-----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, NL2xlEzyJfGgLP3Vjj80BOZc8L96TUQeHMKdqJMjYtSrUhJkxJPzDpQQepzptBO4 S8T2vdhutWKvUVcEkw4scA== 0000891618-96-002017.txt : 19960916 0000891618-96-002017.hdr.sgml : 19960916 ACCESSION NUMBER: 0000891618-96-002017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUSINESS RESOURCE GROUP CENTRAL INDEX KEY: 0000945028 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FURNITURE & HOME FURNISHINGS [5020] IRS NUMBER: 770150337 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26208 FILM NUMBER: 96629425 BUSINESS ADDRESS: STREET 1: 2150 N FIRST ST STREET 2: STE 101 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084413700 MAIL ADDRESS: STREET 1: 2150 NORTH FIRST STREET SUITE 101 CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____________to________________ Commission file number: 0-26208 BUSINESS RESOURCE GROUP (Exact name of Registrant as specified in its charter) CALIFORNIA 77-0150337 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification No.) 2150 NORTH FIRST STREET, SUITE 101 SAN JOSE, CA 95131 (Address of principal executive offices) (408) 441-3700 (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 At July 31, 1996 there were 4,858,864 shares of the Registrant's common stock outstanding. 2 BUSINESS RESOURCE GROUP FORM 10-Q QUARTER ENDED JULY 31, 1996 INDEX PART I: FINANCIAL INFORMATION PAGE Item 1: Condensed Financial Statements Condensed Balance Sheets at July 31, 1996 and October 31, 1995 ......................... 3 Condensed Statements of Income for the Three Months and Nine Months ended July 31, 1996 and 1995 ................................................... 4 Condensed Statements of Cash Flows for the Nine Months ended July 31, 1996 and 1995 ................... 5 Notes to Condensed Financial Statements .................... 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................. 7 PART II: OTHER INFORMATION Item 1: Legal Proceedings - none Item 2: Changes in Securities - none Item 3: Defaults Upon Senior Securities - none Item 4: Submission of Matters to a Vote of Security Holders - none Item 5: Other Information - none Item 6: Exhibits and Reports on Form 8-K ........................... 11 SIGNATURES ............................................................... 11 EXHIBITS ................................................................. 12 3 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BUSINESS RESOURCE GROUP CONDENSED BALANCE SHEETS (IN THOUSANDS)
JULY 31, OCTOBER 31, 1996 1995 ------- ------- (UNAUDITED) ASSETS Current assets: Cash and equivalents ...................... $ 668 $ 5,326 Accounts receivable, net .................. 13,559 7,168 Inventory ................................. 1,021 929 Prepaids and other current assets ......... 1,446 941 ------- ------- Total current assets .................... 16,694 14,364 Property and equipment, net .................. 1,734 733 Other assets, net ............................ 1,015 956 ------- ------- $19,443 $16,053 ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft ............................ $ 662 $ 651 Accounts payable .......................... 2,849 2,096 Accrued liabilities ....................... 3,042 1,905 Income taxes payable ...................... 244 -- Current portion of notes payable and capital lease obligations ................. 79 242 ------- ------- Total current liabilities ............... 6,876 4,894 Notes payable and capital lease obligations .. 48 120 Deferred income tax liability ................ 19 19 Shareholders' equity: Preferred stock ........................... -- -- Common stock .............................. 49 48 Additional paid-in capital ................ 10,685 10,558 Retained earnings ......................... 1,766 414 ------- ------- Total shareholders' equity .............. 12,500 11,020 ------- ------- $19,443 $16,053 ======= =======
See notes to condensed financial statements. 4 BUSINESS RESOURCE GROUP CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Net revenues: Workspace products .............. $ 18,495 $ 10,350 $ 49,623 $ 27,335 Workspace services .............. 2,766 1,732 6,580 4,824 Vendor commissions .............. 79 113 280 452 -------- -------- -------- -------- Total net revenues ............ 21,340 12,195 56,483 32,611 -------- -------- -------- -------- Cost of net revenues: Workspace products .............. 15,039 8,192 40,504 21,485 Workspace services .............. 2,002 1,022 4,760 3,091 -------- -------- -------- -------- Total cost of net revenues .... 17,041 9,214 45,264 24,576 -------- -------- -------- -------- Gross profit ....................... 4,299 2,981 11,219 8,035 Selling, general and administrative expenses ......... 3,597 2,067 9,006 5,896 -------- -------- -------- -------- Income from operations ............. 702 914 2,213 2,139 Interest income (expense) - net .... 13 (37) 94 (63) -------- -------- -------- -------- Income before income taxes ......... 715 877 2,307 2,076 Provision for income taxes ......... 296 253 955 274 -------- -------- -------- -------- Net income ......................... $ 419 $ 624 $ 1,352 $ 1,802 ======== ======== ======== ======== Net income per common and common equivalent share .............. $ .09 $ .28 ======== ======== Shares used in computation ......... 4,914 4,864 ======== ======== Pro forma (Note 2): Historical income before income taxes .............. $ 877 $ 2,076 Pro forma income taxes .......... 364 861 -------- -------- Pro forma net income ............ $ 513 $ 1,215 ======== ======== Pro forma net income per common and common equivalent share ..... $ .13 $ .34 ======== ======== Pro forma shares used in computation 3,950 3,559 ======== ========
See notes to condensed financial statements. 5 BUSINESS RESOURCE GROUP CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JULY 31, --------------------- 1996 1995 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................ $ 1,352 $ 1,802 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization ....................... 257 117 Stock compensation .................................. -- 67 Changes in operating assets and liabilities: Accounts receivable ............................... (5,895) (3,290) Inventory ......................................... (99) 729 Prepaids and other current assets ................. (498) (164) Accounts payable .................................. 496 1,769 Accrued liabilities ............................... 1,094 462 Income taxes payable .............................. 245 261 -------- -------- Net cash provided (used) by operating activities ...... (3,048) 1,753 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ................... (1,166) (282) Cash paid for acquisitions ............................ (300) (150) Other assets .......................................... (47) 2 -------- -------- Net cash used by investing activities ................. (1,513) (430) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in bank overdraft .............................. 11 -- Distributions to shareholders ......................... -- (4,163) Repayments on line of credit - net .................... -- (1,175) Repayment of notes payable & capital lease obligations (236) (231) Issuance of common stock, employee stock purchase plan 128 -- Issuance of common stock, net of compensation ......... -- 9 Issuance of common stock in initial public offering ... -- 10,149 -------- -------- Net cash provided (used) by financing activities ...... (97) 4,589 -------- -------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .......... (4,658) 5,912 CASH AND EQUIVALENTS: Beginning of period ................................... 5,326 192 -------- -------- End of period ......................................... $ 668 $ 6,104 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest .............................................. $ 29 $ 133 ======== ======== Income taxes .......................................... $ 670 $ 300 ======== ======== Noncash investing transactions: Sale of distribution rights for note receivable ....... $ 177 $ -- ======== ======== Cash flow for acquisitions: Tangible assets acquired .............................. $ 333 $ 64 Intangible assets acquired ............................ 255 363 Liabilities assumed ................................... (288) (32) Notes payable issued .................................. -- (245) -------- -------- Cash paid for acquisitions ............................ $ 300 $ 150 ======== ========
See notes to condensed financial statements. 6 BUSINESS RESOURCE GROUP NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The financial information as of July 31, 1996 and for the three and nine month periods ended July 31, 1996 and 1995 is unaudited. In the opinion of management, such information reflects all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the results of such periods. The accompanying condensed financial statements should be read together with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended October 31, 1995. The financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles. Certain reclassifications have been made in fiscal 1995 financial information to conform to the 1996 presentation. NOTE 2. PRO FORMA INFORMATION The condensed statements of income for the three month and nine month periods ended July 31, 1995 included a pro forma provision for income taxes. At the close of business on June 25, 1995, the election to treat the Company as an S Corporation for tax purposes was revoked. The pro forma provision reflects income taxes as if the Company had operated as a C Corporation for each of the periods. Pro forma net income per common and common equivalent share is computed by dividing the pro forma net income by the weighted average number of common and common equivalent shares outstanding during the period. Common stock equivalents are calculated using the treasury stock method. 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION: Except for the historical information contained in this Quarterly Report on Form 10-Q, the matters discussed herein are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. Factors that could cause actual results to differ materially include the timely availability, delivery and acceptance of new products and services, the impact of competitive products and pricing, the management of growth and acquisitions, and other risks detailed below and included from time to time in the Company's other SEC reports and press releases, copies of which are available from the Company upon request. Additionally, the results of operations for the three and nine month periods ended July 31, 1996 are not necessarily indicative of the results to be expected for the full fiscal year. Operating results are subject to the successful close of large project business and related vendor lead times. The Company's revenues are generally the result of a consultative selling process and the precise timing of the issuance of customer purchase orders is often contingent upon customer site development and move-in schedules. In order to minimize risk of procurement errors and obsolete inventory, the Company generally does not issue vendor purchase orders until final product configurations are documented in a formal customer purchase order. As a result, the short-term timing of product delivery can be impacted, which in turn may affect the specific quarter in which revenue is recognized on particular projects. Vendor delivery lead times also affect product availability and the resulting time at which the Company delivers product and recognizes revenue; lead times for many of the products sold by the Company average 4 to 12 weeks. Consequently, these factors can affect quarter to quarter results. The Company assumes no obligation to update any forward-looking statements contained herein. RESULTS OF OPERATIONS: THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1995. Net revenues were $21.3 million for the three months ended July 31, 1996, an increase of 75% from $12.2 million for the three months ended July 31, 1995. Increases in product revenue ($8.1 million or 79%) and service revenue ($1.0 million or 60%) more than offset the decline in vendor commissions ($34,000 or 30%). The overall increase in revenue was primarily the result of new large project business from both new and existing customers (including Cisco Systems, National Semiconductor, the City & County of San Francisco and Silicon Valley Group), the addition of fourteen new sales people (up 47% over the prior year to 44) and revenue generated by the Company's southwestern United States and Texas regional business units acquired in September 1995 and January 1996, respectively ($2.6 million, including large projects from Motorola, CompUSA and ACS). Cisco Systems and National Semiconductor, which historically have been significant customers of 8 the Company, contributed $11.3 million or 53% of total revenue, up from $3.8 million or 26% of total revenue in the comparable period in 1995. Service revenue increased due to increases in installation, delivery services and workspace management services. Service revenue as a percentage of total revenue, compared to the second quarter of 1995, declined to 13% from 14%, primarily attributable to faster product sales growth, which resulted from the significant year-on-year product revenue increase at Cisco coupled with the acquisition of traditional dealers whose initial revenue contribution tends to be heavily weighted toward product revenues rather than service revenues. Commission revenue declined as most vendors have discontinued their policies of billing customers directly and only paying a commission to the Company. Gross profit increased to $4.3 million during the third fiscal quarter of 1996 from $3.0 million during the same period of fiscal 1995, a 44% increase, while declining as a percentage of net revenues from 24% during the third fiscal quarter of 1995 to 20% during the same fiscal quarter of 1996. The Company experienced lower product margins as a percentage of net revenue, down 2% from the comparable period in 1995. The decrease was primarily the result of a shift in product mix from higher margin projects in the third quarter of 1995 to higher volume, lower margin projects in the comparable quarter of 1996. Service margins declined as a percentage of revenue, from 41% in the third quarter of 1995 to 28% in the third quarter of 1996. The decrease was due to a service mix shift to lower margin volume-related delivery services, underabsorption of overhead in the Company's developing regional installation businesses and the use of outside contract installation companies in certain out-of-state locations. Selling, general and administrative expenses increased 74% to $3.6 million for the three months ended July 31, 1996 from $2.1 million for the same period of the prior year. As a percentage of net revenue, expenses remained constant at 17% in both fiscal 1996 and 1995. The increase in spending was primarily attributable to higher revenue and related sales commissions, the addition of two new businesses, RST & Associates and Corporate Source (acquired in September 1995 and January 1996, respectively), the continued building of the Company's system and wide-area-network infrastructure, and the hiring of key management personnel. Interest income, net of interest and other expenses, totaled $13,000 for the three months ended July 31, 1996 versus interest expense, net of interest income, of $37,000 for the same period of fiscal 1995. The shift from net interest expense to net interest income was due to higher cash balances as a result of the Company's initial public offering of its common stock in June 1995. During the Company's fiscal third quarter ended July 31, 1996, the Company discontinued its Records Management business in order to streamline its operations and focus on its core Workspace Products business and its new Workspace Management Services business. The sale of the Company's exclusive TAB Products distribution rights, including the write-off of related goodwill and inventory, resulted in a net charge to earnings of approximately $10,000. 9 The Company was treated as an S Corporation for tax purposes until the close of business on June 25, 1995. As such, the Company was exempt from federal and certain state taxes for the majority of the three month period ended July 31, 1995. The Company has used an effective tax rate of 41% for all pro forma information. NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY, 1995. Net revenues were $56.5 million for the nine months ended July 31, 1996, an increase of 73% from $32.6 million for the nine months ended July 31, 1995. Increases were achieved in product revenue ($22.3 million or 82%) and service revenue ($1.8 million or 36%), partially offset by a decrease in commission revenue ($172,000 or 38%). The overall increase in revenue was primarily the result of the continuing strength of sales to Cisco Systems and National Semiconductor, the Company's two largest customers, with combined revenue of $25.4 million for the nine months ended July, 1996, up from $13.1 million for the same period of 1995, and large project business from the City and County of San Francisco's Main Library, Bechtel, Silicon Valley Group, Atmel and Perkin Elmer (which combined accounted for approximately $6.8 million in the period), and first time revenue of $5.8 million generated by the Company's southwestern United States and Texas regional business units. Cisco Systems and National Semiconductor accounted for 45% of net revenue for the first nine months of fiscal 1996, up from 40% during the same period a year ago. Service revenue increased in the first nine months of fiscal 1996 as compared to the prior year period primarily due to increases in delivery services, installation and first time revenue of workspace management services. Commission revenue declined as most vendors have discontinued their policies of billing customers directly and only paying a commission to the Company. Gross profit increased to $11.2 million for the first nine months of fiscal 1996 from $8.0 million during the same period a year ago, a 40% increase. As a percentage of net revenues gross profits decreased from 25% for the first nine months of fiscal 1995 to 20% during the same period of fiscal 1996. Lower service margins, resulting from underutilization of labor, underabsorption of overhead on installation revenues and increased volume of lower margin delivery services, and, in particular, lower product margins, accounted for the decrease in gross profit as a percentage of net revenues. The Company experienced lower product margins as a percentage of revenue due in part to the Company's decision to accept certain low margin business which the Company felt was important to its competitive positioning and its ability to penetrate certain markets. In addition, lower product margins resulted from an increase in high volume sales transactions which were aggressively priced based on such volumes. Selling, general and administrative expenses increased 53% to $9.0 million for the nine months ended July 31, 1996 from $5.9 million for the same period of the prior year. Selling, general and administrative expenses, as a percentage of net revenues, were 16% in the first nine months of fiscal 1996, down from 18% in the comparable period in fiscal 1995. The increase in absolute spending levels was primarily 10 the result of higher revenues and related commissions, expanded operations in existing Northern California regions, two acquisitions outside of California and an overall effort to build infrastructure to support the growth of the company. Interest income, net of interest and other expenses, totaled $94,000 for the nine months ended July 31, 1996 versus interest expense, net of interest income of $63,000 for the same period of fiscal 1995. The shift from net interest expense to net interest income was due to cash received as a result of the Company's initial public offering of its common stock in June 1995. The Company was treated as an S Corporation for tax purposes until the close of business on June 25, 1995. As such, the Company was exempt from federal and certain state taxes for eight of the nine month period ended July 31, 1995. The Company has used a tax rate of 41% for all pro forma information. LIQUIDITY AND CAPITAL RESOURCES: Working capital at July 31, 1996 was $9.8 million, up slightly from $9.5 million at October 31, 1995. During the nine months ended July 31, 1996, net cash used by operating activities was $3.0 million, representing net income of $1.4 million and increases in accounts payable of $496,000, accrued liabilities of $1.1 million and income taxes payable of $245,000, offset by increases in accounts receivable of $5.9 million, inventory of $99,000 and prepaids and other current assets of $498,000. Accounts receivable increased as a result of increased revenue and the timing of such revenue during the quarter ended July 31, 1996, reflecting in particular a relatively large percentage of sales during the final month of this most recent fiscal quarter. Accrued liabilities increased primarily as a result of increased customer deposits and accruals for sales commissions and sales tax. Net cash used in investing activities was $1.5 million, primarily representing the purchase of property and equipment for $1.2 million and a payment of $300,000 in connection with the acquisition of certain assets of Corporate Source. Net cash used by financing activities was $97,000, representing the change in bank overdraft of $11,000, the issuance of common stock for the Company's employee stock purchase plan of $128,000, offset by repayments of capital lease obligations and notes payable of $236,000. The Company's $4 million revolving line of credit with a bank expired in July 1996 and was replaced with a new $8 million credit facility, including an option to convert up to $3 million of the total facility into term loans. The Company presently believes existing cash, together with cash generated from operations and the Company's available borrowing capacity will provide sufficient funds to meet the Company's anticipated working capital requirements and its planned expansion/acquisition strategy for the foreseeable future. 11 PART II - OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.25 Master Lease Agreement between the Company and Southwestern Bell Telephone Company Inc., dated May 2, 1996, for facilities located at 105 Auditorium Circle, San Antonio, Texas 78209. 10.26 Third Amendment to Lease between the Company and Wells Fargo Bank, NA, dated August 5, 1996, with respect to premises at 2150 N. First Street, San Jose, CA 95131. 10.27 Amended and Restated Loan and Security Agreement, dated July 3, 1996, between the Company and Silicon Valley Bank. 11.1 Computation of Net Income Per Share. 27.1 Financial Data Schedule. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended July 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BUSINESS RESOURCE GROUP -------------------------------------- Registrant Date: 9/13/96 /s/P. Steven Melman ------------------------------ -------------------------------------- P. Steven Melman Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-10.25 2 MASTER LEASE AGREEMENT W/ SOUTHWESTERN BELL 1 Exhibit 10.25 COMMERCIAL LEASE (105 AUDITORIUM CIRCLE) This lease agreement is made and entered into by and between SOUTHWESTERN BELL TELEPHONE COMPANY INC. (Landlord) and BUSINESS RESOURCE GROUP (Tenant). Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that certain property with the improvements thereon, containing approximately 3382 square feet, hereinafter called the "leased premises ", known as Room 107, 105 Auditorium Circle, San Antonio, TX. (Address). Lot 4, Block 5 of New City block 412, Addition, city of San Antonio, Bexar County, Texas; or as more particularly described below or on attached exhibit: The Primary term of this lease shall be For a Period of 5 Years commencing on the Commencement Date which is defined as 60 days after the execution of the lease or the completion of Tenant Improvements as outlined in Exhibit C whichever is later, and ending at 11:59 P.M. on the last day of the 60th month following the commencement date. A commencement letter will be executed after the Tenant Improvements are completed to formalize the commencement and termination dates. 1. TAXES. Included in Base Rent. 2. UTILITIES. Included in base rent with the exception of any equipment and/or electric usage above and beyond the permitted uses of the space. Any such usage deemed by the Landlord to be above that normally used by the average "General Office" Tenant, shall be submetered and billed separately from the Base Rent. 3. HOLDING OVER. Failure of Tenant to surrender the leased premises at the expiration of the lease constitutes a holding over which shall be construed as a tenancy from month to month at a rental of 150% of Base Rent per month. - 4. RENT. Tenant agrees to and shall pay Landlord at 4119 Broadway G-60-J, San Antonio, TX 78209, County of Bexar, Texas, or at such other place Landlord shall designate from time to time in writing, as rent for the leased premises, the total sum of $169,100.00, Payable without demand in equal monthly payments of $2,818.33, each in advance on or before the 1st day of each month, commencing on commencement date but not later than August 1, 1996, and continuing thereafter until the total sum shall be paid. Rent received after the first day of the month shall be deemed delinquent. If rent is not received by Landlord by the 10th of each month, Tenant shall pay a late charge of 8% of the monthly rent due plus a penalty of $20.00 per day until rent is received in full. 5. USE. Tenant shall use the leased premises for the following purpose and no other: General Office use, No manufacturing allowed. 6. SECURITY DEPOSIT. Tenant shall pay to Landlord a security deposit in the sum of $2,818.33, payable on or before the commencement of this lease for Tenant's faithful performance hereunder. Refund thereof shall be made upon performance of this lease agreement by Tenant, minus any assessments or damages unless Landlord and Tenant provide otherwise in Special Provisions. 7. SERVICES TO BE FURNISHED BY LANDLORD. Landlord covenants and agrees to furnish (as a part of the Basic Costs of the building) Tenant while occupying the Premises, the following services: (a) hot and cold water at those points of supply provided for general use of other Tenants in the building, and seasonal central air conditioning provided during normal business hours for the building 2 (which are 8:00a.m. to 7:00p.m. on Mondays through Fridays and 8:00a.m. to 12:00p.m. on Saturdays, exclusive of legal holidays which include New Year's Day, Easter, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Friday following Thanksgiving Day and Christmas Day). (b) routine maintenance and electric lighting service for all public areas and special service areas of the building. (c) janitorial service, Monday through Friday, exclusive of holidays, provided, however, if Tenant's floor covering or other improvements are other than Building standard, Tenant shall pay the additional cleaning cost attributable thereto as additional rent upon presentation of a statement therefor by Landlord. (d) electrical facilities to furnish sufficient power to operate typewriters, dictating equipment, calculating machines, personal computers or similarly configured workstations, and other machines of similar low electrical consumption; but not including, special lighting in excess of Building standard and any other item of electrical equipment which (singly) consumes more than 0.5 kilowatts at rated capacity or requires a voltage other than 120 volts single phase. (e) all Building standard fluorescent bulb replacement in the Premises and all incandescent or fluorescent bulb replacement in public areas, toilet and restroom areas and stairwells. (f) Landlord shall provide for a 24 hour guard service while current Landlord occupies the Building. Landlord shall not be liable for losses due to theft, personal injury, burglary, or for damages done by unauthorized persons on the Premises unless caused by Landlord's gross negligence. The failure by Landlord to any extent to furnish these defined services, resulting from causes beyond the reasonable control of Landlord or from Landlord's actions to repair any of the equipment furnishing such services or otherwise to restore such services shall not render Landlord liable in any respect for damages, direct or consequential, to either person or property, nor be construed as an eviction of Tenant, nor work an abatement of rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement contained herein. Should any of the equipment or machinery which provide service to the Building break down, or for any cause cease to function properly, Tenant shall have no claim for rebate of rent or damages on account of an interruption in service occasioned thereby or resulting therefrom so long as Landlord is making a reasonable effort to repair or replace such non-functioning equipment or machinery. All of the above notwithstanding, should Landlord be unable to furnish these services for a period of five (5) days because of Landlord's failure to repair or replace the equipment or machinery which supply the defined services to the Building and which repairs and/or replacements are within the reasonable control of the Landlord, then Rent shall abate until such time as the defined services are reasonably restored. Should Landlord fail to provide these services for a period of thirty (30) days, then Tenant shall have the option to terminate the Lease with no further obligation to Landlord. 8. INSURANCE. Landlord and tenant agree to the following insurance provisions regarding the premises: I. Fire or Other Casualty; Casualty Insurance. (A) Substantial Destruction of the Building. If the Building should be substantially destroyed (which, as used herein, means destruction or damage to at least 75% of the Building) by fire or other casualty, either party hereto may, at its option, terminate this Lease by giving written notice hereof to the other party within thirty (30) days of such casualty. In such event, the rent shall be apportioned to and shall cease as of the date of such casualty. In the event neither party exercises this option, then the Premises shall be reconstructed and restored, at Landlord's expense, to substantially the same condition as they were prior to the casualty. (B) Substantial Destruction of Premises. If the Premises should be substantially destroyed, or rendered wholly untenantable for the purposes for which they were leased, by fire or other casualty but 3 the Building is not substantially destroyed as provided above, then the parties hereto shall have the following options: (1) If such destruction is not the result of the acts or negligence of Tenant, its employees or agents, Tenant may elect to terminate this Lease or require that the Premises be reconstructed and restored, at Landlord's expense, to substantially the same condition as they were prior to the casualty. This option shall be exercised by Tenant by giving written notice to Landlord within thirty (30) days after the date of the casualty, and upon the exercise thereof rent shall be abated from the date of the casualty until substantial completion of the reconstruction of the Premises, whereupon this Lease shall continue in full force and effect for the balance of the term upon the same terms, conditions and convenience as are contained herein. If such destruction is the result of the acts or negligence of Tenant, its employees or agents, Landlord shall then have the right to exercise same option within thirty (30) days following the destruction, by giving written notice to Tenant, to reconstruct and restore the Premises to substantially continue in full force and effect for the balance of the term upon the same terms, conditions and covenants as are contained herein; provided, however, that the rent shall not be abated from the date of the casualty until substantial completion of the reconstruction of the Premises. If Landlord fails to exercise the last mentioned option, this Lease shall be terminated as of the date of the casualty, to which date rent shall be apportioned and shall thereafter cease. (2) Notwithstanding the above, if the casualty occurs during the last twelve (12) months of the term of this Lease, either party hereto shall have the right and option to terminate this Lease as of the date of the casualty, which option shall be exercised by written notice to be given by either party to the other party within thirty (30) days therefrom. If this option is exercised, rent shall be apportioned to and shall cease as of the date of the casualty. (C) Partial Destruction of the Premises. If the Premises should be rendered partially untenantable for the purpose for which they were leased (which, as used herein, means such destruction or damage as would prevent Tenant from carrying on its business on the Premises to an extent exceeding 30% of its normal business activity) by fire or other casualty which is not the result of the acts or negligence of Tenant, its employees or agents, then such damaged part of the Premises shall be reconstructed and restored, at Landlord's expense, to substantially the same condition as it was prior to the casualty; rent shall be abated in the proportion which the approximate area of the damaged part bears to the total area in the Premises from the date of the casualty until substantial completion of the reconstruction repairs; and this Lease shall continue in full force and effect for the balance of the term. Landlord shall use reasonable diligence in completing such reconstruction repairs, but in the event Landlord fails to complete the same within ninety (90) days from the date of the casualty, Tenant may, at its option, terminate this Lease upon giving Landlord written notice to that effect, whereupon both parties shall be released from all further obligations and liability hereunder. (D) Casualty Insurance. Landlord shall be responsible for insuring and shall at all times during the terms of this Lease carry, at its own expense, such policies of insurance which insures the Office Building, including the Premises, against loss or damage by fire or other casualty as Landlord shall reasonably deem necessary; provided, however, that Landlord shall not be responsible for , and shall not be obligated to insure against, any loss or damage to personal property (including, but not limited to, any furniture, additional improvements which Tenant may construct on the Premises. If Tenant's operation or the Tenant Finish Improvements installed by Landlord pursuant to the provisions set forth in the WORK LETTER hereof or any alterations or improvements made by Tenant pursuant to the provisions of the WORK LETTER hereof increase the cost of the standard insurance carried by Landlord on the Office Park, then the cost of such increase in insurance premiums shall be borne by Tenant, who shall reimburse Landlord for the same as Additional Rent upon being separately billed therefor. (E) Landlord's Responsibility Landlord's Responsibility to reconstruct and restore the Premises as described in Paragraph 8(A), 8 (B) and 8 (C) shall be limited to the repair and restoration of 4 such of the Premises as were originally required to be made by Landlord in accordance with "the Work Letter " of this lease, or as was tendered to Tenant at the Commencement Date of this Lease, and excludes items not required to be insured by Landlord under the above Paragraph 8(D). It is understood and agreed that Tenant shall insure those items, if any, which are excluded from Landlord's responsibility to insure. (F) Waiver of Subrogation. To the extent permitted by applicable policies of insurance, Landlord and Tenant hereby release each other and each other's employees, agents, customers and invitees from any and all liability for any loss, or damage to property occurring in, on or about or to the premises, improvements to the Office Building or personal property within the Building, by reason of fire or other casualty which are covered by applicable standard fire and extended coverage insurance policies. Because the provisions of this paragraph may preclude the assignment of any claim mentioned herein by way of subrogation or otherwise to an insurance company or any other person, each party to this Lease shall give to each insurance company which has issued to it one or more policies of fire and extended coverage insurance notice of the terms of the mutual releases contained in this paragraph, and have such insurance policies properly endorsed, if necessary to prevent the invalidation of insurance coverage's by reason of the mutual releases contained in this paragraph. II. General Liability, Indemnification and Insurance. (A) Tenant shall be responsible for, shall insure against, and shall indemnify Landlord, its employees and agents and hold them harmless from , any and all liability for any loss, damage or injury to person or property occurring in, on or about the Premises and Tenant hereby releases Landlord, its employees and agents from any and all liability for the same, provided, however, that such loss, damage or injury is not the result of Landlord's sole negligence. Tenant's obligation to indemnify Landlord, its employees and agents hereunder shall include the duty to defend against any claims asserted by reason of such loss, damage or injury and to pay any judgments settlements, costs, fees and expenses, including attorney's fees, incurred in connection therewith. (B) Tenant shall at all times during the term of this Lease carry, at its own expense, for the protection of Tenant, Landlord and Landlord's Management agent, if any, as their interests may appear, a general liability insurance policy with minimum limits of $1,000,000 General Aggregate; $1,000,000 each occurrence sublimit for Premises/Operations and Personal Injury; and $1,000,000 Products/Completed Operations Aggregate limit, with a $1,000,000 each occurrence sublimit for Products/Completed Operations. Fire Legal Liability sublimits of $100,000 are required for lease agreements. Landlord is to be named as additional insured on the general liability policy. The insurance company affording coverage hereunder must have an A.M. Best's rating of B+ VII or better. The policy shall provide Landlord with not less than thirty (30) days advance written notice of cancellation or of a material change in coverage. Tenant shall furnish Landlord with a certificate evidencing such insurance. Should Tenant fail to carry such insurance or fail to furnish Landlord with copies of all policies after a request to do so, Landlord shall have the right to obtain such insurance and collect the cost thereof from Tenant as additional rent. Tenant may elect to self-insure if approved by Landlord. In he event Tenant exercises this option, Tenant warrants that its net worth, as shown by its most recent audited annual financial statement with no negative notes, is at least ten times the minimum general liability limits set forth herein. (C) Landlord shall be responsible for, shall have the obligation to insure against, and shall indemnify Tenant and hold it harmless from, any and all liability for any loss, damage and injury to person or property occurring in, on or about the common areas and facilities of the Building and the walks, driveways, parking lot and landscaped areas adjacent to the Building, provided, however, that such loss, damage or injury is not the result of Tenant's negligence or negligent acts. 9. CONDITION OF PREMISES. See Exhibit B (work Letter). 5 10. MAINTENANCE AND REPAIRS. Landlord shall keep the foundation, the exterior walls (except glass; windows; doors; door closure devices; window and door frames, molding, locks, and hardware; and interior painting or other treatment of exterior walls), and the roof of the leased premises in good repair except that Landlord shall not be required to make any repairs occasioned by the act or negligence of Tenant, its employees, subtenants, licensees and concessionaires. Landlord is responsible for maintenance of the common area and common area equipment. If Landlord is responsible for any such repair and maintenance, Tenant agrees to give Landlord written notice of needed repairs. Landlord shall make such repairs within a reasonable time. Tenant shall notify Landlord immediately of any emergency repairs. Tenant shall keep the leased premises in good, clean condition and shall at its sole cost and expense, make all needed repairs and replacements, including replacement of cracked or broken glass, except for repairs and replacements required to be made by Landlord under this section. If any repairs required to be made by Tenant hereunder are not made within ten (10) days after written notice delivered to Tenant by Landlord, Landlord may at its option make such repairs without liability to Tenant for any loss or damage which may result by reason of such repairs, and Tenant shall pay to Landlord upon demand as additional rent hereunder the cost of such repairs plus interest. At the termination of this lease, Tenant shall deliver the leased premises in good order and condition, normal wear and tear excepted. Normal wear and tear means deterioration which occurs without negligence, carelessness, accident or abuse. 11. ALTERATIONS. All alterations, additions and improvements, except trade fixtures, installed at expense of Tenant, shall become the property of Landlord and shall remain upon and be surrendered with the leased premises as a part thereof on the termination of this lease. Such alterations, additions, and improvements may only be made with the prior written consent of Landlord, which consent shall not be unreasonably withheld. If consent is granted for the making of improvements or alterations to the leased premises, such improvements and alterations shall not commence until Tenant has furnished to Landlord a certificate of insurance showing coverage in an amount satisfactory to Landlord protecting Landlord from liability for injury to any person and damage to any personal property, on or off the leased premises, in connection with the making of such improvements or alterations. No cooling tower, equipment or structure temporarily, so that repairs to the roof can be made, Tenant shall promptly remove and reinstall the cooling tower, equipment or structure at Tenant's expense and repair at Tenant's expense any damage resulting from such removal or reinstallation. Upon termination of this lease, Tenant shall remove or cause to be removed from the roof any such cooling tower, equipment or structure if directed to do so by Landlord. Tenant shall deliver the leased premises in good order and condition, natural deterioration only excepted. Any damage caused by the installation or removal or trade fixtures shall be repaired at Tenant's expense prior to the expiration of the lease term. All alterations, improvements, additions, and repairs made by Tenant shall be made in good and workmanlike manner. 12. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant shall, at its own expense, comply with all laws, orders, and requirements of all governmental entities with reference to the use and occupancy of the leased premises. Tenant and Tenant's agents, employees and invitees shall full comply with any rules and regulations governing the use of the buildings or other improvements to the leased premises as required by Landlord. Landlord may make reasonable changes in such rules and regulations from time to time as deemed advisable for the safety, care and cleanliness of the leased premises, provided same are in writing and are not in conflict with this lease. 13. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this lease nor sublet the leased premises or any interest therein without first obtaining the written consent of the landlord. An assignment or subletting without the written consent of landlord shall be void and shall, at the option of landlord, terminate this lease. 14. DESTRUCTION. In the event the leased premises is partially damaged or destroyed or rendered partially unfit for occupancy by fire or other casualty, Landlord and Tenant should refer to Section 7. 15. TENANT DEFAULT AND REMOVAL OF ABANDONED PROPERTY. If Tenant abandons the premises or otherwise defaults in the performance of any obligations or covenants herein, Landlord may enforce the performance of this lease in any manner provided by law. This lease may be 6 terminated at Landlord's discretion of such abandonment or default continues for a period of 10 days after Landlord notifies Tenant of such abandonment or default and of Landlord's intention to declare this lease terminated. Such notice shall be sent by Landlord to Tenant at Tenant's last known address by certified mail. If Tenant has not completely removed or cured default within the 10-day period, this lease shall terminate. Thereafter, Landlord or its agents shall have the right, without further notice or demand, to enter the leased premises and remove all property without being deemed guilty of trespass and without waiving any other remedies for arrears of rent or breach of covenant. Upon abandonment or default by the Tenant, the remaining unpaid portion of the rental from paragraph 4 herein, shall become due and payable. For purposes of this section, Tenant is presumed to have abandoned the premises if goods, equipment, or other property, in an amount substantial enough to indicate a probable intent to abandon the premises, is being or has been removed from the premises and the removal is not within the normal course of Tenant's business. Landlord shall have the right to store any property of Tenant that remains on premises that are abandoned; and, in addition to Landlord's other rights, Landlord may dispose of the stored property if Tenant does not claim the property within 60 days after the date the property is stored, provided Landlord delivers by certified mail to Tenant at Tenant's last known address a notice stating that Landlord may dispose of Tenant's property if Tenant does not claim the property within 60 days after the date the property is stored. 16. INTERRUPTION OF UTILITIES. Landlord or Landlord's agent may not interrupt of cause the interruption of utility service paid directly to the utility company by Tenant unless interruption results from bona fide repairs, construction, or any emergency. If any utility services furnished by Landlord are interrupted and continue to be interrupted despite the good faith efforts of Landlord to remedy same, Landlord shall not be liable in ANY respect for damages to the person or property of Tenant or Tenant's employees, agents, or guests, and same shall not be construed as grounds for constructive eviction or abatement of rent. Landlord shall use reasonable diligence to repair and remedy such interruption promptly. 17. EXCLUSION OF TENANT. Landlord may not intentionally prevent Tenant from entering the leased premises except by judicial process unless the exclusion results from: (a) bona fide repairs, construction, or an emergency; (b) removing the contents of premises abandoned by Tenant; or (c) changing the door locks of Tenant in the event Tenant is delinquent in paying at least part of the rent. If Landlord or Landlord's agent changes the door lock of Tenant, in the event Tenant is delinquent in paying rent, Landlord or Landlord's agent must place a written notice on Tenant's front door stating the name and the address or telephone number of the individual or company from which the new key may be obtained. The new key is required to be provided only during Tenant's regular business hours. 18. LIEN. Landlord is granted an express contractual lien, in addition to any lien provided by law, and a security interest in all property of Tenant found on the leased premises to secure the compliance by Tenant with all terms of this lease. 19. SUBORDINATION. Landlord is hereby irrevocably vested with full power and authority to subordinate this lease to any mortgage, deed of trust, or other lien hereafter placed on the demised premises and Tenant agrees on demand to execute such further instruments subordinating this lease as Landlord may request, provided such subordination shall be on the express condition that this lease shall be recognized by the mortgagee, and the rights of Tenant shall remain in full force and effect during the term of this lease so long as Tenant shall continue to perform all of the covenants and conditions of this lease. 20. INDEMNITY. Landlord and its employees and agents shall not be liable to Tenant or to Tenant's employees, patrons, visitors, invitees, or any other persons for any such injury to any such persons or for damage to personal property caused by an act, omission, or neglect of Tenant or Tenant's agents or of any other tenant of the premises of which the leased premises is a part. Tenant agrees to indemnify and hold Landlord and its employees and agents harmless from any and all claims for such injury and damages, whether the injury occurs on or off the leased premises. 21. SIGNS. Tenant shall not post or paint any signs at, on, or about the leased premises or paint the exterior walls of the building except with the prior written consent of the Landlord. Landlord shall have the right to remove any sign or signs in order to maintain the leased premises or to make any repairs or alterations thereto. 7 22. TENANT BANKRUPTCY. If Tenant becomes bankrupt or makes voluntary assignment for the benefit of creditors or if a receiver is appointed for Tenant, Landlord may terminate this lease by giving five (5) days written notice to Tenant of Landlord's intention to do so. 23. CONDEMNATION. If the whole or any substantial part of the leased premises is taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain or should the leased premises be sold to a condemning authority under threat of condemnation, this lease shall terminate and the rent shall be abated during the unexpired portion of the lease effective from the date of the physical taking of the leased premises. 24. HAZARDOUS MATERIALS. Landlord warrants and represents that the Property does not contain "Hazardous Materials", as that phrase is defined herein. For purposes of this provision, the phrase "Hazardous Materials" shall mean and include any toxic contaminated or other hazardous materials including, without limitation, asbestos, PCB, transformers, underground storage containers, materials containing any radioactive substances, petroleum base products, paints, solvents, lead, cyanide, DDT, acids, pesticides, ammonium compounds, and any other substance forming a component part of the improvements which has heretofore or may in the future be determined to contain toxic wastes, hazardous materials, or undesirable substances injurious to the health of occupants living or working in or around the subject Property. Landlord acknowledges that current and future federal, state, and local laws and regulations may require the clean up of any such Hazardous Materials at the expense of those persons who in the past, present, or future may have had or continue to have any interest in the Property including, but not limited to, current, past, and future owners and users, including tenants, of the Property. The cost and expense of such clean up may be substantial. Landlord further acknowledges Hazardous Materials. Landlord acknowledges and agrees that Landlord shall look solely to experts and professionals selected by Landlord to advise Landlord with respect to the condition of the Property and shall not hold the real estate Brokers or their agents responsible for any Hazardous Material condition or problem relating to the Property. Landlord hereby agrees to indemnify, defend, and hold the real estate Brokers and their agents participating in this transaction harmless of and from any and all liability, claim, debt, damage, cost, or expense, including reasonable attorneys' fees, relate to or arising out of or in any way connected to Hazardous Materials and/or toxic wastes and/or any other undesirable substances affecting the Property. 25. BROKERS FEE. SBC Asset Management, Inc. Broker and The Brian Brady Company, Co-Broker, as Real Estate Broker (the Broker). has negotiated this lease and Landlord agrees to pay Broker in Bexar, County, Texas, upon commencement of this lease, a negotiated fee of $ n/a or 6% of the total rental provided for in this lease to be divided as follows: 66% of commission to BBC and 34% to AMI. Tenant warrants that it has had no dealings with any real estate broker or agents in connection wit the negotiation of this lease excepting only The Brian Brady Company and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 26. NOTICES. Notices to Tenant shall be by certified mail or other delivery to the leased premises or to Tenant's last know address. Notices to Landlord shall be by certified mail to the place where rent is payable. 27. DEFAULT BY LANDLORD. In the event of breach by Landlord of any covenant, warranty, term or obligation of this lease, then Landlord's failure to cure same or commence a good faith effort to cure same within 10 days after written notice thereof by Tenant shall be considered a default and shall entitle Tenant either to terminate this lease or cure the default and make the necessary repairs and any expense incurred by Tenant shall be reimbursed by the Landlord after reasonable notice of the repairs and expenses incurred. At Tenant's option, such reimbursement can be made available to Tenant via abated rent. 28. SIGNS. During the last 60 days of this lease, a "FOR SALE" sign and/or a "FOR LEASE" sign may be displayed on the leased premises and the leased premises may be shown at reasonable times to prospective purchasers or tenants. 8 29. RIGHT OF ENTRY. Landlord shall have the right during normal business hours to enter the demised premises; (a) to inspect the general condition and state of repair thereof, (b) to make repairs required or permitted under this lease, or (c) for any other reasonable purpose. 30. WAIVER OF BREACH. The waiver by Landlord of any breach of any provision of this lease shall not constitute a continuing waiver or a waiver of any subsequent breach of the same or a different provision of this lease. 31. TIME OF ESSENCE. Time is expressly declared to be of the essence in this lease. 32. BINDING OF HEIRS AND ASSIGNS. Subject to the provisions of this lease pertaining to assignment of the Tenant's interest, all provisions of this lease shall extend to and bind, or inure to the benefit not only of the parties to this lease but to each and every one of the heirs, executors, representatives, successors, and assigns of Landlord or Tenant. 33. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies by this lease agreement are cumulative and the use of any one right or remedy by either party shall not preclude or waive its right to use any or all other remedies, Said rights and remedies are given in addition to any other rights the parties may have by law, statue, ordinance, or otherwise. 34. TEXAS LAW TO APPLY. This agreement shall be construed under and in accordance with the laws of the State of Texas. 35. LEGAL CONSTRUCTION. In case any one or more of the provisions contained in this agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof and this agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 36. PRIOR AGREEMENTS SUPERCEDED. This agreement constitutes the sole and only agreement of the parties to this lease and supersedes any prior understandings or written or oral agreements between the parties respecting the subject matter of this lease. 37. AMENDMENT. No amendment, modification, or alteration of the terms hereof shall be binding unless it is in writing, dated subsequent to the date hereof, and duly executed by the parties. 38. ATTORNEYS' FEES. Any signatory to this lease agreement who is the prevailing party in any legal proceeding against any other signatory brought under or with relation to this lease agreement or this transaction shall be additionally entitled to recover court cost, reasonable attorney fees, and all other out-of- pocket costs of litigation, including deposition, travel and witness costs, from the nonprevailing party. 39. SPECIAL PROVISIONS. (This section to include additional factual data not included above.) (A) Tenant shall be responsible for restricting their employees, customers and invitees use of the premises to the first floor space and first floor common areas. All other areas of the premises are restricted for the exclusive use of the Landlord and other owners of the building which is condominium owned. (B) Tenant may have use of the eighth floor restrooms for the exclusive use of their employees, customers and invitees who are considered handicapped and are unable to use the first floor restroom. Tenant will be responsible for the actions of the above within the building and will be responsible for following building procedures established by building manager. (C) Tenant has the option to renew at current market rates for one five year term. Tenant must give Landlord written notice no later than 180 days prior to the Termination date of its intention to renew. 9 THE TEXAS ASSOCIATION OF REALTORS' AND THE SAN ANTONIO, BOARD OF REALTORS' DO NOT FIX, CONTROL, RECOMMEND, SUGGEST OR MAINTAIN COMMISSION RATES OR FEES FOR SERVICES TO BE RENDERED BY THEIR MEMBERS OR THE DIVISION OF COMMISSIONS OR FEES BETWEEN COOPERATING PARTICIPANTS OR BETWEEN PARTICIPANTS AND NON-PARTICIPANTS. THE AMOUNT OF COMPENSATION AND THE CONTRACT TERMS HEREIN ARE NOT PRESCRIBED BY LAW AND ARE SUBJECT TO NEGOTIATION BETWEEN BROKER AND SUBLESSOR. THIS IS A LEGAL DOCUMENT. READ IT CAREFULLY. IF YOU DO NOT UNDERSTAND THE EFFECT OF ANY PART OF THIS AGREEMENT, SEEK COMPETENT LEGAL ADVICE. EXECUTED this 2nd day of May, 1996. BUSINESS RESOURCE GROUP SOUTHWESTERN BELL TELEPHONE CO - ---------------------------------- ------------------------------------ TENANT OR TENANTS SIGNATURE(S) LANDLORD SIGNATURE 2150 N. First Street Suite 101 - ---------------------------------- ------------------------------------ ADDRESS ADDRESS San Jose, CA 95131 - ---------------------------------- ------------------------------------ (408) 441-3700 (214) 464-3872 - ---------------------------------- ------------------------------------ TELEPHONE TELEPHONE The Brian Brady Company - ---------------------------------- BROKER SIGNATURE BY: ------------------------------- AGENT SIGNATURE 1920 Nacogdoches Rd #201 - ---------------------------------- ADDRESS San Antonio, TX 78209 - ---------------------------------- (210) 826-0191 - ---------------------------------- TELEPHONE 10 EXHIBIT A - map of office space EXHIBIT B - Work Letter 1. Finishout Immediately after the execution of this Lease, Tenant shall cause to have construction drawings prepared and delivered to Landlord for approval. Upon the approval of Landlord and upon the completion of the bidding process with the contractors of Landlord's choice, construction shall begin according to the general requirements listed below. In connection with the Tenant Improvements to be performed by Tenant for the premises, Tenant shall pay for the cost of Tenant Improvements. Landlord agrees to reimburse Tenant for Tenant Improvements up to Twelve Thousand dollars ($12,000.00) in the form of abated rent. Such abated rent shall take place at the commencement of this Lease and continue for a period of time equivalent to the Tenant Improvements but not to exceed $12,000.00 of rental abatement. (i.e. maximum abatement is equal to 4 months and 8 days of abated rent.) In the event that the Tenant Improvements exceed $12,000.00, Tenant agrees to pay the balance to the General Contractor. At the end of the abated rental period, Tenant shall pay to Landlord the prorated balance of the then current month and continue to pay rent on the first of each month as detailed in Section 4. Costs of Tenant Improvements shall include the costs associated with the Tenant Improvement Work, including, but not limited to, (i) the cost of Tenant Improvement and all demolition cost incurred in connection with preparing the Premises for the installation of the Tenant Improvements; (ii) permit fees and other governmental fees; (iii) the cost of architects, consultants and engineers; (iv) an amount equal to the actual cost of supervision, administration and on-site facilities and equipment necessary to perform the work; (v) the general contractor's overhead. Items to be performed: *a. Minor interior demolition and construction (install plumbing line, remove ceiling, install kitchen, training and conference room. *b. Finish work *c. New finishes (paint, carpet, VCT) - replace damaged grid and existing tile with new. Ceiling grid/lighting plan to be provided (if required). *d. New lighting - in sales and conference area. Clean up existing work and make it more presentable. * details of fixtures, buildout and demolition to be provided by Tenants Architect. EX-10.26 3 3RD AMENDMENT TO LEASE W/ WELLS FARGO BANK 1 EXHIBIT 10.26 THIRD AMENDMENT TO LEASE This Third Amendment to Lease is dated for reference purposes as of August 5, 1996 and is made a part of that Lease (the "Lease") dated May 28, 1991, by and between Wells Fargo Bank, N.A., a California corporation, and Business Furniture Solutions, Inc., a California corporation, dba Business Interiors ("Tenant"), as amended, affecting certain real property commonly known as Suites 101, 102, 230 and 240, at 2150 North First Street, San Jose, California. R E C I T A L S: A. The parties hereto have previously amended the Lease by that First Amendment to Lease dated for reference purposes as of December 21, 1993, and by that Second Amendment to Lease dated November 15, 1995, which amendment, among other things, added Suites 100, 102 and 240, terminated the lease of Suite 230 and extended the term of all their Leased Space to August 31, 2001. B. The parties now desire to add certain additional space to the Premises and to make certain additional provisions as more particularly set forth hereinbelow. All capitalized terms in this Amendment which are not defined herein shall have the meaning attributed to them in the Lease. NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties hereto agree as follows: 1. Additional Space. Suite 220 and a portion of Suite 210 (together to be designated as Suite 220) within the Building, as shown on Exhibit "A-1", attached hereto and incorporated herein by this reference, is hereby added to the leased Premises, effective as of September 15, 1996: Rentable Suite No. Square Feet --------- ----------- 220 2364 As of September 15, 1996, the Tenant's total rentable square footage of the entire Premises subject to the Lease, including the newly designated Suite 220, will be Twenty-One Thousand One Hundred Sixty-One (21,161) square feet. 2 2. Base Monthly Rent. Commencing on September 15, 1996, and continuing through January 31, 1999, Base Monthly Rent payable under the Lease by Tenant for the Premises shall be as follows: Monthly Rentable Rental Suite No. Square Feet Rate Rent --------- ----------- ----- ---------- 100 5,149 $1.60 $ 8,238.40 101 8,377 $1.60 $13,403.20 102 2,734 $1.60 $ 4,374.40 240 2,537 $1.48 $ 3,754.76 220 2,364 $1.58 $ 3735.12 ----- ---------- Total 21,161 $33,505.88 ========== On February 1, 1999, and on February 1, 2000, ( the "Adjustment Dates" ) the Tenant's Base Monthly Rent for the Premises in effect as of each Adjustment Date shall be increased by the Consumer Price Index (as defined in Section 1.11 of the Lease) as compared with the Consumer Price Index in effect one year prior to such Adjustment Date. In no event shall Base Monthly Rent be reduced by the foregoing adjustments. 3. Security Deposit. On the execution hereof, Tenant's existing Security Deposit in the amount of Twenty -Nine Thousand Seven Hundred Seventy Dollars ($29,770.00) shall be increased by Three Thousand Seven Hundred Thirty-Five Dollars ($3735.00) to bring the total security Deposit to Thirty-Three Thousand Five Hundred Five Dollars ($33,505.00) and held by Landlord pursuant to Section 3.5 of the Lease. 4. Adjustment of Tenant's Share. Effective September 15, 1996, Tenant's Share of the Building shall be adjusted to Seventeen and Sixty-Three Hundredths Percent (17.63%). 5. Tenant Improvement Allowance. Tenant is accepting the space in an "as is" condition except that landlord will add a partition and remove a wall as depicted in Exhibit "A-1". The cost of any other tenant improvements will be paid for by the tenant. All requirements set forth in the Lease, including without limitation the terms and provisions of article 5, regarding Tenant improvements and alterations to the Building shall apply with respect to the improvements and alterations being constructed by Tenant to any part of the Premises. Without limiting the generality of the foregoing, Landlord and Tenant agree that Tenant's general contractor and the plans and specifications for Tenant's improvements and alterations (or any changes made thereto) shall have been approved in writing by Landlord prior to commencement of any work related thereto. additionally, prior to commencement of any such work, Tenant shall obtain and furnish Landlord with a certificate of insurance providing contingent liability and broad form 3 builder's risk insurance in an amount of not less than Five Million Dollars ($5,000,000) and otherwise reasonably acceptable to Landlord. 6. Effectiveness. The effectiveness of this Amendment shall be conditioned upon the execution by First Franklin Financial Corporation ("First Franklin") of an Amendment to that certain Office Lease between Landlord and First Franklin dated January 30, 1992, as amended, pursuant to which First Franklin shall terminate such lease with respect to the expanded Suite 220 within the Building. 7. No Brokerage Commission. Tenant shall hold Landlord harmless form the payment of any brokerage commissions related to this Amendment owing or claimed to be owing to any brokers hired, consulted or otherwise involved herein. IN WITNESS WHEREOF, Landlord and Tenant hereby agree to the foregoing provisions and make them a part of the Lease. LANDLORD: 2150 NORTH FIRST STREET PARTNERS, California Limited partnership By: ----------------------------- Tito J. Bianchi Its: General Partner TENANT: BUSINESS RESOURCE GROUP, INC., A California Corporation By: ----------------------------- EX-10.27 4 AMENDED LOAN AGREEMENT W/ SILICON VALLEY BANK 1 EXHIBIT 10.27 BUSINESS RESOURCE GROUP AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT 2 TABLE OF CONTENTS Page 1. DEFINITIONS AND CONSTRUCTION......................................... 1 1.1 Definitions.................................................... 1 1.2 Accounting Terms............................................... 6 2. LOAN AND TERMS OF PAYMENT............................................ 6 2.1 Advances....................................................... 6 2.2 Overadvances................................................... 7 2.3 Interest Rates, Payments, and Calculations..................... 7 2.4 Crediting Payments............................................. 8 2.5 Fees........................................................... 8 2.6 Additional Costs............................................... 8 2.7 Term........................................................... 9 3. CONDITIONS OF LOANS.................................................. 9 3.1 Conditions Precedent to Initial Advance........................ 9 3.2 Conditions Precedent to all Advances........................... 9 4. CREATION OF SECURITY INTEREST........................................ 9 4.1 Grant of Security Interest..................................... 9 4.2 Delivery of Additional Documentation Required.................. 10 4.3 Right to Inspect............................................... 10 5. REPRESENTATIONS AND WARRANTIES....................................... 10 5.1 Due Organization and Qualification............................. 10 5.2 Due Authorization; No Conflict................................. 10 5.3 No Prior Encumbrances.......................................... 10 5.4 Bona Fide Eligible Accounts.................................... 10 5.5 Merchantable Inventory......................................... 10 5.6 Name; Location of Chief Executive Office....................... 10 5.7 Litigation..................................................... 10 5.8 No Material Adverse Change in Financial Statements............. 11 5.9 Solvency....................................................... 11 5.10 Regulatory Compliance.......................................... 11 5.11 Environmental Condition........................................ 11 5.12 Taxes.......................................................... 11 5.13 Subsidiaries................................................... 11 5.14 Government Consents............................................ 11 5.15 Full Disclosure................................................ 11 6. AFFIRMATIVE COVENANTS................................................ 12 6.1 Good Standing.................................................. 12 6.2 Government Compliance.......................................... 12 6.3 Financial Statements, Reports, Certificates.................... 12 6.4 Inventory; Returns............................................. 12 6.5 Taxes.......................................................... 12 6.6 Insurance...................................................... 13 6.7 Principal Depository........................................... 13 6.8 Quick Ratio.................................................... 13 6.9 Debt Service Coverage.......................................... 13 6.10 Debt-Net Worth Ratio........................................... 13 6.11 Tangible Net Worth............................................. 13 6.12 Profitability.................................................. 13 6.13 Further Assurances............................................. 14 7. NEGATIVE COVENANTS................................................... 14 7.1 Dispositions................................................... 14 7.2 Change in Business............................................. 14 7.3 Mergers or Acquisitions........................................ 14 i 3 7.4 Indebtedness................................................... 14 7.5 Encumbrances................................................... 14 7.6 Distributions.................................................. 14 7.7 Investments.................................................... 14 7.8 Transactions with Affiliates................................... 14 7.9 Subordinated Debt.............................................. 14 7.10 Inventory...................................................... 14 7.11 Compliance..................................................... 15 8. EVENTS OF DEFAULT.................................................... 15 8.1 Payment Default................................................ 15 8.2 Covenant Default............................................... 15 8.3 Attachment..................................................... 15 8.4 Insolvency..................................................... 16 8.5 Other Agreements............................................... 16 8.6 Judgments...................................................... 16 8.7 Misrepresentations............................................. 16 9. BANK'S RIGHTS AND REMEDIES........................................... 16 9.1 Rights and Remedies............................................ 16 9.2 Power of Attorney.............................................. 17 9.3 Accounts Collection............................................ 17 9.4 Bank Expenses.................................................. 17 9.5 Bank's Liability for Collateral................................ 17 9.6 Remedies Cumulative............................................ 18 9.7 Demand; Protest................................................ 18 10. NOTICES.............................................................. 18 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................... 18 12. GENERAL PROVISIONS................................................... 19 12.1 Successors and Assigns......................................... 19 12.2 Indemnification................................................ 19 12.3 Time of Essence................................................ 19 12.4 Severability of Provisions..................................... 19 12.5 Amendments in Writing, Integration............................. 19 12.6 Counterparts................................................... 19 12.7 Survival....................................................... 19 12.8 Confidentiality................................................ 19 ii 4 This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as of July 3, 1996, by and between SILICON VALLEY BANK ("Bank") and BUSINESS RESOURCE GROUP ("Borrower"). RECITALS Borrower and Bank are parties to a Business Loan Agreement and Commercial Security Agreement, as amended through the date hereof. Borrower has issued to Bank a promissory note, as amended through the date hereof. Borrower wishes to continue to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement amends and restates the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank. AGREEMENT The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION 1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions: "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "Advance" or "Advances" means an Advance under the Revolving Facility. "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners. "Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), whether or not suit is brought. "Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information. "Borrowing Base" has the meaning set forth in Section 2.1 hereof. "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close. "Closing Date" means the date of this Agreement. "Code" means the California Uniform Commercial Code. "Collateral" means the property described on Exhibit A attached hereto. "Committed Line" means Eight Million Dollars ($8,000,000), minus the aggregate outstanding principal amount of the Term Loans. "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, 1 5 letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement. "Current Assets" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date. "Current Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Advances made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of Borrower or any Subsidiary to a date more than one year from the date of determination, but excluding Subordinated Debt. "Daily Balance" means the amount of the Obligations owed at the end of a given day. "Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following: (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; (b) Accounts with respect to an account debtor, fifty percent (50%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date; (c) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower; (d) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional; (e) Accounts with respect to which the account debtor is an Affiliate of Borrower; (f) Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts; (g) Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States; (h) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower; (i) Accounts with respect to an account debtor, including Subsidiaries and 2 6 Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank, except that the concentration limit shall be forty percent (40%) for each of Cisco Systems, Inc., National Semiconductor Corporation, Motorola and CompUSA; (j) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (k) Accounts the collection of which Bank reasonably determines to be doubtful; and (l) Accounts owing from Allsteel, Inc. so long as Allsteel, Inc. maintains a first position security interest in respect of its inventory. "Eligible Foreign Accounts" means Accounts with respect to which the account debtor does not have its principal place of business in the United States and that are: (1) covered by credit insurance in form and amount, and by an insurer satisfactory to Bank less the amount of any deductible(s) which may be or become owing thereon; or (2) supported by one or more letters of credit in favor of Bank as beneficiary, in an amount and of a tenor, and issued by a financial institution, acceptable to Bank; or (3) that Bank approves on a case-by-case basis. "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "GAAP" means generally accepted accounting principles as in effect from time to time. "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations. "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Inventory" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing. "Investment" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. 3 7 "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time. "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents. "Maturity Date" means the fifth (5th) anniversary of the date of the last Term Loan made under this agreement. "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing. "Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise. "Periodic Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank. "Permitted Indebtedness" means: (a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and disclosed in the Schedule; (c) Subordinated Debt; and (d) Indebtedness to trade creditors incurred in the ordinary course of business. "Permitted Investment" means: (a) Investments existing on the Closing Date disclosed in the Schedule; and (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank. "Permitted Liens" means the following: (a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's security interests; (c) Liens (i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements 4 8 thereon, and the proceeds of such equipment; (d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate," whether or not such announced rate is the lowest rate available from Bank. "Quick Assets" means, at any date as of which the amount thereof shall be determined, the consolidated cash, cash-equivalents, accounts receivable and investments, with maturities not to exceed 90 days, of Borrower determined in accordance with GAAP. "Responsible Officer" means each of the Chief Executive Officer, the Chief Financial Officer and the Controller of Borrower. "Revolving Maturity Date" means July 2, 1997. "Revolving Facility" means the facility under which Borrower may request Bank to issue cash advances, as specified in Section 2.1 hereof. "Schedule" means the schedule of exceptions attached hereto. "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank). "Subsidiary" means any corporation or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity shall, at the time as of which any determination is being made, be owned by Borrower, either directly or through an Affiliate. "Tangible Net Worth" means at any date as of which the amount thereof shall be determined, the consolidated total assets of Borrower and its Subsidiaries minus, without duplication, (i) the sum of any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, and (c) all reserves not already deducted from assets, and (ii) Total Liabilities. "Term Loan" means an Advance that Borrower has converted into a term loan pursuant to Section 2.1.1. "Total Liabilities" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness, but specifically excluding Subordinated Debt. 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto. 2. LOAN AND TERMS OF PAYMENT 2.1 Advances. Subject to and upon the terms and conditions of this Agreement, 5 9 Bank agrees to make Advances to Borrower in an aggregate amount not to exceed the lesser of the Committed Line or the Borrowing Base. For purposes of this Agreement, "Borrowing Base" shall mean an amount equal to eighty percent (80%) of Eligible Accounts. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time prior to the Revolving Maturity Date. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. California time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. The Revolving Facility shall terminate on the Revolving Maturity Date, at which time all Advances under this Section 2.1 shall be immediately due and payable. 2.1.1 Term Conversion. Subject to the last sentence of this Section 2.1.1, at any time and from time to time prior to the Revolving Maturity Date, Borrower shall have a right to convert all or any part of outstanding Advances (in an aggregate amount not to exceed $3,000,000) into a Term Loan. To effect such conversion, Borrower shall give Bank not less than three (3) Business Days' notice in a form reasonably acceptable to Bank specifying the principal amount to be converted and the requested date of conversion (the "Conversion Date"). Each Term Loan shall bear interest at a floating rate equal to the Prime Rate, and shall be payable in sixty (60) equal monthly installments of principal plus accrued interest, beginning the first day of the month immediately following the Conversion Date and continuing on the first day of each month thereafter until the Term Loan has been repaid in full. The Committed Line shall be permanently reduced by the outstanding principal balance of the Term Loans. Borrower may convert an Advance under this Section 2.1 provided a Event of Default is not continuing and provided further that Borrower's Debt Service Coverage after giving effect to the conversion will not be less than 1.5 to 1.0. "Debt Service Coverage" means (i) Borrower's earnings before interest, taxes, depreciation and amortization for the two quarters prior to the Conversion Date, multiplied by two divided by (ii) the sum of the current portion of long-term debt (as defined pursuant to GAAP) of the requested Term Loans plus the interest expense for twelve (12) months that will accrue on such Term Loans plus the current portion of long-term debt (as defined pursuant to GAAP) of any existing Term Loans plus the interest expense for twelve (12) months that will accrue on such Term Loans. 2.2 Overadvances. If, at any time or for any reason, the amount of Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement is greater than the lesser of (i) the Committed Line or (ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess. If, at anytime or for any reason, the amount of Obligations owed by Borrower to Bank pursuant to this Agreement is greater than the Committed Line, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 2.3 Interest Rates, Payments, and Calculations. (a) Interest Rate. Except as set forth in Section 2.3(b), any Advances shall bear interest, on the average Daily Balance, at a rate equal to the Prime Rate. (b) Default Rate. All Obligations shall bear interest, from and after the occurrence of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default. (c) Payments. Interest hereunder shall be due and payable on the fourth calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Committed Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. 6 10 (d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon California time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension. 2.5 Fees. Borrower shall pay to Bank the following: (a) Facility Fee. A Facility Fee equal to Fifteen Thousand Dollars ($15,000), which fee shall be due on the Closing Date and shall be fully earned and nonrefundable; (b) Financial Examination and Appraisal Fees. Bank's customary fees and out-of- pocket expenses for Bank's audits of Borrower's Accounts, and for each appraisal of Collateral and financial analysis and examination of Borrower performed from time to time by Bank or its agents; (c) Bank Expenses. Upon the date hereof, all Bank Expenses incurred through the Closing Date, including reasonable attorneys' fees and expenses, and, after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due; provided that Borrower shall only be responsible for up to $3,000 in legal fees for providing the first draft to the Loan Documents. 2.6 Additional Costs. In case any change in any law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law), in each case after the date of this Agreement: (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to its performance under this Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank's calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error. 2.7 Term. This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for a term ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Advances 7 11 under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 3. CONDITIONS OF LOANS 3.1 Conditions Precedent to Initial Advance. The obligation of Bank to make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Agreement; (b) a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; (c) financing statement (Form UCC-1); (d) insurance certificate; (e) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof; and (f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 3.2 Conditions Precedent to all Advances. The obligation of Bank to make each Advance, including the initial Advance, is further subject to the following conditions: (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Advance as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Advance. The making of each Advance shall be deemed to be a representation and warranty by Borrower on the date of such Advance as to the accuracy of the facts referred to in this Section 3.2(b). 4. CREATION OF SECURITY INTEREST 4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof. 4.2 Delivery of Additional Documentation Required. Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. 8 12 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1 Due Organization and Qualification. Borrower and each Subsidiary is a corporation duly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of property requires that it be so qualified. 5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound, which default could have a Material Adverse Effect. 5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the Collateral, free and clear of Liens, except for Permitted Liens. 5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide existing obligations. The property giving rise to such Eligible Accounts has been delivered to the account debtor or to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account. 5.5 Merchantable Inventory. All Inventory is in all material respects of good and marketable quality, free from all material defects. 5.6 Name; Location of Chief Executive Office. Except for the names "Business Furniture Solutions, Inc." and "Business Interiors," Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof. 5.7 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect or a material adverse effect on Borrower's interest or Bank's security interest in the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. 5.8 No Material Adverse Change in Financial Statements. All consolidated financial statements related to Borrower and any Subsidiary that have been delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank. 5.9 Solvency. Borrower is solvent and able to pay its debts (including trade debts) as they mature. 5.10 Regulatory Compliance. Borrower and each Subsidiary has met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect. 5.11 Environmental Condition. None of Borrower's or any Subsidiary's properties or 9 13 assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment. 5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed all tax returns required to be filed, and has paid, or has made adequate provision for the payment of, all taxes reflected therein. 5.13 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. 5.14 Government Consents. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted. 5.15 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. 6. AFFIRMATIVE COVENANTS Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make an Advance hereunder, Borrower shall do all of the following: 6.1 Good Standing. Borrower shall maintain its and each of its Subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, to the extent consistent with prudent management of Borrower's business, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 6.2 Government Compliance. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral. 6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to Bank: (a) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower's fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (b) within five (5) days upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (c) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (d) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time. 10 14 Within twenty (20) days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings of accounts receivable and accounts payable. Borrower shall deliver to Bank with the quarterly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto. Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense, provided that such audits will be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing. 6.4 Inventory; Returns. Borrower shall keep all Inventory in good and marketable condition, free from all material defects. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Five Hundred Thousand Dollars ($500,000). 6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower. 6.6 Insurance. (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's. (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are customary to businesses similar to Borrower and are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender's loss payable endorsement, in a form reasonably satisfactory to Bank, showing Bank as an additional loss payee thereof and all liability insurance policies shall show the Bank as an additional insured, and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank's reasonable request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. 6.7 Principal Depository. Borrower shall maintain its principal depository and operating accounts with Bank. 6.8 Quick Ratio. Borrower shall maintain, as of the last day of each fiscal quarter, a ratio of Quick Assets to Current Liabilities of at least 1.25 to 1.0. 6.9 Debt Service Coverage. Beginning the last day of each quarter in which a Term Loan is outstanding, Borrower shall maintain a Debt Service Ratio of not less than 1.5 to 1.0. "Debt Service Ratio" means (i) Borrower's earnings before interest expense, taxes, depreciation and amortization for the prior two (2) fiscal quarters, multiplied by two, divided by (ii) the current portion of the Term Loans plus the interest expense for twelve (12) months that have accrued on the Term Loans. 6.10 Debt-Net Worth Ratio. Borrower shall maintain, as of the last day of each fiscal 11 15 quarter, a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 2.0 to 1.0. 6.11 Tangible Net Worth. Borrower shall maintain, as of the last day of each fiscal quarter, a Tangible Net Worth of not less than Eight Million, Eight Hundred Four Thousand, Five Hundred Dollars ($8,804,500), plus seventy five percent (75%) of Borrower's net income after taxes. 6.12 Profitability. Borrower shall have a minimum net profit of One Dollar ($1.00) for each fiscal quarter. 6.13 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 7. NEGATIVE COVENANTS Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Advances, Borrower will not do any of the following without Bank's prior written approval: 7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment. 7.2 Change in Business. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto). Borrower will not, without thirty (30) days prior written notification to Bank, relocate its chief executive office. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person where an Event of Default is continuing or would exist after giving effect to such merger, consolidation or acquisition. 7.4 Indebtedness. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness. 7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. 7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock. 7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments. 7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person. 7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent. 7.10 Inventory. Store the Inventory with a bailee, warehouseman, or similar party 12 16 unless Bank has received a pledge of the warehouse receipt covering such Inventory. Except for Inventory sold in the ordinary course of business, and except for such other locations as Bank may approve in writing, and except for Inventory valued in the aggregate at no more than One Hundred Thousand Dollars ($100,000), Borrower shall keep the Inventory only at the location set forth in Section 10 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest. 7.11 Compliance. Become an "investment company" controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Advance for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing. 8. EVENTS OF DEFAULT Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 Payment Default. If Borrower fails to pay the principal of, or any interest on, any Advances when due and payable; or fails to pay any portion of any other Obligations not constituting such principal or interest, including without limitation Bank Expenses, within thirty (30) days of receipt by Borrower of an invoice for such other Obligations; 8.2 Covenant Default. If Borrower fails to perform any obligation under Sections 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Advances will be required to be made during such cure period); 8.3 Attachment. If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Advances will be required to be made during such cure period); 8.4 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within ten (10) days (provided that no Advances will be made prior to the dismissal of such Insolvency Proceeding); 8.5 Other Agreements. If there is a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not 13 17 exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) or that could have a Material Adverse Effect; 8.6 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Thousand Dollars ($200,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of forty-five (45) days (provided that no Advances will be made prior to the satisfaction or stay of such judgment); or 8.7 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document. 9. BANK'S RIGHTS AND REMEDIES 9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 all Obligations shall become immediately due and payable without any action by Bank); (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; (d) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise; (e) Without notice to Borrower set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit; (g) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate; (h) Bank may credit bid and purchase at any public sale; and (i) Any deficiency that exists after disposition of the Collateral as provided 14 18 above will be paid immediately by Borrower. 9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (e) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated. 9.3 Accounts Collection. At any time from the date of this Agreement, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit. 9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Facility as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement. 9.5 Bank's Liability for Collateral. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. 9.7 Demand; Protest. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 10. NOTICES Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, 15 19 certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: If to Borrower: Business Resource Group 2150 N. First Street, Suite 101 San Jose, CA 95131 Attn: Mr. P. Steven Melman FAX: (408) 441-3740 If to Bank: Silicon Valley Bank 3003 Tasman Drive Santa Clara, CA 95054 Attn: James R. Marshall FAX: (408) 727-8728 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. 12. GENERAL PROVISIONS 12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder. 12.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement. 12.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.5 Amendments in Writing, Integration. This Agreement cannot be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents. The security interest granted under the Commercial Security Agreement and perfected by the financing statement filed with the California Secretary of State as 16 20 Document No. 88-083054 on April 8, 1988, as continued from time to time, continues to secure all of the Obligations. 12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.7 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. 12.8 Confidentiality. In handling any confidential information Bank shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may reasonably determine in connection with the enforcement of any remedies pursuant to Article 9 of this Agreement. Confidential information hereunder shall not include information that either: (a) is in the public domain, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. BUSINESS RESOURCE GROUP By:___________________________________ Title:________________________________ SILICON VALLEY BANK By:___________________________________ Title:________________________________ 17 21 EXHIBIT A The Collateral shall consist of all right, title and interest of Borrower in and to the following: (a) All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; (b) All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing; (c) All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; (d) All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing; (e) All documents, cash, deposit accounts, securities, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; (f) All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and (g) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. 18 22 EXHIBIT B LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE:_______________ FAX#: (408) 496-2426 TIME:_______________ FROM:___________________________________________________________________________ CLIENT NAME (BORROWER) REQUESTED BY:___________________________________________________________________ AUTHORIZED SIGNER'S NAME AUTHORIZED SIGNATURE:___________________________________________________________ PHONE NUMBER:___________________________________________________________________ FROM ACCOUNT #________________________TO ACCOUNT #______________________________ REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT - -------------------------- --------------------- PRINCIPAL INCREASE (ADVANCE) $_______________________________ PRINCIPAL PAYMENT (ONLY) $_______________________________ INTEREST PAYMENT (ONLY) $_______________________________ PRINCIPAL AND INTEREST (PAYMENT) $_______________________________ OTHER INSTRUCTIONS:_____________________________________________________________ ________________________________________________________________________________ All representations and warranties of Borrower stated in the Loan Agreement are true, correct and complete in all material respects as of the date of the telephone request for and Advance confirmed by this Borrowing Certificate; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. BANK USE ONLY TELEPHONE REQUEST: The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. __________________________________ ___________________________________ Authorized Requester Phone # __________________________________ ___________________________________ Received By (Bank) Phone # ______________________________ Authorized Signature (Bank) 19 23 EXHIBIT C BORROWING BASE CERTIFICATE Borrower: Business Resource Group Lender: Silicon Valley Bank Commitment Amount: $8,000,000 ACCOUNTS RECEIVABLE 1. Accounts Receivable Book Value as of ________ $________ 2. Additions (please explain on reverse) $________ 3. TOTAL ACCOUNTS RECEIVABLE $________ ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 4. Amounts over 90 days due $________ 5. Balance of 50% over 90 day accounts $________ 6. Concentration Limits $________ 7. Foreign Accounts $________ 8. Governmental Accounts $________ 9. Contra Accounts $________ 10. Promotion or Demo Accounts $________ 11. Intercompany/Employee Accounts $________ 12. Allsteel Contra Accounts $________ 13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________ 14. Eligible Accounts (#3 minus #13) $________ 15. LOAN VALUE OF ACCOUNTS (80% of #14) $________ BALANCES 16. Maximum Loan Amount $________ 17. Total Funds Available (Lesser of #15 or #16) $________ 18. Present balance owing on Line of Credit $________ 19. RESERVE POSITION (#17 minus #18) $________ The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Silicon Valley Bank. COMMENTS: BANK USE ONLY Rec'd By:____________ BUSINESS RESOURCE GROUP Auth. Signer Date:________________ Verified:____________ By: Auth. Signer Authorized Signer Date:________________ _____________________ - ---------------------------------- 20 24 EXHIBIT D COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK FROM: BUSINESS RESOURCE GROUP The undersigned authorized officer of Business Resource Group hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes. PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES ------------------ -------- -------- Annual (CPA Audited) FYE within 120 days Yes No A/R & A/P Agings Monthly within 20 days Yes No A/R Audit Initial and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES ------------------ -------- ------ -------- Maintain on a Quarterly Basis: Minimum Quick Ratio 1.25:1.0 _____:1.0 Yes No Minimum Debt Service Coverage 1.5:1.0* _____:1.0 Yes No Minimum Tangible Net Worth $8,804,500** $________ Yes No Maximum Debt/Tangible Net Worth 2.0:1.0 _____:1.0 Yes No Profitability: Quarterly $ 1.00 $________ Yes No
*For any quarter in which a Term Loan is outstanding. ** plus 75% of net income after tax COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY Sincerely, Received by:_________________ AUTHORIZED SIGNER ____________________________________ SIGNATURE Date:________________________ ____________________________________ Verified:____________________ TITLE AUTHORIZED SIGNER ____________________________________ Date:________________________ DATE Compliance Status: Yes No 21 25 DISBURSEMENT REQUEST AND AUTHORIZATION Borrower: Business Resource Group Bank: Silicon Valley Bank LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal amount up to $8,000,000. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business. SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working Capital. DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Bank's conditions for making the loan have been satisfied. Please disburse the loan proceeds as follows: Revolving Line -------------- Amount paid to Borrower directly: $_____________ Undisbursed Funds $_____________ Principal $ 8,000,000 CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges: Charges Paid in Cash: $15,000 Loan Fee $50 UCC Search $35 Credit Report $3,000 Outside Counsel Fees and Expenses (Estimate for first draft of Loan Documents) Total Charges Paid in Cash $18,085 AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from Borrower's account numbered 0330824370 the amount of any loan payment. If the funds in the account are insufficient to cover any payment, Bank shall not be obligated to advance funds to cover the payment. FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF JULY ___, 1996. BORROWER: BUSINESS RESOURCE GROUP ____________________________________ Authorized Officer 26 AGREEMENT TO PROVIDE INSURANCE GRANTOR: Business Resource Group BANK: Silicon Valley Bank INSURANCE REQUIREMENTS. Business Resource Group ("Grantor") understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to Grantor by Bank. These requirements are set forth in the Loan Documents. The following minimum insurance coverages must be provided on the following described collateral (the "Collateral"): Collateral: All Inventory, Equipment and Fixtures. Type: All risks, including fire, theft and liability. Amount: Full insurable value. Basis: Replacement value. Endorsements: Loss payable clause to Bank with stipulation that coverage will not be cancelled or diminished without a minimum of twenty (20) days' prior written notice to Bank. INSURANCE COMPANY. Grantor may obtain insurance from any insurance company Grantor may choose that is reasonably satisfactory to Bank. Grantor understands that credit may not be denied solely because insurance was not purchased through Bank. FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or before closing, evidence of the required insurance as provided above, with an effective date of July 3, 1996, or earlier. Grantor acknowledges and agrees that if Grantor fails to provide any required insurance or fails to continue such insurance in force, Bank may do so at Grantor's expense as provided in the Loan and Security Agreement. The cost of such insurance, at the option of Bank, shall be payable on demand or shall be added to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS. AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor authorizes Bank to provide to any person (including any insurance agent or company) all information Bank deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 3, 1996. GRANTOR: BUSINESS RESOURCE GROUP x Authorized Officer ___________________________________________ FOR BANK USE ONLY INSURANCE VERIFICATION DATE:___________ PHONE:_________ AGENT'S NAME:___________________________________________________________________ INSURANCE COMPANY:______________________________________________________________ POLICY NUMBER:__________________________________________________________________ EFFECTIVE DATES:________________________________________________________________ COMMENTS:_______________________________________________________________________ 27 CORPORATE RESOLUTIONS TO BORROW Borrower: Business Resource Group I, the undersigned Secretary or Assistant Secretary of Business Resource Group (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of California. I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Certificate of Incorporation and Bylaws of the Corporation, each of which is in full force and effect on the date hereof. I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly called and held, at which a quorum was present and voting (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted. BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below: NAMES POSITIONS ACTUAL SIGNATURES - ---------------------- ------------------------ ------------------------ ______________________ ________________________ ________________________ ______________________ ________________________ ________________________ ______________________ ________________________ ________________________ ______________________ ________________________ ________________________ ______________________ ________________________ ________________________ acting for an on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered: BORROW MONEY. To borrow from time to time from Silicon Valley Bank ("Bank"), on such terms as may be agreed upon between the officers, employees, or agents and Bank, such sum or sums of money as in their judgment should be borrowed, without limitation, including such sums as are specified in that certain Loan and Security Agreement dated as of July 3, 1996 (the "Loan Agreement"). EXECUTE NOTES. To execute and deliver to Bank the promissory note or notes of the Corporation, on Lender's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any indebtedness of the Corporation to Bank, and also to execute and deliver to Lender one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for one or more of the notes, or any portion of the notes. GRANT SECURITY. To grant a security interest to Bank in the Collateral described in the Loan Agreement, which security interest shall secure all of the Corporation's Obligations, as described in the Loan Agreement. NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit applications, foreign exchange agreements and other related documents pertaining to Bank's issuance of letters of credit and foreign exchange contracts. FURTHER ACTS. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably 1 28 necessary or proper in order to carry into effect the provisions of these Resolutions. BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever. IN WITNESS WHEREOF, I have hereunto set my hand on July ___, 1996 and attest that the signatures set opposite the names listed above are their genuine signatures. CERTIFIED TO AND ATTESTED BY: X________________________________ EX-11.1 5 COMPUTATION OF NET EARNINGS PER SHARE 1 Exhibit 11.1 BUSINESS RESOURCE GROUP COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, --------------------- --------------------- 1996 1995 1996 1995 ------ ------ ------ ------ PRIMARY (2) Net income ....................................... $ 419 $1,352 ====== ====== Weighted average shares outstanding- Common shares ................................. 4,847 4,843 Common equivalent shares- Stock options ................................. 67 21 ------ ------ Total common stock and common stock equivalents ............................. 4,914 4,864 ====== ====== Net income per common and common share equivalent ....................... $ .09 $ .28 ====== ====== Pro forma net income ............................. $ 513 $1,215 ====== ====== Weighted average shares outstanding- Pro forma common shares ....................... 3,642 3,273 Pro forma common equivalent shares: Stock options ................................. 136 50 Warrants ...................................... 6 6 Supplemental shares (1) ....................... 166 230 ------ ------ Total pro forma common stock and common stock equivalents ...................... 3,950 3,559 ====== ====== Pro forma net income per common share .............................. $ .13 $ .34 ====== ======
(1) Represents the approximate number of shares that would have to have been sold to fund the distribution of undistributed S Corporation earnings. (2) Presentation of fully diluted net income per share was not provided as amounts were not materially different from primary net income per share. EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1000 9-MOS OCT-31-1996 NOV-01-1995 JUL-31-1996 668 0 13614 55 1021 16694 2263 529 19443 6876 0 0 0 49 12451 19443 49623 56483 40504 45264 9006 0 0 2307 955 1352 0 0 0 1352 .28 .28
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