(Mark one) | |
[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | September 30, 2011 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | to |
Commission File Number: | 0-26844 |
OREGON | 93-0945232 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
5435 N.E. Dawson Creek Drive, Hillsboro, OR | 97124 | |
(Address of principal executive offices) | (Zip Code) | |
(503) 615-1100 | ||
(Registrant's telephone number, including area code) | ||
(Former name, former address and former fiscal year, if changed since last report) |
Large accelerated filer | [ ] | Accelerated filer | [x] | |
Non-accelerated filer | [ ] | (Do not check if a smaller reporting company) | Smaller reporting company | [ ] |
Page | ||
PART I. FINANCIAL INFORMATION | ||
Item 1. Financial Statements (Unaudited) | ||
Consolidated Statements of Income – Three and Nine Months Ended September 30, 2011 and 2010 | ||
Condensed Consolidated Balance Sheets – September 30, 2011 and December 31, 2010 | ||
Consolidated Statement of Changes in Shareholders’ Equity – Nine Months Ended September 30, 2011 | ||
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2011 and 2010 | ||
Notes to Consolidated Financial Statements | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||
Item 4. Controls and Procedures | ||
PART II. OTHER INFORMATION | ||
Item 1A. Risk Factors | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||
Item 5. Other Information | ||
Item 6. Exhibits | ||
Signatures |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues | $ | 97,876 | $ | 75,167 | $ | 251,359 | $ | 217,485 | |||||||
Cost of sales: | |||||||||||||||
Cost of sales | 66,610 | 50,740 | 173,777 | 147,089 | |||||||||||
Amortization of purchased technology | 3,283 | 1,630 | 5,610 | 5,018 | |||||||||||
Total cost of sales | 69,893 | 52,370 | 179,387 | 152,107 | |||||||||||
Gross margin | 27,983 | 22,797 | 71,972 | 65,378 | |||||||||||
Research and development | 12,955 | 9,863 | 31,562 | 29,174 | |||||||||||
Selling, general and administrative | 15,610 | 11,225 | 37,520 | 34,030 | |||||||||||
Intangible assets amortization | 1,234 | 192 | 1,618 | 538 | |||||||||||
Restructuring and acquisition-related charges, net | 5,758 | (228 | ) | 8,279 | (203 | ) | |||||||||
Gain on the liquidation of a foreign subsidiary | (2,081 | ) | — | (2,081 | ) | — | |||||||||
Income (loss) from operations | (5,493 | ) | 1,745 | (4,926 | ) | 1,839 | |||||||||
Interest expense | (458 | ) | (462 | ) | (1,410 | ) | (1,578 | ) | |||||||
Interest income | 6 | 59 | 97 | 566 | |||||||||||
Other income (expense), net | 327 | (55 | ) | 187 | (34 | ) | |||||||||
Income (loss) before income tax benefit | (5,618 | ) | 1,287 | (6,052 | ) | 793 | |||||||||
Income tax benefit | (8,383 | ) | (884 | ) | (8,478 | ) | (920 | ) | |||||||
Net income | $ | 2,765 | $ | 2,171 | $ | 2,426 | $ | 1,713 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.10 | $ | 0.09 | $ | 0.10 | $ | 0.07 | |||||||
Diluted | $ | 0.10 | $ | 0.09 | $ | 0.09 | $ | 0.07 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 26,432 | 24,212 | 25,038 | 24,088 | |||||||||||
Diluted | 27,820 | 24,400 | 25,595 | 24,310 |
September 30, 2011 | December 31, 2010 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 55,902 | $ | 129,078 | |||
Accounts receivable, net | 58,805 | 42,855 | |||||
Other receivables | 4,643 | 1,665 | |||||
Inventories, net | 30,281 | 15,178 | |||||
Inventory deposit, net | 6,674 | 6,194 | |||||
Other current assets | 5,354 | 4,612 | |||||
Deferred tax assets, net | 5,151 | 551 | |||||
Total current assets | 166,810 | 200,133 | |||||
Property and equipment, net | 12,271 | 9,487 | |||||
Goodwill | 26,155 | 160 | |||||
Intangible assets, net | 89,086 | 7,088 | |||||
Long-term deferred tax assets, net | 13,166 | 16,005 | |||||
Other assets | 7,744 | 8,055 | |||||
Total assets | $ | 315,232 | $ | 240,928 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 52,762 | $ | 29,190 | |||
Accrued wages and bonuses | 9,600 | 6,556 | |||||
Deferred income | 9,437 | 4,424 | |||||
Other accrued liabilities | 15,836 | 12,914 | |||||
Total current liabilities | 87,635 | 53,084 | |||||
Long-term liabilities: | |||||||
2013 convertible senior notes | 50,000 | 50,000 | |||||
Other long-term liabilities | 8,515 | 450 | |||||
Total long-term liabilities | 58,515 | 50,450 | |||||
Total liabilities | 146,150 | 103,534 | |||||
Commitments and contingencies (Note 9) | |||||||
Shareholders’ equity: | |||||||
Common stock — no par value, 100,000 shares authorized; 27,735 and 24,351 shares issued and outstanding at September 30, 2011 and December 31, 2010 | 299,063 | 266,945 | |||||
Accumulated deficit | (132,257 | ) | (134,683 | ) | |||
Accumulated other comprehensive income: | |||||||
Cumulative translation adjustments | 2,486 | 4,739 | |||||
Unrealized gain (loss) on hedge instruments | (210 | ) | 393 | ||||
Total accumulated other comprehensive income | 2,276 | 5,132 | |||||
Total shareholders’ equity | 169,082 | 137,394 | |||||
Total liabilities and shareholders’ equity | $ | 315,232 | $ | 240,928 |
Common stock | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | Total Comprehensive Loss (1) | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balances, December 31, 2010 | 24,351 | $ | 266,945 | $ | (134,683 | ) | $ | 5,132 | $ | 137,394 | ||||||||||||
Shares issued pursuant to benefit plans | 187 | 1,324 | — | 1,324 | ||||||||||||||||||
Stock-based compensation associated with employee benefit plans | — | 4,038 | — | 4,038 | ||||||||||||||||||
Vesting of restricted stock units | 67 | — | — | — | ||||||||||||||||||
Restricted share forfeitures for tax settlements | (17 | ) | (142 | ) | — | (142 | ) | |||||||||||||||
Repurchases of common stock | (518 | ) | (3,920 | ) | — | (3,920 | ) | |||||||||||||||
Shares issued for acquisitions | 3,665 | 30,818 | 30,818 | |||||||||||||||||||
Net adjustment for fair value of hedge derivatives | — | — | (603 | ) | (603 | ) | (603 | ) | ||||||||||||||
Gain on liquidation of foreign subsidiary | — | — | (2,081 | ) | (2,081 | ) | (2,081 | ) | ||||||||||||||
Translation adjustments | — | — | (172 | ) | (172 | ) | (172 | ) | ||||||||||||||
Net income for the period | — | — | 2,426 | — | 2,426 | 2,426 | ||||||||||||||||
Balances, September 30, 2011 | 27,735 | $ | 299,063 | $ | (132,257 | ) | $ | 2,276 | $ | 169,082 | ||||||||||||
Total comprehensive loss for the nine months ended September 30, 2011 | $ | (430 | ) |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income for the period | $ | 2,765 | $ | 2,171 | $ | 2,426 | $ | 1,713 | |||||||
Net adjustment for fair value of hedge derivatives | (660 | ) | 134 | (603 | ) | (484 | ) | ||||||||
Gain on liquidation of foreign subsidiary | (2,081 | ) | — | (2,081 | ) | — | |||||||||
Translation adjustments | (428 | ) | 301 | (172 | ) | 24 | |||||||||
Total comprehensive income (loss) | $ | (404 | ) | $ | 2,606 | $ | (430 | ) | $ | 1,253 |
For the Nine Months Ended | |||||||
September 30, | |||||||
2011 | 2010 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 2,426 | $ | 1,713 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 11,199 | 9,337 | |||||
Inventory valuation allowance | 1,637 | 1,003 | |||||
Deferred income taxes | (878 | ) | 158 | ||||
Deferred tax valuation allowance reversal | (7,557 | ) | — | ||||
Tax liability adjustments | — | (1,029 | ) | ||||
Non-cash interest expense | 336 | 336 | |||||
Gain on the liquidation of a foreign subsidiary | (2,081 | ) | — | ||||
Loss (gain) on disposal of property and equipment | 121 | (398 | ) | ||||
Loss on ARS settlement right | — | 7,833 | |||||
Gain on ARS | — | (7,854 | ) | ||||
Stock-based compensation expense | 4,038 | 4,880 | |||||
Other | 1,286 | 366 | |||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||
Accounts receivable | (2,514 | ) | 1,310 | ||||
Other receivables | (1,781 | ) | 1,524 | ||||
Inventories | (11,705 | ) | 1,497 | ||||
Inventory deposit | (480 | ) | (3,371 | ) | |||
Other current assets | 254 | (567 | ) | ||||
Accounts payable | 18,151 | 5,673 | |||||
Accrued wages and bonuses | 125 | (1,180 | ) | ||||
Accrued restructuring | 1,958 | (2,510 | ) | ||||
Deferred income | 2,574 | 1,649 | |||||
Other accrued liabilities | (3,194 | ) | (1,116 | ) | |||
Net cash provided by operating activities | 13,915 | 19,254 | |||||
Cash flows from investing activities: | |||||||
Acquisitions, net of cash acquired | (79,298 | ) | (3,385 | ) | |||
Proceeds from sale of auction rate securities | — | 62,175 | |||||
Capital expenditures | (4,289 | ) | (3,283 | ) | |||
Purchase of long-term assets | (500 | ) | (3,189 | ) | |||
Proceeds from the sale of property and equipment | — | 450 | |||||
Net cash provided by (used in) investing activities | (84,087 | ) | 52,768 | ||||
Cash flows from financing activities: | |||||||
Borrowings on line of credit | — | 13,738 | |||||
Payments on line of credit | — | (55,025 | ) | ||||
Repurchases of common stock | (3,920 | ) | — | ||||
Proceeds from issuance of common stock | 1,324 | 2,130 | |||||
Other financing activities | (408 | ) | (329 | ) | |||
Net cash used in financing activities | (3,004 | ) | (39,486 | ) | |||
Effect of exchange rate changes on cash | — | 49 | |||||
Net increase (decrease) in cash and cash equivalents | (73,176 | ) | 32,585 | ||||
Cash and cash equivalents, beginning of period | 129,078 | 100,672 | |||||
Cash and cash equivalents, end of period | $ | 55,902 | $ | 133,257 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the year for: | |||||||
Interest | $ | 1,375 | $ | 1,375 | |||
Income taxes | $ | 538 | $ | 524 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Issuance of common stock for acquisitions | $ | 30,818 | $ | — | |||
Capital lease obligation | $ | 120 | $ | — |
Refer to Note 2 - Acquisition of Continuous Computing Corporation for other non-cash impacts associated with the acquisition |
Cash paid for initial consideration | $ | 73,009 | |
Working capital adjustment | 8,504 | ||
Fair value of contingent consideration (earn-out payments) | 7,400 | ||
Share consideration payable upon closing: | |||
3.7 million Radisys common shares | 30,753 | ||
Fair value of stock options | 65 | ||
Total preliminary purchase price | $ | 119,731 |
Total preliminary purchase price | $ | 119,731 | |||||
Fair value of net tangible assets acquired and liabilities assumed: | |||||||
Cash and cash equivalents | $ | 2,214 | |||||
Accounts receivable | 13,433 | ||||||
Inventories | 4,036 | ||||||
Prepaid expenses and other current assets | 3,393 | ||||||
Fixed assets | 2,304 | ||||||
Other assets | 614 | ||||||
Accounts payable | (5,368 | ) | |||||
Accrued expenses | (6,802 | ) | |||||
Deferred revenue | (1,825 | ) | |||||
Other long-term liabilities | (702 | ) | |||||
11,297 | |||||||
Fair value of identifiable intangible assets acquired | 89,240 | ||||||
Net deferred tax liability | (6,801 | ) | |||||
Goodwill | $ | 25,995 |
Fair Value | Estimated Life (yrs) | |||||
Developed technology: | ||||||
ATCA developed technology | $ | 33,600 | 7 | |||
Trillium developed technology | 18,500 | 7 | ||||
Software developed technology | 1,850 | 7 | ||||
Legacy developed technology | 1,300 | 2 | ||||
Total developed technology | 55,250 | |||||
Customer relationships | 25,500 | 6 | ||||
Trade name | 7,900 | 10 | ||||
Backlog | 590 | 0.5 | ||||
Total intangible assets subject to amortization | $ | 89,240 |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Cost of sales | $ | 212 | $ | — | $ | 212 | $ | — | |||||||
Restructuring and acquisition-related charges, net | |||||||||||||||
Transaction costs | 1,719 | — | 3,347 | — | |||||||||||
Restructuring costs | 3,411 | — | 4,311 | — | |||||||||||
Integration-related costs | 644 | — | 644 | — | |||||||||||
Total restructuring and acquisition-related charges, net | 5,774 | — | 8,302 | — | |||||||||||
Total transaction-related expenses | $ | 5,986 | $ | — | $ | 8,514 | $ | — |
Actual | Pro-Forma | Pro-Forma | |||||||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues | $ | 97,876 | $ | 89,507 | $ | 282,363 | $ | 259,317 | |||||||
Net income (loss) | $ | 2,765 | $ | (1,253 | ) | $ | (5,126 | ) | $ | (7,115 | ) | ||||
Net income (loss) per share: | |||||||||||||||
Basic | $ | 0.10 | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.27 | ) | ||||
Diluted | $ | 0.10 | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.27 | ) |
Fair Value Measurements as of September 30, 2011 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash surrender value of life insurance contracts | $ | 3,282 | $ | — | $ | 3,282 | $ | — | |||||||
Foreign currency forward contracts | (264 | ) | — | (264 | ) | — | |||||||||
Contingent consideration liability | (7,446 | ) | — | — | (7,446 | ) | |||||||||
Total | $ | (4,428 | ) | $ | — | $ | 3,018 | $ | (7,446 | ) |
Fair Value Measurements as of December 31, 2010 | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash surrender value of life insurance contracts | $ | 3,618 | $ | — | $ | 3,618 | $ | — | |||||||
Foreign currency forward contracts | 432 | — | 432 | — | |||||||||||
Total | $ | 4,050 | $ | — | $ | 4,050 | $ | — |
Level 3 | |||
Balance at December 31, 2010 | $ | — | |
Additions | 7,400 | ||
Increase in liability due to re-measurement | 26 | ||
Interest accretion | 20 | ||
Balance at September 30, 2011 | $ | 7,446 |
September 30, 2011 | December 31, 2010 | ||||||
Accounts receivable, gross | $ | 59,648 | $ | 43,788 | |||
Less: allowance for doubtful accounts | (843 | ) | (933 | ) | |||
Accounts receivable, net | $ | 58,805 | $ | 42,855 |
September 30, 2011 | December 31, 2010 | ||||||
Raw materials | $ | 14,012 | $ | 8,204 | |||
Work-in-process | 121 | — | |||||
Finished goods | 21,011 | 10,521 | |||||
35,144 | 18,725 | ||||||
Less: inventory valuation allowance | (4,863 | ) | (3,547 | ) | |||
Inventories, net | $ | 30,281 | $ | 15,178 |
September 30, 2011 | December 31, 2010 | ||||||
Inventory deposit (A) | $ | 9,569 | $ | 8,468 | |||
Less: inventory deposit valuation allowance | (2,895 | ) | (2,274 | ) | |||
Inventory deposit, net | $ | 6,674 | $ | 6,194 |
(A) | The Company is contractually obligated to reimburse its contract manufacturers for the cost of excess inventory that has been purchased as a result of the Company's forecasted demand when there is no alternative use. The Company's inventory deposit represents a cash deposit paid to its contract manufacturers for inventory in excess of near term demand. The deposit is recorded net of adverse purchase commitment liabilities, and therefore the net balance of the deposit represents inventory the Company believes will be utilized. The deposit will be applied against future adverse purchase commitments owed to the Company's contract manufacturers or reduced based on the usage of inventory. See Note 9 - Commitments and Contingencies for additional information regarding the Company's adverse purchase commitment liability. |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Inventory, net | $ | 815 | $ | 186 | $ | 1,637 | $ | 1,003 | |||||||
Inventory deposit, net | 394 | 686 | 802 | 1,522 | |||||||||||
Adverse purchase commitments | 28 | 203 | 825 | 264 |
September 30, 2011 | December 31, 2010 | ||||||
2009 restructuring charges | $ | 78 | $ | 240 | |||
Fourth quarter 2010 restructuring charge | 427 | 1,814 | |||||
Continuous Computing restructuring charge | 3,507 | — | |||||
Total accrued restructuring charges | $ | 4,012 | $ | 2,054 |
Employee Termination and Related Costs | |||
Balance accrued as of December 31, 2010 | $ | 240 | |
Additions | 61 | ||
Reversals | (78 | ) | |
Expenditures | (145 | ) | |
Balance accrued as of September 30, 2011 | $ | 78 |
Employee Termination and Related Costs | |||
Balance accrued as of December 31, 2010 | $ | 1,814 | |
Additions | 248 | ||
Reversals | (254 | ) | |
Expenditures | (1,381 | ) | |
Balance accrued as of September 30, 2011 | $ | 427 |
Employee Termination and Related Costs | |||
Additions | $ | 4,316 | |
Reversals | (5 | ) | |
Expenditures | (804 | ) | |
Balance accrued as of September 30, 2011 | $ | 3,507 |
• | minimum quarterly liquidity ratio of 1.25 during the term of the agreement. The liquidity ratio is defined as cash, cash equivalents and short term investments (with cash and cash equivalents held by the Company's foreign subsidiaries not to exceed $10.0 million and excluding any investments held by the Company's foreign |
• | minimum two quarter positive rolling EBITDA (earnings before interest, taxes, depreciation, amortization, stock based compensation, goodwill impairment charges, and non cash restructuring and integration expenses associated with the acquisition of Continuous Computing) of $3.0 million beginning with the quarter ending December 31, 2012. Prior to December 31, 2012, the minimum two quarter rolling EBITDA requirements increase on a quarterly basis with the quarter ending September 30, 2011 as follows: ($8.3) million, ($8.5) million, ($2.1) million, ($0.5) million and $2.0 million; and |
• | capital expenditures may not exceed $11.0 million in fiscal 2011 and $8.0 million in subsequent fiscal years. |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Effective interest rate | 3.64 | % | 3.64 | % | 3.64 | % | 3.64 | % | |||||||
Contractually stated interest costs | $ | 344 | $ | 344 | $ | 1,032 | $ | 1,032 | |||||||
Amortization of interest costs | $ | 112 | $ | 112 | $ | 336 | $ | 336 |
For the Nine Months Ended | |||||||
September 30, | |||||||
2011 | 2010 | ||||||
Warranty liability balance, beginning of the period | $ | 3,025 | $ | 2,810 | |||
Product warranty accruals | 2,205 | 2,739 | |||||
Continuous Computing beginning balance | 817 | — | |||||
Utilization of accrual | (2,345 | ) | (2,678 | ) | |||
Warranty liability balance, end of the period | $ | 3,702 | $ | 2,871 |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Numerator — Basic | |||||||||||||||
Net income, basic | $ | 2,765 | $ | 2,171 | $ | 2,426 | $ | 1,713 | |||||||
Numerator — Diluted | |||||||||||||||
Net income, basic | $ | 2,765 | $ | 2,171 | $ | 2,426 | $ | 1,713 | |||||||
Interest on convertible notes, net of tax benefit (A) | — | — | — | — | |||||||||||
Net income, diluted | $ | 2,765 | $ | 2,171 | $ | 2,426 | $ | 1,713 | |||||||
Denominator — Basic | |||||||||||||||
Weighted average shares used to calculate net income | |||||||||||||||
per share, basic | 26,432 | 24,212 | 25,038 | 24,088 | |||||||||||
Denominator — Diluted | |||||||||||||||
Weighted average shares used to calculate net income | |||||||||||||||
per share, basic | 26,432 | 24,212 | 25,038 | 24,088 | |||||||||||
Effect of escrow shares | 1,242 | — | 414 | — | |||||||||||
Effect of convertible notes (A) | — | — | — | — | |||||||||||
Effect of dilutive restricted stock (B) | 84 | 141 | 88 | 153 | |||||||||||
Effect of dilutive stock options (B) | 62 | 47 | 55 | 69 | |||||||||||
Weighted average shares used to calculate net income | |||||||||||||||
per share, diluted | 27,820 | 24,400 | 25,595 | 24,310 | |||||||||||
Net income per share | |||||||||||||||
Basic | $ | 0.10 | $ | 0.09 | $ | 0.10 | $ | 0.07 | |||||||
Diluted (A), (B) | $ | 0.10 | $ | 0.09 | $ | 0.09 | $ | 0.07 |
(A) | For the three and nine months September 30, 2011 and 2010, 3.8 million as-if converted shares associated with the Company's 2013 convertible senior notes were excluded from the calculation as their effect would have been anti-dilutive. |
(B) | For the three and nine months ended September 30, 2011 and 2010, the following equity awards, by type, were excluded from the calculation, as their effect would have been anti-dilutive (in thousands): |
For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
Stock options | 2,953 | 2,183 | 2,962 | 2,260 | |||||||
Restricted stock | 1,404 | — | 1,400 | — | |||||||
Total equity award shares excluded | 4,357 | 2,183 | 4,362 | 2,260 |
For the Three Months Ended | For the Nine Months Ended | |||||||||
September 30, | September 30, | |||||||||
2011 | 2010 | 2011 | 2010 | |||||||
Stock options | 242 | 20 | 303 | 78 | ||||||
Restricted stock | 497 | 79 | 693 | 113 | ||||||
Continuous Computing assumed options | 322 | — | 322 | — | ||||||
Total | 1,061 | 99 | 1,318 | 191 |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Cost of sales | $ | 217 | $ | 194 | $ | 572 | $ | 640 | |||||||
Research and development | 464 | 302 | 1,070 | 1,010 | |||||||||||
Selling, general and administrative | 1,220 | 944 | 2,396 | 3,230 | |||||||||||
Total | $ | 1,901 | $ | 1,440 | $ | 4,038 | $ | 4,880 |
Contractual/Notional Amount | Consolidated Balance Sheet Classification | Estimated Fair Value | |||||||||||
Type of Cash Flow Hedge | Asset | (Liability) | |||||||||||
Foreign currency forward exchange contracts | $ | 8,281 | Other accrued liabilities | $ | — | $ | (264 | ) |
Contractual/Notional Amount | Consolidated Balance Sheet Classification | Estimated Fair Value | |||||||||||
Type of Cash Flow Hedge | Asset | (Liability) | |||||||||||
Foreign currency forward exchange contracts | $ | 12,547 | Other current assets | $ | 432 | $ | — |
Effective Portion | Ineffective Portion | ||||||||||||||
Type of Cash Flow Hedge | Hedge Loss Recognized in Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Hedge Gain Reclassified from Accumulated Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Recognized | Hedge Gain (Loss) Recognized | ||||||||||
Foreign currency forward exchange contracts | $ | (660 | ) | ||||||||||||
Cost of sales | $ | 18 | None | $ | — | ||||||||||
Research and development | 109 | None | — | ||||||||||||
Selling, general and administrative | 52 | None | — |
Effective Portion | Ineffective Portion | ||||||||||||||
Type of Cash Flow Hedge | Hedge Loss Recognized in Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Hedge Gain Reclassified from Accumulated Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Recognized | Hedge Gain (Loss) Recognized | ||||||||||
Foreign currency forward exchange contracts | $ | (603 | ) | ||||||||||||
Cost of sales | $ | 53 | None | $ | — | ||||||||||
Research and development | 339 | None | — | ||||||||||||
Selling, general and administrative | 126 | None | — |
Effective Portion | Ineffective Portion | ||||||||||||||
Type of Cash Flow Hedge | Hedge Gain Recognized in Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Hedge Gain Reclassified from Accumulated Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Recognized | Hedge Gain (Loss) Recognized | ||||||||||
Foreign currency forward exchange contracts | $ | 134 | |||||||||||||
Cost of sales | $ | 21 | None | $ | — | ||||||||||
Research and development | 145 | None | — | ||||||||||||
Selling, general and administrative | 34 | None | — |
Effective Portion | Ineffective Portion | ||||||||||||||
Type of Cash Flow Hedge | Hedge Loss Recognized in Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Hedge Gain Reclassified from Accumulated Other Comprehensive Income | Consolidated Statement of Operations Classification of Gain (Loss) Recognized | Hedge Gain (Loss) Recognized | ||||||||||
Foreign currency forward exchange contracts | $ | (484 | ) | ||||||||||||
Cost of sales | $ | 80 | None | $ | — | ||||||||||
Research and development | 543 | None | — | ||||||||||||
Selling, general and administrative | 125 | None | — |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Hardware | $ | 89,751 | $ | 68,770 | $ | 231,349 | $ | 198,169 | |||||||
Software royalties and licenses | 3,543 | 4,029 | 9,534 | 12,470 | |||||||||||
Software maintenance | 1,635 | 722 | 4,763 | 2,758 | |||||||||||
Engineering and other services | 2,947 | 1,646 | 5,713 | 4,088 | |||||||||||
Total revenues | $ | 97,876 | $ | 75,167 | $ | 251,359 | $ | 217,485 |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Next Generation Communication Networks Products | $ | 53,626 | $ | 30,857 | $ | 116,155 | $ | 90,093 | |||||||
Legacy Communication Networks Products | 23,717 | 24,575 | 76,711 | 71,073 | |||||||||||
Total Communication Networks Products | 77,343 | 55,432 | 192,866 | 161,166 | |||||||||||
Medical Products | 8,447 | 8,403 | 21,291 | 24,738 | |||||||||||
Other Commercial Products | 12,086 | 11,332 | 37,202 | 31,581 | |||||||||||
Total Commercial Products | 20,533 | 19,735 | 58,493 | 56,319 | |||||||||||
Total revenues | $ | 97,876 | $ | 75,167 | $ | 251,359 | $ | 217,485 |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
United States | $ | 29,693 | $ | 24,468 | $ | 72,050 | $ | 74,019 | |||||||
Other North America | 495 | 271 | 1,087 | 712 | |||||||||||
North America | 30,188 | 24,739 | 73,137 | 74,731 | |||||||||||
Europe, the Middle East and Africa (“EMEA”) | 21,337 | 20,937 | 63,133 | 59,961 | |||||||||||
Asia Pacific | 46,351 | 29,491 | 115,089 | 82,793 | |||||||||||
Total | $ | 97,876 | $ | 75,167 | $ | 251,359 | $ | 217,485 |
September 30, 2011 | December 31, 2010 | ||||||
Property and equipment, net | |||||||
United States | $ | 7,929 | $ | 6,404 | |||
Other North America | 610 | 716 | |||||
EMEA | 696 | 30 | |||||
Asia Pacific | 3,036 | 2,337 | |||||
Total property and equipment, net | $ | 12,271 | $ | 9,487 | |||
Goodwill | |||||||
United States | $ | 25,995 | $ | — | |||
EMEA | 160 | 160 | |||||
Total goodwill | $ | 26,155 | $ | 160 | |||
Intangible assets, net | |||||||
United States | $ | 86,845 | $ | 1,552 | |||
Other North America | 432 | 912 | |||||
EMEA | 1,809 | 4,624 | |||||
Total intangible assets, net | $ | 89,086 | $ | 7,088 |
For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
Nokia Siemens Networks | 29.1 | % | 42.0 | % | 40.2 | % | 39.2 | % | |||
NEI | NA | NA | NA | 10.0 | % |
• | Aerospace and defense: ruggedized terminals, small unmanned ground vehicles and other military applications |
• | Small form factor communications |
• | Medical imaging: X-Ray machines, MRI scanners, CT scan imaging equipment and ultrasound equipment |
• | The increasing desire by original equipment manufacturers (“OEMs”) to utilize standards-based, merchant-supplied platforms to develop their systems. We believe more OEMs will see the advantage of combining their internal development efforts with merchant-supplied platforms from partners like Radisys to deliver a larger number of more valuable new products to get to market faster at a lower total cost. |
• | Meaningful traffic growth in the network will require high density, high speed, and high performance systems. Radisys' ATCA 10G and 40G systems provide 2 to 10 times the density when compared to legacy systems. |
• | The industry structure is changing in that Telecommunications Equipment Manufactures (“TEMs”) are focusing more on applications and network operations, while operators and carriers are focusing more on service and content delivery. Radisys is benefiting from these market shifts and is providing more platforms and solutions to TEMs. |
• | Continued emergence, growth and evolution of applications utilizing 4G or LTE, WiMAX networks, Femtocell Gateways, VoIP, IP Communications, Mobile Video, Video Gateways, Video Conferencing, IPTV, IP interactive voice response ("IVR")/ Voice-to-text, IP Messaging, Network Surveillance, Network Security, Aerospace and Defense and Packet Inspection, all of which are supported by ATCA. |
• | Continuous Computing, a developer of communications systems consisting of highly integrated ATCA platforms and Trillium protocol software coupled with software professional services; |
• | the assets of privately-held Pactolus Communications Software Company ("Pactolus"), a developer of Next Generation IP communications solutions for converged time-division multiplexing/internet protocol ("TDM/IP") and session initiation protocol ("SIP") enabled VoIP networks; |
• | certain assets of the Modular Communications Platform Division (“MCPD”) business from Intel Corporation (“Intel”), which included ATCA and compact peripheral component interconnect (“PCI”) product lines; and |
• | Convedia Corporation or Convedia®, a closely-held vendor of IP media servers. |
For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of sales: | |||||||||||
Cost of sales | 68.0 | 67.5 | 69.2 | 67.6 | |||||||
Amortization of purchased technology | 3.4 | 2.2 | 2.2 | 2.3 | |||||||
Total cost of sales | 71.4 | 69.7 | 71.4 | 69.9 | |||||||
Gross margin | 28.6 | 30.3 | 28.6 | 30.1 | |||||||
Research and development | 13.2 | 13.1 | 12.6 | 13.4 | |||||||
Selling, general, and administrative | 15.9 | 14.9 | 14.9 | 15.6 | |||||||
Intangible assets amortization | 1.3 | 0.3 | 0.6 | 0.3 | |||||||
Restructuring and acquisition-related charges, net | 5.9 | (0.3 | ) | 3.3 | — | ||||||
Gain on the liquidation of a foreign subsidiary | (2.1 | ) | — | (0.8 | ) | — | |||||
Income (loss) from operations | (5.6 | ) | 2.3 | (2.0 | ) | 0.8 | |||||
Interest expense | (0.4 | ) | (0.6 | ) | (0.5 | ) | (0.7 | ) | |||
Interest income | — | 0.1 | — | 0.3 | |||||||
Other income (expense), net | 0.3 | (0.1 | ) | 0.1 | — | ||||||
Income (loss) before income tax benefit | (5.7 | ) | 1.7 | (2.4 | ) | 0.4 | |||||
Income tax benefit | (8.5 | ) | (1.2 | ) | (3.4 | ) | (0.4 | ) | |||
Net income | 2.8 | % | 2.9 | % | 1.0 | % | 0.8 | % |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||
Next Generation Communication Networks Products | $ | 53,626 | $ | 30,857 | 73.8 | % | $ | 116,155 | $ | 90,093 | 28.9 | % | |||||||||
Legacy Communication Networks Products | 23,717 | 24,575 | (3.5 | ) | 76,711 | 71,073 | 7.9 | ||||||||||||||
Total Communication Networks Products | 77,343 | 55,432 | 39.5 | 192,866 | 161,166 | 19.7 | |||||||||||||||
Medical Products | 8,447 | 8,403 | 0.5 | 21,291 | 24,738 | (13.9 | ) | ||||||||||||||
Other Commercial Products | 12,086 | 11,332 | 6.7 | 37,202 | 31,581 | 17.8 | |||||||||||||||
Total Commercial Products | 20,533 | 19,735 | 4.0 | 58,493 | 56,319 | 3.9 | |||||||||||||||
Total revenues | $ | 97,876 | $ | 75,167 | 30.2 | % | $ | 251,359 | $ | 217,485 | 15.6 | % |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||
North America | $ | 30,188 | $ | 24,739 | 22.0 | % | $ | 73,137 | $ | 74,731 | (2.1 | )% | |||||||||
Europe, the Middle East and Africa ("EMEA") | 21,337 | 20,937 | 1.9 | 63,133 | 59,961 | 5.3 | |||||||||||||||
Asia Pacific | 46,351 | 29,491 | 57.2 | 115,089 | 82,793 | 39.0 | |||||||||||||||
Total | $ | 97,876 | $ | 75,167 | 30.2 | % | $ | 251,359 | $ | 217,485 | 15.6 | % |
For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
North America | 30.8 | % | 32.9 | % | 29.1 | % | 34.3 | % | |||
EMEA | 21.8 | 27.9 | 25.1 | 27.6 | |||||||
Asia Pacific | 47.4 | 39.2 | 45.8 | 38.1 | |||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||
Research and development | $ | 12,955 | $ | 9,863 | 31.3 | % | $ | 31,562 | $ | 29,174 | 8.2 | % | |||||||||
Selling, general and administrative | 15,610 | 11,225 | 39.1 | 37,520 | 34,030 | 10.3 | |||||||||||||||
Intangible assets amortization | 1,234 | 192 | 542.7 | 1,618 | 538 | 200.7 | |||||||||||||||
Restructuring and acquisition-related charges, net | 5,758 | (228 | ) | NM | 8,279 | (203 | ) | NM | |||||||||||||
Gain on the liquidation of a foreign subsidiary | (2,081 | ) | — | NM | (2,081 | ) | — | NM | |||||||||||||
Total | $ | 33,476 | $ | 21,052 | 59.0 | % | $ | 76,898 | $ | 63,539 | 21.0 | % |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||
Cost of sales | $ | 217 | $ | 194 | 11.9 | % | $ | 572 | $ | 640 | (10.6 | )% | |||||||||
Research and development | 464 | 302 | 53.6 | 1,070 | 1,010 | 5.9 | |||||||||||||||
Selling, general and administrative | 1,220 | 944 | 29.2 | 2,396 | 3,230 | (25.8 | ) | ||||||||||||||
Total | $ | 1,901 | $ | 1,440 | 32.0 | % | $ | 4,038 | $ | 4,880 | (17.3 | )% |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||
Interest expense | $ | (458 | ) | $ | (462 | ) | (0.9 | )% | $ | (1,410 | ) | $ | (1,578 | ) | (10.6 | )% | |||||
Interest income | 6 | 59 | (89.8 | ) | 97 | 566 | (82.9 | ) | |||||||||||||
Other income (expense), net | 327 | (55 | ) | NM | 187 | (34 | ) | NM | |||||||||||||
Total | $ | (125 | ) | $ | (458 | ) | (72.7 | )% | $ | (1,126 | ) | $ | (1,046 | ) | 7.6 | % |
September 30, 2011 | December 31, 2010 | September 30, 2010 | |||||||||
(Dollar amounts in thousands) | |||||||||||
Cash and cash equivalents | $ | 55,902 | $ | 129,078 | $ | 133,257 | |||||
Working capital | $ | 79,175 | $ | 147,049 | $ | 147,009 | |||||
Accounts receivable, net | $ | 58,805 | $ | 42,855 | $ | 43,647 | |||||
Inventories, net | $ | 30,281 | $ | 15,178 | $ | 12,881 | |||||
Accounts payable | $ | 52,762 | $ | 29,190 | $ | 34,781 | |||||
2013 convertible senior notes | $ | 50,000 | $ | 50,000 | $ | 50,000 | |||||
Days sales outstanding (A) | 55 | 55 | 53 |
(A) | Based on ending net trade receivables divided by daily revenue (quarterly revenue, annualized and divided by 365 days). |
For the Nine Months Ended | |||||||
September 30, | |||||||
2011 | 2010 | ||||||
(In thousands) | |||||||
Operating Activities | |||||||
Net income | $ | 2,426 | $ | 1,713 | |||
Non-cash adjustments | 8,101 | 14,632 | |||||
Changes in working capital | 3,388 | 2,909 | |||||
Cash provided by operating activities | 13,915 | 19,254 | |||||
Cash provided by (used in) investing activities | (84,087 | ) | 52,768 | ||||
Cash used in financing activities | (3,004 | ) | (39,486 | ) | |||
Effects of exchange rate changes | — | 49 | |||||
Net increase (decrease) in cash and cash equivalents | $ | (73,176 | ) | $ | 32,585 |
• | Net trade accounts receivable increased primarily as the result of increased revenues, the timing of our shipments and customer payments. Days sales outstanding decreased from 59 days at December 31, 2010 to 54 days at September 30, 2011. |
• | Inventories increased significantly due to the build-up of buffer stock and end of life products as we finalize our transition to one contract manufacturer. |
• | Accounts payable increased as a direct result of our build in inventories as well as timing of vendor payments. |
• | Deferred income increased as the result of customer billings not recognized as revenues due to undelivered elements or acceptance provisions contained in certain arrangements. |
• | Net trade accounts receivable decreased slightly primarily as a result of the timing of shipments and customer payments. Days sales outstanding decreased from 54 days at December 31, 2009 to 53 days at September 30, 2010. |
• | Inventories decreased due to an increase in inventory turns as the result of the outsourcing of our manufacturing function as well as timing of customer shipments. |
• | Accounts payable increased as a result of our cash management and timing of vendor payments. Days to pay increased from 50 days at December 31, 2009 to 61 days at September 30, 2010. |
• | Deferred income increased as the result of an increase in the base of customer maintenance contracts as well as an increase in contract-specific deferrals for contracts containing undelivered elements. |
• | minimum quarterly liquidity ratio of 1.25 during the term of the agreement. The liquidity ratio is defined as cash, cash equivalents and short term investments (with cash and cash equivalents held by the Company's foreign subsidiaries not to exceed $10.0 million and excluding any investments held by the Company's foreign subsidiaries) plus eligible accounts receivable (as defined in the Agreement), divided by the sum of obligations to SVB; |
• | minimum two quarter positive rolling EBITDA (earnings before interest, taxes, depreciation, amortization, stock based compensation, goodwill impairment charges, and non cash restructuring and integration expenses associated with the acquisition of Continuous Computing) of $3.0 million beginning with the quarter ending December 31, 2012. Prior to December 31, 2012, the minimum two quarter rolling EBITDA requirements increase on a quarterly basis with the quarter ending September 30, 2011 as follows: ($8.3) million, ($8.5) million, ($2.1) million, ($0.5) million and $2.0 million; |
• | capital expenditures may not exceed $11.0 million in fiscal 2011 and $8.0 million in subsequent fiscal years. |
Total | 2011* | 2012 - 2013 | 2014 - 2015 | 2016 & Thereafter | |||||||||||||||
Operating leases | $ | 25,064 | $ | 1,387 | $ | 9,785 | $ | 8,319 | $ | 5,573 | |||||||||
Capital leases | 108 | 10 | 82 | 16 | — | ||||||||||||||
Purchase obligations (A) | 15,031 | 15,031 | — | — | — | ||||||||||||||
2013 convertible senior notes | 50,000 | — | 50,000 | — | — | ||||||||||||||
Interest on convertible senior notes | 2,063 | — | 2,063 | — | — | ||||||||||||||
Total | $ | 92,266 | $ | 16,428 | $ | 61,930 | $ | 8,335 | $ | 5,573 |
* | Remaining three months of 2011. |
(A) | Purchase obligations include agreements or purchase orders to purchase goods or services that are enforceable and legally binding and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. These purchase obligations are entered into in the ordinary course of business and are expected to be funded by cash flows from continuing operations. |
• | expectations and goals for revenues, gross margin, R&D expenses, SG&A expenses and profits; |
• | the impact of our restructuring events on future operating results; |
• | our projected liquidity; |
• | future operations and market conditions; |
• | industry trends or conditions and the business environment; |
• | future levels of inventory and backlog and new products introductions; |
• | expected synergies and other expense savings and operational and administrative efficiencies, opportunities, timing, expense and effects of the acquisition of Continuous Computing; |
• | financial performance, revenue growth, management changes or other attributes of Radisys following the acquisition; and |
• | other statements that are not historical facts. |
Issuer Purchases of Equity Securities | ||||||||||||||
Period | Total Number of Shares Purchased [1] | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs [1] | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs [1] | ||||||||||
July 1, 2011 through July 31, 2011 | — | $ | — | 149,747 | $ | 18,747 | ||||||||
August 1, 2011 through August 31, 2011 | 176,633 | $ | 7.44 | 326,380 | $ | 17,433 | ||||||||
September 1, 2011 through September 30, 2011 | 191,651 | $ | 6.98 | 518,031 | $ | 16,096 | ||||||||
Total | 368,284 | $ | 7.54 | 518,031 | $ | 16,096 | ||||||||
[1] In December 2010, the Board of Directors authorized the repurchase of up to $20 million of our common stock through open market transactions or through privately negotiated transactions from time to time at the discretion of management. | ||||||||||||||
• | minimum quarterly liquidity ratio of 1.25 during the term of the agreement. The liquidity ratio is defined as cash, cash equivalents and short term investments (with cash and cash equivalents held by the Company's foreign subsidiaries not to exceed $10.0 million and excluding any investments held by the Company's foreign subsidiaries) plus eligible accounts receivable (as defined in the Agreement), divided by the sum of obligations to SVB; |
• | minimum two quarter positive rolling EBITDA (earnings before interest, taxes, depreciation, amortization, stock based compensation, goodwill impairment charges, and non cash restructuring and integration expenses associated with the acquisition of Continuous Computing) of $3.0 million beginning with the quarter ending December 31, 2012. Prior to December 31, 2012, the minimum two quarter rolling EBITDA requirements increase on a quarterly basis with the quarter ending September 30, 2011 as follows: ($8.3) million, ($8.5) million, ($2.1) million, ($0.5) million and $2.0 million; and |
• | capital expenditures may not exceed $11.0 million in fiscal 2011 and $8.0 million in subsequent fiscal years. |
Exhibit No | Description | |
2.1 | Merger Agreement between the Company and Continuous Computing Corporation dated May 2, 2011 incorporated by reference from Exhibit 2.1 in the Company's Current Report on Form 8-K filed on May 3, 2011. | |
2.2 | Amendment No. 1 to Agreement and Plan of Merger by and among RadiSys Corporation, an Oregon corporation, RadiSys Holdings, Inc., a Delaware corporation, and Continuous Computing Corporation, a Delaware corporation, dated June 22, 2011, incorporated by reference to Exhibit 2.1 to RadiSys Corporation's Current Report on Form 8-K filed with the SEC on July 8, 2011, SEC File No.000-26844. | |
3.1 | Second Restated Articles of Incorporation and amendments thereto. Incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed on September 1, 2006, SEC File No. 333-137060, as amended by the Articles of Amendment incorporated by reference from Exhibit 3.1 in the Company's Current Report on Form 8-K filed on January 30, 2008. | |
3.2 | Restated Bylaws. Incorporated by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on May 8, 2007, as amended by the Amendment to Restated Bylaws incorporated by reference from Exhibit 3.1 in the Company's Current Report on Form 8-K filed on May 3, 2011. | |
10.1* | Amended and Restated Loan and Security Agreement, dated November 1, 2011, between the Company and Silicon Valley Bank. | |
31.1* | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1* | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2* | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase | |
101.PRE** | XBRL Taxonomy Presentation Linkbase | |
101.DEF** | XBRL Taxonomy Definition Linkbase |
* | Filed herewith |
** | Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Registrant has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. |
RADISYS CORPORATION | ||||
Dated: | November 4, 2011 | By: | /s/ Michel Dagenais | |
Michel Dagenais | ||||
Chief Executive Officer | ||||
Dated: | November 4, 2011 | By: | /s/ Brian Bronson | |
Brian Bronson | ||||
President, Chief Financial Officer and Principal Accounting Officer |
Exhibit No | Description | |
2.1 | Merger Agreement between the Company and Continuous Computing Corporation dated May 2, 2011 incorporated by reference from Exhibit 2.1 in the Company's Current Report on Form 8-K filed on May 3, 2011. | |
2.2 | Amendment No. 1 to Agreement and Plan of Merger by and among RadiSys Corporation, an Oregon corporation, RadiSys Holdings, Inc., a Delaware corporation, and Continuous Computing Corporation, a Delaware corporation, dated June 22, 2011, incorporated by reference to Exhibit 2.1 to RadiSys Corporation's Current Report on Form 8-K filed with the SEC on July 8, 2011, SEC File No.000-26844. | |
3.1 | Second Restated Articles of Incorporation and amendments thereto. Incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed on September 1, 2006, SEC File No. 333-137060, as amended by the Articles of Amendment incorporated by reference from Exhibit 3.1 in the Company's Current Report on Form 8-K filed on January 30, 2008. | |
3.2 | Restated Bylaws. Incorporated by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on May 8, 2007, as amended by the Amendment to Restated Bylaws incorporated by reference from Exhibit 3.1 in the Company's Current Report on Form 8-K filed on May 3, 2011. | |
10.1* | Amended and Restated Loan and Security Agreement, dated November 1, 2011, between the Company and Silicon Valley Bank. | |
31.1* | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1* | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2* | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase | |
101.PRE** | XBRL Taxonomy Presentation Linkbase | |
101.DEF** | XBRL Taxonomy Definition Linkbase |
* | Filed herewith |
** | Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Registrant has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. |
1 | ACCOUNTING AND OTHER TERMS |
2 | LOAN AND TERMS OF PAYMENT |
(a) | Availability. Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein. |
(b) | Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable. |
(i) | Advances. Subject to Section 2.3(b), each Advance shall bear interest on the outstanding principal amount thereof from the date when made, continued or converted until paid in full at a rate per annum equal to the Prime Rate or the LIBOR Rate plus the applicable LIBOR Rate Margin, as the case may be. Pursuant to the terms hereof, interest on each Advance shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of any Advance pursuant to this Agreement for the portion of any Advance so prepaid and upon payment (including prepayment) |
3.2 | Conditions Precedent to Initial Credit Extension. Bank's obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation: |
(a) | Borrower shall have delivered duly executed original signatures to the Loan Documents to which it is a party (including delivery of any and all Collateral required to be delivered under the Loan Documents in order to perfect and preserve Bank's priority in such Collateral, such as stock certificates and promissory notes in favor of Borrower, each executed in blank); |
(b) | Borrower shall have delivered duly executed original signatures to the Reaffirmation of Guaranty by Continuous Computing Corporation substantially in the form of Exhibit G; and |
(c) | Borrower shall have paid the fees and Bank Expenses then due as specified in Section 2.4 hereof. |
3.2 | Conditions Precedent to all Credit Extensions. Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following: |
(a) | for Advances under the Revolving Line, timely receipt of a Notice of Borrowing; |
(b) | for any other Credit Extension, timely receipt of any completed and executed Payment/Credit Extension Form; |
(c) | the representations and warranties in Section 5 shall be true in all material respects on the date of the Notice of Borrowing and the Payment/Credit Extension Form, as applicable, and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and |
(d) | in Bank's reasonable discretion, there has not been a Material Adverse Change. |
3.3 | Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition to any Credit Extension. Borrower expressly agrees that the extension of a Credit Extension prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower's obligation to deliver such item, and any such extension in the absence of a required item shall be in Bank's sole discretion. |
3.4 | Procedures for Borrowing. |
(a) | Subject to the prior satisfaction of all other applicable conditions to the making of a Credit Extension set forth in this Agreement, each Credit Extension shall be made upon Borrower's irrevocable written notice delivered to Bank in the form of a Notice of Borrowing, each executed by a Responsible Officer of Borrower or his or her designee or without instructions if the Credit Extensions are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due to such reliance. Such Notice of Borrowing must be received by Bank prior to 11:00 a.m. Pacific time, (i) at least three (3) Business Days prior to the requested Funding Date, in the case of LIBOR Credit Extensions, and (ii) at least one (1) Business Day prior to the requested Funding Date, in the case of Prime Rate Credit Extensions (provided that if the aggregate Obligations under the Loan Agreement on the Funding Date will exceed the Threshold Amount, such Notice of Borrowing for LIBOR or Prime Rate Credit Extensions must be received by Bank prior to 11:00 a.m. Pacific time at least five (5) Business Days prior to the requested Funding Date), specifying: |
(i) | the amount of the Credit Extension, which, if a LIBOR Credit Extension is requested, shall be in an aggregate minimum principal amount of $1,000,000 or in any integral multiple of $500,000 in excess thereof; |
(ii) | the requested Funding Date; |
(iii) | whether the Credit Extension is to be comprised of LIBOR Credit Extensions or Prime Rate Credit Extensions; and |
(iv) | the duration of the Interest Period applicable to any such LIBOR Credit Extensions included in such notice; provided that if the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Credit Extension comprised of LIBOR Credit Extensions, such Interest Period shall be one (1) month. |
(b) | The proceeds of all such Credit Extensions will then be made available to Borrower on the Funding Date by Bank by transfer to the Designated Deposit Account and, subsequently, by wire transfer to such other account as Borrower may instruct in the Notice of Borrowing. No Credit Extensions shall be deemed made to Borrower, |
3.6 | Conversion and Continuation Elections. |
(a) | So long as (1) no Event of Default or Default exists; (2) Borrower shall not have sent any notice of termination of this Agreement; and (3) Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower's requests for LIBOR Credit Extensions, Borrower may, upon irrevocable written notice to Bank: |
(i) | elect to convert on any Business Day, Prime Rate Credit Extensions in an amount equal to $1,000,000 or any integral multiple of $500,000 in excess thereof into LIBOR Credit Extensions; |
(ii) | elect to continue on any Interest Payment Date any LIBOR Credit Extensions maturing on such Interest Payment Date (or any part thereof in an amount equal to $1,000,000 or any integral multiple of $500,000 in excess thereof); provided, that if the aggregate amount of LIBOR Credit Extensions shall have been reduced, by payment, prepayment, or conversion of part thereof, to be less than $1,000,000, such LIBOR Credit Extensions shall automatically convert into Prime Rate Credit Extensions, and on and after such date the right of Borrower to continue such Credit Extensions as, and convert such Credit Extensions into, LIBOR Credit Extensions shall terminate; or |
(iii) | elect to convert on any Interest Payment Date any LIBOR Credit Extensions maturing on such Interest Payment Date (or any part thereof in an amount equal to $1,000,000 or any integral multiple of $500,000 in excess thereof) into Prime Rate Credit Extensions. |
(b) | Borrower shall deliver a Notice of Conversion/Continuation in accordance with Section 10 to be received by Bank prior to 11:00 a.m. Pacific time at least (i) three (3) Business Days in advance of the Conversion Date or Continuation Date, if any Credit Extensions are to be converted into or continued as LIBOR Credit Extensions; and (ii) one (1) Business Day in advance of the Conversion Date, if any Credit Extensions are to be converted into Prime Rate Credit Extensions, in each case specifying the: |
(i) | proposed Conversion Date or Continuation Date; |
(ii) | aggregate amount of the Credit Extensions to be converted or continued which, if any Credit Extensions are to be converted into or continued as LIBOR Credit Extensions, shall be in an aggregate minimum principal amount of $1,000,000 or in any integral multiple of $500,000 in excess thereof; |
(iii) | nature of the proposed conversion or continuation; and |
(iv) | duration of the requested Interest Period. |
(c) | If upon the expiration of any Interest Period applicable to any LIBOR Credit Extensions, Borrower shall have timely failed to select a new Interest Period to be applicable to such LIBOR Credit Extensions, Borrower shall be deemed to have elected to convert such LIBOR Credit Extensions into Prime Rate Credit Extensions. |
(d) | Any LIBOR Credit Extensions shall, at Bank's option, convert into Prime Rate Credit Extensions in the event that (i) an Event of Default or Default shall exist, or (ii) the aggregate principal amount of the Prime Rate Credit Extensions which have been previously converted to LIBOR Credit Extensions, or the aggregate principal amount of existing LIBOR Credit Extensions continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed the Revolving Line. Borrower agrees to pay Bank, upon demand by Bank (or Bank may, at its option, charge the Designated Deposit Account or any other account Borrower maintains with Bank) any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost, or expense incurred by Bank, as a result of the conversion of LIBOR Credit Extensions to Prime Rate Credit Extensions pursuant to any of the foregoing. |
(e) | Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR market to fund any LIBOR Credit Extensions, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Credit Extensions. |
3.6 | Special Provisions Governing LIBOR Credit Extensions. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBOR Credit Extensions as to the matters covered: |
(a) | Determination of Applicable Interest Rate. As soon as practicable on each Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Credit Extensions for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower. |
(b) | Inability to Determine Applicable Interest Rate. In the event that Bank shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate |
(c) | Compensation for Breakage or Non-Commencement of Interest Periods. Borrower shall compensate Bank, upon written request by Bank (which request shall set forth the manner and method of computing such compensation), for all reasonable losses, expenses and liabilities, if any (including any interest paid by Bank to lenders of funds borrowed by it to make or carry its LIBOR Credit Extensions and any loss, expense or liability incurred by Bank in connection with the liquidation or re-employment of such funds) such that Bank may incur: (i) if for any reason (other than a default by Bank or due to any failure of Bank to fund LIBOR Credit Extensions due to impracticability or illegality under Sections 3.7(d) and 3.7(e)) a borrowing or a conversion to or continuation of any LIBOR Credit Extension does not occur on a date specified in a Notice of Borrowing or a Notice of Conversion/Continuation, as the case may be, or (ii) if any principal payment or any conversion of any of its LIBOR Credit Extensions occurs on a date prior to the last day of an Interest Period applicable to that Credit Extension. |
(d) | Assumptions Concerning Funding of LIBOR Credit Extensions. Calculation of all amounts payable to Bank under this Section 3.6 and under Section 3.4 shall be made as though Bank had actually funded each of its relevant LIBOR Credit Extensions through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate in an amount equal to the amount of such LIBOR Credit Extension and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund each of its LIBOR Credit Extensions in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 3.6 and under Section 3.4. |
(e) | LIBOR Credit Extensions After Default. After the occurrence and during the continuance of an Event of Default, (i) Borrower may not elect to have an Credit Extension be made or continued as, or converted to, a LIBOR Credit Extension after the expiration of any Interest Period then in effect for such Credit Extension and (ii) subject to the provisions of Section 3.6(c), any Notice of Conversion/Continuation given by Borrower with respect to a requested conversion/continuation that has not yet occurred shall be deemed to be rescinded by Borrower and be deemed a request to convert or continue Credit Extensions referred to therein as Prime Rate Credit Extensions. |
3.7 | Additional Requirements/Provisions Regarding LIBOR Credit Extensions. |
(a) | If for any reason (including voluntary or mandatory prepayment or acceleration), Bank receives all or part of the principal amount of a LIBOR Credit Extension prior to the last day of the Interest Period for such Credit Extension, Borrower shall immediately notify Borrower's account officer at Bank and, on demand by Bank, pay Bank the amount (if any) by which (i) the additional interest which would have been payable on the amount so received had it not been received until the last day of such Interest Period exceeds (ii) the interest which would have been recoverable by Bank by placing the amount so received on deposit in the certificate of deposit markets, the offshore currency markets, or United States Treasury investment products, as the case may be, for a period starting on the date on which it was so received and ending on the last day of such Interest Period at the interest rate determined by Bank in its reasonable discretion. Bank's determination as to such amount shall be conclusive absent manifest error. |
(b) | Borrower shall pay Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Credit Extensions relating thereto (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), in each case resulting from any Regulatory Change which: |
(i) | changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any Credit Extensions (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which Bank has its principal office); |
(ii) | imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with, or other liabilities of Bank (including any Credit Extensions or any deposits referred to in the definition of LIBOR); or |
(iii) | imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). |
(c) | If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation, or treaty 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 interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any respect or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a “Parent”) as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change, or compliance (taking into consideration policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within fifteen (15) days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section 3.7(c) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error. |
(d) | If, at any time, Bank, in good faith, determines that (i) the amount of LIBOR Credit Extensions for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) LIBOR does not accurately reflect the cost to Bank of lending the LIBOR Credit Extensions, then Bank shall promptly give notice thereof to Borrower. Upon the giving of such notice, Bank's obligation to make the LIBOR Credit Extensions shall terminate; provided, however, Credit Extensions shall not terminate if Bank and Borrower agree in writing to a different interest rate applicable to LIBOR Credit Extensions. |
(e) | If it shall become unlawful for Bank to continue to fund or maintain any LIBOR Credit Extensions, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the Credit Extensions in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 3.7(a)). Notwithstanding the foregoing, to the extent a determination by Bank as described above relates to a LIBOR Credit Extension then being requested by Borrower pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Borrower shall have the option, subject to the provisions of Section 3.6(c), to (i) rescind such Notice of Borrowing or Notice of Conversion/Continuation by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such rescission on the date on which Bank gives notice of its determination as described above, or (ii) modify such Notice of Borrowing or Notice of Conversion/Continuation to obtain a Prime Rate Credit Extension or to have outstanding Credit Extensions converted into or continued as Prime Rate Credit Extensions by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such modification on the date on which Bank gives notice of its determination as described above. |
4.1 | Grant of Security Interest. |
(a) | Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank's Lien under this Agreement). If Borrower or any Guarantor shall acquire a commercial tort claim, Borrower shall, and shall cause such Guarantor to, promptly notify Bank in a writing signed by Borrower or such Guarantor of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank. |
(b) | Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that all amounts Borrower owes Bank under any Bank Services Agreement shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank's Lien in this Agreement). |
(c) | If this Agreement is terminated, Bank's Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and, at such time, Bank shall, at Borrower's sole cost and |
4.2 | Authorization to File Financing Statements. Borrower hereby authorizes, and shall cause each Guarantor to authorize, Bank to file financing statements, without notice to Borrower or any Guarantor, with all appropriate jurisdictions to perfect or protect Bank's interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower, any Guarantor or any other Person, shall be deemed to violate the rights of Bank under the Code. |
5.1 | Due Organization and Authorization. Borrower and each of its Subsidiaries is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of their business or its ownership of property requires that they be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. In connection with this Agreement, Borrower has delivered, or has caused each Guarantor to deliver, to Bank completed certificates substantially in the form reasonably satisfactory to Bank each signed by Borrower entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a) Borrower's and each Guarantor's exact legal name is that indicated on the Perfection Certificates and on the signature pages thereof; (b) Borrower and each Guarantor are an organization of the type and are organized in the jurisdictions set forth in the Perfection Certificates; (c) the Perfection Certificates accurately set forth Borrower's and each Guarantor's organizational identification numbers or accurately state that neither Borrower nor such Guarantor has one; (d) the Perfection Certificates accurately set forth Borrower's and such Guarantor's places of business, or, if more than one, its respective chief executive office as well as Borrower's and such Guarantor's mailing addresses (if different than its respective chief executive office); (e) Borrower and such Guarantor (and each of its respective predecessors) have not, in the past five (5) years, changed its respective state of formation, organizational structure or type, or any organizational number assigned by its respective jurisdiction; and (f) all other information set forth on the Perfection Certificates pertaining to Borrower and each of its Subsidiaries is accurate and complete. If neither Borrower nor any Guarantor is a Registered Organization but later becomes one, Borrower shall, and shall cause each Guarantor to promptly notify Bank of such occurrence and provide Bank with Borrower's and such Guarantor's organizational identification numbers. |
5.2 | Collateral. Borrower and each Guarantor have good title to its Collateral, free of Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing obligations, and the service or property has been performed or delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. The Collateral is maintained at the locations set forth in the Perfection Certificate. The Collateral is not in the possession of any third party bailee (such as at a warehouse) except as provided in the Perfection Certificate. In the event that Borrower or any Guarantor, after the date hereof, intends to store or otherwise deliver the Collateral to a bailee, then Borrower and such Guarantor shall receive the prior written consent of Bank (such consent not to be unreasonably withheld), and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. All Inventory is in all material respects of good and marketable quality, |
5.3 | Accounts Receivable. |
(a) | Representations Relating to Accounts. Each Account with respect to which Advances are requested by Borrower represents, on the date each Advance is requested and made, an undisputed bona fide existing unconditional obligation of the account debtor created by the sale, delivery, and acceptance of goods or the rendition of services, or the non-exclusive licensing of Intellectual Property, in the ordinary course of Borrower's business. Borrower has no notice of any actual or imminent Insolvency Proceeding of any account debtor whose accounts are an Eligible Account. |
(b) | Representations Relating to Documents and Legal Compliance. All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and correct and all such invoices, instruments and other documents and all of the Borrower's Books are and shall be genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Account comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are an Eligible Domestic Account or Eligible Foreign Account in any Borrowing Base Certificate. To the best of Borrower's knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms. |
5.4 | Litigation. There are no actions or proceedings pending or, to the knowledge of Borrower's or any of its Subsidiaries' Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries in which an adverse decision could reasonably be expected to cause a Material Adverse Change. |
5.5 | No Material Deviation in Financial Statements. All financial statements for Borrower delivered to Bank fairly present in all material respects Borrower's consolidated and consolidating financial condition and Borrower's consolidated and consolidating results of operations. There has not been any material deterioration in Borrower's consolidated and consolidating financial condition since the date of the most recent financial statements submitted to Bank. |
5.6 | Solvency. The fair salable value of Borrower's and each of its Subsidiaries' assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Neither Borrower nor any of its Subsidiaries is left with unreasonably small capital after the transactions in this Agreement; and Borrower and each of its Subsidiaries are able to pay their debts (including trade debts) as they mature. |
5.7 | Regulatory Compliance. Neither Borrower nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act. Neither Borrower nor any of its Subsidiaries is engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors). To its knowledge, Borrower and each of its Subsidiaries have complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries has violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrower's or any of its Subsidiaries' properties or assets has been used by Borrower or its Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. |
5.8 | Subsidiaries; Investments. Neither Borrower nor any of its Subsidiaries owns any stock, partnership interest or other equity securities except for Permitted Investments. |
5.9 | Tax Returns and Payments; Pension Contributions. Borrower and each of its Subsidiaries have timely filed all required tax returns and reports, and Borrower and each of its Subsidiaries have generally timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower or such Subsidiary. Borrower and each of its Subsidiaries may defer payment of any contested taxes, provided that Borrower or such Subsidiary (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Neither Borrower nor any of its Subsidiaries is aware of any claims or adjustments proposed for any of Borrower's or such Subsidiary's prior tax years which could result in additional taxes becoming due and payable by Borrower or such Subsidiary. Borrower and each of its Subsidiaries have paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and neither Borrower nor any of its Subsidiaries have withdrawn from participation in, and has permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower or any of its Subsidiaries, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. |
5.10 | Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely to fund its general business requirements and not for personal, family, household or agricultural purposes. |
5.11 | Full Disclosure. No written representation, warranty or other statement of Borrower or any of its Subsidiaries in any certificate or written statement given to Bank pursuant to this Agreement (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading. Bank recognizes that the projections, forecasts, and business plans provided by Borrower or any of its Subsidiaries in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. |
6.1 | Government Compliance. Borrower shall, and shall cause each of its Subsidiaries to, maintain its and all its Subsidiaries' legal existence and good standing in their jurisdictions of formation and maintain qualification in each jurisdiction in which the nature of its business requires them to be so qualified, except where the failure to so qualify would not reasonably be expected to have a material adverse effect on Borrower's and its Subsidiaries' business or operations, taken as a whole; provided, that (a) the legal existence of any Subsidiary that is not a Guarantor may be terminated or permitted to lapse, and any qualification of such Subsidiary to do business may be terminated or permitted to lapse, if, in the good faith judgment of Borrower, such termination or lapse is in the best interests of Borrower and its Subsidiaries, taken as a whole, and (b) Borrower may not permit its qualification to do business in the jurisdiction of its chief executive office to terminate or lapse; and provided, further, that this Section 6.2 shall not be construed to prohibit any other transaction that is otherwise permitted in Section 7 of this Agreement. |
6.2 | Financial Statements, Reports, Certificates. |
(a) | Deliver to Bank: |
(i) | as soon as available, but no later than forty-five (45) days after the last day of each fiscal quarter, a company prepared consolidated and consolidating balance sheet and income statement prepared under GAAP (subject to the absence of footnotes and year-end adjustments) covering Borrower's and each of its Subsidiary's operations during the period certified by a Responsible Officer and in a form acceptable to Bank; |
(ii) | as soon as available, but no later than ninety (90) days after the last day of Borrower's fiscal year, (A) unaudited consolidated and consolidating financial statements prepared under GAAP, consistently applied, and (B) audited consolidated and consolidating financial statements prepared under GAAP, |
(iii) | within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower's security holders or to any holders of Subordinated Debt or the holders of the 2013 Indenture; |
(iv) | (A) within five (5) days of filing, but in any case no later than forty-five (45) days after the last day of each fiscal quarter, all reports on Form 10-Q filed with the Securities and Exchange Commission (which delivery obligation may be satisfied by posting a link thereto on Borrower's or another website on the Internet), (B) within five (5) days of filing, but in any case no later than ninety (90) days after the last day of each fiscal year, all reports on Form 10-K filed with the Securities and Exchange Commission (which delivery obligation may be satisfied by posting a link thereto on Borrower's or another website on the Internet), and (c) within five (5) days of filing, all reports on Form 8‑K filed with the Securities and Exchange Commission (which delivery obligation may be satisfied by posting a link thereto on Borrower's or another website on the Internet); |
(v) | a prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of $250,000 or more to the extent not covered by insurance, or in which an adverse decision could reasonably be expected to cause a Material Adverse Change (collectively, “Material Litigation”); |
(vi) | prompt notice of an event that materially and adversely affects the value of the Intellectual Property; |
(vii) | as soon as available, but no later than sixty (60) days after the last day of Borrower's fiscal year, annual board approved financial projections; and |
(viii) | budgets, sales projections, operating plans and other financial information reasonably requested by Bank. |
(b) | If Advances exceed (or, if on a Funding Date Advances will exceed) the Threshold Amount, monthly, within thirty (30) days of after the last day of each month, and no later than five (5) days prior to each Funding Date, deliver to Bank a duly completed Borrowing Base Certificate signed by a Responsible Officer, with aged listings of accounts receivable and accounts payable (by invoice date) and a Deferred Revenue report; |
(c) | Deliver to Bank a duly completed Compliance Certificate signed by a Responsible Officer of Borrower setting forth calculations showing compliance with the financial covenants set forth in this Agreement: (i) for each of the first three fiscal quarters of each fiscal year, no later than forty-five (45) days after the last day of each such fiscal quarter, but in any case no later than within five (5) days of filing any Form 10-Q for such fiscal quarter, and (ii) for each fiscal year, no later than ninety (90) days after the last day of such fiscal year, but in any case no later than within five (5) days of filing any Form 10-K for such fiscal year. |
(d) | At reasonable times, on five (5) Business Days' notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower's Books, provided that so long as the Credit Extensions have not exceeded the Threshold Amount, such inspections and audits may be conducted no more than once per year. Notwithstanding any of the foregoing, if a Default or an Event of Default has occurred and is continuing or if there is a deterioration in the Collateral and/or financial performance of Borrower or any of its Subsidiaries, Bank may require additional inspections and audits at its option. The foregoing inspections and audits shall be at Borrower's expense, and the charge therefor shall be $850 per person per day (or such other amount as shall represent Bank's then-current standard charge to other borrowers for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedules the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank's rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling. |
6.3 | Inventory. Keep all Inventory in good and marketable condition, and free from material defects. Returns and allowances between Borrower and its Subsidiaries, on the one hand, and their respective account debtors, on the other, shall follow Borrower's or such Subsidiaries' customary practices as they exist at execution of this Agreement. |
6.4 | Taxes; Pensions. Make, and cause each Subsidiary to make, timely payment of all foreign, federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts |
6.5 | Insurance. Maintain, with financially sound and reputable insurers, general business and casualty insurance in such amounts and against such liabilities and hazards as is customary for companies in Borrower's and its Subsidiaries' line of business. All property policies will have a lender's loss payable endorsement showing Bank as an additional loss payee and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least twenty (20) days' notice before canceling its policy. If an Event of Default has occurred and is continuing, proceeds payable under any policy covering the Collateral will, at Bank's option, be payable to Bank on account of the Obligations. |
6.6 | Operating Accounts. |
(a) | Maintain Borrower's and each Guarantor's primary depository and operating accounts and securities accounts with Bank and Bank's affiliates. Primary depository and operating accounts and securities accounts to be defined as all operating accounts and a minimum 50% of the unrestricted investments. Final banking business to be fully transferred no later than March 31, 2009. |
(b) | Provide Bank five (5) days' prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or its Affiliates. In addition, for each Collateral Account that Borrower or any Guarantor at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank's Lien in such Collateral Account in accordance with the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower's or any Guarantor's employees and identified to Bank by Borrower or such Guarantor as such. |
6.7 | Financial Covenants. Borrower shall maintain as of the last day of each fiscal quarter, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries: |
(a) | Minimum EBITDA. For the quarter completed September 30, 2011, EBITDA greater than $(8,300,000), and for the two quarters completed at each quarter ending indicated below, EBITDA greater than the amount set forth below opposite such period: |
Two Quarters Ending | Minimum EBITDA (two quarters then ending) | ||
December 31, 2011 | $ | (8,500,000 | ) |
March 31, 2012 | $ | (2,100,000 | ) |
June 30, 2012 | $ | (500,000 | ) |
September 30, 2012 | $ | 2,000,000 | |
December 31, 2012 and thereafter | $ | 3,000,000 |
(b) | Maximum Capital Expenditures. Capital Expenditures not in excess of $11,000,000 in fiscal year 2011 and not in excess of $8,000,000 in any other fiscal year. Any Capital Expenditures financed by purchase money security interest financing or financial leases to the extent permitted by Section 7.4 shall not count towards such $11,000,000 or $8,000,000 cap, as applicable. |
(c) | Liquidity. At all times when there are outstanding Obligations on account of Advances or Letters of Credit, tested quarterly, Liquidity of not less than 1.25:1.00. |
6.8 | Protection and Registration of Intellectual Property Rights. Borrower shall, and shall cause each of its Subsidiaries to: (a) protect, defend and maintain the validity and enforceability of its Intellectual Property; (b) promptly advise Bank in writing of material infringements of its Intellectual Property; and (c) not allow any Intellectual Property material to Borrower's or any Guarantor's business to be abandoned, forfeited or dedicated to the public without Bank's written consent. |
6.9 | Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and each of its Subsidiaries and its respective officers, employees and agents and Borrower's books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower or any such Subsidiary. |
6.10 | Designated Senior Indebtedness. Borrower shall designate all principal of, interest (including all interest accruing after the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), and all fees, costs, expenses and other amounts accrued or due under this Agreement as “Designated Senior Indebtedness”, or such similar term, in any future Subordinated Debt incurred by Borrower after the date hereof, if such Subordinated Debt contains such term or similar term and if the effect of such designation is to grant to Bank the same or similar rights as granted to Bank as a holder of “Designated Senior Indebtedness” under any indenture. |
6.11 | New Subsidiaries. In the event that any Person becomes a Domestic Subsidiary of Borrower or any other existing Domestic Subsidiary and has total assets with a book value in excess of $2.5 million, Borrower shall, and shall cause the new Subsidiary and the existing Subsidiary to (a) concurrently with such Person becoming a Domestic Subsidiary, cause such Domestic Subsidiary to guarantee all of the Obligations and to grant to Bank a first priority Lien (subject to Permitted Liens) in the Collateral by delivering to Bank a Guarantee in form and substance satisfactory to Bank, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements, and certificates necessary to effectuate such Domestic Subsidiary becoming a Guarantor and to grant such Lien in the Collateral referenced above. In the event that any Person becomes a Foreign Subsidiary of the Borrower or any existing Subsidiary and if the new Subsidiary is a Foreign Subsidiary in respect of which the pledge of all of the equity interest of such Subsidiary as Collateral would, in the good faith judgment of the Borrower, result in material adverse tax consequences to the Borrower or such existing Subsidiary, then Borrower or such existing Subsidiary shall pledge only sixty five percent (65%) of the ownership interests of such Foreign Subsidiary and such Foreign Subsidiary shall not be required to be Guarantor or grantor hereunder. |
6.12 | Further Assurances. Borrower shall, and shall cause any Guarantor to, execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's Lien in the Collateral or to effect the purposes of this Agreement. |
7.1 | Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for: |
(a) | Transfers in the ordinary course of business for fair market value; |
(b) | Transfers to (i) Borrower or any Guarantor from Borrower or any of its Subsidiaries or (ii) any Subsidiary of Borrower (which is not a Guarantor) to any other Subsidiary of Borrower (which is not a Guarantor); |
(c) | Transfers of property to the extent such property is exchanged for credit against, or proceeds are promptly applied to, the purchase price of other property used or useful in the business of Borrower or its Subsidiaries; |
(d) | Transfers constituting non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and other non-perpetual licenses that may be exclusive in some respects other than territory (and/or that may be exclusive as to territory only in discreet geographical areas outside of the United States), but that could not result in a legal transfer of Borrower's title in the licensed property; |
(e) | Transfers otherwise permitted by the Loan Documents; |
(f) | sales or discounting of delinquent accounts in the ordinary course of business; |
(g) | Transfers associated with the making or disposition of a Permitted Investment; |
(h) | Transfers in connection with a permitted acquisition of a portion of the assets or rights acquired; and |
(i) | Transfers not otherwise permitted in this Section 7.1, provided, that the aggregate book value of all such Transfers by Borrower and its Subsidiaries, together, shall not exceed in any fiscal year, $1,000,000. |
7.2 | Changes in Business; Change in Control; Jurisdiction of Formation. Engage in any material line of business other than those lines of business conducted by Borrower and its Subsidiaries on the date hereof and any businesses reasonably related, complementary or incidental thereto or reasonable extensions thereof; permit or suffer any Change in Control. Borrower will not, without prior written notice, change its jurisdiction of formation. |
7.3 | Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person; provided, however, Bank's consent to the foregoing shall not be required so long as (a) Borrower is the |
7.4 | Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. |
7.5 | Encumbrance. Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower's or any Subsidiary's Intellectual Property without Bank's prior written consent, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Lien” herein. |
7.6 | Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6 hereof. |
7.7 | Investments; Distributions. Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, Permitted Distributions or as permitted pursuant to Section 7.3 hereof, or pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; except Borrower may repurchase an amount not in excess of $20,000,000 in the aggregate of Borrower's capital stock. |
7.8 | Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower or any Subsidiary than would be obtained in an arm's length transaction with a non-affiliated Person. |
7.9 | Other Debt. Make or permit any payment on or amendments of any Subordinated Debt or the 2013 Indenture, except (a) so long as no Event of Default has occurred and is continuing and no Default or Event of Default occurs or will occur on account thereof, regularly scheduled principal and interest payments pursuant to the terms of the 2013 Indenture; (b) payments made with Borrower's capital stock or other Subordinated Debt; or (c) amendments to Subordinated Debt so long as such Subordinated Debt remains subordinated in right of payment to this Agreement and any Liens securing such Subordinated Debt remain subordinate in priority to Bank's Lien hereunder. |
7.10 | Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower's or any Subsidiary's business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower or any Subsidiary, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. |
8.1 | Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable. During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made |
8.2 | Covenant Default. |
(a) | Borrower or any Guarantor fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.6, 6.7, and 6.12 or violates any covenant in Section 7; or |
(b) | Borrower or any Guarantor fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement, any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above; |
8.3 | Material Adverse Change. A Material Adverse Change occurs; |
8.4 | Attachment. (a) Any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in ten (10) days; (b) the service of process upon Borrower seeking to attach, by trustee or similar process, any funds of Borrower on deposit with Bank, or any entity under control of Bank (including a subsidiary); (c) Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business; (d) a judgment or other claim in excess of $1,000,000 becomes a Lien on any of Borrower's assets; or (e) a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency and not paid within ten (10) days after Borrower receives notice. These are not Events of Default, if cured, if stayed or if a bond is posted in each case within thirty (30) days after such event pending contest or resolution by Borrower (but no Credit Extensions shall be made during the cure period); |
8.5 | Insolvency. Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed); |
8.6 | Other Agreements. If Borrower fails to (a) make any payment that is due and payable with respect to any Material Indebtedness and such failure continues after the applicable grace or notice period, if any, specified in the agreement or instrument relating thereto, or (b) perform or observe any other condition or covenant, or any other event shall occur or condition exist under any agreement or instrument relating to any Material Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the agreement or instrument relating thereto and the effect of such failure, event or condition is to cause the holder or holders of such Material Indebtedness to accelerate the maturity of such Material Indebtedness or cause the mandatory repurchase of any Material Indebtedness; |
8.7 | Judgments. A judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $1,000,000 to the extent not covered by independent third-party insurance shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment); |
8.8 | Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; |
8.9 | Other Debt. A default or breach occurs under (a) any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such agreement, (b) the 2013 Indenture, or (c) any foreign exchange contract between any of Borrower's Subsidiaries and the Bank; or |
8.10 | Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any guaranty of the Obligations; (c) any circumstance |
9.1 | Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: |
(a) | declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); |
(b) | stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank; |
(c) | demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate amount of any Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), as collateral security for the repayment of all of the Obligations relating to such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit; |
(d) | terminate any FX Contracts; |
(e) | settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower or any Guarantor money of Bank's security interest in such funds, and verify the amount of such account; |
(f) | make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall, and shall cause each Guarantor to, assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants, and shall cause each Guarantor to grant to, Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies; |
(g) | apply to the Obligations any (i) balances and deposits of Borrower or any Guarantor it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower or any Guarantor; |
(h) | ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower's and any Guarantors' labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section, Borrower's and any Guarantors' rights under all licenses and all franchise agreements inure to Bank's benefit; |
(i) | place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral; |
(j) | demand and receive possession of Borrower's Books; and |
(k) | exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof). |
9.2 | Power of Attorney. Borrower hereby irrevocably appoints, and shall cause each Guarantor to appoint, Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower's or such Guarantor's name on any checks or other forms of payment or security; (b) sign Borrower's or such Guarantor's name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower's or such Guarantor's insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints, and shall cause each Guarantor to appoint, Bank as its lawful attorney-in-fact to sign Borrower's or such Guarantor's name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. |
9.3 | Accounts Verification; Collection. Whether or not an Event of Default has occurred and is continuing, Bank may notify any Person owing Borrower or any Guarantor money of Bank's security interest in such funds and verify the amount of such account. After the occurrence of an Event of Default, any amounts received by Borrower or any Guarantor shall be held in trust by Borrower or such Guarantor for Bank, and, if requested by Bank, Borrower shall, and shall cause each Guarantor to, immediately deliver such receipts to Bank in the form received from the Account Debtor, with proper endorsements for deposit. |
9.4 | Protective Payments. If Borrower or any Guarantor fails to obtain the insurance called for by Section 6.6 or fails to pay any premium thereon or fails to pay any other amount which Borrower or such Guarantor is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest applicable rate, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower or such Guarantor with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. |
9.5 | Application of Payments and Proceeds. Unless an Event of Default has occurred and is continuing, Bank shall apply any funds in its possession, whether from Borrower or any Guarantor account balances, payments, or proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, first, to Bank Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Bank in the exercise of its rights under this Agreement; second, to the interest due upon any of the Obligations; and third, to the principal of the Obligations and any applicable fees and other charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower and Guarantors shall remain liable to Bank for any deficiency. If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower or any Guarantor account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower and Guarantors shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor. |
9.6 | Bank's Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower and Guarantors bear all risk of loss, damage or destruction of the Collateral. |
9.7 | No Waiver; Remedies Cumulative. Bank's failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is only effective for the specific instance and purpose for which it is given. Bank's rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay in exercising any remedy is not a waiver, election, or acquiescence. |
9.8 | Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. |
11 | CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, and judicial reference |
12 | GENERAL PROVISIONS |
12.1 | Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank's prior written consent (which may be granted or withheld in Bank's discretion). Bank has the right, without the consent of or notice to Borrower or any Guarantor, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights, and benefits under this Agreement and the other Loan Documents. |
12.2 | Indemnification. Borrower agrees, and shall cause each Guarantor to, indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or arising from transactions between Bank and Borrower and/or any Guarantor (including reasonable attorneys' fees and expenses), except for Claims and/or losses directly caused by Bank's or such indemnified person's gross negligence, fraud or willful misconduct. |
12.3 | Limitation of Actions. Any claim or cause of action by Borrower or any Guarantor against Bank, its directors, officers, employees, agents, accountants, attorneys, or any other Person affiliated with or representing Bank based upon, arising from, or relating to this Loan Agreement or any other Loan Document, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Bank, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower or such Guarantor by the commencement of an action or proceeding in a court of competent jurisdiction by (a) the filing of a complaint within one year from the earlier of (i) the date any of Borrower's or such Guarantor's officers or directors had knowledge of the first act, the occurrence or omission upon which such claim or cause of action, or any part thereof, is based, or (ii) the date this Agreement is terminated, and (b) the service of a summons and complaint on an officer of Bank, or on any other person authorized to accept service on behalf of Bank, within thirty (30) days thereafter. Borrower agrees, and shall cause each Guarantor to agree, that such one-year period is a reasonable and sufficient time for Borrower and such Guarantor to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Bank in its sole discretion or in the event of fraud or material misrepresentation by Bank. This provision shall survive any termination of this Loan Agreement or any other Loan Document. |
12.4 | Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement. |
12.5 | Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. |
12.6 | Amendments in Writing; Integration. All amendments to this Agreement must be in writing signed by both Bank and Borrower. This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents. |
12.7 | Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. |
12.8 | Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements. The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run. |
12.9 | Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank's Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “Bank Entities”); (b) to prospective transferees or |
12.10 | Attorneys' Fees, Costs and Expenses. In any action or proceeding between Borrower and any Guarantor, on the one hand, and Bank on the other, arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled. |
13.1 | Definitions. As used in this Agreement, the following terms have the following meanings: |
(a) | (i) Accounts that the Account Debtor has not paid within sixty (60) days of the due date, and (ii) Accounts that the Account Debtor has not paid within one hundred and twenty (120) days of invoice date (or, if not an invoice, document date); |
(b) | Accounts owing from an Account Debtor, twenty-five percent (25%) or more of whose Accounts have not been paid within sixty (60) days of the due date or within one hundred and twenty (120) days of invoice date; |
(c) | credit balances over ninety (90) days from invoice date; |
(d) | Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower and/or Continuous Computing exceed twenty-five (25%) of all Accounts, except for Nokia Siemens for which such percentage is 40%, for the amounts that exceed that percentage, unless Bank approves in writing; |
(e) | Accounts owing from an Account Debtor which does not have its principal place of business in the United States except for Eligible Foreign Accounts; |
(f) | Accounts owing from an Account Debtor which is a federal, state or local government entity or any department, agency, or instrumentality thereof except for Accounts of the United States if Borrower and Continuous Computing have assigned their payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended; |
(g) | Accounts owing from an Account Debtor to the extent that Borrower and/or Continuous Computing is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower or Continuous Computing in the ordinary course of its business; |
(h) | Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, “bill and hold”, or other terms if Account Debtor's payment may be conditional; |
(i) | Accounts for which the Account Debtor is Borrower's or Continuous Computing's Affiliate, officer, employee, or agent; |
(j) | Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; and |
(k) | Accounts for which Bank in its reasonable good faith business judgment determines collection to be doubtful. |
(a) | purchases of capital stock from former employees, consultants and directors pursuant to repurchase agreements or other similar agreements in an aggregate amount not to exceed $500,000 in any fiscal year provided that at the time of such purchase no Default or Event of Default has occurred and is continuing; |
(b) | distributions or dividends consisting solely of Borrower's or any Subsidiary's capital stock; |
(c) | purchases for value of any rights distributed in connection with any stockholder rights plan; |
(d) | purchases of capital stock pledged as collateral for loans to employees; |
(e) | purchases of capital stock in connection with the exercise of stock options or stock appreciation rights |
(f) | purchases of fractional shares of capital stock arising out of stock dividends, splits or combinations or business combinations; and |
(g) | the settlement or performance of such Person's obligations under any equity derivative transaction, option contract or similar transaction or combination of transactions. |
(a) | Borrower's Indebtedness to Bank under this Agreement or any other Loan Document; |
(b) | any Indebtedness existing on the Effective Date and shown on the Perfection Certificate; |
(a) | Subordinated Debt; |
(d) | unsecured Indebtedness to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business; |
(e) | guaranties of Permitted Indebtedness; |
(f) | Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business; |
(g) | Indebtedness consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect a Person against fluctuations in interest rates, currency exchange rates, or commodity prices; |
(h) | Indebtedness between Borrower and any Guarantor or between any of Borrower's Subsidiaries (which are not Guarantors); |
(i) | capitalized leases and purchase money Indebtedness not to exceed $500,000 in the aggregate in any fiscal year secured by Permitted Liens; |
(j) | refinanced Permitted Indebtedness, provided that the amount of such Indebtedness is not increased except by an amount equal to a reasonable premium or other reasonable amount paid in connection with such refinancing and by an amount equal to any existing, but unutilized, commitment thereunder; and |
(k) | the Indebtedness under the 2013 Indenture existing on the date hereof; and |
(l) | other Indebtedness, if, on the date of incurring any Indebtedness pursuant to this clause (l), the outstanding aggregate amount of all Indebtedness incurred pursuant to this clause (l) does not exceed $500,000 at anytime. |
(a) | Investments existing on the Effective Date; |
(b) | (i)(A) marketable direct obligations issued or unconditionally guaranteed by the United States or its agencies or any State maturing within one (1) year from its acquisition, (B) commercial paper maturing no more than 2 years after its creation and having the highest rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (C) Bank's certificates of deposit maturing no more than 2 years after issue and (ii) Investments approved by the Borrower's Board of Directors or otherwise pursuant to a Board-approved investment policy; |
(c) | Investments (i) between Borrower or any Guarantor or (ii) between any Subsidiary (which are not |
(d) | Investments consisting of Collateral Accounts in the name of Borrower or any Guarantor so long as Bank has a first priority, perfected security interest in such Collateral Accounts; |
(e) | Investments consisting of extensions of credit to Borrower's or its Subsidiaries' customers in the nature of accounts receivable, prepaid royalties or notes receivable arising from the sale or lease of goods, provision of services or licensing activities of Borrower; |
(f) | Investments received in satisfaction or partial satisfaction of obligations owed by financially troubled obligors; |
(g) | Investments acquired in exchange for any other Investments in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization; |
(h) | Investments consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect a Person against fluctuations in interest rates, currency exchange rates, or commodity prices; |
(i) | Investments consisting of loans and advances to employees in an aggregate amount not to exceed $100,000; and |
(j) | other Investments, if, on the date of incurring any Investments pursuant to this clause (j), the outstanding aggregate amount of all Investments incurred pursuant to this clause (j) does not exceed $750,000. |
(a) | Liens arising under this Agreement or other Loan Documents; |
(b) | Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank's Liens; |
(c) | Liens (including with respect to capital leases) (i) on property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) acquired or held by Borrower or its Subsidiaries incurred for financing such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof), or (ii) existing on property (and accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) when acquired, if the Lien is confined to such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof); |
(d) | Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness it secures may not increase; |
(e) | leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or intellectual property) granted in the ordinary course of Borrower's business, if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest; |
(f) | non-exclusive license of intellectual property granted to third parties in the ordinary course of business; |
(g) | leases or subleases granted in the ordinary course of Borrower's business, including in connection with Borrower's leased premises or leased property; |
(h) | Liens in favor of custom and revenue authorities arising as a matter of law to secure the payment of |
(i) | Liens on insurance proceeds securing the payment of financed insurance premiums; |
(j) | customary Liens granted in favor of a trustee to secure fees and other amounts owing to such trustee under an indenture or other similar agreement; |
(l) | Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 or 8.7; |
(m) | Liens in favor of other financial institutions arising in connection with Borrower's deposit or securities accounts held at such institutions; |
(n) | carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceeding if adequate reserves with respect thereto are maintained on the books of the applicable Person; |
(o) | pledges or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance and compliance with other social security requirements applicable to Borrower; and |
(p) | deposits to secure the performance of bids, trade contracts (other than for borrowed money), contracts for the purchase of property, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, incurred in the ordinary course of business and not representing an obligation for borrowed money. |
To: | Silicon Valley Bank |
Re: | Amended and Restated Loan and Security Agreement dated as of November 1, 2011 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”), by and between RadiSys Corporation (“Borrower”), and Silicon Valley Bank (the “Bank”) |
LIBOR Pricing Date | LIBOR | LIBOR Variance | Maturity Date |
____% |
To: | Silicon Valley Bank |
Re: | Amended and Restated Loan and Security Agreement dated as of November 1, 2011 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”), by and between RadiSys Corporation (“Borrower”), and Silicon Valley Bank (the “Bank”) |
LIBOR Pricing Date | LIBOR | LIBOR Variance | Maturity Date |
____% |
ACCOUNTS RECEIVABLE | |
1.Accounts Receivable Book Value as of ____________________ | $_______________ |
2.Additions (please explain on reverse) | $_______________ |
3.TOTAL ACCOUNTS RECEIVABLE | $_______________ |
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) | |
4.Amounts over 60 days due and/or over 120 days from invoice/doc date | $_______________ |
5.Balance of 25% over 60 days due or over 120 days from invoice/doc date accounts | $_______________ |
6.Credit balances over 90 days | $_______________ |
7.Concentration Limits | $_______________ |
8.Foreign Accounts | $_______________ |
9.Governmental Accounts | $_______________ |
10.Contra Accounts | $_______________ |
11.Promotion or Demo Accounts | $_______________ |
12.Intercompany/Employee Accounts | $_______________ |
13.Disputed Accounts | $_______________ |
14.Other (please explain on reverse) | $_______________ |
15.TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS | $_______________ |
16.Eligible Accounts (#3 minus #15) | $_______________ |
17.ELIGIBLE AMOUNT OF ACCOUNTS (80% of #16), except to the extent the Account of Nokia Siemens is eligible then 70% of such Account, and except Eligible Foreign Accounts for which such percentage is 65% | $_______________ |
BALANCES | |
18.Maximum Loan Amount | $40,000,000 |
19.Total Funds Available [Lesser of (a) #18 or (b) #17] | $_______________ |
20.Present balance owing on Line of Credit | $_______________ |
21.RESERVE POSITION (#19 minus #20) | $_______________ |
COMMENTS: By: ___________________________ Authorized Signer Date: | BANK USE ONLY Received by: _____________________ authorized signer Date: __________________________ Verified: ________________________ authorized signer Date: ___________________________ Compliance Status:YesNo |
Please indicate compliance status by circling Yes/No under “Complies” column. | ||||||||
Reporting Covenant | Required | Complies | ||||||
Quarterly consolidating financial statements | Quarterly within 45 days | Yes No | ||||||
Annual financial statement | FYE unaudited and audited within 90 days | Yes No | ||||||
10‑Q, 10‑K and 8-K + CC | Within 5 days after filing with SEC, but, (i) in case of 10-Qs, no later than within 45 days of the last day of the first three fiscal quarter ends of each fiscal year, and (2) in case of 10-Ks, no later than within 90 days of the last day of each fiscal year | Yes No | ||||||
Borrowing Base Certificate A/R & A/P Agings + Deferred Revenue report | If Advances exceed (or, if on a Funding Date Advances will exceed) the Threshold Amount, monthly within 30 days and within five (5) days prior to each Funding Date | Yes No | ||||||
Material Litigation | Prompt | Yes* No | ||||||
Annual board approved financial projections | Annually within 60 days of fiscal year end | Yes No | ||||||
*If yes, attached is a summary of the Material Litigation not previously disclosed by Borrower or any of its Subsidiaries. | ||||||||
Financial Covenant | Required | Actual | Complies | |||||
Maintain as indicated: | ||||||||
Minimum Two Quarters' EBITDA (as of the last day of each fiscal quarter, two rolling quarters) | Quarter Ending Minimum EBITDA (two quarters then ending) | |||||||
December 31, 2011 $(8,500,000) | ||||||||
March 31, 2012 $(2,100,000) | ||||||||
June 30, 2012 $(500,000) | ||||||||
September 30, 2012 $2,000,000 | ||||||||
December 31, 2012 and thereafter $3,000,000 | ||||||||
$_______ | Yes No | |||||||
Minimum Quarterly EBITDA | For fiscal quarter ending September 30, 2011: (8,300,000) | $_______ | Yes No | |||||
Maximum Capital Expenditures | No greater than $11,000,000 in fiscal year 2011 and no greater than $8,000,000 in any other fiscal year | $_______ | Yes** No | |||||
Liquidity (at all times, tested quarterly) | Not less than 1.25:1.00 | ____: 1.00 | Yes No |
Test | Actual | Required | |
BBC Required (Section 6.2(b)) | Obligations > $20,000,000 | $________ | Yes No |
RADISYS CORPORATION By: Name: Title: | BANK USE ONLY Received by: _____________________ authorized signer Date: _________________________ Verified: ________________________ authorized signer Date: _________________________ Compliance Status:Yes No |
Required: | For the quarter ending September 30, 2011, EBITDA greater than $(8,300,000) and for each two-quarter period set forth below, the minimum EBITDA set forth below opposite each such period. |
Two Quarters Ending | Minimum EBITDA (two quarters then ending) | ||
December 31, 2011 | $ | (8,500,000 | ) |
March 31, 2012 | $ | (2,100,000 | ) |
June 30, 2012 | $ | (500,000 | ) |
September 30, 2012 | $ | 2,000,000 | |
December 31, 2012 and thereafter | $ | 3,000,000 |
A. | Net Income | $ |
B. | To the extent included in the determination of Net Income | |
1.Interest Expense | $ | |
2.Income tax expense | $ | |
3.Depreciation expense | $ | |
4.Amortization expense | $ | |
5.Income tax expense | $ | |
6.Non-cash stock based compensation expenses | $ | |
7.Non-cash restructuring and integration expenses related to the acquisition of Continuous Computing | $ | |
8.Non-cash impairment charges on goodwill as required by FAS 142 fair value testing related to intangible assets acquired through the acquisition of Continuous Computing | $ | |
9.The sum of lines B.1 through B.8 | $ | |
C. | EBITDA (line A plus line B.9) | $ |
Required: | Capital Expenditures not in excess of $11,000,000 in fiscal year 2011 and not in excess of $8,000,000 in any other fiscal year (not counting any Capital Expenditures financed by purchase money security interest financing or financial leases to the extent permitted by Section 7.4 of the Loan Agreement) |
A. | Aggregate amount of Capital Expenditures | $ |
B. | Amount of Capital Expenditures financed by purchase money security interest financing or financial leases to the extent permitted by Section 7.4 of the Loan Agreement | $ |
C. | Line A minus line B | $ |
Required: | At all times when there are outstanding Obligations on account of Advances or Letters of Credit, Liquidity not less than 1.25:1.00. |
A. | Borrower's unrestricted cash, unrestricted Cash Equivalents, and unrestricted short term marketable securities held with Financial Institutions in the United States of America | $ |
B. | Borrower's Foreign Subsidiaries' unrestricted cash and unrestricted Cash Equivalents held with Financial Institutions (up to a maximum of $10,000,000) | $ |
C. | Eligible Accounts | $ |
D. | Sum of lines A through C | $ |
E. | Sum of all outstanding Obligations on account of Advances or Letters of Credit | $ |
F. | Line D divided by line E |
WHEREAS, | Guarantor executed and delivered to SVB an Unconditional Secured Guaranty dated as of August 8, 2011 (the “Guaranty”) with respect to the obligations of RadiSys Corporation, an Oregon corporation (“Borrower”), under a Loan and Security Agreement dated August 7, 2008, by and between Borrower and SVB; and |
WHEREAS, | Borrower and SVB are amending and restating that Loan and Security Agreement pursuant to that certain Amended and Restated Loan and Security Agreement dated as of the date hereof (the “A&R Loan Agreement”). |
1. | Capitalized Terms. Unless otherwise defined in this Reaffirmation of Unconditional Secured Guaranty, all capitalized terms shall have the meaning given to them in the Guaranty. |
2. | Reaffirmation of Guaranty. Guarantor has reviewed the A&R Loan Agreement. Guarantor hereby ratifies and reaffirms its obligations under the Guaranty and agrees that none of the amendments or modifications to the Loan Agreement as set forth in the A&R Loan Agreement shall impair such Guarantor's obligations under the Guaranty or SVB's rights under the Guaranty. |
3. | Continuing Effect and Absence of Defenses. Guarantor acknowledges that the Guaranty is still in full force and effect and that Guarantor has no defenses, other than actual payment of the guaranteed obligations, to enforcement of the Guaranty. Guarantor waives any and all defenses to enforcement of the Guaranty that might otherwise be available as a result of the amendment and restatement of the Loan Agreement. |
CONTINUOUS COMPUTING CORPORATION, a Delaware corporation | |
By: | /s/ Brian Bronson |
Name: | Brian Bronson |
Title: | President and Chief Financial Officer |
/s/ Michel Dagenais |
Michel Dagenais |
Chief Executive Officer |
/s/ Brian Bronson |
Brian Bronson |
Chief Financial Officer |
/s/ Michel Dagenais |
Michel Dagenais |
Chief Executive Officer |
November 4, 2011 |
/s/ Brian Bronson |
Brian Bronson |
Chief Financial Officer |
November 4, 2011 |
Balance Sheet Parenthetical (USD $) In Thousands, except Per Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Shareholders' equity: | ||
Common stock, par value | $ 0.00 | $ 0.00 |
Common stock, shares authorized | 100,000 | 100,000 |
Common stock, shares issued | 27,735 | 24,351 |
Common stock, shares outstanding | 27,735 | 24,351 |
Subsequent Event | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Subsequent Events [Abstract] | |
Subsequent Events [Text Block] | Subsequent Event On November 1, 2011, the Company entered into a $40.0 million secured revolving line of credit agreement with Silicon Valley Bank to replace the Company's existing line of credit agreement with Silicon Valley Bank. Refer to Note 7 - Short-Term Borrowings for a compete description of the terms and conditions of the new line of credit. |
Document and Entity Information In Thousands | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 01, 2011 | |
Entity Information [Line Items] | ||
Entity Registrant Name | RadiSys Corporation | |
Entity Central Index Key | 0000873044 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 27,736 |
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Inventory Disclosure | Inventories Inventories consisted of the following (in thousands):
Consigned inventory is held at third-party locations, including the Company's contract manufacturing partners and customers. The Company retains title to the inventory until purchased by the third-party. Consigned inventory, consisting of raw materials and finished goods, was $5.3 million and $3.0 million at September 30, 2011 and December 31, 2010. The Company recorded the following charges associated with the valuation of inventory, inventory deposit and the adverse purchase commitment liability (in thousands):
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Basic and Diluted Net Income per Share A reconciliation of the numerator and the denominator used to calculate basic and diluted net income per share is as follows (in thousands, except per share amounts):
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Significant Accounting Policies | 9 Months Ended |
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Sep. 30, 2011 | |
Significant Accounting Policies [Abstract] | |
Significant Accounting Policies | Significant Accounting Policies Radisys Corporation (the “Company” or “Radisys”) has adhered to the accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, 2010 in preparing the accompanying interim consolidated financial statements. The preparation of these statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Additionally, the accompanying financial data as of September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The financial information included herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for interim periods. Contingent Consideration Contingent consideration is recorded at the acquisition date estimated fair value of the contingent payment for all acquisitions. The fair value of the contingent consideration is remeasured each reporting period with any adjustments in fair value included in the Company’s Consolidated Statement of Income. Recent Accounting Pronouncements In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards," that amends some fair value measurement principles and disclosure requirements. This ASU states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets and prohibits the grouping of financial instruments for purposes of determining their fair values when the unit of account is specified in other guidance. The provisions of this ASU will be applied prospectively for interim and annual periods beginning after December 15, 2011, with early adoption prohibited. The standard is not expected to have a material impact on the Company's financial position or results of operations. In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income”. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in stockholders' equity. The provisions of this ASU will be applied retrospectively for interim and annual periods beginning after December 15, 2011, with early application permitted. The standard is not expected to have a material impact on the Company's financial position or results of operations; however it will change the manner in which the Company presents comprehensive income. In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other” that will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The guidance is effective for fiscal years beginning after December 15, 2011 with early adoption permitted. The standard is not expected to have a material impact on the Company's financial position or results of operations; however it will change the manner in which we assess goodwill for impairment. |
Short-Term Borrowings | 9 Months Ended | ||||||||||||
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Short-term Debt [Abstract] | |||||||||||||
Short-term Debt | Short-Term Borrowings Silicon Valley Bank On November 1, 2011 the Company entered into a $40.0 million secured revolving line of credit agreement (the “Agreement”) with Silicon Valley Bank (“SVB”) to replace the Company's existing line of credit with SVB. The new Agreement matures on September 30, 2014 and is subject to a borrowing base and secured by the Company's accounts receivable. The secured revolving credit facility is available for cash borrowings, with $20.0 million of the Agreement available on a non-formula basis and the remaining $20.0 million subject to a borrowing formula based upon eligible accounts receivable. Eligible accounts receivable (as defined in the Agreement) include 100% of US and 65% of foreign (including Continuous Computing) accounts receivable, limited to concentration by certain customers, not greater than 60 days past due and no greater than 120 days from original invoice date. Borrowings under the Agreement bear interest at the prime rate, which was 3.25% as of September 30, 2011, or LIBOR, which was 0.24% as of September 30, 2011, plus 1.25%, with either interest rate determined by the Company's election. The Company is required to make interest payments monthly. The Company is further required to pay a commitment fee equal to $35,000 on the closing date of the agreement and annually thereafter and to pay quarterly in arrears an unused facility fee in an amount equal to 0.375% per year of the unused amount of the facility. The Agreement requires the Company to make and maintain certain financial covenants, representations, warranties and other agreements that are customary in credit agreements of this type. The Agreement also requires the Company to maintain the following specific financial covenants:
As of September 30, 2011 and December 31, 2010, the Company had no outstanding balances or letters of credit issued on its behalf under the agreement that existed on those dates. |
Stock-based Compensation | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Share-based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments | Stock-based Compensation On June 15, 2011 the Company's stockholders approved an amendment to the RadiSys Corporation 2007 Stock Plan. The amendment increased the number of shares of the Company's common stock reserved and authorized for issuance under the plan from 3.7 million to 4.7 million. On May 3, 2011 the Company registered 600,000 shares of its common stock under the RadiSys Corporation Inducement Stock Plan for CCPU Employees (the "CCPU Plan"). The CCPU Plan was adopted without shareholder approval in reliance upon the exception provided under Nasdaq Listing Rule 5635(c)(4) relating to awards granted in connection with the hiring of new employees, including grants to transferred employees in connection with a merger or acquisition. Awards under the CCPU Plan are made only to employees of Continuous Computing or its subsidiaries and became effective upon the completion of the acquisition. The CCPU Plan provides for the issuance of stock options, restricted shares and restricted stock units. The Company assumed the stock plans of Continuous Computing during the three and nine months ended September 30, 2011. Under the terms of the Company's merger agreement with Continuous Computing, options outstanding under these plans were converted to options to purchase shares of the Company's common stock. Options issued under these plans vest over four years from the original grant date and have an expiration date of 10 years from the original grant date. The exercise price of each converted option is equal to the product of the original exercise price and the original number of options granted divided by the number of converted options received. These stock plans have been suspended and no future awards will be granted under these plans. A total of 322,000 shares of common stock have been authorized and issued under the Continuous Computing plans. In accordance with the merger agreement the options were required to be converted into multiple awards on the acquisition date, with the resulting awards being non-contingent and contingent options. Both the non-contingent and contingent awards continue to vest under the original service conditions of the awards. However, the contingent awards contain post-vesting restrictions tied to payment of certain merger contingencies such as the earn-out and indemnification agreements. The assumed options were valued using a Black-Scholes option-pricing model. In addition, we utilized the Finnerty Asian Put Option Approach to estimate the discount associated with the post-vesting restrictions for the contingent options. The resulting discount applied was 10%. The following table summarizes awards granted and assumed under all of the Company's stock plans (in thousands):
Stock-based compensation was recognized and allocated as follows (in thousands):
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Convertible Debt | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Convertible Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | Convertible Debt 2013 Convertible Senior Notes During February 2008, the Company offered and sold in a public offering pursuant to the shelf registration statement $55.0 million aggregate principal amount of 2.75% convertible senior notes due 2013 (the “2013 convertible senior notes”). Interest is payable semi-annually, in arrears, on each August 15 and February 15, beginning on August 15, 2008, to the holders of record at the close of business on the preceding August 1 and February 1, respectively. The 2013 convertible senior notes mature on February 15, 2013. Holders of the 2013 convertible senior notes may convert their notes into a number of shares of the Company's common stock determined as set forth in the indenture governing the notes at their option on any day to and including the business day prior to the maturity date. The 2013 convertible senior notes are initially convertible into 76.7448 shares of the Company's common stock per $1,000 principal amount of the notes (which is equivalent to a conversion price of approximately $13.03 per share), subject to adjustment upon the occurrence of certain events. Upon the occurrence of a fundamental change, holders of the 2013 convertible senior notes may require the Company to repurchase some or all of their notes for cash at a price equal to 100% of the principal amount of the notes being repurchased, plus accrued and unpaid interest, if any. In addition, if certain fundamental changes occur, the Company may be required in certain circumstances to increase the conversion rate for any 2013 convertible senior notes converted in connection with such fundamental changes by a specified number of shares of the Company's common stock. The 2013 convertible senior notes are the Company's general unsecured obligations and rank equal in right of payment to all of its existing and future senior indebtedness, and senior in right of payment to the Company's future subordinated debt. The Company's obligations under the 2013 convertible senior notes are not guaranteed by, and are effectively subordinated in right of payment to all existing and future obligations of its subsidiaries and are effectively subordinated in right of payment to its future secured indebtedness to the extent of the assets securing such debt. In connection with the issuance of the 2013 convertible senior notes, the Company entered into a capped call transaction with a hedge counterparty. The capped call transaction is expected to reduce the potential dilution upon conversion of the 2013 convertible senior notes in the event that the market value per share of the Company's common stock, as measured under the terms of the capped call transaction, at the time of exercise is greater than the strike price of the capped call transaction of approximately $13.03. The strike price of the capped call transaction corresponds to the initial conversion price of the 2013 convertible senior notes and is subject to certain adjustments similar to those contained in the notes. The capped call transaction provides for net-share settlement in the event that the volume-weighted average price per share of the Company's common stock on the settlement date exceeds the strike price of approximately $13.03 per share. In such event, the hedge counterparty would deliver to the Company a number of shares equal to a formula determined by the quotient resulting from (a) the shares being settled times the difference between the volume-weighted average price on the settlement date and the strike price of approximately $13.03 per share, divided by (b) the volume-weighted average price on the settlement date. If the volume-weighted average price on the settlement date equals or exceeds the cap price of $23.085 per share, the difference in (a) would be $23.085 minus $13.03, or $10.055. If the market value per share of the Company's common stock exceeds the cap price of the capped call transaction of $23.085, as measured under the terms of the capped call transaction, the dilution mitigation under the capped call transaction will be limited, which means that there would be dilution to the extent that the then market value per share of the Company's common stock exceeds the cap price of the capped call transaction. Although the capped call transaction covers approximately 4.2 million shares, in order to facilitate an orderly settlement process, the shares are divided into tranches of approximately 211,000 shares each, settling on the twenty consecutive trading days prior to the date of maturity of the Company's convertible notes. Thus, on each settlement date, approximately 211,000 shares would be settled, assuming a volume-weighted average price on such settlement date of $23.085. Assuming a volume-weighted average price of $23.085, the hedge counterparty would deliver to the Company approximately 91,904 shares on each settlement date, calculated as follows: 211,000 x ($23.085 - $13.03)/$23.085 = 91,904. The following table outlines the effective interest rate, contractually stated interest costs, and costs related to the amortization of issuance costs for the Company's 2013 convertible senior notes:
As of September 30, 2011 and December 31, 2010, the Company had outstanding 2013 convertible senior notes with a face value of $50.0 million. As of September 30, 2011 and December 31, 2010, the fair value of the Company's 2013 convertible senior notes was $44.9 million and $49.1 million. |
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Accrued Restructuring and Other Charges [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities Disclosure | Accrued Restructuring Accrued restructuring, which is included in other accrued liabilities in the accompanying Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, consisted of the following (in thousands):
The Company evaluates the adequacy of the accrued restructuring charges on a quarterly basis. The Company records certain reclassifications between categories and reversals to the accrued restructuring charges based on the results of the evaluation. The total accrued restructuring charges for each restructuring event are not affected by reclassifications. Reversals are recorded in the period in which the Company determines that expected restructuring obligations are less than the amounts accrued. 2009 Restructurings During the second and fourth quarters of 2009, the Company undertook various restructuring activities. To date, the Company has incurred restructuring costs of $3.7 million which has consisted primarily of severance and related payroll costs, healthcare benefits, relocation incentives, and equipment moving costs. The following table summarizes the changes to the 2009 restructuring costs for the nine months ended September 30, 2011 (in thousands):
Fourth Quarter 2010 Restructuring During the fourth quarter of 2010, the Company initiated a restructuring plan that included the elimination of 67 positions at various locations throughout the company. The primary focus of this initiative was to align expenses with the Company’s 2011 operating plan objectives, which included the need to reduce the Company's infrastructure associated with the maturity of the Company's legacy communication networks products, as well as the consolidation of its contract manufacturers. To date, the Company has incurred total fourth quarter 2010 restructuring costs of $2.0 million, which consisted of severance and related payroll costs as well as healthcare benefits. The Company expects all activities associated with this restructuring plan to be substantially completed by the end of 2011. During the three and nine months ended September 30, 2011, the Company recorded expense of $21,000 and a net reversal of $6,000 for previously estimated amounts associated with the fourth quarter 2010 restructuring plan. The activity reflects the re-assignment of employees initially included in the plan and changes in previously estimated amounts for employee severance and associated payroll costs. The following table summarizes the changes to the fourth quarter 2010 restructuring costs during the nine months ended September 30, 2011 (in thousands):
Continuous Computing Related Restructuring During the second quarter of 2011, the Company initiated a restructuring plan associated with the acquisition of Continuous Computing. This plan includes multiple phases and the full scope of the plan is expected to be finalized by the end of the fourth quarter. At the end of the third quarter the plan included the identification of 114 positions at various locations that will be eliminated. The primary intent of these integration activities was to better align our operations and headcount with expected synergies to be realized as a direct result of the Company's acquisition of Continuous Computing, as more fully discussed in Note 2 - Acquisition of Continuous Computing Corporation. In addition, these integration activities align with the Company's corporate objective to transfer a significant portion of its research and development activities to offshore lower cost geographies. During the three and nine months ended September 30, 2011, the Company recorded restructuring costs of $3.4 million and $4.3 million, which consisted of severance, healthcare benefits, related payroll costs and legal fees. The Company expects additional charges associated with the restructuring plan to be substantially completed by the first quarter of 2012. The following table summarizes activity associated with the Continuous Computing restructuring initiative during the nine months ended September 30, 2011 (in thousands):
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Total Comprehensive Income (Loss) (USD $) In Thousands | 3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net income for the period | $ 2,765 | $ 2,171 | $ 2,426 | $ 1,713 |
Net adjustment for fair value of hedge derivatives | (660) | 134 | (603) | (484) |
Gain on liquidiation of foreign subsidiary | (2,081) | 0 | (2,081) | 0 |
Translation adjustments | (428) | 301 | (172) | 24 |
Total comprehensive income (loss) | $ (404) | $ 2,606 | $ (430) | $ 1,253 |
Acquistion of Continuous Computing Corporation | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combination Disclosure [Text Block] | Acquisition of Continuous Computing Corporation On July 8, 2011, the Company acquired 100% of the outstanding shares of Continuous Computing Corporation ("Continuous Computing"), a developer of communications systems consisting of highly integrated ATCA platforms and Trillium protocol software. The Company expects the acquisition to accelerate our strategy to deliver more differentiated platforms and solutions. Continuous Computing also brings expansion into high growth markets with many new customers, creating meaningful customer diversification. Under the terms of the acquisition agreement, the Company paid approximately $81.5 million in cash and 2,321,016 in shares of our common stock. The aggregate cash amount consisted of $73.0 million plus an $8.5 million working capital adjustment. The Company also deposited an additional 1,344,444 shares of its common stock into an escrow account and subject to any indemnification claims, one-half of the shares held therein will be released one year after the closing of the acquisition with the remainder to be released six months thereafter. The common stock issued to former shareholders of Continuous Computing has a fair value of $30.8 million, based on the closing price of the Company's common stock on July 8, 2011 of $8.39 per share. In addition, the Company has agreed to make certain earn-out payments based on the amount of product royalty revenues generated by a specified set of contracts associated with certain of Continuous Computing's products over a period of 36 months after closing. Earn-out payments will be made in cash in three installments following the 18-, 24- and 36-month anniversaries of the closing date, and in each case will equal the amount of such royalty revenues during the immediately preceding 18-month, six-month or 12-month period, as applicable, except that, in lieu of making any and all earn-out payments, the Company may elect at any time prior to the fifth business day following the 18-month anniversary of the closing date to make a one-time payment in cash and/or issuance of common stock with a combined aggregate value of $15 million. The estimated fair value of this contingent consideration at the acquisition date was $7.4 million and is included in other long-term liabilities in the Consolidated Balance Sheet at September 30, 2011. See Note 3 - Fair Value of Financial Instruments for additional information regarding the valuation of the contingent consideration liability. In connection with the acquisition, the Company assumed Continuous Computing's stock incentive plan as to stock options held by continuing employees of Continuous Computing that were not vested on or prior to June 30, 2011, which were converted into options to acquire approximately 322,000 shares of the Company's common stock. See Note 12 - Stock-based Compensation for additional information regarding the valuation of the assumed options. The total preliminary acquisition consideration is as follows (in thousands):
Preliminary Purchase Price Allocation The Company accounted for the transaction using the acquisition method and, accordingly, the consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price was allocated using the information available and is preliminary. The Company may adjust the preliminary purchase price allocation if additional information is obtained during the measurement period (up to one year from the acquisition date) regarding, among other things, assets valuations, liabilities assumed and revisions to preliminary estimates. Continuous Computing is subject to legal and regulatory requirements, including but not limited to those related to taxation in each of the jurisdictions in the countries in which it operated. The Company has conducted a preliminary assessment of liabilities arising from these tax matters in each of these jurisdictions, and has recognized provisional amounts in its initial accounting for the acquisition of Continuous Computing for the identified liabilities. However, the Company is continuing its review of these matters during the measurement period, and if new information is obtained about facts and circumstances that existed at the acquisition date identifies adjustments to the liabilities initially recognized, as well as any additional liabilities that existed as the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional tax amounts initially recognized. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. The preliminary allocation of the total purchase price is as follows (in thousands):
The goodwill created by the transaction of $26.0 million is not deductible for tax purposes. Key factors that make up the goodwill created by the transaction include expected synergies from the combination of operations and the knowledge and experience of the acquired workforce and infrastructure. Valuation of Intangible Assets Acquired The following table summarizes the intangible assets acquired in connection with the acquisition (in thousands):
The Company is amortizing purchased technology and backlog to amortization of purchased technology in the Consolidated Income Statements over the respective estimated life of each intangible asset. Customer relationships and trade name are being amortized to intangible assets amortization in the Consolidated Statements of Income over the respective estimated life of each intangible asset. Transaction-Related Expenses The Company has incurred significant transaction costs directly related to the Continuous Computing transaction. The incremental expenses related to legal, accounting and valuation services, and investment banking fees. During the three and nine months ended September, 2011, the Company incurred restructuring costs associated with severance and other related compensation charges. In addition, the Company has incurred significant integration-related costs which include expenses associated with operational consolidation, training, re-branding, and consulting. These charges are included in cost of sales and restructuring and acquisition-related charges, net on the Consolidated Statements of Income. The table below presents the amounts related to these expenses included in our Consolidated Statements of Income (in thousands):
Unaudited Actual and Pro Forma Information Our consolidated revenues for the three and nine months ended September 30, 2011 included $15.3 million from Continuous Computing subsequent to the acquisition date. The following table presents the unaudited pro forma results for the periods set forth below. The unaudited pro forma financial information combines the results of operations as though the acquisition had occurred on January 1, 2010. No pro forma adjustments have been made for our incremental transaction, restructuring or integration-related costs. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had occurred on January 1, 2010: (in thousands, except per share data):
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Fair Value of Financial Instruments | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures | Fair Value of Financial Instruments The Company measures at fair value certain financial assets and liabilities. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy: Level 1— Quoted prices for identical instruments in active markets; Level 2— Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Foreign currency forward contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates; therefore, they are classified within Level 2 of the valuation hierarchy. The cash surrender value of life insurance contracts is measured at fair value using quoted market prices for similar instruments; therefore, they are classified within Level 2 of the valuation hierarchy. The contingent consideration liability represents future amounts we may be required to pay in conjunction with the acquisition of Continuous Computing and is based on the amount of royalty revenues generated by a specified set of contracts associated with certain of Continuous Computing's products over a period of 36 months after closing. The Company estimates the fair value of the contingent consideration liability using a probability-weighted scenario of estimated qualifying earn-out revenues calculated at net present value (level 3 of the fair value hierarchy). The following table summarizes the fair value measurements for the Company's financial instruments (in thousands):
The following table summarizes our Level 3 activity for the Company's contingent consideration liability (in thousands):
The Company records all gains and losses and interest accretion on the contingent consideration liability to restructuring and acquisition-related charges,net in the Consolidated Income Statements. |
Income Taxes | 9 Months Ended |
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Sep. 30, 2011 | |
Income Taxes [Abstract] | |
Income Tax Disclosure | Income Taxes The Company's effective tax rate for the three months ended September 30, 2011 and 2010, differs from the statutory rate primarily due to a full valuation allowance provided against its United States (“U.S.”) net deferred tax assets, Canadian research and experimental development claims, the impact of stock option expense, the amortization of goodwill for tax purposes and taxes on foreign income that differ from the U.S. tax rate. In addition to the aforementioned items, the effective tax rate for the three months ended September 30, 2011 differs from the statutory rate due to a partial release of the Company's valuation allowance provided against its U.S. net deferred tax assets as a result of the purchase accounting associated with the acquisition of Continuous Computing. Purchase accounting includes the establishment of a deferred tax liability due to the book tax basis differences related to specifically identified non-goodwill intangibles resulting from the acquisition. The net liability from the acquisition created an additional source of income to utilize our deferred tax assets. As such, authoritative guidance requires the Company to record the impact on the Company's deferred tax assets outside of purchase accounting. An income tax benefit of $7.6 million was recognized upon the partial valuation allowance release. The Company utilizes the asset and liability method of accounting for income taxes. The Company records deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon the Company's review of all positive and negative evidence, including its projected three year U.S. cumulative pre-tax book loss and taxable loss, it concluded that a full valuation allowance should continue to be recorded against its U.S. net deferred tax assets at September 30, 2011. In certain other foreign jurisdictions, where the Company does not have cumulative losses or other negative evidence, the Company had net deferred tax assets of $18.3 million at September 30, 2011 and $16.6 million at December 31, 2010. In the future, if the Company determines that it is more likely than not that it will realize its U.S. net deferred tax assets, it will reverse the applicable portion of the valuation allowance and recognize an income tax benefit in the period in which such determination is made. The Company's unrecognized tax benefits and related interest and penalties during the three months ended September 30, 2011 increased by $2.2 million due to uncertain tax positions associated with the acquisition of Continuous Computing as part of the purchase accounting adjustments which was partially offset by a $1.1 million decrease related to the effective settlement of an examination by the Canadian Revenue Agency ("CRA"). The ending balance for the unrecognized tax benefits was approximately $2.0 million at September 30, 2011. The related interest and penalties were $180,000 and $154,000, respectively. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant. The CRA completed an examination of the Company for tax years 2006 through 2008 during the three months ended September 30, 2011. During the three months ended December 31, 2010, the CRA issued proposed adjustment notices. During the three months ended June 30, 2011, the CRA reissued the proposed adjustments and the Company, as of June 30, 2011, was in the process of reaching an agreement with CRA with respect to the tax carry-forward attributes to be utilized in future tax years. The Company agreed to the proposed adjustments and effectively settled the examination during the three months ended September 30, 2011. The effective settlement did not have a significant impact on the Company's financial statements. The Company is not currently under examination by tax authorities in any other jurisdictions. The Company is currently under tax examination in India from the acquisition of Continuous Computing. The periods covered under examination are the Company's financial years 2004 through 2008. The examination is in various stages of appellate proceedings and all material uncertain tax positions associated with the examination have been taken into account in the ending balance of the unrecognized tax benefits at September 30, 2011. The Company is not under examination by tax authorities in any other jurisdictions. |
Accounts Receivable and Other Receivables | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable and Other Receivables | Accounts Receivable and Other Receivables Accounts receivable consists of sales to the Company's customers which are generally based on standard terms and conditions. Accounts receivable balances consisted of the following (in thousands):
As of September 30, 2011 and December 31, 2010, the balance in other receivables was $4.6 million and $1.7 million. Other receivables consisted primarily of non-trade receivables including receivables for inventory transferred to the Company's contract manufacturing partners. There is no revenue recorded associated with non-trade receivables. |
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Derivative Instrument Detail [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Text Block] | Hedging The Company’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates. The Company manages these risks through the use of forward exchange contracts, designated as foreign currency cash flow hedges, in an attempt to reduce the potentially adverse effects of foreign currency exchange rate fluctuations that occur in the normal course of business. As such, the Company’s hedging activities are all employed solely for risk management purposes. All hedging transactions are conducted with, in the opinion of management, financially stable and reputable financial institutions. For the year ended December 31, 2010 and for the nine months ended September 30, 2011, the only hedge instruments executed by the Company are associated with its exposure to fluctuations in the Canadian Dollar which result from obligations such as payroll and rent paid in Canadian Dollars. These derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets and unrealized loss positions are recorded as other current liabilities. Changes in the fair values of the outstanding derivatives that are highly effective are recorded in other comprehensive income (loss) until net income is affected by the variability of the cash flows of the hedged transaction. Typically, hedge ineffectiveness could result when the amount of the Company’s hedge contracts exceed the Company’s forecasted or actual transactions for which the hedge contracts were designed to hedge. Once a hedge contract matures the associated gain (loss) on the contract will remain in other comprehensive income (loss) until the underlying hedged transaction affects net income (loss), at which time the gain (loss) will be recorded to the expense line item being hedged, which is primarily R&D. The Company only enters into derivative contracts in order to hedge foreign currency exposure. If the Company entered into a contract for speculative reasons or if the Company’s current hedge position becomes ineffective, changes in the fair values of the derivatives would be recognized in earnings in the current period. During the three months ended September 30, 2011, the Company did not enter into any new foreign currency contracts, while during the nine months ended September 30, 2011, the Company entered into 12 new foreign currency forward contracts, with total contractual values of $2.2 million. During the three and nine months ended September 30, 2010, the Company entered into 12 and 44 new foreign currency forward contracts, with total contractual values of $2.3 million and $6.8 million. As of September 30, 2011, the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted and recorded transactions is 14 months. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives are expected to remain highly effective in future periods. For the three and nine months ended September 30, 2011 and for the year ended December 31, 2010, the Company had no hedge ineffectiveness. A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at September 30, 2011 is as follows (in thousands):
A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at December 31, 2010 is as follows (in thousands):
The effect of derivative instruments on the consolidated financial statements for the three months ended September 30, 2011 was as follows (in thousands):
The effect of derivative instruments on the consolidated financial statements for the nine months ended September 30, 2011 was as follows (in thousands):
The effect of derivative instruments on the consolidated financial statements for the three months ended September 30, 2010 was as follows (in thousands):
The effect of derivative instruments on the consolidated financial statements for the nine months ended September 30, 2010 was as follows (in thousands):
Over the next twelve months, the Company expects to reclassify into earnings a loss of approximately $218,000, currently recorded as other comprehensive income, as a result of the maturity of currently held forward exchange contracts. The bank counterparties in these contracts expose the Company to credit-related losses in the event of their nonperformance. However, to mitigate that risk, the Company only contracts with counterparties who meet its minimum requirements regarding counterparty credit worthiness. In addition, the Company monitors credit ratings, credit spreads and potential downgrades prior to entering into any new hedging contracts. |
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