EXHIBIT 10.52
FIRST AMENDMENT TO
SECURITY AND LOAN AGREEMENT, DOMESTIC CREDIT
AND ADDENDUM THERETO
This First Amendment ("Amendment") amends that certain Security and Loan
Agreement, Domestic Credit, dated July 28, 1997, by and between IMPERIAL BANK
("Bank") and DIGITAL SOUND CORPORATION ("Borrower") and the Addendum, "Exhibit
A," (the Addendum") thereto, of even date, (collectively herein the Security and
Loan Agreement and the Addendum are referred to as the "Agreement") as follows:
1. Section 1 of the Security and Loan Agreement, Domestic Credit, is amended by
deleting the figure "50%" therefrom and substituting the figure "65%" therefore,
and by deleting the figure "$2,000,000" therefrom and substituting the figure
"$5,000,000 " therefore.
2. The Addendum is replaced in its entirety with the following:
ADDENDUM TO SECURITY AND LOAN AGREEMENT DOMESTIC CREDIT ("SECURITY AND LOAN
AGREEMENT, DOMESTIC CREDIT") BETWEEN DIGITAL SOUND CORPORATION AND IMPERIAL
BANK.
DATED: OCTOBER 30, 1997
This Addendum is made and entered into October 30, 1997 between DIGITAL SOUND
CORPORATION ("Borrower") and Imperial Bank ("Bank"). This Addendum amends and
supplements the Security and Loan Agreement, Domestic Credit, and replaces the
Addendum dated July 28, 1997. In the event of any inconsistency between the
terms herein and the terms of the Security and Loan Agreement, Domestic Credit,
the terms herein shall in all cases govern and control. All capitalized terms
herein, unless otherwise defined herein, shall have the meaning set forth in the
Security and Loan Agreement.
A. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, Domestic Credit, to make advances against Eligible Accounts shall
expire on June 30, 1998 ("Maturity"), subject to Bank's right to renew said
commitment at its sole discretion. Any renewal of the commitment shall not be
binding upon the Bank unless it is in writing and signed by an officer of the
Bank.
B. Conditions Precedent. Bank's obligation to make any advances to Borrower
shall be subject to the following Conditions Precedent:
1. Borrower shall cause any material copyright registerable works including
software to be promptly registered in the U.S. Copyright Office and
execute and deliver a mortgage of copyrights and amendments appropriate
and acceptable to Bank to perfect Bank's security interest in all
proceeds of such works; and
2. Borrower shall execute a Warrant Agreement based on Bank's standard
documentation and with terms acceptable to Bank for a warrant to
purchase 300,000 shares of Borrower's stock at $1.00 per share, with all
of Bank's associated costs to be borne by Borrower.
C. Credit Limit. Pursuant to the provisions in the Security and Loan
Agreement, Domestic Credit, Bank will advance up to the following amounts (the
"Credit Limit"):
1. up to $1,000,000 in aggregate upon execution of this Agreement;
2. up to $3,000,000 in aggregate upon Bank's receipt and satisfactory
review of a definitive sales agreement between Borrower and GTE or its
subsidiaries in form and substance as generally represented to Bank by
Borrower (the "GTE Agreement"), as determined by Bank; and
3. up to $5,000,000 in aggregate upon receipt by Borrower of an investment
in form and substance to Bank's satisfaction of at least $15,000,000, or
evidence to Bank's satisfaction that such an investment is imminent (the
"Private Placement").
The applicable Credit Limit refers to all advances made by Bank to Borrower,
including advances under this and any other credit facility and including all
outstandings under the SBLC Sublimit (as defined in Section D herein).
D. Standby Letter of Credit Sublimit. The Credit Limit shall include the sum of
all outstanding standby letters of credit issued for the account of Borrower, to
a maximum of $500,000 as a sublimit of borrowings hereunder (the "SBLC
Sublimit"), provided that the maturity of any standby letters of credit issued
hereunder shall not exceed the Maturity. Bank may, in its sole discretion,
advance as loans, any amounts that are or may become due or owing to Bank in
connection with any standby letters of credit. Borrower shall execute all
standard form applications and agreements of Bank in connection with the
issuance of standby letters of credit, and, without limiting any of the terms of
such applications and agreements, Borrower will pay all standard fees and
charges of Bank in connection with the issuance of and amendments to the standby
letters of credit.
E. Bank will advance up to 65% of Eligible Accounts up to maximum of
$5,000,000, provided that total borrowings shall not collectively exceed the
Credit Limit as defined herein. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are eligible from time
to time. "Eligible Accounts" shall also NOT include any of the following:
1. Accounts over 120 days past invoice date;
2. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower;
3. All Accounts sold to and purchased from a company of common
name/ownership, whereby a potential offset exists;
4. Accounts with respect to which 25% or more of the account debtor's total
accounts or obligations outstanding to Borrower are more than 120
calendar days from invoice date;
5. For Accounts representing more than 15% of total accounts receivable,
the balance in excess of the 15% is not eligible; except Accounts owed
by all entities affiliated with GTE, which Account balances shall
collectively be included as eligible up to 45% of total accounts
receivable, and Accounts owed by all entities affiliated with Pacific
Xxxx, which Account balances shall collectively be included as eligible
up to 30% of total accounts receivable;
6. C.O.D. Accounts;
7. Credit balances greater than 120 days from invoice date;
8. Consignment or guaranteed sales;
9. Xxxx and hold Accounts;
10. Equipment rental offsets;
11. Evaluation units;
12. Maintenance contract receivables;
13. Salesman's accounts for promotional purposes;
14. Collection Accounts;
15. Retentions;
16. Foreign Accounts, except those covered by credit insurance or evidenced
by letter of credit for goods that have been shipped;
17. U.S. Government receivables.
F. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, it will:
1. Within 10 working days from each month-end, deliver to Bank a detailed
accounts receivable aging reconciled to the general ledger of Borrower,
a detailed accounts payable aging reconciled to the Borrower's general
ledger and
setting forth the amount of any book overdraft or the amount of checks
issued but not sent, and cash balance report with attached copies of
bank statements;
a. The preceding will be supported by the following Bank forms: AC-1
Accounts Receivable and Inventory Transaction Report, AC-11
Computation of Ineligible Accounts Receivable, and AC-12 Monthly
Accounts Receivable Reconciliation;
b. All advances will be supported by the following Bank forms submitted
to Bank on a daily basis, in addition to the preceding forms: AC-1
Accounts Receivable and Inventory Transaction Report, AC-2 Schedule
of Accounts Receivable Assigned, and AC-3 Schedule of Collections;
2. On a quarterly basis, provide Bank with an alphabetized list of
customers including addresses;
3. Comply with additional financial reporting requirements as discussed in
the Credit Terms and Conditions dated July 28, 1997 and all amendments
thereto.
G. Notwithstanding the provisions of the Security and Loan Agreement (Accounts
Receivable and/or Inventory), the following provision shall apply to all
obligations of the Borrower to the Bank: All of Borrower's receipts from its
account debtors shall be received at Borrower's lockbox with Bank pursuant to
the Remittance Banking Service Agreement dated August 14, 1997 between Bank and
Borrower. All sums received by Bank, whether from Borrower or from Borrower's
account debtors, shall be applied to the outstanding loan balance on the 2nd
(second) day following receipt thereof by the Bank. Interest shall continue to
accrue on all loans outstanding pursuant to the Loan and Security Agreement
until sums received are applied as herein provided.
H. The rate of interest applicable to the Loan Account shall be as follows:
1. 2.00% per year in excess Bank's Prime Rate until Bank's satisfactory
review of Borrower's GTE Agreement and Bank's satisfaction that the
Private Placement has been received by Borrower, and
2. 0.50% per year in excess of Bank's Prime Rate thereafter.
"Prime Rate" is defined as the rate of interest which Bank has announced as its
prime lending rate which shall vary concurrently with any change in such Prime
Rate. Interest shall be computed at the above rate on the basis of the actual
number of days during which the principal balance of the loan account is
outstanding divided by 360, which shall, for interest computation purposes, be
considered one year. Should Borrower be in default, Bank at its option may
demand payment of any or all of the amount due under the Loan Account including
accrued but unpaid interest, at any time. Notice of such demand may be given
verbally or in writing and should be effective upon receipt by Borrower. The
default rate of interest shall be five percent per year in excess of the rate
otherwise applicable.
I. A facility fee of $10,000 has been paid. A non-usage fee of 0.50% per annum
will be calculated and assessed on a quarterly basis, using Borrower's average
outstanding daily loan balance per quarter subtracted from $5,000,000, the
product of which will be multiplied by the pro-rata non-usage fee as calculated
on a 360 day basis. The first assessment of the non-usage fee will be based on
the period from August 14, 1997 to November 30, 1997, and quarterly assessments
thereafter will begin and be based on the quarter ending February 28, 1997.
J. Late Charges. If any installment payment, interest payment, principal
payment or principal balance due hereunder is delinquent ten or more days,
Borrower agrees to pay Bank a late charge in the amount of 5% of the payment so
due and unpaid, in addition to the payment; but nothing in this paragraph is to
be construed as any obligation on the part of the Bank to accept payment of any
payment past due or less than the total unpaid principal balance after maturity.
All payments shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
K. Miscellaneous Provisions. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder of Notes Issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this agreement or
any not issued in connection with a loan that your Bank may make hereunder, are
cumulative to, not exclusive of, any rights or remedies otherwise available.
L. Notice of Default. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice and
lapse of time would be an event of default.
M. Governing Law; Judicial Reference.
1. Governing Law. This Agreement shall be deemed to have been made in the
State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be
determined under, governed by, and construed in accordance with the
internal laws of the State of California, without regard to principles
of conflicts of law.
2. Judicial Reference. The provisions of Section E5, Judicial Reference of
the Credit Terms and Conditions Agreement dated July 28, 1997, executed
by the Borrower in favor of the Bank, are incorporated herein by
reference.
N. This Addendum is executed by and on behalf of the parties as of the date
first above written.
3. This Agreement may be executed in one or more counterparts, and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute one and the same Agreement.
4. This Amendment is effective as of October 30, 1997, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
DIGITAL SOUND CORPORATION "BORROWER"
By: /S/ B. Xxxxxx Xxx
------------------------------
Title: Vice President and CFO
------------------------------
IMPERIAL BANK "BANK"
By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxxx
Title: Assistant Vice President
EXHIBIT "A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT DOMESTIC FACILITY ("SECURITY AND LOAN
AGREEMENT") BETWEEN DIGITAL SOUND CORPORATION AND IMPERIAL BANK.
DATED: JULY 28, 1997
This Addendum is made and entered into JULY 28, 1997 between DIGITAL SOUND
CORPORATION ("Borrower") and Imperial Bank ("Bank"). This Addendum amends and
supplements the Security and Loan Agreement. In the event of any inconsistency
between the terms herein and the terms of the Security and Loan Agreement, the
terms herein shall in all cases govern and control. All capitalized terms
herein, unless otherwise defined herein, shall have the meaning set forth in the
Security and Loan Agreement.
Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on June 30,
1998, subject to Bank's right to renew said commitment at its sole discretion.
Any renewal of the commitment shall not be binding upon the Bank unless it is in
writing and signed by an officer of the Bank.
As a condition precedent to Bank's obligation to make any advances to Borrower,
Borrower shall, among other things, cause any material copyright registerable
works including software to be promptly registered in the U.S. Copyright Office
and execute and deliver a mortgage of copyrights and amendments appropriate and
acceptable to Bank to perfect Bank's security interest in all proceeds of such
works.
A. Should there be a default under the Security and Loan Agreement, the Credit
Terms and Conditions, the General Security Agreement, the Security Agreement for
the Export-Import Bank of the United States ("Eximbank") facility executed by
Borrower or under any note executed by Borrower in favor of Bank, all
obligations, loans and liabilities of Borrower to Bank, due or to become due,
whether now existing or hereafter arising, shall at the option of the Bank,
become immediately due and payable without notice or demand, and Bank shall
thereupon have the right to exercise all of its default rights and remedies.
B. Pursuant to the provisions in the Security and Loan Agreement and this
Addendum, Bank will advance up to $2,000,000 in the aggregate outstanding at any
one time within the following limitations:
1. $500,000 ON A REVOLVING BASIS, OR
2. $2,000,000 ON A CASH-SECURED BASIS, OR
3. $2,000,000 ON A STREAMLINE BASIS.
Borrower may have advances outstanding at the same time under 1 and 2 above,
provided the aggregate amount outstanding thereunder may not exceed $2,000,000.
Borrower may not have advances outstanding at the same time under 1 and 3 or 2
and 3.
Advances made on a Revolving basis shall be made at Borrower's request so long
as no event of default has occurred hereunder. Advances made on a Cash-secured
basis shall be made at Borrower's request so long as no event of default has
occurred hereunder Such advances shall require Borrower to open with and
pledge to Bank in form and substance satisfactory to Bank, a certificate of
deposit for the amount of the advance and with a minimum maturity of 30 days.
Advances made on a STREAMLINE BASIS WILL BE ADVANCED UP TO 50% OF ELIGIBLE
ACCOUNTS UP TO MAXIMUM OF $2,000,000. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are eligible from time
to time. "Eligible Accounts" shall also NOT include any of the following:
1. Accounts over 120 days past invoice date;
2. Accounts with respect to which the account debtor is an officer, director,
shareholder, employee, subsidiary or affiliate of Borrower;
3. All accounts sold to and purchased from a company of common name/ownership,
whereby a potential offset exists;
4. Accounts with respect to which 25% or more of the account debtor's total
accounts or obligations outstanding to Borrower are more than 120 calendar
days from invoice date;
5. For Accounts representing more than 15% of total accounts receivable, the
balance in excess of the 15% is not eligible; except GTE and Pacific Xxxx
which will each have a 30% limit;
6. C.O.D. Accounts;
7. Credit balances greater than 120 days from invoice date;
8. Consignment or guaranteed sales;
9. Xxxx and hold Accounts;
10. Equipment rental offsets;
11. Evaluation units;
12. Maintenance contract receivables;
13. Salesman's accounts for promotional purposes;
14. Collection Accounts;
15. Retentions;
16. Foreign Accounts;
17. U.S. Government receivables.
C. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, it will:
1. Within 10 working days from each month-end, deliver to Bank a detailed
accounts receivable aging reconciled to the general ledger of Borrower,
a detailed accounts payable aging reconciled to the Borrower's general
ledger and setting forth the amount of any book overdraft or the amount
of checks issued but not sent, and cash balance report with attached
copies of bank statements;
a. The preceding will be supported by the following Bank forms: AC-1
Accounts Receivable And Inventory Transaction Report, AC-11
Computation Of Ineligible Accounts Receivable, and AC-12 Monthly
Accounts Receivable Reconciliation;
b. Any advances made on a Streamline basis will be supported by the
following Bank forms submitted to Bank on a daily basis, in addition
to the preceding forms: AC-1 Accounts Receivable And Inventory
Transaction Report, AC-2 Schedule Of Accounts Receivable Assigned,
and AC-3 Schedule Of Collections;
2. On a quarterly basis, provide Bank with an alphabetized list of
customers including addresses;
3. Comply with additional financial reporting requirements as discussed in
the Credit Terms and Conditions dated July 28, 1997.
D. NOTWITHSTANDING THE PROVISIONS OF THE SECURITY AND LOAN AGREEMENT (ACCOUNTS
RECEIVABLE AND/OR INVENTORY), THE FOLLOWING PROVISION SHALL APPLY TO ALL
STREAMLINE OBLIGATIONS OF THE BORROWER TO THE BANK: ALL OF BORROWER'S RECEIPTS
FROM ITS ACCOUNT DEBTORS SHALL BE RECEIVED AT BORROWER'S LOCKBOX WITH BANK
PURSUANT TO THE REMITTANCE BANKING SERVICE AGREEMENT DATED , 1997 BETWEEN
BANK AND BORROWER. ALL SUMS RECEIVED BY BANK, WHETHER FROM BORROWER OR FROM
BORROWER'S ACCOUNT DEBTORS, SHALL BE APPLIED TO THE OUTSTANDING LOAN BALANCE ON
THE 2ND (SECOND) DAY FOLLOWING RECEIPT THEREOF BY THE BANK. INTEREST SHALL
CONTINUE TO ACCRUE ON ALL LOANS OUTSTANDING PURSUANT TO THE LOAN AND SECURITY
AGREEMENT UNTIL SUMS RECEIVED ARE APPLIED AS HEREIN PROVIDED.
E. The rate of interest applicable to the Loan Account shall be 0.50% per year
in excess of the rate of interest which Bank has announced as its prime lending
rate ("Prime Rate") which shall vary concurrently with any change in such Prime
Rate. Interest shall be computed at the above rate on the basis of the actual
number of days during which the principal balance of the loan account is
outstanding divided by 360, which shall, for interest computation purposes, be
considered one year. Should Borrower be in default, Bank at its option may
demand payment of any or all of the amount due under the Loan Account including
accrued but unpaid interest, at any time. Notice of such demand may be given
verbally or in writing and should be effective upon receipt by Borrower. The
default rate of interest shall be five percent per year in excess of the rate
otherwise applicable.
F. A fee of $10,000, less any remaining balances from Borrower's $10,000 good
faith deposit, is due upon execution hereof. A non-usage fee of 0.50% per
annum will be calculated and assessed on a quarterly basis using Borrower's
average outstanding daily loan balance per quarter.
G. Late Charges. If any installment payment, interest payment, principal
payment or principal balance due hereunder is delinquent ten or more days,
Borrower agrees to pay Bank a late charge in the amount of 5% of the payment so
due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the Bank to accept payment of any
payment past due or less than the total unpaid principal balance after maturity.
All payments shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
H. Miscellaneous Provisions. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder of Notes Issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this agreement or
any not issued in connection with a loan that your Bank may make hereunder, are
cumulative to, not exclusive of, any rights or remedies otherwise available.
I. Notice of Default. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice and
lapse of time would be an event of default.
J. Governing Law; Judicial Reference.
1. Governing Law. This Agreement shall be deemed to have been made in the
State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be
determined under, governed by, and construed in accordance with the
internal laws of the State of California, without regard to principles
of conflicts of law.
2. Judicial Reference. The provisions of Section E5, Judicial Reference of
the Credit Terms and Conditions Agreement dated July 28, 1997, executed
by the Borrower in favor of the Bank, are incorporated herein by
reference.
This Addendum is executed by and on behalf of the parties as of the date first
above written.
DIGITAL SOUND CORPORATION "BORROWER"
By: /s/ B. Xxxxxx Xxx
--------------------------------
Title: Vice President and CFO
--------------------------------
IMPERIAL BANK "BANK"
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------
Title: Assistant Vice President
--------------------------------
