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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File No. 0-27042
AlphaNet Solutions, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2554535
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7 Ridgedale Ave., Cedar Knolls, New Jersey 07927
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(Address of Principal Executive Offices) (Zip Code)
(201) 267-0088
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(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.
Yes: X No:
----- -----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of June 30, 1997:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 6,255,360
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ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION ................................................1
Item 1. Financial Statements.............................................1
Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1997 (unaudited)........................................2
Consolidated Statements of Income for the Three Months and
Six Months Ended June 30, 1996 and 1997 (unaudited)..............3
Consolidated Statement of Changes in Shareholders' Equity
for the Six Months Ended June 30, 1997 (unaudited)...............4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1997 (unaudited).........................5
Notes to Consolidated Financial Statements (unaudited)...........6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.........................................9
Results of Operations...........................................11
Liquidity and Capital Resources.................................13
PART II. OTHER INFORMATION...................................................16
Item 4. Submission of Matters to a Vote of Security Holders.............16
Item 5. Other Information...............................................16
Item 6. Exhibits and Reports on Form 8-K................................18
SIGNATURES....................................................................19
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
1996 1997
------------ --------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 1,610 $16,721
Accounts receivable, net ....................... 29,848 32,579
Inventories .................................... 4,809 4,575
Deferred income tax asset ...................... 445 445
Prepaid expenses and other current assets ....... 1,705 1,009
------- -------
Total current assets .......................... 38,417 55,329
Property and equipment, net .......................... 3,856 5,179
Other assets ......................................... 1,374 1,197
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Total assets .................................. $43,647 $61,705
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations .... $ 103 $ 107
Accounts payable ................................ 17,923 15,640
Accrued expenses ................................ 5,984 6,868
------- -------
Total current liabilities ..................... 24,010 22,615
Advance from principal shareholder ................... 675 675
Capital lease obligations ............................ 41 --
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Total liabilities ............................. 24,726 23,290
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Shareholders' equity:
Preferred stock -- $0.01 par value; authorized
3,000,000 shares, none issued ................. -- --
Common stock -- $0.01 par value; authorized
15,000,000 shares, 5,102,900 and 6,255,360
shares issued and outstanding ................. 51 63
Additional paid-in capital ...................... 15,904 33,125
Retained earnings ............................... 2,966 5,227
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Total shareholders' equity .................... 18,921 38,415
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Total liabilities and shareholders' equity .... $43,647 $61,705
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
Product sales ...................................... $ 19,677 $ 31,609 $ 34,868 $ 70,377
Services and support ............................... 4,568 10,201 8,673 17,934
-------- -------- -------- --------
24,245 41,810 43,541 88,311
-------- -------- -------- --------
Cost of sales:
Product sales ...................................... 17,624 28,003 30,907 62,496
Services and support ............................... 3,086 6,736 5,695 11,764
-------- -------- -------- --------
20,710 34,739 36,602 74,260
-------- -------- -------- --------
Gross profit ........................................... 3,535 7,071 6,939 14,051
-------- -------- -------- --------
Operating expenses:
Selling expenses ................................... 1,513 2,943 2,762 5,861
General and administrative expenses ................ 1,237 2,197 2,413 4,233
-------- -------- -------- --------
2,750 5,140 5,175 10,094
-------- -------- -------- --------
Operating income ....................................... 785 1,931 1,764 3,957
-------- -------- -------- --------
Other income (expense):
Interest income .................................... 103 18 120 21
Interest expense ................................... (20) (85) (55) (146)
-------- -------- -------- --------
83 (67) 65 (125)
-------- -------- -------- --------
Income before income taxes ............................. 868 1,864 1,829 3,832
Provision for income taxes ............................. 352 764 320 1,571
-------- -------- -------- --------
Net income ............................................. $ 516 $ 1,100 $ 1,509 $ 2,261
======== ======== ======== ========
Pro forma data (Note 2):
Income before income taxes ......................... $ 1,829
Provision for income taxes ......................... 741
--------
Net income ......................................... $ 1,088
========
Net income per share ................................... $ 0.10 $ 0.20 $ 0.24 $ 0.42
======== ======== ======== ========
Weighted average number
of common shares and
common shares equivalent ........................... 5,073 5,476 4,558 5,385
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands)
Additional
Common Common Stock Paid-In Retained
Shares Capital Earnings Total
-------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997.......... 5,103 $ 51 $ 15,904 $ 2,966 $ 18,921
Sale of Common Stock................ 1,150 12 17,199 -- 17,211
Exercises of stock options.......... 2 -- 22 -- 22
Net income.......................... -- -- -- 2,261 2,261
----- -------- --------- --------- ---------
Balance at June 30, 1997............ 6,255 $ 63 $ 33,125 $ 5,227 $ 38,415
===== ======== ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Six Months
Ended June 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 1,509 $ 2,261
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization ................... 187 721
Increase (decrease) from changes in:
Accounts receivable, net ...................... (2,924) (2,731)
Inventories ................................... (940) 234
Prepaid expenses and other current assets ..... (1,475) 696
Other assets .................................. 388 51
Accounts payable and accrued expenses ......... 1,387 (1,399)
-------- --------
Net cash (used in) operating activities ......... (1,868) (167)
-------- --------
Cash flows from investing activities:
Property and equipment expenditures ............... (738) (1,918)
Receipt of loan repayments - shareholder .......... 413 --
-------- --------
Net cash (used in) investing activities ......... (325) (1,918)
-------- --------
Cash flows from financing activities:
Net proceeds from sales of common stock ........... 15,739 17,211
Exercises of stock options ........................ -- 22
Repayment of long-term debt ....................... (736) --
Repayment of capital lease obligations ............ (45) (37)
Payment of dividends .............................. (1,147) --
Distribution of S Corporation earnings ............ (6,155) --
-------- --------
Net cash provided by financing activities ....... 7,656 17,196
-------- --------
Net increase in cash and cash equivalents ............ 5,463 15,111
Cash and cash equivalents, beginning of period ....... 1,223 1,610
-------- --------
Cash and cash equivalents, end of period ............. $ 6,686 $ 16,721
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
Note 1 -- Basis of Presentation:
The information presented for June 30, 1996 and 1997, and for the
three-month and six-month periods then ended, is unaudited, but, in the opinion
of AlphaNet Solutions, Inc. (the "Company"), the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for the fair
presentation of the Company's financial position as of June 30, 1997 and the
results of its operations and its cash flows for the three-month and six-month
periods ended June 30, 1996 and 1997. The consolidated financial statements
included herein have been prepared in accordance with generally accepted
accounting principles and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1996,
which were included as part of the Company's Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year.
Certain indirect costs, totaling $734 and $1,435, relating to the
three-month and six-month periods ended June 30, 1996, respectively, which
previously were classified as costs of services and support, have been
reclassified to general and administrative expenses to conform with industry
practices.
Note 2 -- Income Taxes:
Prior to March 19, 1996, the Company, with the consent of its shareholders,
had elected to be taxed under the Subchapter S of the Internal Revenue Code as
an S Corporation for federal income tax purposes. In lieu of corporate income
taxes, the shareholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. As a result, the Company was not subject
to federal income taxes prior to March 19, 1996. The Company had also elected S
Corporation status in the State of New Jersey. The accompanying financial
statements include provisions for certain state and local income taxes which
were imposed at the corporate level.
On March 19, 1996, the Company terminated its status as an S Corporation
and became subject to federal and state income taxes thereafter at applicable C
Corporation income tax rates.
For informational purposes, the accompanying statements of income for the
six months ended June 30, 1996 include a pro forma adjustment for income taxes
which would have been recorded if the Company had not been an S Corporation,
based on the tax laws in effect during such period.
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ALPHANET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
Note 3 -- Net Income Per Share:
Net income per share (pro forma for the six months ended June 30, 1996) is
computed using the weighted average number of common shares and common shares
equivalent outstanding during the period. Common shares equivalent consists of
the Company's common shares issuable upon the exercise of stock options.
Pursuant to the requirements of the Securities and Exchange Commission, stock
options issued by the Company during the twelve months immediately preceding the
Company's initial public offering have been included in the weighted average
number of common shares and common shares equivalent used in computing pro forma
net income per share as if they were outstanding for periods prior to the
Company's initial public offering using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share." The Statement is
effective for financial statements for periods ending after December 15, 1997,
and changes the method in which earnings per share will be determined. Adoption
of this Statement by the Company is not expected to have a material impact on
earnings per share.
Note 4 -- Public Offering of Common Stock:
On June 18, 1997, the Company consummated a follow-on public offering of
2,000,000 shares of its Common Stock at a price to the public of $16.50 per
share, of which 1,150,000 were issued and sold by the Company and 850,000 shares
were sold by certain selling shareholders. The Company received $15.51 per
share, before offering expenses, resulting in net proceeds of approximately
$17,211. The Company did not receive any proceeds from the sale of shares by the
selling shareholders.
Note 5 --New Credit Facility:
On June 30, 1997, the Company and First Union National Bank (the "Bank")
executed a Loan and Security Agreement whereby the Bank expanded the Company's
credit facility to enable the Company to borrow, based upon eligible accounts
receivable, up to $15,000 for short-term working capital purposes. Such
facility, which matures on June 30, 1998, includes a $2,500 sublimit for letters
of credit and a $5,000 sublimit for acquisition advances. Under the new facility
the Company may borrow, subject to certain post-closing conditions and covenants
by the Company, (i) for working capital purposes at the Bank's prime rate less
0.50% or LIBOR plus 1.25% and (ii) for acquisitions at the Bank's prime rate
less 0.25% or LIBOR plus 1.50%. The Company's obligations under such facility
are collateralized by a first priority lien on the Company's accounts receivable
and inventory, except for inventory for which the Bank has or will have
subordinated its position to certain other lenders pursuant to intercreditor
agreements.
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Note 6 --Subsequent Event:
On August 13, 1997, the Company consummated the acquisition of certain
assets and assumed certain liabilities of The Lande Group, Inc. ("Lande"), a
computer equipment reseller and provider of systems integration services located
in New York City. The Company purchased, among other assets, the entire customer
list, accounts receivable and inventory of Lande for an aggregate purchase price
of up to $1,000, of which $750 was paid at closing and $250 is held in escrow
pending certain post-closing adjustments. The Company also assumed certain
liabilities, including certain trade debt of $2,943, which was paid by the
Company at closing, accounts payable and accrued expenses of approximately
$1,900 and obligations under a lease which expires in April 2008, for New York
City office space which will serve as the Company's New York headquarters. The
value of the assets purchased was approximately the same as the liabilities
assumed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The Company is a single-source provider of information technology ("IT")
products, services and support to Fortune 1000 and other large and mid-sized
companies located primarily in the New York-to-Philadelphia corridor. The
Company was formed in 1984 as an authorized reseller of computer hardware and
software products, and since 1990, has been developing and offering related IT
services. To date, most of the Company's net sales have been derived from IT
product sales. For the first six months of 1997, net product sales were
approximately 80% and services and support revenue was approximately 20% of the
Company's net sales.
The Company has distribution agreements with MicroAge Computer Centers,
Inc. ("MicroAge") and Ingram Micro ("Ingram"), two of the nation's largest
aggregators of computer products, to acquire most of its IT products for resale.
The Company's relationship with MicroAge commenced in 1984, and as customer
demand for IT products grew, the Company initiated its relationship with Ingram
in 1994. The distribution agreements with MicroAge and Ingram give the Company
access to such aggregators' extensive inventories and provide the Company with
electronic ordering capability, product configuration and testing, warehousing
and delivery. In general, the Company orders IT products, including
workstations, servers, microcomputers, networking and communications equipment,
and applications software from such aggregators on an as-needed basis, thereby
reducing the Company's need to carry large inventories. During the first six
months of 1997, the Company acquired approximately 32% and 49% of its products
for resale from MicroAge and Ingram, respectively.
In general, there are no ongoing written commitments by customers to
purchase products from the Company and all product sales are made on a purchase
order basis. Furthermore, as the market for IT products has matured, price
competition has intensified and is likely to continue to intensify. The
Company's gross profits, margins and results of operations could be adversely
affected by such continued product pricing pressure, a significant reduction in
product purchase orders from the Company's customers, or a disruption in the
Company's sources of product supply.
The Company offers network consulting (including systems integration),
workstation support, education, communications installation and IT staffing
services. Services and support revenue is recognized as such services are
performed. The Company's network consulting, workstation support and
communications installation services are billed on a time and materials basis.
The Company's education and IT staffing services are fee-based on a per-course
and per-placement basis, respectively. Generally, the Company's service
arrangements with its customers may be terminated by such customers with limited
advance notice and without significant penalty. The most significant cost
relating to the services component of the Company's business is personnel
expenses which consist of salaries, benefits and payroll-related expenses. Thus,
the
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financial performance of the Company's service business is based primarily upon
billing margins (billable hourly rates less the costs to the Company of such
service personnel on an hourly basis) and utilization rates (billable hours
divided by paid hours). The future success of the services component of the
Company's business will depend in large part upon its ability to maintain high
utilization rates at profitable billing margins. The Company's utilization rates
for service personnel likely will be adversely affected during periods of rapid
and concentrated hiring. During the first six months of 1997, the Company's
staff of service personnel increased from 242 at December 31, 1996 to 422 at
June 30, 1997. In addition, the competition for quality technical personnel has
continued to intensify resulting in increased personnel costs for the Company
and many other IT service providers, which has adversely affected the Company's
billing margins.
The Company's cost of sales includes primarily, in the case of product
sales, the cost to the Company of products acquired for resale, and in the case
of services and support revenue, salaries and related expenses for billable
technical personnel. The Company's selling expenses consist primarily of
personnel costs, including sales commissions earned by employees involved in the
sales of IT products, services and support. These personnel include direct
sales, sales support and marketing personnel. Sales commissions are recorded as
revenue is recognized. General and administrative expenses consist of all other
operating expenses, including primarily salaries and occupancy costs for
administrative, executive and finance personnel. Certain indirect costs,
totaling $734,000 and $1.4 million, relating to the three months and six months
ended June 30, 1996, respectively, which previously were classified as costs of
service and support, have been reclassified to general and administrative
expenses to conform with current industry practices.
The Company believes that its ability to provide a broad range of technical
services, coupled with its traditional strength in satisfying its clients' IT
product requirements and its long-term relationships with large clients,
positions the Company to continue to grow the services component of its
business, while further strengthening its product sales. As such, the Company
anticipates that an increasing percentage of its gross profits in the long term
will be derived from the services and support component of its business. For
example, in the second quarter of 1997, the Company's services and support
business represented 24% of net sales and 49% of gross profit. The Company's
services and support revenue as a percentage of net sales and gross profit may
vary from quarter to quarter primarily as a result of fluctuations in the volume
of product sales. The Company believes that its ability to be a single-source
provider of IT products, services and support enables it to earn margins higher
than it would earn if it sold products only.
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. The Company's
forward-looking statements, including, but not limited to, those statements
relating to the anticipated growth in the services and support component of the
Company's business, include risks and uncertainties. Such risks and
uncertainties include, but are not limited to: (i) the substantial variability
of the Company's quarterly operating results caused by a variety of factors,
some of which are not
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within the Company's control, including (a) the short-term nature of the
Company's customers' commitments, (b) patterns of capital spending by customers,
(c) the timing, size and mix of product and service orders and deliveries, (d)
the timing and size of new projects, (e) pricing changes in response to various
competitive factors, (f) market factors affecting the availability of qualified
technical personnel, (g) the timing and customer acceptance of new product and
service offerings, (h) changes in trends affecting outsourcing of IT services,
(i) disruption in sources of supply, (j) changes in product, personnel and other
operating costs, and (k) industry and general economic conditions; (ii) changes
in technical personnel billing and utilization rates which are likely to be
adversely affected during periods of rapid and concentrated hiring; (iii) the
intense competition in the markets for the Company's products and services; (iv)
the Company's ability to manage its growth effectively which will require the
Company to continue developing and improving its operational, financial and
other internal systems, including a major upgrade of the Company's internal
management information systems ("MIS") infrastructure; (v) the Company's ability
to develop, market, provide, and achieve market acceptance of, new service
offerings to new and existing clients; (vi) the Company's ability to attract,
hire, train and retain qualified technical personnel in an increasingly
competitive market; (vii) the Company's substantial reliance on a concentrated
number of key customers; (viii) uncertainties relating to potential
acquisitions, if any, made by the Company, such as its ability to integrate
acquired operations and to retain key customers and personnel of the acquired
business; (ix) the Company's dependence on vendor authorizations to resell
certain computer products and to provide related services; (x) the Company's
dependence on certain aggregators for a substantial portion of its products
acquired for resale; and (xi) the Company's reliance on the continued services
of key executive officers and salespersons. Such risks and uncertainties may
cause the Company's actual results to differ materially from the results
discussed in the forward-looking statements contained herein.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30,
1997
Net sales. Net sales increased by 72.4%, or $17.6 million, from $24.2
million in the second quarter of 1996 to $41.8 million in the second quarter of
1997. Product sales increased by 60.6%, or $11.9 million, from $19.7 million in
the second quarter of 1996 to $31.6 million in second quarter of 1997. This
increase was attributable primarily to product sales resulting from the
Company's July 1996 acquisition of certain assets and the business of Lior and
to increased demand from the Company's established customer base. Services and
support revenue increased by 123.3%, or $5.6 million, from $4.6 million in the
second quarter 1996 to $10.2 million in the second quarter of 1997. This
increase was attributable primarily to increased demand for the Company's
service and support offerings, particularly its network consulting services, and
to an increase in the number and size of client projects. In the second quarter
of 1997, sales to Nabisco, the Company's largest customer, accounted for
approximately 17% of the Company's net sales. In addition, KPMG Peat Marwick
accounted for approximately 10% of net sales
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during the second quarter of 1997. There can be no assurance that such customers
will continue to place orders with the Company or engage the Company to perform
services and support at existing levels.
Gross profit. The Company's gross profit increased by 100.0%, or $3.5
million, from $3.5 million in the second quarter of 1996 to $7.1 million in the
second quarter of 1997. Gross profit margin increased from 14.6% of net sales in
second quarter of 1996 to 16.9% in the second quarter of 1997. Gross profit
margin attributable to product sales increased from 10.4% in the second quarter
of 1996 to 11.4% in second quarter of 1997. The increase in such gross profit
margin during the second quarter of 1997 was attributable primarily to customer
mix and higher purchase discounts from vendors. Gross profit margin attributable
to services and support revenue increased from 32.4% of services and support
revenue in second quarter of 1996 to 34.0% in second quarter of 1997. The
increase in the gross profit margin was attributable primarily to higher
utilization rates of service personnel.
Selling expenses. Selling expenses increased by 94.5%, or $1.4 million,
from $1.5 million in second quarter of 1996 to $2.9 million in the second
quarter of 1997, and increased from 6.2% to 7.0% of net sales, respectively. The
increases in selling expenses were primarily attributable to increased
salesperson commissions and other support costs due to the increase in net
sales, the increase in sales and marketing efforts associated with the Company's
service and support offerings, the costs associated with the Company's new
service offerings and the costs incurred in connection with the Company's
expansion into the Philadelphia market.
General and administrative expenses. General and administrative expenses
increased by 77.6%, or $960,000, from $1.2 million in the second quarter of 1996
to $2.2 million in the second quarter of 1997, and increased from 5.1% to 5.3%
of net sales, respectively. The increases in general and administrative expenses
were due primarily to increases in personnel expenses, training costs,
professional fees and depreciation charges.
Six Months Ended June 30, 1996 Compared To Six Months Ended June 30, 1997
Net sales. Net sales increased by 102.8%, or $44.8 million, from $43.5
million in the first six months of 1996 to $88.3 million in the first six months
of 1997. Product sales increased by 101.8%, or $35.5 million, from $34.9 million
in the first six months of 1996 to $70.4 million in the first six months of
1997. This increase was attributable primarily to increased demand from the
Company's established customer base and to product sales resulting from the
Company's July 1996 acquisition of certain assets and the business of Lior.
Services and support revenue increased by 106.8%, or $9.3 million, from $8.7
million in the first six months of 1996 to $17.9 million in the first six months
of 1997. This increase was attributable primarily to increased demand for the
Company's service and support offerings, particularly its network consulting
services, due to an increase in the number and size of client projects. In the
first six months of 1997, sales to Nabisco, the Company's largest customer,
accounted for approximately 20% of the Company's net sales. In addition, KPMG
Peat Marwick accounted for approximately
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11% of net sales during the first six months of 1997. There can be no assurance
that such customers will continue to place orders with the Company or engage the
Company to perform services and support at existing levels.
Gross profit. The Company's gross profit increased by 102.5%, or $7.1
million, from $6.9 million in the first six months of 1996 to $14.0 million in
the first six months of 1997. Gross profit margin remained constant at 15.9% of
net sales in the first six months of 1996 and 1997, respectively. Gross profit
margin attributable to product sales remained relatively constant, decreasing
slightly from 11.4% in the first six months of 1996 to 11.2% in the first six
months of 1997. Gross profit margin attributable to services and support revenue
remained relatively constant, increasing slightly from 34.3% of services and
support revenue in the first six months of 1996 to 34.4% in the first six months
of 1997. The Company increased its staff of technical personnel from 242 at
December 31, 1996 to 422 at June 30, 1997.
Selling expenses. Selling expenses increased by 112.2%, or $3.1 million,
from $2.8 million in the first six months of 1996 to $5.9 million in the first
six months of 1997, and increased from 6.3% to 6.6% of net sales, respectively.
The increases in selling expenses were primarily attributable to increased
salesperson commissions and other support costs due to the increase in net
sales, the increase in sales and marketing efforts associated with the Company's
service and support offerings, the costs associated with the Company's new
service offerings and the costs incurred in connection with the Company's
expansion into the Philadelphia market.
General and administrative expenses. General and administrative expenses
increased by 75.4%, or $1.8 million, from $2.4 million in the first six months
of 1996 to $4.2 million in the first six months of 1997, but decreased from 5.5%
to 4.8% of net sales, respectively. The increase in general and administrative
expenses in absolute dollars was due primarily to increases in personnel
expenses, training costs, professional fees and depreciation charges. The
decrease as a percentage of net sales was due primarily to the substantial
increase in net sales.
LIQUIDITY AND CAPITAL RESOURCES
In March and April 1996, the Company consummated an initial public offering
of 2,200,000 shares of its Common Stock at a price to the public of $10.50 per
share. Of the 2,200,000 shares sold, 1,700,000 shares (including 100,000 shares
issued and sold by the Company upon the exercise of the underwriters'
over-allotment option) were issued and sold by the Company and 500,000 shares
were sold by The Gang Annuity Trust. The Company did not receive any of the
proceeds from the sale of shares by such selling shareholder. The net proceeds
to the Company were $15.7 million.
On June 18, 1997, the Company consummated a follow-on public offering of
2,000,000 shares of its Common Stock at a price to the public of $16.50 per
share. Of such shares, 1,150,000 were issued and sold by the Company and an
aggregate of 850,000 shares were sold by Stan Gang, the Company's founder,
Chairman, President and Chief Executive Officer, and
- 13 -
<PAGE>
The Gang Annuity Trust. The Company received $15.51 per share, before offering
expenses, resulting in net proceeds of approximately $17.2 million. The Company
used approximately $3.7 million of the net proceeds to repay all amounts
outstanding under its credit facility with First Union National Bank (the
"Bank"). Amounts outstanding under such facility were utilized by the Company
for short-term working capital purposes and carried an interest rate equal to
the Bank's prime rate less 0.25% or LIBOR plus 1.50%. See below for a discussion
of the Company's current financing terms with the Bank. The Company did not
receive any proceeds from the sale of shares by such selling shareholders.
Since its inception, the Company has funded its operations primarily from
cash generated by operations and, to a lesser extent, such cash has been
augmented with funds from borrowings under the Company's credit facilities and
the net proceeds from the Company's public offerings of its Common Stock
referenced above. The Company's cash used in operations was $167,000 for the six
months ended June 30, 1997 and consisted primarily of an increase in accounts
receivable of $2.7 million and a decrease in accounts payable and accrued
expenses of $1.4 million, mostly offset by net income of $2.3 million,
depreciation and amortization of $721,000 and a decrease in prepaid expenses and
other current assets of $696,000. The increase in accounts receivable in the
first six months of 1997 was primarily attributable to temporary delays in cash
receipts from a few large customers. The decrease in accounts payable and
accrued expenses in the first six months of 1997 is primarily due to the timing
of certain large payments related to inventory purchases. The Company's cash
flow from operations has been and continues to be affected primarily by the
timing of collection of accounts receivable, which accounts receivable have
increased as net sales have increased.
The Company's working capital was $32.7 million at June 30, 1997 compared
to $14.4 million at December 31, 1996.
The Company invested $1.9 million in property and equipment in the first
six months of 1997, primarily related to purchases and upgrades of computer
equipment and software utilized in-house, and development of the services
component of the Company's business. Although there are no other material
commitments for capital expenditures currently outstanding, the Company intends
to make additional capital expenditures to continue the expansion of the
services component of its business and for the enhancement of its MIS
infrastructure.
The Company purchases certain inventory and equipment through financing
arrangements with IBM Credit Corporation and Finova Capital Corporation. At June
30, 1997, there were outstanding balances of $4.3 million and $7.5 million,
respectively, under such arrangements. Obligations under such financing
arrangements are collateralized by substantially all of the assets of the
Company. Finova Capital Corporation and the Bank have entered into an
intercreditor agreement with respect to their relative interests. The Company
terminated and paid all amounts outstanding under its financing arrangement with
Deutsche Financial Services during the second quarter of 1997.
- 14 -
<PAGE>
On June 30, 1997, the Company and the Bank executed a Loan and Security
Agreement whereby the Bank expanded the Company's credit facility to enable the
Company to borrow, based upon eligible accounts receivable, up to $15.0 million
for short-term working capital purposes. Such facility, which matures on June
30, 1998, includes a $2.5 million sublimit for letters of credit and a $5.0
million sublimit for acquisition advances. Under the new facility the Company
may borrow, subject to certain post-closing conditions and covenants by the
Company, (i) for working capital purposes at the Bank's prime rate less 0.50% or
LIBOR plus 1.25% and (ii) for acquisitions at the bank's prime rate less 0.25%
or LIBOR plus 1.50%. The Company's obligations under such facility are
collateralized by a first priority lien on the Company's accounts receivable and
inventory, except for inventory for which the Bank has or will have subordinated
its position to certain other lenders pursuant to intercreditor agreements.
The Company has entered into a master lease agreement with First Union
Leasing Group, Inc. under which the Company may lease up to $500,000 of
equipment. Such agreement provides for equipment to be leased for three-year
terms with transfer of ownership of the equipment to the Company at the end of
the applicable equipment lease term. At June 30, 1997, capital lease obligations
outstanding under the equipment leases, which expire in 1998, aggregated
$107,000.
The Company believes that its available funds, together with existing
credit facilities and the cash flow expected to be generated from operations,
will be adequate to satisfy its current and planned operations for at least the
next 24 months.
- 15 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company (the "Meeting") was held
on May 15, 1997.
There were present at the Meeting in person or by proxy shareholders
holding an aggregate of 4,567,907 shares of Common Stock of a total number of
5,102,900 shares then issued and outstanding. The results of the vote taken at
such Meeting with respect to each nominee for director were as follows:
Nominees For Withheld
-------- --- --------
Stan Gang 4,562,007 5,900
Michael Gang 4,561,907 6,000
Michael R. Bruce 4,562,007 5,900
David J. Sorin, Esq. 4,561,907 6,000
Susan H. Wolford 4,562,007 5,900
In addition, a vote of the shareholders was taken at the Meeting on the
proposal to ratify the appointment of Price Waterhouse LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1997. Of the
shares present at the Meeting in person or by proxy 4,550,932 shares of Common
Stock were voted in favor of such proposal, 11,000 shares of Common Stock were
voted against such proposal, 5,475 shares of Common Stock abstained from voting
and there were 500 broker nonvotes.
ITEM 5. OTHER INFORMATION.
Public Offering of Common Stock
On June 18, 1997, the Company consummated a follow-on public offering of
2,000,000 shares of its Common Stock (the "Offering") at a price to the public
of $16.50 per share, of which 1,150,000 were issued and sold by the Company and
an aggregate of 850,000 shares were sold by Stan Gang, the Company's founder,
Chairman, President and Chief Executive Officer, and The Gang Annuity Trust (the
"Selling Shareholders"). The Company received $15.51 per share, before offering
expenses, resulting in net proceeds of approximately $17.2 million. The Company
did not receive any proceeds from the sale of shares by the Selling
Shareholders. The Company used a portion of the net proceeds from this offering
to repay $3.7 million outstanding under the Company's credit facility with First
Union National Bank (the "Bank"). Amounts outstanding under the credit facility
were utilized by the Company for short-term working capital purposes and carried
an interest rate equal to the bank's prime rate less 0.25% or LIBOR plus 1.50%.
The Company also intends to use approximately $4.0 million of the net proceeds
from
- 16 -
<PAGE>
the Offering for the expansion of the services component of the Company's
business and the enhancement of the Company's MIS infrastructure. The balance of
the net proceeds will be used for working capital and other general corporate
purposes, including possible acquisitions of IT products and service businesses
in order to expand the Company's service offerings, to add to or enhance its
base of technical or sales personnel, or to provide desirable customer
relationships. Pending such uses, the net proceeds to the Company from this
offering will be invested in short-term, investment-grade, interest-bearing
instruments. See below for a discussion of the Company's acquisition of The
Lande Group, Inc.
New Credit Facility
On June 30, 1997, the Company and the Bank executed a Loan and Security
Agreement whereby the Bank expanded the Company's credit facility to enable the
Company to borrow, based upon eligible accounts receivable, up to $15.0 million
for short-term working capital purposes. Such facility, which matures on June
30, 1998, includes a $2.5 million sublimit for letters of credit and a $5.0
million sublimit for acquisition advances. Under the new facility the Company
may borrow, subject to certain post-closing conditions and covenants by the
Company, (i) for working capital purposes at the Bank's prime rate less 0.50% or
LIBOR plus 1.25% and (ii) for acquisitions at the Bank's prime rate less 0.25%
or LIBOR plus 1.50%. The Company's obligations under such facility are
collateralized by a first priority lien on the Company's accounts receivable and
inventory, except for inventory for which the Bank has or will have subordinated
its position to certain other lenders pursuant to intercreditor agreements.
Acquisition of The Lande Group, Inc.
On August 13, 1997, the Company consummated the acquisition of certain
assets and assumed certain liabilities of The Lande Group, Inc. ("Lande"), a
computer equipment reseller and provider of systems integration services located
in New York City. The Company purchased, among other assets, the entire customer
list, accounts receivable and inventory of Lande for an aggregate purchase price
of up to $1.0 million, of which $750,000 was paid at closing and $250,000 is
held in escrow pending certain post-closing adjustments. The Company also
assumed certain liabilities, including certain trade debt of approximately $2.9
million, which was paid by the Company at closing, accounts payable and accrued
expenses of approximately $1.9 million and obligations under a lease, which
expires in April 2008, for New York City office space which will serve as the
Company's New York headquarters. The value of the assets purchased was
approximately the same as the liabilities assumed. In addition, seven former
Lande salespersons and 32 former Lande technical service personnel have joined
the Company. Among such personnel, Stewart Lande, the former President of Lande,
joined the Company as a General Manager.
The Company funded the purchase price from a portion of the net proceeds of
the follow-on public offering of its Common Stock consummated in June 1997. In
determining the purchase price, the Company considered, among other factors, the
past and projected revenues
- 17 -
<PAGE>
and earnings generated from the Lande business, the value of the Lande technical
personnel to the Company and the strategic value of an enhanced New York City
presence.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Loan and Security Agreement dated June 30, 1997 by and between
First Union National Bank and AlphaNet Solutions, Inc.
10.2 Asset Purchase Agreement dated August 1, 1997 by and between the
Company and The Lande Group, Inc.
11 Computation of Pro forma Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
quarterly report on Form 10-Q is filed.
- 18 -
<PAGE>
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.
AlphaNet Solutions, Inc.
DATE: August 13, 1997 By: /s/Stan Gang
-------------------------------------
Stan Gang,
President and Chief Executive Officer
(Principal Executive Officer)
DATE: August 13, 1997 By: /s/Gary S. Finkel
-------------------------------------
Gary S. Finkel,
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
- 19 -
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated: June 30, 1997
by and between
FIRST UNION NATIONAL BANK
and
ALPHANET SOLUTIONS, INC.
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TABLE OF CONTENTS
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Page
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I DEFINITIONS....................................................... 1
1.1 "AAA................................................... 1
1.2 "ACCOUNT" or "ACCOUNTS RECEIVABLE...................... 1
1.3 "ACCOUNT DEBTOR........................................ 1
1.4 "ACQUISITION ADVANCE................................... 1
1.5 "ADJUSTED LIBO RATE.................................... 1
1.6 "ADJUSTED LIBO RATE ADVANCES........................... 1
1.7 "ADVANCE(S)............................................ 1
1.8 "AFFILIATE............................................. 2
1.9 "AGREEMENT............................................. 2
1.10 "ARBITRATION RULES..................................... 2
1.11 "BANK.................................................. 2
1.12 "BASE RATE............................................. 2
1.13 "BASE RATE ADVANCES.................................... 2
1.14 "BORROWER.............................................. 2
1.15 "BORROWING BASE........................................ 2
1.16 "BORROWING BASE CERTIFICATE............................ 2
1.17 "BORROWING DATE........................................ 2
1.18 "BUSINESS DAY.......................................... 2
1.19 "CHATTEL PAPER......................................... 2
1.20 "CLOSING DATE.......................................... 3
1.21 "COLLATERAL............................................ 3
1.24 "CONTINGENT OBLIGATION(S)"............................. 3
1.25 "CONTRACTUAL OBLIGATIONS............................... 3
1.26 "DEFAULT............................................... 3
1.27 "DISPUTES.............................................. 4
1.28 "DOCUMENT(S)........................................... 4
1.29 "ELIGIBLE ACCOUNT...................................... 4
1.30 "ELIGIBLE LOAN VALUE OF ELIGIBLE ACCOUNTS.............. 4
1.31 "ENVIRONMENTAL LAWS.................................... 4
1.32 "ERISA................................................. 4
1.33 "EURODOLLAR RATE....................................... 4
1.34 "EURODOLLAR RESERVE.................................... 4
1.35 "EVENT OF DEFAULT...................................... 5
1.36 "FIXED CHARGE COVERAGE RATIO........................... 5
1.37 "GAAP.................................................. 5
1.38 "GENERAL INTANGIBLES................................... 5
1.39 "GOODS................................................. 5
1.40 "GOVERNMENTAL BODY..................................... 5
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1.41 "GUARANTOR(S)........................................... 5
1.42 "GUARANTY............................................... 5
1.43 "INDEBTEDNESS........................................... 5
1.44 "INDEMNIFIED PARTIES.................................... 6
1.45 "INELIGIBLE ACCOUNTS.................................... 6
1.46 "INSTRUMENT............................................. 7
1.47 "INTERCREDITOR AGREEMENTS............................... 8
1.48 "INTEREST PERIOD........................................ 8
1.49 "INVENTORY.............................................. 8
1.50 "INVESTMENT OBLIGATIONS................................. 8
1.51 "LETTER(S) OF CREDIT.................................... 8
1.52 "LETTER OF CREDIT AGREEMENT............................. 9
1.53 "LETTER OF CREDIT OBLIGATIONS........................... 9
1.54 "LIEN................................................... 9
1.55 "LOAN................................................... 9
1.56 "LOAN DOCUMENTS......................................... 9
1.57 "MARKETABLE SECURITIES INVESTMENT PERCENTAGE............ 9
1.58 "MATERIAL ADVERSE CHANGE................................ 9
1.59 "MATERIAL ADVERSE EFFECT................................ 9
1.60 "MATURITY DATE.......................................... 9
1.61 "OBLIGATION" or "OBLIGATIONS............................ 9
1.62 "OBLIGOR................................................ 10
1.63 "PBGC................................................... 10
1.64 "PERMITTED ACQUISITION.................................. 10
1.65 "PERMITTED ENCUMBRANCES................................. 10
1.66 "PERMITTED INDEBTEDNESS"................................ 10
1.67 "PERMITTED LEASES"...................................... 10
1.68 "PERSON................................................. 11
1.69 "PLAN................................................... 11
1.70 "REPAYMENT INDEMNITY"................................... 11
1.71 "REPORTABLE EVENT....................................... 11
1.72 "REVOLVING NOTE......................................... 12
1.73 "SUBSIDIARY............................................. 12
1.74 "TANGIBLE NET WORTH..................................... 12
1.75 "TELERATE PAGE 3750..................................... 12
1.76 "TOTAL ASSETS........................................... 12
1.77 "TOTAL LIABILITIES...................................... 12
1.78 "UNIFORM COMMERCIAL CODE................................ 12
1.79 "WORKING DAY............................................ 12
ii
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-----------------
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1.80 "INTERPRETATION AND CONSTRUCTION........................ 13
II LOANS.............................................................. 14
2.1 REVOLVING LOAN AND LETTERS OF CREDIT.................... 14
2.2 INTEREST................................................ 14
2.3 REPAYMENT OF ADVANCES................................... 16
2.4 FEES.................................................... 17
2.5 PREPAYMENT.............................................. 17
2.6 PROCEDURES FOR ADVANCES................................. 18
2.7 PROCEDURES FOR LETTERS OF CREDIT........................ 18
2.8 USE OF PROCEEDS......................................... 20
2.9 CONDITIONS TO INITIAL ADVANCE........................... 20
2.10 CONDITIONS TO ALL ADVANCES.............................. 22
2.11 REGULATORY CAPITAL REQUIREMENTS......................... 23
2.12 EXCESS ADVANCES......................................... 24
III COLLATERAL.......................................................... 26
3.1 CROSS COLLATERAL........................................ 26
3.2 ACCOUNTS RECEIVABLE..................................... 26
3.3 INVENTORY............................................... 26
3.4 GENERAL INTANGIBLES..................................... 26
3.5 DEPOSIT ACCOUNTS........................................ 26
3.6 CHATTEL PAPER........................................... 26
3.7 INSTRUMENTS............................................. 26
3.8 DOCUMENTS............................................... 26
3.9 PROCEEDS AND RECORDS.................................... 27
3.10 CONTINUING PERFECTION................................... 27
IV PROCEEDS OF COLLATERAL.............................................. 28
4.2 APPLICATION OF PAYMENTS/PAYMENTS ON
COLLATERAL............................................. 28
V REPRESENTATIONS AND WARRANTIES...................................... 29
5.1 GOOD STANDING........................................... 29
5.2 CORPORATE AUTHORITY..................................... 29
5.3 COMPLIANCE WITH LAW..................................... 29
5.4 NO LITIGATION........................................... 30
5.5 NO FINANCIAL CHANGE..................................... 30
5.6 TAX COMPLIANCE.......................................... 30
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Page
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5.7 GOOD TITLE AND ABSENCE OF LIENS......................... 30
5.8 PLACE OF RECORDS, CHIEF EXECUTIVE OFFICE,
INVENTORY AND OTHER COLLATERAL......................... 30
5.9 WARRANTIES AS TO ACCOUNTS............................... 31
5.10 ERISA................................................... 31
5.11 LICENSES AND PERMITS AND LAWS........................... 31
5.12 ENVIRONMENTAL STATUS.................................... 32
5.13 REAFFIRMATION........................................... 32
5.14 PROCEEDS OF LOAN........................................ 32
5.15 BORROWER AND OBLIGOR.................................... 33
5.16 SOLVENCY................................................ 33
5.17 NO DEFAULT.............................................. 33
5.18 FULL DISCLOSURE......................................... 33
5.19 DOCUMENTARY/STAMP TAXES................................. 33
5.20 SHAREHOLDERS' AGREEMENTS................................ 34
5.21 PERFECTION OF SECURITY INTERESTS........................ 34
VI AFFIRMATIVE COVENANTS OF OBLIGORS................................... 35
6.1 AUDIT AND OTHER REPORTS................................. 35
6.2 INSURANCE............................................... 36
6.3 PAYMENT OF EXPENSES..................................... 37
6.4 GUARANTY................................................ 37
6.5 LANDLORD'S WAIVER....................................... 37
6.6 GOOD WORKING CONDITION.................................. 37
6.7 OBSERVANCE OF LEGAL REQUIREMENT, LICENSES
AND PERMITS AND PROTECTION OF COLLATERAL .............. 37
6.8 INSPECTION.............................................. 38
6.9 COLLATERAL REQUIREMENTS................................. 38
6.10 CONTROL OF ACCOUNTS..................................... 39
6.11 CHANGE OF LOCATIONS..................................... 39
6.12 PRIMARY DEMAND DEPOSIT ACCOUNTS......................... 39
VII NEGATIVE COVENANTS OF OBLIGORS ..................................... 41
7.1 LOANS AND ADVANCES AND INVESTMENTS...................... 41
7.2 FINANCIAL COVENANTS..................................... 41
7.3 LIENS................................................... 41
7.4 LIMITATION ON INDEBTEDNESS.............................. 41
7.5 TRANSACTIONS AMONG AFFILIATES........................... 41
7.6 SPECIAL COVENANTS AS TO ASSETS.......................... 41
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Page
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7.7 PREPAYMENTS OF INDEBTEDNESS............................. 42
7.8 FISCAL YEAR............................................. 42
7.9 CHANGE IN CONTROL....................................... 42
7.10 CHANGE IN ACCOUNTING PRINCIPLES......................... 43
7.11 SALE AND LEASEBACK...................................... 43
7.12 MAINTAIN CORPORATE EXISTENCE AND NATURE OF
BUSINESS............................................... 43
7.13 DIVIDENDS; REDEMPTIONS.................................. 43
7.14 DISCHARGE OF HAZARDOUS WASTE............................ 44
7.15 LEASES.................................................. 44
VIII EVENTS OF DEFAULT................................................... 45
8.1 NON-PAYMENT............................................. 45
8.2 NON-PERFORMANCE......................................... 45
8.3 MISREPRESENTATION....................................... 45
8.4 OTHER LIEN.............................................. 45
8.5 INSOLVENCY.............................................. 45
8.6 JUDGMENT OR LIEN........................................ 46
8.7 NON-COMPLIANCE WITH LEASES OR LAWS...................... 46
8.8 ORGANIZATIONAL CHANGE................................... 46
8.9 IMPAIRMENT OF RESPONSIBILITY............................ 46
8.10 ADVERSE CHANGE.......................................... 46
8.11 MISREPRESENTATION OF FACT............................... 46
8.12 ERISA................................................... 46
8.13 DEFAULT IN OBLIGATIONS TO THIRD PARTIES................. 46
8.14 LICENSES................................................ 47
IX CONSEQUENCE OF EVENT OF DEFAULT..................................... 48
9.1 ACCELERATION............................................ 48
9.2 POSSESSION.............................................. 48
9.3 METHODS OF SALE......................................... 48
9.4 RETENTION OF COLLATERAL................................. 49
9.5 SET-OFF................................................. 49
9.6 ATTORNEYS' FEES AND EXPENSES............................ 49
9.7 INCREASE IN INTEREST/LATE CHARGE........................ 49
9.8 BANK'S PERFORMANCE OF OBLIGORS' OBLIGATION.............. 49
9.9 OTHER REMEDIES.......................................... 49
X MISCELLANEOUS....................................................... 50
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10.1 NO WAIVER............................................... 50
10.2 MODIFICATION OR AMENDMENT............................... 50
10.3 WAIVER OF NOTICE........................................ 50
10.4 ONE INSTRUMENT.......................................... 50
10.5 LAW OF NEW JERSEY....................................... 50
10.6 JURISDICTION............................................ 50
10.7 SUCCESSORS OR ASSIGNS................................... 50
10.8 RIGHTS CUMULATIVE....................................... 50
10.9 LIMITATION OF LIABILITY................................. 51
10.10 NOTIFICATION OF DISPOSITION OF COLLATERAL............... 51
10.11 ADDRESSES OF NOTICES.................................... 51
10.12 TITLES.................................................. 52
10.13 DISCLOSURE.............................................. 52
10.14 TERM.................................................... 52
10.15 INTEREST LIMITATION..................................... 53
10.16 INDEMNIFICATION......................................... 53
10.17 WAIVER OF TRIAL BY JURY................................. 54
10.18 ARBITRATION............................................. 54
10.19 PRESERVATION AND LIMITATION OF REMEDIES................. 54
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<PAGE>
LOAN AND SECURITY AGREEMENT, dated June 30, 1997, by and between FIRST
UNION NATIONAL BANK, a national banking institution, with a place of business at
550 Broad Street, Newark, New Jersey 07102, hereinafter called "Bank", and
ALPHANET SOLUTIONS, INC., a New Jersey corporation, with its chief executive
office at 7 Ridgedale Avenue, Cedar Knolls, New Jersey 07927, hereinafter called
"Borrower."
This Agreement specifies the terms of a revolving loan of up to FIFTEEN
MILLION AND 00/100 DOLLARS ($15,000,000.00), and further specifies the terms by
which all Obligations, as defined herein, of Borrower and the other Obligors, as
defined herein, to Bank are to be secured by certain personal property and
assets, tangible and intangible, of Borrower and the other Obligors.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the parties hereto agree as follows:
I
DEFINITIONS
-----------
1.1 "AAA" has the meaning set forth in Section 10.18(B) hereof.
1.2 "ACCOUNT" or "ACCOUNTS RECEIVABLE" means, in addition to the definition
of account as contained in the Uniform Commercial Code, the right of any Obligor
to receive payment for goods sold or leased or for services rendered which are
not evidenced by an instrument or chattel paper, whether or not it has been
earned by performance.
1.3 "ACCOUNT DEBTOR" means, in addition to the definition of account debtor
as contained in the Uniform Commercial Code, the person or persons obligated to
an Obligor on an Account, or who is represented by an Obligor to be so
obligated.
1.4 "ACQUISITION ADVANCE" means an Advance to be used in connection with a
Permitted Acquisition.
1.5 "ADJUSTED LIBO RATE" means, for each Interest Period, an interest rate
per annum equal to the product of (a) the Eurodollar Rate in effect for such
Interest Period and (b) Eurodollar Reserves, if any, imposed upon Bank.
1.6 "ADJUSTED LIBO RATE ADVANCES" means all Advances which bear interest
based upon the Adjusted LIBO Rate and any relevant margin.
1.7 "ADVANCE(S)" means an amount loaned by Bank to Borrower under the Loan.
O:\SSDATA\HAT\BANK\2137604.6 062797
<PAGE>
1.8 "AFFILIATE" means as to any Person, any other Person (excluding any
Subsidiary) which directly or indirectly, is in control of, is controlled by, or
is under common control with such Person. For purposes of this definition, a
Person shall be deemed to be "controlled by" a Person if such Person possesses,
directly or indirectly, power either (a) to vote ten percent (10%) or more of
the securities having ordinary voting power for the election of directors of
such Person or (b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise. Stan Gang is hereby
expressly excluded from the definition of "Affiliate".
1.9 "AGREEMENT" means this Loan and Security Agreement, as amended,
supplemented or modified from time to time in accordance with its terms.
1.10 "ARBITRATION RULES" has the meaning set forth in Section 10.18(B)
hereof.
1.11 "BANK" means the party identified on the first page hereof as Bank.
1.12 "BASE RATE" means the rate of interest established by Bank from time
to time as its reference "prime" rate in making loans but which does not reflect
the rate of interest charged to any particular class of borrower, such rate to
change automatically and immediately as of the date Bank changes its Base Rate
without notice to Borrower. The Base Rate is not tied to any external rate of
interest or index.
1.13 "BASE RATE ADVANCES" means all Advances which bear interest based upon
the Base Rate and any relevant margin.
1.14 "BORROWER" means the party identified on the first page hereof as
Borrower.
1.15 "BORROWING BASE" means the lesser of (A) Fifteen Million and 00/100
Dollars ($15,000,000.00), or (B) the Eligible Loan Value of Eligible Accounts.
1.16 "BORROWING BASE CERTIFICATE" means the certificate, substantially in
the form of Exhibit A, executed from time to time by Borrower.
1.17 "BORROWING DATE" means the Business Day or Working Day on which an
Advance is to be made or Letter of Credit is to be issued.
1.18 "BUSINESS DAY" means a day other than a Saturday or Sunday or other
day on which Bank is authorized or required to close under the laws of the State
of New Jersey or applicable Federal Law.
1.19 "CHATTEL PAPER" means, in addition to the definition of chattel paper
as contained in the Uniform Commercial Code, a writing or writings which
evidence both a
O:\SSDATA\HAT\BANK\2137604.6 2 062797
<PAGE>
money obligation and a security interest in, or a lease of, specific Goods. When
a transaction is evidenced both by such a security agreement or a lease and by
an Instrument or series of Instruments, the group of writings taken together
constitutes Chattel Paper.
1.20 "CLOSING DATE" means the date of this Agreement.
1.21 "COLLATERAL" means all of those present or future personal property
assets of each of the Obligors in which a security interest in or lien on is
granted to Bank hereunder or contemplated hereby or in any other Loan Document,
or under any other prior, present or future agreement by any of the Obligors in
favor of Bank.
1.22 "COMMITMENT" means Bank's commitment to make the Loan to Borrower.
1.23 "COMMITMENT FEE" means the fee payable by Borrower to Bank on the
average daily unused portion of the Commitment.
1.24 "CONTINGENT OBLIGATION(S)" means, as to any Person, any obligation of
such Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(A) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (B) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (C) to purchase property,
securities or services primarily for the purpose of assuring the beneficiary of
any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, (D) for the obligations of a partnership in
which such Person is a general partner, or (E) otherwise to assure or hold
harmless the beneficiary of such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligations shall not
include the endorsement of instruments for deposit or collection in the ordinary
course of business. The amount of any Contingent Obligation shall be deemed to
be an amount equal to the stated or determinable 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 Bank in good faith.
1.25 "CONTRACTUAL OBLIGATIONS" means, as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its assets
are bound.
1.26 "DEFAULT" means an event of the nature specified in Article VIII
hereof and which, with the giving of notice or passage of time, or both, would
become an Event of Default.
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1.27 "DISPUTES" has the meaning set forth in Section 10.18(A) hereof.
1.28 "DOCUMENT(S)" shall have the meaning set forth in the Uniform
Commercial Code for such term.
1.29 "ELIGIBLE ACCOUNT" means an Account of an Obligor which has been due
for less than ninety (90) days from the date of issuance of the invoice, is
subject to a first priority perfected Lien in favor of Bank, excluding any
Ineligible Account.
1.30 "ELIGIBLE LOAN VALUE OF ELIGIBLE ACCOUNTS" means up to eighty-five
percent (85%) of the face amount of Eligible Accounts, less returns and
discounts, offsets, contra balances, credits or allowances of any nature, at any
time issued, owing, granted or outstanding.
1.31 "ENVIRONMENTAL LAWS" means (A) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et
seq. ("CERCLA"), as amended by the Superfund Amendment and Reauthorization Act
of 1986; (B) the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. 6901 et seq.; (C) the New Jersey Spill Compensation and Control Act, as
amended, N.J.S.A. 58:10-23.11b et seq.; (D) the New Jersey Industrial Site
Recovery Act, formerly known as the Environmental Cleanup Responsibility Act, as
amended, N.J.S.A. 13:1K-6 et seq.; (E) the New Jersey Underground Storage of
Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq.; (F) the New Jersey Solid
Waste Management Act, as amended, N.J.S.A. 13:1E-1 et seq.; (G) the New Jersey
Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1 et seq.; and (H) any
and all laws, regulations and executive orders, federal, state and local,
pertaining to environmental matters, as same may be amended or supplemented from
time to time.
1.32 "ERISA" means the Employee Retirement Income Security Act of 1974 as
amended from time to time.
1.33 "EURODOLLAR RATE" means with respect to any Advance or outstanding
portion of the Loan (should Borrower choose the Adjusted LIBO Rate option
thereto), the rate of interest (rounded to the next higher 1/100 of one percent
(.01%)) for deposits in U.S. Dollars for a maturity equal to the Interest Period
therefor which appears on Telerate Page 3750 as of 11:00 a.m., London time, on
the day that is two (2) Working Days prior to the commencement of such Interest
Period. If such rate does not appear on the Telerate Page 3750, the rate
utilized shall be the rate as determined by Bank from another recognized source
or interbank quotation.
1.34 "EURODOLLAR RESERVE" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the applicable statutory reserve requirements (rounded to the next
higher 1/100 of one percent (.01%) and expressed as a decimal) for Bank (without
duplication, but including, without limitation, basic, supplemental, marginal
and emergency reserves), from time to time in effect
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under Regulation D of the Board of Governors of the Federal Reserve System (or
any successor) with respect to eurocurrency funding currently referred to as
"Eurocurrency liabilities" in such Regulation D.
1.35 "EVENT OF DEFAULT" means an event of the nature specified in Article
VIII hereof.
1.36 "FIXED CHARGE COVERAGE RATIO" means (A) the sum of net profit,
interest, taxes, depreciation and amortization plus lease and rent expense for
the measured period, divided by (B) the sum of the current portion of long term
debt and capital leases plus lease and rent expense for the same period and the
total interest expense.
1.37 "GAAP" means generally accepted accounting principles in the United
States of America consistently applied.
1.38 "GENERAL INTANGIBLES" means, in addition to the definition of general
intangibles as contained in the Uniform Commercial Code, all rights of the
Obligors to property, choses in action and other rights of the Obligors not
otherwise specifically included elsewhere in this Agreement, further including
but not limited to all present and future trademarks, goodwill symbolized by any
trademarks, trade names, service marks, copyrights and patents, and all rights
under license agreements for the use of same, and all rights of the Obligors
under any and all leases of property, both real and personal.
1.39 "GOODS" means, in addition to the definition of goods as contained in
the Uniform Commercial Code, all articles of tangible personal property, sold,
supplied, leased or otherwise disposed of, represented by an Account.
1.40 "GOVERNMENTAL BODY" means any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to government
or any court or arbitrator.
1.41 "GUARANTOR(S)" means all now existing and hereafter formed
Subsidiaries of Borrower, including without limitation, those Subsidiaries
listed on Schedule 5.1 hereof.
1.42 "GUARANTY" means the joint and several, unconditional, irrevocable
guaranty of payment of the Obligations hereunder and under the other Loan
Documents by the Guarantors, pursuant to the Guaranty and Suretyship Agreement
from Guarantors to Bank dated the date hereof, together with any other guaranty
agreements hereafter executed by any parties hereafter becoming a Guarantor.
1.43 "INDEBTEDNESS" means, as to any Person, at a particular time, all
items which, in accordance with GAAP, would be classified as liabilities on a
balance sheet of such Person as at such time and which constitute, without
duplication, (A) indebtedness for
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borrowed money or the deferred purchase price of property (other than credit
extended to such Person for the purchase of goods in the ordinary course of
business to the extent the same would otherwise constitute Indebtedness), (B)
indebtedness evidenced by notes, bonds, debentures or similar instruments, (C)
obligations under leases which, in accordance with GAAP, are required to be
capitalized on a balance sheet, (D) obligations under conditional sales or other
title retention agreements, (E) indebtedness arising under letters of credit
(both documentary and standby) and acceptance facilities and the face amount of
all letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder to the extent such Person shall not
have reimbursed the issuer in respect of the issuer's payment of such drafts,
(F) all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof (other than carriers', warehousemen's, mechanics', repairmen's
or other like nonconsensual liens arising in the ordinary course of business to
the extent such liens are Permitted Encumbrances) and liens for taxes,
assessments or similar charges incurred in the ordinary course of business to
the extent such liens are Permitted Encumbrances, (G) mandatory obligations of
such Person to redeem or purchase stock or to purchase or repay Indebtedness,
and (H) Contingent Obligations of such Person in respect of any of the
foregoing.
1.44 "INDEMNIFIED PARTIES" has the meaning set forth in Section 10.16
hereof.
1.45 "INELIGIBLE ACCOUNTS" means those Accounts as to which any of the
following has occurred:
(A) a portion of the Goods or services giving rise to the Account are
returned, rejected, repossessed, lost or damaged, such portion of which Account
shall be deemed ineligible;
(B) the Account Debtor disputes said Account;
(C) the termination of existence, insolvency, business failure or
suspension of business or appointment of a custodian, receiver or trustee of any
part of the property of, the making of an assignment for the benefit of
creditors of, calling of a meeting of the creditors of, or the commencement of
any bankruptcy, liquidation, reorganization or similar proceeding under state or
federal law against the Account Debtor;
(D) more than twenty-five percent (25%) of the aggregate Accounts due from
the Account Debtor remains unpaid past the applicable eligibility periods set
forth in the definition of Eligible Account;
(E) the Account is due from an employee, stockholder, Affiliate or
Subsidiary of an Obligor or Stan Gang;
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(F) any of the representations set forth in Section 5.9 are untrue with
respect to said Account;
(G) the Obligors have failed with respect to said Account to comply with
the requirements of Section 6.10 hereof;
(H) the Account arises out of a contract with any Governmental Body unless,
solely with respect to an Account due from the New York MTA, all filings have
been made under the Federal Assignment of Claims Act or comparable state or
other statute;
(I) the Goods giving rise to said Account are subject to any "bill and
hold" or similar arrangements, have been sold on approval or consignment or sale
or return basis, or under a repurchase or similar agreement;
(J) the Account Debtor does not meet credit standards acceptable to Bank;
(K) the Account is not payable in United States Dollars or the Account
Debtor is located outside the United States;
(L) the Account Debtor is located in Minnesota or New Jersey or other
jurisdiction which requires a Notice of Business Activities Report or similar
report to be filed by an Obligor, and such Obligor has not filed for the then
current year the required report or is not otherwise authorized to transact
business in said jurisdiction;
(M) because of the nature of an Obligor's ownership of assets or conduct of
business, such Obligor is required by applicable law to be authorized to do
business in the jurisdiction where the Account Debtor is located and such
Obligor is not so authorized;
(N) the Account is subject to any offset, counterclaim or other claim or
defense on the part of the Account Debtor;
(O) the Account is subject to a Lien in favor of any Person other than
Bank, excluding any Liens described in and permitted under the Intercreditor
Agreements;
(P) the Account is not a good and valid Account, representing an undisputed
bona fide indebtedness incurred by the Account Debtor therein named, for a fixed
sum as set forth in the invoice relating thereto with respect to an absolute
sale and delivery, upon the stated terms, of Goods sold and delivered, or
services actually rendered, by an Obligor; or
(Q) the Account arises out of a contract or purchase order for which a
surety bond was issued on behalf of an Obligor.
1.46 "INSTRUMENT" means, in addition to the definition of instrument as
contained in the Uniform Commercial Code, a negotiable instrument or a security,
or any other
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writing which evidences a right to the payment of money and is not itself a
security agreement or lease and is of the type which is, in the ordinary course
of business, transferred by delivery with any necessary endorsement or
assignment.
1.47 "INTERCREDITOR AGREEMENTS" means (i) that certain intercreditor
agreement between Bank and Finova Capital Corporation dated December 20, 1996
and (ii) that certain intercreditor agreement between Bank and IBM Credit Corp.,
each of which shall be substantially similar to the other.
1.48 "INTEREST PERIOD" means, as to all Adjusted LIBO Rate Advances, the
period commencing on the Borrowing Date and ending on the numerically
corresponding day (or if there is no numerically corresponding day, the last
day) in the calendar month that is one (1), three (3) or six (6) months
thereafter, as selected by Borrower in its notice of borrowing, and thereafter,
the period commencing on the last day of the first preceding Interest Period and
ending on the numerically corresponding day (or if there is no numerically
corresponding day, the last day) in the calendar month that is one (1), three
(3) or six (6) months thereafter, as selected by Borrower in its notice of
continuance of or conversion to an Adjusted LIBO Rate Advance; provided,
--------
however, that if any Interest Period would end on a day which shall not be a
- -------
Working Day, such Interest Period shall be extended to the next succeeding
Working Day unless such Working Day would fall in the next succeeding calendar
month in which case the Interest Period shall end on the first preceding Working
Day and provided, further, that notwithstanding anything to the contrary, (i) no
-------- -------
Interest Period shall extend beyond the Maturity Date and (ii) in all cases, no
Interest Period shall extend beyond any date on which principal is to be paid
for that portion of principal being paid on such date.
1.49 "INVENTORY" means, in addition to the definition of inventory as
contained in the Uniform Commercial Code, all Goods held by the Obligors for
resale or lease or furnished or to be furnished under contracts of service, and
shall include raw materials, goods and work in process and finished goods, and
all goods returned by or reclaimed from customers.
1.50 "INVESTMENT OBLIGATIONS" means any of the following: (A) obligations
of or guaranteed by the United States of America; (B) obligations issued or
guaranteed by any instrumentality or agency of the United States of America; (C)
obligations issued or guaranteed by any State of the United States or the
District of Columbia; (D) repurchase agreements fully secured by obligations of
a kind specified in subsections (A), (B) or (C) above; (E) interest bearing
accounts, certificates of deposit, bankers' acceptances or commercial paper of
Bank; and (F) commercial paper other than as specified in subsection (E) above
and which is rated at least "P1" by Moody's Investors Services or at least "A1"
by Standard and Poor's Corporation.
1.51 "LETTER(S) OF CREDIT" means the one or more standby letters of credit
issued from time to time by Bank at the request and for the account of Borrower
in accordance with the terms hereof.
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1.52 "LETTER OF CREDIT AGREEMENT" means Bank's standard form of Application
and Agreement for Irrevocable Standby Letter of Credit, as the same may change
from time to time, the current form of which is annexed hereto as Exhibit B.
1.53 "LETTER OF CREDIT OBLIGATIONS" means the total amount of all Letters
of Credit as outstanding at any time and all obligations of Borrower to
reimburse Bank for any payments by Bank under any Letters of Credit.
1.54 "LIEN" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement, or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing) and the filing of any financing statement under the Uniform
Commercial Code (or comparable law) of any jurisdiction to evidence any of the
foregoing.
1.55 "LOAN" means the revolving loan and Letters of Credit in the maximum
principal amount of up to FIFTEEN MILLION DOLLARS ($15,000,000.00) made
available by Bank pursuant to Section 2.1 hereof.
1.56 "LOAN DOCUMENTS" means this Agreement, the Revolving Note, the
Guaranty, the Intercreditor Agreements, any Letter of Credit Agreement, all
notes or other documents executed and delivered by Borrower or any other Obligor
hereunder, and any amendments, renewals, modifications or supplements thereto,
or substitutions therefor.
1.57 "MARKETABLE SECURITIES INVESTMENT PERCENTAGE" has the meaning set
forth in Section 2.4(A) hereof.
1.58 "MATERIAL ADVERSE CHANGE" means, as to a Person, a material adverse
change in the financial condition, operations, business or property of such
Person.
1.59 "MATERIAL ADVERSE EFFECT" means, as to a Person, a material adverse
effect on the financial condition, operations, business or property of such
Person.
1.60 "MATURITY DATE" means June 30, 1998.
1.61 "OBLIGATION" or "OBLIGATIONS" means any and all loans, advances and
other financial accommodations made by Bank prior to, on and after the date of
this Agreement to, or on the account of Borrower including without limitation,
the Loan, and any and all interest, commissions, obligations, liabilities,
indebtedness, charges and expenses direct or indirect, primary, secondary,
contingent, joint or several which are due or to become due or that may
hereafter be contracted or acquired of Borrower or the other Obligors to Bank,
no matter how or when arising and whether under any present or future agreement
or instrument
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between Borrower or the other Obligors (including without limitation, under the
Guaranty) and Bank, or otherwise, and the amount due or to become due upon any
notes, reimbursement agreement, swap agreement or other obligations given to, or
received by, Bank or on account of any of the foregoing and the performance and
fulfillment by Borrower or the other Obligors of all the terms, conditions,
promises, covenants and provisions contained in the Loan Documents, or in any
future agreement or instrument between Borrower or the other Obligors and Bank.
1.62 "OBLIGOR" means Borrower hereunder, Guarantors, all other sureties and
guarantors and, if any debt due to Bank hereunder is evidenced by a note or
other instrument, the makers and endorsers thereof.
1.63 "PBGC" means the Pension Benefit Guaranty Corporation.
1.64 "PERMITTED ACQUISITION" means a merger or consolidation by Borrower
where Borrower remains the surviving entity, or an acquisition by Borrower of
all or substantially all of the assets, stock or other equity interests of
another entity; provided that in any such merger, consolidation or acquisition,
(i) any acquired entity becomes a Guarantor hereunder and (ii) Bank receives a
valid and perfected lien on any acquired assets.
1.65 "PERMITTED ENCUMBRANCES" means (A) Liens for taxes, assessments or
governmental charges or levies on property of an Obligor if the same shall not
at the time be delinquent or thereafter can be paid without penalty, or are
being diligently contested in good faith and by appropriate proceedings and
against which such Obligor has established adequate reserves, (B) Liens imposed
by law, such as carriers, warehousemen and mechanics Liens, and Liens incurred
in connection with construction or other similar Liens arising in the ordinary
course of business provided same are not at the time due and payable, (C) Liens
arising out of pledge or deposits under workmen's compensation law, unemployment
insurances, old age pension or other social security or retirement benefit or
similar legislation, (D) Liens arising from judgments or awards with respect to
which such Obligor shall be diligently and in good faith prosecuting an appeal
or proceedings for review and shall have secured a stay of execution pending
such appeal or review, (E) Liens in favor of Bank, (F) Liens described in and
permitted under the Intercreditor Agreements, (G) Liens associated with
permitted purchase money indebtedness described in Section 1.66(ii) and (H)
Liens set forth on Schedule 1.65 annexed hereto.
1.66 "PERMITTED INDEBTEDNESS" means (i) Indebtedness to Bank, (ii) purchase
money indebtedness with respect to the purchase by Borrower of new equipment
and/or machinery to be used in connection with its business, up to an aggregate
amount of $250,000 per year and (iii) indebtedness as described in and permitted
under the Intercreditor Agreements.
1.67 "PERMITTED LEASES" means, provided no Default or Event of Default
exists hereunder, those real property leases entered into in the ordinary course
of business consistent with past practice for which Bank has received (A) ten
(10) Business Days advance
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notice and (B) landlords' waivers and any other documents deemed necessary or
desirable by Bank.
1.68 "PERSON" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government (whether
national, federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof). Without limitation, the term "Person" shall include Borrower and
Guarantors.
1.69 "PLAN" means an employee benefit plan or other plan maintained for
employees of an Obligor and covered by Title IV of ERISA.
1.70 "REPAYMENT INDEMNITY" means any amounts required to compensate Bank
for any losses which it incurs as calculated below as a result of repayments of
Advances (including repayments on account of illegality as set forth in Section
2.2(E) upon acceleration or otherwise) other than on, with respect to the
Adjusted LIBO Rate Advances, the last day of an Interest Period. The amount of
such loss shall be calculated by multiplying the principal amount of the
repayment or prepayment by the per annum rate (expressed as a decimal and based
on a 360-day year and actual days elapsed) (the "Indemnity Rate"), determined by
subtracting (A) the highest asked yield most recently published in the Wall
----
Street Journal as of the date of repayment or prepayment for U.S. Treasury
- ---------------
securities having a term approximating the weighted average of the terms of each
Advance or portion thereof being repaid or prepaid (the "Average Term", said
average to be determined by reference to the period, for each Advance,
commencing on the date of the repayment or prepayment and ending on, with
respect to the Adjusted LIBO Rate Advances, the end of the then current Interest
Period) from (B) the rate of interest applicable to the principal amount being
repaid or prepaid, said Repayment Indemnity to accrue for a period from and
including the date of the repayment or prepayment to, but excluding, the date of
expiration of the Average Term, as if such term commenced on the date of
repayment or prepayment; provided that no Repayment Indemnity shall be payable
unless the foregoing calculation of the Indemnity Rate produces a positive
number. Borrower agrees that the Repayment Indemnity has been freely bargained
between the parties to provide Bank with compensation for the costs of
reinvesting the Loan proceeds and the loss of the contracted-for return on the
Loan and such Repayment Indemnity is reasonable and constitutes a means of
providing Bank with a substitute or alternate source of cash flow if any Advance
is repaid or prepaid as set forth above. Bank's determination of the Repayment
Indemnity shall be conclusive and binding in the absence of manifest error. The
amount payable as determined above shall be in addition to any amounts payable
under any other Section or Paragraph of this Agreement.
1.71 "REPORTABLE EVENT" has the meaning assigned to such term in Title IV
of ERISA, or regulations issued thereunder other than a Reportable Event not
subject to the provision for a thirty (30) day notice to the PBGC under such
regulations.
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1.72 "REVOLVING NOTE" means that certain Revolving Note dated the date
hereof issued by Borrower evidencing the Loan and any revolving note replacing
such note.
1.73 "SUBSIDIARY" means any entity of which more than fifty percent (50%)
of the outstanding capital stock or other ownership interest having ordinary
voting power to elect a majority of the board of directors or other governing
body of such entity (irrespective of whether, at the time, stock or other
ownership interest of any other class or classes of such entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by Borrower or any other Obligor or one or
more Subsidiaries.
1.74 "TANGIBLE NET WORTH" means Total Assets, less (without limitation and
without duplication of deductions) the aggregate of the liabilities and
Indebtedness (including tax and other proper accruals) of a Person and any
reserves established by a Person for anticipated losses or expenses.
1.75 "TELERATE PAGE 3750" means the display designated as "Page 3750" on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying London interbank offered rates of
major banks).
1.76 "TOTAL ASSETS" means, at any date, the amount shown on the books and
records of a Person, determined in accordance with GAAP, of all property, both
real and personal, of a Person, after deducting capitalized research and
development costs, capitalized interest, debt discounts and expense, marketing
expenses and customer and/or mailing lists, goodwill (including any amounts,
however designated on the balance sheet, representing the cost of acquisition of
business and investments in excess of underlying tangible assets), patents,
trademarks, trade name rights, copyrights, franchises, licenses, amounts owing
from employees, officers, directors, shareholders, principals, partners,
Subsidiaries or Affiliates of the Person and any investments in any entities
owned or controlled by any of the foregoing Persons (including without
limitation, any Affiliates and Subsidiaries) and such other assets as are
properly classified as "intangible assets".
1.77 "TOTAL LIABILITIES" means, at any date, the amount of all liabilities
which, in accordance with GAAP should be included in determining total
liabilities as shown on a liability side of a balance sheet of a Person at such
date, other than capital stock, capital surplus, retained earnings, property
interests, deferred credit and contingency reserves under GAAP.
1.78 "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as adopted
and in effect under the laws of the State of New Jersey.
1.79 "WORKING DAY" means any day other than a Saturday, Sunday, public
holiday, bank holiday or other day on which currencies are not traded in the
London interbank market.
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1.80 "INTERPRETATION AND CONSTRUCTION"
(A) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any
similar terms, as used in this Agreement, refer to this Agreement in its
entirety and not any particular Article or paragraph, and the term "hereafter"
means after, and the term "heretofore" means before, the date of delivery of
this Agreement;
(B) Words importing a particular gender mean and include every other
gender, and words importing the singular number mean and include the plural
number and vice versa.
(C) References to "the Obligors", "each Obligor", "any Obligor", "an
Obligor" and the like shall be deemed to refer in each such case to all or any
one Obligor.
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II
LOANS
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2.1 REVOLVING LOAN AND LETTERS OF CREDIT Within the collateral limits of
the Borrowing Base, subject to the terms and conditions hereinafter set forth,
and provided that no Default or Event of Default shall have occurred and be
continuing or would result from the making of any Advance or issuance of any
Letter of Credit, from time to time hereafter, through the Maturity Date, Bank
shall extend credit to Borrower by (i) making Advances and (ii) the issuance of
Letters of Credit; provided, however that at no time shall (x) the total amount
-------- -------
of Letter of Credit Obligations exceed Two Million Five Hundred Thousand Dollars
($2,500,000), (y) the total principal amount of Acquisition Advances exceed Five
Million Dollars ($5,000,000) and (z) the total amount of Letter of Credit
Obligations plus the total principal amount of Advances then outstanding exceed
----
the Borrowing Base. Borrower shall have the right, upon thirty (30) days prior
written notice to Bank, to terminate all or part of the unused portion of the
Loan, without premium or penalty.
2.2 INTEREST
(A) On all Base Rate Advances, Borrower shall pay to Bank monthly interest
on the first day of each month until all such Advances are paid in full, and on
all Adjusted LIBO Rate Advances, Borrower shall pay to Bank interest on the last
day of the Interest Period but in no event less often than quarterly (in which
case such payments shall be made on the last Working Day of such calendar
quarter), until all such Advances are paid in full, which interest shall be
computed on the basis of a 360 day year, for the actual number of days elapsed,
on the daily unpaid balance of such Advances, at the rate selected by Borrower
by written notice to Bank equal to the following:
(i) Working Capital Advances. For Advances to be used for working
capital, (x) one-half of one percent (.5%) per annum below the Base Rate,
or (y) the Adjusted LIBO Rate for such Interest Period plus 1.25 percent
----
(1.25%); or
(ii) Acquisition Advances. For Acquisition Advances, (x) one-quarter
of one percent (.25%) per annum below the Base Rate or (y) the Adjusted
LIBO Rate for such Interest Period plus 1.50 percent (1.50%).
----
Borrower's notice to Bank of the applicable interest rate shall be provided, as
to Adjusted LIBO Rate Advances which are to be continued as such for the next
Interest Period or as to Base Rate Advances which are to be converted to
Adjusted LIBO Rate Advances, not less than three (3) days, which are both
Working Days and Business Days, prior to the end of the then pending Interest
Period, such notice to include a requested Interest Period, and, as to Adjusted
LIBO Rate Advances which are to be converted to Base Rate Advances, one (1)
Business Day prior to the end of the then pending Interest Period to Bank.
Conversions of Adjusted LIBO Rate
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Advances shall only be made (a) on the last day of the Interest Period
applicable thereto, (b) on a Working Day and (c) if no Default or Event of
Default has occurred and is continuing. If no notice is provided by Borrower as
to any Adjusted LIBO Rate Advance prior to the end of the then pending Interest
Period, such Advance shall, at the end of the Interest Period, automatically
become a Base Rate Advance.
(B) Subject to Section 2.5, if, at any time, the outstanding Advances
exceed the Borrowing Base, Borrower shall pay to Bank monthly interest computed
on the basis of a 360 day year for the actual number of days elapsed, on that
portion of the daily unpaid balance of such Advances which is in excess of the
Borrowing Base, at the default rate set forth in Section 9.7.
(C) In the event there should be a change in the Base Rate which would
result in a change in the rate of interest on Base Rate Advances, then, in that
event, the rate of interest on such Base Rate Advances shall be changed
accordingly as of the date of the change in the Base Rate, without notice to
Borrower.
(D) Each month Bank will render to Borrower a statement of the status of
the Advances provided for herein, which Borrower hereby agrees shall be deemed
to be an account stated and correct and acceptable to and binding on Borrower
unless Bank shall receive a corrected statement of exceptions from Borrower
within thirty (30) days after the monthly statements have been rendered to
Borrower.
(E) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation by any central bank or other governmental authority charged with the
administration or interpretation thereof shall make it unlawful, or any central
bank or other governmental authority shall assert that it is unlawful, for Bank
to perform its obligations hereunder (i) to make Adjusted LIBO Rate Advances or
(ii) to continue to fund or maintain Adjusted LIBO Rate Advances hereunder,
then, on notice thereof and demand therefor by Bank to Borrower, the obligation
of Bank to make any such Adjusted LIBO Rate Advances shall terminate and, if the
foregoing clause (ii) is applicable, Borrower shall, upon prior notice to Bank,
either (A) forthwith repay in full any such Adjusted LIBO Rate Advances then
outstanding, together with interest accrued thereon and the Repayment Indemnity
or (B) forthwith convert any such Adjusted LIBO Rate Advances then outstanding
into Base Rate Advances and pay to Bank the Repayment Indemnity. If no such
notice is received by Bank within three (3) Working Days of the prior written
demand by Bank (which demand shall include Bank's calculation of the Repayment
Indemnity), Borrower will be deemed to have made the election to convert any
such Adjusted LIBO Rate Advances then outstanding into Base Rate Advances as of
the fourth day following such demand.
(F) If, with respect to any Interest Period, Bank determines that (i)
extraordinary circumstances affecting the relevant market make it impracticable
to ascertain the interest rate applicable for such Interest Period or (ii) the
Adjusted LIBO Rate for such Interest Period will not adequately and fairly
reflect the cost to Bank of making or maintaining the Loan
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during such Interest Period, Bank shall promptly notify Borrower of such
determination and no additional Adjusted LIBO Rate Advances shall be made nor
shall there be any conversions thereto until such notice is withdrawn. If any
Adjusted LIBO Rate Advance is outstanding on the date of such notice and such
notice has not been withdrawn on the last day of the then current Interest
Period applicable thereto, Borrower may on the last day of such Interest Period
either convert such Adjusted LIBO Rate Advance to a Base Rate Advance or prepay
the outstanding principal balance thereof and accrued interest thereon in full.
If no such notice is received by Bank at least one (1) Business Day prior to the
last day of such Interest Period, Borrower will be deemed to have made the
election to convert any such Adjusted LIBO Rate Advances then outstanding into
Base Rate Advances.
2.3 REPAYMENT OF ADVANCES
(A) Borrower may repay an Adjusted LIBO Rate Advance or portion thereof on
the last day of the relevant Interest Period, provided, that (i) Borrower shall
provide Bank with one (1) Working Day's prior written notice of its intent to so
repay, (ii) Borrower shall pay to Bank the amount repaid together with accrued
interest to the date of such payment on the amount repaid, (iii) each partial
repayment shall be in a principal amount of not less than $100,000.00 or any
multiple thereof. In the event Borrower for any reason repays any Adjusted LIBO
Rate Advance on the day which is not the end of an Interest Period, Borrower
shall, upon written demand by Bank, pay to Bank the Repayment Indemnity with
respect to such repayment.
(B) As to any Base Rate Advances, Borrower may, upon not less than one (1)
Business Day's prior written notice, repay such Base Rate Advances, without
premium or penalty, in whole or in part with accrued interest to the date of
such repayment; provided, that each partial repayment shall be in a principal
amount of not less than $100,000.00 or any multiple thereof.
(C) Provided no prior Event of Default occurs hereunder, all Advances shall
be payable upon the Maturity Date.
(D) Whenever any payment to be made hereunder or under any note issued
hereunder shall be stated to be due on other than a Business Day or, as to
Adjusted LIBO Rate Advances, a Working Day, such payment may be made on the next
succeeding Business Day or Working Day, as applicable, unless such Business Day
or Working Day, as applicable, falls in the next succeeding month, in which
case, such payment shall be made on the next preceding Business Day or Working
Day, as applicable. Any such alteration of time shall, in such case, be included
in the computation of payment of interest. All payments (including prepayments)
made by Borrower on account of principal of or interest on the Advances
hereunder shall be made without set-off or counterclaim and shall be made prior
to 3:00 p.m. (New York City time) on the date such payment is due, to Bank, in
each case in lawful money of the United States of America and in immediately
available funds. The failure of Borrower to make any such payment by 3:00 p.m.
(New York City time) on such due date shall not constitute a Default or Event of
Default hereunder, provided that such payment is made on such due date, but any
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such payment received by Bank on any Business Day after 3:00 p.m. (New York City
time) shall be deemed to have been received on the immediately succeeding
Business Day or Working Day, as applicable, for the purpose of calculating any
interest payable in respect thereof.
(E) Bank shall have the right in its discretion to charge any principal
and/or interest or other sum due by Borrower or any other Obligor to Bank, to
any checking, other deposit or loan account of Borrower or any other Obligor
with Bank or to apply any proceeds received by it against payment of same. In
the event that the amount so charged shall create an overdraft, the Obligors
hereby agree to pay to Bank the fees associated with overdraft until the
overdraft is satisfied in full. During any time in which an overdraft is created
and outstanding, the Loan shall be deemed to be in default (and shall bear
interest at the default rate set forth in Section 9.7) and Bank shall not be
required to honor any checks drawn on or transfers from such deposit account nor
shall it be required to notify any Obligor of the existence of any overdraft
before dishonoring any such checks or transfers, and to the extent permitted by
law, the Obligors waive any rights and claims they may have against Bank for
wrongful dishonor, interference with contract, wrongful interruption of the
Obligors' businesses or similar claim, counterclaim or causes of action arising
due to Bank's failure to honor such checks. The creation of any overdrafts shall
not be deemed to be a payment hereunder or under any note evidencing the
Obligations or a waiver by Bank of any Event of Default hereunder and nothing
herein shall obligate Bank to create any such overdraft.
2.4 FEES
(A) Borrower agrees to pay to Bank on a quarterly basis the Commitment Fee
on the average daily unused portion of the Commitment from the Closing Date
until the Maturity Date, at the rate equal to (i) prior to the event described
in subsection 2.4(A)(ii) below, one-sixteenth percent (.0625%) per annum or (ii)
from and after the consummation of a secondary offering of securities of
Borrower resulting in the availability of investible proceeds, one-eighth
percent (.125%) per annum multiplied by the Marketable Securities Investment
Percentage, such payments commencing on June 30, 1997, and continuing quarterly
thereafter on the last day of September, December, March and June, with such
payments terminating on the Maturity Date. As used in this Section 2.4(A),
"Marketable Securities Investment Percentage" shall be defined as one (1) minus
a fraction, the numerator of which is Borrower's average total marketable
securities invested with Bank and the denominator of which is Borrower's average
total marketable securities.
(B) If from time to time Bank, in accordance with its right hereunder,
examines or inspects the books and records of Borrower or any other Obligor
and/or Collateral, the Obligors shall upon the demand of Bank pay to Bank any
reasonable out-of-pocket expenses incurred by Bank in connection with such
audit, including but not limited to travel expenses incurred by Bank in
connection therewith.
2.5 PREPAYMENT If on any day the sum of the aggregate outstanding principal
balance of the Advances under Section 2.1 plus the Letter of Credit Obligations
hereof
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<PAGE>
shall exceed the then Borrowing Base on such day or the other limitations set
forth in Section 2.1, Borrower shall, on such day, prepay such Advances by an
amount equal to such excess together with the Repayment Indemnity, if any. The
failure to make any such payment shall be an Event of Default.
2.6 PROCEDURES FOR ADVANCES Borrower shall provide Bank with at least one
(1) Business Day's oral notice of any requested Base Rate Advance and three (3)
Working Day's oral notice of any requested Adjusted LIBO Rate Advance,
specifying (A) the Borrowing Date and amount, (B) whether the Advance is to be
an Adjusted LIBO Rate Advance or a Base Rate Advance, and, if an Adjusted LIBO
Rate Advance, the Interest Period, and (C) whether the Advance is to be for
working capital or an Acquisition Advance, which oral notice shall be promptly
confirmed in writing by Borrower (provided, however, Bank may rely and act upon
telephonic notice whether or not such written confirmation is ultimately
received). The notice to Bank requesting an Advance shall also include evidence
that based upon the most recent Borrowing Base Certificate, there exists
sufficient availability of funds for such Advance. In the event that the only
interest rate available to Borrower shall be the Base Rate (as provided in
Section 2.2(E) above), Borrower need only give Bank one (1) Business Day's
notice to request Advances. Bank shall, on or after 1:00 P.M. (New Jersey time)
of the Borrowing Date, make the amount of the requested Advance available to
Borrower, provided all conditions precedent to such Advance have been met or
satisfied. Each requested Adjusted LIBO Rate Advance hereunder for less than the
full amount available under the Borrowing Base, shall be in the minimum amount
of $100,000.00 or any multiple thereof. Not more than three (3) Advances based
upon the Adjusted LIBO Rate may be outstanding at any one time.
2.7 PROCEDURES FOR LETTERS OF CREDIT
(A) Issuance of Letters of Credit. Within the collateral limits of the
Borrowing Base, until the Maturity Date, and provided that no Default or Event
of Default shall have occurred and be continuing or would result from the
issuance of a Letter of Credit and subject to the limitations of Section 2.1,
Bank may issue Letters of Credit for the account of Borrower on the terms
hereinafter set forth. No Letter of Credit shall have a term beyond 180 days and
in any event no Letter of Credit shall extend beyond the Maturity Date. Each of
the Letters of Credit shall be issued in a form satisfactory to Bank and
pursuant to a Letter of Credit Agreement duly executed by Borrower. The terms
and conditions of the Letter of Credit Agreement(s) are hereby incorporated
herein by reference as if fully set forth at length. Borrower shall pay to Bank
any and all fees imposed by Bank in connection with the issuance of Letters of
Credit.
(B) Payments under Letters of Credit and Reimbursement by Borrower. In the
event of a drawing under any Letter of Credit and payment by Bank, Borrower
shall immediately reimburse Bank therefore by a charge against Borrower's
account(s) maintained at Bank. In the event that Borrower shall not so reimburse
Bank as provided above, such failure shall be an Event of Default and Borrower
shall pay to Bank interest on the amount of such payment from the date of such
payment by Bank or the failure of Borrower to so reimburse
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<PAGE>
Bank, as applicable, through and including the date of such reimbursement by
Borrower at the default rate (described in Section 9.7) computed on the basis of
the actual number of days elapsed over a year of 360 days.
(C) Letter of Credit Obligations Absolute. Unless otherwise required by the
order of a court of competent jurisdiction, Borrower's obligations to make
payments to Bank in order to reimburse payments by Bank on Letters of Credit as
provided in Subsection 2.7(B) above shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and the Letter of Credit Agreement(s), under any and all
circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document to
which Bank is not a party;
(iii) the existence of any claim, setoff, defense or other right that
Borrower or any other Obligor, any other party guaranteeing, or otherwise
obligated with, Borrower, any Subsidiary or other Affiliate thereof or Stan
Gang or any other person may at any time have against the beneficiary under
any Letter of Credit, Bank or any other Person, whether in connection with
this Agreement, any other Loan Document or any other related or unrelated
agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) payment by Bank under a Letter of Credit against presentation of a
draft or other document that does not comply with the terms of such Letter
of Credit; and
(vi) any other act or omission to act or delay of any kind of Bank, or
any other person or any other event or circumstance whatsoever, whether or
not similar to any of the foregoing, that might, but for the provisions of
this section, constitute a legal or equitable discharge of Borrower's
obligations hereunder.
Notwithstanding the foregoing, it is expressly understood and agreed
that Borrower has not waived any rights it may have or be entitled to
assert in the event of Bank's gross negligence or wilful misconduct (other
than any claim seeking consequential damages, claims in respect of which
are hereby
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<PAGE>
waived by Borrower). It is understood that Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notices or information to the contrary
and, in making any payment under any Letter of Credit (i) Bank's exclusive
reliance on the documents presented to it under such Letter of Credit as to
any and all matters set forth therein, including reliance on the amount of
any drafts presented under such Letter of Credit, whether or not the amount
due to the beneficiary thereunder equals (but does not exceed) the amount
of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever and (ii) any
noncompliance in any immaterial respect of the documents presented under
such Letter of Credit with the terms thereof shall, in each case, be deemed
not to constitute wilful misconduct or gross negligence of Bank.
(D) Outstanding Letter of Credit Obligations. Upon an Event of Default and
subject to the limitations set forth in Section 2.1 hereof, the full amount of
all Letter of Credit Obligations shall be deemed to increase the principal
amount deemed outstanding under the Loan (and any unpaid interest thereon and on
unpaid letter of credit fees shall be deemed principal on such Loan, provided
that no interest shall be charged on the amount of the Letters of Credit unless
and until such Letters of Credit are drawn upon) for purposes of (x)
distribution of payments hereunder and (y) application of proceeds; provided,
however, if any such Letter of Credit thereafter expires without being drawn
upon, the amount thereof shall reduce the principal amount deemed outstanding
under the Loan (as previously increased pursuant to this subsection (D)) and the
distributions of payments and proceeds to Bank shall be adjusted accordingly.
2.8 USE OF PROCEEDS The proceeds of the Loan shall be used by Borrower (i)
for short term working capital and (ii) for Permitted Acquisitions subject to
the terms and conditions hereof.
2.9 CONDITIONS TO INITIAL ADVANCE The obligation of Bank to execute this
Agreement and to make the initial Advance or other financial accommodations
hereunder is subject to the satisfaction of the following conditions precedent:
(A) Documents. Bank shall have received the duly executed Revolving Note,
not less than four (4) copies of this Agreement, the Guaranty and all other Loan
Documents, each executed on behalf of Borrower and the other Obligors and/or by
their duly authorized officers.
(B) Deliveries by Borrower. Borrower shall have delivered or caused to be
delivered to Bank or Bank shall have received, the following items, which shall
be in form and substance reasonably satisfactory to Bank and its counsel:
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(i) Legal Opinion of Counsel to the Obligors. Opinion of Buchanan
Ingersoll, counsel to the Obligors, dated the date hereof and addressed to
Bank, substantially in the form of Exhibit C hereto.
(ii) Corporate Proceedings. Resolutions of the Board of Directors of
Borrower and all other corporate Obligors certified on the date hereof by
the Secretary or an Assistant Secretary of Borrower and such other Obligors
authorizing (a) the execution, delivery and performance of this Agreement,
and all of the other Loan Documents to which it is a party; (b) the
consummation of the transactions contemplated hereby and thereby; and (c)
the borrowings and other matters contemplated in the Loan Documents. Such
certificate shall state that the resolutions set forth therein have not
been amended, modified, revoked or rescinded as of the date of such
certificate and are in full force and effect as of the Closing Date.
(iii) Incumbency Certificate. A certificate of the Secretary or an
Assistant Secretary of Borrower and all other corporate Obligors, dated the
date hereof, as to the incumbency and signature of the officers executing
each of the Loan Documents and any other document to be delivered pursuant
to any of such documents, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
(iv) Officer's Certificate. A certificate of Borrower and the other
corporate Obligors signed by its president or chief financial officer
stating that to the best of his knowledge after diligent investigation: (a)
as of the date hereof and after giving effect to any loan hereunder no
Default or Event of Default exists hereunder; and (b) all of Borrower's and
each other Obligor's representations and warranties contained in this
Agreement and the other Loan Documents are presently true and correct in
all material respects.
(v) Consents, Licenses, Approvals, etc. Copies of all consents,
licenses and approvals required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement, the Revolving
Note and the other Loan Documents, and such consents, licenses and
approvals shall be in full force and effect and be reasonably satisfactory
in form and substance to Bank and its counsel.
(vi) Searches. Copies, in form and substance reasonably satisfactory
to Bank, of written or other advice relating to such corporate status,
financing statement, tax lien and judgment searches as Bank may reasonably
require.
(vii) Intercreditor Agreements. The Intercreditor Agreements,
substantially in the form of Exhibit D annexed hereto.
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(viii) Landlords' Waivers. Landlords' waivers in the form of Exhibit E
annexed hereto, for each location where any of the Collateral is located.
(ix) Borrowing Base Certificate. A completed Borrowing Base
Certificate.
(x) Other Documents. All other documents provided for herein or which
Bank may request or require.
(xi) Additional Information. Such additional information and materials
which Bank shall have reasonably requested.
(xii) Supporting Documents. On or before the date hereof, (a) a copy
of the Certificate of Incorporation of Borrower and any other corporate
Obligors, certified by the Secretary of State of New Jersey; (b) a
certificate of such Secretary of State, dated as of a recent date, as to
the good standing of Borrower and any other corporate Obligor and attaching
the charter documents of Borrower and any other corporate Obligor on file
in the office of such Secretary of State; and (c) a certificate of the
Secretary or an Assistant Secretary of Borrower and any other corporate
Obligor dated the Closing Date and certifying with respect to Borrower and
any other corporate Obligor (i) that attached thereto is a true and
complete copy of the By-laws of Borrower and any other corporate Obligor,
as in effect on the date of such certification, and (ii) that the
Certificate of Incorporation of Borrower and any other corporate Obligor
has not been amended since the date of the last amendment thereto indicated
on the certificate of the Secretary of State furnished pursuant to clause
(A) above.
(xiii) Fees/Costs/Taxes. Borrower shall have paid (i) all of the
reasonable fees and expenses of Bank's counsel which are occasioned in
connection with the preparation of this Agreement and all other Loan
Documents and the closing of the transactions contemplated hereby and
thereby and (ii) all filing and recording fees and taxes.
(xiv) Insurance. Evidence of the insurance required to be in effect as
set forth in this Agreement.
2.10 CONDITIONS TO ALL ADVANCES The obligation of Bank to make any Advance
or issue a Letter of Credit is subject to fulfillment of the following
additional conditions precedent, to the reasonable satisfaction of Bank and
counsel to Bank:
(A) Representations and Warranties. The representations and warranties made
by the Obligors herein or in any other of the Loan Documents or which are
contained in any certificate, document or financial or other statement furnished
at any time under or in connection
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herewith shall be correct in all material respects on and as of the date of each
Advance or issuance of Letters of Credit, after giving effect to such Advance or
issuance of Letters of Credit, as if made on and as of such date.
(B) No Default. No Event of Default has occurred, and no Default has arisen
and is continuing on the date the Advance is to be made or Letter of Credit is
to be issued, after giving effect to such Advance or Letter of Credit.
(C) Litigation. No suit, action, investigation, inquiry or other proceeding
by any governmental authority or other Person or any other legal or
administrative proceeding shall be pending or threatened which (i) questions the
validity or legality of the transactions contemplated by this Agreement, or (ii)
seeks damages in connection therewith and which, in the reasonable judgment of
Bank, (x) involves a significant risk of a preliminary or permanent injunction
or other order by a state or federal court which would prevent, or require
rescission of, the transactions contemplated by this Agreement, or (y) in the
case of any action or proceeding which seeks monetary damages involves a
significant risk of resulting in substantial financial liability to any Obligor
and/or Bank.
(D) Material Adverse Change. No event shall have occurred since the date of
the most recent financial statements of Borrower and/or any other Obligor
furnished to Bank which resulted in a Material Adverse Change of Borrower or any
other Obligor or had a Material Adverse Effect on Borrower or any other Obligor.
(E) Legal Matters. All legal matters incident to the making of the Loan
shall be satisfactory to counsel to Bank, in the reasonable exercise of its
judgment.
2.11 REGULATORY CAPITAL REQUIREMENTS If any existing or future law or
regulation or the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
Bank with any request or directive (whether or not having the force of law) of
any such authority, results in any increases after the date hereof in any
capital maintenance, capital ratio or similar requirement against loan
commitments made by Bank and the result thereof is to impose upon Bank or
increase any capital requirement applicable to Bank as a result of the making or
maintenance of the credit facilities available hereunder (which imposition of or
increase in capital requirement may be determined by Bank's reasonable
allocation of the aggregate of such capital impositions or increases) then, upon
demand by Bank, Borrower shall immediately pay to Bank from time to time as
specified by Bank a fee which shall be sufficient to compensate Bank for such
imposition of or increase in capital requirements together with interest on each
such amount from the date demanded until payment in full thereof at the rate
provided in this Agreement with respect to fees and charges not paid when due. A
certificate setting forth in reasonable detail the amount necessary to
compensate Bank as a result of an imposition of or increase in capital
requirements submitted by Bank to Borrower shall be conclusive, absent manifest
error or bad faith, as to the amount thereof. For purposes of this Section 2.11
in calculating the amount necessary to compensate for any imposition of or
increase in capital requirements, Bank shall be deemed to
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be entitled to a rate of return on capital (after federal, state and local
taxes) of fifteen percent per annum.
2.12 EXCESS ADVANCES In the event Bank shall advance an amount or issue a
Letter of Credit in excess of the aggregate amount of all credit facilities set
forth in this Agreement or if Borrower should directly or indirectly become
indebted to Bank in an amount which, together with all Advances and Letters of
Credit made pursuant to this Agreement, is in excess of the aggregate amount set
forth in this Agreement, such Advances or such Letters of Credit shall
nevertheless be covered by the terms of this Agreement.
2.13 REQUIREMENTS OF LAW If, after the date hereof, the adoption of any
law, regulation, treaty, or directive or any change therein or in the
interpretation or application thereof or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority, agency or instrumentality:
(A) does or shall subject Bank to any tax of any kind whatsoever with
respect to this Agreement, any Advances or the Letters of Credit, or change the
basis of taxation of payments to Bank of principal, commitment fee, interest or
any other amount payable hereunder (except for changes in the rate of any tax
presently imposed on Bank);
(B) does or shall impose, modify, or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by, or
deposits or other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of
Bank which are not otherwise included in the determination of the Adjusted LIBO
Rate or any fixed rate hereunder;
(C) has or would have the effect of reducing the rate of return on Bank's
capital as a consequence of its obligations hereunder to a level below that
which Bank could have achieved but for such adoption, change or compliance
(taking into consideration Bank's policies with respect to capital adequacy); or
(D) does or shall impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining advances or extensions of credit to Borrower or
to reduce any amount receivable from Borrower thereunder or to reduce the rate
of return on Bank's capital, then, in any such case, Borrower shall promptly pay
to Bank, upon its demand, any additional amounts necessary to compensate Bank
for such additional cost or reduced amount receivable or reduced rate of return
which Bank deems to be material, as determined by Bank, with respect to this
Agreement, any Advances or the Letters of Credit. If Bank becomes entitled to
claim any additional amounts pursuant to this Section 2.13, it shall promptly
notify Borrower of the event by reason of which it has become so entitled. A
certificate setting forth calculations as to any additional
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amounts payable pursuant to the foregoing sentence submitted by Bank to Borrower
shall be conclusive in the absence of manifest error or bad faith.
2.14 PARTICIPATIONS Bank may from time to time grant participations in some
or all of the Loan Documents and/or the obligations evidenced thereby. The
holder of any such participation, if the applicable agreement between Bank and
such holder so provides, (i) shall be entitled to all of the rights, obligations
and benefits of Bank, and (ii) shall be deemed to hold and may exercise the
rights of setoff or banker's lien with respect to any and all obligations of
such holder to Borrower, in each case as fully as though Borrower were directly
indebted to such holder. Bank shall give notice to Borrower of such
participation; however, the failure to give such notice shall not affect any of
Bank's or such holder's rights hereunder nor result in any liability to the Bank
or such holder nor otherwise affect this Agreement or the other Loan Documents.
The Obligors authorize Bank to provide information concerning the Obligors to
any prospective participant. The information provided may include, but is not
limited to, amounts, terms, balances, payment history, return item history and
any financial or other information about the Obligors. The Obligors agree to
indemnify, defend, release Bank, and hold Bank harmless, at the Obligors' cost
and expense, from and against any and all lawsuits, claims, actions,
proceedings, or suits against Bank or against any Obligor and Bank, arising out
of or relating to Bank's reporting or disclosure of such information, provided
that such information was furnished by an Obligor in connection with the Loan,
this Agreement or the other Loan Documents. Regardless of the foregoing, upon an
Event of Default or any form of merger, consolidation or acquisition by the
Bank, the Bank may, in addition to the granting of participations as described
above, sell or assign, in whole or in part, some or all of the Loan Documents
and/or the obligations evidenced thereby and have such other rights and
indemnifications with respect thereto as described in this Section 2.14. Nothing
herein shall prohibit Bank from pledging or assigning the Revolving Note to any
Federal Reserve Bank in accordance with applicable law.
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III
COLLATERAL
----------
3.1 CROSS COLLATERAL All of the Collateral heretofore, herein or hereafter
given or assigned to Bank hereunder or in any other Loan Document shall secure
payment of (A) all Obligations of Borrower and Guarantor to Bank and (B) all
Indebtedness and any and all other obligations of any of the other Obligors to
Bank.
3.2 ACCOUNTS RECEIVABLE Each Obligor hereby creates in favor of Bank and
hereby grants to Bank a security interest in all Accounts, as defined herein,
presently owned by such Obligor or hereafter acquired.
3.3 INVENTORY Each Obligor hereby creates in favor of Bank and hereby
grants to Bank a security interest in all of such Obligor's Inventory, as
defined herein, whether presently owned by such Obligor or hereafter acquired
and wherever located.
3.4 GENERAL INTANGIBLES Each Obligor hereby creates in favor of Bank and
hereby grants to Bank a security interest in all of such Obligor's General
Intangibles, as herein defined, whether presently owned by such Obligor or
hereafter acquired. In no event shall the foregoing grant of a security interest
in General Intangibles be construed as an outright assignment of any
intent-to-use trademark or service mark applications.
3.5 DEPOSIT ACCOUNTS Each Obligor hereby creates in favor of Bank, hereby
assigns to Bank and hereby grants to Bank a security interest in the balance of
every deposit account, now or hereafter existing, of such Obligor with Bank or
any other institution, and all money, Instruments, securities, documents,
Chattel Paper, credits, claims, and other property of such Obligor now or
hereafter in the possession or custody of Bank or any of its agents or any other
institution.
3.6 CHATTEL PAPER Each Obligor hereby creates in favor of Bank and hereby
grants to Bank a security interest in all of such Obligor's Chattel Paper, as
defined herein, whether presently owned by such Obligor or hereafter acquired,
including but not limited to all such Chattel Paper now or hereafter left in the
possession of Bank for any purpose, including but not limited to for collection.
3.7 INSTRUMENTS Each Obligor hereby creates in favor of Bank and hereby
grants to Bank a security interest in all of such Obligor's Instruments, as
defined herein, whether presently owned by such Obligor or hereafter acquired,
including but not limited to all such Instruments now or hereafter left in the
possession of Bank for any purpose, including but not limited to for collection.
3.8 DOCUMENTS Each Obligor hereby creates in favor of Bank and hereby
grants to Bank a security interest in all of such Obligor's Documents, as
defined herein, whether
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presently owned by such Obligor or hereafter acquired, including but not limited
to all such Documents now or hereafter left in the possession of Bank for any
purpose.
3.9 PROCEEDS AND RECORDS Each Obligor hereby creates in favor of Bank and
hereby grants to Bank a security interest in (A) all books and records,
including, without limitation, customer lists, credit files, computer programs,
print-outs and other computer materials and records of such Obligor pertaining
to all of the Collateral; and (B) all of the products and proceeds of all of the
foregoing Collateral (including all proceeds of insurance policies covering the
Collateral); as well as all accessions, additions, substitutions, replacements
and increments as to the assets in (A) and (B).
3.10 CONTINUING PERFECTION Each Obligor will perform any and all steps
requested by Bank to create and maintain in Bank's favor a first and exclusive
(subject only to any Permitted Encumbrances) and valid lien on or security
interest in the Collateral or pledges of Collateral, including, without
limitation, the execution, delivery, filing and recording of financing
statements and continuation statements, supplemental security agreements, notes
and any other documents necessary, in the opinion of Bank, to protect its
interest in the Collateral. Bank and its designated officer are hereby
irrevocably appointed each Obligor's attorney-in-fact to do all acts and things
which Bank may deem necessary to perfect and continue perfected the security
interests and Liens provided for in this Agreement and the other Loan Documents,
including, but not limited to, executing financing statements on behalf of each
Obligor.
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IV
PROCEEDS OF COLLATERAL
----------------------
4.1 LOCKBOX Each Obligor agrees to establish and maintain with Bank a
lockbox, in accordance with Bank's standard lockbox agreement in effect from
time to time, and to direct all Account Debtors to make remittances on all
Accounts to said lockbox. Any and all remittances received in said lockbox may
be applied as Borrower shall direct, subject to Section 4.2 below.
4.2 APPLICATION OF PAYMENTS/PAYMENTS ON COLLATERAL Upon an Event of
Default, any remittances received in the lockbox described in Section 4.1 above
shall be applied to the Obligations of Borrower and the other Obligors to Bank
in accordance with subsection 4.2(A) below.
(A) Application of Payments. All proceeds of any Account(s) and Inventory
and other Collateral which are delivered to or otherwise received by Bank for
application to the Advances provided for herein shall be deemed received as of
the date of actual receipt by Bank, and shall be applied by Bank on account of
the Obligations upon Bank's receipt of same, first to Base Rate Advances and
then, to Adjusted LIBO Rate Advances; provided, however, that no checks, drafts,
or other Instruments received by Bank shall constitute payment to Bank unless
and until such item of payment has actually been collected by Bank. For the sole
purpose of calculation of interest due to Bank from Borrower, all such proceeds
and other payments on account of the Advances provided for in this Agreement,
irrespective of the type or form of payment thereof shall not be considered
applied on account of the Obligations until three (3) Business Days after Bank's
application of same to the Obligations. In the event any proceeds are applied
against Adjusted LIBO Rate Advances prior to the last day of the Interest
Period, Borrower shall pay the Repayment Indemnity, if any.
(B) Payments on Collateral. Upon the occurrence and continuation of an
Event of Default, if, notwithstanding the notices to Account Debtors to remit
payments on Accounts to the lockbox referred to above, an Obligor receives any
payments on Accounts or other Collateral, each Obligor agrees to receive any and
all payments and remittances on Accounts and Inventory and other Collateral,
including cash, checks, drafts, notes, acceptances or other forms of payment in
trust for Bank and to deliver such payments in the identical form in which they
were received, together with collection reports in form satisfactory to Bank.
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V
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Bank to enter into this Agreement and to make Advances and other
financial accommodations hereunder, each Obligor represents and warrants to Bank
that:
5.1 GOOD STANDING Schedule 5.1 sets forth
(A) the jurisdiction of incorporation of each Obligor and in which it is in
good standing;
(B) all other jurisdictions in which each Obligor is authorized to transact
business and all of which it is in good standing;
(C) any prior changes in the structure of any Obligor, such as mergers,
consolidations and the like;
(D) any prior name changes of any Obligor;
(E) all trade names or trade styles under which any Obligor conducts
business or issue invoices; and
(F) all Subsidiaries and Affiliates of any Obligor and the percentage of
stock or other ownership interest thereof owned by such Obligor.
5.2 CORPORATE AUTHORITY The Obligors have the requisite power and authority
to own their property and to carry on their businesses as now conducted, and are
in good standing and authorized to do business in each jurisdiction in which the
failure so to do would have a Material Adverse Effect on any Obligor. Each
corporate Obligor has the corporate power to execute, deliver and carry out this
Agreement and all other Loan Documents to which they are a party and their Board
of Directors have duly authorized and approved the terms of the loan described
herein and the taking of any and all action contemplated herein and therein, and
this Agreement and all other Loan Documents to which any Obligor is a party
constitutes the valid and binding obligations of them, enforceable in accordance
with their terms. No consent or approval of, or exemption by, shareholders, any
Governmental Body or any other Person is required to authorize, or is otherwise
required in connection with the execution, delivery and performance of, the Loan
Documents to which any Obligor is a party, or is required as a condition to the
validity or enforceability of the Loan Documents to which any Obligor is a
party.
5.3 COMPLIANCE WITH LAW (A) The Obligors are in compliance with all laws,
rules and regulations to which they are subject and have all licenses,
certificates, permits and franchises and other governmental authorization
necessary to own their properties
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and to conduct their businesses. (B) The execution of this Agreement, and each
other Loan Document and the performance by the Obligors of their obligations
hereunder and thereunder, do not violate any existing law or regulation or any
writ or decree of any court or Governmental Body or the charter or by-laws of
any corporate Obligor or any agreement or undertaking to which any Obligor is a
party or by which they are bound.
5.4 NO LITIGATION There are no judgments against any Obligor as of the date
of this Agreement and, except as set forth on Schedule 5.4, no material
litigation or administrative proceeding before any Governmental Body is
presently pending, or to the knowledge of the Obligors, threatened, against any
Obligor or any of their property.
5.5 NO FINANCIAL CHANGE There has been no Material Adverse Change in the
condition of the Obligors since their last financial statements and reports
furnished to Bank and the information contained in said statements and reports
is true and correctly reflects the financial condition of the Obligors as of the
dates of the statements and reports, and such statements and reports have been
prepared in accordance with GAAP and do not contain any material misstatement of
fact or omit to state any facts necessary to make the statements contained
therein not misleading.
5.6 TAX COMPLIANCE Each Obligor has filed, or caused to be filed, all tax
returns required to be filed and has paid all taxes shown to be due and payable
on said return or on any assessment made against it.
5.7 GOOD TITLE AND ABSENCE OF LIENS On the date of this Agreement, each
Obligor has good and marketable title to all of its properties and assets, real,
personal and mixed, and none of said properties or assets is subject to any
Lien, except for Permitted Encumbrances.
5.8 PLACE OF RECORDS, CHIEF EXECUTIVE OFFICE, INVENTORY AND OTHER
COLLATERAL (A) The Obligors' chief executive offices, and the offices where the
Obligors keep their records concerning any Accounts, and all locations of their
Inventory, and all other business locations of the Obligors are presently at the
locations set forth on Schedule 5.8. (B) Except as set forth on Schedule 5.8,
within four (4) months of the date of this Agreement, none of the Obligors'
assets have been moved from any jurisdiction or other locations than the present
locations of assets set forth on Schedule 5.8 under item (A)(v) except for
Inventory purchased by an Obligor in the ordinary course of business from
persons or entities customarily selling such Inventory. (C) That as of the date
hereof no Inventory is now, except as set forth on Schedule 5.8, stored with a
bailee, warehouseman or similar party. (D) As of the date of this Agreement, the
Obligors do not hold any Goods belonging to third parties or in which other
parties have an interest, including any Goods sold on a bill and hold basis,
except as set forth on Schedule 5.8. (E) The Obligors do not presently purchase
or otherwise hold Goods on a consignment basis except as set forth on Schedule
5.8. (F) Except as set forth on Schedule 5.8 none of the Obligors' Inventory is
of a nature that contains any labels, trademarks, trade names, or other
identifying characteristics which are the properties of third
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parties, and the use of which by any Obligor is in violation of the rights of
such third parties or under license, royalty or similar agreements with any
third parties. (G) Except as set forth on Schedule 5.8 no persons hold any Goods
of the Obligors. (H) Except as set forth on Schedule 5.8, the Obligors have not
purchased any Inventory except in the ordinary course of business for value and
from persons customarily in the business of selling such Inventory. (I) Except
as set forth on Schedule 5.8, the Obligors do not hold any Instrument or Chattel
Paper connected with any Account. (J) Except as set forth on Schedule 5.8, the
Obligors do not own any trademarks, trade names, patents or copyrights. (K) No
surety bonds have been issued on behalf of the Obligors with respect to any
contracts or purchase orders out of which Accounts Receivable have arisen or are
expected to arise.
5.9 WARRANTIES AS TO ACCOUNTS Except as otherwise provided in the
assignment of Accounts, if any, given to Bank, or invoice or other writing, each
Obligor warrants that as to all Accounts reported to Bank; (A) each Account is a
valid subsisting Account as defined herein; (B) each Account represents a bona
fide performed transaction; (C) the amount shown on such Obligor's books and on
any invoice or statement delivered to Bank is owing to such Obligor; (D) no
partial payment has been made which in the aggregate as to all Accounts exceeds
the sum of $250,000; (E) no set-off or counterclaim exists as to any such
Account and no agreement has been made under which any deductions or discount
may be claimed except regular discounts in the usual course of business, but
only if disclosed on the face of the invoice; (F) the Account Debtor has not
disputed the Account or otherwise asserted any defense, set-off or counterclaim;
(G) that to the extent required by law the Obligors are authorized to do
business and in good standing in any state in which any such Account must be
enforced; (H) each Eligible Account is a valid subsisting Eligible Account as
defined herein; (I) all agings of Accounts submitted to Bank are true and
accurate; and (J) except as set forth on Schedule 5.9, no surety bond was
required or given on behalf of any Obligor in connection with any contracts or
purchase orders under which the Account arose.
5.10 ERISA (A) No Reportable Event or unfunded deficiencies or failure of
compliance with ERISA or the Internal Revenue Code of 1986, as amended, has
occurred and is continuing with respect to any Plan; and (B) Each Obligor has
complied with the provisions of ERISA and the Internal Revenue Code of 1986, as
amended, with respect to each Plan.
5.11 LICENSES AND PERMITS AND LAWS The Obligors hold all necessary licenses
and permits for the operation of their businesses, including all permits
required under Environmental Laws and the Obligors have complied with all laws,
rules and regulations applicable to their businesses, including but not limited
to the Fair Labor Standards Act, 29 U.S.C. Section 215(a)(1). All such licenses
and permits are in good standing and are not under any outstanding citation
issued by any governmental authority, and no litigation has been instituted nor
(to the best knowledge of the Obligors) have any claims been made by any third
parties relating to the licenses and permits issued by any Governmental Body for
the operation of their businesses, and no such citation, litigation or claim, to
the best knowledge of the Obligors, is contemplated by any Governmental Body or
any third persons nor, to the best
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knowledge of the Obligors, does there exist any basis for any such citation,
litigation or claim by any of the authorities or any Person.
5.12 ENVIRONMENTAL STATUS As to all properties owned, leased or operated by
the Obligors and to all operations of the Obligors' businesses:
(A) there is no pending or threatened proceeding affecting any Obligor with
respect to any Environmental Law;
(B) no Obligor has been identified as a responsible or potentially
responsible party under CERCLA or any other Environmental Laws nor received
notification that any hazardous substance or contaminant has been found at any
site;
(C) none of such properties are listed or proposed for listing on the
National Properties List under CERCLA;
(D) no Hazardous Substance or Hazardous Waste (as such term is defined in
any Environmental Laws) have been disposed of or otherwise released or
discharged on such properties;
(E) no underground storage tanks exist on the properties and any removal of
any such tanks from the properties was undertaken in compliance with the
Underground Storage Tank Act; and
(F) no friable asbestos, or any substance containing asbestos or PCB's have
been installed in or exists on such properties.
5.13 REAFFIRMATION Each and every request for an Advance or the issuance of
a Letter of Credit hereunder shall be deemed as an affirmation by each Obligor
that no Default nor Event of Default exists hereunder and that the
representations and warranties contained in this Article V are true and accurate
as of the date of each such request (notwithstanding that some of the terms
hereof speak as of the date of this Agreement) and that each Obligor is in
compliance with all applicable laws, rules and regulations.
5.14 PROCEEDS OF LOAN The Obligors are not engaged principally, or as one
of their important activities, in the business of extending credit for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as
amended. No part of the proceeds of the Loan will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Body, including without limitation the provisions of Regulations G,
T, U or X of the Board of Governors of the Federal Reserve System, as amended.
Each Obligor represents that the proceeds of the loan(s) provided for herein
shall be used in the manner set forth in Section 2.8 hereof. No proceeds of any
loan or other financial accommodations hereunder shall be used to purchase or
carry any margin stock (within the meaning of Regulation U issued by
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the Board of Governors of the Federal Reserve System) or to extend credit to
others for the purpose of purchasing or carrying any margin stock.
5.15 BORROWER AND OBLIGOR The Obligors are operated as part of one
consolidated business entity and are directly dependent upon each other for and
in connection with their respective business activities and their respective
financial resources. Each Obligor will receive a direct economic and financial
benefit from the Obligations incurred under this Agreement by Borrower, and the
assumption of such Obligations is in the best interests of Borrower and each
other Obligor.
5.16 SOLVENCY The fair value of the business and assets of Borrower and the
other Obligors will be in excess of the amount that will be required to pay its
liabilities (including, without limitation, contingent, subordinated, unmatured
and unliquidated liabilities on existing debts, as such liabilities may become
absolute and matured), in each case after giving effect to the transactions
contemplated by this Agreement and the use of proceeds therefrom. Neither
Borrower nor any other Obligor, after giving effect to the transactions
contemplated by this Agreement and the use of proceeds therefrom, will be
engaged in any business or transaction, or about to engage in any business or
transaction, for which such Person has an unreasonably small capital (within the
meaning of the Uniform Fraudulent Transfer Act, as adopted in the State of New
Jersey and Section 548 of the Federal Bankruptcy Code), and neither Borrower nor
any other Obligor has any intent to (A) hinder, delay or defraud any entity to
which it is, or will become, on or after the date hereof, indebted, or (B) to
incur debts that would be beyond its ability to pay as they mature.
5.17 NO DEFAULT The Obligors are not in default under or with respect to
any of their Contractual Obligations in any respect which could have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
5.18 FULL DISCLOSURE Neither this Agreement nor any other Loan Document or
certificate, written statement or other document furnished to Bank, or to any
appraiser or engineer employed or engaged by any of them, by or, to the
knowledge of the Obligors, on behalf of any Obligor in connection with the
transactions contemplated by this Agreement and the other Loan Documents,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading under the circumstances in which they were made. There is no fact or
circumstance known to the Obligors which the Obligors have not disclosed in
writing to Bank which materially adversely affects or, so far as the Obligors
can now reasonably foresee, will materially adversely affect the assets,
business, prospects or financial or other condition of the Obligors or the
ability of the Obligors to operate their businesses and to perform their
obligations hereunder.
5.19 DOCUMENTARY/STAMP TAXES The filing and recording of any and all
documents required to perfect Bank's security interests granted herein will not
result in any documentary or stamp taxes.
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5.20 SHAREHOLDERS' AGREEMENTS Except as set forth on Schedule 5.20, there
are no agreements or contracts among any of the Obligors including but not
limited to shareholder/repurchase agreements.
5.21 PERFECTION OF SECURITY INTERESTS Upon the filing of UCC-1 Financing
Statements in (i) the office of the New Jersey Secretary of State, (ii) the
office of the Secretary of the Commonwealth of Pennsylvania and (iii) the office
of the New York Secretary of State, Bank will have a duly perfected first
priority security interest in all Collateral described in this Agreement,
subject only to any Permitted Encumbrances.
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VI
AFFIRMATIVE COVENANTS OF OBLIGORS
---------------------------------
6.1 AUDIT AND OTHER REPORTS (A) The Obligors agree that within one hundred
twenty (120) days of the close of each fiscal year, they will furnish Bank with
a detailed report of audit, including a balance sheet, statements of financial
condition, profit and loss statement, income and cash flow statement,
reconciliation of net worth, notes to financial statements, certified on an
unqualified basis, by an independent certified public accountant satisfactory to
Bank along with a copy of Borrower's 10K report together with any other
information which may assist Bank in assessing the Obligors' financial
condition; (B) The Obligors will also furnish within sixty (60) days of the
close of each fiscal quarter, a management prepared quarterly similar statement
on a compilation basis, all prepared in a format acceptable to Bank, together
with all other information described in subsection (A) above, including without
limitation, Borrower's 10Q report; (C) Simultaneous with the submission of the
statements required under subsections (A) and (B) above, and for each quarter of
each year, each Obligor shall cause to be submitted to Bank a certificate of the
chief financial officer of each such Obligor in the form of Exhibit F annexed
hereto (i) certifying the financial information as true, correct and complete,
(ii) certifying that all representations and warranties set forth in the Loan
Documents are true and correct, (iii) setting forth the calculations of the
financial tests described in Section 7.2 hereof and attesting that none of the
covenants set forth in this Agreement have been breached and (iv) certifying
that no event has occurred which, with the passage of time and/or giving of
notice, would constitute a Default or Event of Default; (D) In the event any
Advances or Letters of Credit are outstanding at a month's end or if no Advances
or Letters of Credit are so outstanding then at the end of each calendar
quarter, not later than the 15th day after the end of such month or calendar
quarter as applicable, an accounts receivable aging and corresponding Borrowing
Base Certificate; (E) Promptly after the furnishing thereof to third parties,
the Obligors shall furnish to Bank copies of any statements, reports, proxy
material, registration statement and prospectus furnished to any holder of any
securities of any of the Obligors or filed with any regulatory agency or
agencies; (F) Promptly, but no later than ten (10) days after a responsible
officer of an Obligor shall become aware of (i) a Reportable Event or
"prohibited transaction" as such term is defined in ERISA, (ii) the occurrence
of an event which, with the passage of time and/or giving of notice, would
constitute a Default or Event of Default, (iii) the commencement of any
proceeding or litigation which, if adversely determined, would adversely affect
an Obligor's financial condition or its ability to conduct business, (iv)
changes in the executive management of any Obligor, (v) the termination or
threatened termination of or claim of breach by any Obligor of any material
contract, agreement or obligation, or of any claim of patent infringement, (vi)
the formation of any Subsidiary of an Obligor, together with duly executed
originals of the resolutions, Guaranty and security agreement required
hereunder, (vii) modifications to the certificate or articles of incorporation,
bylaws or other organizational documents of any Obligor and (viii) Borrower's
intention to consummate a Permitted Acquisition, together with copies of all
documents to be executed in connection with such contemplated Permitted
Acquisition; in each case described in clauses (i)-(viii), the Obligors shall
provide notice specifying the existence of the event and as to the matters
described in clauses (i)-(v), the action such Obligor is taking or proposes to
take
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with respect thereto; (G) The Obligors will furnish to Bank prompt written
notice if: (i) any Indebtedness of any Obligor is declared or shall become due
and payable prior to its stated maturity, or called and not paid when due or
(ii) a default shall have occurred under any note or the holder of any such
note, or other evidence of Indebtedness, certificate of security evidencing any
such Indebtedness or any obligee with respect to any other Indebtedness of any
Obligor has the right to declare any such Indebtedness due and payable prior to
its stated maturity as a result of such default; (H) The Obligors agree to
furnish to Bank with reasonable promptness such other data and information
concerning Borrower and any other Obligor as from time to time may be reasonably
requested by Bank; and (I) The Obligors agree to furnish Bank within one hundred
fifty (150) days after the close of each fiscal year a management letter by an
independent accounting firm acceptable to Bank; Bank hereby acknowledges that
Price Waterhouse is acceptable as of the date hereof. All financial statements
shall be on a consolidated and consolidating basis and in accordance with GAAP.
6.2 INSURANCE Each Obligor agrees to keep all of the tangible Collateral
assigned hereunder insured and obtain business interruption insurance, at its
own cost and expense, for the benefit of Bank, and in such amounts, in such
companies, and against such risks as may be acceptable to Bank, and deliver the
policies evidencing such insurance to Bank. If the Obligors fail to take the
action called for herein, Bank may, in its discretion obtain insurance covering
Bank's interest in the Collateral and the amount of the premium for said
insurance shall be added to the Obligations of Borrower to Bank. All policies of
insurance on the Collateral shall be in form and with insurers recognized as
adequate by prudent business persons and all such policies shall be in such
amounts as may be satisfactory to Bank. The Obligors shall deliver to Bank the
original (or certified copy) of each policy of insurance and evidence of payment
of all premiums therefor. Such policies of insurance shall contain an
endorsement, in form and substance satisfactory to Bank showing loss payable to
Bank. Such endorsement or an independent instrument furnished to Bank, shall
provide that the insurance companies will give Bank at least thirty (30) days
prior written notice before any such policy or policies of insurance shall be
altered or canceled and that no act or default of an Obligor or any other Person
shall affect the right of Bank to recover under such policy or policies of
insurance in case of loss or damage. The Obligors hereby direct all insurers
under such policies of insurance to pay all proceeds payable thereunder directly
to Bank. The Obligors irrevocably make, constitute and appoint Bank (and all
officers, employees or agents designated by Bank) as the Obligors' true and
lawful attorney (and agent-in-fact) for the purpose of making, settling and
adjusting claims under such policies of insurance (provided that until an Event
of Default exists, Bank shall consult with such Obligors prior to finally
making, settling or adjusting claims under such policies of insurance),
endorsing the name of an Obligor on any check, draft, instrument or other item
of payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. In the
event an Obligor, at any time or times hereafter, shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
in whole or in part relating thereto, then Bank, without waiving or releasing
any obligation or default by the Obligors hereunder, may (but shall be under no
obligation to do so) at any time or times thereafter obtain and maintain such
policies of insurance and pay such premium and take any other action with
respect thereto which Bank deems advisable. All sums so disbursed by Bank,
including reasonable attorneys' fees, court costs,
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expenses and other charges related thereto, shall be payable, on demand, by the
Obligors to Bank and shall be additional Obligations hereunder secured by the
Collateral. The Obligors also agree to at all times maintain insurance, both
hazard and liability, against such risks and in such amounts as reasonably
prudent to companies similarly situated as such Obligors would maintain and to
furnish to each Bank from time to time evidence that such insurance is in full
force and effect.
6.3 PAYMENT OF EXPENSES The Obligors will pay any and all expenses,
including reasonable counsel fees and disbursements, filing and recording fees
and taxes, and all other charges and expenses incurred or to be incurred by Bank
in connection with the preparation and execution and recording of this Agreement
and all other Loan Documents, and the Advances made under this Agreement and all
amendments and modifications hereto and in defending or prosecuting any actions
or proceedings or otherwise enforcing any rights arising out of or relating to
Bank's transactions with Borrower and/or any other Obligors.
6.4 GUARANTY The Obligors will cause all now existing or hereafter formed
Subsidiaries to execute and deliver to Bank, and remain in full force and
effect, (i) guaranty and suretyship agreements substantially in the form set
forth on Exhibit G-1, wherein said parties shall jointly and severally guarantee
the unconditional payment and performance of all Obligations of Borrower to
Bank, (ii) joinder agreements substantially in the form set forth on Exhibit
G-2, wherein said parties shall agree to be an Obligor hereunder and to be bound
by all of the terms and conditions hereof and (iii) if requested by the Bank,
security agreements in form and substance satisfactory to Bank.
6.5 LANDLORD'S WAIVER The Obligors shall cause the landlord of all premises
where any of the Collateral provided for herein may be located (including
without limitation, any premises now or hereafter leased by Borrower or any
other Obligor) to execute and deliver to Bank a landlord's waiver in the form
set forth on Exhibit E.
6.6 GOOD WORKING CONDITION The Obligors shall maintain all of their
property in good working condition, ordinary wear and tear excepted.
6.7 OBSERVANCE OF LEGAL REQUIREMENT, LICENSES AND PERMITS AND PROTECTION OF
COLLATERAL
(A) Each Obligor shall comply with any and all laws, legislation, rules and
regulations in effect as of the date hereof and subsequent hereto, including but
not limited to all state, local and federal laws, legislation, rules and
regulations relating to employee pension and benefit funds, the payment of
taxes, assessments, and other governmental charges, zoning, and the use,
occupancy, transfer or encumbrancing of the Collateral and all Environmental
Laws, except with respect to the payment of taxes, assessments and other
governmental charges, as such payments thereof shall be contested in good faith
and by appropriate proceedings diligently conducted by such Obligor, provided
that adequate reserves shall have been maintained therefor. Each Obligor agrees
to comply with all reasonable conditions required by Bank designed to
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protect Bank and the Collateral from the effect of all Environmental Laws, ERISA
and such other laws, legislation, rules and regulations as are in, or may come
into, effect and apply to an Obligor, Bank, the transactions contemplated hereby
or the Collateral or any occupants or users thereof, whether as lessees,
tenants, licensees or otherwise. Borrower agrees to pay any costs required to
comply with any of the above conditions.
(B) Each Obligor shall observe and comply in all material respects with all
laws (including ERISA), ordinances, orders, judgments, rules, regulations,
certifications, franchises, permits, licenses, directions and requirements of
all Governmental Bodies, which now or at any time hereafter may be applicable to
such Obligor and the operation of its business.
(C) Each Obligor will continue to hold all necessary licenses and permits
for the operations of their business.
(D) Each Obligor shall, in the event that any Lien shall be filed against
its Collateral by any Governmental Body in connection with the discharge of
hazardous substances or waste, either (i) pay such amounts necessary to
discharge the Lien or (ii) furnish to such Governmental Body a bond, cash
deposit or security necessary to discharge such Lien.
(E) Each Obligor shall promptly clean up any hazardous substances or waste
discharged without a proper permit therefor in accordance with Environmental
Laws.
6.8 INSPECTION Bank (by any of its officers, employees and agents) shall
have the right, at any time or times during the Obligors' usual business hours,
to inspect the Collateral, all records related thereto, all financial records,
and the premises upon which any of the Collateral is located, to make extracts
from and/or audit such records, to discuss the Obligors' affairs and finances
with any Person (including without limitation, the Obligors' officers and
outside accountants) and to verify the amount, quality, quantity, value and
condition of, or any other matter relating to, the Collateral or the Obligors.
6.9 COLLATERAL REQUIREMENTS Unless Bank notifies Borrower in writing that
it dispenses with any one or more of the following requirements, the Obligors
will (A) upon an Event of Default, give Bank assignments, in form acceptable to
Bank, of all Accounts, as defined herein, and of the monies due or to become due
on specific contracts related to Accounts; (B) upon an Event of Default, furnish
to Bank all original and other documents evidencing right to payment including
but not limited to invoices, original orders, shipping and delivery receipts;
(C) upon an Event of Default, give Bank such financial statements, reports,
lists of Account Debtors and other data concerning its Accounts, contracts and
collections and the other Collateral, or any other matters which Bank may, from
time to time specify; (D) inform Bank immediately of the rejection of Goods or
services, delay in performance, or claims made, in regard to Eligible Accounts;
(E) make no change in terms of any Eligible Account against which Bank has
advanced any money; (F) furnish to Bank all information received by an Obligor
adversely affecting the financial standing of any Account Debtor; (G) notify
Bank immediately in writing if any of its Accounts arise out of contracts
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between an Obligor and the United States or any department, agency or
instrumentality thereof, or any other governmental body and take all steps
necessary to protect Bank under the Federal Assignment of Claims Act or other
applicable state or local statutes or ordinances; (H) deliver to Bank,
appropriately endorsed, any Instrument or Chattel Paper connected with any
Account; (I) mark its records of its Accounts in any manner satisfactory to Bank
to indicate the interest of Bank; (J) collect its Accounts in the ordinary
course of business and prior to a Default sell its Inventory only in the
ordinary course of business for value to buyers in the ordinary course of
business; (K) upon notice by Bank after a Default with respect to any payment
Obligations of Borrower hereunder, not sell or transfer after a Default any of
its Inventory; (L) keep accurate and complete records of its Accounts and
Inventory; and (M) promptly notify Bank in writing of any trademarks, trade
names, patents or copyrights which it may hereafter own or obtain a license to
use or under which it may issue invoices.
6.10 CONTROL OF ACCOUNTS
(A) Upon an Event of Default, Bank shall have the right at any time and
from time to time, without notice, to notify Account Debtors to make payments to
Bank, to endorse all items of payment which may come into its hands payable to
an Obligor, to take control of any cash or non-cash proceeds of Accounts and of
any returned or repossessed goods; to compromise, extend or renew any Account or
deal with it as it may deem advisable, and to make exchanges, substitutions or
surrenders of Collateral and to notify the postal authorities to deliver all
mail, correspondence or parcels addressed to an Obligor to Bank at such address
as Bank may choose.
(B) The Obligors herewith appoint Bank or its designee as Attorney-in-Fact
to endorse the Obligors' names on any checks, notes, acceptances, drafts or any
other Instrument or document requiring said endorsement and to sign the
Obligors' names on any invoice or bills of lading relating to any Account, or
drafts against its customers, or schedules or confirmatory assignment on
Accounts, or notices of assignment, financing statements under the Uniform
Commercial Code, and other public records, and in verification of Accounts and
in notices to Account Debtors; provided, however, that Bank shall not exercise
any rights pursuant to its appointment as Attorney-in-Fact under this Section
6.10(B) until the occurrence of an Event of Default. Bank shall have no
obligation to preserve any rights against any Person obligated on any Account,
Chattel Paper, Instrument or other item of Collateral.
6.11 CHANGE OF LOCATIONS Each Obligor will furnish Bank with at least ten
(10) days prior written notice of any change in location of or addition to its
chief executive office, the office where it keeps its records concerning its
accounts, its location of Inventory and other assets, and other business
locations.
6.12 PRIMARY DEMAND DEPOSIT ACCOUNTS The Obligors agree to maintain at Bank
their primary demand deposit accounts.
6.13 POST CLOSING REQUIREMENTS. The Obligors agree:
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(i) to use their best efforts to obtain within ninety (90)
days of the Closing Date a landlord's waiver in form acceptable
to Bank duly executed by the landlord of the leased facility at 7
Ridgedale Avenue, Cedar Knolls, New Jersey;
(ii) to use their best efforts to cause within ninety (90)
days of the Closing Date, IBM Credit Corporation and Finova
Capital Corporation to release their liens on the equipment and
other fixed assets of Borrower;
(iii) to cause IBM Credit Corporation within thirty (30)
days of the Closing Date to execute an intercreditor agreement
reasonably acceptable to Bank; and
(iv) to cause Microage Computer Centers, Inc. within sixty
(60) days from the Closing Date to terminate all existing UCC
financing statements.
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VII
NEGATIVE COVENANTS OF OBLIGORS
------------------------------
7.1 LOANS AND ADVANCES AND INVESTMENTS The Obligors will not, without prior
written consent of Bank, make any loans or advances to or investment in any
Person except for Investment Obligations.
7.2 FINANCIAL COVENANTS
(A) Total Liabilities/Tangible Net Worth. The Obligors will not, on a
consolidated basis, allow its ratio of Total Liabilities to Tangible Net Worth
to exceed 2.00:1.00 at any time.
(B) Fixed Charge Coverage Ratio. The Obligors will not allow its Fixed
Charge Coverage Ratio, on a consolidated basis, to be less than 3.00:1.00,
measured quarterly.
7.3 LIENS The Obligors will not allow or suffer any Lien to exist on any of
their assets except for Permitted Encumbrances.
7.4 LIMITATION ON INDEBTEDNESS The Obligors will not create, incur, assume
or suffer to exist any Indebtedness except Permitted Indebtedness.
7.5 TRANSACTIONS AMONG AFFILIATES The Obligors will not become a party to
any transaction with an Affiliate of Borrower or Stan Gang unless the terms and
conditions relating to such transaction are as favorable to such Obligor as
would be obtainable at the time in a comparable arms-length transaction with a
Person other than an Affiliate or Stan Gang or pay or incur any obligation to
pay any management, service, consulting or similar fees to any Affiliate or Stan
Gang, excluding salaries, bonuses and benefits to Stan Gang who is also an
employee of Borrower.
7.6 SPECIAL COVENANTS AS TO ASSETS The Obligors covenant that until
satisfaction in full of all Obligations of Borrower to Bank and until
termination of this Agreement:
(A) no Inventory shall be stored with a bailee, warehouseman or similar
party without Bank's prior written consent and, if Bank gives such consent, the
appropriate Obligor will concurrently therewith cause any such bailee,
warehouseman or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, warehouse receipts therefor in Bank's name.
(B) The Obligors will not hold any Goods belonging to third parties or in
which other parties have an interest, including any Goods sold on a bill and
hold basis, except as set forth on Schedule 5.8.
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(C) The Obligors will not purchase or otherwise hold Goods on a consignment
basis except as set forth on Schedule 5.8.
(D) Except as set forth on Schedule 5.8 none of the Obligors' Inventory
will be of a nature that contains any labels, trademarks, trade names, or other
identifying characteristics which are the property of third parties, and the use
of which by an Obligor is in violation of the rights of such third parties or a
violation of any license, royalty or similar agreements with any third parties.
(E) Except as set forth on Schedule 5.8, the Obligors will not allow any
Goods of the Obligors to be held by any Person in the future.
(F) Except upon prior written notice to Bank, the Obligors will not in the
future purchase any Inventory except in the ordinary course of business from
Persons customarily in the business of selling such Inventory.
(G) The Obligors will not, without prior written consent of Bank, remove
the Collateral from its present location, except for the removal of Inventory
upon its sale;
(H) The Obligors will not sell or transfer any Inventory to any Affiliate,
Subsidiary or Stan Gang;
(I) The Obligors will not sell, lease or transfer any of their Inventory or
other assets except for sales of Inventory in the ordinary course of business to
good faith purchasers for value; and
(J) The Obligors will not cause any surety bonds to be issued on their
behalf in connection with any contracts or purchase orders except upon not less
than ten (10) days prior written notice to Bank.
7.7 PREPAYMENTS OF INDEBTEDNESS The Obligors will not prepay or obligate
themselves to prepay in whole or in part, any Indebtedness (other than any
Indebtedness due hereunder), excluding ordinary short-term trade debt owing to
Finova Capital Corporation or IBM Credit Corp.
7.8 FISCAL YEAR The Obligors will not change their fiscal years.
7.9 CHANGE IN CONTROL The Obligors will not make or suffer a change in
control that reduces Stan Gang's ownership in Borrower to an amount that is less
than that of any other shareholder and no other Obligor (other than Borrower)
shall sell or transfer any stock or other equity interest or issue any
additional stock or other equity interest in such Obligor or options or warrants
for the issuance of stock or other equity interest in such Obligor other than
the issuance of common stock to such Obligor's existing stockholders.
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7.10 CHANGE IN ACCOUNTING PRINCIPLES The Obligors will not change or permit
any change in accounting principles applied to the Obligors, except as required
by GAAP.
7.11 SALE AND LEASEBACK The Obligors will not enter into any arrangement
with any Person providing for the leasing by an Obligor of property which has
been or is to be sold or transferred by an Obligor to such Person or to any
other Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of such Obligor.
7.12 MAINTAIN CORPORATE EXISTENCE AND NATURE OF BUSINESS
(A) The Obligors will not allow their corporate existence to be other than
in good standing and will not dissolve or liquidate (or discontinue their normal
operations with the intent to liquidate), or merge or consolidate with or
acquire or affiliate with any other business entity or form any Subsidiary or
Affiliate; provided, however, that Borrower shall be permitted (i) to consummate
a Permitted Acquisition using the proceeds of an Acquisition Advance, subject to
the limitations set forth in Section 2.1 hereof and provided further that no
Default or Event of Default shall have occurred and be continuing or would
result from the making of such Acquisition Advance or the consummation of such
Permitted Acquisition and (ii) to form a Subsidiary which has resolved by
unanimous resolution of the board of directors and shareholders of such
Subsidiary to execute the Guaranty required under this Agreement and has duly
executed such Guaranty and provided further that no Default or Event of Default
shall have occurred and be continuing or would result from the formation of such
Subsidiary. Notwithstanding anything in the foregoing to the contrary, Borrower
shall be permitted to consummate a Permitted Acquisition in which the
consideration paid consists entirely of cash (other than Acquisition Advances)
or equity in Borrower and provided further that no Default or Event of Default
shall have occurred and be continuing or would result from the consummation of
such Permitted Acquisition.
(B) The Obligors will not change their names without furnishing to Bank at
least ten (10) days prior written notice thereof.
(C) The Obligors will not utilize any trade name not set forth on Schedule
5.8 without furnishing to Bank at least ten (10) days prior written notice
thereof.
(D) The Obligors will not change the general nature of their businesses.
7.13 DIVIDENDS; REDEMPTIONS The Obligors will not pay or declare any cash
or property dividends, nor otherwise make a withdrawal or distribution of
capital or income, nor redeem, retire, repurchase or otherwise acquire or set
aside reserves to acquire any stock, partnership or other ownership interest of
any Obligor if a Default or Event of Default
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exists hereunder or any such action would cause a Default or Event of Default to
occur hereunder.
7.14 DISCHARGE OF HAZARDOUS WASTE The Obligors shall not cause or permit to
exist a discharge of hazardous substances or waste resulting in damage to
natural resources, unless such discharge is in compliance with the conditions of
a valid permit issued by the appropriate Governmental Body.
7.15 LEASES The Obligors shall not enter into any leases of real property,
excluding Permitted Leases.
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VIII
EVENTS OF DEFAULT
-----------------
The occurrence of any of the following shall constitute an Event of
Default:
8.1 NON-PAYMENT Failure on the part of any Obligor to pay any Obligation to
Bank when due.
8.2 NON-PERFORMANCE Failure on the part of any Obligor to perform when such
performance is due any term, covenant or condition contained in this Agreement
or in any other Loan Document or any other agreement now existing or hereafter
entered into with Bank, or in any document executed in connection with any such
agreements.
8.3 MISREPRESENTATION Any representation, covenant or warranty made by any
Obligor in this Agreement, or any other Loan Document, or in connection with any
instrument of guaranty or security furnished to Bank shall have proved to have
been inaccurate in any substantial or material respect as of the date or dates
with respect to which it is made or deemed to have been made.
8.4 OTHER LIEN Any Obligor shall have caused or permitted a security
interest or Lien, perfected or otherwise, other than the security interest and
Liens specifically provided for or permitted hereunder, to be created in any of
its assets, or shall have failed to take any action requested by Bank to perfect
or protect the security interests and Liens provided for herein.
8.5 INSOLVENCY Any Obligor shall have applied for or consented to the
appointment of a custodian, receiver, trustee or liquidator of all or a
substantial part of its assets; a custodian shall have been appointed with or
without consent of any Obligor; any Obligor is generally not paying its debts as
they become due; has made a general assignment for the benefit of creditors; has
been adjudicated insolvent; or has filed a voluntary petition in bankruptcy, or
a petition or an answer seeking reorganization or an arrangement with creditors
or to take advantage of any insolvency law, or an answer admitting the material
allegations of a petition in any bankruptcy, reorganization or insolvency
proceeding; or taken corporate action for the purpose of effecting any of the
foregoing; or an order, judgment or decree shall have been entered, without the
application, approval or consent of any Obligor by any court of competent
jurisdiction approving a petition seeking reorganization of any Obligor, or
appointing a receiver, trustee, custodian or liquidator of any Obligor, or a
substantial part of its assets and such order, judgment or decree shall have
continued unstayed and in effect for any period of forty-five (45) consecutive
days; or a petition in bankruptcy shall have been filed against any Obligor and
shall not have been dismissed for a period of thirty (30) consecutive days, or
if an Order for Relief has been entered under the Bankruptcy Code, or if any
Obligor shall have suspended the transaction of its usual business.
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8.6 JUDGMENT OR LIEN Entry of a judgment, issuance of any garnishment,
attachment or distraint, the filing of any lien or of any governmental
attachment against any property of any Obligor in excess of $250,000 in the
aggregate which entry, issuance, attachment or filing shall have continued
unstayed and in effect for a period of thirty (30) consecutive days.
8.7 NON-COMPLIANCE WITH LEASES OR LAWS Failure of any Obligor to comply
with the terms and conditions of any lease covering the premises where any of
its assets are located, including the Collateral and any orders, ordinances,
laws or statutes of any city, state or other governmental department having
jurisdiction with respect to such premises or the conduct of business thereon,
which such non-compliance has a Material Adverse Effect on such Obligor.
8.8 ORGANIZATIONAL CHANGE Any change in the existing corporate organization
of any Obligor, including but not limited to a change to a partnership (general
or limited), limited liability company or the dissolution of any Obligor.
8.9 IMPAIRMENT OF RESPONSIBILITY Occurrence of any event which, in the
opinion of Bank, impairs the financial responsibility of any Obligor, which such
impairment has a Material Adverse Effect on such Obligor.
8.10 ADVERSE CHANGE The determination by Bank that a Material Adverse
Change has occurred of any Obligor.
8.11 MISREPRESENTATION OF FACT The determination by Bank that a material
misrepresentation of fact has been made by any Obligor in any writing
supplementary or ancillary hereto.
8.12 ERISA If (A) any Reportable Event occurs and shall be continuing for
thirty (30) days after notice from Bank to Borrower, or (B) any Plan shall be
terminated, or (C) the Plan administrator of any Plan shall file with the PBGC a
notice of intention to terminate such Plan, or (D) the PBGC shall institute
proceedings to terminate any Plan or appoint a trustee to administer any Plan,
and, if in any of the cases set forth in (A) through (D) above, Bank reasonably
determines in good faith that any Plan will be terminated and that the amount of
the unfunded guaranteed benefits (within the meaning of Title IV of ERISA)
resulting upon termination of such Plan would have a material adverse effect on
the financial condition and properties or operation of any Obligor if a lien
against the assets of any Obligor were to result under ERISA.
8.13 DEFAULT IN OBLIGATIONS TO THIRD PARTIES Any Obligor is in default
beyond any applicable grace or cure period of any material obligation to any
third party unless (i) a bona fide dispute exists as to such Obligor's
compliance with such obligation, (ii) such bona fide dispute is being diligently
resolved and (iii) any monetary amounts potentially
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owing by such Obligor in connection with such non-compliance are being held in
escrow by such Obligor.
8.14 LICENSES If any license or permit necessary for the continued
operation of any Obligor's customary business is revoked, suspended, terminated
or not renewed.
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IX
CONSEQUENCE OF EVENT OF DEFAULT
-------------------------------
In case any Event of Default shall have occurred, then and in every such
Event of Default, Bank may take any or all of the following actions, at the same
time or at different times, provided that upon the occurrence of an Event of
Default under Section 8.5 hereof the Loan under this Agreement shall
automatically terminate and all Obligations shall automatically be immediately
due and payable;
9.1 ACCELERATION Declare the Loan, sums and Obligations owing Bank from
Borrower under this Agreement or any other agreement or loan between Bank and
Borrower to be forthwith due and payable, whereupon all such sums shall
forthwith become due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Obligors and
the Commitment shall be terminated.
9.2 POSSESSION Proceed with or without judicial process to take possession
of all or any part of the Collateral provided for herein not already in the
possession of Bank and the Obligors agree that upon receipt of notice of Bank's
intention to take possession of all or any part of said Collateral, the Obligors
will do everything reasonably necessary to assemble the Collateral and make same
available to Bank at a place to be designated by Bank. The Obligors hereby waive
any and all rights they may have, by statute, constitution or otherwise to
notice or a hearing to determine the probable cause of Bank to obtain
possession, by Court proceedings or otherwise, of the Collateral provided for in
this or in any other agreement with Bank.
9.3 METHODS OF SALE So long as Bank acts in a commercially reasonable
manner, assign, transfer and deliver at any time or from time to time the whole
or any portion of the Collateral or any rights or interest therein in accordance
with the Uniform Commercial Code, and without limiting the scope of Bank's
rights thereunder, Bank may sell the Collateral at public or private sale, or in
any other manner, at such price or prices as Bank may deem best, and either for
cash or credit, or for future delivery, at the option of Bank, in bulk or in
parcels and with or without having the Collateral at the sale or other
disposition. Bank shall have the right to be the purchaser at any public sale.
Bank shall have the right to conduct such sales on Borrower's or any other
Obligor's premises or elsewhere and shall have the right to use Borrower's or
any other Obligor's premises without charge for such sales for such time or
times as Bank may see fit. Bank is hereby granted license or other right to use,
without charge, the Obligors' labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and the Obligors' rights under all licenses
and franchise agreements shall inure to Bank's benefit. The Obligors agree that
a reasonable means of disposition of Accounts shall be for Bank to hold and
liquidate any and all Accounts. In the event of a sale of the Collateral, or any
other disposition thereof, Bank shall apply all proceeds first to all costs and
expenses of disposition, including attorneys' fees, and then to the Obligations
of Borrower and the other Obligors to Bank.
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9.4 RETENTION OF COLLATERAL Elect to retain the Collateral or any part
thereof in satisfaction of all Obligations due from Borrower and the other
Obligors to Bank upon notice of such proposed election to Borrower and the other
Obligors and any other party as may be required by the Uniform Commercial Code.
9.5 SET-OFF Bank shall have the right immediately, and without notice or
other action to set-off against any of Obligor's Obligations to Bank any sum
owed by Bank in any capacity to any Obligor whether due or not, and Bank shall
be deemed to have exercised such right of set-off and to have made a charge
against any such sum immediately upon the occurrence of such Event of Default,
even though the actual book entries may be made at some time subsequent thereto.
9.6 ATTORNEYS' FEES AND EXPENSES Add to the Obligations of Borrower, Bank's
reasonable expenses to obtain or enforce payment of any Obligations hereunder
and the enforcement or liquidation of any debt hereunder shall include
reasonable attorneys' fees plus other legal expenses incurred by Bank.
9.7 INCREASE IN INTEREST/LATE CHARGE Increase the rate of interest under
any Obligations to a rate of four percent (4%) in excess of the highest rate
otherwise being charged hereunder. Unless otherwise agreed by Bank, this
increase in interest rate shall be retroactive to the date of the first
occurrence of an Event of Default. Add a late charge of five percent (5%) of any
payment of principal or interest required to be made by Borrower to Bank for
each month or portion thereof such payment remains unpaid, such period to begin
ten (10) days after such payment is required to be made.
9.8 BANK'S PERFORMANCE OF OBLIGORS' OBLIGATION If any Obligor fails to
comply with any of the covenants or perform any of its obligations set forth
herein or in any other Loan Document, Bank may, but shall have no obligation to,
perform any such obligations or undertake any act to cause such covenant to be
complied with, including, but not limited to, discharging any Lien on any asset
other than Permitted Encumbrances. Any and all sums, and all costs and expenses
incurred by Bank in so performing or causing compliance, shall be payable on
demand together with interest at the default rate provided for in Section 9.7
hereof from the date of any such payment by Bank until the date paid by the
Obligors. Any such performance by Bank shall not cure any Default or Event of
Default by the Obligors.
9.9 OTHER REMEDIES Exercise any other remedies under the Uniform Commercial
Code or other applicable law, or any other Loan Document, including but not
limited to (i) enforcing the obligations of any or all of the Guarantors under
the Guaranty and/or (ii) proceeding to enforce its right by suit in equity,
action at law or other appropriate proceeding, whether for payment or the
specific performance of the covenants or agreements contained in this Agreement
or any other Loan Document.
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X
MISCELLANEOUS
-------------
10.1 NO WAIVER The Obligors agree that no delay on the part of Bank in
exercising any power or right hereunder or any other Loan Document shall operate
as a waiver of any such power or right, nor act as a consent to any departure by
any Obligor from any of the terms or conditions hereof or thereof, preclude
other or further exercise thereof, or the exercise of any other power or right.
No waiver whatsoever shall be valid unless in writing signed by Bank and then
only to the extent set forth therein.
10.2 MODIFICATION OR AMENDMENT This Agreement and every other Loan Document
cannot be changed orally and cannot be changed by an executory agreement unless
such agreement is in writing and signed by all parties hereto by their duly
authorized officers.
10.3 WAIVER OF NOTICE The Obligors waive presentment, dishonor and notice
of dishonor, protest and notice of protest of all commercial papers at any time
held by Bank on which any Obligor is in any way liable.
10.4 ONE INSTRUMENT The provisions of this Agreement shall be in addition
to those of any notes or other evidence of the Obligations held by Bank relating
to this particular transaction, all of which shall be construed as one
instrument.
10.5 LAW OF NEW JERSEY This Agreement and all other Loan Documents and the
rights of the parties hereto and thereto shall be governed by the internal laws
of the State of New Jersey without regard to conflict of laws.
10.6 JURISDICTION The Obligors hereby irrevocably consent to the
jurisdiction of the Courts of the State of New Jersey or any Federal Court in
such State in connection with any action or proceeding arising out of or related
to this Agreement or any other Loan Document. In any such litigation, the
Obligors waive personal service of any summons, complaint or other process and
agree that service may be made by certified or registered mail to them, at the
address provided herein.
10.7 SUCCESSORS OR ASSIGNS This Agreement and all other Loan Documents
shall be binding upon and shall inure to the benefit of the parties hereto,
their respective successors and assigns, provided, however, that Borrower shall
not have any right to assign any of its rights hereunder.
10.8 RIGHTS CUMULATIVE The rights and remedies herein expressed or in any
other Loan Document to be vested in or conferred upon Bank shall be cumulative
and shall be in addition to and not in substitution for or in derogation of the
rights and remedies conferred upon secured creditors by the Uniform Commercial
Code or any other applicable law.
O:\SSDATA\HAT\BANK\2137604.6 50 062797
<PAGE>
10.9 LIMITATION OF LIABILITY No claim may be made by the Obligors or any
other Person against Bank or, as the case may be, directors, officers,
employees, attorneys or agents of Bank for any special, punitive, indirect or
consequential damages in respect of any claim for breach of contract arising out
of or related to the transactions contemplated by this Agreement, or any act,
omission or event occurring in connection therewith; and the Obligors hereby
waive, release and agree not to sue upon any claim for any such damages, whether
or not accrued and whether or not known or suspected to exist in its favor.
10.10 NOTIFICATION OF DISPOSITION OF COLLATERAL Any notification of a sale
or other disposition of the Collateral will be sufficient if given in the manner
set forth in Section 10.11 hereof not less than five (5) days prior to the day
on which such sales or other disposition will be made, and such notification
shall be deemed reasonable notice.
10.11 ADDRESSES OF NOTICES Any written notice required or permitted to be
given by this Agreement and the other Loan Documents shall be given or made in
writing, including telecopy, and shall be, as elected by the party giving such
notice, served personally by messenger or courier service, telecopied (followed
up by a mailing), or mailed in the United States by prepaid, registered or
certified mail, return receipt requested, to the following:
If to any Obligor:
ALPHANET SOLUTIONS, INC.
7 Ridgedale Avenue
Cedar Knolls, New Jersey 07927
Attn: Gary Finkel, Chief Financial Officer
Fax #: (201) 207-8675
with a copy (except
for routine notices with
respect to borrowings
hereunder and the like)
to:
BUCHANAN INGERSOLL
College Centre
500 College Road East
Princeton, New Jersey 08540
Attn: David J. Sorin, Esq.
Fax #: (609) 520-0360
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<PAGE>
If to Bank:
FIRST UNION NATIONAL BANK
550 Broad Street
Newark, New Jersey 07102
Attn: Peter Mace, Senior Vice President, Portfolio Management
Fax #: (201) 565-3908
with a copy (except
for routine notices with
respect to borrowings
hereunder and the like)
to:
RIKER, DANZIG, SCHERER, HYLAND & PERRETTI LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, New Jersey 07962-1981
Attn: Mark S. Rattner, Esq.
Fax #: (201) 538-1984
Any notice given in accordance with the provisions of this section shall be
deemed effective, if hand delivered, on the date of such delivery, or on the
date telecommunicated if telecopied, or if mailed, on the date upon which the
return receipt is signed or delivery refused or the notice is designated by the
postal authorities as not deliverable, as the case may be. Each party may give
notice to each of the other parties of a change of its address for the purpose
of giving notice under this section which, thereafter until changed by like
notice, shall be the address of such party for purposes of this Agreement. Any
failure to provide notice to the parties' attorneys shall not affect the
validity of any otherwise proper notice.
10.12 TITLES The titles and headings indicated herein and any table of
contents are inserted for convenience only and shall not be considered a part of
this Agreement or in any way limit the construction or interpretation of this
Agreement.
10.13 DISCLOSURE Bank is hereby authorized to disclose any financial or
other information it may have about the Obligors to any present or future
participant or prospective participant, any regulatory body or agency having
jurisdiction over Bank, or to any Person which succeeds to all or any part of
Bank's interest herein.
10.14 TERM This Agreement shall with respect to Section 2.1 hereof have a
term through the Maturity Date or such later date as Bank may agree to in
writing in its sole discretion. The Advances provided for in Section 2.1 hereof
shall be due and payable in full upon expiration of the term as set forth herein
or as otherwise set forth in this Agreement. Notwithstanding the expiration of
the term, the rights of Bank hereunder and the obligations of
O:\SSDATA\HAT\BANK\2137604.6 52 062797
<PAGE>
the Obligors hereunder, including but not limited to the grant of security
interests in and Liens on the Collateral as set forth in Article III hereof,
shall remain in full force and effect until all of the Obligations are
indefeasibly paid in full.
10.15 INTEREST LIMITATION It is the intention of Bank and the Obligors to
conform strictly to the laws of the State of New Jersey or the laws of such
other jurisdiction which may be found to apply to the subject transaction
relating to the maximum rate of interest which may be lawfully contracted for or
charged. Nothing contained in this Agreement or any other Loan Document shall be
construed to mean that Borrower has contracted to pay or is obligated to pay any
sum or sums to Bank in excess of those which may lawfully be charged or
contracted for under applicable law of the State of New Jersey or other
applicable law. If any provision of this Agreement or any of the other Loan
Documents shall require payment of any sum or sums of interest in excess of the
maximum permitted rate which may be lawfully contracted for or charged, then
Borrower and Bank agree that such result is as a consequence of their
inadvertence and/or mistake, and the interest charge for which Borrower is
liable under this instrument shall be recomputed for the sole and limited
purpose of determining the extent of the obligations and liabilities of Borrower
to Bank so that the interest charges for which Borrower is liable shall not
exceed the maximum permitted rate which is determined to be applicable.
Additionally, any sums of interest which are collected by Bank from Borrower or
any other Obligor or other source in connection with the Loan evidenced hereby
which are in excess of the maximum permitted rate shall, for the sole and
limited purpose of determining the extent of the obligations and liabilities of
Borrower to Bank, be credited against the amount of principal for which Borrower
is liable to Bank after giving effect to any recomputation and adjustment
required pursuant to the foregoing provisions of this section, or if such
outstanding principal balance and interest are paid in full, any such excess
shall be remitted by Bank to Borrower.
10.16 INDEMNIFICATION The Obligors hereby agree to and do hereby indemnify,
protect, defend and save harmless Bank and any member, officer, director,
official, agent, employee and attorney of Bank, and its respective heirs,
successors and assigns (collectively, the "Indemnified Parties"), from and
against any and all losses, damages, expenses or liabilities of any kind or
nature and from any suits, claims or demands, including reasonable counsel fees
incurred in investigating or defending such claim, suffered by any of them and
caused by, relating to, arising out of, resulting from, or in any way connected
with the Loan Documents and the transactions contemplated therein or the
Collateral (unless caused by the gross negligence or willful misconduct of the
Indemnified Parties) including, without limitation: (i) losses, damages,
expenses or liabilities sustained by Bank in connection with any environmental
cleanup or other remedy required or mandated by any Environmental Laws; (ii) any
untrue statement of a material fact contained in information submitted to Bank
by Borrower and/or any other Obligor or the omission of any material fact
necessary to be stated therein in order to make such statement not misleading or
incomplete; (iii) the failure of Borrower and/or any other Obligor to perform
any obligations herein required to be performed by Borrower and/or any other
Obligor; and (iv) the ownership, construction, occupancy, operations, use and
O:\SSDATA\HAT\BANK\2137604.6 53 062797
<PAGE>
maintenance of any of Borrower's and/or any other Obligor's properties. The
provisions of this Section 10.16 shall survive termination of this Agreement and
the other Loan Documents.
10.17 WAIVER OF TRIAL BY JURY THE OBLIGORS WAIVE TRIAL BY JURY IN ANY
LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT.
10.18 ARBITRATION
(A) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement and the other Loan
Documents ("Disputes") between or among parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement
(B) Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
10.19 PRESERVATION AND LIMITATION OF REMEDIES
(A) Notwithstanding the preceding binding arbitration provisions, Bank,
Borrower and the other Obligors agree to preserve, without diminution, certain
remedies that any party hereto may employ or exercise freely, independently or
in connection with an arbitration proceeding or after an arbitration action is
brought. Bank, Borrower and the other Obligors shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under the Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real
O:\SSDATA\HAT\BANK\2137604.6 54 062797
<PAGE>
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that may be requested
by a party in a Dispute.
(B) Bank, Borrower and the other Obligors agree that they shall not have a
remedy of punitive or exemplary damages against the other in any Dispute and
hereby waive any right or claim to punitive or exemplary damages they have now
or which may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
FIRST UNION NATIONAL BANK
By: /s/John P. Longhine
--------------------
Name: Senior Vice President
Title: John Longhine
ATTEST: ALPHANET SOLUTIONS, INC.
By: /s/Michael Gang By: /s/Gary Finkel
- ------------------- --------------
Name: Michael Gang Name: Gary Finkel
Title: Secretary Title: Vice President
Agreeing to the terms hereof:
ATTEST: NETTEMPS, INC.
By: /s/Andrew P. Gilbert By: /s/Gary Finkel
-------------------- --------------
Name: Andrew P. Gilbert Name: Gary Finkel
Title: Title: Vice President
O:\SSDATA\HAT\BANK\2137604.6 56 062797
<PAGE>
SCHEDULE 1.65
Permitted Encumbrances
----------------------
Existing UCC-1 filings in favor of MicroAge Computer Centers, Inc., and First
Fidelity Leasing Group, Inc.
O:\SSDATA\HAT\BANK\2137604.6 i 062797
<PAGE>
SCHEDULE 5.1
(A) Jurisdiction of incorporation of Obligors and in which they are in
good standing:
Both Obligors incorporated in New Jersey.
(B) Jurisdiction(s) Obligors are authorized to transact business and are
in good standing:
Borrower qualified as foreign corporation in New York and
Pennsylvania.
(C) Prior changes in structure (mergers, consolidations, etc.):
None.
(D) Prior changes in name of Obligors:
Prior corporate names of Borrower were Alphatronics Associates, Inc.,
and Alphatronics, Inc. Borrower also previously transacted business
under tradenames of Microage of Parsippany Computer Stores and
Microage Parsippany. Borrower no longer uses those or any other trade
names.
(E) Trade names used by Obligors or under which invoices are issued:
None
(F) Subsidiaries and Affiliates
Name % of Outstanding Stock Owned
---- ----------------------------
Nettemps, Inc. 100%
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<PAGE>
SCHEDULE 5.4
Litigation
NONE
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<PAGE>
SCHEDULE 5.8
(A) (i) Obligors' chief executive office:
7 Ridgedale Avenue
Cedar Knolls, New Jersey 07927
(ii) Change in location of foregoing within past four (4) months:
None
(iii) Location of Books and Records of Obligors:
7 Ridgedale Avenue
Cedar Knolls, New Jersey 07927
(iv) Change in location of foregoing within past four (4) months:
None
(v) Present location(s) of Inventory and other assets:
7 Ridgedale Avenue
Cedar Knolls, New Jersey 07927
See Attachments "A" and "B"
(B) Location from which assets have been moved or other location of assets
within past four (4) months:
See Attachments "A" and "B"
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<PAGE>
Schedule 5.8 continued
(C) (i) Name and address of warehouses, bailees or similar parties where
any Inventory of Obligors is located:
See Attachment "B"
(ii) if any: warehouse receipts are/are not issued:
None Issued
(iii)if warehouse receipts issued: they are negotiable/non
negotiable:
N/A
(D) Goods held by Obligors in which other parties have any interests,
including Goods sold on a bill and hold basis:
None
(E) Goods held by Obligors on a consignment basis:
None
(F) Inventory with trademarks, trade names, and the like which are the
property of others.
None
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<PAGE>
Schedule 5.8 continued
(G) Names and addresses of persons holding Goods belonging to Obligors and
location of Goods:
See Attachment "B"
(H) Purchases of Inventory or other assets not in the ordinary course of
business or from persons not customarily in the business of selling
such Goods:
None
(I) Instruments or Chattel Paper held by Obligors relating to Accounts:
None
(J) Trademark, trade names, patents or copyrights.
AlphaNet Solutions (not registered with U.S. Patent and Trademark
Office).
O:\SSDATA\HAT\BANK\2137604.6 iii 062797
<PAGE>
SCHEDULE 5.9
Surety Bonds
------------
NONE
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SCHEDULE 5.20
Shareholder/Repurchase Agreements
---------------------------------
NONE
O:\SSDATA\HAT\BANK\2137604.6 i 062797
<PAGE>
Attachment "A"
Alphanet Solutions, Inc.
Location Addresses
- --------------------------------------------------------------------------------
Location Landlord
7 Ridgedale Avenue Sutman Associates
Cedar Knolls, NJ 07927 1373 Broad Street
Clifton, NJ 07054
Service Department NJT Holding Inc.
600 Parsippany Road 600 Parsippany Road
Parsippany, Morris County, NJ Parsippany, NJ 07054
07054
Learning Center Metro Park Associates
Sutton Metro Park 80 Main Street
33 Wood Avenue South West Orange, NJ 07052
Iselin, Middlesex County, NJ
Learning Center Park 80 Associates
Park 80 West Park 80 West Plaza 1
Saddle Brook, NJ 07662 Saddle Brook, NJ 07662
Learning Center Victoria Plaza
615 Hope Road 1325 Morris Avenue
Building #1 Union, NJ 07083
Eatontown, NJ
1120 6th Avenue HQ Business Centers
New York, NY 1120 6th Avenue
New York, NY
170 S. Warner Road Liberty Property Ltd.
Section 2, Suite 106 Partnership
King of Prussia, PA 65 Valley Stream Parkway
Malvern, PA 19355
O:\SSDATA\HAT\BANK\2137604.6 ii 062797
<PAGE>
ATTACHMENT "B"
ALPHANET SOLUTIONS, INC.
OTHER INVENTORY LOCATIONS
- --------------------------------------------------------------------------------
MicroAge
2400 South MicroAge Way
Tempe, AZ 85282-1896
Ingram Micro "D"
1759 Webrle Drive
Williamsville, NY 14221-7887
Logicare
85A Marcus Drive
Melville, NY 11747
PSE&G
Desantis
River Terminal
Building 9E
6 Hackensack Avenue
South Kearny, NJ 07032
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<PAGE>
ASSET PURCHASE AGREEMENT
Agreement made as of the 1st day of August, 1997 by and among AlphaNet
Solutions, Inc., a New Jersey corporation with its principal office at 7
Ridgedale Avenue, Cedar Knolls, New Jersey 07927 (the "Buyer"), The Lande Group,
Inc., a New York corporation with its principal office at 460 West 34th Street,
New York, New York 10001 (the "Seller"), and Stewart Lande, the sole shareholder
of the Seller (the "Shareholder"). The Seller and the Shareholder are sometimes
collectively referred to herein as the "Selling Parties."
Preliminary Statement
---------------------
The Seller is engaged principally in the business of providing computer
consulting services and the sale of computer equipment and systems, and the
installation of local area networks for corporate and individual end users
located throughout the New York metropolitan area (the "Business"). The Buyer
desires to purchase, and the Seller desires to sell, certain of the assets and
the Business of the Seller, for the consideration set forth below and the
assumption of certain of the Seller's liabilities set forth below, subject to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
-------------------------------
1.1 Delivery of the Assets.
----------------------
(a) Subject to and upon the terms and conditions of this Agreement, except
as specifically provided in Section 1.1(b) hereof, at the closing of the
transactions contemplated by this Agreement (the "Closing"), the Seller shall
sell, transfer, convey, assign and deliver to the Buyer, and the Buyer shall
purchase from the Seller, free and clear of all liens, liabilities, security
interests, leasehold interests and encumbrances of any nature whatsoever (except
as otherwise expressly provided herein), all of the properties, assets and other
claims, rights and interests of the Seller which are necessary to conduct the
Business as it is conducted as of the date hereof of whatever kind, character or
description, whether real, personal or mixed, tangible or intangible, wherever
situated, including without limitation:
(i) all inventories of raw materials, work in process, goods in transit
(i.e., inventories purchased by, but not delivered to, the Seller), finished
goods, office supplies, maintenance supplies, packaging materials, spare parts
and similar items (collectively, the "Inventory");
(ii) those prepaid expenses set forth in Schedule 1.1(a)(ii);
(iii) all rights under the contracts, agreements, leases, licenses,
purchase orders, customer sales agreements and other instruments set forth on
Schedule 2.9(b) and Schedule 2.13(a) attached hereto (collectively, the
"Contract Rights");
1
<PAGE>
(iv) all books; payment records; accounts; customer lists; environmental
reports or studies; correspondence; production records; technical, accounting,
manufacturing and procedural manuals; engineering data; development and design
data; plans, blueprints, specifications and drawings; employment and personnel
records; and other useful business records, including electronic media, and any
confidential or other information which has been reduced to writing, utilized in
the conduct of or relating to the Business or the Assets (as hereinafter
defined), subject to the Seller's right to retain copies thereof which the
Seller reasonably requires for its ongoing operation, winding-up or dissolution;
(v) all rights of the Seller under express or implied warranties from the
suppliers of the Assets to the extent transferable (but excluding such rights
insofar as the same pertain to liabilities retained by the Seller hereunder);
(vi) the motor vehicles and other rolling stock listed on Schedule
1.1(a)(vi);
(vii) all of the machinery, equipment, tools, dies, tooling, production
fixtures, maintenance machinery and equipment, computers, telecommunication
systems, fittings and other office equipment, furniture, leasehold improvements
and construction in progress on the date hereof whether or not reflected as
capital assets in the accounting records of the Seller which are owned by the
Seller and used or useful in the Business including, but not limited to, all of
the foregoing located at the locations set forth on Schedule 1.l(a)(vii)
(collectively, the "Fixed Assets");
(viii) all right, title and interest of Seller in and to all intangible
property rights relating to the Business, including, but not limited to,
inventions, discoveries, trade secrets, processes, formulas, know-how, United
States and foreign patents, patent applications, trade names, including but not
limited to the names "The Lande Group, Inc." and "Micro Computer Systems, Inc.",
or any derivation thereof and those names listed on Schedule 2.20 attached
hereto, trademarks, trademark registrations, applications for trademark
registrations, copyrights, copyright registrations, certification marks,
industrial designs, technical expertise, research data and other similar
property and the registrations and applications for registration thereof owned
by the Seller or, where not owned, used by the Seller in the Business and all
goodwill associated thereto and all licenses and other agreements to which the
Seller is a party (as licensor or licensee) or by which the Seller is bound
relating to any of the foregoing kinds of property or rights to any "know-how"
or disclosure or use of ideas (collectively, the "Intangible Property");
(ix) all transferable approvals, authorizations, certifications, consents,
variances, permissions, licenses and permits to or from, or filings, notices or
recordings to or with, federal, state, foreign, and local governmental
authorities as held or effected by the Seller in connection with the Assets;
(x) all of the Seller's goodwill and the exclusive right to use the names
of the Seller as all or part of a corporate name;
2
<PAGE>
(xi) all accounts receivable and notes receivable set forth on Schedule
1.1(a)(xi) (including any security held by the Seller for the payment thereof)
(collectively, the "Accounts Receivable");
(xii) any refunds of federal, state, foreign or local income or other tax
paid by the Seller;
(xiii) cash or cash equivalents ("Cash"); and
(xiv) except as specifically provided in Section 1.1(b) hereof, all other
assets, properties, claims, rights and interests of the Seller which relate to
the Business and exist on the date hereof, of every kind and nature and
description, whether tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of Section 1.1(a) above, the assets to
be transferred to the Buyer under this Agreement shall not include (i) any of
Seller's rights or consideration under this Agreement; (ii) any insurance
policies currently held by the Seller and related premium agreements for general
liability, product liability and workers compensation insurance for periods
prior to the date hereof; or (iii) those assets listed on Schedule 1.1(b)
attached hereto (collectively, the "Excluded Assets").
(c) The Inventory, Contract Rights, Fixed Assets, Intangible Property,
Accounts Receivable, Cash and other properties, assets and business of the
Seller described in Section 1.1(a) above, other than the Excluded Assets, shall
be referred to collectively as the "Assets."
1.2 Further Assurances.
------------------
(a) At the Closing, the Seller shall execute and deliver a Bill of Sale
(the "Bill of Sale") substantially in the form attached hereto as Exhibit A, and
---------
the assignments described in Sections 8.14(b) and (c) hereof. At any time and
from time to time after the Closing, at the Buyer's request and without further
consideration, the Selling Parties (or their successors) promptly shall execute
and deliver such assignments of leases and other instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets and the
Business, to put the Buyer in actual possession and operating control thereof,
to assist Buyer in exercising all rights with respect thereto and to carry out
the purpose and intent of this Agreement.
(b) The Selling Parties and the Buyer each will use its best efforts to
obtain as promptly as possible written consents to the transfer, assignment or
sublicense to the Buyer of all agreements, commitments, purchase orders,
contracts, licenses, leases, rights and other contract documents being
transferred pursuant to Section 1.1(a) hereof where the approval or other
consent of any other person is required. If any such approval or consent cannot
be obtained, or if the parties hereafter agree in writing that it is not in
their respective best interests to obtain any such approval or other consent,
the Selling Parties will cooperate with the Buyer in any reasonable arrangement
designed to provide the Buyer with substantially the same economic
3
<PAGE>
benefits as if such approval or other consent had been obtained and the transfer
effected on or before the date hereof.
1.3 Assumption of Liabilities.
-------------------------
(a) At the Closing, the Buyer shall execute and deliver an Assumption
Agreement (the "Assumption Agreement") substantially in the form attached hereto
as Exhibit B, pursuant to which it shall assume and agree to (i) perform, pay
and discharge all those liabilities and obligations set forth on Schedule
1.3(a)(i) attached hereto which were incurred in the ordinary course of business
of the Business and are outstanding on the date hereof (the obligations set
forth in (i) are collectively, the "Assumed Current Liabilities"); (ii) perform
in accordance with their terms those obligations outstanding on the date hereof
under the Contract Rights; (iii) perform, pay and discharge all those
liabilities and obligations set forth on Schedule 1.3(a)(iii) relating to (A)
the State Insurance Disability Fund, (B) Michael Israel, and (C) Allan Grody
(which liabilities and obligations shall not exceed $200,000 in the aggregate);
and (iv) perform in accordance with their terms those liabilities arising after
the date hereof from any agreement, contract, commitment or other contract
documents which the Buyer has requested be transferred to it pursuant to Section
1.1(a) but which has not been so transferred due to the failure of Seller to
obtain the consent or approval required for such transfer, provided that the
Buyer has received substantially the same economic benefit of such contract as
if such consent or approval had been obtained (the obligations set forth in (i),
(ii), (iii) and (iv) are, collectively, the "Assumed Liabilities").
(b) Except as otherwise provided herein, the Buyer shall not assume any of
the liabilities of the Selling Parties and shall purchase the Assets free and
clear of all liens, mortgages, security interests, encumbrances and claims and
the Selling Parties each represent, warrant and agree that the Buyer shall not
be or become liable for any claims, demands, liabilities or obligations not
expressly assumed in this Agreement of any kind whatsoever arising out of or
relating to the conduct of the Business by Seller or the Assets or Assumed
Liabilities prior to the date hereof. Without limiting the foregoing, the Buyer
shall not at the Closing assume or agree to perform, pay or discharge, and the
Selling Parties shall remain unconditionally liable for, all obligations,
liabilities and commitments, fixed or contingent, of the Selling Parties other
than the Assumed Liabilities, including but not limited to:
(i) except as set forth in Section 1.3(a)(iii)(A) and Section 6 hereof,
severance, termination or other payments or benefits (including but not limited
to post-retirement benefits) including but not limited to those owing under
Seller's severance policy or any employment agreement to any employees (union or
non-union), sales agents or independent contractors employed by the Seller prior
to the Closing (collectively, "Seller's Employees"), liabilities arising under
any federal, state, local or foreign "plant closing law", liabilities accruing
under the Seller's employee benefit plans, vacation pay plans or programs,
retirement plans, and liabilities for any Employee Plan (as defined in Section
2.21 except those liabilities to Seller's Employees who become employees of the
Buyer after the Closing relating solely to and arising solely out of their term
of employment with the Buyer), as the case may be;
(ii) worker's compensation claims arising from events prior to the Closing;
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<PAGE>
(iii) stock option or other stock-based awards made to the Seller's
Employees;
(iv) liabilities for any federal, state, local or foreign income taxes
(including interest, penalties and additions to such taxes) or any deferred
income taxes of the Selling Parties;
(v) liabilities for any payroll taxes (including interest, penalties and
additions to such taxes), except those liabilities to Seller's Employees who
become employees of the Buyer after the Closing relating solely to and arising
solely out of their term of employment with the Buyer, as the case may be;
(vi) liabilities incurred for violations of occupational safety, wage,
health, welfare, employee benefit or environmental laws or regulations prior to
the date hereof;
(vii) liabilities to the extent related solely to the Excluded Assets;
(viii) except as provided in Section 12 hereof, any tax (including but not
limited to any federal, state, local or foreign income, franchise, single
business, value added, excise, customs, intangible, sales, transfer, recording,
documentary or other tax) imposed upon, or incurred by, the Selling Parties, if
any, in connection with or related to this Agreement or the transactions
contemplated hereby (including interest, penalties and additions to such taxes);
(ix) liabilities for any commercial rent taxes to the extent accrued but
not paid prior to the date hereof;
(x) other than the Assumed Liabilities, any liabilities of the Seller to
third parties arising out of the failure of the Seller to obtain any necessary
consents to the assignment to the Buyer of contracts or leases to which the
Seller is a party (including damages asserted by third parties for breach of
such contracts or leases due to the failure to obtain such consents);
(xi) liabilities, contingent or otherwise, which are not disclosed on
Schedule 1.3(a)(i) or Schedule 1.3(a)(iii);
(xii) liabilities of the Seller for any state franchise taxes or annual
license or other fees relating to qualification as a foreign corporation or
authorization to do business in such states (including interest, penalties and
additions to such taxes and fees); and
(xiii) any other liabilities of any kind or nature whether now in existence
or arising hereafter not expressly assumed by the Buyer under Section 1.3(a)
hereof.
1.4 Purchase Price. In consideration of the transfer of the Business and
---------------
Assets of the Seller to the Buyer hereunder, the Buyer will assume the Assumed
Liabilities and will pay an aggregate purchase price (the "Purchase Price"),
subject to the provisions of Section 1.5, equal
5
<PAGE>
to $1,000,000 in cash payable to the Seller (the "Cash Consideration") and an
additional $100,000 as set forth in Section 1.5(f).
1.5 The Closing.
-----------
(a) The Closing shall take place at the offices of Buchanan Ingersoll at
500 College Road East, Princeton, New Jersey 08540 on the date hereof. The
transfer of the Assets by the Seller to the Buyer shall be deemed to occur on
the date hereof.
(b) At the Closing, the Buyer shall pay the Purchase Price in the following
manner:
(i) by the assumption of the Assumed Liabilities; and
(ii) by tender in payment of the Cash Consideration as follows:
The Buyer shall pay $250,000 of the Cash Consideration to a third
party escrow agent, reasonably acceptable to the Buyer and the Seller, as
"Escrow Agent" pursuant to the Escrow Agreement substantially in the form
of Exhibit C attached hereto (the "Escrow Agreement"), by wire transfer to
the account specified in the Escrow Agreement. The disbursement of amounts
held by the Escrow Agent shall be done in accordance with the terms of
Section 1.5(c) and the Escrow Agreement. The Buyer shall pay the balance of
the Cash Consideration to the Seller by wire transfer to an account to be
specified by the Seller.
(c) At the Closing, the Seller shall deposit $250,000 into an
interest-bearing escrow account to be held by the Escrow Agent. The fees of the
Escrow Agent shall be paid out of the escrowed funds. The distribution of the
escrowed funds shall be made in accordance with the following. On a date 180
days after the Closing (the "Final Balance Sheet Date"), the parties will
mutually determine what the net worth of the Assets was as of the Closing. The
net worth of the Assets shall be defined as the book value of the tangible
assets acquired less the dollar amount of the liabilities assumed and shall be
determined in accordance with the pro forma balance sheet attached in Schedule
1.5(c) subject to the following adjustments:
(i) all Accounts Receivable collected by the Buyer between the Closing and
the Final Balance Sheet Date shall be reflected as an Asset on the balance sheet
prepared at the Final Balance Sheet Date as a separate line item identified as
"Collected Accounts Receivable";
(ii) all of the Accounts Receivable not collected by the Buyer by the Final
Balance Sheet Date shall be valued at zero;
(iii) the value of any rent concession shall not be deemed a liability;
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(iv) any favorable adjustments to the Seller's accounts payable after the
Closing shall be reflected as a reduced liability on the balance sheet prepared
at the Final Balance Sheet Date; and
(v) all deferred tax assets and any other refunds of federal, state,
foreign or local income tax or other tax not received by the Seller by the Final
Balance Sheet Date shall be valued at zero.
The escrowed funds shall be distributed within five days of such mutual
determination. In the event that on the Final Balance Sheet Date, the tangible
net worth of the Assets (as of the date of the Closing) is less than $0, the
amount of such difference shall be paid out of the escrowed funds to the Buyer,
up to the amount of funds available. The remainder of the escrowed funds, if
any, shall be paid to the Seller. In the event that on the Final Balance Sheet
Date, the tangible net worth of the Assets (as of the date of the Closing) is
greater than $0, the escrowed funds shall be paid to the Seller and the excess
shall be divided one-half to the Buyer and one-half to the Seller, with the
Buyer distributing the Seller's portion of such overage within five (5) days of
such determination.
(d) The Buyer shall continue to use its reasonable commercial efforts to
collect the Accounts Receivable following the Final Balance Sheet Date. In the
event that on the Final Balance Sheet Date, all or a portion of the Accounts
Receivable have not been collected by the Buyer, any amounts collected by the
Buyer in payment of the Accounts Receivable after the Final Balance Sheet Date
(the "Post-Closing Proceeds") shall be distributed as follows:
<TABLE>
<CAPTION>
If Tangible Net Worth of the Assets (as of
the date of Closing) plus the Post-Closing
Proceeds is: Distribution of Post-Closing Proceeds:
- -------------------------------------------- ----------------------------------------------
<S> <C>
less than negative $250,000 to the Buyer until tangible net worth of the
Assets (as of the date of Closing) plus Post
-Closing Proceeds equals negative $250,000;
thereafter
less than zero, but greater than negative to the Seller until tangible net worth of the
$250,000 Assets plus Post-Closing Proceeds equal zero;
thereafter
greater than zero divided equal between the Buyer and the
Seller.
</TABLE>
Any distribution to be made by the Buyer to the Seller pursuant to this Section
1.5(d) shall be made on a monthly basis.
(e) The Buyer shall pay an additional $50,000 to the Seller on each of the
first and second anniversary of the Closing.
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1.6 Allocation of Purchase Price. The aggregate amount of the Purchase
-----------------------------
Price shall, for tax purposes only, be allocated among the Assets and Assumed
Liabilities substantially in accordance with the amounts set forth on Schedule
1.6. The Seller and the Buyer agree that they will not take any position which
is materially inconsistent with the allocations provided for in this Agreement
in preparing income, capital or franchise tax returns.
2. Representations of the Seller
-----------------------------
The representations and warranties made by the Seller herein or in any
instrument or document furnished in connection herewith shall survive the
Closing until (and including) the fifth anniversary of the date hereof. The
representations and warranties in this Section 2 or in any document delivered to
the Buyer pursuant to this Agreement are deemed to be material and the Buyer is
entering into this Agreement relying on such representations and warranties. The
Seller represents and warrants to the Buyer as follows (it being understood that
all references in this Section 2 to the Seller shall be deemed to include any of
Seller's subsidiaries, unless the context otherwise requires):
2.1 Organization. The Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the state of its incorporation,
and has all requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby. Schedule 2.1 sets forth the authorized and
outstanding capital stock of the Seller as well as the record and beneficial
owners thereof. Except as set forth on Schedule 2.1, the Seller does not own or
control, directly or indirectly, any corporation, partnership, association or
business entity. The Seller is duly qualified to do business and in good
standing in all jurisdictions in which its ownership of property or the
character of its business requires such qualification. Schedule 2.1 contains a
true, correct and complete list of all of the jurisdictions in which the
ownership of the property used in the Business or the nature of the Business
requires qualification.
2.2 Authorization. The execution and delivery of this Agreement (and all
-------------
other agreements provided for herein) by the Seller, and the consummation by the
Seller of all transactions contemplated hereby, has been duly authorized by all
requisite corporate and shareholder action. This Agreement and all such other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which the Seller is a party constitutes the
valid and legally binding obligations of the Seller, enforceable against it, in
accordance with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally. The execution, delivery and performance by the
Seller of this Agreement and the agreements provided for herein, and the
consummation by the Seller of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to the
Seller; (b) violate the provisions of the Certificate of Incorporation or Bylaws
of the Seller; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (d) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Seller pursuant to, any indenture,
mortgage, deed of trust or other
8
<PAGE>
instrument or agreement to which any of them is a party or by which any of them
or any of their properties is or may be bound, other than with respect to
obligations of Seller which will be discharged at or prior to Closing. Schedule
2.2 attached hereto sets forth a true, correct and complete list of all
consents, approvals, permissions, licenses, authorizations and other
requirements prescribed by law, rule, regulation or by contract in connection
with the consummation by the Seller of the transactions contemplated by this
Agreement. Except as indicated on Schedule 2.2, all such items have been or will
be, prior to the date hereof, obtained and satisfied.
2.3 Ownership of the Assets. Schedule 2.3 attached hereto sets forth a
-----------------------
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting their respective Assets
(collectively, the "Encumbrances"). The Seller is, and at the Closing will be,
the true and lawful owner of the Assets, and will have the right to sell and
transfer to the Buyer good and marketable title to all Assets, which at the
Closing will be free and clear of all Encumbrances. The delivery to the Buyer of
the instruments of transfer of ownership contemplated by this Agreement will
vest good and marketable title to all Assets in the Buyer, free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever. The Assets to be
conveyed to the Buyer hereunder constitute all properties, assets, rights and
claims which are necessary to the conduct of the Business as currently conducted
by the Seller.
2.4 Financial Statements.
--------------------
(a) The Seller has previously delivered to the Buyer its audited balance
sheet as of June 30, 1996 (the "June 1996 Balance Sheet") and the related
statements of operations, shareholders' equity and changes in financial position
of the Seller for the fiscal year then ended (collectively, the "June 1996
Financial Statements") and its audited balance sheet as of June 30, 1997 (the
"June 1997 Balance Sheet") and the related audited statements of operations,
shareholders' equity and changes in financial position of the Seller for the
year then ended (the "June 1997 Financial Statements"). The June 1996 Financial
Statements and the June 1997 Statements (collectively, the "Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles applied consistently with past practice.
(b) The Financial Statements are accurate and complete, and fairly present,
in all material respects, as of their respective dates, the financial condition,
retained earnings (deficit), assets and liabilities of the Seller and the
results of operations of the Seller's business for the periods indicated.
Nothing has come to the attention of the Seller since the date of the Financial
Statements which would lead it to believe that the reserves and accruals shown
thereon are inadequate for all reasonably anticipated losses, costs and expenses
and the Seller reasonably believes that such reserves and accruals are adequate
for all of such losses, costs and expenses.
2.5 Litigation. Except as set forth on Schedule 2.5, the Seller is not a
----------
party to, or to the Seller's best knowledge threatened with, and none of the
Assets are subject to, any litigation, suit, action, investigation (to the best
of the Seller's knowledge), grievance, arbitration, proceeding, or controversy
or claim before, or any agreement with, any court, administrative agency or
other governmental authority relating to or affecting the Assets or the
business, properties, condition (financial or otherwise) or prospects of the
Business. The Seller is not in
9
<PAGE>
violation of or in default with respect to any judgment, order, award, writ,
injunction, decree or rule of any court, governmental department, commission,
agency, instrumentality, arbitrator, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority, where such violation or default would have a material adverse effect
upon the Assets, the business, properties, condition (financial or otherwise) or
prospects of the Business or the consummation of the transactions contemplated
hereby. The Seller has not received notice of any product liability claim,
warranty claim or other claim whatsoever which, if decided adversely, would have
a material adverse effect on the Assets or the business, condition (financial or
otherwise), properties or prospects of the Business.
2.6 Insurance. Schedule 2.6 sets forth a true, correct and complete list of
---------
all fire, theft, casualty, general liability, workers compensation, business
interruption, environmental impairment, product liability, automobile and other
insurance policies insuring the Assets or business of the Business and of all
life insurance policies maintained for any employees of the Business, specifying
the type of coverage, the amount of coverage, the premium, the insurer and the
expiration date of each such policy (collectively, the "Insurance Policies") and
all claims made under such Insurance Policies since January 1, 1993. True,
correct and complete copies of all of the Insurance Policies have been
previously delivered by the Seller to the Buyer. The Insurance Policies are in
full force and effect and are in amounts and of a nature which are adequate and
customary for the business of the Business. All premiums due on the Insurance
Policies or renewals thereof have been paid and there is no default under any of
the Insurance Policies. Except as set forth on Schedule 2.6, the Seller has not
received any notice or other communication from any issuer of the Insurance
Policies canceling or materially amending any of the Insurance Policies,
materially increasing any deductibles or retained amounts thereunder, or
materially increasing the annual or other premiums payable thereunder, and, to
the best knowledge of the Seller, no such cancellation, amendment or increase of
deductibles, retainers or premiums is threatened.
2.7 Inventory. Schedule 2.7 sets forth a true, correct and complete list of
---------
the Inventory as of date hereof, including a description and valuation thereof.
At the date hereof, the Inventory will consist of items of a quality and
quantity which are usable or saleable, without discount and at values at least
equal to the values indicated on the latest balance sheet included in the
Financial Statements, in the ordinary course of business, except as otherwise
reserved or provided for in accordance with the procedures set forth on Schedule
2.7, conducted by and within the normal operating cycle of the Business. At the
date hereof, the value of all items of obsolete materials, excess quantities of
materials and of materials of below standard quantity will be reserved for in
accordance with the procedures set forth in Schedule 2.7, and to the extent not
inconsistent, with generally accepted accounting principles. Prior to the
Closing, the Seller shall have conducted a physical inventory observed by a
designee of the Buyer. Such physical inventory shall be certified by the
Seller's Chief Executive Officer and Chief Financial Officer to the Buyer.
2.8 Fixed Assets. Schedule 2.8 sets forth a true, correct and complete list
------------
of all Fixed Assets as of the date hereof, including a description and the cost
and accumulated depreciation on an aggregate basis with respect to all Fixed
Assets. Except as set forth in Schedule 2.8, as of the date hereof, the Fixed
Assets are in good condition and repair and are sufficiently operational (apart
from ordinary wear and tear) to enable the Buyer to conduct the business in
essentially the
10
<PAGE>
same manner in which it has heretofore been conducted by the Seller. Prior to
the Closing, the Seller shall have completed a physical inventory of the Fixed
Assets and has identified the Fixed Assets to the reasonable satisfaction of the
Buyer, including without limitation, the inspection thereof.
2.9 Leases. Schedule 2.9(a) attached hereto sets forth a true, correct and
------
complete list as of the date hereof of all leases of real estate, identifying
separately each ground lease, to which the Seller is a party as lessee or tenant
or which the Seller uses in the operations of the Business. Schedule 2.9(b)
attached hereto sets forth a list of all leases of real estate which the Buyer
will assume pursuant to this Agreement (the "Leases"). True, correct and
complete copies of the Leases, and all amendments, modifications and
supplemental agreements thereto, have previously been delivered by the Seller to
the Buyer. The Leases are in full force and effect, are binding and enforceable
against each of the parties thereto in accordance with their respective terms
and, except as set forth on Schedule 2.9(b) attached hereto, have not been
modified or amended since the date of delivery to the Buyer. No party to any
Lease has sent written notice to the other claiming that such party is in
default thereunder, which default remains uncured. Except as set forth on
Schedule 2.9(b) attached hereto, there has not occurred any event which would
constitute a breach of or default in the performance of any material covenant,
agreement or condition contained in any Lease by either party thereto, nor has
there occurred any event which with the passage of time or the giving of notice
or both would constitute such a breach or material default. The Seller is not
obligated to pay any leasing or brokerage commission relating to any Lease and
will not have any enforceable obligation to pay any leasing or brokerage
commission upon the renewal or extension of any Lease. No material construction,
alteration or other leasehold improvement work with respect to any of the Leases
remains to be paid for or to be performed by any party under any Lease. Seller
has fulfilled all material obligations required pursuant to the Leases to have
been performed by Seller and has no reason to believe that it will be unable to
perform, when due, all of its remaining obligations under said Leases after the
date hereof to the Closing. None of the Leases imposes any restrictions that
would materially interfere with the continued operation of the business as
currently conducted on any of the properties that are the subject of the Leases.
There is no pending or, to the best of the Selling Parties' knowledge,
threatened eminent domain taking or condemnation that will or may affect any of
the properties that are the subject of the Leases.
2.10 Change in Financial Condition and Assets. Since June 30, 1997, there
-----------------------------------------
has been no change which materially and adversely affects the Assets or the
business, properties, condition (financial or otherwise) or prospects of the
Business. The Seller has no knowledge of any existing or threatened occurrence,
event or development related to the Assets or the business, properties,
condition (financial or otherwise) or prospects of the Business which could have
a material adverse effect on the Assets or the business, properties, condition
(financial or otherwise) or prospects of the Business.
2.11 Accounts Receivable. Schedule 1.1(a)(xi) sets forth a true, correct
--------------------
and complete list of all Accounts Receivable, including an aging thereof as of
the date hereof. All Accounts Receivable arose out of the sales of inventory or
services in the ordinary course of business.
2.12 Books and Records. The general ledgers and books of account of the
------------------
Seller with respect to the Business, all federal, state, local and foreign
income, franchise, property and other
11
<PAGE>
tax returns filed by the Seller, with respect to the Assets, and all other books
and records of the Seller with respect to the Business are in all material
respects complete and correct and have been maintained in accordance with good
business practice and in accordance with all applicable procedures required by
laws and regulations other than any digression from such practice and procedures
which has no material and adverse effect on the Assets or the Business, or the
valuations thereof for the purposes of this Agreement, as conducted as of and
prior to the date hereof.
2.13 Contracts and Commitments.
-------------------------
(a) Schedule 2.13(a) attached hereto contains a true, complete and correct
list and description of the following contracts and agreements, whether written
or oral, which relate to the Business and which are to be assigned from the
Seller to the Buyer at Closing (collectively, the "Contracts"):
(i) all material loan agreements, indentures, mortgages and guaranties to
which the Seller is a party or by which the Seller or its property is bound;
(ii) all pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which the Seller is a party or by
which the Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders (other than
merchandise deliveries to customers in the normal course of business upon
standard terms) or other understandings or arrangements to which the Seller is a
party or by which any of their respective property is bound which (A) involve
payments or receipts by any of them of more than $5,000 in the case of any
single contract, agreement, commitment, understanding or arrangement under which
full performance (including payment) has not been rendered by all parties
thereto or (B) may materially adversely affect the condition (financial or
otherwise) or the properties, Assets, business or prospects of the Business;
(iv) all collective bargaining agreements, employment and consulting
agreements, non-competition agreements, trust agreements, executive compensation
plans, bonus, 401(k), or profit-sharing plans, deferred compensation agreements,
pension plans, retirement plans, employee stock option or stock purchase plans
and group life, health and accident insurance and other employee benefit plans,
agreements, memoranda of understanding, arrangements or commitments to which the
Seller is a party or by which the Seller or any of its property is bound;
(v) all agency, distributor, sales representative and similar agreements to
which the Seller is a party;
(vi) all material contracts, agreements or other understandings or
arrangements, whether written or oral, between the Seller and any shareholder,
employee, officer or director of the Seller which may affect the Business as
conducted as of and prior to the date hereof or the Assets;
12
<PAGE>
(vii) all leases, whether operating, capital or otherwise, under which the
Seller is lessor or lessee;
(viii) all contracts, agreements and other documents or information
relating to past disposal of waste (whether or not hazardous) which are
available;
(ix) all return policies and product warranties relating to products or
goods manufactured or distributed by the Business as the same are currently in
effect or may have been in effect from time to time since June 30, 1997, as well
as any exception to such policies, all cooperative advertising arrangements and
all rebate, discount or allowance arrangements;
(x) all contracts related to operation, maintenance or management of the
leased facilities under any Leases (the "Leased Premises") other than immaterial
contracts which do not constitute a part of Assumed Liabilities; and
(xi) any licensing agreements, franchise agreements and other material
agreement or contract entered into by the Seller.
(b) Except as set forth on Schedule 2.13(b) attached hereto:
(i) each Contract is a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms, and the Seller has
no knowledge that any Contract is not a valid and binding agreement of the other
parties thereto:
(ii) the Seller has fulfilled all material obligations required pursuant to
the Contracts to have been performed by it prior to the date hereof, and the
Seller has no reason to believe that it will not be able to fulfill, when due,
all of its obligations under the Contracts which remain to be performed after
the date hereof to the Closing;
(iii) the Seller is not in breach of or default under any Contract, and no
event has occurred which with the passage of time or giving of notice or both
would constitute such a default, result in a loss of rights or result in the
creation of any lien, charge or encumbrance, thereunder or pursuant thereto (an
"Inchoate Default"); and
(iv) to the best knowledge of the Seller, there is no existing breach or
default by any other party to any Contract, and no Inchoate Default.
(c) Except as set forth on Schedule 2.13(b), the continuation, validity and
effectiveness of each Contract would not be affected by the transfer thereof to
Buyer under this Agreement and all such Contracts are assignable to Buyer
without a consent.
(d) True, correct and complete copies of all of the foregoing contracts and
agreements (other than all unfilled purchase orders and all unfilled customer
orders), including but not limited to the Contracts, and a list of all unfilled
purchase orders and all unfilled
13
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customer orders, shall be delivered by the Seller to the Buyer within five days
of the date hereof other than Contracts which will be terminated as of the
Closing.
2.14 Compliance with Laws. The Seller has all requisite licenses, permits
--------------------
and certificates, including health and safety permits, from federal, state,
local and foreign authorities necessary to conduct the Business and own and
operate the Assets (collectively, the "Permits"). Schedule 2.14 sets forth a
true, correct and complete list of all such Permits, copies of which previously
have been (or within five business days hereof will be) delivered by the Seller
to the Buyer. The Seller has not engaged in any activity which would cause or,
to the knowledge of the Seller, permit revocation or suspension of any such
Permit and no action or proceeding looking to or contemplating the revocation or
suspension of any such Permit is pending or threatened. There are no existing
defaults or Inchoate Defaults by the Seller under any Permit. The Seller has no
knowledge of any default or claimed or purported or alleged default or Inchoate
Defaults on the part of any party in the performance of any obligation to be
performed or paid by any party under any Permit. Except as set forth in Schedule
2.14, the consummation of the transactions contemplated by this Agreement will
in no way affect the continuation, validity or effectiveness of the Permits or
require the consent of any third party under any such Permit. The Seller is not
in violation of any law, regulation or ordinance (including but not limited to
laws, regulations or ordinances relating to building, zoning, land use or
similar matters) relating to its properties, the violation of which could have a
material adverse effect on the Assets or the business, properties, condition
(financial or otherwise) or prospects of the Seller. The business of the Seller
does not violate, in any material respect, and the Seller is not in violation
of, any federal, state, local or foreign laws, regulations or orders, the
violation or enforcement of which would have a material and adverse effect on
the Assets, business, properties, condition (financial or otherwise) or
prospects of the Seller. Except as set forth on Schedule 2.14, the Seller has
not received any notice or communication from any federal, state, foreign, or
local governmental or regulatory authority or otherwise of any such violation or
noncompliance and has not received any notice prior to such time of any
violation that has not been cured.
2.15 Employee Relations.
------------------
(a) The Seller is in compliance with all material federal, state, local and
foreign laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any unfair
labor practice, and there are no arrears in the payment of wages or taxes or
workers compensation assessments or penalties.
(b) Except as set forth on Schedule 2.15:
(i) none of Seller's Employees are represented by any labor union;
(ii) there is no unfair labor practice complaint against the Seller pending
before the National Labor Relations Board or any state, foreign, or local agency
affecting the Seller;
(iii) there is no pending labor strike or other material labor trouble
affecting the Seller (including but not limited to any organizational campaign);
14
<PAGE>
(iv) there is no material labor grievance pending against or affecting the
Seller;
(v) there is no pending organizing activities respecting the Seller's
Employees;
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which the Seller is a party, or to the
best knowledge of the Seller, any basis for which a claim may be made under any
collective bargaining agreement to which the Seller is a party affecting the
Seller's Employees; and
(vii) there is no pending litigation, or other proceeding or basis for an
unasserted claim against the Seller by any employee or group of employees or
independent contractor or group of independent contractors which is based on
claims arising out of any employee's or group of employees' employment
relationship with the Seller or any independent contractor's or group of
independent contractors' independent consulting relationship with the Seller
(insofar as such relationship pertains to the Business of the Seller), including
but not limited to claims for contract, tort, discrimination, employee benefits,
commissions, wrongful termination, age discrimination, sexual harassment, sexual
discrimination and any and all common law or statutory claims.
2.16 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------
2.16, since June 30, 1997, the Seller has not entered into any transaction which
is not in the usual and ordinary course of business, and, without limiting the
generality of the foregoing, the Seller has not:
(a) Mortgaged, pledged or subjected to lien, charge or other encumbrance
any of the Assets;
(b) Sold or purchased, assigned or transferred any of its Assets (except
for Inventory sold in the ordinary course of business);
(c) Made any material amendment to or termination of any Contract or done
any act or omitted to do any act which would cause the breach of any Contract;
(d) Suffered any casualty losses, whether insured or uninsured, and whether
or not in the control of the Seller, in excess of $5,000 in the aggregate, or
waived any rights of any value unless such loss or waiver is reflected in the
Financial Statements;
(e) Authorized or issued recall notices for any of its products relating to
the Business or initiated any safety investigations relating to the Business;
(f) Merged or consolidated with or into any corporation or other entity;
(g) Made, accrued or become liable for any bonus, profit sharing or
incentive payment, except for accruals under existing plans, if any, or increase
the rate of compensation
15
<PAGE>
payable or to become payable by it to any of its officers, or, except in
accordance with past practice and the ordinary course of business, its
employees;
(h) Waived, forgiven, released or compromised any rights of material
(individually or in the aggregate) value to the Business, including without
limitation any indebtedness owed to the Seller;
(i) Failed to use best efforts to (i) preserve the possession, control and
good condition of the Assets and Business, (ii) keep in faithful service its
present officers and key employees, and (iii) preserve the goodwill of its
customers, suppliers, agents, brokers and others having business relations with
it;
(j) Failed to operate the Business and maintain its books, accounts and
records in the customary manner and in accordance with past practice;
(k) Materially altered the terms, status or funding condition of any
Employee Plan except as contemplated by this Agreement;
(l) Entered into any collective bargaining contract, or any joint venture,
partnership or other arrangement for the conduct of the Business;
(m) Declared or paid any dividend or other distribution in respect of
shares of capital stock other than normal distributions for the payment of
income taxes occasioned by subchapter S tax election;
(n) Made any purchase, redemption or other acquisition, directly or
indirectly, of any outstanding shares of its capital stock;
(o) Forgiven, released or compromised any indebtedness owed to the Seller
by any employee or other person except upon full payment or, in the case of any
customer, returns and allowances made in the ordinary course of business
consistent with past practices;
(p) Purchased any assets or securities of any person, other than in the
ordinary course of business;
(q) Commenced any legal proceeding in bankruptcy or any other action
seeking reorganization, liquidation, dissolution, winding-up arrangement,
composition or readjustment of its debts or any other relief under any
bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect or make any other assignment for the
benefit of its creditors; or
(r) Received notice of any litigation, warranty claim or products liability
claims relating to the Business.
2.17 Customers. Schedule 2.17 sets forth a true, correct and complete list
---------
of the names and addresses of all customers of the Seller. None of the 15
customers which accounted for the largest dollar volume of purchases from the
Seller for the twelve month period ended June 30,
16
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1997, has notified the Seller that it intends to discontinue its relationship
with the Seller nor, to the best of the Seller's knowledge, does there exist any
actual or threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship of the Seller with any such
customer nor does there exist a present condition or state of facts or
circumstances known to the Seller involving such customers which would
materially adversely affect the Business or prevent the Buyer from conducting
the Business after the consummation of the transactions contemplated by this
Agreement in essentially the same manner in which it has heretofore been
conducted by the Seller. The Seller has no consignment sales in effect as of the
date hereof and no customer has any return rights except as set forth on
Schedule 2.13(a).
2.18 Suppliers. Schedule 2.18 sets forth a true, correct and complete list
---------
of the names and addresses of the ten suppliers of the Seller which accounted
for the largest dollar volume of purchases by the Seller for the twelve month
periods ended the date hereof and twelve months prior to the date hereof,
respectively. The Seller is not a party to any requirements contract relating to
the purchase of inventory, finished goods or other property used in the conduct
of the Business. None of the Seller's suppliers has notified the Seller that it
intends to discontinue its relationship with the Seller, nor raise its prices so
as to materially adversely affect the Business nor, to the best of the Seller's
knowledge, does there exist any actual or threatened termination, cancellation
or limitation of, or any modification or change in, the business relationship of
the Seller with any such supplier, nor does there exist a present condition or
state of facts or circumstances known to the Seller involving such suppliers
which would materially adversely affect the Business or prevent the Buyer from
conducting the Business after the consummation of the transactions contemplated
by this Agreement in essentially the same manner in which it has heretofore been
conducted by the Seller.
2.19 Prepayments and Deposits. Except as set forth on Schedule 2.19, the
-------------------------
Seller has no prepayments or deposits from customers for products to be shipped,
or services to be performed, by the Seller after the date hereof.
2.20 Trade Names and Other Intangible Property.
-----------------------------------------
(a) Schedule 2.20 attached hereto sets forth a true, correct and complete
list and a description of all Intangible Property. True, correct and complete
copies of all licenses and other agreements relating to the Intangible Property
have been previously delivered by the Seller to the Buyer. The Seller has no
knowledge of any default or claimed or purported or alleged default or state of
facts which with notice or lapse of time or both would constitute a default on
the part of any party in the performance of any obligation to be performed or
paid by any party under any such license or agreement. During the past five
years the only name by which the Seller has been known or which the Seller has
used is its corporate name set forth in the preamble of this Agreement.
(b) Except as otherwise disclosed in Schedule 2.20 attached hereto, the
Seller is the sole and exclusive owner, free and clear of all liens, claims and
restrictions, of all Intangible Property and all designs, permits, labels and
packages used on or in connection therewith. The Intangible Property owned by
the Seller is sufficient to conduct the Business, as presently conducted. The
Seller has received no notice of, and has no knowledge of any basis for, a claim
against it that any of its operations, activities, products or publications
infringes on
17
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any patent, trademark, trade name, copyright or other property right of a third
party, or that it is illegally or otherwise using the trade secrets, formulae or
any property rights of others. Except as otherwise disclosed in Schedule 2.20,
the Seller (i) has no disputes with or claims against any third party for
infringement by such third party of any trade name or other Intangible Property
of the Seller, and (ii) is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, trade name, copyright
or other property right, with respect to the use thereof or in connection with
the conduct of the Business or otherwise. The Seller has taken all steps
reasonably necessary to protect its right, title and interest in and to the
Intangible Property. Except as set forth in Schedule 2.20, the consummation of
the transactions contemplated by this Agreement (including any required
financing) will in no way affect the continuation, validity or effectiveness of
the Intangible Property or require the consent of any third party in respect of
the Intangible Property.
2.21 Employee Benefit Plans.
----------------------
(a) ERISA. Except as set forth on Schedule 2.21, neither the Seller nor any
person, firm, corporation or entity which is (or within the past five years has
been) a member with the Seller of a "controlled or affiliated group", within the
meaning of Section 414(b), (c), (m), (n) or (o) of the Internal Revenue Code of
1986, as amended (the "Code"), has maintained, sponsored or contributed to any
"pension plan" within the meaning of Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), any "welfare plan" within the
meaning of Section 3(1) of ERISA, or any other employee benefit plan, program,
practice or arrangement, whether or not subject to ERISA (a "non-ERISA plan")
(such pension plans, welfare plans and non-ERISA plans of the Seller being
herein referred to as the "Employee Plans"). Except as set forth on Schedule
2.21, the Seller has provided the Buyer with a true, correct and complete copy
of each pension plan, each welfare plan and each non-ERISA plan listed on such
Schedule, together with a copy of the most recent summary plan description and
annual report (if applicable) with respect to each such plan. Except as set
forth on Schedule 2.21, each pension plan listed on such Schedule is a
"qualified plan" within the meaning of Section 401 of the Code. Except as set
forth on Schedule 2.21, each pension plan, each welfare plan and each non-ERISA
plan listed on such Schedule has been administered in accordance with its terms,
and each pension plan and welfare plan has been operated and administered in
accordance with all applicable requirements of ERISA and the Code. Without
limiting the generality of the foregoing, no trustee, administrator, sponsor, or
other party-in-interest or disqualified person, has engaged or participated in
any "prohibited transaction", as that term is defined in Section 4975(c)(1) of
the Code, with respect to any pension plan or welfare plan listed on Schedule
2.21. Without limiting the generality of the foregoing, in connection with all
welfare or non-ERISA plans which are subject to continuation coverage under
Section 4980B of the Code, all notices and elections with respect to such
coverage have been made in compliance with the requirements of Section 4980B.
With respect to each "defined benefit pension plan", as defined in Section 3(35)
of ERISA, identified on Schedule 2.21: (i) the fair market value of the assets
thereof as of the date hereof is as set forth on such Schedule; (ii) the present
value of all accrued benefits thereunder, determined as if such pension plan
terminated on the date hereof, is as set forth on Schedule 2.21; (iii) if any
such plan is a "multiemployer plan", as defined in Section 3(37) of ERISA, the
present value of the contingent liability of the Seller both in the event of the
termination of such plan and in the event that the Seller withdraws therefrom is
as set forth on
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<PAGE>
Schedule 2.21; (iv) no such plan has incurred an "accumulated funding
deficiency", as such term is defined in Section 302 of ERISA, and (v) no such
pension plan has terminated, nor has any "reportable event", within the meaning
of Section 4043 of ERISA, occurred with respect to such plan. All contributions
for all periods ending prior to the date hereof (including periods from the
first day of the current plan year to the date hereof) will be made prior to the
date hereof by the Seller in accordance with past practice with respect to
pension plans, welfare plans and non-ERISA plans. All insurance premiums
(including premiums to the Pension Benefit Guaranty Corporation) have been paid
in full, subject only to normal retrospective adjustments in the ordinary course
of business, with regard to applicable plans for policy years or other
applicable policy periods ending on or before the date hereof.
(b) Claims and Litigation. Except as set forth on Schedule 2.21, to the
best of the Seller's knowledge, there are no threatened or pending claims, suits
or other proceedings by present or former employees of Seller, plan
participants, beneficiaries or spouses of any of the above, the Internal Revenue
Service, the Pension Benefit Guaranty Corporation, or any other pension or
entity involving any Employee Plan, including claims against the assets of any
trust, involving any Employee Plan, or any rights or benefits thereunder, other
than ordinary and usual claims for benefits to participants or beneficiaries,
including claims pursuant to domestic relations orders and there is no basis for
any legal action, proceeding or investigation with respect to such plans.
2.22 Leased Premises.
---------------
(a) Schedule 2.22 contains a true, correct and complete list of the address
of all Leased Premises.
(b) Except as set forth on Schedule 2.22, no work has been performed on or
materials supplied to the Leased Premises within any applicable statutory period
which could give rise to mechanics or materialmen's liens; all bills and claims
for labor performed and materials furnished to or for the benefit of the Leased
Premises for all periods prior to the Closing shall be paid in full, and the
Seller has no knowledge of any mechanic's or materialmen's liens, whether or not
perfected, on or affecting any portion of the Leased Premises.
(c) There is no pending or threatened condemnation or eminent domain
proceeding with respect to the Leased Premises.
(d) Except as set forth on Schedule 2.22, there are no taxes or betterment
or special assessments other than ordinary real estate taxes pending or payable
against the Leased Premises and there are no contingencies existing under which
any assessment for real estate taxes may be retroactively filed against the
Leased Premises; the Seller has no knowledge of any proposed special assessment
that may affect the Leased Premises or any part thereof; there are no penalties
due with respect to real estate taxes and/or impositions, and all real estate
taxes and/or impositions (excepting those for the current year that are not yet
due and payable) with respect to the Leased Premises have been paid in full;
there are no taxes or levies, permit fees or connection fees which must be paid
respecting existing curb cuts, sewer hookups, water-main hookups or services of
a like nature.
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<PAGE>
(e) The Leased Premises comply with the requirements of all building,
zoning, subdivision, health, safety, environmental, pollution control, waste
products, sewage control and all other applicable statutes, laws, codes,
ordinances, rules, orders, regulations and decrees (collectively, the
"Government Regulations") of any and all government agencies. To the extent set
forth in Schedule 2.14, the Seller has obtained and provided to the Buyer all
consents, permits, licenses and approvals required by such Government
Regulations, such consents, permits, licenses and approvals are in full force
and effect, have been properly and validly issued, and on or prior to the date
hereof will be assigned to the Buyer by the Seller to the extent the same are
assignable. Except as set forth in Schedule 2.14, there is no uncured breach of
any condition or requirement imposed by, or pursuant to, any permit or license
issued with respect to the Leased Premises. There is no action pending or, to
the best of the Seller's knowledge, threatened by any government agencies
claiming that the Leased Premises violates such Government Regulations or
threatening to shut down the Business or the use of the Assets or to prevent the
Assets from being used as presently used.
(f) Except as set forth on Schedule 2.22, there are no actions, suits,
petitions, notices or proceedings pending, given or, to the best of the Seller's
knowledge, threatened by any persons or government agencies before any court,
government agencies or instrumentalities, administrative or otherwise, which if
given, commenced or concluded would have a material adverse effect on the value,
occupancy, use or operation of the Leased Premises.
(g) The structural components of all of the buildings located on the Leased
Premises are in good condition and repair, normal wear and tear excepted.
(h) The Seller (i) has not received notice and (ii) has no knowledge of the
existence of any outstanding notice:
(A) from any federal, state, county, municipal or foreign authority
alleging any health, safety, pollution, environmental, zoning or other violation
of law with respect to the Leased Premises or any part thereof that has not been
entirely corrected; or
(B) from any insurance company or bonding company with respect to any
defects or inadequacies in the Leased Premises or any part thereof that would
adversely affect the insurability of same or cause the imposition of
extraordinary premiums or charges therefor or any termination or threatened
termination of any policy of insurance or bond relating thereto.
If the Seller obtains knowledge of any such notice prior to the date hereof, the
Seller shall promptly notify Buyer thereof.
2.23 Disclosure. No representation or warranty by the Seller in this
----------
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller has
disclosed to the Buyer all material facts pertaining to the transactions
contemplated by this Agreement.
20
<PAGE>
2.24 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried on by the Seller without the
intervention of any other person in such manner as to give rise to any valid
claim for a finder's fee, brokerage commission or other like payment.
2.25 Preservation of Assets. The Seller has not sold, assigned or
------------------------
transferred any of the Assets, other than in the ordinary course of business, or
declared or paid any dividend or other distribution in respect of shares of
capital stock or made any purchase, redemption or other acquisition, directly or
indirectly, of any outstanding shares of its capital stock, since June 30, 1997.
2.26 Environmental Compliance.
------------------------
(a) The Seller has obtained all permits, licenses and other authorizations
required under Federal, state and local laws, relating to protection of the
Environment (as defined below), including laws relating to any Release (as
defined below) of or presence of pollutants, contaminants, or hazardous or toxic
materials or wastes into or in soil, surface waters, groundwaters, land, stream
sediments, surface or subsurface strata, ambient air, and/or any environmental
medium (the "Environment") or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or hazardous or toxic materials or waste. Schedule 2.26
hereto sets forth a complete and accurate list of all such permits, licenses and
other authorizations obtained by the Seller, copies of which have been delivered
to the Buyer. The Seller is in full compliance with all terms and conditions of
such permits, licenses and other authorizations.
(b) Except as indicated on Schedule 2.26 neither the Seller has, and, to
the best of the Seller's knowledge, after due inquiry, none of the Seller's
employees, agents, contractors or subcontractors have, used, generated,
processed, stored, transported, recycled, Released or otherwise handled any
Hazardous Materials (as defined below) except as permitted by law on or about
any real property related to the Seller's business or the Seller's contractual
relations with any such agents, contractors or subcontractors, including, but
not limited to, real property formerly owned by the Seller (collectively, the
"Seller Real Property") and the facilities now or formerly leased or operated by
the Seller (collectively, the "Seller Facilities"). Additionally, except as
indicated on Schedule 2.26, and, to the best of the Seller's knowledge, after
due inquiry neither the Seller Facilities nor the Seller Real Property is being
used or has ever previously been used for the generation, use, processing,
storage, transportation, recycling, Release or handling of any Hazardous
Materials, except as such use may have been permitted by law. In addition,
except as indicated on Schedule 2.26, and, to the best of the Seller's
knowledge, after due inquiry neither the Seller Facilities nor the Seller Real
Property has ever been affected by any Hazardous Materials Contamination or
Environmental Condition. The Seller, in the conduct of its business, is and has
been in compliance with all Environmental Laws. Notwithstanding any statement or
representation to the contrary in any affidavit or other document, the Seller
affirmatively represents that as of the date hereof, the Seller has made all
filings required by RCRA and that there have been no failures by the Seller to
timely report under CERCLA Section 103 or RCRA Section 304. The Seller has not
received any written notice from any governmental authority or any other person
respecting or related to any actual, threatened or potential Release or presence
of any Hazardous Materials or any non-compliance with any
21
<PAGE>
Environmental Laws as to which any such claimed noncompliance presently exists.
Notwithstanding the preceding sentence, the Seller has not received any notice
from any governmental authority respecting noncompliance with RCRA. No
investigation, administrative proceeding, consent order or agreement, limitation
or settlement with respect to Hazardous Materials, Hazardous Materials
Contamination or Environmental Condition is, to the best of the Seller's
knowledge, proposed, threatened, anticipated or in force with respect to its
business, nor has such property ever been on any Federal or state "Superfund" or
"Super Lien" list.
As used in this Section 2.26, "due inquiry" shall mean that Seller has made
inquiry of all of Seller's executives, corporate officers and directors and any
employee or agent of Seller with responsibility for environmental matters.
As used herein "Hazardous Materials" include any (i) "Hazardous Waste" as
defined by The Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq.), as amended from time to time ("RCRA"), and regulations
promulgated thereunder; and "Hazardous Substance" as defined by The
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601 et seq.), as amended from time to time ("CERCLA"), and
regulations promulgated thereunder; (ii) asbestos; (iii) polychlorinated
biphenyls; (iv) any substance, the presence of which on the premises of the
Seller's business, is prohibited by applicable law; (v) oil, petroleum or any
petroleum products or by-products; (vi) any other substance which, according to
applicable law, requires special handling or notification of any Federal, state
or local governmental entity in its collection, processing, handling, storage,
transport, treatment or disposal or exposure thereto; (vii) any substance, which
if not properly disposed of, may pollute, contaminate, harm or have any
detrimental effect on the Environment; (viii) underground storage tanks, whether
empty, filled or partially filled with any substance; and (ix) any other
pollutant, toxic substance, hazardous substance, hazardous waste, hazardous
material or hazardous substance as regulated by or defined in or pursuant to any
Environmental law or any other Federal, state, or local environmental law,
regulation, ordinance, rule, or by-law, whether existing on or prior to the date
hereof.
As used herein, "Hazardous Materials Contamination" shall mean, with
respect to any premises, building or facilities or, the Environment,
contamination by a Release or the presence of Hazardous Materials.
As used herein, "Environmental Condition" shall mean any condition with
respect to the Environment on or off the Seller Real Property and Seller
Facilities, whether or not yet discovered, which could or does result in any
damage, loss, cost, expense, claim, demand, order, or liability to or against
the parties hereto by any third party (including, without limitation, any
government entity), including, without limitation, any condition resulting from
the operation of Seller's business and/or the operation of the business of any
other property owner or operator in the vicinity of the Seller Real Property and
Seller Facilities and/or any activity or operation formerly conducted by any
person or entity on or off the Seller Real Property and Seller Facilities.
As used herein, "Release" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing.
22
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As used herein, "Environmental Laws" shall mean any environmental or health
and/or safety-related law, regulation, rule, ordinance, or by-law at the
Federal, state, or local level, whether existing as of the date hereof,
previously enforced, or subsequently enacted, including but not limited to: (i)
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USCA
9601 et seq.; (ii) Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid
Waste Amendments of 1984, 42 USCA 6901 et seq.; (iii) Federal Water Pollution
Control Act of 1972 as amended by the Clean Water Act of 1977, as amended, 33
USCA 1251 et seq.; (iv) Toxic Substances Control Act of 1976, as amended, 15
USCA 2601 et seq.; (v) Emergency Planning and Community Right-to-Know Act of
1986, 42 USCA 11001 et seq.; (vi) Clean Air Act of 1966, as amended by the Clean
Air Act of 1986, as amended by the Clean Air Act Amendments of l990, 42 USCA
7401 et seq.; (vii) National Environmental Policy Act of 1970, as amended, 42
USCA 4321 et seq.; (viii) Rivers and Harbors Act of 1970, as amended, 33 USCA
401 et seq.; (ix) Endangered Species Act of 1973, as amended, 16 USCA 1531, et
seq; (x) Occupational Safety and Health Act of 1970, as amended, 29 USCA 651 et
seq.; (xi) Safe Drinking Water Act of 1974, as amended, 42 USCA 300 et seq., and
any other federal, state, or local law, regulation, rule, ordinance or order
currently in existence which governs:
(i) the existence, cleanup and/or remediation of toxic or hazardous
materials;
(ii) the Release, emission, discharge or presence of Hazardous Materials
into or in the Environment;
(iii) the control of Hazardous Materials; or
(iv) the use, generation, transport, treatment, storage, disposal, removal
or recovery of Hazardous Materials.
3. Representations of the Shareholder
----------------------------------
Representations and warranties made by the Shareholder herein or in any
instrument or document furnished in connection herewith shall survive the
Closing until (and including) the fifth anniversary of the date hereof. The
Shareholder represents and warrants to the Buyer as follows:
3.1 Authorization. The Shareholder has the full power, authority and legal
-------------
right to execute and deliver this Agreement, and to perform his covenants and
agreements hereunder, and this Agreement constitutes the valid and legally
binding obligation of the Shareholder, enforceable against him, in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally. The execution, delivery and performance by the Shareholder of this
Agreement and the agreements provided for herein, and the consummation by the
Shareholder of the transactions contemplated hereby and thereby, will not, with
or without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Shareholder; (b)
violate any judgment, decree, order or award of any court, governmental body
23
<PAGE>
or arbitrator; or (c) conflict with or result in the breach or termination of
any term or provision of, or constitute a default under, or cause any
acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Shareholder pursuant to, any indenture,
mortgage, deed of trust or other instrument or agreement to which he is a party
or by which he or any of his properties is or may be bound, other than with
respect to obligations of Shareholder which will be discharged at or prior to
Closing.
3.2 Ownership of the Assets. The Seller is, and at the Closing will be, the
-----------------------
true and lawful owner of the Assets, and will have the right to sell and
transfer to the Buyer good and marketable title to all Assets, which at the
Closing will be free and clear of all Encumbrances. The delivery to the Buyer of
the instruments of transfer of ownership contemplated by this Agreement will
vest good and marketable title to all Assets in the Buyer, free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever. The Assets to be
conveyed to the Buyer hereunder constitute all properties, assets, rights and
claims which are necessary to the conduct of the Business as currently conducted
by the Seller.
4. Representations of the Buyer
----------------------------
Representations and warranties made by the Buyer herein or in any
instrument or document furnished in connection herewith shall survive the
Closing until (and including) the fifth anniversary of the date hereof. The
Buyer represents and warrants to the Seller as follows:
4.1 Organization and Authority. The Buyer is duly organized and validly
----------------------------
existing and in good standing under the laws of the State of New Jersey, and has
requisite power and authority to own its properties and to carry on its business
as now being conducted. The Buyer has full power to execute and deliver this
Agreement, and the Assumption Agreement and to consummate the transactions
contemplated hereby and thereby.
4.2 Authorization. The execution and delivery of this Agreement by the
-------------
Buyer and the agreements provided for herein to which it is a party, and the
consummation by the Buyer of all transactions contemplated hereby, have been
duly authorized by all requisite corporate action. This Agreement and all such
other agreements and written obligations entered into and undertaken in
connection with the transactions contemplated hereby constitute the respective
valid and legally binding obligations of the Buyer, enforceable against it in
accordance with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors rights generally. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the organizational documents of the Buyer; (c) violate any
judgment, decree, order or award of any court, governmental body or arbitrator
applicable to the Buyer; or (d) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Buyer pursuant to, any indenture, mortgage,
deed of trust or other agreement or instrument to which it or its properties is
a party or by which the Buyer is or may be bound. Schedule 4.2 attached
24
<PAGE>
hereto sets forth a true, correct and complete list of all consents and
approvals of third parties that are required of the Buyer in connection with the
consummation by the Buyer of the transactions contemplated by this Agreement.
4.3 Regulatory Approvals. All consents, approvals, authorizations and other
--------------------
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by the Buyer and which are necessary for its consummation by the Buyer
of the transactions contemplated by this Agreement have been, or will be prior
to the date hereof, obtained and satisfied.
4.4 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried on by the Buyer without the
intervention of any other person in such manner as to give rise to any valid
claim for a finder's fee, brokerage commission or other like payment.
5. Confidentiality; Public Announcements
-------------------------------------
5.1 Confidentiality. All information not previously disclosed to the public
---------------
or not generally known to persons engaged in the business of the Seller or the
Buyer which shall have been furnished by the Buyer or the Seller to the other
party in connection with the transactions contemplated hereby shall not be
disclosed by such receiving party to any person other than their respective
employees, directors, attorneys, accountants or financial advisors or other than
as contemplated herein. In the event that the transactions contemplated by this
Agreement shall not be consummated, all such information which shall be in
writing shall be returned to the party furnishing the same, including, to the
extent reasonably practicable, all copies or reproductions thereof which may
have been prepared, and neither party shall at any time thereafter disclose to
third parties, or use, directly or indirectly, for its own benefit, any such
information, written or oral, about the business of the other party hereto.
5.2 Public Announcements. The parties will cooperate in the issuance of any
--------------------
press releases or otherwise in the making of any public statements with respect
to the transactions contemplated hereby.
6. Employee Matters
----------------
6.1 Seller's Employees. The Seller has furnished to the Buyer a list
-------------------
containing the names of all its employees (hereinafter collectively called the
"Seller's Employees"), including each such employee's status, social security
number and current compensation. If any such employee's employment is terminated
or status changed prior to the date hereof, the Seller shall promptly notify the
Buyer of such termination or status change and, in the case of termination, if
such employee is replaced, the name, date of hire and compensation of the
individual replacing such employee.
6.2 Future Changes. Subject to Section 8.13, nothing in this Section 6
---------------
shall require the Buyer to retain any of Seller's Employees for any period of
time after the date hereof. Subject to requirements of applicable law, the Buyer
reserves the right at any time after the date hereof to terminate such
employment and amend, modify or terminate any term or condition of
25
<PAGE>
employment, including without limitation, any employee benefit plan, program,
policy, practice or arrangement.
6.3 Plant Closing. None of the Selling Parties has, directly or indirectly,
-------------
taken or omitted to take any action which may result in the Seller's or the
Buyer's liability to any person or entity under the Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act"). The term "any action" does
not include the sale and acquisition contemplated by this Agreement and the
liability under the WARN Act, if any, which results from the Seller's
termination of employees in connection with such sale and acquisition is the
sole responsibility of the Seller.
6.4 Reporting of Data. The Buyer and the Seller shall compile and furnish
-----------------
to each other such actuarial and employee data as shall be required from time to
time for each party to perform and fulfill its obligations under this Section 6.
6.5 Pending Litigation. With respect to any litigation pending, or to the
-------------------
knowledge of the Seller threatened, as set forth in Schedule 2.21 hereto, which
claim alleges violation of any nondiscrimination laws, collective bargaining
agreements, employment contract and termination thereof or wage and hour laws,
Seller shall fully defend such claim. Subject to Section 1.3(a)(iii) Seller
shall be responsible for any monetary damages awarded in connection therewith.
It is understood by the parties that if Seller chooses to settle any matter
relating to any of the foregoing, including the terms and conditions thereof of
any back pay claims, such settlement shall be at the sole discretion of Seller
and Seller shall be solely responsible for the payment or performance of any
such settlement terms.
7. Best Efforts to Obtain Satisfaction of Conditions
-------------------------------------------------
The Selling Parties and the Buyer covenant and agree to use their best
efforts to obtain the satisfaction of the conditions specified in this
Agreement.
8. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the date hereof, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
8.1 Continued Truth of Representations and Warranties of the Selling
----------------------------------------------------------------------
Parties: Compliance with Covenants and Obligations. The representations and
- ----------------------------------------------------
warranties of the Selling Parties shall be true on and as of the date hereof.
The Seller shall have performed and complied in all material respects with all
covenants required by this Agreement to be performed or complied with by it
prior to or at the date hereof.
8.2 Corporate Proceedings. All corporate and other proceedings required to
---------------------
be taken on the part of the Seller to authorize or carry out this Agreement and
to convey, assign, transfer and deliver the Assets shall have been taken.
26
<PAGE>
8.3 Other Governmental Approvals. All courts of law, governmental agencies,
----------------------------
departments, bureaus, commissions and similar bodies, the consent, authorization
or approval of which is necessary under any applicable law, rule, order or
regulation for the consummation by the Seller of the transactions contemplated
by this Agreement and the operation of the Seller's business by the Buyer, shall
have consented to, authorized, permitted or approved such transactions including
but not limited to, all clearance certificates required pursuant to any
applicable retail sales tax legislation required in connection with the
completion of the transactions contemplated herein.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Seller shall
-----------------------------------------------------
have received the consents and approvals of all lenders, lessors and other third
parties whose consent or approval is required in order for the Seller to
consummate the transactions contemplated by this Agreement, including without
limitation, the landlord at the premises at each of 460 West 34th Street, New
York, New York and 120 West 44th Street, New York, New York.
8.5 Adverse Proceedings. No action or proceeding by or before any court or
-------------------
other governmental body shall have been instituted by any governmental body or
person whatsoever which shall seek to restrain, prohibit or invalidate the
transactions contemplated by this Agreement or which might affect the right of
the Buyer to own or use the Assets after the date hereof.
8.6 Opinion of Counsel. The Buyer shall have received an opinion of Elias
------------------
Goodman Shanks & Zizmor, L.L.P., counsel to the Seller, dated as of the date
hereof, substantially in the form attached hereto as Exhibit D (the "Opinion of
Seller's Counsel").
8.7 Board of Directors and Shareholder Approval. The directors and
------------------------------------------------
shareholders of the Seller shall have duly authorized the transactions
contemplated by this Agreement.
8.8 Title to Assets. At the Closing, the Buyer shall receive good and
---------------
marketable title to all Assets, free and clear of all liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and claims of
any kind or nature whatsoever.
8.9 Environmental Reports; Compliance with Laws. The Buyer shall not have
---------------------------------------------
received unsatisfactory environmental reports from its environmental consultants
and at any time prior to the Closing shall not have discovered that any Leased
Premises fails to comply in any material respect with all applicable federal,
foreign, state or local environmental, zoning, land use, and wetlands laws,
rules and regulations.
8.10 Fire, Casualty or Eminent Domain. If any of the Assets are, prior to
---------------------------------
the date hereof, either damaged by fire or other casualty insured against or
taken, in whole or in part, by eminent domain proceedings, then the Buyer shall
have the right to accept said Assets in their damaged or diminished condition
together with an assignment to Buyer of all insurance and/or condemnation
proceeds payable with respect to such fire, casualty or loss or terminate this
Agreement.
8.11 Due Diligence Review. The Buyer shall have completed a due diligence
---------------------
review of the Business, the results of which review are satisfactory to the
Buyer.
27
<PAGE>
8.12 Employment Agreement. The Shareholder shall have entered into the
---------------------
Employment Agreement with the Buyer in the form attached hereto as Exhibit E,
(the "Employment Agreement").
8.13 Seller's Employees. Each of the Seller's Employees listed on Schedule
------------------
8.13 has agreed to be employed by the Buyer as of the date hereof and has
executed an agreement with the Buyer which contains invention assignment,
non-competition and non-solicitation provisions.
8.14 Closing Deliveries. The Buyer shall have received at or prior to the
-------------------
Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as Exhibit A,
executed by the Seller;
(b) such instruments of conveyance, assignment and transfer, and motor
vehicle transfers and safety inspection certificates, if any, in form and
substance satisfactory to the Buyer, as shall be appropriate to convey, transfer
and assign to, and to vest in, the Buyer, good and marketable title to the
Assets other than the Intangible Property;
(c) such instruments of conveyance, assignment and transfer in form and
substance satisfactory to the Buyer and in a form appropriate to file, if
required, with the United States Office of Patents and Trademarks, sufficient to
convey, transfer and assign to, and to vest in, the Buyer, good and marketable
title to the Intangible Property;
(d) all technical data, formulations, product literature and other
documentation relating to the Seller's business, all in form and substance
satisfactory to the Buyer;
(e) such contracts, files and other data and documents pertaining to the
Assets or the Business as the Buyer may reasonably request;
(f) copies of the general ledgers and books of account of the Seller
related to the Business, and all federal, state, local and foreign income,
franchise, capital, property and other tax returns filed by the Seller with
respect to the Assets since June 30, 1997.
(g) such certificates of the Seller's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Buyer shall reasonably request;
(h) certificate of the Secretary of the Seller attesting to the incumbency
of the Seller's officers, respectively, and the authenticity of the resolutions
authorizing the transactions contemplated by the Agreement;
(i) estoppel certificates from each lessor under the Leases set forth in
Schedule 2.9(b) attached hereto (i) consenting to the assignment of such Lease
to the Buyer; (ii) representing that there are no outstanding claims against the
Seller under any such Lease, and no outstanding defaults or events which, with
the passage of time, may become defaults; (iii)
28
<PAGE>
specifying the commencement and termination dates under the Lease; and (iv)
providing that any purchase right, purchase option, right of first refusal,
renewal right or other similar provision is enforceable by the Buyer and
specifying the rental rates under the Lease and any other matters that Buyer may
reasonably require;
(j) the originals, if in Seller's possession, of all building permits,
certificates of occupancy, and other governmental licenses, permits and
approvals, and all plans and specifications relating to the Leased Premises not
previously delivered to the Buyer;
(k) the Employment Agreement executed by the Shareholder;
(l) the Opinion of Seller's Counsel;
(m) the Amendment of the Certificate of Incorporation of the Seller to
discontinue the use of the name "The Lande Group, Inc." and to file any
instruments as may be necessary with any governmental authority to change their
corporate names and foreign qualifications; and
(n) such other documents, instruments or certificates as the Buyer may
reasonably request in order to evidence the accuracy of the Selling Parties'
representations or compliance by Seller with its covenants hereunder.
9. Conditions to Obligations of the Seller
---------------------------------------
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the date hereof, of the following conditions precedent, each of
which may be waived in writing at the sole discretion of the Seller:
9.1 Continued Truth of Representations and Warranties of the Buyer;
----------------------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties of
- -----------------------------------------
the Buyer in this Agreement shall be true on and as of the date hereof. The
Buyer shall have performed and complied with all covenants required by this
Agreement to be performed or complied with by each of them prior to or at the
date hereof.
9.2 Corporate Proceedings. All corporate, legal and other proceedings
----------------------
required to be taken on the part of the Buyer to authorize or carry out this
Agreement shall have been taken.
9.3 Approvals. All other governmental agencies, departments, bureaus,
---------
commissions and similar bodies, the consent, authorization or approval of which
is necessary under any applicable law, rule, order or regulation for the
consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
9.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
-----------------------------------------------------
have received all requisite and material consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Buyer to consummate the
29
<PAGE>
transactions contemplated by this Agreement, including but not limited to those
set forth on Schedule 4.2 attached hereto.
9.5 Adverse Proceedings. No action or proceeding by or before any court or
-------------------
other governmental body shall have been instituted by any governmental body or
person whatsoever which shall seek to restrain, prohibit or invalidate the
transactions contemplated by this Agreement or which might affect the right of
the Seller to transfer the Assets or would affect the right of the Buyer to
acquire the Assets.
9.6 Release of Personal Guaranties. The Buyer shall use its best efforts to
------------------------------
obtain the release of all personal guaranties of the Shareholder relating to the
Assumed Liabilities.
9.7 Closing Deliveries. The Seller shall have received at or prior to the
-------------------
Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 9 as the
Seller shall reasonably request;
(b) a certificate of the Secretary of the Buyer attesting to the incumbency
of the Buyer's officers, the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement;
(c) the Assumption Agreement executed by the Buyer and accepted by the
Seller;
(d) payment of the portion of Purchase Price due on the date hereof,
including the Cash Consideration;
(e) the Employment Agreement, executed by the Buyer; and
(f) such other documents, instruments or certificates as the Seller may
reasonably request.
10. Post-Closing Agreements
-----------------------
10.1 Proprietary Information.
-----------------------
(a) The Seller shall hold in confidence, and use its best efforts to have
all officers, shareholders, directors and personnel hold in confidence, all
knowledge and information of a secret or confidential nature with respect to the
Business, and shall not disclose, publish or make use of the same without the
consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller or
by any other persons who have agreed not to disclose, publish or make use of
such information.
30
<PAGE>
(b) The Seller agrees that the remedy at law for any breach of this Section
10.1 would be inadequate and that the Buyer shall be entitled to injunctive
relief in addition to any other remedy it may have upon breach of any provision
of this Section 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as provided by
----------------------------------------------
law or with the written consent of Buyer, for a period of two (2) years after
the date of termination of the Shareholder's employment with the Buyer, the
Seller and any persons or entities that are not natural persons, that directly
or indirectly, through one or more intermediaries, control, are controlled by,
or are under common control with, the Seller (the "Corporate Affiliates"), shall
not solicit any person who was a Seller's Employee on the date hereof, and has
been employed, and not terminated without cause, by the Buyer, to terminate his
employment with the Buyer or to become an employee of the Seller or its
Corporate Affiliates or hire any person who was such an employee on the date
hereof or on the date hereof.
10.3 Non-Competition Agreement.
-------------------------
(a) For a period of two (2) years after the date of termination of the
Shareholder's employment with the Buyer, neither the Seller nor any Corporate
Affiliate thereof shall directly or indirectly (i) manufacture, market or sell
any product which has the same or substantially the same function and primary
application as any existing or proposed product manufactured by the Seller on or
prior to the date hereof or (ii) engage in, manage, operate, be connected with
or acquire any interest in, as an employee, consultant, advisor, agent, owner,
partner, co-venturer, principal, director, shareholder, lender or otherwise, any
business competitive with the business of the Seller as conducted on the date
hereof (a "Competitive Business"), in the United States or any other country in
which the Seller conducted business during the two years prior to the date
hereof, except that the Seller and its Corporate Affiliates may own, in the
aggregate, not more than 1% of the outstanding shares of any publicly held
corporation which is a Competitive Business which has shares listed for trading
on a securities exchange registered with the Securities and Exchange Commission
or through the automatic quotation system of a registered securities
association.
(b) The parties hereto agree that the duration and geographic scope of the
non-competition provision set forth in this Section 10.3 are reasonable. In the
event that any court determines that the duration or the geographic scope, or
both, are unreasonable and that such provision is to that extent unenforceable,
the parties hereto agree that the provision shall remain in full force and
effect for the greatest time period and in the greatest area that would not
render it unenforceable. The parties intend that this non-competition provision
shall be deemed to be a series of separate covenants, one for each and every
county of each and every state of the United States of America and each and
every political subdivision of each and every country outside the United States
of America where this provision is intended to be effective. The Seller agrees
that damages are an inadequate remedy for any breach of this provision and that
the Buyer shall, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this non-competition provision. If the Seller or any Corporate Affiliate
shall violate this Section 10.3, the duration of this Section 10.3 automatically
shall be extended as against such violating party for a period equal to the
period during which such party shall have
31
<PAGE>
been in violation of this Section 10.3. The covenants contained in this Section
10.3 are deemed to be material and the Buyer is entering into this Agreement
relying on such covenants.
10.4 Sharing of Data. The Seller shall have the right for a period of seven
---------------
years following the date hereof to have reasonable access to such books, records
and accounts, including financial and tax information, correspondence,
production records, employment records and other similar information as are
transferred to the Buyer pursuant to the terms of this Agreement for the limited
purposes of concluding its involvement in the business of the Seller prior to
the date hereof and for complying with its obligations under applicable
securities, tax, environmental, employment or other laws and regulations. The
Buyer shall have the right for a period of seven years following the date hereof
to have reasonable access to those books, records and accounts, including
financial and tax information, correspondence, production records, employment
records and other records which are retained by the Seller pursuant to the terms
of this Agreement to the extent that any of the foregoing relates to the
Business transferred to the Buyer hereunder or is otherwise needed by the Buyer
in order to comply with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations.
10.5 Cooperation in Litigation. Each party hereto will fully cooperate with
-------------------------
the other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after the
date hereof (other than litigation arising out of the transactions contemplated
by this Agreement and except as otherwise expressly provided herein). The party
requesting such cooperation shall pay the out-of-pocket expenses (including
legal fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
10.6 Communications with Customers. Except as may be reasonably necessary
-----------------------------
to collect the Accounts Receivable, neither the Selling Parties, nor any
Corporate Affiliate, shall directly or indirectly communicate with any customer
set forth on Schedule 2.17.
10.7 Unaudited Financial Statements. If the Closing occurs on or after July
------------------------------
31, 1997, the Seller shall deliver, its unaudited balance sheet as of July 31,
1997 (the "July 1997 Balance Sheet") and the related unaudited statements of
operations, shareholders' equity and changes in financial position of the Seller
for the month then ended (the "July 1997 Financial Statements" and,
collectively, with the July 1997 Balance Sheet, the "Unaudited Financial
Statements"). The Unaudited Financial Statements shall be delivered no later
than August 31, 1997 and shall be prepared in accordance with generally accepted
accounting principles applied consistently with past practice and shall be
certified by the Seller's Chief Executive Officer and Chief Financial Officer.
32
<PAGE>
11. Indemnification and Reimbursement
---------------------------------
11.1 Indemnification.
---------------
(a) The Seller shall indemnify, defend and hold harmless the Buyer and any
parent, subsidiary or affiliate thereof and all directors, officers, employees,
agents and consultants of each of the foregoing (collectively, the "Buyer
Group") from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities (whether absolute, accrued, contingent
or otherwise), costs and expenses, including but not limited to, interest,
penalties and attorneys' fees and expenses (collectively, "Damages"), asserted
against, imposed upon or incurred by the Buyer Group or any member thereof,
directly or indirectly, by reason of or resulting from or relating to any of the
following (but in any event excluding the Assumed Liabilities):
(i) liability and obligation of the Seller;
(ii) misrepresentation or breach of warranty or covenant or agreement by
the Seller made or contained in this Agreement or in any certificate or other
instrument furnished or to be furnished to the Buyer under this Agreement;
(iii) failure to comply with any bulk sales or similar laws applicable to
the transactions contemplated hereby; and
(iv) litigation or other claim arising from acts, failures to act or events
which occurred prior to the date hereof including, without limitation, the
remediation of environmental conditions attributable to the conduct of the
Business at any of the Seller Facilities, prior to the date hereof and claims
for product failure or defect (including but not limited to claims for personal
injury, property damages and breach of warranty) which relate to any product
manufactured or sold prior to the date hereof.
(b) The Buyer shall indemnify, defend and hold harmless the Seller and any
parent, subsidiary or affiliate thereof and all directors, officers, employees,
agents and consultants of each of the foregoing (collectively, the "Seller
Group") from and against all Damages asserted against, imposed upon or incurred
by the Seller Group or any member thereof, directly or indirectly, by reason of
or resulting from or relating to any of the Assumed Liabilities.
11.2 CERCLA. Nothing contained in this Agreement shall be deemed a waiver
------
of the right of the Buyer to maintain a private party cost recovery action under
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq.
11.3 Notice and Defense of Claims. The Seller's obligations and liabilities
----------------------------
hereunder with respect to claims resulting from the assertion of liability by
the Buyer or third parties shall be subject to the following terms and
conditions:
(a) Notice. The Buyer shall give prompt written notice to the Seller of any
claim or event known to it which does or may give rise to a claim by the Buyer
against the Seller for which the Buyer believes it is entitled to
indemnification pursuant to this Section 10 of this
33
<PAGE>
Agreement, stating the nature and basis of said claims or events and the amounts
thereof, to the extent known, and in the case of any claim, action, suit or
proceeding brought by any third party, a copy of any claim, process or legal
pleadings with respect thereto promptly after any such documents are received by
the indemnified party. Such notice shall be given in accordance with Section 13
hereof.
(b) Third Party Claims or Actions.
(i) In the event any claim, action, suit or proceeding is made or brought
by any third party against the Buyer, with respect to which the Seller may have
liability for Damages under this Section 11 of this Agreement, the Seller shall,
at its own expense, be entitled to participate in and, to the extent that it
shall wish, jointly and with any other indemnifying party, to assume the
defense, with independent counsel reasonably satisfactory to the Buyer, provided
that in assuming the defense of any such third party claim, action, suit or
proceeding, the Seller acknowledges in writing to the Buyer that the Seller
shall thereafter be liable for any Damage with respect to such claim, action,
suit or proceeding.
(ii) If the Seller elects to assume control of such defense or settlement,
it shall conduct such defense or settlement in a manner reasonably satisfactory
and effective to protect the Buyer fully; such company and its counsel will keep
the Buyer fully advised as to its conduct of such defense or settlement, and no
compromise or settlement shall be agreed or made without the written consent of
the Buyer. In any case, the Buyer shall have the right to employ its own counsel
and such counsel may participate in such action, but the reasonable fees and
expenses of such counsel shall be at the expense of the Buyer, when and as
incurred, unless (A) the employment of counsel by the Buyer has been authorized
in writing by the Seller, (B) the Buyer shall have reasonably concluded that
there may be a conflict of interest between the Seller and the Buyer in the
conduct of the defense of such action, (C) the Seller shall not in fact have
employed independent counsel reasonably satisfactory to the Buyer to assume the
defense of such action and shall have been so notified by the Buyer, (D) the
Buyer shall have reasonably concluded and specifically notified the Seller
either that there may be specific defenses available to it which are different
from or additional to those available to it or that such claim, action, suit or
proceeding involves or could have a material adverse effect upon it beyond the
financial resources of the Seller or the scope of this Agreement, or (E) the
Seller fails to conduct such defense or settlement in a manner reasonably
satisfactory to protect the Buyer fully. If clause (B), (C), (D) or (E) of the
preceding sentence shall be applicable, then counsel for the Buyer shall have
the right to direct the defense of such claim, action, suit or proceeding on
behalf of the Buyer and the reasonable fees and disbursements of such counsel
shall constitute Damages hereunder.
(iii) If the Seller does not elect to assume the defense of any such claim,
or if it fails to conduct said defense or settlement in a manner reasonably
satisfactory to protect the Buyer fully, the Buyer may engage independent
counsel selected by the Buyer to assume the defense and may contest, pay, settle
or compromise any such claim on such terms and conditions as the indemnified
party may determine. The reasonable fees and disbursements of such counsel shall
constitute Damages hereunder.
34
<PAGE>
(iv) The Buyer and the Seller, as the case may be, shall be kept fully
informed of such claim, action, suit or proceeding at all stages thereof whether
or not such party is represented by its own counsel.
11.4 Cooperation. The parties hereto agree to render to each other such
-----------
assistance as they may reasonably require of each other and to cooperate in good
faith with each other in order to ensure the proper and adequate defense of any
claim, action, suit or proceeding brought by any third party. Where counsel has
been selected by the Seller or by the Buyer pursuant to Section 11.3, the Seller
or the Buyer, as the case may be, shall be entitled to rely upon the advice of
such counsel in the conduct of the defense.
11.5 Confidentiality. The parties agree to cooperate in such a manner as to
---------------
preserve in full the confidentiality of all confidential business records and
the attorney-client and work-product privileges. In connection therewith, each
party agrees that (a) it will use its best efforts, in any action, suit or
proceeding in which it has assumed or participated in the defense, to avoid
production of confidential business records and (b) all communications between
any party hereto and counsel responsible for or participating in the defense of
any action, suit or proceeding shall, to the extent possible, be made so as to
preserve any applicable attorney-client or work-product privilege.
12. Transfer and Sales Tax
----------------------
The Seller shall be responsible for and pay all filing and recording taxes
and fees, and all sales, use and transfer taxes and fees, if any, upon the sale
and transfer of the Assets hereunder.
13. Notices
-------
Any notices or other communications required or permitted hereunder shall
be sufficiently given if in writing (including telecommunications) and delivered
personally or sent by telex, telecopy or other wire transmission (with request
for assurance in a manner typical with respect to communications of that type),
federal express or other overnight air courier (postage prepaid), registered or
certified mail (postage prepaid with return receipt requested), addressed as
follows or to such other address of which the parties may have given notice:
To the Seller: The Lande Group, Inc.
460 West 34th Street
New York, New York 10001
Attn: Mr. Stewart Lande, President
Tel. No.: (212) 497-5900
Fax No.: (212) 497-5901
With a copy to: Elias Goodman Shanks & Zizmor, L.L.P.
444 Madison Avenue, 41st Floor
New York, New York 10022
Attn: Paul Goodman, Esq.
Tel. No.: (212) 421-6000
Fax No.: (212) 421-6027
35
<PAGE>
To the Buyer: AlphaNet Solutions, Inc.
7 Ridgedale Avenue
Cedar Knolls, New Jersey 07927
Attn: Mr. Stan Gang, President
Tel. No.: (973) 267-0088
Fax No.: (973) 267-8675
With a copy to: Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Attn: David J. Sorin, Esq.
Tel. No.: (609) 987-6800
Fax No.: (609) 520-0360
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally or by wire
transmission; (b) on the next business day after mailing or deposit with an
overnight air courier; or (c) five business days after being sent, if sent by
registered or certified mail.
14. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Neither the Seller
nor the Buyer may assign all or a portion of its rights and obligations
hereunder without the prior written consent of the other party, except that the
Buyer may assign all or a portion of its rights and obligations hereunder to an
Affiliate of Buyer, provided that Buyer shall remain liable for the performance
of the Buyer's obligations under this Agreement. Any assignment in contravention
of this provision shall be void.
15. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties except as expressly provided herein. The Buyer and the Seller, by the
consent of their respective Boards of Directors, or officers authorized by such
Boards, may amend or modify this Agreement, in such manner as may be agreed
upon, by a written instrument executed by the Buyer and the Seller.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provisions of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
36
<PAGE>
16. Expenses
--------
Except as otherwise expressly provided herein, the Buyer and the Seller
shall each pay their own expenses in connection with this Agreement and the
transactions contemplated hereby. It is understood and agreed that the Seller's
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, but not limited to, professional fees, shall be
paid from a portion of the proceeds of the Cash Consideration paid to the Seller
at the Closing.
17. Legal Fees
----------
In the event that legal proceedings are commenced by the Buyer against the
Seller, or by the Seller against the Buyer, in connection with this Agreement or
the transactions contemplated hereby, the party or parties which do not prevail
in such proceedings shall pay the reasonable attorneys' fees and other costs and
expenses, including investigation costs, incurred by the prevailing party in
such proceedings.
18. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey, without reference to conflicts of laws rules or
principles.
19. Section Headings
----------------
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
20. Severability
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
21. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
22. Currency
--------
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are in United States funds.
37
<PAGE>
23. Ambiguity in Negotiations
-------------------------
Each party shall have been deemed to have participated equally in the
negotiation of this Agreement and the agreements contemplated hereby and any
ambiguity in any such contracts shall not be construed against any purported
author thereof.
38
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) SELLER:
ATTEST: THE LANDE GROUP, INC.
By: /s/ Stewart Lande
- ------------------------------- -----------------
Secretary Name: Stewart Lande
Title: President
SHAREHOLDER:
/s/ Stewart Lande
---------------------
Stewart Lande
(Corporate Seal) BUYER:
ATTEST: ALPHANET SOLUTIONS, INC.
By: /s/ Stan Gang
- ------------------------------- ------------------
Secretary Name: Stan Gang
Title: President
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
ALPHANET SOLUTIONS, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Pro forma net income....................... $ 516 $ 1,100 $ 1,088 $ 2,261
Weighted average number of
common shares and common
shares equivalent:
Common shares.............................. 5,073 5,257 4,281 5,180
Shares necessary to fund
S Corporation Distribution.............. -- -- 260 --
Stock options.............................. -- 219 -- 205
Cheap stock (treasury stock method)........ -- -- 17 --
5,073 5,476 4,558 5,385
Pro forma net income per share............. $ 0.10 $ 0.20 $ 0.24 $ 0.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE ISSUER'S FORM 10-Q FOR THE PERIOD
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q.
</LEGEND>
<CIK> 0001002132
<NAME> AlphaNet Solutions, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 16,721
<SECURITIES> 0
<RECEIVABLES> 33,032
<ALLOWANCES> 453
<INVENTORY> 4,575
<CURRENT-ASSETS> 55,329
<PP&E> 6,788
<DEPRECIATION> 1,609
<TOTAL-ASSETS> 61,705
<CURRENT-LIABILITIES> 22,615
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 38,352
<TOTAL-LIABILITY-AND-EQUITY> 61,705
<SALES> 70,377
<TOTAL-REVENUES> 88,311
<CGS> 62,496
<TOTAL-COSTS> 74,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 3,832
<INCOME-TAX> 1,571
<INCOME-CONTINUING> 2,261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,261
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0
</TABLE>
