EXHIBIT 10.49
July 28, 1997
IMPERIAL BANK
000 Xxxx Xxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Subject: Credit Terms and Conditions
Gentlemen:
To induce you ("Bank") to make loans to Digital Sound Corporation (herein called
"Borrower"), and in consideration of any loan or loans you, in your sole
discretion, may make to Borrower, Borrower warrants and agrees as follows:
Borrower Represents and Warrants that:
Existence and Rights. Borrower is a corporation and Borrower is duly organized
and existing and in good standing under the laws of the State of California,
without limit as to the duration of its existence and is authorized and in good
standing to do business in the State of California; Borrower has powers and
adequate authority, rights and franchises to own its property and to carry on
its business as now conducted, and is duly qualified and in good standing in
each State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement. Borrower has
no investment in any other business entity except as shown in the attached
Schedule A-1.
Agreement Authorized. The execution, delivery and performance of this Agreement
are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
No Conflict. The execution, delivery and performance of this Agreement are not
in contravention of or in conflict with any agreement, indenture or undertaking
to which Borrower is a party or by which it or any of its property may be bound
or affected, and do not cause any lien, charge or other encumbrance to be
created or imposed upon any such property by reason thereof.
Litigation. There is no litigation or other proceeding pending or threatened
against or affecting Borrower other than the litigation disclosed in Xxxxxxxx's
1996 10-K filing, and Xxxxxxxx is not in default with respect to any order,
writ, injunction, decree or demand of any court or other governmental or
regulatory authority. Xxxxxxxx also agrees to notify you in writing of any
future litigation threatened against or affecting borrower.
Financial Condition. The balance sheet of Borrower as of June 30, 1997, and the
related profit and loss statement for the six months ended on that date, a copy
of which has heretofore been delivered to you by Xxxxxxxx, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of operations for the period covered thereby, and
has been prepared in accordance with generally accepted accounting principles on
a basis consistently maintained. Since such date there have been no material
adverse changes in the financial condition or business of Borrower. Borrower
has no knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
Title to Assets. Borrower has good title to its assets, and the same are not
subject to any liens or encumbrances other than those permitted by Section C.3
hereof.
Tax Status. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
Trademarks, Patents. Borrower, as of the date hereof, possesses all necessary
trademarks, trade names, copyrights, patents, patent rights, and licenses to
conduct its business as now operated, without any known conflict with the valid
trademarks, trade names, copyrights, patents and license rights of others.
Regulation U. The proceeds of the notes have not been used to purchase or carry
margin stock (as defined within Regulation U of the Board of Governors of the
Federal Reserve system).
Xxxxxxxx agrees that so long as it is indebted to you, under borrowings, or
other indebtedness, it will, unless you shall otherwise consent in writing:
Rights and Facilities. Maintain and preserve all rights, franchises and other
authority adequate for the conduct of its business; maintain its properties,
equipment and facilities in good order and repair; conduct its business in an
orderly manner without voluntary interruption and, if a corporation or
partnership, maintain and preserve its existence.
Insurance. Maintain public liability, property damage and workers' compensation
insurance and insurance on all its insurable property against fire and other
hazards with responsible insurance carriers to the extent usually maintained by
similar businesses and/or in the exercise of good business judgment. Borrower
shall provide evidence of property insurance in amounts and types acceptable to
Bank and Bank shall be named as Loss Payee in a Lender's Loss Payable
Endorsement form 438BFU or equivalent
Copyright Filings. Maintain updated and appropriate filings with the United
States Copyright Office on all software currently being licensed or sold.
Borrower shall notify Bank of its updated filings with the United States
Copyright Office within 30 days of the end of each fiscal quarter, and shall
provide Bank or Bank's legal counsel with all necessary information for Bank to
prepare copyright mortgages on such updated filings.
Taxes and Other Liabilities. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
The same are being contested in good faith and by appropriate proceedings in
such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
It shall have set aside on its books reserves (segregated to the extent required
by generally accepted accounting practice) deemed by it adequate with respect
thereto.
Financial Covenants.
Maintain on a quarterly basis a minimum tangible net worth (meaning the excess
of all assets, excluding any value for goodwill, trademarks, patents,
copyrights, proprietary rights, leaseholds, organization expense and other
similar intangible items, over its liabilities less subordinated debt) of not
less than $14,000,000; increasing to $15,000,000 for the quarter ending December
31, 1997, and thereafter;
maintain on a quarterly basis a ratio of total liabilities to tangible net worth
of not greater than .80 to one;
maintain on a quarterly basis net current assets (i.e., working capital) of not
less than $8,000,000, increasing to $9,000,000 beginning with the quarter ending
March 31, 1998, and thereafter;
maintain on a monthly basis unencumbered cash of $6,000,000 through September
30, 1997; $3,000,000 thereafter until borrower achieves two consecutive quarters
of profitability, after which this covenant will be eliminated;
maintain on a quarterly basis a quick ratio (defined as the ratio of cash plus
cash equivalents plus accounts receivable to current liabilities) of not less
than 1.40 to one; and
Not sustain a loss of more than $12,000,000 for the year ending December
31,1997, and shall not incur two consecutive quarterly losses beginning with the
quarter ending March 31, 1998.
Records and Reports. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit your representatives to have access to,
and to examine its properties, books and records at all reasonable times during
normal business hours; and furnish you:
As soon as available, and in any event within 25 days after the close of each
month of each fiscal year of Borrower, commencing with the month next ending, a
balance sheet, profit and loss statement and reconciliation of Borrower's
capital accounts as of the close of such period and covering operations for the
portion of Borrower's fiscal year ending on the last day of such period, all in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared in
accordance with generally accepted accounting principles on a basis consistently
maintained by Xxxxxxxx and certified by an appropriate officer of Borrower,
subject, however, to year-end audit adjustments;
As soon as available, and in any event within 90 days after the close of each
fiscal year of Borrower, a report of audit of Company as of the close of and for
such fiscal year, all in reasonable detail and stating in comparative form the
figures as of the close of and for the previous fiscal year, with the review of
accountants satisfactory to you;
All 8-K filings within fifteen (15) days of filing with the Securities and
Exchange Commission, and its 10-Q reports as filed with the Securities and
Exchange Commission within forty-five (45) days of the end of each fiscal
quarter; promptly after the same are available, copies of all such proxy
statements, financial statements and reports as Borrower shall send to its
stockholders, if any, and copies of all other such reports which Borrower may
file with the Securities and Exchange Commission or any governmental authority
at any time substituted therefor;
Within 90 days after the end of each fiscal year of Borrower, a certificate of
chief financial officer or partner of Xxxxxxxx, stating that Xxxxxxxx has
performed and observed each and every covenant contained in this Letter to be
performed by it and that no event has occurred and no condition then exists
which constitutes an event of default hereunder or would constitute such an
event of default upon the lapse of time or upon the giving of notice and the
lapse of time specified herein; or, if any such event has occurred or any such
condition exists, specifying the nature thereof;
Promptly after the receipt thereof by Xxxxxxxx, copies of any detailed audit
reports submitted to Borrower by independent accountants in connection with each
annual or interim audit of the accounts of Borrower made by such accountants;
Such other information relating to the affairs of Borrower as you reasonably may
request from time to time.
Xxxxxxxx agrees that so long as it is indebted to you, it will not, without your
written consent:
Type of Business; Make any substantial change in the character of its business.
Outside Indebtedness. Create, incur, assume or permit to exist any indebtedness
for borrowed moneys other than loans from you except obligations now existing as
shown in the attached Schedule C-2, excluding those being refinanced by your
bank; or sell or transfer, either with or without recourse, any accounts or
notes receivable or any moneys due to become due. Bank will not unreasonably
withhold its accommodation of Borrower's solicitation of debt to be
subordinated, in form and substance satisfactory to Bank, to the obligations of
Borrower to Bank.
Liens and Encumbrances. Create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
liens for taxes not delinquent and liens in your favor, except as shown in the
attached Schedule C-3
Loans, Investments, Secondary Liabilities. Make any loans or advances to any
person or other entity other than in the ordinary course and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
Acquisition or Sale of Business; Merger or Consolidation. Purchase or otherwise
acquire the assets or business of any person or other entity; or liquidate,
dissolve, merge or consolidate, or commence any proceedings therefor; or sell
any assets except in the ordinary and normal course of its business as now
conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same.
Dividends, Stock Payments. If a corporation, declare or pay any dividend (other
than dividends payable in common stock of Borrower) or make any other
distribution on any of its capital stock now outstanding or hereafter issued or
purchase, or redeem or retire any of such stock.
Lease Liability. Make or incur liability for aggregate rent payments greater
than $100,000 per year under leases of real property and/or personal property
beyond Borrower's obligations as shown in the attached Schedule C-7.
The occurrence of any of the following events of default shall, at your option,
terminate your commitment to lend and make all sums of principal and interest
then remaining unpaid on all Borrower's indebtedness to you immediately due and
payable, all without demand, presentment or notice, all of which are hereby
expressly waived:
Failure to Pay. Failure to pay any installment of principal of or interest on
any indebtedness of Borrower to you.
Breach of Covenant. Failure of Borrower to perform any other term or condition
of this Letter of Inducement binding upon Borrower or any other written
agreement between Borrower and Bank.
Breach of Warranty. Any of Borrower's material representations or material
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any material respect.
Insolvency; Receiver or Trustee. Borrower shall become insolvent; or admit its
inability to pay its debts as they mature; or make an assignment for the benefit
of creditors; or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business.
Judgments, Attachments. Any money judgment, writ or warrant of attachment, or
similar process shall be entered or filed against Borrower or any of its assets
and shall remain unvacated, unbonded or unstayed for a period of 10 days or in
any event later than five days prior to the date of any proposed sale
thereunder.
Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Borrower and, if instituted
against it, shall be consented to.
Miscellaneous Provisions.
Failure or Indulgence Not Waiver. No failure or delay on the part of Imperial
Bank or any holder of Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this agreement or any note issued in
connection with a loan that Imperial Bank may make hereunder, are cumulative to,
and not exclusive of, any rights or remedies otherwise available.
Notice of Default. Promptly notify Imperial Bank in writing of the occurrence
of any event of default hereunder upon the notice and lapse of time.
Business Accounts. Borrower shall maintain all primary business accounts at
Imperial Bank.
4) Governing Law. This Agreement shall be deemed to have been made in the
State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law.
5) Judicial Reference.
Other than (i) nonjudicial foreclosure and all matters in connection therewith
regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this
Agreement, which controversy, dispute or claim is not settled in writing within
thirty (30) days after the "Claim Date" (defined as the date on which a party
subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP (S)170.6. The referee shall (a) be requested to set the matter
for hearing within sixty (60) days after the date of selection of the referee
and (b) try any and all issues of law or fact and report a statement of decision
upon them, if possible, within ninety (90) days of the Claim Date. Any decision
rendered by the referee will be final, binding and conclusive and judgment shall
be entered pursuant to CCP (S)644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and request for production or inspection of documents shall be responded
to within ten (10) days after service. All disputes relating to discovery which
cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending appointment of
the referee as provided herein, the Superior Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
Except as expressly set forth in this Agreement, the referee shall determine the
manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding.
All proceedings and hearings conducted before the referee, except for trial,
shall be conducted without a court reporter except that when any party so
requests, a court reporter will be used at any hearing conducted before the
referee. The party making such a request shall have the obligation to arrange
for and pay for the court reporter. The costs of the court reporter at the trial
shall be borne equally by the parties.
The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
In the event that the enabling legislation which provides for appointment of a
referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge of the Court, in accordance with the California
Arbitration Act, (S)1280 through (S)1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.
Digital Sound Corporation
BY: /s/ X. Xxxxxx Xxx
Vice President and CFO
