case of corporations) remain in good standing
in each jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
5.6 Insurance. The Borrower shall maintain in full force and effect
insurance normal and customary for the business of the Borrower and increase,
and the Borrower shall add to such insurance coverage insurance of the types and
amounts customarily carried in their respective lines of business, including,
but not limited to, fire, public liability, property damage, products liability
and workers' compensation insurance.
5.7 Collateral. The Borrower shall keep the Collateral in good repair,
working order and condition, and from time to time shall make necessary repairs
or replacements thereto so that the Collateral shall be maintained adequately
for their intended use. The Borrower shall not move any Collateral, other than
inventory sold in the ordinary course of business, from its location on the
Effective Date without giving the Lender prior written notice of the new
location to which such Collateral will be moved.
5.8 Taxes and Other Liabilities. The Borrower shall pay and discharge
when due any and all material Taxes, except as may be subject to good faith
contest or as to which a bona fide dispute may arise; provided, however, that
adequate reserves in accordance with GAAP or other provision is made to the
satisfaction of the Lender for prompt payment thereof in the event that it is
found that the same are its obligations.
5.9 Governmental Approvals. The Borrower shall apply for, diligently
pursue, and obtain or cause to be obtained, and shall thereafter maintain in
full force and effect all Governmental Approvals that shall now or hereafter be
necessary under any Governmental Requirement (a) for land use, public and
employee health and safety, pollution or protection of the environment, (b) for
the grant by the Borrower of the Liens granted by any of the Security Documents
and for the validity and enforceability thereof or for the perfection of and the
exercise by the Lender of its rights and remedies thereunder, and (c) for the
operation of the business of the Borrower, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
The Borrower shall promptly notify the Lender in the event of any, and provide
the Lender with a copy of all notices of, denial, suspension, variance or
revocation of any material Governmental Approvals.
5.10 Compliance With Governmental Approvals and Governmental
Requirements. The Borrower shall materially comply with all Governmental
Requirements, all terms and conditions of all Governmental Approvals and with
all other limitations, restrictions, obligations, schedules, timetables and
reporting requirements in any Governmental Requirements.
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5.11 Prevent Contamination. The Borrower shall conduct its operations on
property owned, leased or used by it in such a way as to prevent material
contamination of any part of such property by any Hazardous Substance through
the action of the Borrower. The Borrower shall use reasonable efforts to manage
all Hazardous Substances in a manner that does not require a Hazardous Waste
Facility Permit, and in compliance in all material respects with all
Governmental Requirements and Governmental Approvals. Without limiting the
foregoing covenants, the Borrower shall not intentionally or recklessly, shall
endeavor not to unintentionally, and shall use reasonable efforts to assure that
no other Person to, emit, release or discharge on or from any property owned,
leased exclusively or used exclusively by the Borrower into air, soil, surface
water or groundwater any Hazardous Substance in excess of permitted levels or
reportable quantities, or other concentrations, standards or limitations under
any Governmental Requirements or Governmental Approvals.
5.12 Liens and Perfection.
(a) From and after the Effective Date, the Borrower shall cause the
Security Documents to be and remain, except for Permitted Liens, first priority
Liens on all Collateral for the benefit of the Lender and to become first
priority Liens on any real or personal property now owned or hereafter received
by the Borrower upon the disposition of any of the Collateral which property is
not subject to the Liens created by the Security Documents. The Borrower shall,
upon the request of the Lender, execute and deliver or cause to be executed and
delivered to the Lender any agreement, instrument, conveyance, mortgage, pledge,
hypothecation or financing statement, in form and substance reasonably
satisfactory to the Lender, which agreement, instrument, conveyance, mortgage,
pledge, hypothecation, document or financing statement the Lender shall
reasonably determine is necessary to obtain, perfect or enforce a first priority
Lien on any property owned by the Borrower on which the Lender does not have a
perfected security interest or lien or any property received by the Borrower
upon its disposition of any of the Collateral.
(b) Without limiting the generality of Section 5.12(a) hereof, the
Borrower shall from time to time do all things and deliver all documents and
instruments reasonably requested by the Lender to perfect, protect and enforce
the Liens granted under the Security Documents and pursuant to this Section
5.12. Such acts include, without limitation, the filing of financing statements
under the Uniform Commercial Code and of other documents and instruments under
other applicable laws.
5.13 Change of Location. The Borrower shall notify the Lender not later
than thirty (30) days in advance of any change in the location of its chief
executive office.
ARTICLE 6
NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply and, if applicable, cause each Subsidiary to comply
with all of the following provisions; provided that the Borrower shall have no
obligation under this Article 6 if the Borrower and the Lender enter into the
Merger Agreement so long as that agreement remains in full force and effect:
6.1 Mergers. Except for consolidations and mergers as may be agreed with
the Lender, the Borrower shall not enter into any merger, consolidation,
reorganization or recapitalization, or any agreement, in each case, to do any of
the foregoing.
6.2 Restricted Payments. The Borrower shall not make Restricted Payments
to its shareholders unless it has received the prior written consent of the
Lender.
6.3 Change of Name, Etc. The Borrower shall not (a) change its name
without at least thirty (30) days' prior notice to the Lender, or (b) change the
nature of its business or engage in any other business
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other than the businesses in which it is engaged as of the Effective Date
without the prior written consent of the Lender.
6.4 Accounting Policies. Except in order to comply with GAAP, the
Borrower shall not materially change any of its accounting policies or its
fiscal year.
6.5 Liens. The Borrower shall not create or permit to exist any Lien
upon any of the Collateral, except for Permitted Liens, or enter into any
agreement to xxxxx x Xxxx (other than in connection with the granting or
sufferance of a Permitted Lien, provided that such agreement pertains only to
the property covered by the Permitted Lien) on any of the Collateral.
6.6 Contingent Obligations. The Borrower shall not become liable,
directly or indirectly, for any Contingent Obligation except by (a) endorsement
of instruments for deposit, (b) for the existing guarantees made by the Borrower
prior to the date hereof, if any, which are set forth in the Disclosure Letter;
(c) contingent obligation with respect to letters of credit, banker's
acceptances, surety bonds and the like in the ordinary course of business, (d)
contingent obligations of the Borrower with respect to any obligations of a
Subsidiary, (e) contingent obligations in connection with investments, and (f)
contingent obligations consisting of guaranties and other credit support in
respect of transactions entered into in the ordinary course of business and any
other contingent obligations, not to exceed $20,000,000 in the aggregate at any
time.
6.7 Indebtedness. The Borrower shall not incur, create, assume or permit
to exist any Indebtedness except (a) the Obligations, (b) the Existing Debt (and
any amendment, modification, refinancing or refunding thereof on terms no less
materially unfavorable to the Borrower), (c) trade payables and other
contractual obligations to suppliers and customers incurred in the ordinary
course of business, (d) Indebtedness subordinated to the Obligations on terms
reasonably acceptable to the Lender, (e) intercompany Indebtedness, (f)
Indebtedness consisting of Contingent Obligations permitted by Section 6.6, (g)
purchase money Indebtedness secured by Permitted Liens, and (h) other
Indebtedness not to exceed ten million dollars ($10,000,000) at any time
outstanding.
6.8 Sale of Assets. Except for (a) inventory sold in the ordinary course
of business, (b) sales of assets that are obsolete or no longer useful or sales,
and (c) transfers, leases, license or other dispositions of assets that are not,
in the aggregate, material between or among any of the Borrower and its
Subsidiaries, neither the Borrower nor any Subsidiary shall sell, transfer,
lease, license or otherwise dispose of any of its assets.
6.9 Loans to Affiliates. The Borrower shall not, directly or indirectly,
make any loan or advance to any Affiliate, except in the ordinary course of
business and as permitted in Section 6.7.
6.10 Certain ERISA Payments. The Borrower shall not make any payment of
any material liability arising under ERISA or under the Code of any ERISA
Affiliate.
6.11 No Solicitation. The Borrower agrees that, from and after the date
of this Agreement until 12:01 a.m. on Tuesday, June 15, 1999, neither it nor any
of its Subsidiaries nor any of the officers or directors of it or its
Subsidiaries, nor its or their employees, investment bankers, attorneys,
accountants, financial advisors, agents or other representatives (collectively,
"REPRESENTATIVES"), shall directly or indirectly, initiate, solicit or otherwise
induce any inquiries or the making of an Acquisition Proposal (as defined
below). The Borrower further agrees that neither it nor any of its Subsidiaries
nor any of its or its Subsidiaries' officers or directors shall, and that it
shall direct and use its best reasonable efforts to cause its Representatives
not to, directly or indirectly, have any discussions with or provide any
confidential information or data to any Person relating to an Acquisition
Proposal or engage in any negotiations concerning an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Borrower agrees that it will, on the date hereof, immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Person conducted heretofore with
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respect to any Acquisition Proposal. Nothing contained in this Agreement shall
prevent the Board of Directors of the Borrower from complying with Rule 14d-9
and Rule 14e-2 promulgated under the Securities Exchange Act of 1934 (the
"EXCHANGE ACT") with regard to an Acquisition Proposal; provided that the Board
of Directors of the Borrower shall not recommend that the stockholders of the
Borrower tender their shares in connection with a tender offer. Notwithstanding
the foregoing, the Borrower may continue to provide information to and conduct
negotiations with the parties listed in Schedule 6.11 of the Disclosure Letter
in connection with due diligence related to the proposed equity financing
described therein.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
offer or proposal (other than an offer or proposal by Lender) relating to any
transaction or series of related transactions involving: (a) any purchase from
the Borrower or acquisition by any Person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) of more than
a five percent (5%) interest in the total outstanding voting securities of the
Borrower or any of its subsidiaries or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning five percent (5%) or more of the total outstanding voting securities of
the Borrower or any of its Subsidiaries or any merger, consolidation, business
combination or similar transaction involving the Borrower; (b) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
more than five percent (5%) of the assets of the Borrower; or (c) any
liquidation or dissolution of the Borrower.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(a) Payments. The Borrower shall fail to pay when due:
(i) any installment of principal hereunder;
(ii) any payment of interest or any other sum payable hereunder
or under any of the other Loan Documents within three (3) Business Days
of when due; or
(iii) any amounts aggregating to $2,000,000 due to the Lender
under any contract (including any purchase order) pursuant to which the
Lender does business with the Borrower not paid within twenty (20) days
of when due.
(b) Other Covenants and Agreements. The Borrower shall default in the
performance of any of its agreements set forth in any other provision herein or
in any of the other Loan Documents (and not constituting an Event of Default
under any of the other clauses of this Section 7.1).
(c) Representations and Warranties. Any warranty, representation or
certification made by the Borrower or any officer of the Borrower in any of the
Loan Documents, shall be untrue in any material respect or shall omit to state a
fact necessary to make it not materially misleading in light of the
circumstances under which it was made, in any case on any date as of which the
facts set forth are stated or certified.
(d) Judgment. A judgment or judgments shall be entered against the
Borrower in the aggregate amount of five million dollars ($5,000,000) or more on
an uninsured claim or claims or a claim or claims which the insurer does not
undertake to pay, and such judgment or judgments shall remain unstayed,
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unvacated, undischarged or unsatisfied for ten (10) days.
(e) Liens for Pension Contributions. Any material Lien shall have been
placed upon the assets of the Borrower or any ERISA Affiliate under the Code or
ERISA.
(f) Plan Termination or Withdrawal Liability. Any termination of a
single employer plan (as defined in section 4001(a)(15) of ERISA) or any
complete or partial withdrawal from a multiemployer plan (as defined in section
4001(a)(3) of ERISA) shall occur, or steps shall have been taken by any Person
that make it reasonable to expect that such termination or withdrawal will
occur, and such termination or withdrawal could reasonably be expected to result
in liability of the Borrower or any ERISA Affiliate to the PBGC, to a trustee or
to such multiemployer plan in the aggregate amount of one million dollars
($1,000,000) or more. A plan amendment described in section 4041(e) of ERISA
shall be treated as a plan termination for purposes of this paragraph.
(g) Funding Waiver. The Borrower or any ERISA Affiliate shall apply
under section 412 of the Code for a waiver of the minimum funding standard.
(h) Plan Qualification. Any plan of the Borrower or an ERISA Affiliate
that is intended to have qualification under section 401(a) of the Code loses
such qualification, if the loss of such qualification can reasonably be expected
to impose on the Borrower or any ERISA Affiliate liabilities (for additional
taxes, to plan participants or otherwise) in the aggregate amount of one million
dollars ($1,000,000) or more.
(i) Cross-Default. The Borrower shall default in the payment when due,
whether by acceleration or otherwise, of an amount greater than ten million
dollars ($10,000,000) on any of its Indebtedness (not arising hereunder or under
any of the other Loan Documents), or default in the performance or observance
(subject to any applicable grace period) of any agreement, covenant or condition
with respect to any such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or to permit the holder or
holders of any such Indebtedness, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or, if such Indebtedness is a guaranty, to call upon such guaranty in
advance of nonpayment of the guaranteed indebtedness.
(j) Collateral. A judgment creditor of the Borrower shall obtain
possession of any material portion of the Collateral) by any means, including,
but not limited to, levy, distraint, replevin or self-help.
(k) Impairment of Collateral. The Lender's Lien, or the priority
thereof, on any material portion of the Collateral shall become impaired or
otherwise unenforceable.
(l) Bankruptcy. The Borrower shall institute a voluntary case seeking
liquidation or reorganization under Chapter 7 or Chapter 11, respectively, of
the United States Bankruptcy Code, or shall consent to the institution of an
involuntary case thereunder against it; or the Borrower shall file a petition
initiating or shall otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or the Borrower shall
apply for, or by consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with similar
powers, or the Borrower shall make an assignment for the benefit of creditors;
or the Borrower shall admit in writing its inability to pay its debts generally
as they become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Borrower under Chapter 7 or Chapter 11,
respectively, of the United States Bankruptcy Code, or any similar proceeding
shall be commenced against the Borrower under any other applicable federal or
state law, and (i) the petition commencing the involuntary case is not timely
controverted; or (ii) the petition commencing the involuntary case is not
dismissed within forty-five (45) days of its filing; or (iii) an interim trustee
is appointed to take possession of all or a portion of the property and/or to
operate all or any part of the business of the Borrower; or (iv) an order for
relief shall have been issued or entered therein; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee or other officer having similar powers over
the Borrower, or of all or a part of the property of any of the foregoing, shall
have been entered; or any other similar relief shall be
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granted against the Borrower under any applicable federal or state law.
(m) Material Adverse Change. The Lender shall have determined that a
Material Adverse Change other than solely as a result of losses incurred by the
Borrower in the ordinary course of business has occurred since the Effective
Date.
(n) Invalidity of Loan Documents. Any of the Loan Documents shall cease
for any reason to be in full force and effect in any material respect or any
party thereto (other than the Lender) shall purport to disavow its obligations
thereunder, shall declare that it does not have any further obligation
thereunder or shall contest the validity or enforceability thereof.
7.2 Termination of Commitment and Acceleration. If any Event of Default
described in Section 7.1(l) shall occur, the Notes and all other Obligations
shall become immediately due and payable, all without notice of any kind. If any
other Event of Default shall be continuing, the Lender may declare its
obligation to advance further portions of the Loans to be terminated and the
outstanding Notes and all other Obligations to be due and payable, or all of the
foregoing, whereupon the Notes and all other Obligations shall immediately
become due and payable, all as so declared by the Lender and without
presentment, demand, protest or other notice of any kind.
ARTICLE 8
MISCELLANEOUS
8.1 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon, and the benefits thereof shall inure to, the parties
hereto and their respective successors and assigns; provided, however, that the
Borrower shall not assign this Agreement or any of the rights, duties or
obligations of the Borrower hereunder without the prior written consent of the
Lender.
8.2 No Implied Waiver. No delay or omission to exercise any right, power
or remedy accruing to the Lender upon any breach or default of the Borrower
under this Agreement or under any of the other Loan Documents shall impair any
such right, power or remedy of the Lender, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default occurring thereafter, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter.
8.3 Amendments; Waivers.
(a) No amendment, modification or waiver of, or consent with respect to,
any provision of this Agreement, the Note or any of the other Loan Documents
shall in any event be effective unless the same shall be in writing and signed
and delivered by the Lender and the Borrower.
(b) Any amendment, modification, waiver or consent hereunder shall be
effective only in the specific instance and for the specific purpose for which
given.
8.4 Remedies Cumulative. All rights and remedies, either under this
Agreement, by law or otherwise afforded to the Lender shall be cumulative and
not exclusive, and any single or partial exercise of any power or right
hereunder or thereunder does not preclude other or further exercise thereof, or
the exercise of any other power or right.
8.5 Severability. Any provision of this Agreement, the Note or any of
the other Loan Documents which is prohibited or unenforceable in any
jurisdiction shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Note and the other Loan Documents shall remain valid.
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8.6 Costs, Expenses and Attorneys' Fees. If, at any time or times, the
Lender or, in subsection (a) below, the Borrower shall employ counsel or other
professional advisors for advice or other representation or shall incur
reasonable legal, appraisal, accounting, consulting or other costs and expenses
in connection with any of the following:
(a) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by any party to any Loan or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreements to
be executed or delivered in connection herewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against the Borrower or any
other Person that may be obligated to the Lender by virtue of the Loan, under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law;
provided, however, that in any litigation between the Borrower and the Lender
the prevailing party shall be entitled to recover reasonable attorneys' fees
under this Section 8.6(a).
(b) Any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any or all of the Collateral.
In any such event, the reasonable fees of such attorneys and other professional
advisors arising from such services, including those of any appellate
proceedings, and all reasonable expenses, costs, charges and other fees incurred
by such counsel or other professionals in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 8.6 shall be payable, on demand. Without limiting the generality of the
foregoing, such reasonable expenses, costs, charges and fees may include:
attorneys' fees, costs and expenses, paralegal fees, costs and expenses;
accountants' fees, costs and expenses; appraisers' fees, costs and expenses;
other consultants' fees, costs and expenses; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express, courier and other delivery
charges; telegram charges; facsimile costs and expenses; secretarial overtime
charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other professional services.
8.7 Indemnification. The Borrower shall indemnify, defend and hold
harmless the Lender and its directors, officers, employees, Affiliates,
attorneys and agents (collectively called the "the Lender Indemnitees") from and
against any and all liabilities, obligations, losses, damages, penalties,
impositions and charges imposed by any Governmental Authority, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever, whether or not well founded, meritorious or in meritorious
(including, without limitation, any expenses (including attorneys' fees)
incurred by any such the Lender Indemnitee in connection with any investigation
or administrative or judicial proceeding, whether or not any such the Lender
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by or asserted against such the Lender Indemnitees by any Person other
than the Lender (whether direct, indirect, consequential or punitive and whether
based on any Governmental Requirement, including, without limitation,
securities, environmental and commercial laws and regulations, under common law
or at equitable cause, or on contract or otherwise) in any manner relating to or
arising, directly or indirectly, out of this Agreement, any other Loan
Documents, or any act, event or transaction related or attendant thereto; the
making of Loans hereunder, the management of the Loans (including any liability
under federal, state or local environmental laws or regulations), the use or
intended use of the proceeds of the Loans (collectively, the "Indemnified
Matters"); provided, however, that the Borrower shall have no obligation to a
the Lender Indemnitee under this Section 8.7 with respect to Indemnified Matters
to the extent such Indemnified Matters were caused by or resulted from the gross
negligence or willful misconduct of a the Lender Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute to the payment and satisfaction of all
Indemnified Matters incurred by the Lender Indemnitees the maximum portion which
the Borrower is permitted to pay and satisfy under applicable law. This
indemnification shall survive repayment by the Borrower of all Loans made under
this Agreement,
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and the termination of this Agreement. This Section 8.7 shall apply only if the
second Loan is not made.
8.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with receipt
confirmed and promptly confirmed by personal delivery, U.S. first class mail, or
courier), or by courier service, as follows:
(a) If to the Lender to:
S3 Incorporated
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000-0000
Attn: Chief Executive Officer
Fax:
with a copy to:
Pillsbury Madison & Sutro LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxx X. del Xxxxx
Fax: (000) 000-0000
(b) If to the Borrower to:
Diamond Multimedia Systems, Inc.
0000 Xxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Chief Executive Officer
Fax:
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
8.9 Interpretation. This Agreement, together with the Schedules and
Exhibits to this Agreement and all of the other Loan Documents, is intended by
the Lender and the Borrower as a final expression of their agreement and,
together with all of the other Loan Documents, is intended as a complete
statement of the terms and conditions of their agreement.
8.10 Governing Law and Consent to Jurisdiction. THE VALIDITY,
CONSTRUCTION AND EFFECT OF THIS AGREEMENT, THE NOTE AND EACH OF THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO ITS CHOICE OF APPLICABLE LAW PRINCIPLES.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO
THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA,
AND THE BORROWER ACCEPTS FOR ITSELF AND ITS ASSETS AND PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION
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OF THE AFORESAID COURTS.
THE BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
JURISDICTION. NOTING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURT OF ANY OTHER JURISDICTION.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
8.12 Headings. Captions, headings and the table of contents in this
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
8.13 Survival. The obligation of the Borrower under Sections 8.6 and 8.7
of this Agreement shall survive the repayment of the Loans.
8.14 Calculations. Any calculations made by the Lender pursuant to this
Agreement shall be prima facie evidence in the absence of manifest error.
8.15 Confidential.
(a) Neither of the parties hereto shall make any public announcement
regarding the transactions contemplated in this Agreement and the other Loan
Documents without the prior consent of the other party. Each of the parties
hereto shall keep strictly confidential any and all information furnished to it
or to its Affiliates, agents or representatives in the course of negotiations
relating to this Agreement or any transaction contemplated by this Agreement and
the other Loan Documents, and the business and financial reviews and
investigation conducted by the parties hereto in connection with this Agreement
and the other Loan Documents, and such parties have instructed their respective
officers, employees and other representatives having access to such information
of such obligation of confidentiality. The parties hereto covenant and agree
that they will not use any information so obtained except in connection with the
transactions contemplated by this Agreement, will not disclose or divulge such
information to any other person and will keep confidential any information so
obtained; provided, however, that any disclosure of such information may be made
by the Lender to protect or enforce its rights in the Collateral to the extent
disclosure is reasonably necessary for such protection or enforcement or after
consultation with the other party to the extent required by applicable
Governmental Requirement and that such information may be used as evidence in or
in connection with any pending or threatened litigation related to this
Agreement or other Loan Documents or any transactions contemplated hereunder or
thereunder. The obligations of confidentiality set forth herein shall not apply
to information generally available to the public or in the possession of the
receiving party prior to its disclosure under this Agreement or that is given to
the receiving party by another person other than in breach of obligations of
confidentiality owed by such person to the disclosing party under this
Agreement.
(b) Notwithstanding the foregoing in this Section 8.17, if either party
shall be required to disclose any information concerning this Agreement or
required to make any public announcement or press release, such party shall not
disclose such information or make any public announced or press release without
consulting the other party and jointly making such disclosure, announcement or
press release.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By________________________________________
Its_______________________________________
S3 INCORPORATED
By________________________________________
Its_______________________________________
33
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated
as of June 14, 1999, by and between DIAMOND MULTIMEDIA SYSTEMS, INC., a Delaware
corporation (the "Borrower"), and S3 INCORPORATED, a Delaware corporation (the
"Lender"),
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to a Credit Agreement,
dated as of June 11, 1999 (the "Credit Agreement") pursuant to which the Lender
has extended certain credit facilities to the Borrower; and
WHEREAS, the parties desire to amend the Credit Agreement to revise
certain conditions to the funding of the second Loan and the third Loan as set
forth in Sections 3.3 and 3.4 of the Credit Agreement and to make other changes
as more specifically provided for herein:
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise specifically defined herein, each
term used herein which is defined in the Credit Agreement has the meaning
assigned to such term in the Credit Agreement.
2. Amendments.
(a) Section 3.3(a) of the Credit Agreement is hereby amended to read in
its entirety as follows:
"(a) Warrant. The Borrower shall have issued a common stock
purchase warrant on terms satisfactory to the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such warrant or for the
Borrower or Lender to agree as to the terms of such warrant."
(b) New Sections 3.4(g), (h) and (i) shall be added after Section 3.4(f)
of the Credit Agreement as follows:
"(g) Merger Agreement and Warrant. The Borrower shall have issued
a common stock purchase warrant on terms agreed between the Borrower and
the Lender and entered into an agreement ("MERGER AGREEMENT") with the
Lender pursuant to which the Borrower will merge into, combine its
business and assets with or transfer substantially all of its business
and assets to the Lender. Nothing in this Agreement,
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however, shall be deemed to imply an obligation for the Lender or the
Borrower to negotiate the terms of such warrant or for the Borrower or
Lender to agree as to the terms of such warrant or to enter into any
agreement pursuant to which the Borrower will merge into, combine its
business and assets with or transfer substantially all of its business
and assets to the Lender.
(h) Assignment or License of Trademark. The Borrower shall have
entered into an assignment or license agreement pursuant to which the
Borrower shall assign or license its rights in a trademark on terms to
be agreed upon between the Borrower and the Lender. Nothing in this
Agreement, however, shall be deemed to imply an obligation for the
Lender or the Borrower to negotiate the terms of such agreement or for
the Borrower or Lender to agree as to the terms of such agreement.
(i) Negotiation of a Supply Agreement. The Borrower shall have
entered into a supply agreement with the Lender upon terms to be agreed
upon between the Borrower and the Lender. Nothing in this Agreement,
however, shall be deemed to imply an obligation for the Lender or the
Borrower to negotiate the terms of such agreement or for the Borrower or
Lender to agree as to the terms of such agreement."
(c) The reference to "Tuesday, June 15, 1999" in Line 2 of Section 6.11
of the Credit Agreement shall be changed to "Tuesday, June 22."
3. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of California (without regard
to principles of conflicts of law).
4. Counterparts; Effectiveness; Entire Agreement. This First Amendment
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This First Amendment shall be effective on the date when the Lender
shall have received a duly executed counterpart hereof signed by Borrower. This
First Amendment, together with the Credit Agreement, contains the entire and
exclusive agreement of the parties hereto with reference to the matters
discussed herein and therein. This First Amendment supersedes all prior drafts
and communications with respect thereto. This First Amendment may not be amended
except in accordance with the provisions of Section 8.3 of the Credit Agreement.
5. Ratification of Credit Agreement. Except as amended hereby, all of
the provisions set forth in the Credit Agreement remain in full force and
effect. As of the effective date of this First Amendment, any reference in the
Credit Agreement to "this Agreement" shall mean the Credit Agreement as amended
by this First Amendment.
6. Severability. If any provision of this First Amendment shall be held
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7. Headings. The headings hereof are for convenience only and are not
intended to
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affect the meaning or interpretation of this First Amendment.
8. Benefit of Agreement. This First Amendment shall inure to the benefit
of, and be enforceable by the Lender, the Borrower, and their respective
successors and assigns provided that the condition in Section 8.1 of the Credit
Agreement is satisfied.
9. Further Assurances. The Borrower agrees, upon the reasonable request
of the Lender, to execute any additional documents and to take any further
action, that may be deemed necessary or advisable by the Lender to effectuate
the purpose of this First Amendment.
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IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
DIAMOND MULTIMEDIA SYSTEMS, INC.
By_______________________________________
Its____________________________________
S3 INCORPORATED
By_______________________________________
Its____________________________________
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