EXHIBIT 10.1
BUSINESS LOAN AGREEMENT
This Business Loan Agreement (this "Agreement") is entered into by and
between Comerica Bank-California ("Bank") and OVERLAND DATA, INC., a corporation
("Borrower") as of this 28th day of November, 2002, at Bank's headquarters
office at 000 Xxxx Xxxxx Xxxxx Xxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000.
1. LOANS TO BORROWER. Bank and Borrower agree that any loans
which Bank in its sole discretion has made or may now or hereafter make to
Borrower (sometimes hereinafter collectively referred to as the "Loan") shall be
subject to the terms and conditions of this Agreement unless otherwise agreed to
in writing by Bank and Borrower. In the event there are contradictions between
the provisions of this Agreement and any other written agreement with the Bank,
this Agreement shall prevail. Loan shall be subject to the terms and conditions
of this Agreement, promissory note(s) executed in connection herewith and/or
previously or subsequently executed, and all amendments, renewals and extensions
thereof (singularly or collectively, the "Note"), and all those certain security
agreements and/or such other security or other documents as Bank has required or
may now or hereafter require in connection with the Loan (collectively, the
"Loan Documents").
2. LEGAL EFFECT. This Agreement supplements the terms and
conditions of the Loan Documents. Except as otherwise specified herein, all
terms used in this Agreement shall have the same meaning as given in the Note
and/or Loan Documents which are incorporated herein by this reference. Any and
all terms used in this Agreement, the Note and/or the Loan Documents shall be
construed and defined in accordance with the meaning and definition of such term
under and pursuant to the California Uniform Commercial Code, as amended. Except
as specifically modified hereby, all of the terms and conditions of the Note
and/or the Loan Documents shall remain in full force and effect.
3. INTEREST RATE; PAYMENT TERMS; LOAN FEES. The principal and
interest on the Loan shall be payable on the terms set forth in the Note and/or
the Loan Documents. A loan fee in the sum of One Thousand Dollars ($1,000) shall
be paid concurrently with the execution of this Agreement. In addition, Borrower
shall pay such additional loan fees from time to time in the future as agreed
between Bank and Borrower.
4. SECURITY. As security for Borrower's obligations to Bank under
this Agreement, the Note and/or the Loan Documents and all other indebtedness
and liabilities whatsoever of Borrower to Bank, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
evidenced by the Note and/or the Loan Documents (collectively, the
"Indebtedness"), Borrower hereby grants to Bank, prior to or simultaneously with
the borrowing hereunder, a continuing security interest of first priority in all
accounts receivable, inventory, equipment and intangibles and all proceeds
thereof, and in all collateral provided to Bank pursuant to any security
agreement and/or all collateral that is delivered to Bank and/or which Bank
possesses and all proceeds thereof, (collectively, the "Collateral").
5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants to Bank that as of the date of acceptance of this
Agreement, the Note and/or the Loan Documents, as of the date of borrowing
hereunder and at all times the Loan or any other Indebtedness are outstanding
hereunder:
(a) If Borrower is a corporation, Borrower is duly
organized, validly existing and in good standing under the laws of the state of
its incorporation; if a partnership, Borrower is duly organized and validly
existing under the partnership agreement and the applicable laws of the state in
which the partnership is formed or exists or if a limited liability company,
Borrower is duly organized and validly existing under the operating agreement
and the applicable laws of the state in which the limited liability company is
formed;
(b) Borrower has the legal power and authority, to own
its properties and assets and to carry out its business as now being conducted;
it is qualified to do business in every jurisdiction wherein such qualification
is necessary; it has the legal power and authority to execute and perform this
Agreement, the Note and/or the Loan Documents to borrow money in accordance with
its terms, to execute and deliver this Agreement, the Note and the Loan
Documents, and to do any and all other things required of it hereunder; and this
Agreement, the Note and all the Loan Documents, when executed on behalf of
Borrower by its duly authorized officers, partners or members, as the case may
be, shall be its valid and binding obligations legally enforceable in accordance
with their terms;
(c) The execution, delivery and performance of this
Agreement, the Note and/or the Loan Documents and the borrowings hereunder and
thereunder (i) have been duly authorized by all requisite corporate, partnership
or company action; (ii) do not require governmental approval; (iii) will not
result (with or without notice and/or the passage of time) in any conflict with
or breach or violation of or default under, any provision of law, the articles
of incorporation, articles of organization, operating agreement, bylaws or
partnership agreement of Borrower, any provision of any indenture, agreement or
other instrument to which Borrower is a party, or by which it or any of its
properties or assets are bound; and (iv) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Borrower;
(d) The balance sheet of Borrower as provided to Bank in
connection herewith and the related statement of income of Borrower provided to
Bank for the period ended September 30, 2001, fairly present the financial
condition of Borrower in accordance with generally accepted accounting
principles ("GAAP") consistently applied; and from the date thereof to the date
hereof, there has been no material adverse change in such condition or
operations; and
(e) There is not pending nor, to the best of Borrower's
knowledge, threatened, any litigation, proceeding or governmental investigation
which could materially and adversely affect its business or its ability to
perform its obligations, pay the Indebtedness and/or comply with the covenants
set forth herein and/or in the Note and/or the other Loan Documents.
6. AFFIRMATIVE COVENANTS. Until the Indebtedness is paid in full,
Borrower covenants and agrees to do the following:
(a) Furnish to Bank within forty-five (45) days after the
end of each quarter, an unaudited balance sheet and statement of income covering
Borrower's operations together with copies of the Borrower's Form 10-Q Quarterly
Report. Within ninety (90) days of the end of each of Borrower's fiscal years,
furnish to Bank statements of the financial condition of Borrower for each such
fiscal year, including but not limited to, a balance sheet, profit and loss
statement, and statement of cash flow. Said annual statements shall be audited
by an independent certified public accountant selected by Borrower and
acceptable to Bank together with copies of the Borrower's Form 10-K Annual
Report;
(b) In addition to the financial statements requested
above, Borrower agrees to provide Bank with copies of its accounts receivable,
inventory and fixed assets listings promptly upon Bank's request;
(c) Promptly inform Bank of the occurrence of any default
or event of default as defined in the Note and/or the Loan Documents
(hereinafter referred to as "Default") or of any event which could have a
materially adverse effect upon Borrower's business, properties, financial
condition or ability to comply with its obligations hereunder, including without
limitation: (1) its ability to pay the Indebtedness; (2) a significant loss of
revenue from Compaq; and (3) termination of any contract with Compaq;
(d) Furnish such other information as Bank may reasonably
request;
(e) Keep in full force and effect its own corporate,
company or partnership existence in good standing; continue to conduct and
operate its business substantially as presently conducted and operated and
maintain and protect all franchises and trade names and preserve all the
remainder of its property used or useful in the conduct of its business and keep
the same in good repair and condition;
(f) Comply with the financial covenants set forth in
Addendum A, attached hereto and made a part hereof;
(g) Maintain a standard and modern system of accounting
in accordance with GAAP consistently applied with ledger and account cards
and/or computer tapes and computer disks, computer printouts and computer
records pertaining to the Collateral which contain information as may from time
to time be requested by Bank, not modify or change its method of accounting
without the written consent of Bank first obtained, permit Bank and any of its
employees, officers, or agents, upon demand, during Borrower's usual business
hours, or the usual business hours of any third person having control thereof,
to have access to and examine all of Borrower's records relating to the
Collateral, Borrower's financial condition and the results of Borrower's
operations and in connection therewith, permit Bank or any of its agents,
employees, or officer to copy and make extracts therefrom;
(h) Maintain Borrower's same place of business or chief
executive office or residence as indicated below, and not relocate said address
without giving Bank 30 days prior written notice;
(i) Maintain insurance with such insurers in such amounts
and of a type satisfactory to Bank, with Bank to be designated as the payee of
any such insurance policies under a payee/secured lender clause acceptable to
Bank; and
(j) On a continuing basis from the date of this Agreement
until the Indebtedness is paid in full and Borrower has performed all of its
other obligations hereunder, Borrower represents and agrees that:
(1) There are not and will not be Hazardous
Materials (as later defined) on, in or under any real or personal property
("Property") now or at any time owned, occupied or operated by Borrower which in
any manner violate any Environmental Law (as later defined).
(2) Borrower shall promptly conduct all
investigations, testing and other actions necessary to clean up and remove all
Hazardous Materials on or affecting the Property in accordance with every
Environmental Law.
(3) Borrower shall defend, indemnify and hold
harmless Bank, its employees, agents, officers, shareholders and directors from
and against any and all claims, damages, fines, expenses, liabilities or causes
of action of whatever kind, including without limit consultant fees, legal
expenses and reasonable attorneys' fees, suffered by any of them as a direct or
indirect result of any actual or asserted violation of any Environmental Law.
(4) Upon ten days notice to Borrower (except in
an emergency), Bank may (but is not obligated to) enter on the Property or take
such other actions as it deems appropriate to inspect, test for, clean up,
remove or minimize the impact of any Hazardous Materials upon Bank's receipt of
any notice from any source asserting the existence of any Hazardous Materials in
violation of any Environmental Law. All costs and expenses so incurred by Bank,
including without limit consultant fees, legal expenses and reasonable
attorneys' fees, shall be payable by Borrower upon demand.
(5) The provisions of this section shall survive
the repayment of the Indebtedness, the satisfaction of all other obligations of
Borrower to Bank, the discharge or termination by Bank of any lien or security
interest from Borrower, and the foreclosure of or exercise of rights as to any
collateral given to Bank.
(6) "Hazardous Materials" mean all of the
following: any asbestos, petroleum, petroleum by-products, flammable explosives,
or radioactive materials or any hazardous or toxic materials as defined in the
Comprehensive
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Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 9601 et seq.) or in any other Environmental Law.
(7) "Environmental Law" means any federal,
state, local or other law, ordinance, statute, directive, rule, order or
regulation on object of which is to regulate or improve health, safety or the
environment.
7. NEGATIVE COVENANTS. Borrower shall not, without Bank's prior
written consent, do any of the following:
(a) Grant a security interest in or permit a lien, claim
or encumbrance upon any of the Collateral to any person, association, firm,
corporation, entity, governmental agency or instrumentality;
(b) Permit any levy, attachment or restraint to be made
affecting any of Borrower's assets;
(c) Permit any judicial officer or assignee to be
appointed or to take possession of any or all of Borrower's assets;
(d) Other than sales of inventory in the ordinary course
of Borrower's business, to sell, lease or otherwise dispose of, move, or
transfer, whether by sale or otherwise, any of Borrower's assets;
(e) Change its name, business structure, corporate
identity or structure; add any new fictitious name, liquidate, merge or
consolidate with or into any other business organization;
(f) Move or relocate any collateral except in the
ordinary course of Borrower's business;
(g) Acquire any other business organization or its assets
for a consideration, including assumption of direct or contingent debt, in
excess of One Million Dollars ($1,000,000) in the aggregate;
(h) Enter into any transaction not in the usual course of
Borrower's business;
(i) Make any investment in securities of any person,
association, firm, entity or corporation other than securities of the United
States of America;
(j) Make any change in Borrower's financial structure or
in any of its business objects, purposes or operations which would adversely
affect the ability of Borrower to pay its obligations;
(k) Incur any debt outside the ordinary course of
Borrower's business;
(l) Make any advance or loan except in the ordinary
course of Borrower's business;
(m) Make loans, advances or extensions of credit to any
person, except for sales on open account and otherwise in the ordinary course of
business;
(n) Guaranty or otherwise, directly or indirectly, in any
way be or become responsible for obligations of any other person, whether by
agreement to purchase the indebtedness of any other person, agreement for the
furnishing of funds to any other person through the furnishing of goods,
supplies or services, by way of stock purchase, capital contribution, advance or
loan, for the purpose of paying and discharging (or causing the payment or
discharge of) the indebtedness of any other person, or otherwise, except for the
endorsement of negotiable instruments by Borrower in the ordinary course of
business for deposit or collection;
(o) Sell, lease, transfer or otherwise dispose of
properties and assets having an aggregate book value of more than Five Hundred
Thousand Dollars ($500,000) (whether in one transaction or in a series of
transactions) except as to the sale of the inventory in the ordinary course of
business; change its name, consolidate with or merge into any corporation,
permit another corporation to merge into it, acquire all or substantially all of
the properties or assets of any other person, enter into any reorganization or
recapitalization or reclassify its capital stock, or enter into any sale-lease
back transaction;
(p) Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any interest whatsoever in, any
other person, except for the common stock of the subsidiaries owned by Borrower
on the date of this Agreement or other applicable date and except for
certificates of deposit with maturities of one year or less of a United States
commercial bank with capital, surplus and undivided profits in excess of One
Hundred Thousand Dollars ($100,000), direct obligations of the United States
government maturing within one (1) year from the date of acquisition thereof,
and investments held at Banc of America Securities L.L.C. in accordance with the
investment guidelines established by the Borrower's board of directors;
(q) Allow any fact, condition or event to occur or exist
with respect to any employee, pension or profit sharing plan established or
maintained by it which might constitute grounds for termination of any such plan
or for the court appointment of a trustee to administer any such plan;
(r) Without Bank's prior written consent, acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds One Million Dollars
($1,000,000) in any fiscal year;
(s) Without Bank's prior written consent, pledge or
otherwise hypothecate any of its assets, including but not limited to, any and
all of Borrower's intellectual property, except for liens on any of the
Borrower's assets already existing as of September 30, 2001, or become liable
for borrowed money or finance loans during any fiscal year; or
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(t) Without Bank's prior written consent, make or incur
obligations for operating leases for real or personal property in excess of One
Million Dollars ($1,000,000) in any twelve (12) month period.
8. DEFAULT. The terms "Default" or "Event of Default", as used
herein, shall have the meaning given in the Note and/or the Loan Documents. In
addition, the parties agree that any one or more of the following events shall
constitute a default by Borrower under this Agreement, the Note and/or the Loan
Documents:
(a) If Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement, the Note, the Loan Documents or any
other present or future agreement between Borrower and Bank;
(b) If any material representation, statement, report or
certificate made or delivered by Borrower, or any of its officers, employees or
agents to Bank is not true and correct;
(c) If Borrower fails to pay when due and payable or
declared due and payable, all or any portion of the Indebtedness (whether or
principal, interest, taxes, reimbursement of Bank expenses, or otherwise);
(d) If there is a material impairment of the prospect of
repayment of all or any portion of Borrower's obligations, including without
limitation the Indebtedness or a material impairment of the value or priority of
Bank's security interest in the collateral;
(e) If all or any of Borrower's assets are affected,
become subject to a writ or distress warrant, or are levied upon, or come into
the possession of any judicial officer or assignee and the same are not
released, discharged or bonded against within ten (10) days thereafter;
(f) If any insolvency proceeding is filed or commenced by
or against Borrower without being dismissed within ten (10) days thereafter;
(g) If any bankruptcy or other proceeding is filed or
commenced by or against Borrower for its reorganization, dissolution or
liquidation without being dismissed within ten (10) days of its commencement;
(h) If Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
(i) If a notice of lien, levy or assessment is filed of
record with respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other government agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether inchoate or otherwise, upon any or all of the Borrower's assets and the
same is not paid on the payment date thereof;
(j) If a judgment or other claim becomes a lien or
encumbrance upon any or all of Borrower's assets and the same is not satisfied,
dismissed or bonded against within ten (10) days thereafter;
(k) If Borrower's records are prepared and kept by an
outside computer service bureau at the time this Agreement, the Note and/or the
Loan Documents are entered into or during the term of this Agreement, the Note
and/or the Loan Documents, such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the written
consent of Bank, Borrower terminates, modifies, amends or changes its
contractual relationship with said computer service bureau or said computer
service bureau fails to provide Bank with any requested information or financial
data pertaining to Bank's Collateral, Borrower's financial condition or the
results of Borrower's operations;
(l) If Borrower permits a default in any material
agreement to which Borrower is a party with third parties so as to result in an
acceleration of the maturity of Borrower's indebtedness to others, whether under
any indenture, agreement or otherwise;
(m) If Borrower makes any payment on account of
indebtedness which has been subordinated to Borrower's obligations to Bank,
including without limitation the Indebtedness;
(n) If any material misrepresentation exists now or
thereafter in any warranty or representation made to Bank by any officer or
director of Borrower, or if any such warranty or representation is withdrawn by
any officer or director;
(o) If any party subordinating its claims to that of
Bank's or any guarantor of Borrower's obligations terminates its subordination
or guaranty, becomes insolvent or an insolvency proceeding is commenced by or
against any such subordinating party or guarantor;
(p) If Borrower is an individual and Borrower dies;
(q) If there is a change of ownership or control of
Twenty-Five percent (25%) or more of the issued and outstanding stock of
Borrower; or
(r) If any reportable event, which the Bank determines
constitutes grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any such plan, shall
have occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Bank, or any such Plan shall
be terminated within the meaning of Title IV of the Employment Retirement Income
Security Act ("ERISA"), or a trustee shall be appointed by the
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appropriate United States District Court to administer any such plan, or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate
any plan and in case of any event described in this Section 8, the aggregate
amount of the Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of
Borrower's Tangible Effective Net Worth.
Bank shall not be obligated to make advances to Borrower during any
cure period provided for in Sections 8(e), 8(f), 8(j), and 8(r) above.
9. RIGHTS AND REMEDIES. The parties have agreed as follows with
respect to Bank's rights and remedies upon Default:
(a) Bank shall have all rights and remedies available
hereunder and under the Note and the Loan Documents and under applicable law;
(b) Bank may at its option without notice, accelerate the
Indebtedness and declare all Indebtedness to be due, owing and payable in full;
(c) Bank may at its option without notice, cease
advancing money or extending credit to or for the benefit of Borrower under this
Agreement or any other agreement between Borrower and Bank.
(d) No Default (as defined in this Agreement, the Note
and/or the Loan Documents) shall be waived by Bank except in writing and a
waiver of any Default shall not be a waiver of any other default or of the same
default on a future occasion;
(e) No single or partial exercise of any right, power or
privilege hereunder, or any delay in the exercise hereof, shall preclude other
or further exercise of the rights of the parties under this Agreement, the Note
and/or the Loan Documents; and
(f) No forbearance on the part of Bank in enforcing any
of its rights under this Agreement, the Note and/or the Loan Documents nor any
renewal, extension or rearrangement of any payment or covenant to be made or
performed by Borrower hereunder shall constitute a waiver of any of the terms of
this Agreement, the Note, and/or the Loan Documents, or of any such right.
10. CROSS-DEFAULT. A Default under this Agreement shall also be a
Default under the Note and the Loan Documents, and vice versa. A Default under
this Agreement, the Note and/or the Loan Documents shall also be a Default under
every other note and other agreement between Bank and Borrower, and vice versa.
11. CROSS-COLLATERAL. Any Collateral for this Agreement, the Note
and/or the Loan Documents shall also be Collateral for any other obligations
owing by Borrower to Bank. Notwithstanding the above, (i) to the extent that any
portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or
mortgage covering real property, that deed of trust or mortgage shall not secure
this Note or any other indebtedness of the undersigned (or any of them), unless
expressly provided to the contrary in another place.
12. SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES. All covenants, agreements, representations and warranties (a)
previously made (except as specifically subsequently modified); (b) made in
connection herewith or with the Note and/or the Loan Documents and/or any
document contemplated hereby; or (c) executed hereafter (unless such document
expressly states that this Agreement does not apply thereto) shall survive the
borrowing hereunder and thereunder and the repayment in full of the Note and/or
the Loan Documents and any amendments, renewals or extensions thereof and shall
be deemed to have been relied upon by Bank. All statements contained in any
certificate or other document delivered to Bank at any time by or on behalf of
Borrower shall constitute representations and warranties by Borrower.
13. MISCELLANEOUS. The parties agree to the following
miscellaneous terms:
(a) This Agreement, the Note and the Loan Documents shall
be governed by California law, without regard for the effect of conflict of
laws;
(b) Borrower agrees that it will pay all out of pocket
costs of Bank and expenses (including, without limitation, Bank's attorneys'
fees and costs and/or fees, transfer charges and costs of Bank's in-house
counsel) in connection with the preparation of this Agreement, the Note and/or
the Loan Documents and/or the documents contemplated hereby and the closing of
the Loan;
(c) This Agreement, the Note and/or the Loan Documents
shall inure to the benefit of and shall be binding upon the parties hereto and
their respective successors and assigns; provided, however, that Borrower shall
not assign or transfer its right or obligations under this Agreement, the Note
and/or the Loan Documents without the prior written consent of Bank;
(d) Borrower acknowledges that Bank may provide
information regarding Borrower and the Loan to Bank's parent, subsidiaries and
affiliates and service providers, and
(e) This Agreement is an integrated agreement and
supersedes all prior negotiations and agreements regarding the subject matter
hereof. Any amendments hereto shall be in writing and be signed by all parties
hereto.
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14. JURY WAIVER. THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the parties have executed this Business Loan
Agreement as of the date first set forth above.
Address of Borrower: Borrower:
0000 Xxxxxx Xxxxxx OVERLAND DATA, INC.
Xxx Xxxxx, Xxxxxxxxxx 00000-0000
By: /s/ Xxxxxxxxxxx Xxxxxx
------------------------------
Title: President & CEO
By: /s/ Xxxxxx X. XxXxxxx
------------------------------
Title: VP & CFO
Comerica Bank-California
("Bank")
By: /s/ Xxxxx Xxxxxxxxx
-----------------------------
Xxxxx Xxxxxxxxx
Vice President
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ADDENDUM A TO BUSINESS LOAN AGREEMENT
(FINANCIAL COVENANTS)
1. DEFINITIONS RELATING TO FINANCIAL COVENANTS.
CASH FLOW COVERAGE RATIO means the ratio, as of any applicable
period of determination, the numerator of which is net income plus depreciation
plus amortization minus unfunded capital expenditures minus tax expense, and the
denominator of which is the current portion of long term debt plus the current
portion of capital lease payments plus interest for the same period of
determination.
CURRENT LIABILITIES as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of Borrower or its
subsidiaries that should be classified as current in accordance with GAAP,
including, without limitation, any portion of the principal of the Indebtedness
under this Agreement, the Note and/or the Loan Documents classified as current
which shall include any principal amount outstanding under the Master Revolving
Note between the Bank and the Borrower of even date herewith, plus (ii) to the
extent not otherwise included, all liabilities of Borrower to any of its
affiliates (including officers, directors, shareholders, subsidiaries and
commonly held companies), whether or not classified as current in accordance
with GAAP unless same shall be the long term portion of Subordinated Debt (as
defined below).
QUICK ASSETS as used in this Agreement means, as of any applicable
date of determination, unrestricted cash, certificates of deposit or marketable
securities and net accounts receivable arising from the sale of goods and
services, and United States Government securities and/or claims against the
United States Government of Borrower and its subsidiaries.
TANGIBLE NET WORTH as used in this Agreement means, as of any
applicable date of determination, the excess of:
(a) the net book value of all assets of Borrower and its
subsidiaries (other than patents, patent rights, trademarks, trade names,
franchises, copyrights, licenses, goodwill, and similar intangible assets) after
all appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization), minus
(b) all Total Liabilities of Borrower and its subsidiaries;
and
(c) any amounts due from the Borrower's stockholders, officers
and affiliates.
TOTAL LIABILITIES as used in this Agreement means, as of any
applicable date, the total of all items of indebtedness, obligation or liability
which, in accordance with GAAP consistently applied, would be included in
determining the total liabilities of Borrower or its subsidiaries, including,
without limitation, (a) all obligations secured by any mortgage, pledge,
security interest or other lien on property owned or acquired, whether or not
the obligations secured thereby shall have been assumed; (b) all obligations
which are capitalized lease obligations; and (c) all guaranties, endorsements or
other contingent or surety obligations with respect to the indebtedness of
others, whether or not reflected on the balance sheets of Borrower or its
subsidiaries, including, without limitation, any obligation to furnish funds,
directly or indirectly through the purchase of goods, supplies, services, or by
way of stock purchase, capital contribution, advance or loan or any obligation
to enter into a contract for any of the foregoing.
2. FINANCIAL COVENANTS. Borrower shall maintain the following
financial ratios and covenants on a consolidated basis, which shall be monitored
on a quarterly basis, except as noted below.
(a) A ratio of Quick Assets to Current Liabilities of not less
than 1.00 to 1.00;
(b) A ratio of Total Liabilities to Tangible Net Worth of less
than 1.00 to 1.00;
(c) A Cash Flow Coverage Ratio of not less than 1.50 to 1.00;
and
(d) Profitable operations (meaning a net profit after taxes)
on an annual basis of at least One Dollar ($1.00) and not to incur a net loss
before taxes on any two consecutive fiscal quarters.
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
7
