-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JFjeDdBIh045ZLUc+waByCb0otp1VcPhQKPrBvonjqoE3Eo1IQWaEP4ij+4BcNq/ hpyV4E2rf9Dd5uEH7C5Ygw== 0001015402-01-501849.txt : 20010717 0001015402-01-501849.hdr.sgml : 20010717 ACCESSION NUMBER: 0001015402-01-501849 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20010716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCURRENT COMPUTER CORP/DE CENTRAL INDEX KEY: 0000749038 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 042735766 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-13150 FILM NUMBER: 1682011 BUSINESS ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 BUSINESS PHONE: 6782584000 MAIL ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 FORMER COMPANY: FORMER CONFORMED NAME: MASSACHUSETTS COMPUTER CORP DATE OF NAME CHANGE: 19881018 10-Q/A 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q/A (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of --- the Securities Exchange Act of 1934 For the Quarter Ended September 30, 2000 or Transition Report Pursuant to Section 13 or 15(d) of --- the Securities Exchange Act of 1934 For the Transition Period from ____ to ____ Commission File No. 0-13150 _____________ CONCURRENT COMPUTER CORPORATION Delaware 04-2735766 (State of Incorporation) (I.R.S. Employer Identification No.) 4375 River Green Parkway, Duluth, GA 30096 Telephone: (678) 258-4000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of the Registrant's Common Stock, par value $0.01 per share, outstanding as of November 6, 2000 was 54,667,259.
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 -------- -------- RESTATED (see Note 12) Revenues: Product sales Real-time systems $ 4,711 $ 6,517 Video-on-demand systems 5,437 1,089 -------- -------- Total product sales 10,148 7,606 Service and other 6,164 8,078 -------- -------- Total 16,312 15,684 Cost of sales: Real-time and video-on-demand systems 5,561 3,790 Service and other 3,160 4,254 -------- -------- Total 8,721 8,044 -------- -------- Gross margin 7,591 7,640 Operating expenses: Sales and marketing 4,073 4,527 Research and development 2,631 2,222 General and administrative 2,467 1,629 Relocation and restructuring - 2,367 -------- -------- Total operating expenses 9,171 10,745 -------- -------- Operating loss (1,580) (3,105) Interest income (expense) - net (9) 10 Other non-recurring income - 761 Other expense - net (55) (67) -------- -------- Loss before income taxes (1,644) (2,401) Provision for income taxes 150 150 -------- -------- Net loss $(1,794) $(2,551) ======== ======== Net loss per share Basic $ (0.03) $ (0.05) ======== ======== Diluted $ (0.03) $ (0.05) ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -1-
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS) SEPTEMBER 30, JUNE 30, 2000 2000 -------------- ---------- ASSETS RESTATED RESTATED (see Note 12) (see Note 12) Current assets: Cash and cash equivalents $ 5,853 $ 10,082 Accounts receivable - net 15,249 12,907 Inventories 5,821 5,621 Prepaid expenses and other current assets 2,610 2,381 -------------- ---------- Total current assets 29,533 30,991 Property, plant and equipment - net 11,082 11,314 Purchased developed computer software 1,725 1,773 Goodwill - net 11,671 11,981 Other long-term assets - net 908 1,019 -------------- ---------- Total assets $ 54,919 $ 57,078 ============== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 12,030 $ 13,297 Deferred revenue 3,205 2,608 -------------- ---------- Total current liabilities 15,235 15,905 Other long-term liabilities 2,749 2,902 -------------- ---------- Total liabilities 17,984 18,807 -------------- ---------- Stockholders' equity: Common stock 541 538 Capital in excess of par value 136,261 135,394 Accumulated deficit after eliminating accumulated deficit of $81,826 at December 31, 1991, date of quasi-reorganization (98,365) (96,571) Treasury stock (58) (58) Accumulated other comprehensive loss (1,444) (1,032) -------------- ---------- Total stockholders' equity 36,935 38,271 -------------- ---------- Total liabilities and stockholders' equity $ 54,919 $ 57,078 ============== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -2-
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 -------- -------- RESTATED (see Note 12) OPERATING ACTIVITIES Net loss $(1,794) $(2,551) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Accrual of non-cash warrants 195 - Depreciation, amortization and other 1,475 1,363 Other non-cash expenses 212 129 Changes in operating assets and liabilities: Accounts receivable (2,397) (1,911) Inventories (350) (499) Prepaid expenses and other current assets (229) (606) Other long-term assets 65 (133) Accounts payable and accrued expenses (1,267) 1,380 Deferred revenue 597 (990) Other long-term liabilities (136) 78 -------- -------- Total adjustments to net loss (1,835) (1,189) -------- -------- Net cash used in operating activities (3,629) (3,740) INVESTING ACTIVITIES Net additions to property, plant and equipment (1,131) (1,195) Proceeds from sale of facility - 1,223 -------- -------- Net cash provided by (used in) investing activities (1,131) 28 FINANCING ACTIVITIES Net repayment of capital lease obligation (17) - Proceeds from borrowings under revolving credit facility - 8,402 Repayments of borrowings under revolving credit facility - (8,402) Proceeds from sale and issuance of common stock 668 1,422 -------- -------- Net cash provided by financing activities 651 1,422 Effect of exchange rates on cash and cash equivalents (120) 230 Decrease in cash and cash equivalents (4,229) (2,060) Cash and cash equivalents at beginning of period 10,082 6,872 -------- -------- Cash and cash equivalents at end of period $ 5,853 $ 4,812 ======== ======== Cash paid during the period for: Interest $ 124 $ 52 ======== ======== Income taxes (net of refunds) $ 155 $ 34 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -3- CONCURRENT COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Concurrent Computer Corporation ("Concurrent" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The foregoing financial information is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. All such adjustments are of a normal recurring nature. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The results of interim periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during each year. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares including potential common shares issuable. Under the treasury stock method, incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued are included in the computation. The number of shares used in computing basic and diluted net loss per share for the three months ended September 30, 2000 and September 30, 1999 were 53,988,000 and 48,965,000, respectively. Because of the losses for these periods, the potential common shares issuable were anti-dilutive and were not considered in the diluted earnings per share calculations. 3. Revenue Recognition and Related Matters Video-on-demand and real-time system revenues are recognized based on the guidance in American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition. The Company recognizes revenue from video-on-demand and real-time systems when persuasive evidence of an arrangement exists, the system has been shipped, the fee is fixed or determinable and collectibility of the fee is probable. Under multiple element arrangements, the Company allocates revenue to the various elements based on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is determined based on the price charged when the same element is sold separately. Our products do not require significant customization. In certain instances, the Company's customers require significant customization of both the software and hardware products and, therefore, the revenues are recognized as long term contracts in conformity with Accounting Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts", Statement of Position ("SOP") 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software Revenue Recognition". For long-term contracts, revenue is recognized using the percentage of completion method of accounting based on costs incurred on the project compared to the total costs expected to be incurred through completion. The Company recognizes revenue from customer service plans ratably over the term of each plan, typically one year. Custom engineering and integration services performed by the Real-Time Division are typically completed within 90 days from receipt of an order. Revenues from these services are recognized upon completion and delivery of the software solution to the customer. 4. INVENTORIES Inventories are valued at the lower of cost or market, with cost being determined by using the first-in, first-out ("FIFO") method. The components of inventories are as follows: (DOLLARS IN THOUSANDS) SEPTEMBER 30, JUNE 30, 2000 2000 -------------- --------- Raw materials $ 4,758 $ 4,333 Work-in-process 875 947 Finished goods 188 341 -------------- --------- $ 5,821 $ 5,621 ============== ========= -4- 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses are as follows: (DOLLARS IN THOUSANDS) SEPTEMBER 30, JUNE 30, 2000 2000 ------------- --------- Accounts payable, trade $ 5,019 $ 4,484 Accrued payroll, vacation and other employee expenses 4,361 6,292 Other accrued expenses 2,650 2,521 ------------- --------- $ 12,030 $ 13,297 ============= ========= 6. COMPREHENSIVE INCOME (LOSS) The Company's total comprehensive income (loss) is as follows: (DOLLARS IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 --------- --------- Net loss $ (1,794) $ (2,551) Other comprehensive income (loss): Foreign currency translation gain (loss) (412) 412 --------- --------- Total comprehensive loss $ (2,206) $ (2,139) ========= ========= -5- 7. SEGMENT INFORMATION The Company operates its business in two divisions: real-time and video-on-demand ("VOD"). Its Real-Time Division is a leading provider of high-performance, real-time computer systems, solutions and software for commercial and government markets focusing on strategic market areas that include hardware-in-the-loop and man-in-the-loop simulation, data acquisition, industrial systems, and software and embedded applications. Its VOD Division is a leading supplier of digital video server systems to a wide range of industries serving a variety of markets, including the broadband/cable, hospitality, intranet/distance learning, and other related markets. Shared expenses are primarily allocated based on either revenues or headcount. There were no material intersegment sales or transfers. Corporate costs include costs related to the offices of the Chief Executive Officer, Chief Financial Officer, Investor Relations and other administrative costs including annual audit and tax fees, Board of Director fees and similar costs. The following summarizes the operating income (loss) by segment for the three month periods ended September 30, 2000 and September 30, 1999, respectively:
THREE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- -------- ----------- -------- Revenues: Product Sales $ 4,711 $ 5,437 $ - $10,148 Service and other 6,164 - - 6,164 ---------- -------- ----------- -------- Total 10,875 5,437 - 16,312 Cost of sales Systems 2,390 3,171 - 5,561 Service and other 3,160 - - 3,160 ---------- -------- ----------- -------- Total 5,550 3,171 - 8,721 ---------- -------- ----------- -------- Gross margin 5,325 2,266 - 7,591 Operating expenses Sales and marketing 1,917 1,972 184 4,073 Research and development 829 1,802 - 2,631 General and administrative 269 661 1,537 2,467 ---------- -------- ----------- -------- Total operating expenses 3,015 4,435 1,721 9,171 ---------- -------- ----------- -------- Operating income (loss) $ (2,169) $(1,938) $ (1,721) $(1,580) ========== ======== =========== ========
-6-
THREE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- -------- ----------- --------- Revenues: Product Sales $ 6,517 $ 1,089 $ - $ 7,606 Service and other 8,078 - - 8,078 ---------- -------- ----------- -------- Total 14,595 1,089 - 15,684 Cost of sales Systems 3,045 745 - 3,790 Service and other 4,254 - - 4,254 ---------- -------- ----------- -------- Total 7,299 745 - 8,044 ---------- -------- ----------- -------- Gross margin 7,296 344 - 7,640 Operating expenses Sales and marketing 2,899 1,572 56 4,527 Research and development 1,213 1,009 - 2,222 General and administrative 499 164 966 1,629 Relocation and restructuring 1,208 1,159 - 2,367 ---------- -------- ----------- -------- Total operating expenses 5,819 3,904 1,022 10,745 ---------- -------- ----------- -------- Operating income (loss) $ 1,477 $(3,560) $ (1,022) $(3,105) ========== ======== =========== ========
-7- 8. RESTRUCTURING AND RELOCATION In August 1999, the Company relocated its Corporate Headquarters and its VOD Division to Duluth, Georgia. In connection with this move, the Company incurred employee relocation costs of $769,000, which is recorded as an operating expense in the condensed consolidated statement of operations for the quarter ended September 30, 1999. In addition to the VOD Division relocation discussed above, management decided in the first quarter of fiscal year 2000 to "right-size" the Real-Time Division to bring its expenses in line with its anticipated revenues. In connection with these events, the Company recorded a $1.6 million operating expense in the condensed consolidated statement of operations for the quarter ended September 30, 1999. This expense represents workforce reductions of approximately 38 employees in all areas of the Company. 9. SALE OF SUBSIDIARY On September 8, 1999, the Company entered into an agreement to sell the stock of Concurrent Vibrations, a wholly owned subsidiary of Concurrent Computer Corporation S.A., to Data Physics, Inc. The transaction, which had an effective date of August 31, 1999, resulted in a gain of $761,000. This gain is recorded in other non-recurring items in the condensed consolidated statement of operations in the quarter ended September 30, 1999. 10. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. Upon adoption, all derivative instruments will be recognized in the balance sheet at fair value, and changes in the fair values of such instruments must be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133 was effective for the Company on July 1, 2000. As the Company does not have any hedging and derivative positions, adoption of these pronouncements did not have a material effect on the Company's financial position. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB 101 as required in the fourth fiscal quarter of 2001. The Company is currently evaluating the effect that such adoption might have on its financial position and results of operations. In March 2000, the FASB issued Interpretation No. 44 "Accounting of Certain Transactions involving Stock Compensation - an Interpretation of APB No. 25" ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The Company adopted FIN 44 on July 1, 2000, and the adoption did not have a material effect on the financial position or operations of the Company. -8- 11. ACQUISITION OF VIVID TECHNOLOGY On October 28, 1999, the Company acquired Vivid Technology ("Vivid") for total consideration of $29.4 million, consisting of 2,233,689 shares of common stock valued at $24.7 million, $0.5 million of acquisition costs, and 378,983 shares reserved for future issuance upon exercise of stock options with a value of $4.2 million. The acquisition was treated as a purchase for accounting purposes, and, accordingly, the assets and liabilities were recorded based on their fair values at the date of the acquisition. The purchase price allocation and the respective useful lives of the intangible assets are as follows: (Dollars in thousands) Allocation Life Working Capital $ 72 Fixed Assets 257 Other Long-Term Assets 13 Developed Completed Computer Software Technology 1,900 10 yrs Employee Workforce 400 3 yrs Goodwill 12,808 10 yrs In-Process Computer Software Technology 14,000 Amortization of intangible assets is on a straight line basis over the assets' estimated useful life. Vivid's operations are included in the condensed consolidated statements of operations from the date of acquisition. At the acquisition date, Vivid had one product under development that had not demonstrated technological or commercial feasibility. This product was the Vivid interactive video-on-demand integrated system. The in-process technology has no alternative use in the event that the proposed product does not prove to be feasible. This development effort falls within the definition of In-Process Research and Development ("IPR&D") contained in Statement of Financial Accounting Standards ("SFAS") No. 2 and was expensed in the quarter ended December 31, 1999 as a one-time charge. Consistent with the Company's policy for internally developed software, the Company determined the amounts to be allocated to IPR&D based on whether technological feasibility had been achieved and whether there was any alternative future use for the technology. As of the date of the acquisition, the Company concluded that the IPR&D had no alternative future use after taking into consideration the potential for usage of the software in different products, resale of the software and internal usage. The following unaudited proforma information presents the results of operations of the Company as if the acquisition had taken place on July 1, 1999: THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 -------- -------- Revenues $16,312 $15,938 ======== ======== Net loss $(1,794) $(3,262) ======== ======== Basic and diluted net loss per share $ (0.03) $ (0.06) ======== ======== 12. Restatement Subsequent to the issuance of the Company's financial statements for the quarter ended September 30, 2000, management changed the measurement date used to value the shares issued in conjunction with the Company's acquisition of Vivid Technology in accordance with APB 16: Business Combinations. As a result, the financial statements as of September 30, 2000 and for the three month periods, ended September 30, 2000 have been restated from the amounts previously reported. The accompanying discussion and analysis gives effect to that restatement.
AS OF SEPTEMBER 30, 2000 AS PROVIOUSLY REPORTED AS RESTATED --------------- ------------- Goodwill, net $ 2,864 $ 11,671 Capital in excess of par 126,607 136,261 Accumulated deficit (97,518) (98,365)
THREE MONTHS ENDED SEPTEMBER 30, 2000 AS PROVIOUSLY REPORTED AS RESTATED --------------- ------------- General and administrative expenses $ 2,236 $ 2,467 Operating loss (1,349) (1,580) Loss before income taxes (1,413) (1,644) Net loss (1,563) (1,794) Net loss per share basic and diluted $ (0.03) $ (0.03)
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Subsequent to the issuance of the Company's financial statements for the quarter ended September 30, 2000, management changed the measurement date used to value the shares issued in conjunction with the Company's acquisition of Vivid Technology in accordance with APB 16: Business Combinations. As a result, the financial statements as of September 30, 2000 and for the three month period ended September 30, 2000 have been restated from the amounts previously reported. The accompanying discussion and analysis gives effect to that restatement. SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES The following table sets forth selected operating data as a percentage of net sales for certain items in the Company's consolidated statements of operations for the periods indicated.
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ------ ------ (Unaudited) Net sales: Product sales (% of respective product sales category): Real-time systems 28.9% 41.6% Video-on-demand systems 33.3 6.9 ------ ------- Total product sales 62.2 48.5 Service and other 37.8 51.5 ------ ------- Total 100.0 100.0 Cost of sales (% of respective sales category): Real-time and video-on-demand systems 54.8 49.8 Service and other 51.3 52.7 ------ ------- Total 53.5 51.3 ------ ------- Gross margin 46.5 48.7 Operating expenses: Sales and marketing 25.0 28.9 Research and development 16.1 14.2 General and administrative 15.1 10.4 Relocation and restructuring - 15.1 ------ ------- Total operating expenses 56.2 68.5 ------ ------- Operating loss (9.7) (19.8) Interest income (expense) - net (0.1) 0.1 Other non-recurring income - 4.9 Other income (expense) - net (0.3) (0.4) ------ ------- Loss before income taxes (10.1) (15.3) Provision for income taxes 0.9 1.0 ------ ------- Net loss (11.0)% (16.3)% ====== =======
-10- RESULTS OF OPERATIONS Product Sales. Total product sales were $10.1 million for the three months ended September 30, 2000, an increase of $2.5 million or 33.4% from $7.6 million for the three months ended September 30, 1999. Sales of VOD products increased to $5.4 million in the three month period ended September 30, 2000 from $1.1 million in the three month period ended September 30, 1999. The increase in VOD product sales was primarily due to higher sales of video systems to domestic cable operators, including Time Warner and Cox Communications. The increase was partially offset by the continued decline in sales of real-time computer systems. Service and Other Sales. Service revenues decreased to $6.2 million or 23.7% in the three months ended September 30, 2000 from $8.1 million in the three months ended September 30, 1999. The decline resulted from customers switching from proprietary systems to Concurrent's open systems which are less expensive to maintain, and the cancellation of other proprietary computer maintenance contracts as the machines are removed from service. Gross Margin. Gross margin remained unchanged at $7.6 million for the three months ended September 30, 2000 as compared to the three months ended September 30, 1999. The gross margin as a percentage of sales decreased to 46.5% in the three month period ended September 30, 2000 from 48.7% in the three month period ended September 30, 1999, primarily due to the increase in VOD sales as a percent of total product sales and the lower gross margin being realized on VOD sales compared to real-time sales. The gross margin on real-time service revenue increased to 48.7% in the three months ended September 30, 2000 compared to 47.3% in the three months ended September 30, 1999, due to cost reduction efforts made in previous quarters. Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 25.0% for the three months ended September 30, 2000 as compared to 28.9% for the three months ended September 30, 1999. These expenses decreased to $4.1 million in the three month period ended September 30, 2000 from $4.5 million in the three month period ended September 30, 1999 primarily due to the decrease in the Real-Time Division's worldwide sales and marketing personnel which was partially offset by the increase in the number of worldwide sales and marketing personnel and related activities in the Company's VOD Division. Research and Development. Research and development expenses increased as a percentage of sales to 16.1% in the three month period ended September 30, 2000 from 14.2% in the three month period ended September 30, 1999. These expenses increased to $2.6 million in the three month period ended September 30, 2000 from $2.2 million in the three month period ended September 30, 1999 primarily due to the growth in the VOD Division research and development personnel and the additional development personnel as a result of the acquisition of Vivid Technology in October of 1999. These increases were partially offset by deliberate cost reduction efforts in the Real-Time Division. General and Administrative. General and administrative expenses increased to 15.1% of sales in the three month period ended September 30, 2000 from 10.4% in the three month period ended September 30, 1999. These expenses increased to $2.5 million in the three month period ended September 30, 2000 from $1.6 million in the three month period ended September 30, 1999 primarily due the increase in VOD division management and other executive corporate administrative personnel. Income Taxes. The Company recorded income tax expense of $150,000 in the three month period ended September 30, 2000 on a pre-tax loss of $1.6 million due to the inability to recognize the future tax benefit of the current period net operating loss. Net Loss. The company recorded a net loss of $1.8 million or $.03 per share for the three months ended September 30, 2000 compared to a net loss of $2.6 million or $.05 per share for the three months ended September 30, 1999. -11- ACQUISITION OF VIVID TECHNOLOGY, INC. On October 28, 1999, the Company acquired Vivid Technology, Inc., a former competitor in the video-on-demand industry. Vivid's interactive stand-alone video-on-demand system ("the Vivid VOD system") was specifically being designed to integrate with the most popular digital set-top boxes used by General Instruments, a division of Motorola. The Vivid VOD system was also expected to be compatible with the digital set-top boxes used by other leading cable operators such as Philips, Panasonic and Sony. The Vivid VOD system was based on a cluster of Microsoft Windows NT computers with proprietary hardware and software added to provide high video streaming capacity and fault tolerance. The Vivid VOD system was also being designed to eventually provide VOD service including pause, rewind, and fast forward VCR-like functions. The Vivid VOD system would also provide necessary back office support software for video content management, video selection graphical user interface, subscriber management, purchase management, billing interfaces, content provider account settlement and consumer marketing feedback. In addition, the Vivid VOD system was being designed to support other interactive applications such as on-line banking, home shopping, merchandising and on-demand/addressable advertising. The in-process computer software technology was estimated to be 80% complete at the date of acquisition and was estimated to cost an additional $650,000 to complete the VOD system technology project in December of 2000. A variety of tasks were yet to be completed which would be required in order for the Vivid VOD system to be deployed on a commercial basis: - The Content Manager, which is used to load movies from studios, did not have the functionality necessary to create a royalty payment affidavit which is required for the cable operators to pay the required royalties to the movie studios. Also, the Content Manager, which had been implemented using a SQL data base, needed to be ported to other relational data bases such as Oracle to support high end data base applications. - The Resource Manager had been alpha tested; however, an advanced beta test had not been completed which would validate its ability to scale up to the required number of subscribers or connections in an actual commercial deployment. - The Subscriber Manager, which had been implemented using a SQL data base, needed to be ported to other relational data bases such as Oracle to support high end data base applications. - The Set Top VOD application needed to be tested under advanced beta test conditions to ensure that the back channel key stroke system performance can fulfill operational requirements. - The Hub Server, or video pump, needed to be tested under full load in an operational environment to ensure stability over an extended period of time. The random conditions resulting from the in home use of tens of thousands of subscribers can only be simulated in an advanced beta test which has yet to be performed. The method used to allocate the purchase consideration to IPR&D was The modified income approach. Under the income approach, fair value reflects the present value of the projected free cash flows that will be generated by the IPR&D project and that is attributable to the acquired technology, if successfully completed. The modified income approach takes the income approach, modified to include the following factors: - Analysis of the stage of completion of each project; - Exclusion of value related to research and development yet-to-be completed as part of the on-going IPR&D projects; and - The contribution of existing products/technologies. -12- The projected revenues used in the income approach were based upon the incremental revenues likely to be generated upon completion of the project and the beginning of commercial sales of the Vivid VOD system, as estimated by Company management to begin in the quarter ending December 31, 2000. The projections assumed that the Vivid VOD system would be successful and the products' development and commercialization were as set forth by management. The discount rate used in this analysis was an after-tax rate of 28%. Subsequent to the acquisition date, the Company decided to merge the Vivid VOD system and the Concurrent VOD system into one standard VOD platform. The Company began shipping the new hardware platform during the quarter ended September 30, 2000. Initially, the new hardware platform has two software alternatives, one which is compatible with digital set-top boxes used by General Instruments, using core software technology developed by and purchased from Vivid Technology, and the other is compatible with digital set-top boxes used by Scientific-Atlanta, Inc. Beginning in the first half of calendar 2001, the Company expects to also merge the software solutions into one standard solution which will be compatible with either General Instruments or Scientific-Atlanta set-top boxes. -13- LIQUIDITY AND CAPITAL RESOURCES The liquidity of the Company is dependent on many factors, including sales volume, operating profit, debt service and the efficiency of asset use and turnover. The future liquidity of the Company will be affected by, among other things: - The actual versus anticipated decline in sales of real-time proprietary systems and service maintenance revenue; - Revenue growth from VOD systems; - Ongoing cost control actions and expenses, including for example, research and development and capital expenditures; - The margins on the VOD and real-time businesses; - Timing of product shipments which occur primarily during the last month of the quarter; - The percentage of sales derived from outside the United States where there are generally longer accounts receivable collection cycles and which receivables are not included in the borrowing base of the revolving credit facility; and - The number of countries in which the Company operates, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, such as cash held on deposit to secure office leases. The Company used cash of $3.6 and $3.7 million in operating activities during the three month periods ended September 30, 2000 and September 30, 1999, respectively, primarily due to the losses generated by the Company's VOD business. On November 3, 2000, the Company entered into a $15 million revolving credit facility which expires June 30, 2002 and replaces the previous credit facility which expired on October 31, 2000. Borrowings under the facility are limited to 85% of eligible accounts receivable and bear interest at between prime and prime plus .75% or between LIBOR plus 2.25% and LIBOR plus 3.00% depending on the Company's ratio of Consolidated Funded Debt (as defined in the credit facility) to EBITDA. The Company has pledged substantially all of its assets as collateral for the facility. No borrowings were outstanding at September 30, 2000 or November 9, 2000 under either credit facility. The credit facility contains financial covenants which limit the ratio of total liabilities to tangible net worth and which require the Company to achieve on a quarterly basis minimum EBITDA in each of the Company's operating divisions. The Company invested $1.1 and $1.2 million in property, plant and equipment during the three month periods ended September 30, 2000 and September 30, 1999, respectively. Current year capital expenditures primarily relate to computer equipment and development equipment for the Company's VOD Division. The Company received $0.7 million in proceeds from the issuance of common stock to employees and directors who exercised stock options during the three month period ended September 30, 2000 compared to $1.4 million during the three month period ended September 30, 1999. At September 30, 2000, the Company's working capital was $14.3 million, and the Company did not have any material commitments for capital expenditures. The Company believes that existing cash balances, the available credit facility and funds generated by operations will be sufficient to meet the Company's anticipated working capital and capital expenditure requirements for the next twelve months. -14- CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made in this report, and other written or oral statements made by or on behalf of Concurrent, may constitute "forward-looking statements" within the meaning of the federal securities laws. When used in this report, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and Concurrent's future performance, as well as its expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. The risks and uncertainties which could affect the Company's performance or results include, without limitation: - changes in product demand; - economic conditions; - various inventory risks due to changes in market conditions; - uncertainties relating to the development and ownership of intellectual property; - uncertainties relating to the ability of the Company and other companies to enforce their intellectual property rights; - the pricing and availability of equipment, materials and inventories; - the limited operating history of the VOD segment; - the concentration of the Company's customers; - failure to effectively manage growth; - delays in testing and introductions of new products; - rapid technology changes; - the highly competitive environment in which the Company operates; - the entry of new well-capitalized competitors into the Company's markets and other risks and uncertainties. These statements are based on current expectations and speak only as of the date of such statements. Concurrent undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Additional information concerning these risks and uncertainties is contained elsewhere in this Form 10-Q. -15- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates. The Company is exposed to the impact of interest rate changes on its short-term cash investments, which are backed by U.S. government obligations, and other investments in respect of institutions with the highest credit ratings, all of which have maturities of 3 months or less. These short-term investments carry a degree of interest rate risk. The Company believes that the impact of a 10% increase or decline in interest rates would not be material to its investment income. The Company conducts business in the United States and around the world. The most significant foreign currency transaction exposures relate to the United Kingdom, those Western European countries that use the Euro as a common currency, Australia and Japan. The Company does not hedge against fluctuations in exchange rates and believes that a hypothetical 10% upward or downward fluctuation in foreign currency exchange rates relative to the United States dollar would not have a material impact on future earnings, fair values, or cash flows. -16- PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Concurrent's Annual Meeting of Stockholders was held on October 26, 2000. The results of voting were as follows: - The following persons were elected as directors to serve until the next annual meeting of stockholders. Michael A. Brunner (46,222,239 votes for, 1,357,300 votes withheld), Morton E. Handel (46,157,569 votes for, 1,421,970 votes withheld), Bruce N. Hawthorne (46,881,160 votes for, 698,379 votes withheld), C. Shelton James (46,820,230 votes for, 759,309 votes withheld), Steve G. Nussrallah (46,502,867 votes for, 1,076,672 votes withheld) and Richard P Rifenburgh (46,191,761 votes for, 1,387,778 votes withheld). - The selection by the Board of Directors of Deloitte and Touche LLP as the Company's independent auditors for the fiscal year ending June 30, 2001 was ratified (47,429,891 votes for, 85,542 votes against, 64,106 votes abstained). - The amendment of the Company's 1991 Restated Stock Option Plan was approved (30,049,091 votes for, 17,421,287 votes against, 109,161 votes abstained). ITEM 5. OTHER INFORMATION. RISK FACTORS Set forth below are certain risks relating to our business and the industry in which we compete. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. RISKS RELATED TO OUR BUSINESS IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS BECAUSE OF DECLINES IN OUR REAL-TIME BUSINESS AND OUR LIMITED VOD OPERATING HISTORY. For much of our history, we have focused solely on providing real-time computer systems and related services. Over the last five full fiscal years, we have experienced a decline in real-time net sales from $95.8 million for the fiscal year ended June 30, 1996 to $56.1 million for the fiscal year ended June 30, 2000. For the three months ended September 30, 2000, our real-time net sales were $10.9 million compared to $14.6 million for the three months ended September 30, 1999. We expect that net sales from our real-time business will continue to decline in the foreseeable future. Further, our gross margin for the fiscal year ended June 30, 2000 was 46.6%, compared to our gross margin of 50.5% during fiscal year 1999. This decline in our real-time business together with our limited VOD operating history make it difficult to evaluate our current business and prospects or to accurately predict our future revenue or results of operations. We have a limited operating history in the VOD market. We began residential cable television commercial trials of our VOD server and related software, our VOD system, in the summer of 1999 and have a limited number of VOD systems currently in use on a commercial basis. The revenue and income potential of our business is unproven, and we will encounter risks and difficulties in our VOD business frequently encountered by companies in new and rapidly evolving markets. We may not successfully address any of these risks. If we do not successfully address these risks, our business, financial condition and results of operations would be adversely affected. Our future growth will depend largely on the commercial success of our VOD business, and we cannot assure you that VOD will become commercially successful. We have only recently begun to commercially introduce our VOD systems, and our future revenue growth is uncertain and will depend upon the development of customer demand for these systems. If our target customers do not adopt, purchase and successfully deploy our VOD systems, our revenue will not grow and our business, results of operations and financial condition will be adversely affected. -17- WE HAVE INCURRED LOSSES AND MAY INCUR LOSSES IN THE FUTURE. We incurred net losses of $23.7 million in the fiscal year ended June 30, 2000 and $1.8 million in the three months ended September 30, 2000. On a pro forma basis after giving effect to the acquisition of Vivid Technology, we incurred net losses of $24.7 million in the fiscal year ended June 30, 2000 and $1.8 million in the three month period ended September 30, 2000. Our actual net loss of $23.7 million and our pro forma net loss of $24.7 million for the fiscal year ended June 30, 2000 includes a $14.0 million non-cash charge related to the write-off of research and development acquired in the Vivid Technology acquisition. As of September 30, 2000 we had an accumulated deficit of approximately $98.4 million, after eliminating accumulated deficit of approximately $81.8 million at December 31, 1991, the date of our quasi-reorganization. We may incur additional net losses in the future. THE VOD MARKET IS NEW AND MAY NOT GAIN BROAD MARKET ACCEPTANCE AND OUR POTENTIAL CUSTOMERS MAY NOT PURCHASE OUR VOD SYSTEMS. We are focusing much of our initial VOD sales efforts on domestic cable television providers that have upgraded some or all of their cable systems to support digital, two-way service. Therefore, in order for our VOD business to succeed, cable system operators, particularly large multiple system operators ("MSOs"), must successfully market VOD to their subscribers. Although we have shipped and installed our VOD system to four MSOs to date, only two system operators have actually commercially introduced VOD that incorporates our technology. In addition, none of our cable system customers are contractually obligated to introduce, market or promote VOD, nor are any of our customers bound to achieve any specific VOD introduction schedule. Accordingly, even if a system operator initiates a customer trial using our VOD system, that operator is under no obligation to continue its relationship with us or to launch a full-scale commercial introduction of VOD using our technology. Further, we do not have exclusive arrangements with system operators. Therefore, system operators may enter into arrangements with one or more of our current or future competitors. The growth and future success of our VOD business depends largely upon our ability to penetrate new markets and sell our VOD systems to digitally-upgraded domestic and international cable system operators, international DSL operators, educational institutions and others. If these potential customers determine that VOD is not viable as a business proposition or if they decide to purchase VOD systems from our competitors, our business, financial condition and results of operations will be significantly adversely affected. WE EXPECT TO RELY ON A LIMITED NUMBER OF CABLE SYSTEM OPERATORS FOR A SIGNIFICANT PORTION OF OUR VOD REVENUE. IF WE ARE UNSUCCESSFUL IN ESTABLISHING RELATIONSHIPS WITH THESE CUSTOMERS OR LOSE ANY OF THESE CUSTOMERS, OUR BUSINESS WILL BE ADVERSELY AFFECTED. A significant portion of our VOD revenue has come from, and is expected to continue to come from, sales to the large MSOs. For the fiscal year ended June 30, 2000, Time Warner Cable accounted for 47.2% of such revenue. For the three months ended September 30, 2000, Time Warner Cable and Cox Communications accounted for 26.1% and 45.8% of such revenues, respectively. Many MSOs are currently evaluating providers of VOD systems and making purchase decisions. We believe that the relationships forged between VOD system suppliers and MSOs over the next 12 to 18 months will be critical in determining the relative market shares of VOD system providers. If we are unsuccessful in establishing and maintaining these key relationships with MSOs, our VOD business will be adversely affected. Further, if we experience problems in any of our VOD system trials or initial commercial launches, our ability to attract new MSO customers and sell additional products to existing customers will be materially adversely affected. -18- OUR OPERATING RESULTS ARE UNPREDICTABLE. Our operating results are likely to fluctuate significantly in the future. Because our operating results are expected to be volatile and difficult to predict, in some future quarters our operating results may fall below the expectations of securities analysts and investors. Our quarterly operating results may vary depending on a number of factors, including: - demand for our VOD and real-time systems and services; - the timing and number of sales of our products; - actions taken by our competitors, including new product introductions and enhancements; - changes in our price or the prices of our competitors; - our ability to develop and introduce new products and to deliver new services and enhancements that meet customer requirements in a timely manner; - the length of the sale cycle for our products; - our ability to control costs; - technological changes in our markets; - deferrals of customer orders in anticipation of product enhancements or new products; - customer budget cycles and changes in these budget cycles; and - general economic factors. THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST OUR CURRENT AND FUTURE COMPETITORS. The market for VOD systems is relatively new, highly competitive and rapidly evolving. Given that there have been limited commercial deployments of VOD systems to date, the respective market shares of companies competing in the VOD market are uncertain. We believe that the primary factors influencing competition in the VOD market include the flexibility and scalability of the VOD system, product quality and reliability and established relationships with providers of interactive television services, including MSOs. In the VOD market, our competitors currently include the following: - in the domestic cable and international cable and DSL market -- principally, SeaChange International Inc., nCUBE Corporation and Diva Systems Corporation; and - in the education market -- principally, Silicon Graphics, Inc., Cisco Systems, Inc. and International Business Machines Corp., as well as local systems integrators. We also compete with a number of companies in our real-time business. These competitors can be categorized as follows: - major computer companies that participate in the real-time business by layering specialized hardware and software on top of, or as an extension of, their general purpose product platforms, including principally Compaq Computer Corporation and Hewlett-Packard Corporation; -19- - other computer companies that provide solutions for applications that address specific characteristics of real-time, such as fault tolerance or high performance graphics, including Silicon Graphics, Inc. and Compaq Computer Corporation; - general purpose computing companies that provide a platform on which third-party vendors add real-time capabilities, including International Business Machines Corp. and Sun Microsystems, Inc.; and - single board computer companies that provide board-level processors that are typically integrated into a customer's computer system, including Force Computers, Inc. and Motorola, Inc. Due to the rapidly evolving markets in which we compete, additional competitors with significant market presence and financial resources, including computer hardware and software companies, content providers and television equipment manufacturers, including digital set-top box manufacturers, may enter those markets, thereby further intensifying competition. Our future competitors also may include one or more of the parties with which we currently have a strategic relationship. Although we have proprietary rights with respect to much of the technology incorporated in our VOD and real time systems, our strategic partners have not agreed to refrain from competing against us. Increased competition could result in price reductions that would adversely affect our business, financial condition and results of operations. Many of our current and potential future competitors have longer operating histories, significantly greater financial, technical, marketing and other resources than us, and greater brand name recognition. In addition, many of our competitors have well-established relationships with our current and potential customers and have extensive knowledge of our industries. IF WE DO NOT MANAGE OUR ANTICIPATED GROWTH, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS EFFECTIVELY. OUR FAILURE TO MANAGE GROWTH COULD DISRUPT OUR OPERATIONS. We anticipate growth in our VOD operations and that substantially all of our future revenue growth will come from our VOD operations. Our anticipated growth could place a strain on our management systems and other resources. Our ability to successfully implement our business plan in a rapidly evolving market will require an effective planning and management process. We cannot assure you that we will be able to successfully manage our expansion. If we fail to manage our anticipated growth, our operations may be disrupted and our business may be adversely affected. We must continue to improve and effectively utilize our existing operational, management, marketing and financial systems and successfully recruit, hire, train and manage personnel, which we may be unable to do. Further, we must maintain close coordination among our technical, finance, marketing, sales and production staffs. IF WE FAIL TO DEVELOP AND MARKET NEW PRODUCTS AND PRODUCT ENHANCEMENTS IN A TIMELY MANNER, OUR BUSINESS COULD BE ADVERSELY AFFECTED. Our future success will require that we develop and market additional products that achieve market acceptance and enhance our current products. Our inability to develop on a timely basis new products or enhancements to existing products, or the failure of such new products or enhancements to achieve market acceptance could have a material adverse affect on our business, financial condition and results of operations. We recently completed the development of our MediaHawk Model 2000 VOD system. Although we have shipped and installed the new system in a commercial VOD deployment with an MSO during the first quarter ended September 30, 2000, we may experience unexpected problems. Although delivery of VOD over DSL currently is not practical in the United States, we will look for opportunities in the domestic DSL market as DSL technology continues to advance. There can be no assurance that we will be successful in pursuing any domestic DSL opportunities. -20- SYSTEM ERRORS, FAILURES, OR INTERRUPTIONS MAY HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND DAMAGE OUR REPUTATION AND CUSTOMER RELATIONSHIPS. System errors or failures may adversely affect our business, financial condition and results of operations. Despite our testing and testing by current and potential customers, all errors or failures may not be found in our products or, if discovered, successfully corrected in a timely manner. These errors or failures could cause delays in product introductions and shipments or require design modifications that could adversely affect our competitive position. Our business also will be adversely affected if our customers view our products as unreliable, whether based on actual or perceived errors or failures in our products. Any frequent or persistent system failures could irreparably damage our reputation. Further, a defect, error or performance problem with our VOD systems could cause our customers' cable television systems to fail for a period of time. Any such failure would cause customer service and public relations problems for our customers. As a result, any failure of our customers' systems caused by our technology could result in delayed or lost revenue due to adverse customer reaction, negative publicity regarding us and our products and services and claims for substantial damages against us, regardless of our responsibility for such failure. Any claim could be expensive and require us to spend a significant amount of resources, regardless of whether we prevail. DEMAND FOR OUR VOD PRODUCTS AND SERVICES WILL DECLINE SIGNIFICANTLY IF OUR VOD SYSTEMS CANNOT SUPPORT A SUBSTANTIAL NUMBER OF VIEWERS. Our new MediaHawk Model 2000 VOD system was designed and developed to be compatible with both General Instruments and Scientific Atlanta head-end equipment and set-top boxes. The new server was only recently shipped and installed in a commercial VOD deployment to a limited number of subscribers. As a result, the ability of our new VOD system to support a substantial number of viewers is unproven. If the new VOD system does not efficiently scale to support a substantial number of viewers while maintaining a high level of performance, demand for the new product and related services and our ability to sell additional products to our existing customers will be significantly reduced. As a result, our operating results could suffer and our financial condition could be harmed. A SIGNIFICANT PORTION OF OUR REAL-TIME REVENUE HAS BEEN CONCENTRATED IN A SMALL NUMBER OF CUSTOMERS, INCLUDING THE U.S. GOVERNMENT. IF WE LOSE ANY OF THESE CUSTOMERS, OUR BUSINESS MAY BE ADVERSELY AFFECTED. We currently derive, and expect to continue to derive, a significant portion of our real-time revenue from a limited number of customers. As a result, the loss of, or reduced demand for products or related services from any of our major customers could adversely affect our business, financial condition and results of operations. In the fiscal year ended June 30, 2000 and the 3 months ended September 30, 2000 five customers accounted for approximately 34% and 29% of our total real-time revenue, respectively. We derive a significant portion of our revenues from the supply of systems under government contracts. For the fiscal year ended June 30, 2000 and the 3 months ended September 30, 2000, we recorded $18.5 million and $3.5 million, respectively, in sales to agencies of the U.S. Government. These amounts represent approximately 33% of our total sales in both periods. Government business is subject to many risks, such as delays in funding, reduction or modification of contracts or subcontracts, failure to exercise options, changes in governmental policies and the imposition of budgetary constraints. A loss of government contract revenues could have a material adverse effect on our business, results of operations and financial condition. We do not have written continuing purchase agreements with any of our customers and do not have written agreements that require customers to purchase fixed minimum quantities of our products. Our sales to specific customers tend to, and are expected to continue to, vary from year-to-year, depending on such customers' budgets for capital expenditures and new product introductions. -21- IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE POSITION COULD BE HARMED OR WE COULD BE REQUIRED TO INCUR EXPENSES TO ENFORCE OUR RIGHTS. OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE FOUND TO INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. We rely on a combination of contracts and copyright, trademark, and trade secret laws to establish and protect our proprietary rights in our technology. We do not own any significant patents. We typically enter into confidentiality or license agreements with our employees, consultants, customers and vendors, in an effort to control access to and distribution of our proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary technology without authorization. Policing unauthorized use of our products is difficult. The steps we take may not prevent misappropriation of our intellectual property, and the agreements we enter into may not be enforceable. In addition, effective copyright and trade secret protection may be unavailable or limited in some foreign countries. Other companies, including our competitors, may currently own or obtain patents or other proprietary rights that might prevent, limit or interfere with our ability to make, use or sell our products. As a result, we may be found to infringe on the intellectual property rights of others. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results could be adversely affected. Any litigation or claims, whether or not valid, could result in substantial costs and diversion of our resources. Intellectual property litigation or claims could force us to do one or more of the following: - cease selling, incorporating or using products or services that incorporate the challenged intellectual property; - obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and - redesign products or services that incorporate the disputed technology. If we are forced to take any of the foregoing actions, we could face substantial costs and our business could be seriously harmed. Although we carry general liability insurance, our insurance may not cover potential claims of this type or be adequate to indemnify us for all liability that may be imposed. We may initiate claims or litigation against third parties in the future for infringement of our proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and the diversion of our technical and management personnel. As a result, our operating results could suffer and our financial condition could be harmed. IN SOME CASES, WE RELY ON A LIMITED NUMBER OF SUPPLIERS. We sometimes purchase product components from a single supplier in order to obtain the required technology and the most favorable price and delivery terms. Reliance on single suppliers involves several risks, including: - the possibility of defective parts; - a shortage of components; - increase in component costs; and - reduced control over delivery schedules. -22- Any of these events could adversely affect our business, results of operations and financial condition. We estimate that a lead time of 16-24 weeks may be necessary to switch to an alternative supplier of certain custom application specific integrated circuits and printed circuit assemblies. A change in the supplier of these components without the appropriate lead time could result in a material delay in shipments by us of certain products. Where alternative sources are available, qualification of the alternative suppliers and establishment of reliable supplies of components from such sources may also result in delays. Shipping delays may also result in a delay in revenue recognition, possibly outside the fiscal period originally planned, and, as a result, may adversely affect our financial results for that particular period. OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE FAIL TO RETAIN OUR CURRENT KEY PERSONNEL OR FAIL TO ATTRACT ADDITIONAL QUALIFIED PERSONNEL. Our future performance depends on the continued service of our senior management and our engineering, sales and marketing and manufacturing personnel, many of whom would be difficult to replace. Competition for qualified personnel is intense, and we may fail to retain our key employees or to attract or retain other highly qualified personnel. We do not carry key person life insurance on any of our employees. The loss of the services of one or more of our key personnel could seriously impact our business. Our future success also depends on our continuing ability to attract, hire, train and retain highly skilled managerial, technical, sales, marketing and customer support personnel. We currently are looking to fill several engineering, sales and marketing and operations positions. In addition, new employees frequently require extensive training before they achieve desired levels of productivity. WE MAY BE UNSUCCESSFUL IN MAINTAINING OR ESTABLISHING THE STRATEGIC RELATIONSHIPS THAT WILL BE AN IMPORTANT PART OF OUR FUTURE SUCCESS. The success of our business is and will continue to be dependent in part on our ability to maintain existing and enter into new strategic relationships. We currently have important strategic relationships with Scientific-Atlanta, General Instruments, Prasara Technologies, Inc. and Intertainer, Inc., among others. There can be no assurance that: - such existing or contemplated relationships will be commercially successful; - we will be able to find additional strategic partners; or - we will be able to negotiate terms acceptable to us with potential strategic partners. We cannot provide assurance that existing or future strategic partners will not pursue alternative technologies or develop alternative products in addition to or in lieu of ours, either on their own or in collaboration with others, including our competitors. These alternative technologies or products may be in direct competition with our technologies or products and may significantly erode the benefits of our strategic relationships and adversely affect our business, financial condition and results of operations. OUR BUSINESS IS SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. International sales accounted for approximately 40%, 34% and 28% of our revenue in fiscal years 1999 and 2000 and the three months ended September 30, 2000, respectively. Substantially all of our historical international sales have come from our real-time business. We expect that international sales will continue to represent a significant portion of our business in the future. As a result of our current and anticipated international operations, we are subject to a number of risks associated with international business activities that could increase our costs, lengthen our sales cycle and require significant management attention. These risks include: - compliance with, and unexpected changes in, regulatory requirements resulting in unanticipated costs and delays; -23- - lack of availability of trained personnel in international locations; - tariffs, export controls and other trade barriers; - longer accounts receivable payment cycles than in the United States; - potential difficulty of enforcing agreements and collecting receivables in some foreign legal systems; - potential difficulty in enforcing intellectual property rights in certain foreign countries; - potentially adverse tax consequences, including restrictions on the repatriation of earnings; - the burdens of complying with a wide variety of foreign laws; - general economic conditions in international markets; and - currency exchange rate fluctuations. WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE THE OWNERSHIP INTEREST OF OUR STOCKHOLDERS OR CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES. As part of our business strategy, we review acquisition prospects that would compliment our current product offerings, enhance our technical capabilities or otherwise offer growth opportunities. While we have no current agreements or negotiations under way with respect to any acquisition, we periodically review investments in new businesses, and we may acquire businesses, products or technologies in the future. In the event of any future acquisitions, we could: - issue equity securities which would dilute current stockholders' percentage ownership; - incur substantial debt; or - assume contingent liabilities. These actions could materially adversely affect our operating results. Acquisitions may require us to incur significant amortization and depreciation charges and acquisition related costs impacting our financial results. Acquisitions also entail numerous risks, including: - difficulties in the assimilation of acquired operations, technologies or services; - unanticipated costs associated with the acquisition; - diversion of management's attention from other business concerns; - adverse effects on existing business relationships; - risks associated with entering markets in which we have no or limited prior experience; and - potential loss of key employees of acquired companies. We cannot assure you that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future. Our failure to do so could materially adversely affect our business, operating results and financial condition. -24- WE MAY EXPERIENCE DECREASING PRICES FOR OUR PRODUCTS AND SERVICES, WHICH MAY IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY. We may experience decreasing prices for our products and services due to competition, the purchasing leverage of our customers and other factors. If we are required to decrease prices, our results of operations will be adversely affected. We expect some price pressures in our VOD business as competing technology continues to improve. We may reduce prices in the future to respond to competition and to generate increased sales volume. IMPLEMENTATION OF OUR PRODUCTS IS COMPLEX, TIME CONSUMING AND EXPENSIVE. AS A RESULT, WE FREQUENTLY EXPERIENCE LONG SALES AND IMPLEMENTATION CYCLES. Real-time and VOD products are relatively complex, and their purchase generally involves a significant commitment of capital, with the delays frequently associated with large capital expenditures and implementation procedures within an organization. Moreover, the purchase of such products typically requires coordination and agreement among a potential customer's corporate headquarters and its regional and local operations. As a result, the sales cycles associated with the purchase of many of our products are typically lengthy and subject to a number of significant risks, including customers' budgetary constraints and internal acceptance reviews, over which we have little or no control. Consequently, we believe that our quarterly revenues, expenses and operating results may vary significantly in the future, that period-to-period comparisons of our results of operations may not necessarily be meaningful and that, in any event, these comparisons should not be relied upon as indications of future performance. RISKS RELATED TO OUR INDUSTRIES THE SUCCESS OF OUR VOD BUSINESS IS DEPENDENT UPON THE EMERGING DIGITAL VIDEO MARKET, WHICH MAY NOT GAIN BROAD MARKET ACCEPTANCE. VOD is a new and emerging technology, and we cannot assure you that it will attract widespread demand or market acceptance. Further, the potential size of the VOD market and the timing of its development are uncertain. Our success in the VOD market will depend upon the commercialization and broad acceptance of VOD by residential digital subscribers and other industry participants, including cable system operators, content providers, set-top box manufacturers, international DSL providers and educational institutions. Cable television operators historically have relied on traditional analog technology for video management, storage and distribution. Interactive technology installation requires a significant initial investment of capital. The future growth of our VOD business will depend on the pace of the installation of interactive digital cable and digital set-top boxes, the rate at which television operators deploy digital infrastructure and the rate at which digital video technology expands to additional market segments. Any failure by the market to accept digital video technology will have a material adverse effect on our business, financial condition and results of operations. THE SUCCESS OF OUR VOD BUSINESS IS DEPENDENT ON THE AVAILABILITY OF, AND THE DISTRIBUTION WINDOWS FOR, MOVIES, PROGRAMS AND OTHER CONTENT. The success of VOD will largely be dependent on the availability of a wide variety and substantial number of movies, programs and other material, which we refer to as content, in digital format. We provide VOD servers and related software, or VOD systems, but we do not provide digital VOD content, which is provided by other third parties. Therefore, the future success of our VOD business is dependent in part on content providers, such as traditional media and entertainment companies, providing significant content for VOD. Further, we are dependent in part on other third parties to convert existing analog content into digital content so that it may be delivered via VOD. If the availability of digital content develops slower than we expect or if insufficient content is available in digital format, our VOD business could be adversely affected. -25- In addition, we believe that the ultimate success of VOD will depend in part on the timing of the VOD distribution window. The distribution window is the time period during which different mediums, such as home movie rental businesses, receive and have exclusive rights to motion picture releases. Currently, video rental businesses have an advantage of receiving motion picture releases on an exclusive basis before most other forms of non-theatrical movie distribution, such as pay-per-view, premium television, VOD, basic cable and network syndicated television. The length of the exclusive distribution window for movie rental businesses varies, typically ranging from 30 to 90 days for domestic video stores. Thereafter, movies are made sequentially available to various television distribution channels. We believe the success of VOD will depend in part on movies being available for VOD distribution either simultaneously with, or shortly after, they are available for video rental distribution. The order, length and exclusivity of each window for each distribution channel is determined solely by the studio releasing the movie. Given the size of the home video rental industry, the studios have a significant interest in maintaining that market. We cannot assure you that favorable changes, if any, will be made relating to the length and exclusivity of the video rental and television distribution windows. We believe content providers' decisions relating to the distribution window for VOD will depend, in part, on security measures affecting the digital content. The delivery of VOD programming requires the use of encryption technology to assure that only those who pay can receive the program. Theft of cable programming has occurred in the past and may likewise occur with respect to VOD programming. Content providers must be satisfied with the encryption and other security measures available for VOD applications. WE CANNOT ASSURE YOU THAT OUR PRODUCTS AND SERVICES WILL KEEP PACE WITH TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS, ADDRESS THE CHANGING NEEDS OF OUR CUSTOMERS OR ACHIEVE MARKET ACCEPTANCE. The markets for our products are characterized by rapidly changing technology, evolving industry standards and new product introductions and enhancements. There can be no assurance that we will be successful in enhancing our real-time or VOD products or developing, manufacturing and marketing new products that satisfy customer needs or achieve market acceptance. In addition, services, products or technologies developed by others may render one or more of our products or technologies uncompetitive, unmarketable or obsolete. Future technological advances in the real-time, television and video industries may result in the availability of new products and services that could compete with our solutions or reduce the cost of existing products or services. Our future success will depend on our ability to continue to enhance our existing products, including development of new applications for our technology, and to develop and introduce new products to meet and adapt to changing customer requirements and emerging technologies. Further, announcements of currently planned or other new product offerings by our competitors may cause customers to defer purchase decisions or to fail to purchase our existing solutions. Our failure to respond to rapidly changing technologies could adversely affect our business, financial condition and results of operations. Recent attempts to establish industry-wide standards for interactive television software include an initiative by cable network operators in the United States to create a uniform platform for interactive television called OpenCable. The OpenCable standard is not yet defined, and we do not know whether our VOD system will be compatible with OpenCable or any other industry standard. The establishment of this standard or other industry standards could hurt our VOD business, particularly if our products require significant redevelopment in order to conform to the newly established standards. WE ARE SUBJECT TO GOVERNMENTAL REGULATION, AS IS THE TELEVISION INDUSTRY. We are subject to various international, U.S. federal, state and local laws affecting our VOD and real-time businesses. Any finding that we have been or are in noncompliance with such laws could result in, among other things, governmental penalties. Further, changes in existing laws or new laws may adversely affect our business. -26- The television industry is subject to extensive regulation in the United States and other countries. Our VOD business is dependent upon the continued growth of the digital television industry in the United States and internationally. Television operators are subject to extensive government regulation by the Federal Communications Commission and other federal and state regulatory agencies. These regulations could have the effect of limiting capital expenditures by television operators and thus could have a material adverse effect on our business, financial condition and results of operations. The enactment by federal, state or international governments of new laws or regulations could adversely affect our cable operator customers, and thereby materially adversely affect our business, financial condition and results of operations. WE MAY BE SUBJECT TO LIABILITY IF PRIVATE INFORMATION SUPPLIED TO OUR CUSTOMERS, INCLUDING MSOS, IS MISUSED. Our VOD systems allow cable operators to collect and store video preferences and other data that many viewers may consider confidential. Unauthorized access or use of this information could result in liability to our customers, and potentially us, and might deter potential VOD viewers. We will have no control over the policy of our customers with respect to the access to this data and the release of this data to third parties. OTHER RISKS WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US. Provisions of Delaware law and our restated certificate of incorporation, amended and restated bylaws, and rights plan could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We are subject to certain Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware corporation from engaging in a business combination involving a merger or sale of more than 10% of its assets with any stockholder, including affiliates and associates of the stockholder, who owns 15% or more of the outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation's stock unless: - the board of directors approves the transaction where the stockholder acquired 15% or more of the corporation's stock; - after the transaction where the stockholder acquired 15% or more of the corporation's stock, the stockholder owned at least 85% of the corporation's outstanding voting stock, excluding shares owned by directors, officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or - on or after this date, the merger or sale is approved by our board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder. A Delaware corporation may opt out of these anti-takeover laws if its certificate of incorporation or bylaws so provide. We have not opted out of these laws. As such, these laws may prohibit or delay mergers or other takeovers or changes of control of our company and may discourage attempts by other companies to acquire us. There are provisions in our restated certificate of incorporation and our amended and restated bylaws that also may delay, deter or impede hostile takeovers or changes of control. These provisions include: -27- - all stockholder actions must be taken at a duly called meeting of stockholders, unless holders of 100% of our shares of stock entitled to vote execute a written consent; - stockholders seeking to bring business before an annual meeting or seeking to nominate candidates for election as directors, must provide advance notice thereof; and - the authority of our board to issue up to 25 million shares of preferred stock and to determine the price, rights, preferences and privileges of these shares, without stockholder approval. In addition, we have a rights plan, also known as a poison pill. The rights plan has the potential effect of significantly diluting the ownership interest in our company of any person that (1) acquires beneficial ownership of 30% or more of our common stock, (2) acquires beneficial ownership of 20% or more of our common stock and subsequently engages in specified transactions with us or (3) commences a tender offer that would result in a person or group owning 30% or more of our common stock. Therefore, our rights plan could discourage an attempt or render it more expensive or difficult to obtain control of us by means of a tender offer, merger or otherwise. IN THE FUTURE, WE MAY NEED TO RAISE ADDITIONAL CAPITAL. THIS CAPITAL MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL. During the next twelve months, we expect to meet our cash requirements with existing cash, cash equivalents and short-term investments, cash flow from operations and available debt. After that, we may need to raise additional funds. We cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements. OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE FUTURE. Our common stock is traded on The Nasdaq National Market. For the fiscal year ended June 30, 2000, the high and low closing prices, as reported on The Nasdaq National Market, were $27.25 and $5.38 respectively. The market price of our common stock may fluctuate significantly in the future in response to various factors, some of which are beyond our control, including the following and the other risks discussed under the heading "Risk Factors:" - variations in our quarterly operating results; - changes in securities analysts' estimates of our financial performance; - the development of the VOD market in general; - changes in market valuations of similar companies; - announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - loss of a major customer or failure to complete significant transactions; - additions or departures of key personnel; and - fluctuations in stock market price and volume. -28- In addition, in recent years the stock market in general, and The Nasdaq National Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those companies' common stock. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management's attention and resources, which could materially and adversely affect our business, financial condition and results of operations. -29- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: (10.1) Loan and Security Agreement Between Concurrent Computer Corporation and Wachovia Bank, N.A. Dated November 3, 2000 (11) Statement on computation of per share earnings (27) Financial Data Schedule (b) Reports on Form 8-K. None. -30- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the quarterly report for the quarter ended September 30, 2000 to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 16, 2000 CONCURRENT COMPUTER CORPORATION By: /s/ Steven R. Norton ------------------------- Steven R. Norton Chief Financial Officer (Principal Financial and Accounting Officer) -31- EX-10.1 2 doc2.txt LOAN AND SECURITY AGREEMENT BETWEEN CONCURRENT COMPUTER CORPORATION AND WACHOVIA BANK, N.A. CLOSING DATE: NOVEMBER 3, 2000 TABLE OF CONTENTS ----------------- 1. DEFINITIONS, TERMS AND REFERENCES -1- 1.1 Certain Definitions. -1- 1.2. Use of Defined Terms. -13- 1.3. Accounting Terms. -13- 1.4. UCC Terms. -13- 1.5. Terminology. -13- 1.6. Exhibits. -14- 2. THE FINANCING. -14- 2.1 Extensions of Credit. -14- 2.2 Interest and Other Charges. -15- 2.3. General Provisions as to Payments. -19- 2.4. Termination Event. -19- 3. SECURITY INTEREST. -19- 4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO ACCOUNTS RECEIVABLE COLLATERAL. -19- 4.1. Bona Fide Accounts. -20- 4.2. Good Title. -20- 4.3. Right to Assign. -20- 4.4. Collateral Reserve Account. -20- 4.5. Trade Styles. -20- 4.6. Power of Attorney. -21- 5. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INVENTORY COLLATERAL. -21- 5.1. Sale of Inventory Collateral. -21- 5.2. Insurance. -21- 5.3. Good Title. -21- 5.4. Right to Grant Security Interest. -22- 5.5. Location of Inventory Collateral. -22- 6. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO EQUIPMENT COLLATERAL. -22- 6.1. Sale of Equipment Collateral. -22- 6.2. Insurance. -22- 6.3. Good Title. -23- 6.4. Right to Grant Security Interest. -23- 6.5. Location. -23- i 7. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO BALANCES COLLATERAL. -23- 7.1. Ownership. -23- 7.2. Remedies. -23- 7.3. Liens. -23- 8. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INTANGIBLES COLLATERAL. -23- 8.1. Ownership. -23- 8.2. Liens. -24- 8.3. Preservation. -24- 9. GENERAL REPRESENTATIONS AND WARRANTIES. -24- 9.1. Corporate Existence and Qualification. -24- 9.2. Corporate Authority; Validity and Binding Effect. -24- 9.3. Incumbency and Authority of Signing Officers. -24- 9.4. No Material Litigation. -24- 9.5. Taxes. -25- 9.6. Capital Stock. -25- 9.7. Corporate Organization. -25- 9.8. Insolvency. -25- 9.9. Title. -25- 9.10. Margin Stock. -25- 9.11. No Violations. -25- 9.12. Financial Statements. -26- 9.13. Purchase of Collateral. -26- 9.14. Pollution and Environmental Control. -26- 9.15. Possession of Permits. -26- 9.16. Subsidiaries. -26- 9.17. Federal Taxpayer Identification Number. -26- 9.18. Employee Benefit Plans. -26- 10. AFFIRMATIVE COVENANTS. -27- 10.1. Records Respecting Collateral. -27- 10.2. Further Assurances. -27- 10.3. Right to Inspect. -27- 10.4. Reports. -27- 10.5. Settlement Reports. -28- 10.6. Periodic Financial Statements. -28- 10.7. Annual Financial Statements. -28- ii 10.8. Payment of Taxes. -28- 10.9. Maintenance of Insurance. -28- 10.10. Maintenance of Property and Management. -29- 10.11. Certificate of No Default. -29- 10.12. Change of Principal Place of Business. -29- 10.13. Waivers. -29- 10.14. Preservation of Corporate Existence. -29- 10.15. Compliance With Laws. -29- 10.16. Subordinations. -30- 10.17. Certain Required Notices. -30- 10.18. Projections. -30- 10.19. Bank Accounts. -30- 11. NEGATIVE COVENANTS. -30- 11.1. Encumbrances -30- 11.2. Debt for Money Borrowed -31- 11.3. Contingent Liabilities. -32- 11.4. Dividends. -32- 11.5. Redemption -32- 11.6. Restricted Investments -32- 11.7. Mergers. -32- 11.8. Business Locations -32- 11.9. Affiliate Transactions -32- 11.10. Subsidiaries -32- 11.11. Fiscal Year -33- 11.12. Disposition of Assets -33- 11.13. Federal Taxpayer Identification Number -33- 11.14. Employee Benefit Plans -33- 11.15. Capital Expenditures and Leases -33- 12. FINANCIAL COVENANTS. -33- 13. EVENTS OF DEFAULT. -33- 13.1. Obligations. -33- 13.2. Misrepresentations. -33- 13.3. Certain Covenants. -33- 13.4. Other Covenants. -34- 13.5. Other Debts. -34- 13.6. Voluntary Bankruptcy. -34- 13.7. Involuntary Bankruptcy. -34- 13.8. Damage, Loss, Theft or Destruction of Collateral. -34- 13.9. Judgments. -34- 13.10. Bankruptcy of Affiliate. -35- iii 13.11. Material Adverse Effect. -35- 13.12. Change of Control. -35- 13.13. Material Contract. -35- 14. REMEDIES. -35- 14.1. Acceleration of the Obligations. -35- 14.2. Interest Rate. -36- 14.3. Remedies of a Secured Party. -36- 14.4. Repossession of the Collateral. -36- 14.5. Other Remedies. -36- 14.6. Set Off. -36- 15. MISCELLANEOUS. -36- 15.1. Waiver. -36- 15.2. Governing Law. -37- 15.3. Survival. -37- 15.4. No Assignment by Borrower. -37- 15.5. Counterparts. -37- 15.6. Reimbursement. -37- 15.7. Successors and Assigns. -38- 15.8. Severability. -38- 15.9. Notices. -38- 15.10. Entire Agreement; Amendments. -38- 15.11. Time of Essence. -38- 15.12. Interpretation. -38- 15.13. Lender Not a Joint Venturer. -39- 15.14. Jurisdiction. -39- 15.15. Acceptance. -39- 15.16. Payment on Non-Business Days. -39- 15.17. Cure of Defaults by Lender. -39- 15.18. Recitals. -39- 15.19. Attorney-in-Fact. -39- 15.20. Sole Benefit. -40- 15.21. Indemnification. -40- 15.22. JURY TRIAL WAIVER. -40- 16. CONDITIONS PRECEDENT. -40- 16.1. Secretary's Certificate. -40- 16.2. Good Standing Certificates. -41- 16.3. Articles/By-Laws. -41- 16.4. Loan Documents and any Guaranty. -41- 16.5. Insurance. -41- 16.6. Financing Statements. -41- 16.7. Opinion of Counsel. -41- iv 16.8. Landlord Agreements. -41- 16.9. No Default. -41- 16.10. Field Examination. -41- 16.11. Telephone Instruction Letter. -41- 16.12. Disbursements Letter. -42- 16.13. Settlement Report. -42- 16.14. Availability. -42- 16.15. Evidence of Perfection and Priority of Liens -42- 16.16. No Material Adverse Change -42- 16.17. Other. -42- EXHIBITS - -------- EXHIBIT A Borrower Information EXHIBIT B Master Note EXHIBIT C Certificate of No Default EXHIBIT D Settlement Report EXHIBIT E Material Contracts Schedule 11.1(b) Encumbrances Schedule 11.2(b) Debt for Money Borrowed Schedule 11.3 Contingent Obligations Supplement A Financial Covenants v LOAN AND SECURITY AGREEMENT ------------------------------ THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made, entered into and effective as of November 3, 2000, by and between CONCURRENT COMPUTER CORPORATION, a Delaware corporation ("Borrower"); and WACHOVIA BANK, N.A., a national banking association ("Lender"); W I T N E S S E T H : - - - - - - - - - - WHEREAS, Borrower has applied to Lender for financing of the type or types more particularly described hereinbelow; and WHEREAS, Lender is willing to extend financing to Borrower in accordance with the terms hereof upon the execution of this Agreement by Borrower, compliance by Borrower with all of the terms and provisions of this Agreement and fulfillment of all conditions precedent to Lender's obligations herein contained; NOW, THEREFORE, to induce Lender to extend the financing provided for herein, and for other good and valuable consideration, the sufficiency and receipt of all of which are acknowledged by Borrower, Lender and Borrower agree as follows: 1. DEFINITIONS, TERMS AND REFERENCES ------------------------------------ 1.1 CERTAIN DEFINITIONS. In addition to such other terms as --------------------- elsewhere defined herein, as used in this Agreement, in any Exhibits and in any Supplements, the following terms shall have the following meanings: "Accounts Receivable Collateral" shall mean and include all accounts, -------------------------------- instruments, chattel paper and general intangibles, including, without limitation, all rights of Borrower to payment for goods sold or leased, or to be sold or to be leased, or for services rendered or to be rendered, howsoever evidenced or incurred, and together with all returned or repossessed goods and all books, records, computer tapes, programs and ledger books arising therefrom or relating thereto, all whether now owned or hereafter acquired or arising. "Account Debtor" shall mean the Person who is obligated on any of the --------------- Accounts Receivable Collateral or otherwise is obligated as a purchaser or lessee of any of the Inventory Collateral. "Advance" shall mean an advance of borrowed funds made by Lender to or on ------- behalf of Borrower under the Line of Credit. "Affiliate" shall mean, with respect to any Person, any Person Controlling, --------- Controlled by or under common Control with such Person or any director, officer or employee of such Person. For purposes hereof, the Principal(s) and each Subsidiary shall at all times be considered an "Affiliate" of Borrower. "Agreement" shall mean this Loan and Security Agreement, as it may be --------- amended or supplemented from time to time. "Applicable Commitment Fee Margin" shall mean the following, based upon the -------------------------------- Consolidated Funded Debt/Consolidated EBITDA Ratio (the "Test Ratio"): Consolidated Funded Applicable Commitment Debt/Consolidated EBITDA Ratio Fee Margin -------------------------------- ------------------------- Greater than or equal to 4.0 to 1.0 0.375% Less than 4.0 to 1.0 but greater than 0.375% or equal to 3.0 to 1.0 Less than 3.0 to 1.0 but greater than 0.25% or equal to 2.0 to 1.0 Less than 2.0 to 1.0 0.25% Lender shall determine whether any adjustment to the Applicable Commitment Fee Margin is to be made quarterly, based on Borrower's financial statements as of and for each Fiscal Quarter end delivered to Lender pursuant to Section 10.6; provided that if such financial statements are not timely delivered to Lender, - ------- then an adjustment to the Applicable Commitment Fee Margin shall be made based on an assumed delivery of said financial statements reflecting a Test Ratio of 4.0 to 1.0, provided further that if any Default Condition or Event of Default -------- ------- shall then exist, no adjustment downward shall occur. Each such adjustment to the Applicable Commitment Fee Margin shall become effective as of the first day of the calendar month following the date on which such financial statements are delivered (or deemed delivered) to Lender, and shall remain effective unless and until any subsequent adjustment becomes effective in accordance with the terms of this definition. In the event that the annual audit report of Borrower for any Fiscal Year shall require restatement of financial statements of Borrower and such restatement shall effect the Test Ratio and would have required a different Applicable Commitment Fee Margin to be in effect for prior periods, then Lender at its option, may require Borrower to make additional payments for such prior periods in amounts not to exceed the difference between the Applicable Commitment Fee Margin paid in respect of such prior periods and the amount that would have been payable in respect of such periods under the effected Test Ratio. -2- "Applicable Rate" shall mean the interest rate per annum payable on the ---------------- Obligations, as is defined and more particularly described in Section 2.2.1. "Assignment of Claims Act" shall mean the federal Assignment of Claims Act ------------------------- of 1940, as it may be amended from time to time. "Availability" shall mean the amount that Borrower is entitled to borrow ------------ from time to time as Advances, such amount being the difference derived when the sum of the principal amount of Advances then outstanding (including any amounts that Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and that have not been reimbursed by Borrower) is subtracted from the Margin. If the amount outstanding is equal to or greater than the Margin Requirement, Availability is 0. "Availability Reserve" shall mean on any date of determination thereof, an --------------------- amount equal to the sum of the following (without duplication): (i) all amounts of past due rent, fees or other charges owing at such time by Borrower to any landlord of any premises where any of the Collateral is located or to any processor, repairman, mechanic or other Person who is in possession of any Collateral or has asserted any Lien or claim thereto; (ii) any amounts which Borrower is obligated to pay pursuant to the provisions of any of the Loan Documents that Lender elects to pay for the account of Borrower in accordance with authority contained in any of the Loan Documents; (iii) the face amount of any Letter of Credit; and (iv) such additional reserves as Lender in its reasonable credit judgment may elect to impose from time to time. "Average Line of Credit Balance" shall mean, for any period, the amount ---------------------------------- obtained by adding the aggregate of the unpaid balance of Advances outstanding at the end of each day during the period in question plus the aggregate of the ---- Letter of Credit Obligations at the end of each day for the period in question, and by dividing such sum by the number of days in such period. "Balances Collateral" shall mean all property of Borrower left with Lender -------------------- or in Lender's possession, custody or control now or hereafter, all deposit accounts of Borrower now or hereafter opened with Lender, all certificates of deposit issued by Lender to Borrower, and all drafts, checks and other items deposited in or with Lender by Borrower for collection now or hereafter. "Bankruptcy Code" shall mean Title 11 of the United States Code, as it may ---------------- be amended from time to time. "Borrower" shall have the meaning given to such term in the preamble to -------- this Agreement. "Borrowings" shall mean advances of borrowed funds made hereunder to or on ---------- behalf of Borrower. -3- "Business Day" shall mean a day on which Lender is open for the conduct of ------------- banking business at its principal office in Atlanta, Georgia; provided, however, -------- ------- that for purposes of determining the timing of requests for, and establishing the Applicable Rate, on LIBOR Borrowings, "Business Day" shall mean, additionally, any day on which dealings with United ------------- States Dollar deposits are also being carried out by Lender in the London interbank Eurodollar market. "Business Interruption Assignment" shall mean the Collateral Assignment of --------------------------------- Business Interruption Insurance to be executed by Borrower on the Closing Date in favor of Lender, as security for the payment and performance of the Obligations. "Capital Expenditures" shall mean all expenditures made in respect of the --------------------- cost of any fixed asset or improvement, or replacement, substitution, or addition thereto, having a useful life of more than one (1) year, including, without limitation, those arising in connection with the direct or indirect acquisition of such assets by way of increased product or service charges or offset items or in connection with Capital Leases. "Capital Lease" shall mean any lease of property that, in accordance with -------------- GAAP, should be reflected as a liability on the balance sheet of a Person. "Change of Control" shall mean the transfer (in one transaction or a series ----------------- of transactions) of all or substantially all of the assets of Borrower to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act); the liquidation or dissolution of Borrower or the adoption of a plan by the stockholders of Borrower relating to the dissolution or liquidation of such Borrower; the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, of fifty (50%) percent or more of the voting power of the total outstanding equity interests of Borrower or the Board of Directors of such Borrower; during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose nomination for election by the stockholders of such Borrower was approved by a vote of at least sixty-six and two-thirds (66 2/3%) percent of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of such Borrower then still in office. "Closing Date" shall mean the date indicated on the first page. ------------- "Collateral" shall mean the property of Borrower described in Article 3 in ---------- which Lender has, or is to have, a security interest as security for the payment of the Obligations. "Collateral Locations" shall mean the Executive Office and those additional -------------------- locations, if any, set forth and described on Exhibit "A" attached hereto. ----------- -4- "Collateral Reserve Account" shall mean any non-interest bearing, demand ---------------------------- deposit account which Borrower is or may be required to open and maintain with Lender pursuant to the requirements of Section 4.4. "Consolidated" shall mean the consolidation in accordance with GAAP of the ------------ accounts or other items as to which such term applies. "Consolidated EBIT" shall mean for any period, the Consolidated Net Income ------------------ of Borrower and its Consolidated Subsidiaries, plus Consolidated Interest ---- Expense of Borrower and its Consolidated Subsidiaries and any taxes paid or payable with respect to such period by Borrower or its Consolidated Subsidiaries. "Consolidated EBITDA" shall mean for any period, the sum of the following -------------------- during such period calculated on a Consolidated basis: (i) Consolidated EBIT of Borrower and its Consolidated Subsidiaries plus (ii) depreciation and ---- amortization of Borrower and its Consolidated Subsidiaries calculated in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" shall mean, for any period, the ---------------------------------------- ratio of (i) Consolidated EBITDA for such period plus operating lease and rent expense for such period to (ii) the sum of operating lease and rent expense for such period plus Consolidated Fixed Charges for such period. ---- "Consolidated Fixed Charges" shall mean, for any period, the sum of ---------------------------- Borrower's and its Consolidated Subsidiaries' Consolidated Interest Expense during such period. "Consolidated Funded Debt" shall mean, for any period, the sum of all Debt ------------------------- for Money Borrowed of Borrower and its Consolidated Subsidiaries plus ---- Subordinated Debt. "Consolidated Funded Debt/EBITDA Ratio" shall mean, at any date of ---------------------------------------- determination, the ratio of Consolidated Funded Debt to Consolidated EBITDA. "Consolidated Interest Expense" shall mean for any period, interest ------------------------------- (whether expensed or capitalized) in respect of Debt of Borrower or its Consolidated Subsidiaries outstanding during such period, determined on a Consolidated basis in accordance with GAAP. "Consolidated Net Income" shall mean for any period, the net income of ------------------------- Borrower and its Consolidated Subsidiaries determined on a Consolidated basis in accordance with GAAP. "Consolidated Subsidiaries" shall mean those Subsidiaries of Borrower (if -------------------------- any) existing from time to time which, for purposes of GAAP, are required to be consolidated for financial reporting purposes. -5- "Consolidated Tangible Net Worth" shall mean with respect to Borrower and --------------------------------- its Consolidated Subsidiaries, total shareholder's equity (including capital stock, additional paid-in capital and retained earnings, after deducting treasury stock), plus Subordinated Debt on a Consolidated basis, which would ---- appear as such on a balance sheet of Borrower prepared in accordance with GAAP. "Consolidated Total Liabilities" shall mean on any date, the amount at -------------------------------- which all of the liabilities of Borrower and its Consolidated Subsidiaries would be properly classified as liabilities on a balance sheet at such date in accordance with GAAP. "Control", "Controlled" or "Controlling" shall mean, with respect to any ------- ---------- ----------- Person, the power to direct the management and policies of such Person, directly, indirectly, whether through the ownership of voting securities or otherwise; provided, however, that, in any event, any Person which owns directly ----------------- or indirectly twenty-five percent (25%) or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation shall be deemed to "Control" such corporation for purposes of this Agreement. "Copyright Security Agreement" shall mean the Copyright Security Agreement ----------------------------- to be executed by Borrower on the Closing Date in favor of Lender, as security for the payment and performance of the Obligations. "Debt" shall mean all liabilities, obligations and indebtedness of a ---- Person, of any kind or nature, whether now or hereafter owing, arising, due or payable, howsoever evidenced, created, incurred, acquired or owing, and whether primary, secondary, direct, contingent, fixed or otherwise, including, without in any way limiting the generality of the foregoing: (i) all obligations, liabilities and indebtedness secured by any Lien on a Person's property, even though such Person shall not have assumed or become liable for the payment thereof; (ii) all obligations or liabilities created or arising under any Capital Lease, conditional sale or other title retention agreement; (iii) all accrued pension fund and other employee benefit plan obligations and liabilities; (iv) all Guaranteed Obligations; (v) any liabilities under, or associated with, interest rate protection agreements; and (vi) all deferred taxes. "Default Condition" shall mean the occurrence of any event which, after ------------------ satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of Default. "Default Rate" shall mean that interest rate per annum equal to two percent ------------ (2%) per annum in excess of the otherwise Applicable Rate payable on any Obligation. "Deposit Account Assignment" shall mean the Collateral Assignments of ---------------------------- Deposit Accounts to be executed by Borrower on or before the Closing Date in favor of Lender as security for the payment and performance of the Obligations. -7- "Eligible Accounts" shall mean that portion of the Accounts Receivable ------------------ Collateral consisting of trade accounts receivable which are actually owing to Borrower by its Account Debtors and which are at all times subject to a duly perfected, first priority security interest in favor of Lender, excluding, ---------- however, in any event any such account: - ------- (i) which has payment terms that exceed ninety (90) days past the invoice date, (ii) with respect to which any portion thereof is more than sixty (60) days past the due date or more than ninety (90) days past invoice date; (iii) which is owing by any Affiliate of Borrower; (iv) which is owing by any Account Debtor having twenty-five percent (25%) or more in face value of its then existing accounts with Borrower ineligible hereunder pursuant to the operation and effect of clauses (i) and (ii) above; (v) the assignment of which is subject to any requirements set forth in the Assignment of Claims Act; (vi) which is owing by any Account Debtor whose accounts, in face amount, with Borrower exceed ten percent (10%) of Borrower's Eligible Accounts (other than AT&T, Charter Communications, Comcast, Cox Communications, Adelphia, Cablevision, Time Warner and their respective Subsidiaries or Affiliates, to the extent not otherwise deemed ineligible by Lender hereunder based upon its reasonable credit judgment which shall not exceed such percentage, if any, as Lender may establish by written notice to Borrower from time to time based upon its reasonable credit judgment), but only to the extent of such excess; (vii) which is owed by, billed to, or will be paid by an Account Debtor not located in the United States; (viii) which is owing by an Account Debtor that is also a creditor of Borrower and is subject to no counterclaim, defense, setoff or deduction, but only to the extent of Borrower's indebtedness to such creditor; (ix) which arises from a bill and hold arrangement; (x) which is owing by an Account Debtor not deemed creditworthy by Lender based upon its reasonable credit judgment; or (xi) which has otherwise been determined by Lender not to be eligible for purposes hereof based upon its reasonable credit judgment. -7- "Employee Benefit Plan" shall mean any employee welfare benefit plan as ----------------------- that term is defined in Section 3(1) of ERISA, any employee pension benefit plan, as that term is defined in Section 3(2) of ERISA or any other plan which is subject to the provisions of Title IV of ERISA or which is for the benefit of any employees of Borrower and any employees of any Subsidiary or any other entity which is a member of a controlled group or under common control with Borrower, as such terms are defined in Section 4001(a)(14) of ERISA. "Environmental Laws" shall mean all federal, state and local laws, rules, ------------------- regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters, whether now or hereafter existing, including, but not limited to state and federal superlien and environmental cleanup laws and U.S. Department of Transportation regulations and any other state or local law or regulation relating to pollution, reclamation, or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes. "Equipment Collateral" shall mean all equipment and fixtures of Borrower, --------------------- whether now owned or hereafter acquired, wherever located, including, without limitation, all machinery, furniture, furnishings, leasehold improvements, computer equipment, motor vehicles, forklifts, rolling stock, dies and tools used or useful in Borrower's business operations. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- may be amended from time to time. "Event of Default" shall mean any of the events or conditions described in ----------------- Article 13, provided that any requirement for the giving of notice or the lapse of time, or both, has been satisfied. "Executive Office" shall mean the address of Borrower designated as such on ---------------- Exhibit "A". - ------------ "Fiscal Year", in respect of a Person, shall mean the fiscal year of such ------------ Person employed by such Person as of the Closing Date, and designated as such on Exhibit "A" as to Borrower. The terms "Fiscal Quarter" and "Fiscal Month" shall - ----------- -------------- ------------ correspond accordingly thereto. "GAAP" shall mean generally accepted accounting principles consistently ---- applied for the period or periods in question. "Guaranteed Obligations" shall mean, with respect to any Person, all ----------------------- obligations of such Person which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend or other obligation of any other Person or assure or in effect assure the holder of any such obligations against loss in respect thereof. -8- "Guarantor" shall mean, individually and collectively, any and all --------- accommodation makers, endorsers, guarantors or sureties from whom Lender may require the endorsement of any note or their execution of any contract of guaranty or suretyship guaranteeing payment of any of the Obligations. The term "Individual Guarantor" shall mean each Guarantor who is natural person and the --------------------- term "Company Guarantor" shall mean all other Guarantors. ------------------ "Guaranty" shall mean any agreement or other writing executed by a -------- Guarantor guaranteeing payment of any of the Obligations. "Intangibles Collateral" shall mean all general intangibles of Borrower, ----------------------- whether now existing or hereafter acquired or arising, including, without limitation, all copyrights, royalties, tax refunds, rights to tax refunds, trademarks, trademark applications, trade names, service marks, patents, patent applications, proprietary rights, blueprints, drawings, designs, trade secrets, source codes, plans, diagrams, schematics and assembly and display materials relating thereto, all customer lists, all books and records and all computer software and programs. "Interest Period" shall mean, in respect of Borrowings, a period commencing --------------- on the first day of each calendar month and ending on the last day of each calendar month; provided, that the initial Interest Period shall commence on the -------- ---- Closing Date and shall end on the last day of the calendar month in which the Closing Date occurs; provided, further, that any Interest Period which would -------- ------- ---- otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, and any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. "Interest Rate Determination Date" shall mean in respect of Borrowings, two (2) --------------------------------- Business Days prior to the first day of each Interest Period. "Inventory Collateral" shall mean all inventory of Borrower, whether now --------------------- owned or hereafter acquired, wherever located, including, without limitation, all goods of Borrower held for sale or lease or furnished or to be furnished under contracts of service, all goods held for display or demonstration, goods on lease or consignment, spare parts, repair parts, returned and repossessed goods, all raw materials, work-in-process, finished goods and supplies used or consumed in Borrower's business, together with all documents, documents of title, dock warrants, dock receipts, warehouse receipts, bills of lading or orders for the delivery of all, or any portion, of the foregoing. "Investment Property" shall mean all securities (whether certificated or -------------------- uncertificated), security entitlements, securities accounts, commodity contracts and commodity accounts. "Lender" shall have the meaning given to such term in the preamble to this ------ Agreement. "Letter of Credit" shall have the meaning given to such term in Section ------------------ 2.1.2. -9- "Letter of Credit Obligations" shall mean all obligations of Borrower ------------------------------- arising in respect of Letters of Credit, including, without limitation, (i) all contingent liabilities arising in respect of Letters of Credit issued, but not drawn upon, and (ii) all reimbursement liabilities arising in respect of drawings made under Letters of Credit. "LIBOR Borrowings" shall mean those Borrowings which Borrower elects, ----------------- pursuant to Section 2.2.1, to bear interest at a rate per annum determined by reference to the LIBOR Rate. "LIBOR Rate" shall mean, with respect to any Interest Period, an interest ----------- rate per annum computed by dividing: (x) the rate per annum determined by Lender from time to time on the basis of the offered rate for deposits in United States dollars in the London interbank borrowing market of amounts equal to or comparable to the amount of a requested borrowing under the Line of Credit to which such Interest Period relates offered for a term comparable to such Interest Period, which rate appears on the display designated as page "3750" of the Telerate Service (or such other page as may replace page "3750" of that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for United States dollar deposits) as of 11:00 a.m., London time, on the Interest Rate Determination Date applicable to such Interest Period, which rate shall be rounded upward, to the next higher 1/10,000 of 1%; provided, however, ----------------- that if more than one such offered rate appears on such page, the offered rate shall be deemed to be the arithmetic average (rounded upward, if necessary, to the next higher of 1/100 of 1%) of such offered rates; by (y) the number 1 minus ----- any then applicable percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or its successor) for determining the maximum reserve requirement for a member of the Federal Reserve System in respect of "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on such Borrowings is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of Lender to United States residents). The LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the percentage described in the foregoing clause (y). "Lien" shall mean any deed to secure debt, deed of trust, mortgage or ---- similar instrument, and any lien, security interest, preferential arrangement which has the practical effect of constituting a security interest, security title, pledge, charge, encumbrance or servitude of any kind, whether by consensual agreement or by operation of statute or other law, and whether voluntary or involuntary, including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof. "Line of Credit" shall refer to the line of credit in the principal amount --------------- of up to $15,000,000 opened by Lender in favor of Borrower pursuant to the provisions of Section 2.1.1. "Loan Documents" shall mean this Agreement, the Notes, the Business --------------- Interruption Assignment, the Deposit Account Assignment, Trademark Security Agreement, the Copyright Security Agreement, any financing statements covering portions of the Collateral, and any and all other documents, instruments, certificates and agreements executed and/or delivered by Borrower in connection herewith, or any one, more, or all of the foregoing, as the context shall require. -10- "Margin" shall mean an amount equal to up to eighty-five percent (85%) (or ------ such greater or lesser percentage which Lender shall establish by written notice to Borrower in accordance with Section 2.1.1.(b)) of the face dollar amount of Eligible Accounts as of the date of determination. "Margin Requirement" shall have the meaning ascribed to such term in ------------------- Section 2.1.1. "Master Note" shall mean the master promissory note, dated of even date ------------ herewith, as amended or supplemented from time to time, in a principal amount equal to the maximum amount of the Line of Credit, evidencing advances to be obtained by Borrower under the Line of Credit, together with any renewals or extensions thereof, in whole or in part. The Master Note shall be substantially in the form of Exhibit "B". ------------ "Material Adverse Effect" shall mean with respect to any event, act, ------------------------- condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon any of (a) the financial condition, operations, business or properties of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Lender under any of the Loan Documents or any documents, instruments or agreements executed and/or delivered by any Person other than Borrower in conjunction with the Loan Documents, or the ability of the Borrower to perform its obligations under any of the Loan Documents, or (c) the legality, validity or enforceability of any of the Loan Documents or any documents, instruments or agreements executed and/or delivered by any Person other than Borrower in conjunction with the Loan Documents. "Material Contract" shall mean each agreement listed on Exhibit "E" ------------------ ----------- attached hereto. "Money Borrowed" shall mean, as applied to any Person, (i) Debt arising --------------- from the lending of money by any other Person to such Person; (ii) Debt, whether or not in any such case arising from the lending of money by another Person to such Person, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Debt that constitutes a Capital Lease; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Debt of such Person under any guaranty of obligations that would constitute Debt for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by such Person. "Notes" shall mean, collectively, the Master Note and any other ----- instrument(s) at any time evidencing all or any portion of any Obligations. -11- "Obligations" shall mean any and all Debt of Borrower to Lender, including ----------- without limiting the generality of the foregoing, any indebtedness, liability or obligation of Borrower to Lender under any loan made to Borrower by Lender prior to the date hereof and any and all extensions or renewals thereof in whole or in part; any Debt of Borrower to Lender arising hereunder or as a result hereof, whether evidenced by the Notes, constituting Letter of Credit Obligations or otherwise, and any and all extensions or renewals thereof in whole or in part; any Debt of Borrower to Lender under any later or future advances or loans made by Lender to Borrower, and any and all extensions or renewals thereof in whole or in part; and any and all future or additional Debt of Borrower to Lender whatsoever and in any event, whether existing as of the date hereof or hereafter arising, whether arising under a loan, lease, credit card arrangement, line of credit, letter of credit or other type of financing, and whether direct, indirect, absolute or contingent, as maker, endorser, guarantor, surety or otherwise, and whether evidenced by, arising out of, or relating to, a promissory note, bill of exchange, check, draft, bond, letter of credit, guaranty agreement, bankers' acceptance, foreign exchange contract, interest rate protection agreement, commitment fee, service charge or otherwise. "Permitted Encumbrances" shall mean (i) Liens for taxes not yet due and ----------------------- payable or being actively contested as permitted by this Agreement, only if such Liens do not adversely affect Lender's rights or the priority of Lender's security interest in the Collateral; (ii) carriers', warehousemen's mechanics, materialmen's, repairmen's or other like Liens arising in the ordinary course of business, payment for which is not yet due or which are being actively contested in good faith and by appropriate, lawful proceedings, but only if such Liens are and remain junior to Liens granted in favor of Lender; (iii) pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; (iv) deposits to secure the performance of utilities, leases, statutory obligations and surety and appeal bonds and other obligations of a like nature arising by statute or under customary terms regarding depository relationships on deposits held by financial institutions with whom Borrower has a banker-customer relationship; (v) typical restrictions imposed by licenses and leases of software (including location and transfer restrictions); and (vi) Liens in favor of Lender. "Person" shall mean any individual, partnership, corporation, limited ------ liability company, joint venture, joint stock company, trust, governmental unit or other entity. "Prime Borrowings" shall mean those Borrowings which Borrower elects, ------------------ pursuant to Section 2.2.1, to bear interest at a rate per annum determined by reference to the Prime Rate. "Prime Rate" refers to that interest rate so denominated and set by Lender ----------- from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Lender. Lender extends credit at interest rates above and below the Prime Rate. "Principal(s)" shall mean Steven R. Norton and Jack Bryant. ------------ -12- "Purchase Money Lien" shall mean any Lien granted by Borrower or any --------------------- Subsidiary from time to time to vendors or financiers of equipment to secure the payment of the purchase price thereof so long as (i) such Liens extend only to the specific equipment so purchased, (ii) secure only such deferred payment obligation and related interest, fees and charges and no other Debt, and (iii) are promptly released upon the payment in full of such purchase price and related interest, fees and charges. "Restricted Investment" shall mean any investment in cash or by delivery of --------------------- property to any Person, whether by acquisition of stock, indebtedness or other obligation or security, or by loan, advance or capital contribution, or otherwise, or in any property except that investments consisting of the following shall not constitute "Restricted Investments": (i) property used or to be used in the ordinary course of business; (ii) current assets arising from the sale of goods or the provision of services in the ordinary course of business; and (iii) loans or advances to employees for salary, commissions, travel or the like, made in the ordinary course of business. "Subordinated Debt" shall mean any unsecured Debt of Borrower or any ------------------ Subsidiary to any Person which, by written agreement in form and substance satisfactory to Lender, has been subordinated in right of payment and claim, to the rights and claims of Lender in respect of the Obligations, on terms and conditions satisfactory to Lender. "Subsidiary" shall mean any corporation, partnership, business association ---------- or other entity (including any Subsidiary of any of the foregoing) of which Borrower owns, directly or indirectly, fifty percent (50%) or more of the capital stock or equity interest having ordinary power for the election of directors or others performing similar functions. "Termination Date" shall mean the earliest to occur of the following dates: ---------------- (i) that date on which, pursuant to Section 14, Lender terminates the Line of Credit (or the Line of Credit is deemed automatically terminated) subsequent to the occurrence of an Event of Default; or (ii) June 30, 2002, or such later date as to which Lender may agree in writing from time to time hereafter. "Termination Event" shall have the meaning ascribed to such term in Section ----------------- 2.4 of this Agreement. "Trademark Security Agreement" shall mean the Trademark Security Agreement ----------------------------- to be executed by Borrower on the Closing Date in favor of Lender, as security for the payment and performance of the Obligations. "UCC" shall mean the Uniform Commercial Code (or any successor statute) as --- adopted and in force in the State of Georgia or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code (or any successor statute) of such state. 1.2. USE OF DEFINED TERMS. All terms defined in this Agreement ----------------------- and the Exhibits shall have the same defined meanings when used in any other Loan Documents, unless the context shall require otherwise. -13- 1.3. ACCOUNTING TERMS. All accounting terms not specifically ----------------- defined herein shall have the meanings generally attributed to such terms under GAAP. 1.4. UCC TERMS. The terms "accounts", "chattel paper", ---------- "instruments", "general intangibles", "inventory", "equipment" and "fixtures", as and when used in the Loan Documents, shall have the same meanings given such terms under the UCC. 1.5. TERMINOLOGY. All personal pronouns used in this Agreement, ----------- whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses, Exhibits or Supplements shall refer to the corresponding Article, Section, Subsection, paragraph, clause, subclause of, or Exhibit or Supplement attached to, this Agreement, unless specific reference is made to the articles, sections or other subdivisions of, or Exhibit or Supplement to, another document or instrument. Wherever in this Agreement reference is made to any instrument, agreement or other document, including, without limitation, any of the Loan Documents, such reference shall be understood to mean and include any and all amendments thereto or modifications, restatements, renewals or extensions thereof. Wherever in this Agreement reference is made to any statute, such reference shall be understood to mean and include any and all amendments thereof and all regulations promulgated pursuant thereto. Whenever any matter set forth herein or in any Loan Document is to be consented to or satisfactory to Lender, or is to be determined, calculated or approved by Lender, then, unless otherwise expressly set forth herein or in any such Loan Document, such consent, satisfaction, determination, calculation or approval shall be in Lender's sole discretion, exercised in good faith and, where required by law, in a commercially reasonable manner, and shall be conclusive absent manifest error. 1.6. EXHIBITS. All Exhibits attached hereto are by reference made -------- a part hereof. 2. THE FINANCING. --------------- 2.1 EXTENSIONS OF CREDIT. ----------------------- 2.1.1. LINE OF CREDIT. ----------------- (a) On the Closing Date, subject to fulfillment of all conditions precedent set forth in Section 16, Lender agrees to open the Line of Credit in favor of Borrower so that, during the period from the Closing Date to, but not including, the Termination Date, so long as there is not in existence any Default Condition or Event of Default and the borrowing will not cause a Default Condition or Event of Default to exist, Borrower may borrow and repay and reborrow Advances up to a maximum aggregate principal amount outstanding at any one time equal to the original principal amount of the Line of Credit; subject, however, to the requirement that at no time shall the aggregate - ------------------ principal amount of (i) outstanding Advances plus (ii) the aggregate amount of ---- Letter of Credit Obligations exceed the Margin (such requirement being referred to herein as the "Margin Requirement"); and subject, further, to the requirement ------------------ ---------------- that if, at any time hereafter, the Margin Requirement is not satisfied, -14- Borrower will immediately repay the then principal balance of the Master Note by that amount necessary to satisfy the Margin Requirement. All proceeds so obtained under the Line of Credit may be used by Borrower for working capital, capital expenditures and other general corporate purposes in such manner as Borrower may elect in the ordinary course of its business operations. The Debts arising from Advances made to or on behalf of Borrower under the Line of Credit shall be evidenced by the Master Note, which shall be executed by Borrower and delivered to Lender on the Closing Date. The outstanding principal amount of the Master Note may fluctuate from time to time, but shall be due and payable in full on the Termination Date, and each Advance thereunder shall bear interest from the date of such Advance until paid in full at the Applicable Rate, calculated and payable in the manner described in Section 2.2.1. Subject to any contrary provisions of Section 2.2.1 in respect of LIBOR Borrowings, Borrower shall have the option to request Advances under the Line of Credit by telephone or in a writing delivered to Lender not later than 11:00 a.m. (Atlanta, Georgia time) on the date of the requested Advance; provided, however, that any ------------------ telephone requests shall be confirmed in a writing not later than the Business Day following the disbursement of the requested Advance. (b) Lender shall be entitled from time to time to impose any Availability Reserve against the Margin and the availability under the Line of Credit that it deems necessary as security for payment of the Obligations. Lender may also, in its reasonable credit judgement from time to time upon not less than five (5) days prior notice to Borrower, reduce the Margin with respect to Eligible Accounts to the extent that Lender determines in good faith that the dilution with respect to the Eligible Accounts for any period (based on the ratio of the aggregate amount of reductions in Eligible Accounts other than as a result of payments in cash to the aggregate amount of total sales) has increased in any material respect or may be reasonably anticipated to increase in any material respect above historical levels, or the general creditworthiness of Account Debtors has declined. In determining whether to reduce the Margin, Lender may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts or in establishing Availability Reserves. 2.1.2. LETTERS OF CREDIT. In addition to the foregoing, so long ------------------ as the Line of Credit remains open, Borrower shall have the further right to apply for, commercial or standby letters of credit ("Letters of Credit") to be ----------------- issued by Lender for use by Borrower in the ordinary course of its business operations pursuant to a separate application and agreement (one per each Letter ------------------- of Credit) to be executed between Lender and Borrower, which shall set forth, - ---------- among other things, the purpose, beneficiary, the expiry date and credit limit, together with the fees and charges imposed by Lender for the issuance and administration thereof. The issuance of each Letter of Credit shall be within -15- the sole discretion of Lender. All outstanding Letter of Credit Obligations shall be reserved by Lender against borrowing availability under the Line of Credit, as more particularly described in the definition of the Margin Requirement. Lender shall have the continuing right to charge as Advances any outstanding unreimbursed drawings under any Letters of Credit and any fees and charges associated therewith. Lender shall have the further right from time to time to impose sublimits on the aggregate amounts of Letters of Credit and Letter of Credit Obligations at any one time outstanding. At any time that an Event of Default exists, upon Lender's request, Borrower will furnish cash collateral to Lender to secure the reimbursement obligations to Lender in connection with any Letter of Credit Obligations, and in such case, the Advances otherwise available to Borrower shall not be reduced as provided in clause (iv) of the definition of Availability Reserve, to the extent of such cash collateral. 2.2 INTEREST AND OTHER CHARGES. ------------------------------ 2.2.1. INTEREST AT APPLICABLE RATE. Lender and Borrower agree ------------------------------ that the interest rate payable on each Borrowing (herein called the "Applicable ---------- Rate") shall be determined as follows: - ---- (a) LINE OF CREDIT. Each Advance under the Line of Credit ----------------- shall bear interest initially at either (i) the Prime Rate plus three-quarters ---- of one percent (0.75%) per annum, in the case of an Advance constituting a Prime Borrowing or (ii) subject to the conditions and limitations set forth in subsection (c) below, the LIBOR Rate plus three percent (3.00%) per annum, in ---- the case of an Advance constituting a LIBOR Borrowing; subject, however, in each ---------------- case, to subsequent adjustment as provided in subsection (b) below. (b) SUBSEQUENT ADJUSTMENTS. The Applicable Rate described in ------------------------ subsection (a) above shall be subject to subsequent adjustment, up or down, based on Borrower's financial performance, determined by reference to the Consolidated Funded Debt/Consolidated EBITDA Ratio (herein called, the "Test ---- Ratio"), measured quarterly; that is, if the Test Ratio, measured as of the end - ----- of each Fiscal Quarter of Borrower for the immediately preceding four (4) Fiscal Quarters, commencing with the Fiscal Quarter ending closest to, but occurring after, the Closing Date, is as described below, the Applicable Rate shall be the interest rate appearing opposite said Test Ratio: Consolidated Funded Prime LIBOR Debt/Consolidated EBITDA Ratio Borrowings Borrowings -------------------------------- ------------------ ------------------ Greater than or equal to Prime Rate + 0.75% LIBOR Rate + 3.00% 4.0 to 1.0 Less than 4.0 to 1.0 but greater Prime Rate + 0.50% LIBOR Rate + 2.75% than or equal to 3.0 to 1.0 Less than 3.0 to 1.0 but greater Prime Rate + 0.25% LIBOR Rate + 2.50% than or equal to 2.0 to 1.0 Less than 2.0 to 1.0 Prime Rate LIBOR Rate + 2.25% -16- Lender shall determine whether any adjustment to the Applicable Rate is to be made quarterly, based on Borrower's financial statements as of and for each Fiscal Quarter end delivered to Lender pursuant to Section 10.6, provided, that -------- ---- if such financial statements are not timely delivered to Lender, then an adjustment to the Applicable Rate shall be made based on an assumed delivery of said financial statements reflecting a Test Ratio of 4.0 to 1.0, provided -------- further if any Default Condition or Event of Default shall then exist no adjustment downward shall occur. Each such adjustment to the Applicable Rate shall become effective as of the first day of the calendar month following the date on which such financial statements are delivered (or deemed delivered) to Lender, and shall remain effective unless and until any subsequent adjustment becomes effective in accordance with the terms of this subsection (b). Each such adjustment shall apply to all Prime Borrowings then existing and any made during the period for which such adjustment becomes effective; and such adjustment shall apply only to LIBOR Borrowings made (including conversions and continuations) within such period (but not to any then existing). In the event that the annual audit report of Borrower for any Fiscal Year shall require restatement of financial statements of Borrower and such restatement shall effect the Test Ratio and would have required a different Applicable Rate to be in effect for prior periods, then Lender at its option, may require Borrower to make additional payments of interest for such prior periods in amounts not to exceed the difference between the amount of interest paid in respect of such prior periods and the amount that would have been payable in respect of such periods under the effected Test Ratio. (c) CONDITIONS AND LIMITATIONS ON LIBOR BORROWINGS. All ---------------------------------------------------- Borrowings obtained on the Closing Date and for a period of two (2) Business Days thereafter shall be Prime Borrowings. Thereafter Borrower shall have the continuing right, provided that no Event of Default or Default Condition exists, to obtain LIBOR Borrowings or to convert Prime Borrowings to LIBOR Borrowings; subject, however, to the following conditions and limitations: (i) the Interest ---------------- Period for LIBOR Borrowings in respect of the Line of Credit shall not exceed the Termination Date; (ii) if on or prior to the first day of any Interest Period, Lender determines that deposits in United States Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period or that the LIBOR Rate will not adequately and fairly reflect the cost to Lender of funding any relevant borrowings for such Interest Period, then, Lender shall forthwith give notice thereof to Borrower, whereupon, until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of Lender to make LIBOR Borrowings available to Borrower shall be suspended; and (iii) if, at any time, a change of law, or compliance by Lender with any request or directive (whether or not having the force of law) of any governmental authority shall make it unlawful or impracticable for Lender to make available, maintain or fund any LIBOR Borrowings, Lender shall forthwith give notice to such effect to Borrower, whereupon, until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of Lender to make such Borrowings available to Borrower shall be suspended and if Lender shall determine that it may not lawfully continue to maintain and fund any then outstanding Borrowings to maturity and shall so specify in such notice, each Borrowing so affected shall be converted to a Prime Borrowing effective immediately. -17- (d) PAYMENT OF INTEREST. Accrued interest on each Prime ---------------------- Borrowing and each LIBOR Borrowing at the Applicable Rate shall be due and payable monthly in arrears, on the first day of each calendar month, for the preceding calendar month (or portion thereof), commencing on the first day of the first calendar month following the Closing Date. (e) CALCULATION OF INTEREST AND FEES. Interest on each ------------------------------------ Borrowing at the Applicable Rate (and any fees described in Section 2.2.2 computed on a per annum basis) shall be calculated on the basis of a 360-day year and actual days elapsed. The Applicable Rate on each Prime Borrowing shall change with each change in the Prime Rate, effective as of the opening of business on the Business Day of such change. (f) CHARGING PRINCIPAL, INTEREST, FEES AND EXPENSES. ----------------------------------------------------- Principal and accrued and unpaid interest on any Borrowings (and any outstanding fees described in Section 2.2.2 and expenses under this Agreement) may, when due and payable, be paid, at Lender's option (without any obligation to do so), either (i) by Lender's charging the Line of Credit for an Advance in the amount thereof; or (ii) by Lender's debiting any deposit account constituting Balances Collateral for the amount thereof. (g) RATE ON OTHER OBLIGATIONS. To the extent that, at any ----------------------------- time, there are other Obligations besides Advances which are due and payable and are unpaid, such Obligations shall, unless any Note evidencing such Obligations provides otherwise, bear interest at the same rate per annum as is then and thereafter payable on Prime Borrowings under the Line of Credit. 2.2.2 FEES. In addition to the payment of interest at the ---- Applicable Rate, Borrower shall also be obligated to pay Lender the following fees and charges: (a) LOAN ORIGINATION FEE. On the Closing Date, a fully ----------------------- earned, non-refundable loan origination fee of Sixty Thousand and No/100 Dollars ($60,000). (b) LETTER OF CREDIT FEE. Letter of Credit fees, equal in ------------------------ amount to the Applicable Margin for LIBOR Loans at such time multiplied by the outstanding amount of any Letter of Credit Obligations, due and payable monthly in arrears. (c) COMMITMENT FEE. Borrower shall pay to Lender a fee ---------------- equal to (i) the Applicable Commitment Fee Margin multiplied by (ii) the amount by which the Average Line of Credit Balance for any quarter (or portion thereof that the Agreement is in effect) is less than the Line of Credit, such fee to be paid on the first day of the following quarter; but if this Agreement is terminated on a day other than the first day of a quarter, then any such fee payable for the quarter in which termination shall occur shall be paid on the effective date of such termination. (d) CANCELLATION FEE. Borrower shall pay to Lender a ------------------ cancellation fee of $40,000 in the event that the Line of Credit is terminated for any reason (other than a Termination Event) prior to June 30, 2002; provided, that no cancellation fee shall be payable by Borrower if the Line of Credit is replaced with a Line of Credit by Lender in an amount greater than $15,000,000 at such time. -18- 2.2.3. CAPITAL ADEQUACY. If, after the Closing Date, the ------------------ adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the administration thereof, or compliance by Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, affects or might affect the amount of capital required or expected to be maintained by Lender or any corporation in control of Lender and Lender determines that the amount of such capital is increased by or based upon Lender's obligations hereunder, then from time to time, within thirty (30) days after demand by Lender, Borrower shall pay to Lender such additional amount or amounts as will compensate Lender in light of such circumstances, to the extent that Lender reasonably determines such increase in capital is allocable to Lender's obligations hereunder, and such payment, as and when received, shall be applied by Lender in reimbursement of Lender's increased costs in regard to such obligations. 2.2.4. USURY SAVINGS PROVISIONS. Lender and Borrower hereby --------------------------- further agree that the only charge imposed by Lender upon Borrower for the use of money in connection herewith is and shall be the interest expressed in the Master Note, at the rate set forth in the Master Note, and that all other charges imposed by Lender upon Borrower in connection herewith, are and shall be deemed to be charges made to compensate Lender for underwriting and administrative services and costs, and other services and costs performed and incurred, and to be performed and incurred, by Lender in connection with the Borrowings, and shall under no circumstances be deemed to be charges for the use of money. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under the Notes and charged or collected pursuant to the terms of this Agreement or pursuant to the Notes exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Lender has charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by applicable law and Lender shall promptly refund to Borrower any interest received by Lender in excess of the maximum lawful rate or, if so requested by Borrower, shall apply such excess to the principal balance of the Obligations. It is the intent hereof that Borrower not pay or contract to pay, and that Lender not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by Borrower under applicable law. 2.3. GENERAL PROVISIONS AS TO PAYMENTS. -------------------------------------- 2.3.1. METHOD OF PAYMENT. Unless paid in accordance with ------------------- Section 2.2.1(f), all payments of interest, fees and principal pursuant to this Agreement must be received by Lender no later than 1:00 p.m. (Atlanta, Georgia time) on the date when due, in Federal or other funds immediately available to Lender in Atlanta, Georgia. -19- 2.3.2. APPLICATION OF PAYMENT. Except as may be otherwise ----------------------- agreed to by Borrower and Lender and as set forth in Section 4.4 hereof, all payments received by Lender hereunder shall be applied, in accordance with the then current billing statement applicable to the Borrowings, first to accrued interest due, then to fees due, then to principal due and then to late charges due. Any remaining funds shall be applied to the further reduction of principal. In the event more than one Borrowing shall be outstanding hereunder, Lender in its sole discretion may determine which Borrowing(s) each payment shall be applied to. Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default, payments shall be applied as determined by Lender in its sole discretion. 2.4. TERMINATION EVENT. If either of the Principals shall die, ------------------ become incapacitated, cease to be the chief executive officer or chief financial officer of Borrower or otherwise cease to be actively involved in the day-to-day executive management of Borrower (a "Termination Event"), Lender may, at its election, terminate the Line of Credit and demand payment of all of the Obligations upon ninety (90) days prior written notice to Borrower, unless Borrower replaces such Principal with a person of similar experience, skill and expertise reasonably satisfactory to Lender (which consent of Lender shall not be unreasonably withheld) within such ninety (90) day period. Nothing contained herein shall prohibit Lender from exercising any of its rights and remedies under the Loan Documents or applicable law if an Event of Default exists at such time. 3. SECURITY INTEREST. As security for the payment of all Obligations, ------------------- Borrower hereby grants to Lender a continuing, general lien upon and security interest and security title in and to the following described property, wherever located, whether now existing or hereafter acquired or arising, namely: (a) the Accounts Receivable Collateral; (b) the Inventory Collateral; (c) the Equipment Collateral; (d) the Intangibles Collateral; (e) the Balances Collateral; (f) the Investment Property; and (g) all products and/or proceeds of any and all of the foregoing, including, without limitation, insurance proceeds. The property of Borrower described hereinabove in this Article 3, and such insurance as described in Section 10.9 hereof are herein sometimes collectively called the "Collateral". ---------- 4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO ACCOUNTS -------------------------------------------------------------------- RECEIVABLE COLLATERAL. With respect to the Accounts Receivable Collateral, - ----------------------- Borrower hereby represents, warrants and covenants to Lender as set forth below. 4.1. BONA FIDE ACCOUNTS. Each item of the Accounts Receivable --------------------- Collateral arises or will arise under a contract between Borrower and the Account Debtor, or from the bona fide sale or delivery of goods to or performance of services for, the Account Debtor. 4.2. GOOD TITLE. Borrower has good title to the Accounts ------------ Receivable Collateral free and clear of all liens, security interests and encumbrances thereon other than any Permitted Encumbrances, and no financing statement covering the Accounts Receivable Collateral is on file in any public office other than any evidencing Permitted Encumbrances. -20- 4.3. RIGHT TO ASSIGN. Borrower has full right, power and ------------------ authority to make this assignment of the Accounts Receivable Collateral and hereafter will not pledge, hypothecate, grant a security interest in, sell, assign, transfer, or otherwise dispose of the Accounts Receivable Collateral, or any interest therein. 4.4. COLLATERAL RESERVE ACCOUNT. Within sixty (60) days after the --------------------------- Closing Date, Borrower shall establish and maintain with Lender a Collateral Reserve Account into which Borrower shall transfer and deliver all cash, checks, drafts, items and other instruments for the payment of money which it now has or may at any time hereafter receive in full or partial payment for the Inventory Collateral or otherwise as proceeds of the Accounts Receivable Collateral and, pending such transfer and delivery, Borrower shall be deemed to hold same in trust for the benefit of Lender. Borrower shall not be entitled to draw on the Collateral Reserve Account without the prior written consent of Lender; provided, however, that, at any time during which deposits exist in the ------- Collateral Reserve Account, Lender may withdraw such deposits, or any portion thereof, therefrom, for application against the Obligations in such manner as Lender, in its sole discretion, may determine. Lender may, additionally, at any time in its sole discretion, direct Account Debtors to make payments on the Accounts Receivable Collateral, or portions thereof, directly to Lender, and the Account Debtors are hereby authorized and directed to do so by Borrower upon Lender's direction, and the funds so received shall be also deposited in the Collateral Reserve Account, or, at the election of Lender, upon its receipt thereof, be applied directly to repayment of the Obligations in such order as Lender, in its sole discretion, shall determine. Notwithstanding the foregoing, however, so long as no Event of Default exists, Lender agrees to settle with Borrower as to any funds which may exist in the Collateral Reserve Account from time to time hereafter on a mutually agreeable periodic basis. 4.5. TRADE STYLES. Except as may be set forth on Exhibit "A" -------------- ----------- attached hereto, Borrower uses no trade names or trade styles in its business operations (herein, "Trade Styles"), and Borrower covenants with Lender not to ------------ use any Trade Styles in its business operations hereafter, except as so specified on Exhibit "A" prior to having given Lender at least thirty (30) days ---------- prior written notice thereof. In any event, to the extent that, now or hereafter, Borrower uses any Trade Styles, Borrower hereby certifies and agrees with Lender that: (i) all of the accounts receivable and proceeds thereof arising out of sales under the Trade Styles shall be the property of, and belong to, Borrower and shall constitute Accounts Receivable Collateral; (ii) each of the Trade Styles is a trade name and trade style (and not an independent corporation or other legal entity) by which Borrower identifies and sells certain of its products or services and under which it may conduct a portion of its business; (iii) all accounts receivable, proceeds thereof, and returned merchandise which arise from the sale of products invoiced under the names of any of the Trade Styles shall be owned solely by Borrower and shall be subject to the terms of this Agreement as they relate to Accounts Receivable Collateral; and (iv) Borrower hereby appoints Lender as its attorney-in-fact to file such certificates disclosing Borrower's use of the Trade Styles and to take such other actions on its behalf as are necessary to comply with the statutes of any states relating to the use of fictitious or assumed business names, to the extent that Borrower fails to do so. -21- 4.6. POWER OF ATTORNEY. Borrower irrevocably designates and -------------------- appoints Lender its true and lawful attorney either in the name of Lender or in the name of Borrower to ask for, demand, sue for, collect, compromise, compound, receive, receipt for and give acquittances for any and all sums owing or which may become due upon any items of the Inventory Collateral or the Accounts Receivable Collateral and, in connection therewith, to take any and all actions as Lender may deem necessary or desirable in order to realize upon the Inventory Collateral and the Accounts Receivable Collateral, including, without limitation, power to endorse in the name of Borrower, any checks, drafts, notes or other instruments received in payment of or on account of the Inventory Collateral or the Accounts Receivable Collateral, but Lender shall not be under any duty to exercise any such authority or power or in any way be responsible for the collection of the Inventory Collateral or the Accounts Receivable Collateral. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INVENTORY -------------------------------------------------------------------- COLLATERAL. With respect to the Inventory Collateral, Borrower hereby - ---------- represents, warrants and covenants to Lender as set forth below: 5.1. SALE OF INVENTORY COLLATERAL. Borrower will not sell, lease, ----------------------------- exchange, or otherwise dispose of any of the Inventory Collateral without the prior written consent of Lender, except in the ordinary course of business for cash or on open account or on terms of payment ordinarily extended to its customers. Upon the sale, exchange or other disposition of the Inventory Collateral, the security interest and lien created and provided for herein, without break in continuity and without further formality or act, shall continue in and attach to any proceeds thereof, including, without limitation, accounts, contract rights, shipping documents, documents of title, bills of lading, warehouse receipts, dock warrants, dock receipts and cash or noncash proceeds, and in the event of any unauthorized sale, shall continue in the Inventory Collateral itself. 5.2. INSURANCE. Borrower agrees that it will obtain and maintain ---------- insurance on the Inventory Collateral with such companies, in such amounts and against such risks as Lender may request, with loss payable to Lender as its interests may appear. Such insurance shall not be cancelable by Borrower, unless with the prior written consent of Lender, or by Borrower's insurer, unless with at least thirty (30) days (or such greater or lesser number of days as Lender may require or accept) advance written notice to Lender. In addition, Borrower shall cause insurer to provide to Lender at least thirty (30) days (or such greater or lesser number of days as Lender may require or accept) advance written notice prior to insurer's nonrenewal of such insurance. Borrower shall provide to Lender a copy of each such insurance policy. 5.3. GOOD TITLE. Except with respect to any Permitted ------------ Encumbrances, Borrower owns the Inventory Collateral free and clear of any security interest, lien or encumbrance, and no financing statements or other evidences of the grant of a security interest respecting the Inventory Collateral exist on the public records as of the date hereof other than any evidencing any Permitted Encumbrances. -22- 5.4. RIGHT TO GRANT SECURITY INTEREST. Borrower has the right to ---------------------------------- grant a security interest in the Inventory Collateral. Borrower will pay all taxes and other charges against the Inventory Collateral, and Borrower will not use the Inventory Collateral illegally or allow the Inventory Collateral to be encumbered except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances. 5.5. LOCATION OF INVENTORY COLLATERAL. Borrower hereby represents --------------------------------- and warrants to Lender that, as of the date hereof, the Inventory Collateral of Borrower is situated only at one or more of the Collateral Locations and Borrower covenants with Lender not to locate the Inventory Collateral at any location other than a Collateral Location without at least thirty (30) days prior written notice to Lender. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO EQUIPMENT -------------------------------------------------------------------- COLLATERAL. With respect to the Equipment Collateral, Borrower hereby - ---------- represents, warrants and covenants to Lender as set forth below: 6.1. SALE OF EQUIPMENT COLLATERAL. Borrower will not sell, ------------------------------- lease, exchange, or otherwise dispose of any of the Equipment Collateral without the prior written consent of Lender; provided, however, that, so long as no -------- ------- ---- Event of Default exists at such time or would result therefrom, (i) Borrower may dispose of Equipment Collateral having an aggregate net book value of not more than $25,000 during any Fiscal Year of Borrower, (ii) after notice to Lender, Borrower may dispose of Equipment Collateral used in the manufacturing operations of Borrower having an aggregate net book value of not more than $200,000 in the aggregate during any Fiscal Year of Borrower, and any proceeds received from such disposition shall be delivered to Lender for application to the Obligations, and (iii) in the ordinary course of Borrower's business, Borrower may sell, exchange or otherwise dispose of portions of its Equipment Collateral which are obsolete, worn-out or unsuitable for continued use by Borrower if such Equipment Collateral is replaced promptly upon its disposition with equipment constituting Equipment Collateral having a market value equal to or greater than the Equipment Collateral so disposed of and in which Lender shall obtain and have a first priority security interest pursuant hereto. 6.2. INSURANCE. Borrower agrees that it will obtain and maintain ---------- insurance on the Equipment Collateral with such companies and in such amounts and against such risks as Lender may reasonably request, with loss payable to Lender as its interests may appear. Such insurance shall not be cancelable by Borrower, unless with the prior written consent of Lender, or by Borrower's insurer, unless with at least thirty (30) days (or such lesser number of days as Lender may require or accept) advance written notice to Lender. In addition, Borrower shall cause insurer to provide to Lender at least thirty (30) days (or such lesser number of days as Lender may require or accept) advance written notice prior to insurer's nonrenewal of such insurance. Borrower shall provide to Lender a copy of each such insurance policy. -23- 6.3. GOOD TITLE. Borrower owns the Equipment Collateral free and ----------- clear of any security interest, lien or encumbrance thereon other than with respect to any Permitted Encumbrances and no financing statements or other evidences of the grant of a security interest respecting the Equipment Collateral exist on the public records as of the date hereof other than any evidencing any Permitted Encumbrances. 6.4. RIGHT TO GRANT SECURITY INTEREST. Borrower has the right to ---------------------------------- grant a security interest in the Equipment Collateral. Borrower will pay all taxes and other charges against the Equipment Collateral, Borrower will not use the Equipment Collateral illegally or allow the Equipment Collateral to be encumbered except for the security interest in favor of Lender granted herein and except for any Permitted Encumbrances. 6.5. LOCATION. As of the date hereof, the Equipment Collateral is --------- located only at one or more of the Collateral Locations and, hereafter, Borrower covenants with Lender not to locate any of the Equipment Collateral at any location other than a Collateral Location without at least thirty (30) days written notice to Lender. 7. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO BALANCES -------------------------------------------------------------------- COLLATERAL. With respect to the Balances Collateral, Borrower hereby - ---------- represents, warrants and covenants to Lender as set forth below: - ---------- 7.1. OWNERSHIP. Borrower owns the Balances Collateral free and --------- clear of any Liens thereon, except for any Permitted Encumbrances. 7.2. REMEDIES. In addition to such other rights and remedies with -------- respect to the Balances Collateral as may exist from time to time hereafter in favor of Lender, whether by way of set-off, banker's lien, consensual security interest or otherwise, Lender may upon the occurrence and during the continuance of an Event of Default, charge any part or all of the obligations of Lender to Borrower represented by items constituting the Balances Collateral in the possession and control of Lender against the Obligations. 7.3. LIENS. Hereafter, Borrower will not incur, create or suffer ----- to exist any Lien upon the Balances Collateral, except for Permitted Encumbrances, or sell, convey, hypothecate, pledge or assign its right, title or interest therein, without the prior written consent of Lender thereto. 8. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INTANGIBLES -------------------------------------------------------------------- COLLATERAL. With respect to the Intangibles Collateral, Borrower hereby - ----------- represents, warrants and covenants to Lender as set forth below: - ------- 8.1. OWNERSHIP. Borrower owns the Intangibles Collateral free and ---------- clear of any Liens thereon other than with respect to any Permitted Encumbrances and no financing statements or other evidences of the grant of a security interest respecting the Intangibles Collateral exist on the public records as of the date hereof other than any evidencing any Permitted Encumbrances. -24- 8.2. LIENS. Hereafter, Borrower will not incur, create or suffer ------ to exist any Lien upon the Intangibles Collateral except for the security interest granted herein and except for any Permitted Encumbrances or sell, convey, hypothecate, pledge or assign its right, title or interest therein. 8.3. PRESERVATION. Hereafter, Borrower will take all necessary ------------- and appropriate measures to obtain, maintain, protect and preserve the Intangibles Collateral including, without limitation, registration thereof with the appropriate state or federal governmental agency or department. 9. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce Lender ----------------------------------------- to enter into this Agreement, Borrower hereby represents and warrants to Lender (which representations and warranties, together with any other representations and warranties of Borrower contained elsewhere in this Agreement, shall be deemed to be renewed as of the date of each Advance under the Line of Credit) as set forth below: 9.1. CORPORATE EXISTENCE AND QUALIFICATION. Borrower is a ----------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation, as designated on Exhibit "A", with its ---------- principal place of business, chief executive office and office where it keeps all of its books and records being located at the Executive Office and is duly qualified as a foreign corporation in good standing in each other state in which a Collateral Location is situated or wherein the conduct of its business or the ownership of its property requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. Borrower has as its corporate name, as registered with the secretary of state of the state of its incorporation, the words first inscribed hereinabove as its name, and, except as may be described on Exhibit "A", has not done ----------- business under any other name for at least the past five (5) years. 9.2. CORPORATE AUTHORITY; VALIDITY AND BINDING EFFECT. Borrower --------------------------------------------------- has the power to make, deliver and perform under the Loan Documents, and to borrow hereunder, and has taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of the Loan Documents. This Agreement constitutes, and the remainder of the Loan Documents, when executed and delivered for value received, will constitute, the valid obligations of Borrower, legally binding upon it and enforceable against it in accordance with their respective terms. 9.3. INCUMBENCY AND AUTHORITY OF SIGNING OFFICERS. The -------------------------------------------------- undersigned officers of Borrower hold the offices specified hereinbelow and, in such capacities, are duly authorized and empowered to execute, attest and deliver this Agreement and the remainder of the Loan Documents for and on behalf of Borrower, and to bind Borrower accordingly thereby. 9.4. NO MATERIAL LITIGATION. Except as may be set forth on ------------------------- Exhibit "A", there are no legal proceedings pending (or, so far as Borrower or - ----------- its officers know, threatened), before any court or administrative agency which could reasonably be expected to materially and adversely affect the financial condition or operations of Borrower. -25- 9.5. TAXES. Borrower has filed or caused to be filed all tax ------ returns required to be filed by it and has paid all taxes shown to be due and payable by it on said returns or on any assessments made against it, except for any such taxes which are being contested in good faith and for which adequate reserves are reflected on the financial statements of Borrower in accordance with GAAP. 9.6. CAPITAL STOCK. All capital stock, debentures, bonds, notes --------------- and all other securities of Borrower presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including, but not limited to, the "blue sky" laws of all applicable states and the federal securities laws. 9.7. CORPORATE ORGANIZATION. The articles of incorporation of and ----------------------- bylaws of Borrower are in full force and effect under the law of the state of its incorporation and all amendments to said articles of incorporation and bylaws have been duly and properly made under and in accordance with all applicable laws. 9.8. INSOLVENCY. After giving effect to the execution and ----------- delivery of the Loan Documents and the making of any disbursements under the Notes, Borrower will not be "insolvent", within the meaning of such term as used in O.C.G.A. 18-2-22 or as defined in 101(32) of the Bankruptcy Code; or be unable to pay its debts generally as such debts become due; or have an unreasonably small capital. 9.9. TITLE. Borrower has good and marketable title to all of its ------ properties subject to no material Lien of any kind except as otherwise disclosed in writing to Lender and as to the Collateral, except for the Permitted Encumbrances. 9.10. MARGIN STOCK. Borrower is not engaged principally, or as -------------- one of its important activities, in the business of purchasing or carrying any "margin stock", as that term is defined in Section 221.2(h) of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any borrowing made pursuant hereto will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X of said Board of Governors. In connection herewith, if requested by Lender, Borrower will furnish to Lender a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U to the foregoing effect. -26- 9.11. NO VIOLATIONS. The execution, delivery and performance by --------------- Borrower of this Agreement and the Notes have been duly authorized by all necessary corporate action and do not and will not require any consent or approval of the shareholders of Borrower, violate any provision of any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower or of the charter or bylaws of Borrower, or result in a breach of or constitute a default under any Material Contract or under any other indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected; and Borrower is not in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument where such default could reasonably be expected to have a Material Adverse Effect. 9.12. FINANCIAL STATEMENTS. The audited financial statements of ---------------------- Borrower and its Consolidated Subsidiaries (if any) for its most recent Fiscal Year together with the unaudited financial statements of Borrower and its Consolidated Subsidiaries (if any) for that portion ended with its most recent Fiscal Month of its current Fiscal Year, for which statements have been prepared, copies of which heretofore have been furnished to Lender, are complete and accurately and fairly represent the financial condition of Borrower and its Consolidated Subsidiaries (if any), the results of its operations and the transactions in its equity accounts as of the dates and for the periods referred to therein, and have been prepared in accordance with GAAP. There are no material liabilities, direct or indirect, fixed or contingent, of Borrower or any such Consolidated Subsidiaries as of the date of such financial statements which are not reflected therein or in the notes thereto. No Material Adverse Effect has occurred since the date of the balance sheet contained in audited financial statements described hereinabove. 9.13. PURCHASE OF COLLATERAL. Within the twelve (12) months ------------------------- period preceding the Closing Date, neither Borrower nor any Subsidiary has purchased any of the Collateral in a bulk transfer or in a transaction which was outside the ordinary course of the business of Borrower's seller. 9.14. POLLUTION AND ENVIRONMENTAL CONTROL. Borrower and each --------------------------------------- Subsidiary have obtained all permits, licenses and other authorizations which are required under, and is in material compliance with, all Environmental Laws, except where failure to have obtained any such permits, licenses and other authorizations or to be in material compliance could not reasonably be expected to have a Material Adverse Effect. 9.15. POSSESSION OF PERMITS. Borrower and each Subsidiary possess ---------------------- all franchises, certificates, licenses, permits and other authorizations from governmental political subdivisions or regulatory authorities, and all patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, that are necessary for the ownership, maintenance and operation of any of its properties and assets, and Borrower is not in violation of any thereof, except where the failure to so possess or such violation could not reasonably be expected to have a Material Adverse Effect. 9.16. SUBSIDIARIES. As of the Closing Date, Borrower has no ------------- Subsidiaries except as described on Exhibit "A". ------------ -27- 9.17. FEDERAL TAXPAYER IDENTIFICATION NUMBER. Borrower's federal ---------------------------------------- taxpayer identification number is as indicated on Exhibit "A". ------------ 9.18. EMPLOYEE BENEFIT PLANS. As of the Closing Date, Borrower ------------------------- has no Employee Benefit Plans except as described on Exhibit "A". ------------ 10. AFFIRMATIVE COVENANTS. Borrower covenants to Lender that from and ----------------------- after the date hereof, and so long as any amount remains unpaid on account of any of the Obligations (other than Obligations in respect of indemnification and other similar contingent Obligations that expressly survive the termination of this Agreement) or this Agreement remains effective (whichever is the last to occur), Borrower will comply (and cause each Subsidiary to comply) with the affirmative covenants set forth below: 10.1. RECORDS RESPECTING COLLATERAL. All records of Borrower with ------------------------------ respect to the Collateral will be kept at its Executive Office and will not be removed from such address without the prior written consent of Lender. 10.2. FURTHER ASSURANCES. Borrower shall duly execute and/or -------------------- deliver (or cause to be duly executed and/or delivered) to Lender any instrument, invoice, document, document of title, dock warrant, dock receipt, warehouse receipt, bill of lading, order, financing statement, assignment, waiver, consent or other writing which may be reasonably necessary to Lender to carry out the terms of this Agreement and any of the other Loan Documents and to perfect its security interest in and facilitate the collection of the Collateral, the proceeds thereof, and any other property at any time constituting security to Lender. Borrower shall perform or cause to be performed such acts as Lender may request to establish and maintain for Lender a valid and perfected security interest in and security title to the Collateral, free and clear of any Liens other than Permitted Encumbrances. 10.3. RIGHT TO INSPECT. Lender (or any person or persons ------------------- designated by it) shall, in its sole discretion, have the right to call at any place of business of Borrower at any reasonable time and without prior notice, and, without hindrance or delay, inspect, audit, check and make extracts from Borrower's books, records, journals, orders, receipts and any correspondence and other data relating to the Collateral, to Borrower's business or to any other transactions between the parties hereto. Borrower shall pay to Lender, Lender's standard audit fee for each audit performed by Lender's employees or its agents, provided however, that unless an Event of Default shall exist, Borrower shall - -------- ------- not be required to pay for more than four (4) audits during any Fiscal Year and shall not be required to pay more than $2,500 per audit plus any out-of-pocket expenses for each such field audit. 10.4. REPORTS. Borrower shall, as soon as practicable, but in any -------- event on or before fifteen (15) days after the end of each calendar month, furnish or cause to be furnished to Lender a status report, certified by a duly authorized officer of Borrower, showing the aggregate dollar value of the items comprising the Accounts Receivable Collateral and the age of each individual item thereof as of the last day of the preceding Fiscal Month (segregating such items in such manner and to such degree as Lender may request), a schedule of Accounts Receivable Collateral that does not constitute Eligible Accounts, the aggregate dollar value of the items comprising the accounts payable of Borrower and the age of each individual item thereof as of the last day of the preceding Fiscal Month (segregating such items in such manner and to such degree as Lender may request), plus the type, dollar value and location of the Inventory Collateral as at the end of the preceding Fiscal Month, valued at the lower of its first-in, first-out cost or market value. Additionally, Lender may, at any time in its sole discretion, require Borrower to permit Lender to verify the individual account balances of the individual Account Debtors immediately upon its request therefor. In any event, with the above described status report for the month of December of each year and upon request from Lender, made at any time hereafter, Borrower shall furnish Lender with a then current customer and Account Debtor name and address list. -28- 10.5. SETTLEMENT REPORTS. Borrower shall, as soon as practicable, ------------------- but in any event on or before Monday of each week or such more frequent intervals as required by Lender from time to time, prepare and deliver to Lender a settlement report that sets forth the gross domestic accounts receivable, together with accompanying documentation required by Lender, with respect to satisfaction of the Margin Requirement as of the last day of the reporting period (and on or before fifteen (15) days after the end of each month, a list of ineligible accounts receivable as of the last day of such month), in such form as specified in Exhibit "D" or such other form as Lender may deliver for ---------- such purpose to Borrower from time to time hereafter, the statements in which, in each instance, shall be certified as to truth and accuracy by a duly authorized officer of Borrower. 10.6. PERIODIC FINANCIAL STATEMENTS. Borrower shall, as soon as -------------------------------- practicable, and in any event within twenty-five (25) days after the end of each Fiscal Month, furnish to Lender unaudited financial statements of Borrower and each Consolidated Subsidiary, including balance sheets, income statements and statements of cash flow, for the Fiscal Month ended, and for the Fiscal Year to date, on a Consolidated and consolidating basis, certified as to truth and accuracy by a duly authorized officer of Borrower. 10.7. ANNUAL FINANCIAL STATEMENTS. Borrower shall, as soon as ------------------------------ practicable, and in any event within ninety (90) days after the end of each Fiscal Year, furnish to Lender the annual audit report of Borrower, certified without material qualification by independent certified public accountants selected by Borrower and acceptable to Lender, and prepared in accordance with GAAP, together with relevant financial statements of Borrower for the Fiscal Year then ended, on a consolidating and a Consolidated basis, if applicable. Borrower shall cause said accountants to furnish Lender with a statement that in making their examination of such financial statements, they obtained no knowledge of any Event of Default or Default Condition which pertains to accounting matters relating to this Agreement or the Notes, or, in lieu thereof, a statement specifying the nature and period of existence of any such Event of Default or Default Condition disclosed by their examination. -29- 10.8. PAYMENT OF TAXES. Borrower shall pay and discharge all ------------------- taxes, assessments and governmental charges upon it, its income and its properties prior to the date on which penalties attach thereto, unless and to the extent only that (x) such taxes, assessments and governmental charges are either (i) being contested in good faith and by appropriate proceedings by Borrower, and Borrower maintains reasonable reserves on its books therefor or (ii) such taxes, assessments or governmental charges are less than $25,000 in the aggregate at any time and (y) the payment of such taxes, assessments or governmental charges does not result in a Lien upon any of the Collateral other than a Permitted Encumbrance. 10.9. MAINTENANCE OF INSURANCE. In addition to and cumulative --------------------------- with any other requirements herein imposed on Borrower with respect to insurance, Borrower shall maintain insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, but in any event to include business interruption, cargo, property and casualty, flood, windstorm, fire, theft, extended coverage and product liability and errors and omissions, insurance in amounts satisfactory to Lender, which such insurance shall not be cancelable by Borrower, unless with the prior written consent of Lender, or by Borrower's insurer, unless with at least thirty (30) days (or such lesser or greater number of days as Lender may agree or accept) advance written notice to Lender thereof. Borrower shall file with Lender upon its request a detailed list of such insurance then in effect stating the names of the insurance companies, the amounts and rate of insurance, the date of expiration thereof, the properties and risks covered thereby and the insured with respect thereto, a copy of each such insurance policy, and within thirty (30) days after notice in writing from Lender, obtain such additional insurance as Lender may reasonably request. 10.10. MAINTENANCE OF PROPERTY AND MANAGEMENT. Borrower shall ------------------------------------------- maintain its property in good working condition and its executive management satisfactory to Lender. 10.11. CERTIFICATE OF NO DEFAULT. Borrower shall, on a monthly ----------------------------- basis not later than twenty-five (25) days after the close of each of its first eleven Fiscal Months and not later than ninety (90) days after the close of its Fiscal Year, certify to Lender, in a statement executed by a duly authorized officer of Borrower in the form of Exhibit "C" attached hereto, that no Event of ----------- Default and no Default Condition exists or has occurred, or, if an Event of Default or Default Condition exists or has occurred, specifying the nature and period of existence thereof. Such certificate shall also set forth, in reasonable detail, compliance with all financial covenants set forth in Supplement A for the immediately preceding Fiscal Month or Fiscal Quarter, as - ------------- applicable. 10.12. CHANGE OF PRINCIPAL PLACE OF BUSINESS. Borrower hereby ------------------------------------------ understands and agrees that if, at any time hereafter, Borrower elects to move its Executive Office, or if Borrower elects to change its name, identity or its structure to other than a corporate structure, Borrower will notify Lender in writing at least thirty (30) days prior thereto. 10.13. WAIVERS. With respect to each of the Collateral Locations, -------- Borrower will obtain such waivers of lien, estoppel certificates or subordination agreements as Lender may reasonably require to insure the priority of its security interest in that portion of the Collateral situated at such locations. -30- 10.14. PRESERVATION OF CORPORATE EXISTENCE. Borrower shall --------------------------------------- preserve and maintain its corporate existence and remain in good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which a Collateral Location is situated or wherein the conduct of its business or the ownership of its property requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. 10.15. COMPLIANCE WITH LAWS. Borrower and each of its ----------------------- Subsidiaries shall comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which would or could reasonably be expected to have a Material Adverse Effect. Without limiting the foregoing, each of Borrower and its Subsidiaries shall obtain and maintain all permits, licenses and other authorizations which are required under, and otherwise comply with, all federal, state, and local laws and regulations (except where the failure to so obtain or maintain any such permits, licenses or other authorizations could not reasonably be expected to have a Material Adverse Effect). 10.16. SUBORDINATIONS. Borrower shall provide Lender with a --------------- subordination agreement, in form satisfactory to Lender, executed by any person who is an officer or director of Borrower to whom Borrower is or hereafter becomes indebted for money borrowed, subordinating in right of payment and claim all of such indebtedness and any future advances thereon to the claims of Lender on the Notes and the other Obligations so long as any amount remains unpaid on the Notes or any of the Obligations. Such subordination agreement shall provide, among other things, that no principal or interest on any such indebtedness shall be repaid unless and until there is no outstanding balance due and payable on the Notes or on any other Obligations of Borrower to Lender. 10.17. CERTAIN REQUIRED NOTICES. Promptly, upon its receipt of --------------------------- notice or knowledge thereof, Borrower will report to Lender: (i) any lawsuit or administrative proceeding in which Borrower is a defendant in which the amount or amounts in controversy exceed $100,000; or (ii) the existence and nature of any Default Condition or Event of Default. 10.18. PROJECTIONS. As soon as practicable, and in any event no ------------ later than ten (10) days prior to the end of each Fiscal Year of Borrower, Borrower shall deliver to Lender projected annual profit and loss statements for the forthcoming Fiscal Year, and projected balance sheets and statements of cash flows for each Fiscal Month of the coming Fiscal Year, all in form and substance satisfactory to Lender. 10.19. BANK ACCOUNTS. Not later than December 31, 2000, Borrower -------------- shall have established and thereafter shall maintain its primary deposit and disbursing accounts with Lender. -31- 10.20. MATERIAL CONTRACTS. Borrower shall not amend any Material ------------------- Contract without the prior written consent of Lender unless such amendment would not reasonably be expected to have a Material Adverse Effect. 10.21. STOCK PLEDGE AGREEMENTS. Within sixty (60) days after the ------------------------ Closing Date, Borrower shall deliver to Lender duly executed stock pledge agreements in favor of Lender that reflect the pledge by Borrower of sixty-five percent (65%) of the voting stock of Concurrent Computer Holding Company Ltd., Concurrent Computer GmbH, Concurrent Computer France S.A., Concurrent Computer Corporation Pty Ltd. and Concurrent Nippon Corporation, together with original stock certificates, if any, and duly executed stock powers executed in blank. 11. NEGATIVE COVENANTS. Borrower covenants to Lender that from and -------------------- after the date hereof and so long as any amount remains unpaid on account of any of the Obligations (other than Obligations in respect of indemnification and other similar contingent Obligations that expressly survive the termination of this Agreement) or this Agreement remains effective (whichever is the last to occur), Borrower will not do (and will not permit any Subsidiary to do), without the prior written consent of Lender, any of the things or acts set forth below: 11.1. ENCUMBRANCES. Create, assume, or suffer to exist any Lien ------------ on its property, except: (a) Permitted Encumbrances; (b) Liens existing as of the Closing Date and set forth on Schedule 11.1(b); and (c) Liens securing Debt for Borrowed Money permitted under Section 11.2(e). 11.2. DEBT FOR MONEY BORROWED. Incur, assume, or suffer to exist ------------------------- any Debt for Money Borrowed, except: (a) Debt for Money Borrowed incurred under this Agreement and the other Loan Documents; (b) Debt for Money Borrowed existing as of the Closing Date as set forth on Schedule 11.2(b); (c) Debt for Money Borrowed of foreign Subsidiaries of Borrower owing to a Person other than Borrower on the Closing Date with respect to overdraft lines, factoring arrangements, and similar short-term working capital credit facilities of such foreign Subsidiaries of Borrower and listed on Schedule 11.2(b), and Debt for Money Borrowed of foreign Subsidiaries of Borrower owing to a Person other than Borrower after the Closing Date with respect to such types of arrangements provided, however, that the aggregate -------- ------- amount of all such Debt for Money Borrowed incurred after the Closing Date shall not exceed, at any one time, $500,000; -32- (d) Contingent Obligations permitted under Section 11.3 hereof; (e) Debt for Money Borrowed of any Subsidiary of Borrower owing to Borrower or any other Subsidiary of Borrower after the Closing Date, not to exceed in the aggregate at any time $500,000 or Debt for Money Borrowed of Borrower owing to any foreign Subsidiary of Borrower. (f) Debt for Money Borrowed consisting of Capital Leases and purchase money financing after the date hereof in an aggregate amount at any one time outstanding not to exceed $500,000; (g) Subordinated Debt; and (h) Refinancings, renewals or extension of Debt for Money Borrowed permitted under clause (b) of this Section 11.2, so long as (i) the terms and conditions of such refinancings, renewals or extensions do not materially impair the prospects of repayment of the Obligations by Borrower, (ii) cash proceeds of such refinancings, renewals or extensions do not result in an increase in the aggregate principal amount of Debt for Money Borrowed so refinanced, renewed or extended, (iii) such refinancings, renewals, refundings, or extensions do not result in a shortening of the weighted average maturity of the Debt for Money Borrowed so refinanced, renewed, or extended, and (iv) to the extent that the Debt for Money Borrowed that is refinanced is Subordinated Debt, then the subordination terms and conditions of the refinancing Debt for Money Borrowed must be at least as favorable to Lender as those applicable to the refinanced Debt for Money Borrowed. 11.3. CONTINGENT LIABILITIES. Guarantee, endorse, become surety ----------------------- with respect to or otherwise become directly or contingently liable for or in connection with the obligations of any other Person, except for (i) endorsements of negotiable instruments for collection in the ordinary course of business, (ii) guaranties by Borrower of Debt of its foreign Subsidiaries that are existing on the Closing Date and that are listed on Schedule 11.3 attached hereto, and (iii) guaranties by Borrower of Debt of its foreign Subsidiaries after the Closing Date in an aggregate at any one time outstanding not to exceed $500,000. 11.4. DIVIDENDS. Declare or pay any dividends on, or make any --------- distribution with respect to, its shares of any class of Borrower's capital stock. 11.5. REDEMPTION. Purchase, redeem, or otherwise acquire for ---------- value any of its shares of any class of Borrower's capital stock. -33- 11.6. RESTRICTED INVESTMENTS. Make any Restricted Investment ----------------------- except the following: (i) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (ii) investments in time deposits, demand deposits and certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undividend profits aggregating at least $500,000,000; (iii) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than two hundred seventy (270) days from the date of creation thereof; and (iv) investments permitted under Sections 11.2 and 11.3 above. 11.7. MERGERS. Dissolve or otherwise terminate its corporate ------- status or enter into any merger, reorganization or consolidation or make any substantial change in the basic type of business conducted by Borrower and its Subsidiaries, as of the Closing Date. 11.8. BUSINESS LOCATIONS. Transfer its principal place of ------------------- business or chief executive offices, or open new store locations or warehouses, or transfer existing store locations or warehouses or maintain records with respect to Collateral, to or at any location other than those at which the same are presently kept or maintained as set forth on Exhibit "A," except upon at ----------- least twenty-one (21) days prior written notice to Lender and after the delivery to Lender of financing statements, if required by Lender, in form satisfactory to Lender, to perfect or continue the perfection of Lender's Lien. 11.9. AFFILIATE TRANSACTIONS. Enter into, or be a party to, or ----------------------- permit any Subsidiary to enter into or be a party to, any transaction with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's or such Subsidiary's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to Borrower than would obtain in a comparable arm's length transaction with a Person not an Affiliate. 11.10. SUBSIDIARIES. Create any Subsidiary or divest itself of ------------ any material assets by transferring them to any Subsidiary which is hereafter created with Lender's consent. 11.11. FISCAL YEAR. Change its Fiscal Year, or permit any ------------ Subsidiary to have a fiscal year different from the Fiscal Year of Borrower. 11.12. DISPOSITION OF ASSETS. Sell, lease or otherwise dispose of --------------------- any of its properties, including any disposition of property as part of a sale and leaseback transaction, to or in favor of any Person, except (i) sales of Inventory Collateral in the ordinary course of Borrower's business for so long as no Event of Default exists hereunder, and (ii) dispositions otherwise expressly authorized by this Agreement. 11.13. FEDERAL TAXPAYER IDENTIFICATION NUMBER. Change its federal -------------------------------------- taxpayer identification number without prior written notice to Lender. -34- 11.14. EMPLOYEE BENEFIT PLANS. Permit an Employee Benefit Plan to ---------------------- become materially underfunded. 11.15. CAPITAL EXPENDITURES AND LEASES. Expend during any Fiscal -------------------------------- Year of Borrower, in Capital Expenditures, for itself and its Consolidated Subsidiaries, other than as contracted for as of the date hereof, or contract for any future Capital Expenditures, which in aggregate represent an amount exceeding (i) $6,500,000 in Fiscal Year 2001, and (ii) $6,000,000 in Fiscal Year 2002 without the Lender's prior written consent thereto, all as determined on a Consolidated basis for Borrower and its Consolidated Subsidiaries in accordance with GAAP. 12. FINANCIAL COVENANTS. Borrower covenants to Lender that, from and --------------------- after the date hereof and so long as any amount remains unpaid on account of any of the Obligations or this Agreement remains effective (whichever is the last to occur), it will comply with the financial covenants set forth on SUPPLEMENT A ------------ attached hereto, which is incorporated by reference herein. 13. EVENTS OF DEFAULT. The occurrence of any events or conditions set ------------------- forth below shall constitute an Event of Default hereunder, provided that any requirement for the giving of notice or the lapse of time, or both, has been satisfied: 13.1. OBLIGATIONS. Borrower shall fail to make (i) any payments ------------ of principal when due, or (ii) any payments on any other Obligation when due and such failure shall have continued for a period of three (3) days. 13.2. MISREPRESENTATIONS. Borrower or any Subsidiary shall make ------------------- any representations or warranties in any of the Loan Documents or in any certificate or statement furnished at any time hereunder or in connection with any of the Loan Documents which proves to have been untrue or misleading in any material respect when made or furnished. 13.3. CERTAIN COVENANTS. Borrower shall default in the observance ------------------ or performance of any covenant or agreement contained in Sections 10.3, 10.4, 10.5, 10.6, 10.7, 10.11, 10.14, or in Articles 11 or 12 or Supplement "A". -------------- 13.4. OTHER COVENANTS. Borrower or any Subsidiary shall default ----------------- in the observance or performance of any covenant or agreement contained herein, in any of the other Loan Documents (other than a default the performance or observance of which is dealt with specifically elsewhere in this Article 13) unless (i) with respect to this Agreement, such default is cured to Lender's satisfaction within ten (10) days after the sooner to occur of receipt of notice of such default from Lender or the date on which such default first becomes known to Borrower and (ii) with respect to any other Loan Document, such default is cured within any applicable grace, cure or notice and cure period contained therein. 13.5. OTHER DEBTS. Borrower (i) shall default under any agreement ------------ with any creditor other than Lender for Debt for Money Borrowed in excess of $100,000 which entitles said creditor to accelerate the maturity thereof or (ii) shall default with respect to any Debt (other than Debt for Money Borrowed) in excess of $250,000 which entitles the obligee to demand payment of the Debt, and any such default shall continue beyond any applicable grace or cure period. -35- 13.6. VOLUNTARY BANKRUPTCY. Borrower or any Subsidiary shall file --------------------- a voluntary petition in bankruptcy or a voluntary petition or answer seeking liquidation, reorganization, arrangement, readjustment of its debts, or for any other relief under the Bankruptcy code, or under any other act or law pertaining to insolvency or debtor relief, whether state, Federal, or foreign, now or hereafter existing; Borrower or any Subsidiary shall enter into any agreement indicating its consent to, approval of, or acquiescence in, any such petition or proceeding; Borrower or any Subsidiary shall apply for or permit the appointment by consent or acquiescence of a receiver, custodian or trustee of Borrower or any Subsidiary for all or a substantial part of its property; Borrower or any Subsidiary shall make an assignment for the benefit of creditors; or Borrower or any Subsidiary shall be unable or shall fail to pay its debts generally as such debts become due, or Borrower or any Subsidiary shall admit, in writing, its inability or failure to pay its debts generally as such debts become due. 13.7. INVOLUNTARY BANKRUPTCY. There shall have been filed against ----------------------- Borrower or any Subsidiary an involuntary petition in bankruptcy or seeking liquidation, reorganization, arrangement, readjustment of its debts or for any other relief under the Bankruptcy Code, or under any other act or law pertaining to insolvency or debtor relief, whether state, federal or foreign, now or hereafter existing and such petition shall remain undisputed or unstayed for a period of sixty (60) consecutive calendar days; Borrower or any Subsidiary shall suffer or permit the involuntary appointment of a receiver, custodian or trustee of Borrower or any Subsidiary or for all or a substantial part of its property and such appointment shall be undismissed or unstayed for a period of sixty (60) consecutive calendar days; or Borrower or any Subsidiary shall suffer or permit the issuance of a warrant of attachment, execution or similar process against all or any substantial part of the property of Borrower or any Subsidiary. 13.8. DAMAGE, LOSS, THEFT OR DESTRUCTION OF COLLATERAL. There ----------------------------------------------------- shall have occurred material uninsured damage to, or loss, theft or destruction of, any material part of the Collateral. 13.9. JUDGMENTS. A final judgment or order for the payment of ---------- money is rendered against Borrower, any Subsidiary in the amount of One Hundred Thousand Dollars ($100,000) or more (exclusive of amounts covered by insurance) and either (x) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (y) a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, shall not be in effect for any period of thirty (30) consecutive days. 13.10. BANKRUPTCY OF AFFILIATE. Any motion, complaint or other -------------------------- pleading is filed in any bankruptcy case of any Person other than Borrower and such motion, complaint or pleading seeks the consolidation of Borrower's assets and liabilities with the assets and liabilities of such Person. -36- 13.11. MATERIAL ADVERSE EFFECT. There shall be any event, act, -------------------------- condition or occurrence having a Material Adverse Effect. 13.12. CHANGE OF CONTROL. Any Change of Control shall occur. -------------------- 13.13. MATERIAL CONTRACT. (i) Any breach shall occur under any ------------------ Material Contract that would allow the other party to such Material Contract to terminate it, or (ii) any Material Contract shall expire or Borrower shall voluntarily terminate any Material Contract, the expiration or termination of which would reasonably be expected to have a Material Adverse Effect. 14. REMEDIES. Upon the occurrence of any Default Condition or Event of --------- Default, Lender's obligation to extend financing under the Line of Credit shall immediately cease; provided, however, that if such obligation has ceased due to -------- ------- the occurrence of a Default Condition, and such Default Condition does not become an Event of Default due to its having been cured or waived before it has matured into an Event of Default, then such obligation shall be reinstated as of the date such Default Condition is cured or waived. Upon the occurrence or existence of any Event of Default, or any time thereafter, without prejudice to the rights of Lender to enforce its claims against Borrower for damages for failure by Borrower to fulfill any of its obligations hereunder, subject only to prior receipt by Lender of payment in full of all Obligations then outstanding in a form acceptable to Lender, Lender shall have all of the rights and remedies set forth below, and it may exercise any one, more, or all of such remedies, in its sole discretion, without thereby waiving any of the others. 14.1. ACCELERATION OF THE OBLIGATIONS. Lender, at its option, may -------------------------------- declare all of the Obligations (including but not limited to that portion thereof evidenced by any one or both of the Notes) to be immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of nonpayment or any other notice required by law relative thereto, all of which are hereby expressly waived by Borrower, anything contained herein to the contrary notwithstanding. If any note of Borrower to Lender constituting Obligations, including, without limitation, any of the Notes, shall be a demand instrument, however, the recitation of the right of Lender to declare any and all Obligations to be immediately due and payable, whether such recitation is contained in such note or in this Agreement, as well as the recitation of the above events permitting Lender to declare all Obligations due and payable, shall not constitute an election by Lender to waive its right to demand payment under a demand at any time and in any event, as Lender in its discretion may deem appropriate. Thereafter, Lender, at its option, may, but shall not be obligated to, accept less than the entire amount of Obligations due, if tendered, provided, however, that unless then agreed to in writing by Lender, no such acceptance shall or shall be deemed to constitute a waiver of any Event of Default or a reinstatement of any commitments of Lender hereunder. -37- 14.2. INTEREST RATE. If Lender so elects, by further written --------------- notice to Borrower, Lender may increase the rate of interest charged on the Notes then outstanding for so long thereafter as Lender further shall elect by an amount not to exceed the Default Rate. 14.3. REMEDIES OF A SECURED PARTY. Lender shall thereupon have ------------------------------- the rights and remedies of a secured party under the UCC in effect on date thereof (regardless of whether the same has been enacted in the jurisdiction where the rights or remedies are asserted), including, without limitation, the right to take possession of any of the Collateral or the proceeds thereof, to sell or otherwise dispose of the same, to apply the proceeds therefrom to any of the Obligations in such order as Lender, in its sole discretion, may elect. Lender shall give Borrower written notice of the time and place of any public sale of the Collateral or the time after which any other intended disposition thereof is to be made. The requirement of sending reasonable notice shall be met if such notice is given to Borrower at least ten (10) days before such disposition. Expenses of retaking, holding, insuring, preserving, protecting, preparing for sale or selling or the like with respect to the Collateral shall include, in any event, reasonable attorneys' fees and other legally recoverable collection expenses, all of which shall constitute Obligations. 14.4. REPOSSESSION OF THE COLLATERAL. Lender may take the ---------------------------------- Collateral or any portion thereof into its possession, by such means (without breach of the peace) and through agents or otherwise as it may elect (and, in connection therewith, demand that Borrower assemble the Collateral at a place or places and in such manner as Lender shall prescribe), and sell, lease or otherwise dispose of the Collateral or any portion thereof in its then condition or following any commercially reasonable preparation or processing, which disposition may be by public or private proceedings, by one or more contracts, as a unit or in parcels, at any time and place and on any terms, so long as the same are commercially reasonable and Borrower hereby waives all rights which Borrower has or may have under and by virtue of OCGA CH. 44-14, including, without limitation, the right of Borrower to notice and to a judicial hearing prior to seizure of any Collateral by Lender. 14.5. OTHER REMEDIES. Unless and except to the extent expressly ---------------- provided for to the contrary herein, the rights of Lender specified herein shall be in addition to, and not in limitation of, Lender's rights under the UCC, as amended from time to time, or any other statute or rule of law or equity, or under any other provision of any of the Loan Documents, or under the provisions of any other document, instrument or other writing executed by Borrower or any third party in favor of Lender, all of which may be exercised successively or concurrently. 14.6. SET OFF. Lender may exercise the remedies provided in --------- Section 7.2. 15. MISCELLANEOUS. -------------- 15.1. WAIVER. Each and every right granted to Lender under this ------- Agreement, or any of the other Loan Documents, or any other document delivered hereunder or in connection herewith or allowed it by law or in equity, shall be cumulative and may be exercised from time to time. No failure on the part of Lender to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right preclude any other or future exercise thereof or the exercise of any other right. No waiver by Lender of any Default Condition or Event of Default shall constitute a waiver of any subsequent Default Condition or Event of Default. -38- 15.2. GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN -------------- DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. 15.3. SURVIVAL. All representations, warranties and covenants --------- made herein and in the Loan Documents shall survive the execution and delivery hereof and thereof. The terms and provisions of this Agreement shall continue in full force and effect, notwithstanding the payment of one or more of the Notes or the termination of the Line of Credit, until all of the Obligations (other than Obligations in respect of indemnities and similar contingent Obligations that expressly survive the termination of this Agreement) have been paid in full and Lender has terminated this Agreement in writing. 15.4. NO ASSIGNMENT BY BORROWER. No assignment hereof or of any ---------------------------- Loan Document shall be made by Borrower without the prior written consent of Lender. Lender may assign, or sell participants in, its rights, title and interest herein and in the Loan Documents at any time hereafter without notice to or consent of Borrower. 15.5. COUNTERPARTS. This Agreement may be executed in two or more ------------- counterparts, each of which when fully executed shall be an original, and all of said counterparts taken together shall be deemed to constitute one and the same agreement. 15.6. REIMBURSEMENT. Borrower shall pay to Lender on demand all -------------- out-of-pocket costs and expenses that Lender pays or actually incurs in connection with the negotiation, preparation, consummation, enforcement and termination of this Agreement and the other Loan Documents, including, without limitation: (a) reasonable attorneys' fees and paralegals' fees and disbursements of outside counsel; (b) costs and expenses (including reasonable outside attorneys' and paralegals' fees and disbursements) for any amendment, supplement, waiver, consent or subsequent closing in connection with the Loan Documents and the transactions contemplated thereby; (c) costs and expenses of lien and title searches and title insurance; (d) actual taxes, fees and other charges for filing financing statements and continuations, and other actions to perfect, protect and continue the Lien of Lender in the Collateral; (e) sums paid or incurred to pay for any amount or to take any action required of Borrower under the Loan Documents that Borrower fails to pay or take; (f) costs of appraisals, inspections, field audits and verifications of the Collateral, including, without limitation, costs of travel, for inspections of the Collateral and Borrower's operations by Lender or its designees. but subject to -39- the limitations set forth in Section 10.3; (g) costs and expenses of preserving and protecting the Collateral; and (h) after the occurrence and during the continuance of an Event of Default, costs and expenses (including reasonable attorneys' fees actually incurred and paralegals' fees and disbursements) paid or incurred to obtain payment of the Obligations, enforce the Lien in the Collateral, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of the Loan Documents or to defend any claim made or threatened against Lender arising out of the transactions contemplated hereby (including, without limitation, preparations for and consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid to Borrower. All of the foregoing costs and expenses may, in the discretion of Lender, be charged to the Master Note. Borrower will pay all expenses incurred by it in the transaction. In the event Borrower becomes a debtor under the Bankruptcy Code, Lender's secured claim in such case shall include interest on the Obligations and all fees, costs and charges provided for herein (including, without limitation, reasonable attorneys' fees actually incurred), all to the extent allowed by the Bankruptcy Code. 15.7. SUCCESSORS AND ASSIGNS. This Agreement and Loan Documents ------------------------- shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto and thereto. 15.8. SEVERABILITY. If any provision this Agreement or of any of ------------- the Loan Documents or the application thereof to any party thereto or circumstances shall be invalid or unenforceable to any extent, the remainder of such Loan Documents and the application of such provisions to any other party thereto or circumstance shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 15.9. NOTICES. All notices, requests and demands to or upon the ------- respective parties hereto shall be deemed to have been given or made when personally delivered or deposited in the mail, registered or certified mail, postage prepaid, addressed to the Borrower at its Executive Office and to the Lender at 191 Peachtree Street, Atlanta, Georgia 30303, Attn: Leveraged Finance Group (or to such other address as may be designated hereafter in writing by the respective parties hereto) except in cases where it is expressly provided herein or by applicable law that such notice, demand or request is not effective until received by the party to whom it is addressed. 15.10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together ------------------------------- with the remaining Loan Documents, constitute the entire agreement between the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any Loan Document may be changed, waived, discharged, modified or terminated orally, but only by an instrument in writing signed by the party against whom enforcement is sought. 15.11. TIME OF ESSENCE. Time is of the essence in this Agreement ----------------- and the other Loan Documents. 15.12. INTERPRETATION. No provision of this Agreement or any Loan --------------- Document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. -40- 15.13. LENDER NOT A JOINT VENTURER. Neither this Agreement nor ------------------------------- any Loan Document shall in any respect be interpreted, deemed or construed as making Lender a partner or joint venturer with Borrower or as creating any similar relationship or entity, and Borrower agrees that it will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving Lender and Borrower. 15.14. JURISDICTION. BORROWER AGREES THAT ANY LEGAL ACTION OR ------------- PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF GEORGIA OR THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, ALL AS LENDER MAY ELECT. BY EXECUTION OF THIS AGREEMENT, BORROWER HEREBY SUBMITS TO EACH SUCH JURISDICTION, HEREBY EXPRESSLY WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY REASON OF ITS PRESENT OR FUTURE DOMICILE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED BY LAW. 15.15. ACCEPTANCE. This Agreement, together with the other Loan ----------- Documents, shall not become effective unless and until delivered to Lender at its principal office in Atlanta, Fulton County, Georgia and accepted in writing by Lender at such office as evidenced by its execution hereof (notice of which delivery and acceptance are hereby waived by Borrower). 15.16. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be ------------------------------- made hereunder or under the Notes shall be stated to be due on a Saturday, Sunday or a public holiday under the laws of the State of Georgia, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest hereunder or under the Notes. 15.17. CURE OF DEFAULTS BY LENDER. If, hereafter, Borrower ------------------------------- defaults in the performance of any duty or obligation to Lender hereunder or under any Loan Document, Lender may, at its option, but without obligation, cure such default and any costs, fees and expenses incurred by Lender in connection therewith including, without limitation, for the purchase of insurance, the payment of taxes and the removal or settlement of liens and claims, shall be deemed to be advances against the Master Note, whether or not this creates an overadvance thereunder, and shall be payable in accordance with its terms. 15.18. RECITALS. All recitals contained herein are hereby --------- incorporated by reference into this Agreement and made part thereof. -41- 15.19. ATTORNEY-IN-FACT. Borrower hereby designates, appoints and ----------------- empowers Lender irrevocably as its attorney-in-fact, at Borrower's cost and expense, to do in the name of Borrower any and all actions which Lender may deem necessary or advisable to carry out the terms of this Agreement or any other Loan Document upon the failure, refusal or inability of Borrower to do so and Borrower hereby agrees to indemnify and hold Lender harmless from any costs, damages, expenses or liabilities arising against or incurred by Lender in connection therewith except to the extent any such costs, damages, expenses or liabilities were caused by Lender's gross negligence or willful misconduct. 15.20. SOLE BENEFIT. The rights and benefits set forth in this -------------- Agreement and the other Loan Documents are for the sole and exclusive benefit of the parties hereto and thereto and may be relied upon only by them. 15.21. INDEMNIFICATION. Borrower will hold Lender, its respective ---------------- directors, officers, employees, agents, Affiliates, successors and assigns harmless from and indemnify Lender, its respective directors, officers, employees, agents, Affiliates, successors and assigns against, all loss, damages, costs and expenses (including, without limitation, reasonable attorney's fees, costs and expenses) actually incurred by any of the foregoing, whether direct, indirect or consequential, as a result of or arising from or relating to any "Proceedings" (as defined below) by any Person, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any Person under any statute, case or regulation, including, without limitation, any federal or state securities laws or under any common law or equitable case or otherwise, arising from or in connection with this Agreement, and any other of the transactions contemplated by this Agreement, except to the extent such losses, damages, costs or expenses are due to the willful misconduct or gross negligence of Lender. As used herein, "PROCEEDINGS" shall mean ----------- actions, suits or proceedings before any court, governmental or regulatory authority and shall include, particularly, but without limitation, any actions concerning Environmental Laws. At the request of Lender, Borrower will indemnify any Person to whom Lender transfers or sells all or any portion of its interest in the Obligations or participations therein on terms substantially similar to the terms set forth above. Lender shall not be responsible or liable to any Person for consequential damages which may be alleged as a result of this Agreement or any of the transactions contemplated hereby. The obligations of Borrower under this Section shall survive the termination of this Agreement and payment of the Obligations. 15.22. JURY TRIAL WAIVER. EACH OF BORROWER AND LENDER HEREBY -------------------- WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, OBLIGATIONS OR THE COLLATERAL. 16. CONDITIONS PRECEDENT. Unless waived in writing by Lender at or ---------------------- prior to the execution and delivery of this Agreement, the conditions set forth below shall constitute express conditions precedent to any obligation of Lender hereunder. -42- 16.1. SECRETARY'S CERTIFICATE. Receipt by Lender of a certificate ------------------------ from the Secretary (or Assistant Secretary) of Borrower, certifying to Lender that appropriate resolutions have been entered into by the Board of Directors of Borrower incident hereto and that the officers of Borrower whose signatures appear hereinbelow, on the other Loan Documents, and on any and all other documents, instruments and agreements executed in connection herewith, are duly authorized by the Board of Directors of Borrower for and on behalf of Borrower to execute and deliver this Agreement, the other Loan Documents and such other documents, instruments and agreements, and to bind Borrower accordingly thereby, all in form and substance satisfactory to Lender. 16.2. GOOD STANDING CERTIFICATES. Receipt by Lender of a ----------------------------- certificate of good standing with respect to Borrower from the secretaries of state of the state of incorporation of Borrower and of any state in which a Collateral Location is situated, dated within 10 days of the date hereof. 16.3. ARTICLES/BY-LAWS. Receipt by Lender of copies of the ----------------- articles of incorporation and bylaws of Borrower as in effect on date hereof, certified as to truth and accuracy by the corporate secretary of Borrower. 16.4. LOAN DOCUMENTS AND ANY GUARANTY. Receipt by Lender of all ---------------------------------- the other Loan Documents and any Guaranty, duly executed in form and substance acceptable to Lender. 16.5. INSURANCE. Receipt by Lender of a copy of each hazard ---------- liability and business interruption insurance policy required hereunder and certificate respecting all hazard insurance required hereunder, in form and substance acceptable to Lender, together with a lender loss payee endorsement thereof, favoring Lender, in form and substance satisfactory to Lender. 16.6. FINANCING STATEMENTS. Receipt by Lender of Uniform ---------------------- Commercial Code financing statements respecting the Collateral, duly executed by Borrower in form and substance acceptable to Lender. 16.7. OPINION OF COUNSEL. Receipt by Lender of an opinion of --------------------- counsel from independent legal counsel to Borrower, in form and substance satisfactory to Lender. 16.8. LANDLORD AGREEMENTS. Receipt by Lender of landlord or --------------------- warehouseman agreements, in form and substance satisfactory to Lender, with respect to each premises leased by Borrower and which are disclosed by Exhibit ------- "A" attached hereto. - -- 16.9. NO DEFAULT. No Default Condition or Event of Default shall ------------ exist and Borrower shall in all respects be in compliance with all of the terms of the Loan Documents, as evidenced by its delivery of a certificate of no default to such effect, to be substantially in the form of Exhibit "C" attached ----------- hereto. -43- 16.10. FIELD EXAMINATION. Receipt by Lender of a field ------------------- examination with respect to Borrower's business and the Collateral, which field examination shall be acceptable to Lender in all respects. 16.11. TELEPHONE INSTRUCTION LETTER. Receipt by Lender of a ------------------------------- telephone instruction letter, concerning requests for advances under the Line of Credit, in form and substance satisfactory to Lender. 16.12. DISBURSEMENTS LETTER. Receipt by Lender of a disbursements --------------------- letter, concerning the use of the proceeds of the initial extensions of credit hereunder, in form and substance satisfactory to Lender. 16.13. SETTLEMENT REPORT. Receipt by Lender of a settlement ------------------- report in the form of Exhibit "D" attached hereto, together with accompanying ----------- documentation required by Lender (all in form and substance required by Lender, but to include in any event an accounts receivable and accounts payable aging (including international accounts receivable), an inventory report and a then current customer and Account Debtor name and address list, and a detailed revenue forecast by customer for all projected, domestic video on demand revenue, as some of which may be more particularly described in Section 10.4), which shall indicate satisfaction of the Margin Requirement as of the date of the initial Borrowing, and if no funds are borrowed on the Closing Date, shall indicate the amount of Borrowings available taking into account the Margin Requirement, each certified as to truth and accuracy by a duly authorized officer of Borrower. 16.14. AVAILABILITY. Lender shall have determined, and shall be ------------ satisfied that, immediately after Lender has made the initial Advances on the Closing Date and issued the Letters of Credit, if any, to be issued on the Closing Date and Borrower has paid (or made provision for payment of) all closing costs incurred in connection with the transactions referenced herein, Availability is not less than $5,000,000. 16.15. EVIDENCE OF PERFECTION AND PRIORITY OF LIENS. Receipt by ---------------------------------------------- Lender of copies of all filing receipts or acknowledgments issued by any governmental authority to evidence any filing or recordation necessary to perfect Liens of Lender in the Collateral and evidence in form satisfactory to Lender that such Liens constitute valid and perfected first priority Liens in the Collateral and that there are no other Liens upon any of the Collateral. 16.16. NO MATERIAL ADVERSE CHANGE. No material adverse change in --------------------------- the condition, property, Collateral or operations, financial or otherwise, of Borrower shall have occurred since September 30, 2000. 16.17. OTHER. Receipt by Lender of such other documents, ------ certificates, instruments and agreements as shall be required hereunder or provided for herein or as Lender or Lender's counsel may require in connection herewith. -44- -45- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and Borrower has caused its seal to be affixed hereto, as of the day and year first above written. "BORROWER" CONCURRENT COMPUTER CORPORATION By: ______________________________________ STEVEN R. NORTON, Executive Vice President, Chief Financial Officer, Secretary and Treasurer [CORPORATE SEAL] Accepted in Atlanta, Georgia: ------------------------------- "LENDER" WACHOVIA BANK, N.A. By: ______________________________________ Title:__________________________________ -46- EXHIBIT A ---------- Borrower Information EXHIBIT B ---------- MASTER NOTE ------------ STATE OF GEORGIA COUNTY OF FULTON November 3, 2000 1. FOR VALUE RECEIVED, the undersigned ("Borrower") hereby promises to pay to the order of WACHOVIA BANK, N.A. ("Lender"), at Lender's principal office in Atlanta, Georgia, or at such other place as Lender hereafter may direct in writing, in legal tender of the United States of America, the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000), or so much thereof as may be disbursed and remain outstanding from time to time hereafter under the "Line of Credit" established by Lender in favor of Borrower pursuant to that certain Loan and Security Agreement between Lender and Borrower of even date herewith (as at any time amended, the "Loan Agreement"), the terms and provisions of which are hereby incorporated herein by reference and made a part hereof, with interest from and after the date hereof on the unpaid principal amount outstanding from time to time at a variable rate per annum as provided in the Loan Agreement. This Note evidences Borrowings under, and is the "Master Note" defined in, the Loan Agreement and is entitled to all of the benefits and security of the Loan Agreement and the other Loan Documents. Capitalized terms used herein and not otherwise defined herein shall have the meaning given such terms in the Loan Agreement. 2. The Prime Rate in effect on the date hereof is __________ percent (___%), and therefore the rate of interest in effect hereunder on the date hereof, expressed in simple interest terms, is ________ percent (__%). From and after the occurrence of an Event of Default and during the continuance thereof, the outstanding principal balance of this Note shall bear interest at the Default Rate. 3. Principal, payable on account of the Line of Credit Advances made by Lender to Borrower pursuant to the Loan Agreement, shall be paid by Borrower to Lender on the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the Collateral, to the extent required by the Loan Agreement and to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of this Note, or (iii) the Termination Date. 4. Interest accrued on the Line of Credit shall be paid as provided in the Loan Agreement. 5. In no contingency or event whatsoever shall the amount paid or agreed to be paid to Lender for the use, forbearance or detention of money advanced under the Loan Agreement and evidenced hereby exceed the highest lawful rate permissible under applicable law. It is the intent hereof that Borrower not pay or contract to pay, and that Lender not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be charged and paid by Borrower under applicable law. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, pro-rated, allocated and spread throughout the full term of this Note until payment in full of the principal amount hereof (including the period of any renewal or extension thereof) so that interest on such principal amount for such full period will not exceed the maximum amount permitted by applicable law. 6. Borrower agrees that the occurrence of an Event of Default under the Loan Agreement including, without limitation, the failure to pay any payment of principal or interest on this Note in full on the due date thereof, shall constitute an event of default under this Note and shall entitle Lender, at its option, upon or at any time after the occurrence of any such event of default to declare the then outstanding principal balance and accrued and unpaid interest hereof to be, and the same shall thereupon become, immediately due and payable without notice to or demand upon Borrower, all of which Borrower hereby expressly waives. If this Note or any portion hereof is collected by or through an attorney at law, the Borrower shall be obligated to pay all costs of collection, including, without limitation, reasonable attorneys' fees actually incurred and court costs. 7. Time is of the essence of this Note. To the fullest extent permitted by applicable law, Borrower for itself and its legal representatives, successors and assigns hereby expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, the benefit of any exemption or insolvency laws, and any other notice required by law relative hereto. 8. Wherever possible each provision of this Note shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by Lender of any right or remedy preclude any other right or remedy. Lender, at its option, may enforce its rights against any Collateral securing this Note without enforcing its rights against Borrower, any Guarantor of the indebtedness evidenced hereby or any other Property or indebtedness due or to become due to Borrower. Borrower agrees that, without releasing or impairing Borrower's liability hereunder, Lender may at any time release, surrender, substitute or exchange any Collateral securing this Note and may at any time release any Person primarily or secondarily liable for the indebtedness evidenced by this Note. 9. This Note shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of Georgia, and is intended to take effect as an instrument under seal. -2- IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed, sealed and delivered on the day and year first above written. "BORROWER" CONCURRENT COMPUTER CORPORATION By:_______________________________________ STEVEN R. NORTON, Executive Vice President, Chief Financial Officer, Secretary and Treasurer [CORPORATE SEAL] -3- EXHIBIT C ---------- Certificate of No Default The undersigned, being the __________________ of CONCURRENT COMPUTER CORPORATION ("Borrower"), and, in such capacity, being familiar with the matters set forth herein and duly authorized and empowered to issue this Certificate for and on behalf of Borrower, does hereby certify to WACHOVIA BANK, N.A. ("Lender"), in connection with and pursuant to that certain Loan and Security Agreement, dated November 3, 2000, between Borrower and Lender (herein, as it may be amended to date, called the "Loan Agreement"; capitalized terms used herein, without definition, having the meaning given to such terms in the Loan Agreement) that, as of the date of this Certificate, there exists no Event of Default or Default Condition. Without limiting the generality of the foregoing, Borrower is in compliance with all financial covenants referenced in Section 12 of the Loan Agreement and specified in Supplement A thereto, as demonstrated by the computations attached ------------ hereto. WITNESS my hand as of ____________, 20__. By:_______________________________________ Name:__________________________________ Title:___________________________________ EXHIBIT D --------- Settlement Report BORROWING BASE CERTIFICATE To: Wachovia Bank, N.A. ("Lender") Date: __________ Report #:___________ CONCURRENT COMPUTER CORPORATION From: __________ To: ________________ In connection with the Loan and Security Agreement dated __________ ("Agreement"), Borrower hereby certifies to Lender the truth and accuracy of the following summary of activity for the period shown above:
A. ACCOUNTS RECEIVABLE 1. a. Balance Forward $___________ b. Credit Sales +___________ =___________(1) 2. a. A/R Collections -___________ b. Write Offs -___________ c. Returns -___________ d. Other Credits and Sales Discounts -___________ =___________(2) 3. Outstanding Accounts Receivable (1+2) $___________(3) 4. Less Ineligible Accounts Receivable a. Payment terms exceed 90 days past invoice date -___________ b. Unpaid for > 60 days past due date or 90 days past invoice date -___________ c. Owing by any Affiliate of Borrower -___________ d. 25% or more of the accounts from Account Debtor not deemed Eligible Accounts -___________ e. Subject to Assignment of Claims Act -___________ f. Total unpaid accounts of Account Debtor exceeding 10% of the net amount of Eligible Accounts (to the extent of such excess) (excluding accounts owing from AT&T, Charter Communications, Comcast, Cox Communications, Adelphia, Cablevision Time Warner) -___________ g. Account debtor not located in the U.S. -___________ h. Account debtor is also a creditor of Borrower and is subject to no counterclaim, defense, setoff or deduction (to the extent of Borrower's indebtedness to such Creditor) -____________ i. Subject to bill and hold arrangement -____________ j. Account Debtor not deemed -____________ creditworthy in its reasonable credit judgment k. Otherwise deemed ineligible by Lender -____________ in its reasonable credit judgment Ineligible Account Total =___________(4) 5. Eligible Accounts (Line 3-4) =___________(5) 6. Loan Value 85% of Line 5 $___________(6) B. LOAN STATUS 1. Total Revolver Commitment $___________(7) 2. a. Borrowing Base Total (Line 6) $____________ b. Less any additional reserves Wachovia may elect to impose -____________ c. Total Borrowing Base Availability =___________(8) 3. Total availability (Lesser of line 7 and 8) ___________(9) 4. Less Outstanding Revolver Loans -___________(10) 5. Net availability $___________
In connection with the foregoing, we hereby acknowledge and agree that, as of the date hereof, the Agreement remains in full force and effect, is binding upon us and enforceable against us in accordance with its terms, and we certify to you that, as of the date hereof, there exists no Event of Default under said Agreement or even which, with the passage of time or the giving of notice, or both, would so constitute an Event of Default. We hereby restate and renew each and every representation and warranty made by us in the Agreement or in connection therewith, effective as of the date hereof. CONCURRENT COMPUTER CORPORATION By:_________________________________________ Title:______________________________________ -3- EXHIBIT E --------- Material Contracts 1. Development Agreement Regarding A Video-On-Demand System dated August 17, 1998, between Scientific-Atlanta, Inc. and Concurrent Computer Corporation. 2. Joint Development and Licensing Agreement dated as of July 10, 1998, between Prasara Technologies, Inc. and Concurrent Computer Corporation. 3. Licensing Agreement for Computer Software Source Code Package dated as of March 17, 1997, between Mentat Inc. and Concurrent Computer Corporation. 4. Unix System Laboratories, Inc. Software Agreement Number SOFT-000361 and Software Agreement Supplement dated November 30, 1992, between Unix System Laboratories, Inc. and Concurrent Computer Corporation.
SCHEDULE 11.1(b) ---------------- Encumbrances DEBTOR SECURED PARTY FILING LOCATION FILING NUMBER FILING DATE COLLATERAL - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Matrix Funding Gwinnett County, 067-99-014420 11/8/99 *Leased Office Corporation Corporation Georgia Equipment - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer AT&T Credit New Jersey Secretary of 1661667 10/11/95 * Leased office Corporation Corporation State equipment under Lease No. 0001966. - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer IBM Credit Corporation New Jersey Secretary of 1686733 3/8/96 * IBM leased office Corporation State equipment. - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Xerox Corporation Florida Secretary of 950000177298 8/28/96 Leased Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Telogy, Inc. Florida Secretary of 960000259207 12/11/96 Leases Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Crown Bank Leasing Florida Secretary of 970000155008 7/14/97 Leased Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Xerox Corporation Florida Secretary of 980000063709 3/24/98 Leased Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Telogy, Inc. Florida Secretary of 980000121679 6/3/98 Leased Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Telogy, Inc. Florida Secretary of 980000121683 6/3/98 Leased Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Telogy, Inc. Florida Secretary of 980000121681 6/3/98 Leased Equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer AT&T Capital Florida Secretary of 980000024292 2/3/98 Leased Equipment Corporation Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer AT&T Capital Florida Secretary of 980000024294 2/3/98 Leased Equipment Corporation Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Matrix Funding Florida Secretary of 990000148746 7/1/99 Leased office furniture, Corporation Corporation State fixture - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer Matrix Funding Gwinnett County, 014420 11/8/99 Leased computer Corporation Corporation Georgia equipment - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer AT&T Capital New Jersey Secretary of 1661667 10/11/95 Leased equipment Corporation Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------ Concurrent Computer IBM Credit Corporation New Jersey Secretary of 1686733 3/8/96 Leased equipment Corporation State - ------------------- ---------------------- ----------------------- ------------- ----------- ------------------------
SCHEDULE 11.2(b) Debt for Money Borrowed SCHEDULE 11.3 Contingent Obligations None SUPPLEMENT A ------------ Financial Covenants (A) CONSOLIDATED EBITDA. Maintain Consolidated EBITDA as of the last -------------------- day of each period set forth below of at least the amounts set forth below for the periods applicable thereto: Period Amount ------ ------ July 1, 2000 through ($ 2,500,000) December 31, 2000 July 1, 2000 through ($ 2,250,000) March 31, 2001 July 1, 2000 through ($ 1,150,000) June 30, 2001 For the Four Fiscal Quarters $ 350,000 ending September 30, 2001 For the Four Fiscal Quarters $ 4,700,000 ending December 30, 2001 For the Four Fiscal Quarters $ 7,800,000 ending March 31, 2002 For the Four Fiscal Quarters $ 10,000,000 ending June 30, 2002 (B) LEVERAGE RATIO. Maintain a ratio of Consolidated Total --------------- Liabilities to Consolidated Tangible Net Worth of not more than 2.0 to 1.0 at all times. (C) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Maintain a -------------------------------------------- Consolidated Fixed Charge Coverage Ratio greater than or equal to the ratio set forth below for the period applicable thereto, as of the last day of each Fiscal Quarter for the four (4) Fiscal Quarters then ending: Date Ratio ---- ----- September 30, 2001 0.7 to 1.0 December 31, 2001 1.25 to 1.0 March 31, 2002 2.0 to 1.0 June 30, 2002 3.0 to 1.0 (D) DEBT COVERAGE RATIO. Maintain a Consolidated Funded Debt/EBITDA -------------------- Ratio as of the last day of each Fiscal Quarter for the four (4) Fiscal Quarters then ending of not more than the ratio set forth below for the period corresponding thereto: Period Ratio ------ ----- December 31, 2001 2.0 to 1.0 March 31, 2002 2.0 to 1.0 June 30, 2002 2.0 to 1.0 (E) CONSOLIDATED EBITDA (XSTREME DIVISION). Maintain Consolidated ----------------------------------------- EBITDA of the Xstreme Division as of the last day of each period set forth below of at least the amounts set forth below for the periods applicable thereto: Period Amount ------ ------ July 1, 2000 through ($ 5,000,000) December 31, 2000 July 1, 2000 through ($ 6,350,000) March 31, 2001 July 1, 2000 through ($ 6,650,000) June 30, 2001 For the Four Fiscal Quarters ($ 3,750,000) ending September 30, 2001 For the Four Fiscal Quarters $ 200,000 ending December 30, 2001 For the Four Fiscal Quarters $ 4,600,000 ending March 31, 2002 For the Four Fiscal Quarters $ 9,100,000 ending June 30, 2002 (F) CONSOLIDATED EBITDA (REAL-TIME DIVISION). Maintain Consolidated ----------------------------------------- EBITDA of Real-Time Division as of the last day of each Fiscal Quarter for the four (4) Fiscal Quarters then ending of at least the amounts set forth below for the periods applicable thereto: Period Amount ------ ------ July 1, 2000 through $3,300,000 December 31, 2000 July 1, 2000 through $4,750,000 March 31, 2001 July 1, 2000 through $6,200,000 June 30, 2001 For the Four Fiscal Quarters $4,900,000 ending September 30, 2001 For the Four Fiscal Quarters $4,100,000 ending December 30, 2001 For the Four Fiscal Quarters $3,200,000 ending March 31, 2002 For the Four Fiscal Quarters $2,100,000 ending June 30, 2002 EX-11 3 doc3.txt CONCURRENT COMPUTER CORPORATION EXHIBIT 11 BASIC AND DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 BASIC/DILUTED BASIC/DILUTED ------------- ------------- Average outstanding shares 53,988 48,965 Dilutive options outstanding - - ------------- ------------- Equivalent Shares 53,988 48,965 ============= ============ Net loss available to common stockholders $ (1,794) $ (2,551) ============= ============ Loss per share $ (0.03) $ (0.05) ============= ============ EX-27 4 doc4.txt WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 [LEGEND] This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at September 30, 2000 and Consolidated Statement of Operations for the three months ended September 30, 2000, and is qualified in its entirety by reference to such financial statements. [/LEGEND] 1000 3-MOS DEC-31-1999 JUL-01-2000 SEP-30-2000 5,853 0 15,784 535 5,821 29,533 33,546 22,464 54,919 15,235 0 0 0 541 36,394 54,919 10,148 16,312 5,561 8,721 0 55 69 (1,644) 150 (1,794) 0 0 0 (1,794) (.03) (.030)
-----END PRIVACY-ENHANCED MESSAGE-----