[COMPANY LOGO] REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
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OBLIGOR# NOTE# AGREEMENT DATE
AUGUST 26, 1997
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CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$2,000,000.00 B+0.50%
9.00% 48705 BRAD SMITH
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THIS AGREEMENT is entered into on AUGUST 26, 1997, between COMERICA
BANK-CALIFORNIA ("Bank") as secured party, whose Headquarter Office is 333 WEST
SANTA CLARA STREET, SAN JOSE, CA and SBE, INC. ("Borrower"), a CALIFORNIA
CORPORATION whose sole place of business (if it has only one), chief executive
office (if it has more than one place of business) or residence (if an
individual) is located at 4550 NORRIS CANYON RD., SAN RAMON, CA.
The parties agree as follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this
Revolving Credit Loan & Security Agreement (Accounts and Inventory), any
concurrent or subsequent rider to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and any extensions, supplements,
amendments or modifications to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication
and search fees, appraiser fees, auditor fees and costs, and title
insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in
collecting the Receivables (with or without suit) to correct any default or
enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing
of, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated; costs and expenses of suit incurred by Bank
in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain
relief from any stay, restraining order, injunction or similar process
which prohibits Bank from exercising any of its rights or remedies; and
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Agreement, or any portion hereof or any agreement related
hereto, whether or not suit is brought. Bank Expenses shall include Bank's
in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes
all of the Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing
Borrower's assets, liabilities, Receivables, business operations or
financial condition, and all information relating thereto, computer
programs; computer disk or tape files; computer printouts; computer runs;
and other computer prepared information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
SEVENTY-FIVE percent (75.00*%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if any,
of the advances against Inventory agreed to be made pursuant to any
Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be entered into
by Bank and Borrower. *75% advance on all foreign receivables covered by
foreign credit insurance, amount not to exceed insurance coverage.
1.6 "Cash Flow" as used in this Agreement means, for any applicable
period of determination, the Net Income (after deduction for income taxes
and other taxes of such person determined by reference to income or profits
of such person) for such period, plus, to the extent deducted in
computation of such Net Income, the amount of depreciation and amortization
expense and the amount of deferred tax liability during such period, all as
determined in accordance with GAAP. The applicable period of determination
will be _N/A_, beginning with the period from to ________________ to
______________________.
1.7 "Collateral" as used in this Agreement means and includes each and
all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets
of Borrower in which Bank receives a security interest or which hereafter
come into the possession, custody or control of Bank; and the proceeds of
any of the foregoing, including, but not limited to, proceeds of insurance
covering the collateral and any and all Receivables, Intangibles,
negotiable collateral, Inventory, equipment, money, deposit accounts or
other tangible and intangible property of borrower resulting from the sale
or other disposition of the collateral, and the proceeds thereof.
Notwithstanding anything to the contrary contained herein, collateral shall
not include any waste or other materials which have been or may be
designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract,
instrument, note, or other separate agreement which, by its terms, provides
for a specified interest rate and term.
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1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer
receivables, United States government securities, claims against the United
States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that
should be classified as current in accordance with GAAP, including without
limitation any portion of the principal of the Indebtedness classified as
current, plus (ii) to the extent not otherwise included, all liabilities of
the Borrower to any of its affiliates whether or not classified as current
in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a
given day, adding any new Credit advanced or incurred on such date, and
subtracting any payments or collections which are deemed to be paid and are
applied by Bank in reduction of the Credit on that date under the
provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within THIRTY (30)
days, or less, from the date of invoice, have been validly assigned to Bank
and strictly comply with all of Borrower's warranties and representations
to Bank; but Eligible Accounts shall not include the following: (a)
accounts with respect to which the account debtor is an officer, employee,
partner, joint venturer or agent of Borrower; (b) accounts with respect to
which goods are placed on consignment, guaranteed sale or other terms by
reason of which the payment by the account debtor may be conditional; (c)
accounts with respect to which the account debtor is not a resident of the
United States; (d) accounts with respect to which the account debtor is the
United States or any department, agency or instrumentality of the United
States; (e) accounts with respect to which the account debtor is any State
of the United States or any city, county, town, municipality or division
thereof; (f) accounts with respect to which the account debtor is a
subsidiary of, related to, affiliated or has common shareholders, officers
or directors with Borrower; (g) accounts with respect to which Borrower is
or may become liable to the account debtor for goods sold or services
rendered by the account debtor to Borrower; (h) accounts not paid by an
account debtor within ninety (90) days from the date of the invoice; (i)
accounts with respect to which account debtors dispute liability or make
any claim, or have any defense, crossclaim, counterclaim, or offset; (j)
accounts with respect to which any Insolvency Proceeding is filed by or
against the account debtor, or if an account debtor becomes insolvent,
fails or goes out of business; and (k) accounts owed by any single account
debtor which exceed twenty percent (20%) of all of the Eligible Accounts;
and (l) accounts with a particular account debtor on which over twenty-five
percent (25%) of the aggregate amount owing is greater than ninety (90)
days from the date of the invoice; (m) allow concentration of up to 30% for
TANDEM COMPUTERS.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes, for
any applicable period of determination, the sum, without duplication, of
(a) all interest paid or payable during such period by a person on debt of
such person, plus (b) all payments of principal or other sums paid or
payable during such period by such person with respect to debt of such
person having a final maturity more than one year from the date of creation
of such debt, plus (c) all debt discount and expense amortized or required
to be amortized during such period by such person, plus (d) the maximum
amount of all rents and other payments paid or required to be paid by such
person during such period under any lease or other contract or arrangement
providing for use of real or personal property in respect of which such
person is obligated as a lessee, use or obligor, plus (e) all dividends and
other distributions paid or payable by such person or otherwise
accumulating during such period on any capital stock of such person, plus
(f) all loans or other advances made by such person during such period to
any Affiliate of such person. The applicable period of determination will
be _N/A_, beginning with the period from _______________to________________.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such
period.
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or
any guarantor of Borrower's Obligations, or any of borrower's account
debtors, under any provisions of the Bankruptcy Code, as amended, or any
other bankruptcy or insolvency law, including but not limited to
assignments for the benefit of creditors, formal or informal moratoriums,
composition or extensions with some or all creditors, any proceeding
seeking a reorganization, arrangement or any other relief under the
Bankruptcy code, as amended, or any other bankruptcy or insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general Intangibles and other personal
property (including, without limitation, any and all rights in any legal
proceedings, goodwill, patents, trade names, copyrights, trademarks,
blueprints, drawings, purchase orders, computer programs, computer disks,
computer tapes, literature, reports, catalogs and deposit accounts) other
than goods and Receivables, as well as Borrower's Books relating to any of
the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including,
but not limited to, goods hold by Borrower for sale or lease or to be
furnished under a contract of service and all of Borrower's present and
future raw materials, work in process, finished goods, advertising
materials, and packing and shipping materials, wherever located and any
documents of title representing any of the above, and any equipment,
fixtures or other property used in the storing, moving, preserving,
identifying, accounting for and shipping or preparing for the shipping of
inventory, and any and all other items hereafter acquired by Borrower by
way of substitution,
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replacement, return, repossession or otherwise, and all additions and
accessions thereto, and the resulting product or mass, and any documents of
title respecting any of the above.
1.19 "Net Income" as used in this Agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or
capital assets, and any taxes on the excluded gains and any tax
deductions or credits on account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net earnings
shall have actually been received by Borrower in the form of cash
distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties
like or similar to the powers and duties of trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and
all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to
any agreement authorizing Bank to charge Borrower's account), obligations,
lease payments, guaranties, covenants and duties owing by Borrower to Bank
of any kind and description whether advanced pursuant to or evidenced by
this Agreement; by any note or other instrument; or by any other agreement
between Bank and Borrower and whether or not for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including, without limitation, any
debt, liability or obligation owing from Borrower to others which Bank may
have obtained by assignment, participation, purchase or otherwise, and
further including, without limitation, all interest not paid when due and
all Bank Expenses which Borrower is required to pay or reimburse by this
Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association,
trust, unincorporated association, joint stock company, government,
municipality, political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all merchandise
returned to or reclaimed by Borrower and the Borrower's books (except
minute books) relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to____________________________________
__________________________________________________________________________
subordinate to the Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth as determined in accordance with GAAP consistently applied, increased
by Subordinated Debt, if any, and decreased by the following: patents,
licenses, goodwill, subscription lists, organization expenses, trade
receivables converted to notes, money due from affiliates (including
officers, directors, subsidiaries and commonly held companies).
1.27 "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 a person (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), over
b. all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement means 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 the Borrower as of the date Total Liabilities is to be
determined, 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 the Borrower, including 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.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
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1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter
referred to as the "Code") as amended.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing
Base; provided, however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the Daily Balance
exceeds, at any time, either the Borrowing Base or the sum of TWO MILLION
AND NO/100 ($ 2,000,000.00), such amount being referred to herein as an
"Overadvance".
2.2 Except as hereinbelow provided, the Credit shall bear interest, on
the Daily Balance owing, at a rate of 500/1000 (0.500) percentage points
per annum above the Base Rate (the "Rate"). The Credit shall bear
interest, from and after the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, on the Daily Balance
owing, at a rate three (3) percentage points per annum above the Rate. All
interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360)
day year for actual days elapsed.
The Base Rate as of the date of this Agreement is EIGHT AND 500/1000
(8.500%) per annum. In the event that the Base Rate announced is, from
time to time hereafter changed, adjustment in the Rate shall be made and
based on the Base Rate in effect on the date of such change. The Rate, as
adjusted, shall apply to the Credit until the Base Rate is adjusted again.
The minimum interest payable by the Borrower under this Agreement shall in
no event be less than _N/A_ per month. All interest payable by Borrower
under the Credit shall be due and payable on the first day of each calendar
month during the term of this Agreement and Bank may, at its option, elect
to treat such interest and any and all Bank Expenses as advances under the
Credit, which amounts shall thereupon constitute Obligations and shall
thereafter accrue interest at the rate applicable to the Credit under the
terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to
_______N/A_ (_N/A____%) percentage points per month in excess of the
interest rate set forth in Section 2.2, from the date incurred and for each
month thereafter, until repaid in full.
3. TERM.
3.1 This Agreement shall remain in full force and effect until
SEPTEMBER 1, 1998 , or until terminated by notice by Borrower. Notice of
such termination by Borrower shall be effectuated by mailing of a
registered or certified letter not less than thirty (30) days prior to the
effective date of such termination, addressed to the Bank at the address
set forth herein and the termination shall be effective as of the date so
fixed in such notice. Notwithstanding the foregoing, should Borrower be in
default of one or more of the provisions of this Agreement, Bank may
terminate this Agreement at any time without notice. Notwithstanding the
foregoing, should either Bank or Borrower become insolvent or unable to
meet its debts as they mature, or fail, suspend, or go out of business, the
other party shall have the right to terminate this Agreement at any time
without notice. On the date of termination all Obligations shall become
immediately due and payable without notice or demand; no notice of
termination by Borrower shall be effective until Borrower shall have paid
all Obligations to Bank in full. Notwithstanding termination, until all
Obligations have been fully satisfied, Bank shall retain its security
interest in all existing Collateral and Collateral arising thereafter, and
Borrower shall continue to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the
execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its
covenants and Obligations under this Agreement and otherwise created.
Bank's security interest in the Collateral shall attach to all Collateral
without further act on the part of Bank or Borrower. In the event that any
Collateral, including proceeds, is evidenced by or consists of a letter of
credit, advice of credit, instrument, money, negotiable documents, chattel
paper or similar property (collectively, "Negotiable Collateral"), Borrower
shall, immediately upon receipt thereof, endorse and assign such Negotiable
Collateral over to Bank and deliver actual physical possession of the
Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon
request from Bank, Borrower shall provide Bank with schedules describing
all Receivables created or acquired by Borrower (including without
limitation agings listing the names and addresses of, and amounts owing by
date by account debtors), and shall execute and deliver written assignments
of all Receivables to Bank all in a form acceptable to Bank, provided,
however, Borrower's failure to execute and deliver such schedules and/or
assignments shall not affect or limit Bank's security interest and other
rights in and to the Receivables. Together with each schedule,
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Borrower shall furnish Bank with copies of Borrower's customers' invoices
or the equivalent, and original shipping or delivery receipts for all
merchandise sold, and Borrower warrants the genuineness thereof. Bank or
Bank's designee may notify customers or account debtors of collection costs
and expenses to Borrower's account but, unless and until Bank does so or
gives Borrower other written instructions, Borrower shall collect all
Receivables for Bank, receive in trust all payments thereon as Bank's
trustee, and, if so requested to do so from Bank, Borrower shall
immediately deliver said payments to Bank in their original form as
received from the account debtor and all letters of credit, advices of
credit instruments, documents, chattel paper or any similar property
evidencing or constituting Collateral. Notwithstanding anything to the
contrary contained herein, if sales of Inventory are made for cash,
Borrower shall immediately deliver to Bank, in identical form, all such
cash, checks, or other forms of payment which Borrower receives. The
receipt of any check or other item of payment by Bank shall not be
considered a payment on account until such check or other item of payment
is honored when presented for payment, in which event, said check or other
item of payment shall be deemed to have been paid to Bank TWO (2) calendar
days after the date Bank actually receives such check or other item of
payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Upon Bank's
request Borrower will from time to time at Borrower's expense pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account or store the same in a
warehouse in Bank's name; or deliver to Bank documents of title
representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a default by Borrower under
this Agreement or any other Agreement between Borrower and Bank, Borrower
may, subject to the provisions hereof and consistent herewith, sell the
Inventory, but only in the ordinary course of Borrower's business. A sale
of Inventory in Borrower's ordinary course of business does not include an
exchange or a transfer in partial or total satisfaction of a debt owing by
Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter
at the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of
title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, in form
satisfactory to Bank, to perfect and maintain perfected Bank's security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement. Borrower hereby
irrevocably makes, constitutes and appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's true and
lawful attorney-in-fact with power to sign the same of Borrower on any
financing statements, continuation financing statements, security
agreement, mortgage, assignment, certificate of title, affidavit, letter of
authority, notice of other similar documents which must be executed and/or
filed in order to perfect or continue perfected Bank's security interest in
the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the
amount or condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate
as Borrower's attorney-in-fact, with power to endorse Borrower's name on
any checks, notes, acceptances, money order, drafts or other forms of
payment or security that may come into Bank's possession; to sign
Borrower's name on any invoice or bill of lading relating to any
Receivables, on drafts against account debtors, on schedules and
assignments of Receivables, on verifications of Receivables and on notices
to account debtors; to establish a lock box arrangement and/or to notify
the post office authorities to change the address for delivery of
Borrower's mail addressed to Borrower to an address designated by Bank, to
receive and open all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of
Receivables; and to do all things necessary to carry out this Agreement.
Borrower ratifies and approves all acts of the attorney-in-fact. Neither
Bank nor its attorney-in-fact will be liable for any acts or omissions or
for any error of judgement or mistake of fact or law. This power being
coupled with an interest, is irrevocable so long as any Receivables in
which Bank has a security interest remain unpaid and until the Obligations
have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added
to the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause
to be executed, and deliver to Bank, in form and substance satisfactory to
Bank and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1 ) in form satisfactory to Bank
for filing and recording with the appropriate governmental
authorities;
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c. If Borrower is a corporation. then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for
herein and authorizing specific officers to execute and deliver
the agreements provided for herein;
d. If Borrower is a corporation, then a certificate of good
standing showing that Borrower is in good standing under the laws
of the state of its incorporation and certificates indicating that
Borrower is qualified to transact business and is in good standing
in any other state in which it conducts business;
e. Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of
Borrower;
f. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or
other similar documents which Bank may require and in such form as
Bank may require, in order to reflect, perfect or protect Bank's
first priority security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under this
Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less
than the advances made hereunder. Bank shall have the right to recompute
Borrower's Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within NINETY (90) days from the date
of invoice, or an account debtor disputes liability or makes any claim with
respect thereto, or a petition in bankruptcy or other application for
relief under the Bankruptcy Code or any other insolvency law is filed by or
against an account debtor, or an account debtor makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business,
then Bank may deem ineligible any and all accounts owing by that account
debtor, and reduce Borrower's Borrowing Base by the amount thereof. Bank
shall retain its security interest in all Receivables and accounts, whether
eligible or ineligible, until all Obligations have been fully paid and
satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual
customary practices of the Borrower, as they exist at this time. Any
merchandise which is returned by an account debtor or otherwise recovered
shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all
disputes and claims and settle or adjust them on terms approved by Bank.
After default by Borrower hereunder, no discount, credit or allowance shall
be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank's consent. Bank may, after
default by Borrower, settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which Bank considers advisable,
and in such cases Bank will credit Borrower's account with only the net
amounts received by Bank in payment of the accounts, after deducting all
Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral.
Bank has and shall continue to have a first priority perfected
security interest in and to the Collateral. The Collateral
shall at all times remain free and clear of all liens,
encumbrances and security interests (except those in favor of
Bank).
b. All accounts are and will, at all times pertinent hereto,
be bona fide existing obligations created by the sale and
delivery of merchandise or the rendition of services to account
debtors in the ordinary course of business, free of liens,
claims, encumbrances and security interests (except as held by
Bank and except as may be consented to, in writing, by Bank) and
are unconditionally owed to Borrower without defenses, disputes,
offsets, counterclaims, rights of return or cancellation, and
Borrower shall have received no notice of actual or imminent
bankruptcy or insolvency of any account debtor at the time an
account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the
account debtor or to the agent for the account debtor for
immediate shipment to, and unconditional acceptance by, the
account debtor. Borrower shall deliver to Bank, as Bank may
from time to time require, delivery receipts, customer's
purchase orders, shipping instruction, bills of lading and any
other evidence of shipping arrangements. Absent such a request
by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section
1.12, or on such other terms approved in writing by Bank in advance of the
creation of such accounts and which are expressly set forth on the face of
all invoices, copies of which shall be held by Borrower as custodian for
Bank, and no such eligible account will then be past due.
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(Accounts & Inventory)
6.5 Borrower shall keep the Inventory only at the following
locations:____________________________________________________________ and
the owner or mortgagees of the respective locations
are:____________________________________
a. Borrower, immediately upon demand by Bank therefor, shall now and
from time to time hereafter, at such intervals as are requested by
Bank, deliver to Bank, designations of Inventory specifying
Borrower's cost of Inventory, the wholesale market value thereof and
such other matters and information relating to the Inventory as Bank
may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost or
the wholesale market value thereof, at all times pertinent hereto
shall not be less than_____N/A_____ Dollars($_______N/A____) of which
no less than_____N/A_____ Dollars($______N/A____) shall be in raw
materials and finished goods;
c. All of the Inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except as
held by Bank;
d. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the Inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions
thereto, all of which records shall be available upon demand to any
of Bank's officers, agents and employees for inspection and copying;
e. All Inventory, now and hereafter at all times, shall be new
Inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times hereafter
be located or stored with a bailee, warehouseman or other third party
without Bank's prior written consent, and, in such event, Borrower
will concurrently therewith cause any such bailee, warehouseman or
other third party to issue and deliver to Bank, in a form acceptable
to Bank, warehouse receipts in Bank's name evidencing the storage of
Inventory or other evidence of Bank's prior rights in the Inventory.
In any event, Borrower shall instruct any third party to hold all
such Inventory for Bank's account subject to Bank's security
interests and its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and
examine the Inventory and to check and test the same as to quality,
quantity, value and condition and Borrower agrees to reimburse Bank
for Bank's reasonable costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
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 or 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 names, liquidate, merge or
consolidate with or into any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization;
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 the securities of the United
States of America;
f. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely
effect the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts and interest thereon;
l. Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
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(Accounts & Inventory)
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. Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of any other Person, agreement
for the furnishing of funds to any other Person through the
furnishing of goods, supplies or services, by way of stock purchase,
capital contribution, advance or loan, for the purpose of paying or
discharging (or causing the payment or discharge of) the indebtedness
of any other Person, or otherwise, except for the endorsement of
negotiable instruments by the Borrower in the ordinary course of
business for deposit or collection.
o. (a) Sell, lease, transfer or otherwise dispose of properties and
assets having an aggregate book value of more
than_____N/A_____Dollars ($______N/A____) (whether in one transaction
or in a series of transactions) except as to the sale of inventory in
the ordinary course of business; (b) change its name, consolidate
with or merge into any other corporation, permit another corporation
to merge into it, acquire all or substantially all the properties or
assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock, or (c) enter into
any sale-leaseback transaction;
p. Subordinate any indebtedness due to it from a person to
indebtedness of other creditors of such person;
q. 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 the
Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States
commercial banks with capital, surplus and undivided profits in
excess of $100,000,000 and direct obligations of the United States
Government maturing within one year from the date of acquisition
thereof; or
r. Allow any fact, condition or event to occur or exist with respect
to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of
any such plan or for the court appointment of a trustee to administer
any such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%)
in dollar volume of its total sales of all goods during the 12 months
preceding the filing by Bank of a financing statement describing the
Collateral. At no time hereafter shall Borrower's sales for resale of
goods for personal, family or household purposes exceed seventy-five
percent (75%) in dollar volume of its total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants
and agrees that it will not, during the term of this Agreement, without
prior written notification to Bank, relocate said sole place of business or
chief executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or
purchase, acquire, repurchase, redeem or retire any such capital
stock;
b. Borrower is and shall at all times hereafter be a corporation duly
organized and existing in good standing under the laws of the state
of its incorporation and qualified and licensed to do business in
California or any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to enter
into this Agreement; and
d. The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach of
or constitute an event of default under any agreement to which Borrower is
now or hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its
acquisition by purchase, lease or otherwise of any after acquired property
of the type included in the Collateral, with the exception of purchases of
Inventory in the ordinary course of business.
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or any
of its property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it
by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will
make timely payment or deposit of all F.I.C.A. payments and withholding
taxes required of it by applicable laws, and will upon request furnish Bank
with proof satisfactory to it that Borrower has made such payments or
deposit. If Borrower fails to pay any such assessment, tax, contribution,
or make such deposit, or furnish the required proof, Bank may, in its sole
and absolute discretion and without notice to Borrower,
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(Accounts & Inventory)
(i) make payment of the same or any part thereof; or (ii) set up such
reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual
statements of the amount owing or other official statements issued by the
appropriate governmental agency. Each amount so paid or deposited by Bank
shall constitute a Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative
agency and Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower or any guarantor of Borrower, except as
heretofore specifically disclosed in writing to Bank. If any of the
foregoing arise during the term of the Agreement, Borrower shall
immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners who
use such properties in similar businesses for the full insurable value
thereof. Borrower shall also keep and maintain business interruption
insurance and public liability and property damage insurance relating to
Borrower's ownership and use of the Collateral and its other assets. All
such policies of insurance shall be in such form, with such companies, and
in such amounts as may be satisfactory to Bank. Borrower shall deliver to
Bank certified comes of such policies of insurance and evidence of the
payments of all premiums therefor. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement
in a form satisfactory to Bank showing Bank as a loss payee thereof, with a
waiver of warranties (Form 438-BFU), and all proceeds payable thereunder
shall be payable to Bank and, upon receipt by Bank, shall be applied on
account of the Obligations owing to Bank. To secure the payment of the
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers
under such policies of insurance to pay all proceeds thereof directly to
Bank.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's officers,
employees or agents designated by Bank) as Borrower's attorney for the
purpose of making, selling and adjusting claims under such policies of
insurance, endorsing the name of Borrower on any check, draft, instrument
or other item of payment for the proceeds of such policies of insurance and
for making all determinations and decisions with respect to such policies
of insurance. Borrower will not cancel any of such policies without Bank's
prior written consent. Each such insurer shall agree by endorsement upon
the policy or policies of insurance issued by it to Borrower as required
above, or by independent instruments furnished to Bank, that it will give
Bank at least ten (10) days written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no act or
default of Borrower, or any other person, shall affect the right of Bank to
recover under such policy or policies of insurance required above or to pay
any premium in whole or in part relating thereto. Bank, without waiving or
releasing any Obligations or any Event of Default, may, but shall have no
obligation to do so, obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect to such policies which
Bank deems advisable. All sums so disbursed by Bank, as well as reasonable
attorneys' fees, court costs, expenses and other charges relating thereto,
shall constitute Bank Expenses and are payable on demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true
and correct and have been prepared in accordance with GAAP consistently
applied and there has been no material adverse change in the financial
condition of Borrower since the submission of such financial information to
Bank.
6.16 a. Borrower at all times hereafter shall 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 or enter into, modify or
terminate any agreement presently existing, or at any time hereafter
entered into with any third party accounting firm and/or service bureau
for the preparation and/or storage of Borrower's accounting records
without the written consent of Bank first obtained and without said
accounting firm and/or service bureau agreeing to provide information
regarding the Receivables and Inventory and Borrower's financial condition
to Bank; permit Bank and any of its employees, officers or agents, upon
demand, during Borrower's usual business hours, or the usual business hour
of third persons having control thereof, to have access to and examine all
of the Borrower's Books relating to the Collateral, Borrower's Obligations
to Bank, Borrower's financial condition and the results of Borrower's
operations and in connection therewith, permit Bank or any of its agents,
employees or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the end of
each MONTH, a COMPILED balance sheet and profit and loss statement covering
Borrower's operations and deliver to Bank within ninety (90) days after
the end of each of Borrower's fiscal years a(n) ANNUAL 10K & CPA *
statement of the financial condition of the Borrower for each such fiscal
year, including but not limited to, a balance sheet and profit and loss
statement and any other report requested by Bank relating to the
Collateral and the financial condition of Borrower, and a certificate
signed by an authorized employee of Borrower to the effect that all
reports, statements, computer disk or tape files, computer printouts,
computer runs, or other computer prepared information of any kind or
nature relating to the foregoing or documents delivered or caused to be
delivered to Bank under this subparagraph are complete, correct and
thoroughly present the financial condition of borrower and that there
exists on the date of delivery to Bank no condition or event which
constitutes a breach or Event of Default under this Agreement.
*UNQUALIFIED
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(Accounts & Inventory)
c. In addition to the financial statements requested above, the Borrower
agrees to provide Bank with the following schedules:
*___X___Accounts Receivable Agings on a ___MONTHLY___ basis; within 15
days of month end
*___X___Accounts Payable Agings on a ___MONTHLY___ basis; within 15
days of month end
_________Job Progress Reports on a _____________ basis; and
*___X___BORROWING BASE CERTIFICATE on a ___MONTHLY___ basis within 15
days of month end
*QUARTERLY REPORTING IF NOT BORROWING
QUARTERLY 10Q REPORTS WITHIN 45 DAYS OF QUARTER END.
6.17 Borrower shall maintain the following financial ratios and covenants
on a consolidated and non-consolidated basis:
a. Working Capital in an amount not less than_____________n/a______________
___________________________________________________________________________
b. Tangible Effective Net Worth in an amount not less than $4,500,000.00
TANGIBLE NET WORTH TO STEP UP BY 75% OF PROFITS & 75% OF NEW EQUITY RAISED.
c. a ratio of Current Assets to Current Liabilities of not less
than________N/A____________________________________________________________
___________________________________________________________________________
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than___________________1.30:1.00___________________
___________________________________________________________________________
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than_____________1.00:1.00____________
___________________________________________________________________________
f. a ratio of Cash Flow to Fixed Charges of not less than________N/A_______
___________________________________________________________________________
g. Net Income after taxes of GREATER THAN $0.00 ON A QUARTERLY AND AFTER
TAX BASIS. ALLOW FOR ONE LOSS QUARTER PER ANNUM NOT TO EXCEED $250,000.00.
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds______n/a______
Dollars ($____n/a____) in any fiscal year; and
i. ANNUAL 10K REPORT AND UNQUALIFIED CPA AUDITED CONSOLIDATED FINANCIAL
STATEMENTS WITHIN 90 DAYS OF FISCAL YEAR END, ANNUAL REPORT AND PROXY
STATEMENT WHEN AVAILABLE.
j. BUDGETS, SALES PROJECTIONS, OR OTHER FINANCIAL EXHIBITS WHICH THE BANK
MAY REASONABLY REQUEST.**
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.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and able
to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for all
sums expended by Bank in connection with any action brought by Bank to correct
any default or enforce any provision of this Agreement, including all Bank
Expenses; Borrower authorizes and approves all advances and payments by Bank for
items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank and
shall notify the Bank immediately in writing of the existence of any other bank
account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but in
no event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable
** k. ANNUAL A/R AUDITS
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LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
event and the action which Borrower proposes to take with respect thereto,
together with a copy of the notice of such reportable event given to the
Pension Benefit Guaranty Corporation, if a copy of such notice is
available to Borrower; (b) promptly after the filing thereof with the
United States Secretary of Labor or the Pension Benefit Guaranty
Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any
notice Borrower may receive from the Pension Benefit Guaranty Corporation
or the Internal Revenue Service with respect to any deferred compensation
plan; provided, however, this subparagraph shall not apply to notice of
general application issued by the Pension Benefit Guaranty Corporation or
the Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other
forms of information from time to time disseminated to the participants by
the administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits.
6.25 Borrower shall maintain insurance on the life of __N/A__ in an
amount not to be less than N0/100 Dollars ($__n/a_) under one or
more policies issued by insurance companies satisfactory to Bank, which
policies shall be assigned to Bank as security for the Obligations and on
which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees:____N/A____,____________________ to an aggregate of
_____N/A_____Dollars ($_____N/A_____) per_________________.
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, or any other present or future agreement
between Borrower and Bank;
b. If any 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 Borrower's Obligations (whether of
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 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 attached, seized, 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 proceeding is filed or commenced by or against Borrower for its
dissolution or liquidation;
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 choate 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 is entered into or during the
term of this Agreement 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;
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(Accounts & Inventory)
m. If Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower's Obligations to Bank;
n. If any 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 dies or 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____N/A_____ percent
(______%) 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 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 7.0, 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.
Notwithstanding anything contained in Section 7 to the contrary, Bank
shall refrain from exercising its rights and remedies and Event of Default
shall thereafter not be deemed to have occurred by reason of the
occurrence of any of the events set forth in Sections 7.e, 7.f or 7.j of
this Agreement if, within ten (10) days from the date thereof, the same is
released, discharged, dismissed, bonded against or satisfied; provided,
however, if the event is the institution of Insolvency Proceedings against
Borrower, Bank shall not be obligated to make advances to Borrower during
such cure period.
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced by this Agreement,
installment notes, demand notes or otherwise, immediately due and payable
to the Bank;
b. Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower and
Bank;
c. Terminate this Agreement as to any future liability or obligation of
Bank, but without affecting Bank's rights and security interests in the
Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, take and maintain
possession of the Collateral and the premises (at no charge to Bank), or
any part thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of Bank appears to be
prior or superior to its security interest and to pay all expenses
incurred in connection therewith;
e. Without limiting Bank's rights under any security interest, Bank is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature as it pertains to the Collateral, in completing production
of, advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreement shall inure to Bank's
benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sales and sell (in the manner provided for herein) the
Inventory;
g. Sell or dispose the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises)
as is commercially reasonable in the opinion of Bank. It is not necessary
that the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the Collateral as follows:
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REVOLVING
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some disposition other
than a public sale is to be made of the Collateral, the time on or
after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at least
five (5) calendar days before the date fixed for the sale, or at
least five (5) calendar days before the date on or after which the
private sale or other disposition is to be made, unless the
Collateral is perishable or threatens to decline speedily in value.
Notice to persons other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as they have furnished to
Bank;
(3) If the sale is to be a public sale, Bank shall also give notice
of the time and place by publishing a notice one time at least five
(5) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
and
(4) Bank may credit bid and purchase at any public sale.
i. Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will
be returned, without interest and subject to the rights of third
parties, to Borrower by Bank, or, in Bank's discretion, to any party
who Bank believes, in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in satisfaction of
an obligation within the meaning of 9505 of the Uniform Commercial
Code or an action under California Code of Civil Procedure 726, apply
any and all amounts maintained by Borrower as deposit accounts (as
that term is defined under 9105 of the Uniform Commercial Code) or
other accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent herewith as provided by law or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and
no waiver by Bank of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election
or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future; or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and
Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Obligations and Borrower agrees that Bank shall have the
continuing exclusive right to apply and reapply such payments in any
manner as Bank may deem advisable, notwithstanding any entry by Bank upon
its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, documents,
instruments chattel paper, and guarantees at any time held by Bank on
which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All
risk of loss, damage or destruction of Inventory shall be borne by
Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm
and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and
agrees that a Bank may contact directly any such accountants, accounting
firm and/or service bureau or consultant in order to obtain such
information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION
HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT
OR BREACH OF DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND
BORROWER.
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REVOLVING
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails
to pursue or enforce any terms, such waiver, delay or failure to pursue or
enforce shall only be effective with respect to that single act and shall
not be construed to affect any subsequent transactions or Bank's right to
later pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
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 Borrower (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 the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by either
party on the other relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower or
to Bank at the addresses stated in this Agreement, or to such other addresses as
Borrower or Bank may from time to time specify to the other in writing.
Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances hereunder upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower, or at the discretion of Bank if said
loans and advances are necessary to meet any Obligations of Borrower to Bank.
Bank shall have no duty to make inquiry or verify the authority of any such
party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers delivered to Bank, may be
destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS.
16.1 This Agreement shall be binding and deemed effective when
executed by the Borrower and accepted and executed by Bank at its
Headquarter Office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided,
however, that Borrower may not assign this Agreement or any rights
hereunder without Bank's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Bank
shall release Borrower or any guarantor from their Obligations to Bank.
Bank may assign this Agreement and its rights and duties hereunder. Bank
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in Bank's rights and
benefits hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this
entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any
rule of construction or otherwise; on the contrary, this Agreement has
been reviewed by all parties and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto. When
permitted by the context, the singular includes the plural and vice versa.
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REVOLVING
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except
as to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations,
if any, with respect to the subject matter hereof, are merged into this
Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers liabilities, obligations and discretions shall be
performed, carried out, discharged and exercised reasonably and in good
faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Loan & Security Agreement (Accounts and Inventory) to be executed as of the date
first hereinabove written.
ATTEST: BORROWER: SBE, INC.
By: /s/ Timothy J. Repp
- ------------------------------ ---------------------------------
Title: Signature of
Accepted and effective as of Title: CFO, Vice President Finance
AUGUST 26, 1997 at Bank's -------------------------------
Headquarter Office
By: /s/ Wm. B. Heye
---------------------------------
Signature of
(Bank) Title: President, CEO
--------------------------------
By: By:
--------------------------- ---------------------------------
Signature of BRAD SMITH Signature of
Title: VICE PRESIDENT Title:
------------------------ -------------------------------
By:
---------------------------------
Signature of
Title:
-------------------------------
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[COMPANY LOGO]
EQUIPMENT
RIDER
Borrower(s):
SBE, INC.
Borrower has entered into a certain Revolving Credit and Security
Agreement (Accounts and Inventory) or a certain Loan and Security Agreement
(Accounts and Inventory) (either hereinafter referred to as "Agreement", dated
AUGUST 26, 1997 with Bank (Secured Party). This EQUIPMENT RIDER (hereinafter
referred to as this Rider) date AUGUST 26, 1997 is hereby made a part of and
incorporated into that Agreement.
1. Borrower grants to Bank a security interest in the following (hereinafter
referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles,
office equipment, furniture, furnishings, tools, dies, jigs and
attachments, wherever located, (including but not limited to, the
items listed and described on the Schedule of Equipment attached
hereto and marked Exhibit "A" and by this reference made a part hereof
as though, fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or
unlike nature, to be acquired hereafter, and all replacements,
substitutes, accessions, additions and improvements to any of the
foregoing; and
(c) all of Borrowers general Intangibles, including without limitation,
computer programs, computer disks, computer tapes, literature,
reports, catalogs, drawings, blueprints and other proprietary items.
2. Bank's security interest in the Equipment as set forth above shall secure
each, any and all of Borrower's Obligations to Bank, as the term "Obligations"
is defined in the Agreement; and, the payment of Borrower's indebtedness in the
principal amount of TWO MILLION SIX HUNDRED FIFTY THOUSAND AND NO/100
Dollars ($2,650,000.00) and interest evidenced by LOAN AND SECURITY AGREEMENT.
3. Bank may, in its sole discretion, from time to time hereafter, make loans to
Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be
included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such
loans shall bear interest at the rate and be payable in the manner specified in
said promissory note(s) in the event Bank exercises the aforementioned option,
and in the event Bank does not, such loans shall bear interest at the rate and
be payable in the manner specified in the Agreement.
4. Borrower represents and warrants to Bank that:
(a) it has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens, security
interests, encumbrances and claims, except as held by Bank,
(c) the Equipment shall be kept only at the following
locations:____________________________________________________________
______________________________________________________________________
(d) the owners or mortgagees of the respective locations
are:__________________________________________________________________
______________________________________________________________________
(e) Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours to inspect and
examine the Equipment and Borrower agrees to reimburse Bank for its
reasonable costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating condition
and repair, make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower, at its expense, shall keep and maintain: the Equipment insured
against loss or damaged by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrowers ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such policies of insurance and evidence of
the payment of all premiums thereof. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to Bank showing loss payable to Bank and all proceeds payable
thereunder shall be payable to Bank and upon receipt by Bank shall be applied on
the account of Borrower's Obligations. To secure the payment of Borrower's
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof and directs all insurers under such policies of insurance
to pay all proceeds thereof directly to Bank. Borrower hereby irrevocably
appoints Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's attorney-in-fact for the purpose of making, settling and
adjusting claims under such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. Each
such insurer shall agree by endorsement upon the policy or policies of insurance
issued by it to Borrower as required above, or by independent instruments
furnished to Bank that it will give Bank at least ten (10) days written notice
before any such policy or policies of insurance shall be altered or canceled,
and that no act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of insurance required
above or to pay any premium in whole or in part relating thereto. Bank, without
waiving or releasing any obligations or defaults by Borrower hereunder, may at
any time or times hereafter, but shall have no obligations to do so, obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, including reasonable attorney's fees, court costs, expenses
and other charges relating thereto, shall be a part of Borrower's Obligations
and payable on demand.
7. Until default by Borrower under the Agreement or this Rider, Borrower may,
subject to the provisions of the Agreement and this Rider and consistent
therewith, remain in possession thereof and use the Equipment referred to herein
in the ordinary course of business at the location or locations hereinabove
designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
9. Upon a default by Borrower under the Agreement or this Rider, Borrower upon
request of Bank to do so, agrees to assemble and make the Equipment or any part
thereof available to Bank at a place designated by Bank.
10. Borrower shall upon demand by Bank immediately deliver to Bank and properly
endorse, any and all evidences of ownership, certificates of title or
applications for titles to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
Borrower(s): SBE, INC.
/s/ Timothy J. Repp
- -------------------------------- ----------------------------------------
By: By:
/s/ Wm. B. Heye
- -------------------------------- ----------------------------------------
By: By:
Accepted this 26TH day of AUGUST, 1997 at Bank's place of business in SAN JOSE,
CA 95113
By:
-------------------------------------
BRAD SMITH, VICE PRESIDENT
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