-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FIQJ3U/SXQe03SbqQ1SbfZliGXmnSt0HEkwdu2s5IWMvfWxVmAiGsGyS3PZhzOxb S8nZCUVHC5H3F62A4wGVrw== 0000912057-97-007157.txt : 19970228 0000912057-97-007157.hdr.sgml : 19970228 ACCESSION NUMBER: 0000912057-97-007157 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970227 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANISYS TECHNOLOGY INC CENTRAL INDEX KEY: 0000929775 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 742675493 STATE OF INCORPORATION: WY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29038 FILM NUMBER: 97545526 BUSINESS ADDRESS: STREET 1: 12201 TECHNOLOGY BOULEVARD, SUITE 130 STREET 2: SUITE B195 CITY: AUSTIN STATE: TX ZIP: 78727-6101 BUSINESS PHONE: 5123354440 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________ FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 or / / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-23038 _________ TANISYS TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) WYOMING 74-2675493 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12201 TECHNOLOGY BLVD., SUITE 130 AUSTIN, TEXAS 78727 78727 (Address of principal executive offices) (Zip Code) (512) 335-4440 Registrant's Telephone Number, Including Area Code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No Indicated below is the number of shares outstanding of the registrant's only class of common stock at February 24, 1997: TITLE OF CLASS NUMBER OF SHARES OUTSTANDING -------------- ----------------- Common Stock, no par value 16,635,155 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES INDEX
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Interim Consolidated Condensed Financial Statements (Unaudited) Consolidated Condensed Balance Sheets - December 31, 1996 and September 30, 1996..... 3 Consolidated Condensed Statements of Loss - For the Three Month Periods Ended December 31, 1996 and 1995........................................................... 4 Consolidated Condensed Statements of Cash Flows - For the Three Month Periods Ended December 31, 1996 and 1995..................................................... 5 Notes to Interim Consolidated Condensed Financial Statements (Unaudited)............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................... 8 PART II OTHER INFORMATION Item 1. Legal Proceedings.................................................................... 13 Item 5. Other Information.................................................................... 13 Item 6. Exhibits............................................................................. 14 SIGNATURES........................................................................................ 15
2 PART I. FINANCIAL INFORMATION ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(UNAUDITED) DECEMBER 31, SEPTEMBER 30, 1996 1996 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $1,794,323 $2,689,569 Trade accounts receivable, net of allowance of $98,450 and $84,557, respectively 6,383,341 5,069,399 Accounts receivable from related parties 17,691 17,691 Inventory 2,043,833 1,804,458 Prepaid expense 391,159 217,570 ----------- ----------- Total current assets 10,630,347 9,798,687 ----------- ----------- Property and equipment, net of accumulated depreciation of $1,081,516 and $906,589, respectively 2,131,481 1,817,479 Incorporation costs, net 896 1,024 Patents and trademarks, net 87,905 84,337 Goodwill, net of accumulated amortization of $3,552,333 and $2,220,208, respectively 7,104,665 8,436,790 Other assets 84,127 84,000 ----------- ----------- $20,039,421 $20,222,317 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,762,142 $2,920,530 Accounts payable to related parties -- 64,618 Accrued liabilities 582,621 929,376 Revolving credit note 4,445,851 3,075,000 ----------- ----------- Total current liabilities 7,790,614 6,989,524 ----------- ----------- Obligations under capital lease 111,059 123,000 ----------- ----------- Total liabilities 7,901,673 7,112,524 ----------- ----------- Commitments and contingencies Stockholders' equity: Share capital-Common stock, no par value, 50,000,000 shares authorized, 16,626,655 and 15,978,537 shares issued and outstanding at December 31, 1996 and September 30, 1996, respectively 25,120,576 23,955,136 Accumulated deficit (12,975,883) (10,838,398) Accumulated foreign currency translation adjustment (6,945) (6,945) ----------- ----------- Total stockholders' equity 12,137,748 13,109,793 ----------- ----------- $20,039,421 $20,222,317 ----------- ----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF LOSS (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 1995 ---- ---- Net sales $15,263,661 $83,643 Cost of goods sold 13,668,236 8,969 ----------- --------- Gross profit 1,595,425 74,674 ----------- --------- Operating expenses: Research and development 518,708 100,611 Sales and marketing 697,986 73,053 General and administrative 906,315 298,224 Depreciation and amortization 1,456,340 18,692 ----------- --------- Total operating expenses 3,579,349 490,580 ----------- --------- Operating loss (1,983,924) (415,906) ----------- --------- Other income (expense): Interest income 11,709 14,589 Interest expense (165,270) -- ----------- --------- Net loss ($2,137,485) ($401,317) ----------- --------- Loss per weighted average common share ($0.13) ($0.04) ----------- --------- ----------- --------- Weighted average number of common shares 16,163,626 9,097,305 ----------- --------- ----------- --------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 1995 ---- ---- Cash flows from operating activities: Net loss ($2,137,485) ($401,317) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 1,456,340 18,692 (Increase) decrease in accounts receivable (1,313,942) 3,986 (Increase) decrease in inventory (239,375) 3,987 Increase in prepaid expense (173,589) (9,610) Decrease in accounts payable and accrued liabilities (569,761) (86,744) ----------- ---------- Net cash used in operating activities (2,977,812) (471,006) ----------- ---------- Cash flows from investing activities: Purchase of fixed assets (435,690) (7,720) Patents and trademark costs (6,094) (8,831) ----------- ---------- Net cash used in investing activities (441,784) (16,551) ----------- ---------- Cash flows from financing activities: Net proceeds from issuance of common stock -- 115,000 Draws (payments) on revolving credit note, net 1,370,851 -- Principal payments on capital lease obligations (11,941) -- Net proceeds from exercise of stock options 10,440 -- Net proceeds from exercise of warrants 1,155,000 -- ----------- ---------- Net cash provided by financing activities 2,524,350 115,000 ----------- ---------- ----------- ---------- Decrease in cash and cash equivalents (895,246) (372,557) Cash and cash equivalents, beginning of period 2,689,569 1,317,024 ----------- ---------- Cash and cash equivalents, end of period $1,794,323 $944,467 ----------- ---------- ----------- ---------- Supplemental disclosure of cash flow information: Interest paid $165,270 $0 Interest received $11,709 $14,589 Non-cash activity: Shares issued to related parties and others to satisfy accrued liabilities $0 $47,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5 TANISYS TECHNOLOGY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements present the consolidated financial position, results of operations and cash flows of Tanisys Technology, Inc. and its wholly owned subsidiaries (the "Company") as of the dates and for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is recommended that these interim condensed financial statements be read in conjunction with the Company's consolidated financial statements and the notes thereto for the fiscal year ended September 30, 1996 contained in the Company's Registration Statement on Form 10 (SEC File No. 0-29038) filed with the Securities and Exchange Commission on November 27, 1996, as amended in Form 10/A Amendment No. 1 filed January 24, 1997. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary to present fairly the consolidated financial position as of December 31, 1996, the consolidated results of operations for the three-month periods ended December 31, 1996 and 1995 and the consolidated cash flows for the three-month periods ended December 31, 1996 and 1995 have been made. NOTE 2: RECEIVABLES One customer accounted for a significant percentage of the Company's accounts receivable at December 31, 1996. Accounts receivable from one memory module customer represented $1.8 million, or 27%, of the $6.4 million balance of accounts receivable at December 31, 1996. Management believes the receivables will be collected within a year, although there is no assurance that such will be the case. The Company's business, financial condition and results of operations will depend in significant part upon its ability to obtain orders from new customers, as well as the financial condition and success of its customers, the success of its customers' products and the general economy. Factors affecting any of the Company's major customers and their respective customers could have a material adverse effect on the Company's business, financial condition and results of operations. NOTE 3: INVENTORY Inventory consists of the following: (Unaudited) (Audited) December 31, September 30, 1996 1996 ------------ ------------- Raw ma terials $1,306,194 $1,343,522 Work-in-process 131,411 203,017 Finished goods 606,228 257,919 ----------- ---------- $2,043,833 $1,804,458 6 NOTE 4: REVOLVING CREDIT NOTE At December 31, 1996, the Company did not comply with certain financial covenants. The financial institution has waived compliance with those covenants as of and for the three months ended December 31, 1996. See "Note 7: Subsequent Events" below. NOTE 5: SHARE CAPITAL, OPTIONS AND WARRANTS STOCK OPTIONS During the first quarter of fiscal 1997, stock options were exercised for the purchase of 4,000 common shares for total gross proceeds of $10,440. WARRANTS During the first quarter of fiscal 1997, warrants were exercised for the purchase of 644,118 common shares for total gross proceeds of $1,155,000. NOTE 6: COMMITMENTS AND CONTINGENCIES The Company is not currently using the computer game controller technology, and the associated royalty does not relate to any of the Company's current products. NOTE 7: SUBSEQUENT EVENTS In January 1997, stock options were exercised for the purchase of 8,500 common shares for total gross proceeds of $22,460. In February 1997, in connection with the waiver of the non-compliance with the financial covenants noted in "Note 4" above, the Company agreed to reduce the maximum amount of available borrowings of the revolving credit note referred to in "Note 4" above from $6 million to $4 million over an eight-week period. In conjunction with this reduction, the Company also agreed to reduce the percentage of qualified accounts receivable included in the borrowing base from its current 80% to 70%. This reduction would occur 1% per week over a five-week period and an additional 1% per month over the subsequent five-month period. The Company had outstanding borrowings against the revolving note of $4.4 million at February 15, 1997. The Company has a total of $1.5 million in accounts receivable which are in excess of 90 days past invoice date. Two customers, one of which is discussed in "Note 2" above, account for $1.1 million of the amount past due over 90 days. The total accounts receivable on these two accounts is $2.2 million, of which the Company has insurance coverage of $250 thousand and therefore exposure of approximately $1.95 million in potential loss. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES (THE "TANISYS GROUP") THAT ARE BASED ON THE BELIEFS OF THE TANISYS GROUP'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND "INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY OR ITS SUBSIDIARIES OR THE TANISYS GROUP'S MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER CONCENTRATIONS, CUSTOMER RELATIONSHIPS AND FINANCIAL CONDITION, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS, PRODUCT INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN. BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OF MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE TANISYS GROUP DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS. OVERVIEW The following is a discussion of the consolidated financial condition and results of operations of the Tanisys Group for the three-month periods ended December 31, 1995 and 1996. It should be read in conjunction with the Interim Condensed Consolidated Financial Statements of Tanisys Technology, Inc. (the "Company") and subsidiaries (collectively known as the "Tanisys Group"), the Notes thereto and other financial information included elsewhere in this report. For purposes of the following discussion, references to year periods refer to the Tanisys Group's fiscal year ended September 30, 1996 and references to quarterly periods refer to the Tanisys Group's fiscal quarters ended December 31, 1995 and 1996. The Company was organized under the laws of the Province of British Columbia, Canada, on January 27, 1984, as Montebello Resources Ltd., and pursued oil and gas exploration in British Columbia and Manitoba, Canada. In October 1992, the Company changed its name to First American Capital Group Inc. Unsuccessful in the exploration business, the Company became dormant pursuant to the rules and regulations of the Vancouver Stock Exchange (the "VSE"). During the first two quarters of 1993, the Company was reorganized in accordance with the rules of the VSE. As part of this reorganization, the Company acquired Timespan Communications Corp. ("Timespan") and its computer game controller technology. Timespan, a wholly owned subsidiary of the Company, was dissolved as of October 23, 1996. The Company changed its name to Rosetta Technologies Inc. in May 1993 and to Tanisys Technology, Inc. in July 1994. Until May 20, 1996, the Company focused on research and development of highly specialized applications of capacitive touch sensing technology. Effective May 20, 1996, the Company acquired, through mergers with its wholly owned subsidiaries, all of the outstanding common stock of 1st Tech Corporation ("1st Tech") and DarkHorse Systems, Inc. ("DarkHorse") and began operations in Austin, Texas as a consolidated group of companies. The Tanisys Group consists of technology solutions companies that provide custom design, engineering and manufacturing services, test solutions and standard and custom module products to leading original equipment manufacturers ("OEMs") in the computer networking and telecommunications industries. In consideration for the acquisitions of 1st Tech and DarkHorse, the Company issued 2,950,000 and 1,200,000 shares, respectively, of its common stock, no par value ("Common Stock"). Prior but subject to the 8 consummation of the acquisitions of 1st Tech and DarkHorse by the Company, 1st Tech issued 1,150,000 shares of its common stock for $2.00 per share in an equity financing, raising a total of $2.3 million, the proceeds of which were used to reduce short-term debt and provide working capital for 1st Tech. The Tanisys Group's net sales and gross profit increased dramatically in the last two quarters of fiscal year 1996 and the first quarter of the current fiscal year, due to the acquisitions of 1st Tech and DarkHorse. In fiscal 1996, revenues were $15.0 million with gross profit of $2.3 million (15.5% of revenue) versus fiscal 1995 revenues of $.4 million and gross profit of $.2 million (69.4% of revenue). This is an increase in revenues of $14.6 million, in excess of 4,000%, and in gross profit of $2.1 million, more than 800%. Net losses increased to $4.4 million in fiscal 1996, or 29.4% of gross revenues, from $2.4 million in fiscal 1995, or 681.6% of gross revenues. The increases in revenues, gross profit and net losses are due primarily to the acquisitions of 1st Tech and DarkHorse on May 20, 1996. Management believes that revenues and gross profits will fluctuate due to the continuing oversupply of memory chips, which dramatically drives down the prices of the Tanisys Group's products, the continuing fluctuations in the cost of memory and components, the fact that many of the Tanisys Group's competitors are better capitalized and can purchase inventory in sufficient quantities to obtain more favorable pricing, and other factors, including changes in pricing by suppliers and competitors and changes in the proportion of contract manufacturing done--where the customer consigns the material--versus manufacturing on a turnkey basis--where the Tanisys Group purchases the necessary materials. RESULTS OF OPERATIONS The following table sets forth certain consolidated income data of the Tanisys Group expressed as a percentage of net sales (unaudited) for the three-month periods ended December 31, 1996 and 1995: THREE MONTHS ENDED DECEMBER 31, --------------------- 1996 1995 ---- ---- Net sales 100.0% 100.0% Cost of goods sold 89.5 10.7 ----- ----- Gross profit 10.5 89.3 ----- ----- Operating expenses: Research and development 3.4 120.3 Sales and marketing 4.6 87.3 General and administrative 5.9 356.5 Depreciation and amortization 9.5 22.3 ----- ----- Total operating expenses 23.5 586.5 ----- ----- Operating loss -13.0 -497.2 Other income (expense), net -1.0 17.4 ----- ----- Net loss -14.0% -479.8% ----- ----- ----- ----- NET SALES Net sales consist of custom manufacturing services, custom memory modules, standard memory modules, design engineering fees, memory module test solutions and advanced technology services, less returns and discounts. Net sales increased from $84 thousand in the first quarter of fiscal 1996 to $15.3 million in the first quarter of fiscal 1997. The increase in fiscal 1997 is primarily due to the acquisitions of 1st Tech and DarkHorse and, to a lesser degree, to increases in sales volume in the 1st Tech memory module product line. 9 COST OF SALES AND GROSS PROFIT Cost of sales includes the costs of all components and materials purchased for the manufacture of products and the direct labor and overhead costs associated with manufacturing. Gross profit increased from $75 thousand in the first quarter of fiscal 1996 to $1.6 million in first quarter fiscal 1997. Gross margin decreased from 89.3% in first quarter fiscal 1996 to 10.5% in first quarter 1997. The increase in gross profit as well as the decrease in gross margin were primarily due to the acquisitions of 1st Tech and DarkHorse and the dramatic change in the types of products being sold by the Company before and after the acquisitions. To a lesser extent, the improvement in the Company's gross profit was due to the addition of consignment inventory of certain memory components, shortening the manufacturing response time and making it possible to compete on the basis of timeliness of delivery rather than on price alone, while not exposing the Tanisys Group's assets to the risk of carrying larger inventories. RESEARCH AND DEVELOPMENT Research and development expenses consist of the costs associated with the design and testing of new technologies and products. These relate primarily to the costs of materials, personnel, management and employee compensation and engineering design consulting fees. Research and development expenses increased from $101 thousand in first quarter fiscal 1996 to $519 thousand in first quarter fiscal 1997, representing an increase of 415.6% from period to period. The substantial increase was primarily due to the acquisitions of the additional product lines of 1st Tech and DarkHorse and the related research and development expenditures. SALES AND MARKETING Sales and marketing expenses include all employee and independent sales personnel compensation, as well as the costs of advertising, promotions, trade shows, travel and direct support. Sales and marketing expenses increased from $73 thousand in first quarter fiscal 1996 to $698 thousand in first quarter fiscal 1997, an 855.5% increase. In the first quarter of fiscal years 1996 and 1997, sales and marketing expenses expressed as a percentage of revenues were 87.3% and 4.6%, respectively. The increase in actual funds expended was connected with the acquisitions of the product lines of 1st Tech and DarkHorse. The decrease in the expenses expressed as a percentage of revenues was caused primarily by the significant increase in revenues related to the acquisitions of 1st Tech and DarkHorse. Sales and marketing expenses are expected to remain approximately the same or to grow slightly when expressed as a percentage of revenue and to continue to increase significantly in terms of absolute dollars in future periods as revenues continue to grow. GENERAL AND ADMINISTRATIVE General and administrative costs consist primarily of personnel costs, including employee compensation and benefits, and support costs, including utilities, insurance, professional fees and all costs associated with a reporting company. General and administrative expenses increased to $906 thousand in first quarter fiscal 1997 from $298 thousand in first quarter fiscal 1996, a 203.9% increase. In the first quarter of fiscal years 1996 and 1997, general and administrative expenses expressed as a percentage of revenues were 356.5% and 5.9%, respectively. The increase in actual funds expended in fiscal 1997 is primarily due to the acquisitions of 1st Tech and DarkHorse. The decrease in expenses expressed as a percentage of revenues is primarily caused by the significant increase in revenues related to the acquisitions of 1st Tech and DarkHorse and, to a lesser extent, to the institution of cost controls on general and administrative expenses. The absolute dollar expenses associated with the general and administrative area are expected to increase significantly in future periods due to anticipated continued growth in business activity and increased costs associated with being a reporting company. The general and administrative expenses are not expected to grow significantly in future periods when expressed as a percentage of sales. 10 DEPRECIATION AND AMORTIZATION Depreciation and Amortization includes the depreciation for all fixed assets and the amortization of intangibles, including goodwill incurred in the acquisitions of 1st Tech and DarkHorse. Depreciation and amortization increased to $1.5 million in first quarter fiscal 1997 from $19 thousand in first quarter fiscal 1996. The substantial increase is due primarily to the amortization of the goodwill recorded in conjunction with the acquisitions of 1st Tech and DarkHorse. OTHER INCOME (EXPENSE) Net other income (expense), consists primarily of interest income less interest expense. Interest expense is attributable to borrowings from a revolving credit note. Substantially all of the interest expense relates to credit line draws made for short-term inventory requirements and to fund accounts receivable. Interest income relates to investment of available cash in short-term interest bearing accounts and cash equivalent securities. The Company had no debt and earned interest on its available cash until its May 20, 1996 acquisitions of 1st Tech and DarkHorse. Thereafter, the Tanisys Group incurred net interest expense due to the increased balances of inventories and accounts receivable. The Tanisys Group expects to continue to require borrowings to fund growth in inventories and accounts receivable in the future and therefore expects to continue to reflect net interest expense. PROVISION FOR INCOME TAXES The Company has never paid income taxes and at September 30, 1996 had a net operating loss carryforward of $4.3 million. While there can be no assurance that the Tanisys Group will generate the taxable income required to use all or any part of the carryforward prior to the expiration of the carryforward, the Tanisys Group would be able to incur taxable income in the carryforward period equal to the total loss carryforward without the payment of taxes. The existing carryforward expires 15 years after the year in which it was incurred. Therefore, if the carryforward is not used to offset future taxable income, the net operating loss carryforward at September 30, 1996 will expire in fiscal years 2010 ($2.5 million) and 2011 ($1.8 million). The availability of the net operating loss carryforward and future tax deductions to reduce taxable income is subject to various limitations under the Internal Revenue Code of 1986, as amended, in the event of ownership change as defined in Section 382 of the Code. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has used funds generated from operations, equity financings, capital leases, vendor credits and certain bank borrowings to support its operations, acquire capital equipment and finance inventory acquisitions and accounts receivable balances. During the first quarter fiscal 1997, the Company generated $2.5 million in net cash from financing activities versus $.1 million in the first quarter fiscal 1996. The $2.5 million in fiscal 1997 consisted of $1.2 million from the exercise of warrants and options to purchase common stock and $1.3 million of net draws on the Company's revolving credit note. Subsequent to the May 20, 1996 acquisitions, the Tanisys Group has utilized the funds acquired in an equity financing of Common Stock in the first quarter of fiscal 1996, the exercise of warrants and stock options, capital and operating leases, vendor credits, certain bank borrowings and funds generated from operations to support its operations, carry on research and development activities, acquire capital equipment, finance inventories and accounts receivable and pay its general and administrative expenses. There have been no further offerings or issuances of unregistered securities other than in connection with the exercise of warrants and stock options. At December 31, 1996, the Tanisys Group had $1.8 million of cash and $2.8 million of working capital. 11 The Company currently has two customers with a total of $2.2 million in accounts receivable which are not in compliance with the agreed payment terms. The Company is aggressively attempting to collect the accounts and has been assured by both customers that full or partial payment will be made. However, at this time there is no assurance that the accounts will be collected or if collected, what time period will be required for full collection. The Company has a total of $250 thousand insurance coverage on these two accounts. Until collection can be made, the Company will be required to use virtually all of its cash and cash equivalents to carry these accounts. Accounts over 90 days are excluded from the borrowing base and reduce the available credit under the revolving credit note referenced in "Note 4" of notes to the consolidated financial statements. The Tanisys Group has a $6 million revolving credit note at a financial institution bearing interest at the financial institution's prime rate plus a percentage between one and three percent (8.25% as of December 31, 1996) depending upon a ratio which is calculated monthly. This revolving credit note is due on the earlier of demand or when note matures June 30, 1998 and is secured by all of the Company's assets. Draws are made as necessary from funds available for borrowing, which are limited to the lower of the commitment amount or a borrowing base amount calculated based on certain levels of accounts receivable. At December 31, 1996, $4.4 million was outstanding and there were no additional borrowings available under the revolving credit note. The revolving credit note has certain restrictions concerning, among other things, the payment of dividends, additional debt and material changes in management and requires the Tanisys Group to maintain certain minimum financial ratios including a minimum net worth and minimum current ratio. At December 31, 1996, the Tanisys Group did not comply with certain financial covenants. The financial institution has waived compliance with the covenants as of and for the three months ended December 31, 1996. In connection with the granting of the waivers, the Company agreed with the financial institution to phase the total amount of the revolving credit note down to $4 million over an eight-week period beginning February 21, 1997, and to reduce the percentage of qualified accounts receivable included in the borrowing base from 80% to 70% by 1% per week for five weeks and then 1% per month over the subsequent five-month period. At February 15, 1997, the Company had utilized $4.4 million of its revolving credit note. Capital expenditures totaled approximately $8 thousand and $436 thousand in the first quarter of fiscal years 1996 and 1997, respectively. These expenditures were primarily for the purchase of manufacturing equipment, test equipment and the expansion of manufacturing facilities. The Tanisys Group expects to fund capital expenditures of approximately $2 million in the remainder of fiscal 1997 for additional manufacturing capacity through working capital, operating leases and capital leases. The Tanisys Group has entered into certain capital lease arrangements. The outstanding principal on these obligations at December 31, 1996 was $163 thousand. The Tanisys Group believes that its existing funds, anticipated cash flow from operations and amounts available from future vendor credits, bank borrowings and the exercise of outstanding warrants will be sufficient to meet its working capital and capital expenditure needs for the next twelve months at the projected level of operations. However, if the warrant holders should choose not to exercise a significant amount of the outstanding warrants, the Company would be required to obtain alternate sources for additional debt and rely upon a future equity offering or offerings for such funding. Management is considering a proposal to reduce the exercise price of outstanding warrants. There is no assurance that the warrants holders will choose to exercise their warrants or, in the event that they choose not to exercise, that the Company will be able to locate an alternate source or sources for the required increase in its outstanding debt or that it will be successful in its attempts to raise a sufficient amount of funds in a subsequent equity offering or offerings. In such event, the Company's inability to raise needed funds could have a material adverse effect on the Company. 12 SIGNIFICANT CUSTOMER CONCENTRATION A significant percentage of the Tanisys Group's net sales is produced by a relatively small number of customers. In the first quarters of fiscal 1996 and 1997, the ten largest customers accounted for approximately 66% and 73% of net sales, respectively. No single customer produced as much as 10% of net sales during either period. While the Company expects to continue to be dependent on a relatively small number of customers for a significant percentage of its net sales, there can be no assurance that any of the top ten customers in fiscal 1997 will continue to utilize the Company's products or services. The actual customers producing the sales are different between the two periods, and the Company expects this type of variation of volume of purchases from a particular customer to continue throughout this fiscal year. The Company in general has no firm long-term volume commitments from its customers and generally enters into individual purchase orders with its customers. Customer purchase orders are subject to change, cancellation or delay with little or no consequence to the customer. Therefore, the Company has experienced such changes and cancellations and expects to continue to do so in the future. The replacement of canceled, delayed or reduced purchase orders with new business cannot be assured. The Company's business, financial condition and results of operations will depend significantly on its ability to obtain purchase orders from existing and new customers, upon the financial condition and success of its customers, the success of customer's products and the general economy. Factors affecting the industries of the Company's major customers could have a material adverse effect on the Company's business, financial condition and results of operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS At the date hereof, there is no pending or, to the best knowledge of the Company, threatened litigation involving the Company. ITEM 5. OTHER INFORMATION On November 27, 1996, the Tanisys Group filed its Form 10, General Form for Registration of Securities Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934, in order to become a reporting company in the United States in preparation for an application to be listed on the National Association of Securities Dealers, Inc.'s ("Nasdaq") SmallCap Market ("Nasdaq SmallCap Market"). On January 6, 1997, the Tanisys Group filed the Nasdaq SmallCap Market Application required to be considered for listing on that system. The Tanisys Group received comments from the Securities and Exchange Commission (the "SEC") on January 27, 1997. The Tanisys Group must satisfactorily respond to such comments from the SEC prior to the completion of the processing of the Nasdaq SmallCap Market application and plans to file the required responses expeditiously and to pursue the Nasdaq SmallCap Market application approval. There can be no assurance that the SEC will accept the Tanisys Group's responses, that the SEC will not have further comments upon the receipt of such responses or that the application for listing on the Nasdaq SmallCap Market will be approved. 13 ITEM 6. EXHIBITS The exhibits listed below are filed as part of or incorporated by reference in this report. Where such filing is made by incorporation by reference to a previously filed document, such document is identified in parenthesis.
EXHIBIT NUMBER DESCRIPTION - -------- ----------- 3.1 Articles of Continuance dated June 30, 1993 (Exhibit 3.1 to Form 10 Registration Statement filed November 27, 1996) 3.2 Articles of Amendment to Articles of Continuance dated July 11, 1994 (Exhibit 3.2 to Form 10 Registration Statement filed November 27, 1996) 3.3 Articles of Amendment dated April 28, 1995 (Exhibit 3.3 to Form 10 Registration Statement filed November 27, 1996) 3.4 Articles of Amendment dated April 15, 1996 (Exhibit 3.4 to Form 10 Registration Statement filed November 27, 1996. 3.5 Restated Bylaws of the Company (Exhibit 3.5 to Form 10 Registration Statement filed November 27, 1996) 4.1 Form of Warrant Agreement dated May 17, 1995 (Exhibit 4.1 to Form 10 Registration Statement filed November 27, 1996) 4.2 Form of Class B Warrant (Exhibit 4.2 to Form 10 Registration Statement filed November 27, 1996) 4.3 Share Purchase Warrant Certificate dated October 13, 1995 (Exhibit 4.3 to Form 10 Registration Statement filed November 27, 1996) 4.4 Form of Warrant Agreement dated as of December 20, 1995 (Exhibit 4.4 to Form 10 Registration Statement filed November 27, 1996) 4.5 Form of Class C Warrant (Exhibit 4.5 to Form 10 Registration Statement filed November 27, 1996) 4.6 Specimen of Common Stock Certificate (Exhibit 4.6 to Form 10 Registration Statement filed November 27, 1996) 10.16 Employment Agreement dated October 11, 1996 by and between the Company and Guy Fielder (filed herewith) 10.22 Manufacturing Agreement dated as of November 1, 1996 by and between the Company and Siemens Components, Inc. (filed herewith) 10.23 Inventory Management Service Agreement dated as of November 1, 1996 by and between the Company and Siemens Components, Inc. (filed herewith) 10.24 Amendment and Restatement of Credit Agreement, dated as of February 21, 1997, by and between 1st Tech, DarkHorse, the Company and The Chase Manhattan Bank (filed herewith) 10.25 Revolving Credit Note dated as of February 21, 1997, by and between 1st Tech, DarkHorse, the Company and The Chase Manhattan Bank (filed herewith) 14 12.1 Statement regarding Computation of Per Share Earnings (filed herewith) 21.1 Subsidiaries of the Company (filed herewith) 27.1 Financial Data Schedule (filed herewith)
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TANISYS TECHNOLOGY, INC. Date: February 26, 1997 By: /s/ MARK C. HOLLIDAY ------------------------------------ Chairman of the Board and and Chief Executive Officer Date: February 26, 1997 By: /s/ JOE O. DAVIS ------------------------------------ Senior Vice President and and Chief Financial Officer 15 EX-10.16 2 EXHIBIT 10.16 - EMPLOYMENT AGREEMENT EXHIBIT 10.16 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made effective the 11th day of October, 1996, by and between TANISYS TECHNOLOGY, INC., a Wyoming corporation, with principal offices located at 12201 Technology Blvd., Suite 130, Austin, Texas 78727 (hereinafter referred to as the "Employer"), and Guy Fielder, a resident of Houston, Texas (hereinafter referred to as the "Employee"). WITNESSETH: WHEREAS, the Employer desires to employ the Employee, and the Employee and Employer desire to enter into an agreement relating to such employment, outlining the duties and obligations of each: NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: ARTICLE I - DEFINITIONS 1.1 "Confidential Information" shall mean any and all information held in confidence by Employer including information relating to Employer's Inventions (as defined below), and to Employer's trade secrets including concepts, prototypes, algorithms, research and development, technology strategies, product strategies, marketing strategies, supplier lists, customer lists, personnel lists, personnel assignments, business relationships, business opportunities, legal proceedings, finances, and assets. Confidential Information further shall include information made available to Employer by other parties under a confidential relationship. 1.2 "Invention(s)" shall mean any idea, innovation, concept, creation, discovery, development, technique, algorithm, method, process, procedure, prototype, hardware, software, product, improvement, or enhancement, whether or not protectable by patent, copyright, trade secret or mask work, and whether or not reduced to practice, but which is (a) within the scope of Employer's current, later existing, or anticipated business and 1 technology, and (b) is created, conceived, discovered, invented, reduced to practice, developed, or made by Employee during the term of employment by Employer, whether individually or jointly with others. 1.3 "Intellectual Property Rights" shall mean: 1.3.1 All rights, title and interests in all Letters Patent and applications for Letters Patent including any reissue, division, continuation or continuation-in-part applications throughout the world now or hereafter filed; 1.3.2 All rights, title and interests in all trade secrets, and all trade secret rights and equivalent rights arising under the common law, state law, federal law and laws of foreign countries; 1.3.3 All rights, title and interests in all mask work registrations, copyrights, and copyrighted interests, and all mask work registration rights, copyright rights and other literary property or author's rights, whether or not protectable by copyright or by mask work registration; and 1.3.4 All rights, title and interests in any and all know-how and show-how, whether or not patentable, copyrightable or protectable by trade secret or mask work registration. ARTICLE 2 - TERMS AND CONDITIONS 2.1 EMPLOYMENT. The Employer agrees to employ the Employee, and the Employee agrees to be employed by the Employer, subject to the terms and conditions set forth herein. 2.2 TERM. Subject to the provisions hereof, the term of the Employee's employment by the Employer under this Agreement shall expire November 1, 1997; provided that such term of employment shall continue thereafter unless and until terminated by either the Employer or the Employee upon no less than one hundred twenty (120) days prior written notice to the other of the desire to terminate such employment. The term of the 2 Employee's employment hereunder, including any continuation of the original term, is hereinafter referred to as the "Employment Period." 2.3 POSITION AND DUTIES. During the Employment Period, the Employee shall serve as Vice President of Engineering of the Employer with such assignments, powers and duties as are assigned or delegated to him by the President of the Employer. Such assignments, powers and duties may, from time to time, be modified by the Employer, as the Employer's needs may require. The Employee shall also, at the request of the Employer, perform similar services for any Affiliate (as hereinafter defined) of the Employer without additional compensation. Except as set forth in an Amendment to the Agreement signed by both parties and effective on the 17th day of October 1996, the Employee agrees to devote all of his business time, skill, attention and best efforts to the business of the Employer and its Affiliates in the advancement of the best interests of the Employer and its Affiliates. As used in this Agreement, the term "Affiliate" of the Employer means any person or corporation that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under the control of the Employer. 2.4 COMPENSATION. A. For all services rendered by the Employee to the Employer during the Employment Period, the Employer shall pay the Employee a salary at the rate of $96,000 per year. The compensation is to be payable, subject to such withholdings as are required by law, in installments in accordance with the Employer's customary payroll practices. B. Contingent upon the approval by the Board of Directors, you will be granted an option to purchase 100,000 shares of its common stock at an option price determined by the policies, guidelines, rules and regulations of the Vancouver Stock Exchange. One third of such option shall vest on each of the first, second and third anniversaries of the date of grant and shall expire five (5) years from the date of grant. 2.5 OFFICE FACILITIES. During the Employment Period, the Employer will furnish the Employee, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Employer having comparable positions. 3 2.6 FRINGE BENEFITS; VACATIONS. During the Employment Period, the Employee shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Employer which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Employer having comparable positions. 2.7 EXPENSES. A. Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Employer and compliance therewith by the Employee, the Employee is authorized to incur reasonable expenses in the performance of his duties hereunder, and the Employer will reimburse Employee for such reasonable out-of-pocket expenses upon the presentation by the Employee of an itemized account and receipts satisfactory to the Employer. B. The Employee will be reimbursed up to, but not to exceed $5,000.00 for the costs of moving personal effects from his current place of residence to the Austin area. This is to be used within 12 months of the signing of this agreement. 2.8 TERMINATION. A. If the Employee dies or becomes disabled during the Employment Period, the Employee's salary and other rights under this Agreement or as an employee of the Employer (except for salary and other rights accrued prior thereto) shall terminate at the end of the month during which death or disability occurs. For purposes of this Agreement, the Employee shall be deemed to be "disabled" if, at any time during the Employment Period, the Employee shall have been unable to perform the duties of his employment hereunder due to physical or mental incapacity for a period of ninety (90) days or any ninety (90) days in a period of two hundred seventy (270) days. B. If the Employee fails to perform his duties hereunder or to comply with any of the provisions hereof or commits any act of misconduct, malfeasance, gross negligence or disloyalty, the Employment Period and the Employee's salary and other rights under this Agreement as an employee of the Employer, subject to Section 2.8(C) below, shall terminate upon written notice from the Employer to the Employee, but such termination 4 shall not affect the liability of the Employee by reason of his misconduct, malfeasance, gross negligence or disloyalty. C. If it is determined that the Employer has terminated the Employee without cause as determined in accordance with Section 2.8(B) above, the Employee will not be subject to the provisions of Section 2.10, COVENANT NOT TO COMPETE, herein. 2.9 COVENANT NOT TO DISCLOSE. Employee covenants and agrees to hold in strict confidence, and not disclose to others, any Confidential Information or Inventions in any form. Employee further covenants and agrees that Confidential Information and Inventions shall only be used in the performance of work for Employer and its Affiliates, and otherwise be held in trust for the sole benefit of Employer, and its Affiliates, successors and assigns. 2.10 COVENANT NOT TO COMPETE. As a reasonable precaution against unauthorized disclosure and use of Confidential Information and Inventions disclosed to Employee in the performance of Employee's duties during the period of employment by Employer. Employee covenants and agrees that for a period of one (1) year after the voluntary resignation of the Employee or termination for cause as outlined in Section 2.8(B) above, Employee will not engage in any work relating to electronic products for workstations, network servers, peripheral products, personal computers, memory test equipment and touch sensory products within the State of Texas. 2.11 DUTY OF DISCLOSURE TO EMPLOYER. Employee agrees to promptly disclose to Employer all Confidential Information and Inventions which come into Employee's possession or to which Employee is exposed during the period of employment by Employer. Employee further agrees to promptly disclose to Employer all business opportunities which come to Employee's attention during the period of employment by Employer and which relate to Employer's business or technology. 2.12 ESSENTIAL NATURE OF COVENANTS. The covenants of the Employee contained in Sections 2.9 and 2.10 shall be construed as independent of any other provision of this Agreement; and the existence of any claim or cause of action of the Employee against the Employer or any of its subsidiaries, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Employer of said covenants. The 5 Employee understands that the covenants contained in Sections 2.9 and 2.10 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of the Employee to Sections 2.9 and 2.10, the Employer would not have agreed to enter into such transactions. 2.13 TITLE RIGHTS. All Intellectual Property Rights in and to Confidential Information and Inventions are and shall remain vested in Employer. Further, Employee agrees that all copyrightable works prepared under this Agreement are "works made for hire' under applicable copyright laws. 2.13.1 Employee agrees to assign and hereby assigns to Employer all Intellectual Property Rights that Employee may now or hereafter have in Confidential Information and Inventions. Employee agrees to take such action, including, but not limited to, the execution, acknowledgment, delivery and preparation of documents, and the giving of testimony, as may be requested by Employer to evidence, transfer, vest or confirm Employer's rights, titles, and interests in Confidential Information and Inventions. 2.13.2 Employee hereby waives all moral rights in copyrightable works, including but not limited to the rights of attribution and integrity arising under the copyright and equivalent laws throughout the world. 2.13.3 Employee shall not contest the validity of any copyright, any trademark, or any mask work registration owned by or vesting in Employer under this Agreement. 2.13.4 NOTICE: Notwithstanding the provisions of Section 2.13.1 above, this Agreement does not obligate Employee to assign or offer to assign to Employer any of Employee's rights in an invention which: (i) was conceived and reduced to practice without the use of equipment, supplies, facilities, Confidential Information, or Inventions of Employer; (ii) was conceived and reduced to practice entirely on Employee's own time; and (iii) does not relate to the current, later existing or reasonably anticipated business and technology of Employer. 6 2.14 REMEDIES. In the event of a breach or threatened breach by the Employee of Section 2.9 or 2.10, the Employer shall be entitled to a temporary restraining order and an injunction restraining the Employee from the commission of such breach. Nothing herein contained shall be construed as prohibiting the Employer from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of money damages. 2.15 WAIVER OF BREACH. The waiver by one party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party, whether of a same or different nature. 2.16 BINDING EFFECT. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives. This Agreement, being personal, cannot be assigned. 2.17 SEVERABILITY. The invalidity of all or any part of any section of this Agreement shall not render invalid the remainder of this Agreement or the remainder of such section. If any provision of this Agreement is unenforceable, such provision shall be interpreted to be reformed as necessary to become enforceable. 2.18 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original, but all of which together shall constitutes one and the same instrument. 2.19 GOVERNING LAW. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 2.20 NOTICE. All Notices which are required or may be give under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first-class mail, postage prepaid, return receipt requested, if to the Employee at 6546 Auden, Houston, Texas, 77005, or if to the Employer, at the address listed above, or to such other address as such party shall have specified by notice to the other party hereto as provided in this section. 2.21 ENTIRE AGREEMENT. This Agreement and the Amendment to this Agreement effective October 17, 1996, which is incorporated herein and made a part hereof, 7 constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understanding and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. TANISYS TECHNOLOGY, INC. By: /s/ GARY W. PANKONIEN --------------------------------------- Name: Gary W. Pankonien Title: President & Chief Operating Officer /s/ GUY FIELDER - ------------------------------------------ GUY FIELDER 8 ADDENDUM A TO EMPLOYMENT AGREEMENT Mr. Guy L. Fielder and Mr. Paul N. Alito, each a U.S. citizen and respectively residing at 6546 Auden, Houston, Texas 77005, and 11626 Gatesden Drive, Tomball, Texas 77375 (hereafter "Innovators"), and Tanisys Technology, Inc., a United States corporation with principal officers at 12201 Technology Boulevard, Suite 130, Austin, Texas 78727 (hereafter "Tanisys"), agree that Innovators have independently developed prior to their employment by Tanisys the following confidential and proprietary technology on which they are now filing patent applications: "Authentication and encryption communications technology, both with and without unique tamper resistant security modules (TRSMs), for authenticating originating systems, answering systems, and TRSM systems occurring singularly or in networks, and encrypting information to be exchanged among such systems with encryption keys which are highly resistant to cryptographic analysis and brute force trial and error attacks, and encryption key management processes which do not require the maintenance of key directories." Innovators will be continuing their research and development of the above technology during their employment by Tanisys, and Tanisys agrees that all rights, title, interests, and intellectual property rights, including patent, copyright, trademark, mask work, and trade secret rights, in the above technology and in all modifications, improvements, enhancements and derivatives of the above technology either conceived or made by Innovators before, during or after Innovators employment by Tanisys, are owned solely by and vested solely in Innovators to the complete exclusion of Tanisys. NOW THEREFORE, the parties have signed or have caused this Addendum to be signed by their duly authorized representative. Tanisys Technology, Inc. Guy L. Fielder Paul N. Alito By: /s/ GARY W. PANKONIEN /s/ GUY L. FIELDER /s/ PAUL N. ALITO ------------------------- --------------------- -------------------- Gary W. Pankonien Date: 10/17/96 Date: 10/17/96 Title: President and COO Date: 10/17/96 EX-10.22 3 EXHIBIT 10.22 - MANUFACTURING AGREEMENT MANUFACTURING AGREEMENT between TANISYS TECHNOLOGY, INC. 12201 Technology Blvd. Austin, TX 78727 U.S.A. and SIEMENS COMPONENTS, INC. 10950 North Tantau Avenue Cupertino, CA 95014 U.S.A. 1 INDEX TO AGREEMENT 1. BASIC AGREEMENT: SIEMENS - TANISYS 2. ATTACHMENT A: SIEMENS SPECIFIED MODULES AND LOOSE PARTS 3. ATTACHMENT B: ASSEMBLY, TEST AND REPAIR PRICES: MEMORY MODULES (MM) 4. ATTACHMENT C: LOGISTICS/TECHNICAL TERMS OF DELIVERY 5. ATTACHMENT D: SIEMENS Rolling Forecast 6. ATTACHMENT E: SIEMENS Processing and Quality Specification 7. ATTACHMENT F: EDI Agreement 8. ATTACHMENT G: SIEMENS and TANISYS Listing of Contacts 2 MANUFACTURING AGREEMENT This Agreement made effective November 1st, 1996 between Tanisys Technology, Inc. 12201 Technology Blvd., Austin, TX 78727, U.S.A (TANISYS) and SIEMENS Components, Inc. 10950 North Tantau Avenue, Cupertino, CA 95014 (SIEMENS) (see Article 1.16). WHEREAS, SIEMENS wants and TANISYS is willing to assemble quantities of certain products exclusively for SIEMENS in accordance with these terms and conditions, the parties agree: 1. PARTS OF AGREEMENT: DEFINITIONS In this Agreement, the following expressions, except where the context otherwise requires, shall have the following meanings: 1.0 "Affiliates" shall mean those corporate entities controlled by or controlling, directly or indirectly, by capital or votes, either SIEMENS or TANISYS, but only so long as the entities are so related. 1.1 "Contract products" (Products) shall mean those specific Memory Modules (equipped printed circuit boards) defined in Attachment A. 1.2 "CONFIDENTIAL Information" shall mean all such technical information as well as know-how (given orally, in writing or in other tangible form) necessary for the manufacture of Products, which one party shares with the other. "Confidential Information" includes the specification necessary for the procurement of the components required for the manufacture of Products, with the exception of DRAMs, as defined in Attachment A. 1.3 "Effective Date" shall mean the date on which this Agreement enters into force as set forth at the beginning of this Agreement. 1.4 "Date of Shipment" shall mean the date on which the Products are shipped out "Ex-Works" TANISYS by SIEMENS' appointed forwarder. 1.5 "Purchase orders" (Orders) shall mean the order(s) issued by SIEMENS confirming purchase of Products from TANISYS requiring delivery within the time frame indicated in the order. 1.6 "Specification" means the technical description of goods contained or referred to in the order. 1.7 "Allowed Capacity" is the capacity TANISYS has dedicated for SIEMENS. 1.8 "Golden Devices" shall mean Products, tested by SIEMENS using the Tester and the Test Programs as well the test protocols containing the respective results. 1.9 "Subsidiaries" shall mean legal entities controlled directly or indirectly, by capital or votes, by fifty percent or more by SIEMENS or TANISYS, but only as long as the entities are so controlled. 1.10 "Requirements for Quality Assurance" shall mean the general quality requirements for processing of Devices enclosed as Attachment E to this Agreement, including any future updates or modifications of Attachment E. 3 1.11 "Packing Specification" shall mean the specification according to which the Products shall be packed and labelled by TANISYS using the material as specified in the "Packing specification", which is part of the "Processing specification". 1.12 "Processing specification" (see Attachment E) shall mean the specification and documentation for testing, burn-in and packing as well as specific quality requirements agreed upon in the written form between the parties for processing of the Products. For each type of Products or a family of Products, a "Processing specification" shall be agreed upon between the parties. 1.13 "Electronic Mail", "Internet" or "Electronic Data Interchange" (EDI) shall mean those communications governed by the EDI Agreement attached as Attachment F. 1.14 "Ex Works TANISYS" shall mean that title and risk of loss to the Products will be transferred FROM TANISYS at the time at which TANISYS deposits the properly packed Products with the freight carrier designated by SIEMENS at TANISYS' facilities, or delivered to customer location. TANISYS will use SIEMENS' shipping accounts when possible. 1.15 "FCA (Free Carrier) TANISYS" shall mean that SIEMENS will provide the DRAMs to TANISYS' facilities for use per this Manufacturing Agreement with all related charges until they reach that site paid by SIEMENS. 1.16 "SIEMENS" means legal entity, and means the list of contacts as specified in Attachment G. 2. SCOPE OF WORK Subject to these terms and conditions, TANISYS shall, in accordance to instructions from SIEMENS, manufacture, test and ship quantities of Products to SIEMENS or to those companies or locations to which SIEMENS directs (Customers). On acceptance by SIEMENS or upon receipt by the Customer of those Products, TANISYS shall be paid the amounts specified in Attachment B for such Products. Upon TANISYS receiving products and signing a "Warehouse Receipt" for any given shipment, the quantity and description thereon will be deemed an absolute indication that TANISYS has accepted risk of loss for that quantity of that item. The only exception will be that TANISYS will be allowed until the close of business twenty-four (24) hours after receipt of any given shipment to advise in writing (by FAX) as to any discrepancies at the carton level; within forty-eight (48) hours at the part number and ident number detail level. 3. DELIVERY BY SIEMENS 3.1 SIEMENS or its "affiliates" shall deliver to TANISYS free of charge, subject to respective orders (on the basis "FCA" TANISYS) the quantity of DRAMs (as defined in Attachment A) necessary to fulfill the Contractor Manufacturer's obligation according to Article 4 and the Orders placed by SIEMENS as per Article 7 or 8 below. 4 4. QUALITY ASSURANCE 4.1 QUALITY ASSURANCE MANUAL AND WORKMANSHIP STANDARD TANISYS shall prepare and submit to SIEMENS, within 30 days following the Effective Date of this Agreement, an official quality assurance Manual and workmanship standard and shall implement such standard. SIEMENS may request alterations to the manual and workmanship standard in order to improve the overall product quality of the Products. Notwithstanding the above, the responsibility for such Manual and workmanship standard shall rest with TANISYS. 4.2 GENERAL INSPECTION SYSTEM TANISYS shall provide and maintain an inspection system acceptable to SIEMENS Quality Assurance covering the Products. Records of all inspections shall be kept complete and available for review by the SIEMENS Quality Assurance representative in accordance with the data retention periods specified in the Processing and Quality specification (Attachment E). 4.3 FIRST ARTICLE TEST If SIEMENS chooses to perform a first article test upon the Products, then such test may be performed at TANISYS' premises before delivery of the first quantity shipment of each type or any modified version thereof and further deliveries shall be subject to successful performance of such test. Such tests shall be performed at no cost to SIEMENS by TANISYS and under the observation of the SIEMENS Quality Assurance representative where necessary. 4.4 QUALIFICATION Reference devices for the various packages will be submitted by TANISYS during the initial production to SIEMENS for qualification. The production shall not start until approval is given by SIEMENS after the qualification tests on these parts. 4.5 AUDITS SIEMENS reserves the right to conduct an audit of the Quality Assurance system or Process Conformance of manufacturing and other fields with respect to quality, reliability and reporting. 4.6 RECORD RETENTION Records of all Production and quality data shall be kept for tracking and available for review by SIEMENS. The data retention period to be as specified in the Processing and Quality specification (Attachment E). 4.7 FINAL INSPECTION / TEST TANISYS shall conduct a final inspection test on each Product (100% test) prior to shipment. Such test shall demonstrate compliance with the applicable specification of the Products in question. The parties will agree on the details of such final inspection tests and document same in a writing signed by both parties (Attachment E). 4.8 SIEMENS PERSONNEL SIEMENS shall be responsible for the expense of sending any SIEMENS personnel to TANISYS' premises. 5 4.9 SIEMENS ACCEPTANCE AT DESTINATION All Products ordered are subject to final acceptance at SIEMENS or its Customers. SIEMENS or its customers may perform an incoming inspection test based on random samples according to the quality assurance instructions. If any Products should fail to pass such test as a result of TANISYS' work, SIEMENS will notify TANISYS of such defects in writing, i.e. by E-Mail or FAX. If the Products fail to pass such test based upon an agreed and correlated test method, SIEMENS may return the failed Products for rework by TANISYS free of charge with all handling, packing, forwarding transport cost and insurance cost incurred to be paid by TANISYS, and a) TANISYS shall, upon request, promptly supply replacement, or b) TANISYS shall, if SIEMENS requests it, replace the failed Products delivery lot free of charge on an emergency basis, or c) SIEMENS may return the failed Products to TANISYS at no cost to SIEMENS for respective credit if the failed Products cannot be reworked to conform with the agreed specification. 5. CHANGE IN PRODUCTS 5.1 SIEMENS may request technical changes of the Products relating to improvement, reliability, serviceability or to requests of the market, customers, or requirement of authorities and TANISYS must comply with such change request. TANISYS will inform SIEMENS within ten (10) working-days after receiving such requests of the result of its evaluation of the change in writing. The parties shall mutually agree upon prices and implementation schedules for such changes. 5.2 If TANISYS proposes to modify or change the Products so as to deviate from the specifications set forth in Attachment A to this Agreement, TANISYS shall inform SIEMENS in writing. SIEMENS may approve or disapprove such modifications or change request and will inform TANISYS in writing thirty (30) working days after receipt of notice of such a change in request. Such a proposed modification or change may only be implemented by TANISYS upon the express approval by SIEMENS. When modification or changes are approved and introduced into manufacturing, TANISYS shall inform SIEMENS as to final technical version of change and when the first shipment may be expected. SIEMENS will then determine how many units of the ordered or forecasted amount shall be shipped without the modifications or changes until first shipment takes place according to the new revision level. 5.3 Regarding changes as per Article 5.2 above, TANISYS shall, upon request, submit to SIEMENS free of charge, samples of the modified Products at least thirty (30) days before first delivery of said products, for testing purposes. 6. PURCHASE OF PRODUCTS The scope of TANISYS' delivery and SIEMENS' purchase obligations shall depend on the forecasts and Orders placed by SIEMENS in writing. 6 6.1 Issue of "Purchase forecast" a) Two weeks before the end of each quarter, SIEMENS shall forward a "Purchase Forecast" (Forecast) setting forth the anticipated demand for Products by SIEMENS for the succeeding six (6) quarters. The Forecasts are projections for planning purposes only (see Attachment C). b) TANISYS shall ensure sufficient material (such as Printed Circuit Boards (PCBs) and Packing Material) as specified in Attachment C. If any change in the design of the Products requires sudden change of PCBs or packing material, or if a Products is terminated and that circumstance then renders TANISYS' specific SIEMENS' stock as obsolete or unusable, SIEMENS shall be financially responsible for TANISYS' stock of PCB and Packing Material IN the quantities specified in Attachment C. 6.2 Issuing of Order a) SIEMENS shall issue to TANISYS a firm Order to purchase the quantity and type of Products. Each Order shall be placed in writing via EDI, fax or Internet. See Attachment C. b) The Order shall govern all requirements of the Products by SIEMENS and deliveries by TANISYS. Only the quantities and type of Products given therein are firm order commitments. c) All Orders have to be confirmed within one (1) working day by EDI, fax or Internet (see Attachment C). 7. LEAD TIMES, EMERGENCY ORDERS Lead times, "Ex-Works" TANISYS shall for either Products or Replacement products as specified in Attachment C. Leadtimes for Emergency orders are separately defined in Attachment C. Any delay in delivery or pre-scheduled Products to SIEMENS affected by the emergency order shall not be construed as a delay under Article 9.3, unless total deliveries made within the relevant period concerned is less than the quantity deliverable by TANISYS fully utilizing the declared capacity of TANISYS which is dedicated for SIEMENS' Products. In such case of under-utilization and delays in delivery, TANISYS shall be liable under Article 9.3 for the portion short delivered. Deliveries under emergency orders shall be effected separately. TANISYS shall notify SIEMENS of the dispatch date (flight number, AWB number) by EDI, fax or Internet. 8. DELIVERY OF PRODUCTS/LATE DELIVERIES 8.1 Delivery shall be effected on the basis delivered "Ex-Works" TANISYS to SIEMENS' appointed forwarder. Each delivery shall be accompanied with appropriate shipping papers. All dispatch notes and/or invoices must include the Order number, the part numbers of Products shipped and any other information specified in the Order. 8.2 Title and risk of loss shall pass upon delivery of product to SIEMENS' specific customer locations or to SIEMENS' appointed freight forwarder. SIEMENS shall indicate, in writing, a specific freight forwarder or means of transportation or routing to TANISYS and TANISYS shall comply with such directions. The Products shall be packed suitable for road / air transportation as agreed with the SIEMENS' appointed freight forwarder. 7 8.3 DELAYS a) TANISYS shall make its best effort to ensure on-time delivery of the Products. If TANISYS is in default with the delivery of Products except by reasons of Force Majeure, Article 15, and/or delayed delivery of parts and components supplied by SIEMENS, SIEMENS may claim liquidated damages in the amount of 0.2% (two-tenths percent) of the Tanisys invoice as per Attachment B "Assembly Pricing" for the respective late delivered Products for every calendar day of the delay from the "Date of Shipment" which is confirmed or deemed accepted by TANISYS according to Section 6.2. The liquidated damages may accrue up to a maximum amount of 5% (five percent) in total or five thousand dollars ($5,000.00) maximum, notwithstanding any other rights SIEMENS may have. b) In addition to these rights, any delays extending for more than a week, regardless of the cause (even if caused by late deliveries of TANISYS' subcontractors), SIEMENS shall be entitled to cancel the order wholly or in part without incurring any liability, and shall re-order the quantities according to then existing needs of SIEMENS after the circumstances interrupting the delivery have ended. 8.4 If any circumstances should arise which could result in a delayed delivery of parts to TANISYS or of Products by TANISYS, the parties shall promptly notify each other. 8.5 TANISYS shall only deliver full boxes of Products. Any incompletely filled boxes shall be retained by TANISYS and delivery made together with Products in the next Production Lot. TANISYS shall deliver to SIEMENS on the 15th of each month: a) All incomplete filled boxes of Products, and b) All scrap DRAMs and modules for disposal by SIEMENS. 9. PRICES AND TERMS OF PAYMENT 9.1 Prices for the Products as stated in Attachment B to this Agreement are in U.S. Dollars, on the basis of delivery "Ex-Works" TANISYS and including appropriate packaging as specified by SIEMENS. 9.2 PRICING ADJUSTMENTS a) The prices stated in Attachment B are fixed for the period stated in Attachment B except in the case of changes under Article 5. The parties will review the market conditions, currency effect, material and labor cost influencing the price to be fixed for the next SIEMENS fiscal year (October through September) in good faith, on an annual basis, within the period of the last quarter of each SIEMENS fiscal year and mutually agree and decide the price applicable for the next SIEMENS fiscal year which price shall reflect the result of reviewing the aforesaid factors. b) However, the parties will review, in good faith, the market conditions, currency effect, material and labor cost specifically costs affecting printed circuit board and packing material and volumes influencing the prices, on a quarterly basis, three weeks before the end of each quarter and will mutually update the price applicable for the next SIEMENS' quarter to reflect the result of reviewing these factors. c) If the parties cannot work out a mutually acceptable solution, either party may terminate this Agreement with six (6) months written notice. Notwithstanding such right of termination, TANISYS shall continue to deliver Products at the most recent contractual prices during this six months' period. However, if the parties come to an agreement for solution within such six (6) months from the notice of termination, then the new price shall be supplied retro-actively from 8 the date of termination notice and the respective party shall compensate the other party the difference of the Purchase Price accrued from that date. 9.3 TERMS OF PAYMENT Payment shall be due thirty (30) days net after receipt of the respective invoice from TANISYS. 10. WARRANTY / DEFECTS OF EPIDEMIC NATURE TANISYS warrants that the Products conform with the applicable specifications and are free from defects in material and workmanship subject to these conditions: 10.1 The warranty period for the Products shall end at the earlier of thirty-six (36) months after the delivery to Customers or receipt of the Products by SIEMENS. 10.2 If any Products supplied by TANISYS fails to conform with this warranty due to manufacturing defects, TANISYS shall replace at its sole cost and expense such defective Products without delay after receipt of SIEMENS' return shipment. The expenses required for returning such defective Products to TANISYS shall be borne by SIEMENS; the expenses required for re-sending Products to SIEMENS or to its Customer shall be borne by TANISYS. If, within thirty (30) days after receipt at TANISYS, such replacement Products are not shipped, SIEMENS shall have the right to replace the defective Products with products from TANISYS' latest shipment or SIEMENS' stock which shall then be deemed as replacement under warranty. TANISYS shall ship on an emergency basis and on its own account such number of Products as to make up for the thus diminished SIEMENS stock. 10.3 Replacements shall be subject to a new 36 month warranty period, beginning with the receipt of the product by SIEMENS or its Customer. 10.4 If defects or malfunctions which appear to be excessive or of an epidemic nature result from the manufacturing or use of unsuitable materials by TANISYS, then TANISYS shall take appropriate actions to remedy such defects in agreement with SIEMENS and in accordance with reasonable standards applicable to the individual circumstances. TANISYS shall inform SIEMENS about its actions to be taken within two (2) weeks after notification. 10.5 The provisions of this Article 10 shall also apply after termination of this Agreement. 10.6 If any technical problem, defect or malfunction occurs, SIEMENS will promptly be informed by TANISYS. TANISYS will immediately start investigations and supply a first substantial answer within five (5) working days after receipt of SIEMENS' notification. 10.7 TANISYS does not warrant consigned DRAMs, except as to damage or defects which result from TANISYS' storage or use of the consigned DRAMs. 9 10.8 TANISYS SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXCEPT THOSE SPECIFICALLY PROVIDED HEREIN, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND OF MERCHANTABILITY. 11. LIABILITY, RESPONSIBILITY 11.1 It is SIEMENS' responsibility to defend and resolve at SIEMENS' expense any dispute arising from a claim that the Products infringe a third party's patent to the extent that the alleged infringement is due to the use of SIEMENS Information and/or DRAMs supplied by SIEMENS and incorporated in Products manufactured by TANISYS. 11.2 Notwithstanding Section 11.1 above, it is TANISYS' responsibility to defend or otherwise resolve at TANISYS' expense any dispute arising from a claim that the Products infringe a third party's patent, due to specific components in Products manufactured by TANISYS or purchased by TANISYS from any third source or due to the manufacturing process employed by TANISYS unless directly specified by SIEMENS'. 11.3 If a third party alleges an infringement of its patent, then the party to this Agreement against which this claim is raised shall immediately inform the other party and both parties shall discuss how to handle such claim or lawsuit in the best way possible; such discussion limited to consultations only. 11.4 SIEMENS shall indemnify and hold TANISYS harmless against any claims, costs and expenses due to non-patent claims related to the Products which arise from TANISYS' use of SIEMENS SUPPLIED Information or DRAMs supplied by SIEMENS. 11.5 TANISYS shall indemnify and hold SIEMENS (and/or SIEMENS' Subsidiaries/Affiliates and/or its Customers) harmless against any claims, costs and expenses due to any other liability than SIEMENS liability as per Sections 11.1 and 11.4. TANISYS may at SIEMENS' request maintain general comprehensive liability insurance in a minimum amount of $------; in such case SIEMENS shall be named as an additional insured. SIEMENS reserves the right to carry such general comprehensive liability insurance concurrent with existing SIEMENS insurance policies in effect. 11.6 These indemnities are conditioned upon the party seeking indemnification promptly notifying the other party; making no admissions of liability and cooperating in the defense of the claim. 11.7 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES THAT RESULT FROM PERFORMANCE UNDER THIS AGREEMENT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 12. ARBITRATION 12.1 SIEMENS and TANISYS shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives who have authority to 10 settle the controversy. The executive will be at the CEO, CFO or COO level and will not have had direct responsibility for administration of this Agreement. Either party may give the other written notice of any dispute not resolved in the ordinary course of business. Within fifteen (15) days after delivery of the notice the party receiving the notice shall submit to the other a written response. The notice and response shall include a statement of the party's positions regarding the matter in dispute, a summary of arguments in support, and the name and title of the executive who will represent that party and any other person who will accompany that executive. Within 30 days after delivery of the initial notice, the designated executives shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary to attempt to resolve the dispute. All reasonable request for information made by one party to the other shall be honored in a timely fashion. All negotiations conducted pursuant to this Section 12 (and any of the party's submissions in contemplation hereof) shall be kept confidential by the parties and shall be treated by the parties and their respective representatives as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and any similar state rules. 12.2 If any matter in dispute arising under this Agreement has not been resolved within sixty (60) days after delivery of the notice or if the parties fail to meet within thirty days (30) days, the matter will be submitted to binding arbitration. Either party may initiate binding arbitration as contemplated herein. Either party (the claimant) may give written notice to the other (respondent) of its intention to arbitrate, which notice shall contain a statement setting forth the nature of the dispute, the amount involved, if any, and the remedy sought, and file with the appropriate office of the American Arbitration Association three copies of the notice and three copies of the arbitration provision of this Agreement, together with the appropriate filing fee as provided in the Schedule on page 21 of the AAA Commercial Rules as Amended and Effective on November 2, 1993. The AAA shall give notice of such filing to the respondent which may file an answering statement in duplicate with the AAA within ten days after notice from the AAA, in which event the respondent shall at the same time send a copy of the answering statement to the claimant. If a counterclaim is asserted, it shall contain a statement setting forth the nature of the counterclaim, the amount involved, if any, and the remedy sought. If a counterclaim is made, the appropriate fee shall be forwarded to the AAA with the answering statement. If no answering statement is filed within the stated time, it will be treated as a denial of the claim. Failure to file an answering statement shall not operate to delay the arbitration. 12.3 The AAA Commercial Arbitration Rules, as modified or revised by the provisions herein, shall govern these proceedings. The arbitration shall be conducted by three arbitrators, one selected by each party and the third selected by those two arbitrators. After the arbitrators are selected, the parties agree to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Rules. 12.4 The place of the arbitration proceedings shall be San Francisco, California if TANISYS initiates the arbitration and in Austin, Texas if SIEMENS initiates the arbitration. The decision of the arbitration panel shall be rendered in writing. 11 12.5 The parties agree that procedural rules will be those of the State in which the arbitration is to OCCUR, as amended by this Agreement. In addition, the parties agree that discovery will take place informally to the extent possible through document production, interrogatories limited to identification of witnesses and documents and no more than five (5) depositions per side. 13. SUBSTANTIVE LAW All disputes shall be settled in accordance with the provisions of this Agreement and all other Agreements regarding its performance, in accordance with the substantive law of the State identified in Section 12.4 (except for its conflict of laws provision) without reference to other law. The United Nations Convention on contracts for the International Sale of Goods of April 1, 1980 shall not apply. 14. CONFIDENTIALITY 14.1 The parties undertake to keep secret, even after termination of this Agreement, Confidential Information furnished hereunder insofar as, and as long as, it has not otherwise lawfully come into the public domain or the party which disclosed the information has not consented in writing that it may be disclosed to third parties. 14.2 The parties further agree that it will only use Confidential Information supplied under this Agreement for purposes set forth in this Agreement. 14.3 Information shall not be subject to the above confidentiality provisions to the extent that a party can demonstrate that the information - - is known to or is in the possession of that party before transmission by the other party; - - became legally available to that party from a source other than the other party or is in or passed into the public domain other than by reach of this Agreement; - - is developed independently by that party; - - the disclosure of which is expressly authorized by the other party. 14.4 Except as required by law, neither party shall disclose the existence of this Agreement, including insurance coverage and values thereunder, except as mutually agreed. 15. FORCE MAJEURE Neither party shall be liable to the other for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by Force Majeure such as, but not limited to, riots, civil commotion, wars, hostilities between nations, governmental laws, orders or regulations, actions by the government or any agency thereof, storms fires, strikes, lockouts, sabotages, explosion or any other contingencies beyond the reasonable control of the respective party and of its sub-contractors or supplier. In such events, the affected party shall immediately inform the other party of such circumstances together with documents of proof, if any, and the performance of obligations hereunder shall be suspended during, but not longer than, the period of existence of such cause and the period reasonable required to perform the obligations in such cases. Should a circumstance of Force Majeure continue without interruption for a period of more than six (6) months, then either party has the right to forthwith terminate this Agreement and/or the respective 12 individual orders by registered letter. The parties may also negotiate for a reasonable extension or adjustment of this Agreement. 16. TERM AND TERMINATION 16.1 This Agreement shall be in effect for a period of two (2) years and shall be extended automatically by periods of one year each unless terminated by written notice at least six (6) months before the end of such 2 year period or the end of a one year extension period. The term of notice shall be six (6) months. 16.2 This Agreement may by written notice be prematurely terminated with immediate effect by the party having such right as herein provided, and notwithstanding any other rights such party may have, upon the occurrence of either one or more of the events stated below: - - by either party if the other party voluntarily files a petition in bankruptcy or has such a petition involuntarily filled against it (which petition is not discharged within ninety (90) days after filing), or is placed in an insolvency proceeding, or if an order is entered appointing a receiver or trustee for a levy or attachment is made against a substantial portion of its assets which order shall not be vacated, set aside or stayed within thirty (30) days from date of entry, or if any assignment for the benefit of its creditors is made. - - by either party if the other has failed substantially in the performance of any material contractual obligation, provided that such default is not remedied to the other party's satisfaction, within sixty (60) days after written notice to the other party specifying the nature of such default and requiring remedy of the same. 16.3 A waiver of any default by either party of any of the terms and conditions of this Agreement but shall apply solely to the instances to which such waiver is granted. 16.4 In the event of termination of this Agreement, SIEMENS shall be entitled to request delivery of, and TANISYS shall be obliged to deliver, subject to the terms of this Agreement, all quantities of Products ordered from TANISYS before the Effective Date of termination. 17. PROVISIONS COVERING THE TIME AFTER TERMINATION 17.1 After termination of this Agreement, TANISYS shall continue to supply to SIEMENS according to the terms of this Agreement Products which SIEMENS needs in order to fulfill contractual delivery obligations which have been entered into on the basis of quotations before termination of this Agreement; SIEMENS will continue to meet its payment obligations under this Agreement. 17.2 When this Agreement is terminated, either party shall, upon written request by the other, return all Confidential Information received, as well as all copies made of such Confidential Information. 17.3 This Article 17 shall survive the termination of this Agreement. 13 18. MISCELLANEOUS 18.1 For orders placed by SIEMENS under this Agreement no other conditions than those specified herein shall be applicable. 18.2 All changes and amendments to this Agreement must be in writing to be valid. This requirement of written form can only be waived in writing. 18.3 Notices and communications between TANISYS and SIEMENS shall be given in writing or by FAX or E-Mail in English Language to the following addresses of the parties or to such other address as the party concerned may subsequently notify in writing to the other party: If to TANISYS: TANISYS Technology, Inc. 12201 Technology Blvd. Austin, TX 78727 FAX: 512/258-3689 If to SIEMENS: SIEMENS Components, Inc. 10950 North Tantau Avenue Cupertino, CA 95014 Attn: Mr. Kleinjan Du Preez, Director, Memory Products FAX: 408/777-4974 18.4 TANISYS shall not be permitted to assign this Agreement, or parts thereof, or any right or obligation hereunder, wholly or partially to any third party (which term includes "Subsidiaries") without the prior written consent of SIEMENS. SIEMENS shall not be permitted to assign this Agreement, or rights or obligations hereunder, wholly or partially to any third party, without the prior written consent of TANISYS. However, SIEMENS shall be permitted to assign the contract to any entity formed by or resulting from changes in the structure of SIEMENS activities in the U.S., so long as the resulting entity continues to be part of the Siemens family. 18.5 If for any reason a court of competent jurisdiction finds any provision of this Agreement, or portion thereof, to be unenforceable, that provision of this Agreement shall be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement shall continue in full force and effect. 18.6 The titles to the Articles of this Agreement are for convenience or reference only and are not part of this Agreement and shall not in any way affect its interpretation. 18.7 When this Agreement becomes effective, it shall constitute the entire understanding and agreement between the parties with respect to the manufacture of Products, and shall supersede and cancel all previous agreements, negotiations and commitments, either oral or written. 18.8 All rights and remedies conferred under this Agreement or by any other instrument or law shall be cumulative, and may be exercised singularly or concurrently. Failure by either party to enforce any provision of this Agreement shall not be deemed a waiver of further enforcement of that or any other provision. 18.9 THE PARTIES agree to comply with all U.S. federal, state, and local laws and regulations that are applicable to the Products. 14 19. EXPORT REGULATIONS SIEMENS Information and supplies and products to be provided under this Agreement are subject to governmental export regulations and the obligations to provide same are subject to receipt of appropriate approvals. TANISYS agrees to use the freight carrier so designated by SIEMENS which will handle all coordination, brokerage and customs activities for all export activity. 20. ORDER OF PRECEDENCE In the event of any contradiction occurring between the various documents contained in this Agreement, the order of precedence shall follow the order listed below with the first item (1) having first precedence and the last item enjoying lowest precedence. 1. This AGREEMENT: SIEMENS TANISYS 2. ATTACHMENTs: In ascending Order (A, B, ....) 15 IN WITNESS THEREOF, the parties hereto have caused this Manufacturing Agreement to be executed by their duly authorized representatives as of the date first written above. TANISYS TECHNOLOGY, INC. SIEMENS COMPONENTS, INC. __________________________ __________________________________ /s/ GARY W. PANKONIEN /s/ KLEINJAN DU PREEZ __________________________ __________________________________ By By GARY W. PANKONIEN KLEINJAN DU PREEZ __________________________ __________________________________ Printed Name Printed Name PRESIDENT & CHIEF OPERATING OFFICER DIRECTOR, MEMORY PRODUCTS ___________________________________ __________________________________ Title Title 11/20/96 11/20/96 ___________________________________ __________________________________ Date Date /s/ Joe O. Davis /s/ Christiane Walter JOE DAVIS CHRISTIANE WALTER ___________________________________ __________________________________ Printed Name Printed Name CHIEF FINANCIAL OFFICER DIRECTOR CORPORATE CONTROLLING ___________________________________ __________________________________ Title Title 11/20/96 11/21/96 ___________________________________ __________________________________ Date Date 16 EX-10.23 4 EXHIBIT 10.23 - INVENTORY MGMT SERV. AGREE. EXHIBIT 10.23 INVENTORY MANAGEMENT SERVICE AGREEMENT between TANISYS TECHNOLOGY, INC. 12201 Technology Blvd. Austin, TX 78727 U.S.A. and SIEMENS COMPONENTS, INC. 10950 North Tantau Avenue Cupertino, CA 95014 U.S.A. 1 INDEX TO AGREEMENT: BASIC AGREEMENT: SIEMENS - TANISYS ATTACHMENT A: Products ATTACHMENT B: Siemens Fiscal Calendar Cutoff Dates ATTACHMENT C: Cost Basis and Pricing Structure ATTACHMENT D: Compaq-specific Warehouse Requirements ATTACHMENT E: EDI Agreement 2 INVENTORY MANAGEMENT SERVICE AGREEMENT This agreement is made effective November 1, 1996 between Tanisys Technology, Inc. 12201 Technology Blvd., Austin, TX 78727, U.S.A (TANISYS) and Siemens Components, Inc. 10950 North Tantau Avenue, Cupertino, CA 95014 (SIEMENS). In consideration of the mutual covenants and agreements set forth below, the parties agree as follows. 1. TANISYS WILL PROVIDE THE FOLLOWING: a) Inventory receiving and dispatching including notification to SIEMENS in case of shipping damage. b) Storage area in a warehouse facility located at the TANISYS manufacturing facility at 12201 Technology Blvd. Suite 130, Austin Texas. c) On demand delivery service to locations of SIEMENS, SIEMENS customers, or any other location which SIEMENS requires. See Attachment D for details of customers. d) Inventory reports to SIEMENS via EDI per Article 11 below, and per Attachment E. e) Insurance per Article 16 below, if so required by SIEMENS. f) All licenses and permits required to comply with all applicable U.S. federal, state and local laws and regulations, for services rendered. g) TANISYS will make shipments to locations as stated above in accordance with SIEMENS' releases, provided per the EDI daily shipment instructions as generated by SIEMENS. h) TANISYS will deviate from the above planned shipments only upon receipt of a telephone call request confirmed by FAX signed by an authorized SIEMENS representative. TANISYS agrees to document to the best of their ability any such deviations and to report the actual shipments made, via EDI daily 856 Ship Notice/Manifest. i) Deliveries by TANISYS to SIEMENS customers may require SIEMENS-generated ASNs to SIEMENS customers. SIEMENS will retrieve from the SIEMENS mailbox, each morning or as required, the Receiving Advice (EDI 861) from SIEMENS customers covering shipments made by TANISYS on behalf of SIEMENS. 2. SIEMENS WILL PROVIDE THE FOLLOWING: a) Payment for the services performed in each calendar month during the term of this Agreement will be made to TANISYS within thirty (30) calendar days of SIEMENS' receipt of invoice from TANISYS. All amounts in this Agreement are in U.S. dollars. b) Monthly service charges shall be as agreed and documented in Attachment C "Cost Basis and Pricing Structure". 3 3. TERMINATION AND DISCRETION: a) This Agreement may be terminated by SIEMENS for any reason in its sole discretion upon thirty (30) days advance written notice to TANISYS. Such termination will be with no cost or obligation to SIEMENS, except for SIEMENS' obligation to remove all of its product from the premises of TANISYS within thirty (30) days after such termination. SIEMENS further agrees to bear the cost of storage, packing and moving. b) This Agreement may be terminated by TANISYS for any reason at its sole discretion upon ninety (90) days advance written notice to SIEMENS. 4. TERMINATION FOR CAUSE: If for any reason SIEMENS, in its sole opinion, determines that TANISYS is not performing this Agreement in a satisfactory manner, including but not limited to, not delivering product according to SIEMENS requests, delivering short or wrong quantities, losing inventory, failure to report in a timely manner, or failure to complete billings or receipts in a timely manner; SIEMENS will give TANISYS written notice of such default and TANISYS will have ten (10) days to cure the default after receipt of the written notice. If not cured, SIEMENS may immediately terminate this Agreement without further notice. If SIEMENS so terminates the Agreement, TANISYS will immediately return to SIEMENS whatever parts remain in TANISYS' inventory or direct the inventory to be shipped to a successor firm or any other location as SIEMENS requires. 5. RELATIONSHIP BETWEEN PARTIES: a) This Agreement is not intended to and does not create any employer/ employee relationship between the parties. TANISYS is and shall remain an independent contractor providing a service to SIEMENS. TANISYS agrees that in the context of the service it is rendering to SIEMENS that it will not claim or represent that it is operating or doing business as a SIEMENS sales office, nor will it purport to pledge the credit of, or enter into any contract for, or on behalf of SIEMENS. b) This Agreement does not convey, nor shall TANISYS claim, any property interest in SIEMENS' corporate name, trademarks, trade names or patents, or other proprietary rights. TANISYS shall indemnify and hold SIEMENS harmless from all claims, demands, suits, and actions for damages to property or persons, including legal or attorney's fees incurred by SIEMENS made by any third party resulting from TANISYS' negligence or willful misconduct in providing these services. This obligation to indemnify shall survive the termination of this Agreement. c) Neither SIEMENS nor TANISYS shall be liable for failure to perform any obligation under this Agreement if such failure is caused by circumstances not directly under such party's reasonable control, including, but not limited to, failures resulting from acts of God, acts of public authorities, war and war measures, strikes, fires, failures or delays of suppliers or carriers, inability to obtain materials or supplies, demand for products within the forecast period over available supply, regulations under Agreements between governments or any interruption for any reason in the manufacture of products by suppliers. 6. TANISYS WILL ALSO DO THE FOLLOWING: a) TANISYS agrees to provide and maintain, without expense to SIEMENS, a suitable place of business with adequate facilities including a monitored security alarm system and sufficient personnel for the timely receiving and delivery of the products to SIEMENS' customers. "Products" for purposes of this Agreement shall include those referred to in Attachment A "Products" and such others as SIEMENS may decide to add into its shipments under the terms 4 of the Agreement. TANISYS shall provide secure and segregated areas for consigned and finished goods conspicuously marked as SIEMENS areas. b) TANISYS shall maintain and use its facilities in such a manner as to ensure proper care for SIEMENS products, including at a minimum, proper temperature and humidity controls, proper anti-static equipment, and proper facilities to permit incoming, outgoing or other inspection of product. TANISYS shall maintain and use its facilities to ensure prompt handling of orders and shipments, careful attention to customer complaints, and servicing for all products covered by this Agreement. c) TANISYS shall maintain records of inventory, shortages, receiving and shipments of products and make such records available to SIEMENS or its representatives upon request during normal business hours to make certain that all of the requirements of this Agreement such as facilities, personnel and record integrity are being met. 7. PRODUCTS: a) TANISYS agrees to coordinate shipment of product to specified customers upon notification and approval by SIEMENS. b) SIEMENS shall not be required to provide TANISYS any products. c) SIEMENS may issue revisions to Attachment A from time to time to keep TANISYS informed of current products to be delivered. 8. TITLE AND SHIPMENT RESPONSIBILITIES: a) SIEMENS may withdraw any product with reasonable notice of 24 hours to TANISYS. b) Inventories will be subject to verification and audit by SIEMENS or its designated representative. All inventory shrinkage at TANISYS will be charged directly to TANISYS and invoiced accordingly to TANISYS. c) SIEMENS retains title in all products while in the TANISYS warehouse. d) Notwithstanding (b) above, but subject to Articles 16 and 17 below, SIEMENS will bear risk of loss for the inventory (except for losses attributable to the willful or negligent act of TANISYS) until it is signed for by SIEMENS' customer. e) All shipments from SIEMENS to TANISYS will be made such that SIEMENS pays freight costs. SIEMENS is responsible for filing any freight claims that might arise. All deliveries from TANISYS to SIEMENS' customers will be made by TANISYS at SIEMENS' customer's or SIEMENS direct expense, as instructed by SIEMENS. 9. INVENTORY: 5 a) TANISYS will maintain the inventory of products furnished by SIEMENS and will cooperate with SIEMENS in periodic reviews of inventory based on daily, weekly and monthly inventory report submissions. b) Upon request by SIEMENS, TANISYS will complete cycle count verification and audit within 24 hours of request, and will submit to SIEMENS a written reconciliation including historical activity for identified variances within 3 working days of the request. 10. RETURNS: TANISYS, under this Service Agreement, shall bear responsibility for returns as outlined below. a) In the event of damaged or functional rejects by SIEMENS' customers, TANISYS will accept returns, provided that such returns are authorized by SIEMENS. b) TANISYS shall make an evaluation as to the reason for product failure. In case of a manufacturing defect caused by TANISYS in assembly, TANISYS shall rework or replace at TANISYS' expense any defective product and will ship at TANISYS' expense such replacement product to SIEMENS' customer. Additional services rendered by TANISYS for rework, test and repair for other than TANISYS' processed activity will be available to SIEMENS as per Attachment F. c) Any product deemed by TANISYS to have failed due to SIEMENS component failure shall be transferred to scrap inventory, and recorded as such in TANISYS' inventory, until advised by SIEMENS as to disposition. 11. REPORTS: a) TANISYS will provide same-day notification to SIEMENS of shipments to SIEMENS customers' location by product and ident number. In addition, TANISYS shall submit a shipment report, by product and ident number, no later than the Monday following the end of the SIEMENS fiscal month. The report shall provide a listing of shipments during that month, identified by part number, product ident number (BNR), ASN number and date, quantity shipped and balance of product held by as inventory. (See Attachment B: SIEMENS Fiscal Month Ending Dates). b) Daily transmissions shall occur via EDI 846 transactions for SIEMENS' defined stock, including but not limited to on-hand consigned quantities of loose parts, work in process (WIP), rework, scrap, finished stock, cumulative to-date shipments, "red flag" critical issues, and running perpetual inventory listings. c) TANISYS will work with SIEMENS to track performance indicators such as data integrity and timeliness of data entry. Through continuous improvement and a team-oriented problem solving approach, SIEMENS and TANISYS will ensure the quality of service expected in this Agreement. 12. ASSIGNMENT: TANISYS shall not delegate any duties or assign any rights under this Agreement or any interest herein without SIEMENS prior written consent, which may be granted or withheld at the sole discretion of SIEMENS; otherwise such may, at SIEMENS' option, be deemed to be a termination of this Agreement by TANISYS. The merger or consolidation of TANISYS, or any other transaction effecting a substantial change in the ownership or control of TANISYS, shall be deemed at SIEMENS' option an 6 assignment requiring prior written consent by SIEMENS. This Agreement may be assigned by SIEMENS to such other corporations as may be incorporated in North America and deemed by SIEMENS to be the appropriate corporation(s) to succeed TANISYS. 13. DURATION AND TERMINATION: a) This Agreement shall commence on the date first written above and unless terminated, in accordance with the terms hereof, shall remain in effect until December 31, 1997. Either party may decline to renew this Agreement with or without cause (in the sole discretion of that party) by giving at least ninety (90) days' prior written notice of that party's election to decline to renew. If no such notice is given, this Agreement shall be deemed to be renewed and extended on a yearly basis. Neither party makes any promise nor is under any obligation, expressly or implied, to renew this Agreement upon its expiration. b) If TANISYS should become insolvent or take or have brought against it bankruptcy proceedings or if a distress or analogous process is levied against all or part of its property, or if a receiver for their property or a substantial part thereof shall be appointed, SIEMENS may at its option terminate this Agreement by giving notice of its election to do so and such termination shall be effective on the date notice is given. c) Upon termination of this Agreement, TANISYS agrees to return to SIEMENS and SIEMENS shall accept return of any and all SIEMENS, inventory of those SIEMENS products which were listed on TANISYS, last daily inventory report, inclusive of receipts and shipments made after the previous days' closing date. TANISYS agrees that, upon such termination, it will ship such inventory FCA shipping point, freight collect to SIEMENS as SIEMENS shall direct. d) Acceptance of any order from or the shipment of any product to TANISYS after termination shall not be construed as a renewal or extension of the Agreement nor as a waiver of any termination notice. 14. CONFIDENTIALITY: 14.1 "Confidential Information" shall mean all such technical information as well as know-how (given orally, in writing or in other tangible form) necessary for the manufacture of Products, which one party shares with the other. "Confidential Information" includes the specification necessary for the procurement of the components required for the manufacture of Products, with the exception of DRAMs, as defined in Attachment A. 14.2 The parties undertake to keep secret, even after termination of this Agreement, Confidential Information furnished hereunder insofar as, and as long as, it has not otherwise lawfully come into the public domain or the party which disclosed the information has not consented in writing that it may be disclosed to third parties. 14.3 The parties further agree that it will only use Confidential Information supplied under this Agreement for purposes set forth in this Agreement. 7 14.4 Information shall not be subject to the above confidentiality provisions to the extent that a party can demonstrate that the information - is known to or is in the possession of that party before transmission by the other party; - became legally available to that party from a source other than the other party or is in or passed into the public domain other than by reach of this Agreement; - is developed independently by that party; - the disclosure of which is expressly authorized by the other party. 14.5 Except as required by law, neither party shall disclose the existence of this Agreement, including insurance coverage and values thereunder, except as mutually agreed. 15. SCOPE OF AGREEMENT: a) This Agreement supersedes and cancels any previous understanding or agreement between the parties relating to the Services to be provided. There are no other inventory management or warehousing terms and conditions, representations or undertakings, except those set forth in this Agreement. No other agreement or understanding purporting to modify or supplement this Agreement, nor any promises made by a party's representative shall be binding upon that party unless confirmed in writing by a duly authorized representative of that party. b) The failure of a party to enforce at any time any of the provisions of this Agreement, or any right with respect thereto, shall not be construed as a waiver of such provisions or rights or any other provision or right. c) This Agreement becomes binding only when executed by both parties. 16. INSURANCE: a) TANISYS may at SIEMENS' request procure and maintain comprehensive general liability insurance including property damage with limits of not less than $XXXXXX (XXXXXX Dollars) Property Coverage with A+ rated companies, which covers both the Manufacturing Agreement Section 11 and this Agreement. In such case, SIEMENS shall be an additional named insured in all such policies. TANISYS shall provide current certificates of such insurance. Under no conditions may such insurance be modified, canceled and/or replaced without thirty (30) days advanced written notice to SIEMENS. SIEMENS reserves the right to carry such general comprehensive liability insurance concurrent with existing SIEMENS insurance policies in effect. b) TANISYS shall be fully liable for any and all damages caused due to breach of this section. 17. SECURITY INTEREST and WAREHOUSE RECEIPT: a) Upon TANISYS receiving products and signing a "Warehouse Receipt" for any given shipment, the quantity and description thereon will be deemed an absolute indication that TANISYS has accepted risk of loss for that quantity of that item. The only exception will be that TANISYS will be allowed until the close of business twenty-four (24) hours after receipt of any given shipment to advise in writing (by FAX) as to any discrepancies at the carton level; within forty-eight (48) hours at the partnumber and ident number detail level. All such notifications are to include: 1) Packing List number (or similar identification) 2) Number of cartons received 8 3) Nature of discrepancy 4) Date shipped from SIEMENS. b) There will be no requirement for SIEMENS to prove negligence in order to obtain reimbursement, if any product, or any portion thereof, is, for any reason whatever, subsequently found to have been lost, stolen or damaged while under the control of TANISYS. c) TANISYS shall not, under any circumstances, pledge as collateral any SIEMENS product in any undertaking, and/or hypothecate any of the products entrusted in its care. d) TANISYS shall complete and forward daily all inventory transactions, receipts, and ASN activity detail to SIEMENS via EDI, Internet or FAX within one (1) hour of the close of TANISYS' normal business day (no later than 5:00 P.M. Central Standard Time). 18. NOTICES: All notices required to be made thereunder shall be given by (a) Registered or first-class mail, return receipt requested, or (b) Telecommunications - EDI, Internet or FAX. Notices given under clause (a) shall be deemed to be given on the fifth day after mailing. Notices given under clause (b) shall be deemed to be given when transmitted unless transmitted after ordinary business hours of the party to be noticed, in which case it shall be deemed to be given on the next business day. 19. ARBITRATION: 19.1 SIEMENS and TANISYS shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy. The executive will be at the CEO, CFO or COO level and will not have had direct responsibility for administration of this Agreement. Either party may give the other written notice of any dispute not resolved in the ordinary course of business. Within fifteen (15) days after delivery of the notice the party receiving the notice shall submit to the other a written response. The notice and response shall include a statement of the party's positions regarding the matter in dispute, a summary of arguments in support, and the name and title of the executive who will represent that party and any other person who will accompany that executive. Within 30 days after delivery of the initial notice, the designated executives shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary to attempt to resolve the dispute. All reasonable request for information made by one party to the other shall be honored in a timely fashion. All negotiations conducted pursuant to this Section 19 (and any of the party's submissions in contemplation hereof) shall be kept confidential by the parties and shall be treated by the parties and their respective representatives as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and any similar state rules. 19.2 If any matter in dispute arising under this Agreement has not been resolved within sixty (60) days after delivery of the notice or if the parties fail to meet within thirty days (30) days, the matter will be submitted to binding arbitration. Either party may initiate binding arbitration as contemplated herein. 9 Either party (the claimant) may give written notice to the other (respondent) of its intention to arbitrate, which notice shall contain a statement setting forth the nature of the dispute, the amount involved, if any, and the remedy sought, and file with the appropriate office of the American Arbitration Association three copies of the notice and three copies of the arbitration provision of this Agreement, together with the appropriate filing fee as provided in the Schedule on page 21 of the AAA Commercial Rules as Amended and Effective on November 2, 1993. The AAA shall give notice of such filing to the respondent which may file an answering statement in duplicate with the AAA within ten days after notice from the AAA, in which event the respondent shall at the same time send a copy of the answering statement to the claimant. If a counterclaim is asserted, it shall contain a statement setting forth the nature of the counterclaim, the amount involved, if any, and the remedy sought. If a counterclaim is made, the appropriate fee shall be forwarded to the AAA with the answering statement. If no answering statement is filed within the stated time, it will be treated as a denial of the claim. Failure to file an answering statement shall not operate to delay the arbitration. 19.3 The AAA Commercial Arbitration Rules, as modified or revised by the provisions herein, shall govern these proceedings. The arbitration shall be conducted by three arbitrators, one selected by each party and the third selected by those two arbitrators. After the arbitrators are selected, the parties agree to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Rules. 19.4 The place of the arbitration proceedings shall be San Francisco, California if TANISYS initiates the arbitration and in Austin, Texas if SIEMENS initiates the arbitration. The decision of the arbitration panel shall be rendered in writing. 19.5 The parties agree that procedural rules will be those of the State in which the arbitration is to occur, as amended by this Agreement. In addition, the parties agree that discovery will take place informally to the extent possible through document production, interrogatories limited to identification of witnesses and documents and no more than five (5) depositions per side. 20. SUBSTANTIVE LAW: All disputes shall be settled in accordance with the provisions of this Agreement and all other Agreements regarding its performance, in accordance with the substantive law of the State identified in Section 19.4 (except for its conflict of laws provision) without reference to other law. The United Nations Convention on contracts for the International Sale of Goods of April 1, 1980 shall not apply. 21. LIMITATION OF LIABILITY: NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES THAT RESULT FROM PERFORMANCE UNDER THIS AGREEMENT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 10 IN WITNESS THEREOF, the parties hereto have caused this Service Agreement to be executed by their duly authorized representatives as of the date first written above. TANISYS TECHNOLOGY, INC. SIEMENS COMPONENTS, INC. /s/ Gary W. Pankonien /s/ Kleinjan Du Preez _________________________________ _________________________________ By By GARY W. PANKONIEN KLEINJAN Du PREEZ _________________________________ _________________________________ Printed Name Printed Name PRESIDENT & CHIEF OPERATING OFFICER DIRECTOR, MEMORY PRODUCTS _________________________________ _________________________________ Title Title 11/20/96 11/20/96 _________________________________ _________________________________ Date Date /s/ Joe O. Davis /s/ Christiane Walter JOE DAVIS CHRISTIANE WALTER _________________________________ _________________________________ Printed Name Printed Name CHIEF FINANCIAL OFFICER DIRECTOR CORPORATE CONTROLLING _________________________________ _________________________________ Title Title 11/20/96 11/21/96 _________________________________ _________________________________ Date Date 11 EX-10.24 5 EXH 10.24 - AMENDMENT & RESTATED CREDIT AGREEMENT EXHIBIT 10.24 AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (BORROWING BASE) THIS AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (as amended, restated and supplemented from time to time, this "AGREEMENT") by and between 1ST TECH CORPORATION (1st "Tech"), a Delaware corporation, DARKHORSE SYSTEMS, INCORPORATED ("Darkhorse"), a Delaware corporation and TANISYS TECHNOLOGY, INC. ("Tanisys"), a Wyoming corporation (jointly and severally, "Borrowers" and each a "Borrower"); and THE CHASE MANHATTAN BANK, a New York state bank, ("BANK", including Bank's predecessor by merger Chemical Bank, a New York state bank) is executed as of February 21, 1997 ("Effective Date"). PRELIMINARY STATEMENT. 1st Tech, Darkhorse, Tanisys and Bank entered into a Credit Agreement dated May 20, 1996 (as amended, "Prior Agreement"), and have agreed to amend and restate it in its entirety to, among other things, provide that Tanisys will be an additional Borrower; to provide for certain reductions in the amount of the Commitment and the advance rate on the Borrowing Base; to provide for waiver of certain financial covenant defaults; and to change a financial covenant. The parties therefore agree as follows: 1. THE LOANS. REVOLVING CREDIT NOTE 1.1.A Subject to the terms and conditions hereof, Bank agrees to make loans ("Loan" or " Loans") to any Borrower from time to time before the Termination Date, not to exceed at any one time outstanding the lesser of the Borrowing Base or the Maximum Amount ("Commitment"). Borrowers may borrow, repay and reborrow upon a Loan Request in Proper Form submitted by either Borrower. Loans may only be used to finance accounts receivable and inventory from Borrowers' regular business operations. Chapter 15 of the Texas Credit Code will not apply to this Agreement, the Note or any Loan. The Loans will be evidenced by, and will bear interest and be payable as provided in, Borrowers' promissory note dated the Effective Date (together with any and all renewals, extensions, modifications and replacements thereof and substitutions therefor, "Note"), given to replace and modify the $6,000,000.00 Revolving Credit Note executed by 1st Tech and Darkhorse executed and delivered to Bank as of the Prior Agreement Effective Date ("Prior Note"). "TERMINATION DATE" means the earlier of (a) June 30, 1998; or (b) the date specified by Bank pursuant to SECTION 6.1 hereof MAXIMUM AMOUNT OF COMMITMENT 1.1.B The "Maximum Amount" of the Commitment shall be the amount determined as follows: (a) on the Effective Date the Maximum Amount is $6,000,000.00; and (b) at the close of business Friday, February 21, 1997, and at the close of business each Friday thereafter, the Maximum Amount shall be reduced by $250,000.00 below the value of the Maximum Amount immediately preceding such weekly reduction, UNTIL (c) the Maximum Amount shall have been reduced to $4,000,000.00, whereupon it shall not reduce further. LETTERS OF CREDIT 1.1.C Bank in its sole absolute discretion may issue sight draft commercial and/or standby letters of credit up to the day before the Termination Date for the account of Borrowers and in favor of such Person or Persons as may be designated by either Borrower upon an application substantially in the form of Bank's then current application and agreement therefor or other application acceptable to Bank ("APPLICATION"), duly completed and executed by either Borrower in Proper Form not less than two (2) Business Day(s) prior to the date on which the letter of credit is to be issued. "LETTER OF CREDIT" means any Letter of Credit issued by Bank upon an Application of Borrowers. No Letter of Credit shall have an expiry DATE later than a date 3 months from the Termination Date. Letters of Credit may be commercial or standby. "L/C OBLIGATIONS" means the sum of (a) the face amount of all outstanding Letters of Credit less any drawings that have been paid by Borrowers either with a Loan or other means acceptable to Bank and (b) any other amounts owing to Bank under the Applications not already included in (a). Borrowers will pay a fee in an amount equal to the greater of: (a) (i) for commercial L/Cs, one percent (1.0%) per quarter or fraction thereof on the face amount of the Letter of Credit and (ii) for Standby L/Cs, three percent (3.0%) per annum or fraction thereof on the face amount of the Letter of Credit; and (b) Bank's minimum fee in effect on the issue date of the Letter of Credit. The fee shall be paid to the Bank at its main offices to the attention of the Manager, Documentary Services Division prior to the issuance of the Letter of Credit. Bank may at any time, but is not required to, make a Loan without prior notice to Borrowers to pay any drawing under a Letter of Credit and to pay any L/C Obligation. Letters of Credit shall be for the purpose of financing trade credit extended to either Borrower in its regular course of business. L/C Obligations shall never exceed $2,000,000.00 ("LETTER OF CREDIT SUBLIMIT"). BORROWING BASE 1.2: (a) The BORROWING BASE on each Business Day is the "Total Availability on Accounts Receivable and Inventory" calculated in accordance with the Borrowing Base Certificate in Exhibit A, the "Accounts Receivable Loan Administration Procedures" ("Procedures") delivered by Bank to Borrower and incorporated herein by reference as if fully set forth, BUT PROVIDED, HOWEVER THAT to the extent that any provision of this Agreement and the Procedures shall be in conflict, the provisions of this Agreement shall be controlling. The Borrowing Base shall include only Accounts receivable of Borrower. No inventory shall be included in the Borrowing Base. (b) The calculations, definitions and other criteria set out in Exhibit A shall be subject to the following definitions and adjustments: (i) The Advance Rate (the amount by which Net Eligible Receivables is multiplied in the Borrowing Base Certificate) shall be determined as follows: (a) on the Effective Date the Advance Rate is 80%; and (b) at the close of business Friday, February 21, 1997, and at the close of business each Friday thereafter, the Advance Rate shall be reduced by 1% below the value of the Advance Rate immediately preceding such weekly reduction (e.g., to 79% on February 21, 1997), UNTIL (c) the Advance Rate shall have been reduced to 75%, whereupon it shall be reduced 1% per month until it reaches 70%. (ii) "Other" ineligible Accounts means all Accounts not subject to Bank's first and prior lien and security interest and such assets deemed form time to time to be, in the sole judgment of the Bank, ineligible for purposes of determining the Borrowing Base; Memo A/R and Evaluation A/R shall be Ineligible Accounts. "'Memo' and 'Evaluation' A/R" shall include all Accounts of the type typically referred to as such by Borrower prior to the Effective Date, and any accounts which do not represent payments finally earned or which result from a sale subject to product evaluation by the buyer. Outstanding Loans, interest and fees counted against Total Availability on Accounts Receivable and Inventory shall use Bank's standard estimation provided by Bank to Borrower. (iii) In addition to the periodic reductions in the Accounts Advance Factor set out in Exhibit A, each Accounts Advance Factor may be increased or decreased by the Bank at any time and from time to time upon written notice to Borrower, in the reasonable exercise of Bank's sole underwriting discretion. Without limiting the generality of the foregoing, Bank shall be deemed to have exercised reasonable discretion if it reduces the Accounts Advance Factor in reasonable proportion to increased dilution of Accounts which Bank believes exceeds 5% of the amount existing at the Effective Date of the Agreement. REQUIRED PAYMENT 1.3 If the unpaid amount of the Loans and L/C Obligations on any Business Day exceeds the Commitment on such day (including any such excess resulting from scheduled reductions in the Maximum Amount and/or the Advance Rate), Borrowers shall make a payment on the Note in an amount sufficient to reduce the total unpaid principal balance of the Note to an amount no greater than the Commitment, such payment due and payable on the date such excess occurs, to accompany timely delivery of Borrowers' monthly Borrowing Base Report or Daily Collateral Certificate, as the case may be. If the balance on the Note is zero and the amount of L/C Obligations still exceeds the Commitment, Borrowers will promptly deliver cash collateral to Bank in an amount sufficient to eliminate such excess. FACILITY FEES 1.4 Borrowers shall continue to pay an Administration Fee of $50,000 per annum payable in installments which began on the Prior Agreement Effective Date of this Agreement and continuing on the first date of each third month thereafter. Borrowers authorize Bank in its discretion and without prior notice to advance against the Commitment and Note to pay these fees when due. PAST DUE AMOUNTS I.5 Each amount due to Bank in connection with the Loan Documents will bear interest from its due date until paid at the Highest Lawful Rate unless the applicable Loan Document provides otherwise. Page 1 of 7 Pages RATIFICATION AND CONFIRMATION OF SECURITY INTERESTS 1.6 Each Borrower confirms and ratifies each of the liens, security interests and other interests granted in each and all security agreements executed in connection with, related to, or securing the Prior Note and Prior Agreement ("Prior Obligations") as extending to and securing the Note, the Loans, Applications and L/C Obligations, including, but not limited to, each of those interests and liens described in the following listed Security Agreements. The terms "secured indebtedness", "indebtedness secured hereby" and any similar reference in any Security Agreement include, but are not limited to, each and all indebtedness of all character and kind related to or evidenced by the Note, each Loan, Application and L/C Obligation or related to any other Loan Document. "Security Agreements" includes the General Security Agreements executed and delivered, respectively, by 1st Tech and Darkhorse dated May 20, 1996; the Security Agreement -Pledge of Certificate of Deposit and Assignment of Deposit Accounts executed and delivered by 1st Tech dated May 20, 1996; the Third Party Security Agreement - Pledge executed and delivered by Gary Pankonien dated May 20, 1996; and the Third Party Security Agreement -- Accounts And General Intangibles executed and delivered by Tanisys dated December 17, 1996. Borrowers acknowledge that the Prior Agreement and certain of the Loan Documents executed in connection with the Prior Agreement were executed for Bank by an officer of Bank's affiliate Texas Commerce Bank National Association in accordance with Bank's instructions, and Bank and each Borrower hereby ratifies and confirms the Prior Agreement (subject to the amendment and restatement herein as of the Effective Date) and each of the other Loan Documents so executed. LIMITED WAIVER -- PRIOR AGREEMENT COVENANTS 1.7 Borrowers have reported that their tangible net worth and ratio of adjusted EBITDA to interest expense for the period ending December 31, 1996 were each below the levels agreed to be maintained in the Prior Agreement, and have requested that such defaults be waived. Bank has agreed to waive the foregoing prior period defaults, for the specific instances described for those prior periods only, subject to the terms of this waiver provision. This waiver is subject to the conditions and understandings that: (i) no other waivers are promised by the Bank; (ii) Bank understands the requested waivers to address all defaults as to covenants, representations and warranties known to Borrowers as of the Date of this Agreement, Borrower having represented that in all other respects no event of default has occurred and is continuing under the Prior Agreement or under this Agreement as of its execution; (iii) Borrower will not in any way rely upon the any future waiver of any default; and (iv) any future delay or election not to exercise rights by the Bank shall not be deemed any waiver of rights. Bank's rights in the event of a default are set out in this Agreement, the Note and the other Loan Documents. This provision is the only evidence of Bank's waiver. 2. CONDITIONS PRECEDENT. ALL LOANS AND L/C OBLIGATIONS 2.1 Bank is not obligated to make any Loan unless: (a) Bank has received the following, duly executed and in Proper Form: (1) a Request for Loan substantially in the form of the sample letter set out in Exhibit A not later than 11 am Central Time on the date (which shall be a Business Day) of the proposed Loan, or an Application for Letter of Credit as provided in section 1.1C, as the case may be; provided however, Bank may accept and act upon verbal advance requests received from a Borrower's representative reasonably believed by Bank to be authorized to make such requests, each such request to be confirmed in writing in Proper Form; (2) a Borrowing Base Report within the time required by this Agreement; and (3) such other documents as Bank reasonably may require; (b) no Event of Default exists; and (c) the making of the Loan is not prohibited by, or subjects Bank to any penalty or onerous condition under any Legal Requirement. FIRST LOAN 2.2 In addition to the matters described in the preceding section, Bank will not be obligated to make the first Loan unless Bank has received all of the Loan Documents specified on ANNEX I in Proper Form. 3. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement and to make Loans and create L/C Obligations, each Borrower represents and warrants as of the Effective Date, the date of each request for a Loan, and each presentation by any Borrower of any financial information, report, notice and certificate hereunder, that each of the following statements is and shall remain true and correct throughout the term of this Agreement: ORGANIZATION AND STATUS 3.1 Each Borrower and Subsidiary of each Borrower is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; has all power and authority to conduct its business as presently conducted, and is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification desirable. No Borrower has any Subsidiary other than those listed on ANNEX II and each Subsidiary is owned as set forth on ANNEX 11. If any Borrower is subject to the Texas Revised Partnership Act ("TRPA"), Borrower agrees that Bank is not required to comply with Section 3.05(d) of TRPA and agrees that Bank may proceed directly against one or more partners or their property without first seeking satisfaction from partnership property. FINANCIAL STATEMENTS 3.2 All financial statements delivered to Bank are complete and correct and fairly present, in accordance with generally accepted accounting principles, consistently applied ("GAAP") (or the other accounting basis specified herein, if expressly provided for in this Agreement), financial condition and results of operations as at the dates and for the periods indicated, on consolidated and consolidating bases. If this Agreement provides for audited, reviewed or compiled financial statements, such service shall have been provided by an independent certified public accountant acceptable to Bank, and if audited statements are provided such statements shall be certified with an unqualified opinion in accordance with generally accepted auditing standards ("GAAS"). No material adverse change has occurred in the assets, liabilities, financial condition, business or affairs of any Borrower or any Subsidiary of any Borrower since the dates of such financial statements. No Borrower or Subsidiary of any Borrower is subject to any instrument or agreement materially and adversely affecting its financial condition, business or affairs. ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding obligations of the Parties enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws affecting creditors' rights generally. The execution, delivery and performance of the Loan Documents have all been duly authorized by all necessary action; are within the power and authority of the Parties, do not and will not violate any Legal Requirement, the Organizational Documents of the Parties or any agreement or instrument binding or affecting the Parties or any of their respective Property. COMPLIANCE 3.4 Each Borrower and each Subsidiary of each Borrower has filed all applicable tax returns and paid all taxes shown thereon to be due, except those for which extensions have been obtained and those which are being contested in good faith and for which adequate reserves have been established. Each Borrower and each Subsidiary of each Borrower is in compliance with all applicable Legal Requirements and manages and operates (and will continue to manage and operate) its business in accordance with good industry practices. No Borrower or Subsidiary of any Borrower is in default in the payment of any other indebtedness or under any agreement to which it is a party. The Parties have obtained all consents of and registered with all Governmental Authorities or other Persons required to execute, deliver and perform the Loan Documents. LITIGATION 3.5 Except as previously disclosed to Bank in writing, there is no litigation or administrative proceeding pending or, to the knowledge of any Borrower, threatened against, nor any outstanding judgment, order or decree affecting any Borrower or Subsidiary of any Borrower before or by any Governmental Authority. TITLE AND RIGHTS 3.6 Each Borrower and Subsidiary of each Borrower has good and marketable title to its Property, free and clear of any Lien except for Liens permitted by this Agreement and the other Loan Documents. Except as otherwise expressly stated in the Loan Documents or permitted by this Agreement, the Liens of the Loan Documents will constitute valid and perfected first and prior Liens on the Property described therein, subject to no other Liens whatsoever. Each Borrower and Subsidiary of each Borrower possesses all permits, licenses, patents, trademarks and copyrights required to conduct its business. All easements, rights-of-way and other rights necessary to maintain and operate each Borrower's Property have been obtained and are in full force and effect. REGULATION U; BUSINESS PURPOSE 3.7 None of the proceeds of any Loan will be used to purchase or carry, directly or indirectly, any margin stock or for any other purpose which would make this credit a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. All Loans will be used for business, commercial, investment or other similar purpose and not primarily for personal, family, or household use or primarily for agricultural purposes as such terms are used in Chapter One of the Texas Credit Code. Page 2 of 7 Pages ENVIRONMENT 3.8 Each Borrower and Subsidiary of each Borrower have complied with applicable Legal Requirements in each instance in which any of them have generated, handled, used, stored or disposed of any hazardous or toxic waste or substance, on or off its premises (whether or not owned by any of them). No Borrower or Subsidiary of any Borrower has any material contingent liability for non-compliance with environmental or hazardous waste laws. No Borrower or Subsidiary of any Borrower has received any notice that it or any of its Properly or operations does not comply with, or that any Governmental Authority is investigating its compliance with, any environmental or hazardous waste laws. INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9 No Borrower or Subsidiary of any Borrower is an "investment company" within the meaning of the Investment Company Act of 1940 or a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. STATEMENTS BY OTHERS 3.10 All statements made by or on behalf of any Borrower, Subsidiary of any Borrower or any other Party in connection with any Loan Document constitute the joint and several representations and warranties of all Borrowers hereunder. NOTICE OF ACCOUNT DEBTORS 3.11 Borrower has sent to each Account Debtor written instructions in the form previously delivered and approved by Bank, to remit all payments and remittances in respect to the Accounts directly to the Lockbox. 4. AFFIRMATIVE COVENANTS. Each Borrower agrees to do, and if necessary cause to be done, and cause its Subsidiaries to do, each of the following: CORPORATE FUNDAMENTALS 4.1 (a) Pay when due all taxes and governmental charges of every kind, including without limitation those upon franchises, income, profits or Property, unless and only to the extent that the same shall be contested in good faith and adequate reserves have been established therefor; (b) Renew and keep in full force and effect all licenses, permits and franchises; (c) Do all things necessary to preserve corporate existence and qualifications and rights in all jurisdictions where such qualification is necessary or desirable; (d) Comply with all applicable Legal Requirements; and (e) Protect, maintain and keep in good repair its Property and make all replacements and additions to Property as may be reasonably necessary to conduct business properly and efficiently. INSURANCE 4.2 Maintain insurance with such reputable financially sound insurers, on such Property and personnel, in such amounts and against such risks as is customary with similar Persons or as may be reasonably required by Bank, and furnish Bank satisfactory evidence thereof promptly upon request. These insurance provisions are cumulative of the insurance provisions of the other Loan Documents. Bank will be named as a beneficiary, loss payee or additional insured of such insurance as its interest may appear and Borrowers will provide Bank with copies of the policies of insurance and a certificate of the insurer that the insurance required by this section may not be canceled, reduced or affected in any manner without 30 days' prior written notice to Bank. FINANCIAL INFOrMATION/BORROWING BASE REPORT 4.3 Each Borrower will furnish to Bank in Proper Form: (a) the scheduled financial information, reports and certificates set out in EXHIBIT B, within the times agreed to therein and certified by the president or chief financial officer of the reporting entity; (b) promptly after such request is submitted to the appropriate Governmental Authority, any request for waiver of funding standards or extension of amortization periods with respect to any employee benefit plan; (c) copies of special audits, studies, reports and analyses prepared for the management of such Borrower by outside parties and (d) such other information relating to the financial condition and affairs of any Borrower and guarantors and their Subsidiaries as Bank may request from time to time in its discretion. MATTERS REQUIRING NOTICE 4.4 Notify Bank immediately, upon acquiring knowledge of (a) the institution or threatened institution of any lawsuit or administrative proceeding which, if adversely determined, might adversely affect any Borrower; (b) any material adverse change in the assets, liabilities, financial condition, business or affairs of any Borrower; (c) any Event of Default; or (d) any reportable event or any prohibited transaction in connection with any employee benefit plan. INSPECTION 4.5 Permit Bank and its affiliates to inspect and photograph its Properly, to examine and copy its files, books and records, and to discuss its affairs with its officers and accountants, at such times and intervals and to such extent as Bank reasonably desires. ASSURANCES 4.6 Promptly execute and deliver any and all further agreements, documents, instruments, and other writings that Bank may request to cure any defect in the execution and delivery of any Loan Document or more fully to describe particular aspects of the agreements set forth or intended to be set forth in the Loan Documents. CERTAIN CHANGES 4.7 Notify Bank at least 30 days prior to the date that any of the Parties changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records or the location of any of the Collateral. EXHIBIT B 4.8 Comply with each of the other affirmative covenants set forth in EXHIBIT B. LANDLORD'S RESERVE 4.9 Maintain an investment deposit account with Bank in an amount equal to no less than 4 times the amount of the monthly rental for each location of Borrower for which Bank does not have a Landlord's waiver in proper form ("Landlord's Reserve"). The investment time deposit shall not be pledged to any person and Bank shall have the right to use such amounts to pay any rent owed by Borrower. LOCKBOX PROCESSING AGREEMENT/COLLECTION ACCOUNT 4.10 A. (i) Establish a deposit account maintained by Texas Commerce styled "_____ [name of Borrower] _______ Borrowing Base Accounts Receivable" ("Collection Account") at such Borrower's sole expense into which all revenues, money checks and income, howsoever evidenced, received by such Borrower and its subsidiaries will be deposited; (ii) Execute and deliver a lockbox processing agreement (which may take the form of an addendum to the Texas Commerce Treasury Management Services Agreement) between such Borrower, Bank and Texas Commerce ("Lockbox Processing Agreement") in Proper Form, provided however that should there be a conflict between the terms of this Agreement and the Lockbox Processing Agreement or the Terrns and Conditions of the Collection Account, the terms of this Agreement shall govern; (iii) Deliver, or cause to be delivered, directly to the Bank for deposit to the Collection Account, all revenues, monies, checks, drafts income and proceeds of Accounts received by such Borrower or by others on behalf of such Borrower with such collections on the Accounts accompanied by sufficient information to identify the invoice to which such collections relate; (iv) Cause each Account Debtor to make all payments due to such Borrower by check payable to such Borrower and to mail or deliver the checks to the Lockbox, for deposit to the Collection Account; (v) Take all action as Bank may request to permit Bank to have continuous domain and control over the Lockbox and Collection Account. B. COLLECTION ACCOUNT: Bank shall have full right and authority at any time to notify and direct any Account Debtor to deliver all payments directly to Bank for deposit into the Collection Account. Bank shall have the sole right to make withdrawals from, and to administer the Collection Account. Any collections on account of any Accounts received directly by such Borrower or any subsidiary of such Borrower shall be received in trust for the benefit of Bank, segregated from other funds of such Borrower and paid over to Bank in same form as received with any endorsement to be held in the Collection Account. Bank shall be entitled to daily apply all collected deposits in the Collection Account first to the principal amount of the Loans then to interest on the Loans then to fees and expenses and other amounts owing to Bank and any excess after such application shall be maintained in the Collection Account. C. POWER OF ATTORNEY. Each Borrower hereby appoints Bank as such Borrower's attorney-in-fact and grants Bank full right and authority: (a) at all times during the term of this Agreement, to supply any necessary endorsement signature of any Borrower on checks, drafts and any other form of payment received, including endorsing such Borrower's name thereon as appropriate and to forward such items for collection in normal course and deposit the proceeds thereof, and on any invoice or bill of lading related to any Collateral, (b) after the occurrence of an Event of Default which is continuing, to notify the U.S. Postal Service and any other person to change address for delivery of any Borrower's mail to such address as may be designated by Bank; and (c) to do all such other acts and things in the name of Borrower reasonably necessary or convenient to assuring Bank the full benefit of the provisions of this section 4.10. This power of attorney is irrevocable, shall survive the dissolution or liquidation of such Borrower, and is deemed coupled with an interest. This power of attorney shall terminate only at such time as all Obligations have been paid in full. Termination of the power of attorney shall not affect the validity of any acts performed by the Bank pursuant to the power of attorney prior to termination. This power of attorney evidences rights which are cumulative with all other rights granted in all other Loan Documents, and is entitled in all respects to the indemnity appearing in section 7.8. D. GRANT OF Page 3 of 7 Pages SECURITY INTEREST. Each Borrower assigns and pledges to Bank, and grants to Bank a security interest in, all of such Borrower's right, title and interest in and to the Collection Account, and all certificates and instruments, if any, from time to time representing or evidencing the Collection Account; and all proceeds of any and all of the foregoing. E. OPERATING ACCOUNTS. Each Borrower shall maintain all of its operating accounts with Bank or Texas Commerce, except accounts with balances never exceeding $25,000.00 at locations not served by either such bank. 5. NEGATIVE COVENANTS. Except as expressly permitted on Exhibit B, no Borrower or Subsidiary of Borrower will: INDEBTEDNESS 5.1 Create, incur, or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to, any Indebtedness, contingent or otherwise unless there is a permitted amount set forth in EXHIBIT B, EXCEPT: (a) Indebtedness to Bank, or secured by Liens permitted by this Agreement, or otherwise approved in writing by Bank, and renewals and extensions (but not increases) thereof; and (b) current accounts payable and unsecured current liabilities, not the result of borrowing, to vendors, suppliers and Persons providing services, for expenditures for goods and services normally required by it in the ordinary course of business and on ordinary trade terms. LIENS 5.2 Create or permit to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its accounts or other Property, EXCEPT: (a) Liens, not for borrowed money, arising in the ordinary course of business, (b) Liens for taxes not delinquent or being contested in good faith by appropriate proceedings; (c) Liens in effect on the date hereof and disclosed to Bank in writing, so long as neither the indebtedness secured thereby nor the Properly covered thereby increases, and (d) Liens in favor of Bank, or otherwise approved in writing by Bank. Notwithstanding anything to the contrary herein, no Borrower or Subsidiary of Borrower will permit any Lien on any inventory that secures the Loans and L/C Obligations unless Bank shall provide Borrower with Bank's prior written consent. FINANCIAL AND OTHER COVENANTS 5.3 Fail to comply with the required financial covenants and other covenants described, and calculated as set forth, in EXHIBIT B, Unless otherwise provided on EXHIBIT B, all such amounts and ratios will be calculated: (a) on the basis of GAAP; and (b) on a consolidated basis. Compliance with the requirements of EXHIBIT B will be determined as of the dates of the financial statements to be provided to Bank. CORPORATE CHANGES 5.4 In any single transaction or series of transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger or consolidation; (c) sell or dispose of any interest in any Subsidiary, or permit any Subsidiary to issue any additional equity other than to a Borrower; (d) sell, convey or lease all or any substantial part of its assets, EXCEPT for sale of inventory in the ordinary course of business; or (e) permit any change in ownership of any Borrower. RESTRICTED PAYMENTS 5.5 At any time: (a) redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock or other equity interest; (b) declare or pay any dividend (EXCEPT stock dividends and dividends paid to another Borrower); or (c) make any other distribution or contribution of any Property or cash or obligation to owners of an equity interest in their capacity as such. NATURE OF BUSINESS; MANAGEMENT 5.6 Change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged, or permit any material change in its management. AFFILIATE TRANSACTIONS 5.7 Enter into any transaction or agreement with any Affiliate except upon terms substantially similar to those obtainable from wholly unrelated sources. SUBSIDIARIES 5.8 Form, create or acquire any Subsidiary. LOANS AND INVESTMENTS 5.9 Make any advance, loan, extension of credit, or capital contribution to or investment in, or purchase, any stock, bonds, notes, debentures, or other securities of, any Person, except: (a) readily marketable direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (b) fully insured certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating in the United States of America having capital and surplus in excess of $50,000,000.00; and (c) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest rating categories of Standard and Poor's Corporation or Moody's Investors Service. CHANGE IN LOCKBOX 5.10 Instruct or otherwise permit any Account Debtor to remit payments to any account, lockbox or other location other than the Lockbox. 6. EVENTS OF DEFAULT AND REMEDIES. EVENTS OF DEFAULT 6.1 Each of the following is an "EVENT OF DEFAULT": (a) Any Obligor fails to pay any principal of or interest on any Note or any other obligation under any Loan Document as and when due; or (b) Any Obligor or any Subsidiary of any Borrower fails to pay at maturity, or within any applicable period of grace, any principal of or interest on any other borrowed money obligation or fails to observe or perform any term, covenant or agreement contained in any agreement or obligation by which it is bound; or (c) Any representation or warranty made in connection with any Loan Document was incorrect, false or misleading when made; or (d) Any Obligor violates any covenant contained in any Loan Document; or (e) An event of default occurs under any other Loan Document; or (f) Final judgment for the payment of money is rendered against Obligor or any Subsidiary of any Borrower and remains undischarged for a period of 30 days during which execution is not effectively stayed; or (g) The sale, encumbrance or abandonment (except as otherwise expressly permitted by this Agreement) of any of the Collateral or the making of any levy, seizure, garnishment, sequestration or attachment thereof or thereon; or the loss, theft, substantial damage, or destruction of any material portion of such Property; or (h) Any order is entered in any proceeding against any Borrower or any Subsidiary of any Borrower decreeing the dissolution, liquidation or split-up thereof, and such order shall remain in effect for 30 days; or (i) Any Obligor or any subsidiary of any Borrower makes a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, insolvency, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or any such petition or application shall be filed or any such proceeding shall be commenced against any Obligor or any subsidiary of any Borrower and the Obligor or such subsidiary by any act or omission shall indicate approval thereof, consent thereto or acquiescence therein, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of any Obligor or any subsidiary of any Borrower or granting relief to any Obligor or any subsidiary of any Borrower or approving the petition in any such proceeding, and such order shall remain in effect for more than 30 days; or any Obligor or any subsidiary of any Borrower shall fail generally to pay its debts as they become due or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its property which is not released, stayed, bonded or vacated within 30 days after its issue or levy; or (j) Any Obligor or any Subsidiary of any Borrower conceals or removes any part of its Property, with intent to hinder, delay or defraud any of its creditors, makes or permits a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or (k) A material adverse change occurs in the assets, liabilities, financial condition, business or affairs of any Obligor or any Subsidiary of Borrower; or (l) Any change occurs in the ownership of Borrower; or (m) Any individual Obligor dies or any Obligor that is not an individual dissolves. If any Event of Default occurs, then Bank may do any or all of the following: (1) declare the Obligations to be immediately due and payable without notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (2) without notice to any Obligor, terminate the Commitment and accelerate the Termination Date; (3) set off, in any order, against the indebtedness of any Borrower under Page 4 of 7 Pages the Loan Documents any debt owing by Bank to any Borrower (whether such debt is owed individually or jointly), including, but not limited to, any deposit account, which right is hereby granted by each Borrower to Bank; and (4) exercise any and all other rights pursuant to the Loan Documents, at law, in equity or otherwise. REMEDIES CUMULATIVE 6.2 No remedy, right or power of Bank is exclusive of any other remedy, right or power now or hereafter existing by contract, at law, in equity, or otherwise, and all remedies, rights and powers are cumulative. 7. MISCELLANEOUS. NO WAIVER 7.1 No waiver of any default or Event of Default will be a waiver of any other default or Event of Default. No failure to exercise or delay in exercising any right or power under any Loan Document will be a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any further or other exercise thereof or the exercise of any other right or power. The making of any Loan during either the existence of any default or Event of Default, or subsequent to the occurrence of an Event of Default will not be a waiver of any such default or Event of Default. No amendment, modification or waiver of any Loan Document will be effective unless the same is in writing and signed by the Person against whom such amendment, modification or waiver is sought to be enforced. No notice to or demand on any Person shall entitle any Person to any other or further notice or demand in similar or other circumstances. NOTICES 7.2 All notices required under the Loan Documents shall be in writing and either delivered against receipt therefor, or mailed by registered or certified mail, return receipt requested, in each case addressed to the address shown on the signature page hereof or to such other address as a party may designate. Except for the notices required by SECTION 2.1, which shall be given only upon actual receipt by Bank, notices shall be deemed to have been given (whether actually received or not) when delivered (or, if mailed, on the next Business Day). GOVERNING LAW AND JURISDICTION 7.3 (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES); PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE NON-EXCLUSIVE JURISDICTION OF WHOSE COURTS. EACH OF THE BORROWERS AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS THE PRENTICE HALL CORPORATION SYSTEM, INC., WITH OFFICES ON THE DATE HEREOF AT 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE BANK. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN THE LOAN DOCUMENTS, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE ANY PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH BORROWER IN ANY OTHER JURISDICTION. EACH BORROWER AND THE BANK EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. WAIVER OF JURY TRIAL 7.4 EACH BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SURVIVAL; PARTIES BOUND; TERM OF AGREEMENT 7.5 (a) All representations, warranties, covenants and agreements made by or on behalf of each Borrower in connection with the Loan Documents will survive the execution and delivery of the Loan Documents; will not be affected by any investigation made by any Person, and will bind Borrower and the successors, trustees, receivers and assigns of each Borrower and will benefit the successors and assigns of Bank; PROVIDED that Bank's agreement to make Loans to Borrowers will not inure to the benefit of any successor or assign of any Borrower. Except as otherwise provided herein, the term of this Agreement will be until the later of the final maturity of the Note and the full and final payment of all Obligations and all amounts due under the Loan Documents. (b) Borrowers shall be entitled to terminate the Commitment by written notice to Bank, which notice shall become effective as to the accrual of fees payable hereunder upon the happening of the latest of (i) 30 days after Bank's receipt of such notice; and (ii) repayment in full of all amounts outstanding under the Note and otherwise under the Agreement. DOCUMENTARY MATTERS 7.6 This Agreement may be executed in several identical counterparts, on separate counterparts; each counterpart will constitute an original instrument, and all separate counterparts will constitute but one and the same instrument. The headings and captions in the Loan Documents have been included solely for convenience and should not be considered in construing the Loan Documents. If any provision of any Loan Document is invalid, illegal or unenforceable in any respect under any applicable law, the remaining provisions will remain effective. The Loans and L/C Obligations and all other obligations and indebtedness of Borrower to Bank are entitled to the benefit of the Loan Documents. EXPENSES AND FEES 7.7 Any provision to the contrary notwithstanding, and whether or not the transactions contemplated by this Agreement are consummated, Borrowers agree to pay on demand all out-of-pocket expenses (including, without limitation, the fees and expenses of counsel for Bank) in connection with the negotiation, preparation, execution, filing, recording, modification, supplementing and waiver of the Loan Documents and the making, servicing and collection of the Loans and L/C Obligations. Borrower agrees to pay Bank's standard (i) Documentation Preparation and Processing Fee for preparation, negotiation and handling of this Agreement; (ii) lockbox processing fees as provided for in the separate agreement therefor; (iii) account maintenance fees for the Collection Account; (iv) any expenses of collection or other expenses incurred by Bank in connection with the maintenance of the Collection Account, shall be reimbursed by Borrowers to Bank at customary fee rates charged by the Bank for the services. In consideration of Bank's services of collecting the Accounts hereunder and monitoring and examining the Borrowing Base, Borrowers agree to pay Bank the Administration Fee provided for in Section 1.4. Bank may obtain reimbursement by causing other depository accounts of either Borrower at Bank to be charged from time to time therefor. The obligations of Borrowers under this and the following section will survive the termination of this Agreement but the accrual of periodic fees accrued during the existence of the Commitment shall be subject to the termination provisions in Section 7.4. Page 5 of 7 Pages Each Borrower authorizes Bank in its discretion and without prior notice to advance against the Commitment and Note to pay any or all such fees, expenses and other such Obligations when due. INDEMNIFICATION 7.8 EACH BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK HARMLESS FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES, ATTORNEYS' TEES AND AMOUNTS PAID IN SETTLEMENT) TO WHICH BANK MAY BECOME SUBJECT ARISING OUT OF OR BASED UPON THE LOAN DOCUMENTS, ANY LOAN, OR THE RECEIPT, HANDLING, PAYMENT AND APPLICATION OF THE MONIES RECEIVED IN CONNECTION WITH THE COLLECTION ACCOUNT, INCLUDING THAT RESULTING FROM BANK'S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT CAUSED BY BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. USURY NOT INTENDED 7.9 Borrowers and Bank intend to conform strictly to applicable usury laws. Therefore, the total amount of interest (as defined under applicable law) contracted for, charged or collected under this Agreement or any other Loan Document will never exceed the Highest Lawful Rate. If Bank contracts for, charges or receives any excess interest, it will be deemed a mistake. Bank will automatically reform the Loan Document or charge to conform to applicable law, and if excess interest has been received, Bank will either refund the excess to Borrowers or credit the excess on any unpaid principal amount of the Note or any other Loan Document. All amounts constituting interest will be spread throughout the full term of the Loan Document or applicable Note in determining whether interest exceeds lawful amounts. RIGHTS OF BORROWER AND BANK 7.10 Bank has not exercised any control, and Bank shall not exercise any control, over Borrowers in the determination of which of Borrowers' creditors Borrower will pay or which payments any Borrower will make in the ordinary course of any Borrower's business. Each Borrower, alone, shall exercise such judgment and determination. Nothing contained herein, however, shall, in any manner, affect, limit or impair the rights or remedies of Bank under this Agreement or any other Loan Documents as otherwise provided by applicable law, whether with regard to realization on the Collateral, rights of set off, compensation or otherwise. PARTICIPATION; SETOFF 7.11 Borrowers and Bank acknowledge and agree that Bank, in Bank's sole discretion, may assign its interest or sell partcipation(s)) in the Loans and Note to third parties, including without limitation Texas Commerce, without consent of or notice to Borrowers. Borrowers and Bank agree that each such participant shall be treated, to the extent of its pro rata interest in Borrowers' indebtedness, as if it were a party thereto, and shall be accorded and is hereby granted the right of setoff against any deposits, credit balances, or other funds of each Borrower which are or may be in its possession (without regard to maturity, tenor or other elements of otherwise mutual indebtedness). NO COURSE OF DEALING 7.9 NO COURSE OF DEALING BY ANY BORROWER WITH BANK, NO COURSE OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS AGREEMENT. 8. DEFINITIONS. Unless He context otherwise requires, capitalized terms used in Loan Documents and not defined elsewhere shall have the meanings provided by GAAP, except as follows: ACCOUNTS shall have the meaning assigned to it in the Uniform Commercial Code applicable to this Agreement. AFFILIATE means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of such Person; or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means to possess, directly or indirectly, the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Bank is not under any circumstances to be deemed an Affiliate of any Borrower or any of its Subsidiaries. AUTHORITY DOCUMENTS means certificates of authority to transact business, certificates of good standing, borrowing resolutions (with secretary's certificate), secretary's certificates of incumbency, and other documents which empower and enable any Borrower or its representatives to enter into agreements evidenced by Loan Documents or evidence such authority. ACCOUNTS means all accounts as such term is defined in the Uniform Commercial Code. ACCOUNT DEBTOR means any person in any way obligated on or in connection with any Account. BUSINESS DAY means a day when the main office of Bank is open for the conduct of commercial lending business. COLLATERAL means all Property, tangible or intangible, real, personal or mixed, now or hereafter subject to Security Documents, or intended so to be. CORPORATION means corporations, partnerships, limited liability companies, joint ventures, joint stock associations, associations, banks, business trusts and other business entities. GOVERNMENT ACCOUNTS means receivables owed by the U.S. government or by the government of any state, county, municipality, or other political subdivision as to which Bank's security interest or ability to obtain direct payment of the proceeds is governed by any federal or state statutory requirements other than those of the Uniform Commercial Code, including, without limitation, the Federal Assignment of Claims Act of 1940, as amended. GOVERNMENTAL AUTHORITY means any foreign governmental authority, the United States of America, any state of the United States and any political subdivision of any of the foregoing, and any agency, department, commission, board, bureau, court or other tribunal having jurisdiction over Bank or any Obligor, or any Subsidiary of any Borrower or their respective Property. HIGHEST LAWFUL RATE means the maximum nonusurious rate of interest permitted to be charged by applicable Federal or state law (whichever permits the higher lawful rate) from time to time in effect. If (notwithstanding the election of the parties as to choice of law herein) Chapter One of the Texas Credit Code establishes the Highest Lawful Rate, the Highest Lawful Rate is the "indicated rate ceiling" as defined in that Chapter. INDEBTEDNESS means and include (a) all items which in accordance with GAAP would be included on the liability side of a balance sheet on the date as of which Indebtedness is to be determined (excluding capital stock, surplus, surplus reserves and deferred credits), (b) all guaranties, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which indebtedness is being determined, in Property owned subject to such Lien, whether or not the Indebtedness secured thereby has been assumed. INVENTORY shall have the meaning assigned to it in the Uniform Commercial Code applicable to this Agreement. LEGAL REQUIREMENT means any law, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority. LIEN shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract. LOAN DOCUMENTS means this Agreement, the agreements, the Notes, Applications, documents, instruments and other writings contemplated by this Agreement or listed on Annex I, all other assignments, deeds, guaranties, pledges, instruments, certificates and agreements now or hereafter executed or delivered to the Bank pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. LOCKBOX means the postal lockbox(s) maintained by Texas Commerce Bank National Association (Lockbox #_____ and #_____) into which Borrowers directs Account Debtors to make payment and remittance in respect to Accounts. OBLIGATIONS means all principal, interest and other amounts which are or become owing under this Agreement, the Note, any Application or any other Loan Document. OBLIGOR means each Borrower and any guarantor, surety, co-signer, general partner or other person who may now or hereafter be obligated to pay all or any part of the Obligations. ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a limited liability company, the articles of organization, regulations and other documents establishing such entity, with respect to a partnership, joint venture, or trust, the agreement, certificate or instrument establishing such entity; in each case including all modifications and supplements thereof as of the date of the Loan Document referring to such Organizational Document and any and all future modifications thereof which are consented to by Bank. PARTIES means all Persons other than Bank executing any Loan Document. PERSON means any individual, Corporation, trust, unincorporated organization, Governmental Authority or any other form of entity. Page 6 of 7 Pages PROPER FORM means in form and substance satisfactory to the Bank. PROPERTY means any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. SECURITY DOCUMENTS means those Security Agreements listed on ANNEX I and all supplements, modifications, amendment, extensions thereof and all other agreements hereafter executed and delivered to Bank to secure the Loans and L/C Obligations. SUBORDINATED DEBT means any Indebtedness subordinated to Indebtedness due Bank pursuant to a written subordination agreement in Proper Form by and among Bank, subordinated creditor and the relevant Borrower which at a minimum must prohibit: (a) any action by subordinated creditor which will result in an occurrence of an Event of Default or default under this Agreement, the subordination agreement or the subordinated Indebtedness; and (b) upon the happening of any Event of Default or default under any Loan Document, the subordination agreement, or any instrument evidencing the subordinated Indebtedness (i) any payment of principal and interest on the subordinated Indebtedness; (ii) any act to compel payment of principal or interest on subordinated Indebtedness; and (iii) any action to realize upon any Property securing the subordinated Indebtedness. SUBSIDIARY means, as to a particular parent Corporation, any Corporation of which 50% or more of the indicia of equity rights is at the time directly or indirectly owned by such parent Corporation or by one or more Persons controlled by, controlling or under common control with such parent Corporation. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN BANK AND THE PARTIES. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. BORROWER: 1ST TECH CORPORATION By: /S/ MARK C. HOLLIDAY ---------------------------------------------------------------- Name: Mark C. Holliday Title: Chairman and CEO Address: 12201 Technology Boulevard, Suite 130, Austin, Texas 78727 BORROWER: DARKHORSE SYSTEMS, INCORPORATED By: /S/ MARK C. HOLLIDAY ---------------------------------------------------------------- Name: Mark C. Holliday Title: Chairman and CEO Address: 12201 Technology Boulevard, Suite 130, Austin, Texas 78727 BORROWER: TANISYS TECHNOLOGY, INC. By: /S/ MARK C. HOLLIDAY ---------------------------------------------------------------- Name: Mark C. Holliday Title: Chairman and CEO Address: 12201 Technology Boulevard, Suite 130, Austin, Texas 78727 BANK: THE CHASE MANHATTAN BANK By: /S/ GEORGE LOUIS MCKINLEY ---------------------------------------------------------------- Name: George Louis McKinley Title: Vice President Address: 633 Third Ave., NY, New York EXHIBITS: A ACCOUNTS RECEIVABLE LOAN ADMINISTRATION PROCEDURES B RPORTING REQUIREMENTS, FINANCIAL COVENANTS C LOCKBOX PROCESSING AGREEMENT ANNEXES: I LOAN DOCUMENTS 11 SUBSIDIARIES Page 7 of 7 Pages EXHIBIT A [INSERT ACCOUNTS RECEIVABLE LOAN ADMINISTRATION PROCEDURES INCORPORATED BY REFERENCE] ******NOTE******* BORROWING BASE IS WHERE REDUCING ADVANCE RATE SHOULD BE INDICATED ANNEX I Loan Documents "Loan Documents" includes, but is not limited to, the following: 1. Agreement 2 Note 3. Lockbox Processing Agreement (in file) 4. Pledge of 50% of Guarantor's stock held by Gary Pankonien after merger (in file) 6. Borrowing Base Report; Daily Collateral Certificate Compliance Certificate 7. For each Borrower in Proper Form: General Security Agreement (all accounts and general intangibles; inventory and equipment); Deposit account (Collection Account) 8. Financing Statements 9. Certified Copies of Organizational and Authority Documents (including without limitation all documents, agreements, certificates and legal opinions requested by Bank in connection with transactions described in the Preliminary Statement) 10. Insurance policies and certificates (including account credit insurance for accounts covered under Old 1st Tech Facility) 11. Financial Statements of Borrower and Guarantor 12. UCC search Loan Documents - ANNEX I Page 1 of 1 ANNEX II Subsidiaries IF NONE AS OF THE EFFECTIVE DATE, CHECK NONE Subsidiary Name and Sub of which State Where Address % Owned Borrower Incorporated - ------------------- ------------ -------- ------------ ANNEX II Page 1 of 1 EXHIBIT B: 1ST TECH CORPORATION, DARKHORSE SYSTEMS, INCORPORATED, TANISYS TECHNOLOGY, INC. REPORTING REQUIREMENTS, FINANCIAL COVENANTS AND COMPLIANCE CERTIFICATE FOR CURRENT REPORTING PERIOD ENDING __________ ,199__ ("END DATE") A. REPORTING PERIOD. Borrowers will provide this Exhibit completed in Proper Form with each financial statement delivered under the Agreement. THIS REPORT IS FOR THE / / MONTH / / FISCAL YEAR ("REPORTING PERIOD") ENDING _________, 199__ ("END DATE") A. FINANCIAL REPORTING. The following financial information will be provided within the times indicated
WHO WHEN DUE WHAT COMPLIANCE CIRCLE: EACH BORROWER GAAP financial statements (balance sheet, income and cash flow statements) audited (with unqualified opinion) by independent CPAs satisfactory to Bank, with Compliance Certificate (ii) Within 20 days of each month End Date including FYE month Unaudited monthly and YTD financial statements with Compliance Certificate Yes No (iii) Within 15 days of each month End Date including FYE month Borrowing Base Report with A/R aging and listing, inventory report, and A/P listing (refer to Exhibit A) Yes No (iv) Each Business Day Daily Collateral Certificate (refer Yes No to Exhibit A) (v) Within 90 days of the end of each FYE and mid FY quarter end 2 year forward projections of Yes No Borrowers' and Guarantor's balance sheet, income statement and cash flow statement, by quarter, prepared on same basis as projections provided to Lenders prior to execution of this Agreement TANISYS (vi) Within 10 days of filing All Forms 10-K, 10-Q and 8-K Yes No C. FINANCIAL COVENANTS. Borrowers and Guarantor will comply with the Compliance following financial covenants, applying GAAP, the definitions in Section 8, (Circle) and THE CALCULATIONS AND ADJUSTMENTS FROM THE ACTUAL REPORTED COLUMN BELOW (fiscal periods refer to Borrower's fiscal periods).
REQUIRED. Each applies at all times and is ACTUAL REPORTED. For current reported as indicated: Reporting Period or as of the End Date, as appropriate: 1. Borrowers on a consolidated basis shall maintain Stockholders' Equity $________ Yes No Tangible Net Worth as adjusted of at least $4,000,000.00. Minus: Goodwill $________ Other Intangible Assets $________ Loans/Advances to Equity holders $________ Loans to Affiliates $________ Plus: Subordinated Debt $________ = Tangible Net Worth as adjusted $________ 2. Borrowers shall have a combined ratio of EBDITA (Adjusted) to_ interest expense of at Net income for prior 3 months $________ Yes No least 1.25: 1.00, as of the end of each month. Plus: Tax Expense $_______ Interest Expense $_______ Depreciation/Amortization $_______ Minus: Capital expenditures $________ Nonrecurring Items $_________ Equals: EBDITA (adjusted ) $______________ $_______________ = _____ EBDITA(Adjusted) Interest Expense Ratio 3. No more than $150,000 total Indebtedness (including all funded and trade debt) TO 1ST TECH AND DARKHORSE from Guarantor shall be outstanding at any time. * Indebtedness to 1st Yes No Tech: $________ Indebtedness to Darkhorse: $________ Total: $________ THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS CONTAINED IN THE AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE TERMS AND CONDITIONS OF THE AGREEMENT. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT AND THE AGREEMENT, THE AGREEMENT SHALL CONTROL. The undersigned hereby certifies that the above information and computations are true and correct and not misleading as of the date hereof, and that since the date of the Borrower's most recent Compliance Certificate (if any): / / No default or Event of Default has occurred under the Agreement during the current Reporting Period, or been discovered from a prior period, and not reported. / / A default or Event of Default (as described below) has occurred during the current Reporting Period or has been discovered from a prior period and is being reported for the first time and: / / was cured on _______________ / / was waived by Bank in writing on ___________ / / is continuing. Description of Event of Default:____________________________________________________ Executed _______________, 19___:
BORROWER: 1ST TECH CORPORATION BY: ------------------------------- NAME: ----------------------------- TITLE: ---------------------------- BORROWER: TANISYS TECHNOLOGY, INC. BY: ------------------------------- NAME: ----------------------------- TITLE: ---------------------------- BORROWER: DARKHORSE SYSTEMS, INCORPORATED BY: ------------------------------- NAME: ----------------------------- TITLE: ---------------------------- EXHIBIT B Page 1 of 1 BORROWING BASE Borrowing Base shall mean as at any date the applicable Advance Rate times the net amount of Eligible A/R assigned by the borrowers. Total A/R $____________ less Ineligible $ ___________ Eligible A/R $ ___________ Advance Rate % $ ___________ Borrowing Base $ ___________ The Advance Rate will be 79% to Feb. 28 1997 78% March 7, 1997 77% March 14, 1997 76% March 21, 1997 75% April 21, 1997 74% May 21, 1997 73% April 21, 1997 72% June 21. 1997 71% April 21, 1997 70% Thereafter EX-10.25 6 EXHIBIT 10.25 - REVOLVING CREDIT NOTE REVOLVING CREDIT NOTE (this "NOTE") FOR VALUE RECEIVED, ON OR BEFORE the Termination Date (as defined in the Credit Agreement), 1ST TECH CORPORATION, DARKHORSE SYSTEMS, INCORPORATED, and TANISYS TECHNOLOGY, INC. (jointly and severally, "BORROWERS") promise to pay to the order of THE CHASE MANHATTAN BANK ("Bank") at its office at 633 Third Avenue, New York NY 10017 or such other location as Bank may designate, in immediately available funds and lawful money of the United States of America, the sum of SIX MILLION AND NO/100THS UNITED STATES DOLLARS (U.S. $6,000,000.00) or the aggregate unpaid amount of all advances hereunder, whichever is lesser, plus interest on the unpaid principal balance outstanding from time to time at a rate per annum equal to the lesser of (i) the Stated Rate (as hereinafter defined) from time to time in effect or (ii) the Highest Lawful Rate. If the Stated Rate at any time exceeds the Highest Lawful Rate, the actual rate of interest to accrue on the unpaid principal amount of this Note will be limited to the Highest Lawful Rate, but any subsequent reductions in the Stated Rate due to reductions in the Prime Rate will not reduce the interest rate payable upon the unpaid principal amount of this Note below the Highest Lawful Rate until the total amount of interest accrued on this Note equals the amount of interest which would have accrued if the Stated Rate had at all times been in effect. The "STATED RATE" at any time shall be the rate indicated by the following chart: DETERMINING RATIO STATED RATE ------------------ ---------------- Over 3.0X Prime Rate +3.0% l.5X to 3.0X Prime Rate +2.0% 1.0X top 1.4X Prime Rate +1.5% Less than I.0X Prime Rate +1.0% The "DETERMINING RATIO" on any date shall be the ratio (determined for all Borrowers combined, as of the end of the most recently ended calendar month) of (i) Indebtedness to (ii) Annualized EBDITA (Adjusted). Annualized EBDITA (Adjusted) shall mean (a) for the first 11 months after May 20, 1996, Borrowers' average combined monthly EBDITA (Adjusted) (as correctly reported in Borrowers' Compliance Certificates in the form of Exhibit C of the Credit Agreement) for all months reported to the date the ratio is determined, times twelve; and (b) thereafter, the sum of Borrowers' combined monthly EBDITA (Adjusted) (as correctly reported) for the 12 months preceding the date the ratio is determined. "PRIME RATE" means that rate as determined from time to time by Bank as being its prime rate in effect at its principal office in New York City. Without notice to Borrowers or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which said prime rate shall fluctuate with each such change to be effective as of the date of each change in such prime rate. THE PRIME RATE IS A REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE. BANK MAY MAKE LOANS AT RATES OF INTEREST AT, ABOVE OR BELOW THE PRIME RATE. This Note is the Revolving Credit Note described in Section I .1.A of the Credit Agreement (Borrowing Base) between Borrowers and Bank dated as of February 21, 1997 (as amended, restated and supplemented from time to time, the "Credit Agreement" or "Agreement") and sometimes referred to therein as the Note. Capitalized terms used in this Note have the meanings used in the Agreement. Accrued and unpaid interest shall be due and payable monthly, beginning on March 31, 1997, and continuing on the last day of each month thereafter and at Termination Date when all unpaid principal and accrued and unpaid interest shall be finally due and payable. Borrowers must make the payments required by Sections 1.3, 1.4 and 1.5 of the Agreement. Interest shall be computed on the basis of the actual number of days elapsed and a year comprised of 360 days, unless such calculation would result in a usurious interest rate, in which case interest will be calculated on the basis of a 365 or 366 day year, as applicable. All past-due principal and, as permitted by applicable law, interest on this Note, shall, at Bank's option, bear interest at the Highest Lawful Rate, or if applicable law shall not provide for a maximum nonusurious rate of interest, at a rate per annum equal to eighteen percent (18%). The unpaid principal balance of this Note at any time shall be the total amounts advanced by Bank, less the amount of all payments of principal. Absent manifest error, the records of Bank shall be conclusive as to amounts owed. Subject to the terms and conditions of the Agreement, Borrowers may use all or any part of the credit provided for herein at any time before the Termination Date. Time is of the essence. Borrowers may at any time pay the full amount or any part of this Note without the payment of any premium or fee. At Bank's sole option, all payments may be applied to accrued interest, to principal, or to both. If any Event of Default occurs, then Bank may exercise any and all rights and remedies under the Loan Documents, at law, in equity or otherwise. Each and all Obligors severally waive notice, demand, presentment for payment, notice of nonpayment, notice of intent to accelerate, notice of acceleration, protest, notice of protest, and the filing of suit and diligence in collecting this Note and all other demands and notices, and consent and agree that their liabilities and obligations shall not be released or discharged by any or all of the following, whether with or without notice to them or any of them, and whether before or after the stated maturity hereof: (i) extensions of the time of payment; (ii) renewals; ~ iii) acceptances of partial payments; (iv) releases or substitutions of any collateral or any Obligor; and (v) failure, if any, to perfect or maintain perfection of any security interest in any collateral. Each Obligor agrees that acceptance of any partial payment shall not constitute a waiver. Bank and any subsequent owner or holder hereof reserves the right, in its sole discretion, without notice to Borrowers, to sell participations or assign its interest or both, in all or any part of this Note. For purposes of this Note, any assignee or subsequent holder of this Note will be considered the "Bank," and each successor to each Borrower will be considered a "Borrower." IN WITNESS WHEREOF, Borrowers have executed this Note effective as of the Effective Date. BORROWER: 1ST TECH CORPORATION By: /s/ MARK C. HOLLIDAY ----------------------------------------- Typed Name: Mark C. Holliday Title: President and CEO BORROWER: DARKHORSE SYSTEMS, INCORPORATED By: /s/ MARK C. HOLLIDAY ----------------------------------------- Typed Name: Mark C. Holliday Title: President and CEO BORROWER: TANISYS TECHNOLOGY, INC. By: /s/ MARK C. HOLLIDAY ----------------------------------------- Typed Name: Mark C. Holliday Title: President and CEO BANK: THE CHASE MANHATTAN BANK By: /s/ GEORGE LOUIS MCKINLEY ----------------------------------------- Typed Name: George Louis McKinley Title: Vice President EX-12.1 7 EXHIBIT 12.1 STATEMENT RE COMPUTATION TANISYS TECHNOLOGY, INC. EXHIBIT 12.1 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 MONTH SHARES OUTSTANDING AT MONTH END - ------------ ------------------------------- Sept 96 15,978,537 Oct 96 15,978,537 Nov 96 16,070,773 Dec 96 16,626,655 ----------- 4 month total 64,654,502 Weighted Average Shares 16,163,626 Net Loss ($2,137,485) Loss per Weighted Average Shares ($.13) EX-21.1 8 EXHIBIT 21.1 - SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF TANISYS TECHNOLOGY, INC. 1st Tech Corporation (a Delaware corporation) DarkHorse Systems, Inc. (a Delaware corporation) Rosetta Marketing and Sales, Inc. (a Texas corporation) - Inactive EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's Form 10-Q as of and for the three months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-1996 OCT-01-1996 DEC-31-1996 1,794,323 0 6,401,032 98,450 2,043,833 10,630,347 2,131,481 1,081,516 20,039,421 7,790,614 0 0 0 25,120,576 (12,982,828) 20,039,421 15,263,661 15,263,661 13,668,236 13,668,236 3,579,349 46,841 165,270 (2,137,485) 0 (2,137,485) 0 0 0 (2,137,485) (.13) (.13)
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