UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Number 0-27290
KSW, INC
(Exact name of registrant as specified in its charter)
Delaware 11-3191686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
37-16 23rd Street, Long Island City, New York 11101
(Address of principal executive offices) (Zip Code)
718-361-6500
(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 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 issuer's classes of
common stock, as of the latest practicable date:
Outstanding
Class June 30, 1997
Common stock, $.01 par value 5,542,978
This is page 1 of 13 pages. Index to exhibits is on page 12.
<PAGE>
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
Page No.
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet- 3
June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Operation 4
Six months and three months ended June 30, 1997
and 1996
Condensed Consolidated Statements of Cash Flows- 5
Six months ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Change in Securites
Item 4. Submission of Matter to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 1997 December 31, 1996
ASSETS
<S> <C> <C>
Current assets: $ 3,405 $ 4,464
Cash and cash equivalents
Accounts receivable, less allowance
for doubtful accounts of $100 and $170 at
June 30, 1997 and December 31, 1996
respectively 9,220 11,705
Retainage receivable 6,955 5,552
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,903 1,640
Prepaid expenses and other receivables 748 416
----------- ---------
Total current assets 21,421 23,777
Property and equipment, net of accumulated
depreciation of $914 and $752 at
June 30, 1997 and December 31, 1996
respectively 592 651
Other Assets:
Goodwill, net of accumulated amortization
of $828 and &752 at June 30, 1997 and
December 31, 1996, respectively 4,202 4,278
Other 7 28
------- -------
Total Assets $26,222 $ 28,734
========= ===========
LIABILIIES AND STOCKHOLDERS EQUITY
Current liabilities:
Account payable $ 6,901 $ 8,602
Retainage payable 3,920 3,472
Accrued payroll and related benefits 969 916
Accrued expenses 193 345
Billings in excess of costs and extimated
earnings on uncompleted contracts 2,986 4,860
--------- ---------
Total current liabilities 14,969 18,195
Long Term Liabilities 200 0
--------- ---------
Total liabilities 15,169 18,195
--------- ---------
Stockholders' equity
Common stock, $.01 par value; 25,000,000 shares
authorized; 5,542,978 shares issued and
outstanding at June 30, 1997 and December
31, 1996, respectively 55 55
Additional paid-in capital 9,961 9,961
Retained earnings 1,037 523
----------- ---------
Total stockholders' equity 11,053 10,539
Total Liabilities and Stockholders' Equity $ 26,222 $ 28,734
================= =================
</TABLE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
<S> <C> <C> <C> <C>
Revenues
Contracts $36,882 $18,838 $16,946 $10,208
Fees from Sellers 167 522 30 364
Interest 94 65 48 16
---------- ---------- -------- ---------
37,143 19,425 17,024 10,588
Direct costs 34,450 17,861 16,064 9,726
------ -------- ---------- ----------
Gross profit 2,693 1,564 960 862
Selling, general
& administrative expenses 1,920 1,997 925 858
Interest 17 4 11 2
------- -------- -------- ---------
Profit/(Loss) before provision
for income taxes 756 (437) 24 2
Provision for income taxes 242 (205) 10 0
----- ------- ------ -----
Net Profit/ (Loss) $514 $(232) $14 $ 2
==== ======= ========== ========
Net Profit/(Loss) per
common share .09 (.04) 0 0
====== ===== ====== ======
Weighted average common
shares outstanding 5,735,170 5,611,523 5,737,069 5,614,618
=========== =========== =========== ==========
Fully diluted Profit/(Loss)
per common share .09 (.04) 0 0
====== =========== =========== ==========
Fully diluted average
common shares 5,735,170 5,611,523 5,737,069 5,614,618
=========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Six Months
Ended June 30, 1997 Ended June 30, 1996
<S> <C> <C>
Cash flows from operating activities:
Net gain/(loss) $ 514 $ (232)
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 238 220
Changes in operating assets and liabilities:
Accounts and retainage receivable 1,082 (3,869)
Costs and estimated earnings in
excess of billings on uncompleted
contracts 547 (581)
Prepaid expenses and other receivables (332) (299)
Accounts and retainage payable (1,253) 2,822
Accrued salaries and related benefits 53 (380)
Accrued expenses (152) (311)
Due to contractor (1,264)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (1,874) 575
----------- ----------
Net cash provided by/(used in)
operating activities (1,177) (3,319)
Cash flows from investing activities:
Decrease in other assets 21 -
Purchase of property and equipment (103) (105)
Net cash used in investing activities (82) (105)
Cash flows from financing activities:
Sale of stock 450
Repurchase of stock (126)
Long term liabilities 200 31
------------ ----------
Net cash provided by financing activities 200 355
------- ------------ ----------
Net increase/(decrease) in cash and cash
equivalents (1059) (3,069)
Cash and cash equivalents,
beginning of period 4,464 5,124
Cash and cash equivalents,
end of period $ 3,405 $ 2,055
================= ==================
</TABLE>
<PAGE>
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the Company as of June 30, 1997 and December 31, 1996 and the results of
operations and cash flows for the six and three month periods ended June 30,
1997 and 1996. Because of the possible fluctuations in the marketplace in the
construction industry, operating results of the Company on a quarterly basis may
not be indicative of operating results for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the second quarter increased by 61% to $17,024,000,
compared to $10,588,000 for the second quarter of 1996. Revenues in the first
half of 1997 were $37,143,000 compared to revenues of $19,425,000 for the same
period in 1996 an increase of $17,718,000 (91%).
COST OF SALES
Cost of sales for the second quarter increased by $6,338,000 or 65% to
$16,064,000 from $9,726,000 as a result of the increase in sales revenues noted
above.
GROSS PROFIT
Gross profit increased by 11% or $98,000 from $862,000 in the second
quarter of 1996 to $960,000 in the second quarter of 1997. This was primarily
due to the sales volume increase noted above. The gross profit percentage
decreased from 8.1% for the second quarter of 1996 to 5.7% for the same quarter
of 1997 primarily due to adjustments in contract costs on a completed project.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased from
$858,000 for the second quarter of 1996 to $925,000 in the second quarter of
1997, an increase of $67,000. For the six months ending June 30, 1997, SG&A
expenses decreased $77,000 (3.9%) in spite of an 91% increase in revenue.
PROVISION FOR TAXES
Provision for taxes for the six months ended June 30, 1997 was 32% of
income/(loss) before taxes as compared to 47% for the same period in 1996 due to
a $105,000 tax credit for deferred taxes not previously recorded. Had this
credit not be recorded in 1997 the tax provision would have been comparable to
1996 (47%).
NET GAIN
Net profit in the second quarter of 1997 of $14,000 compared to a net
profit of $2,000 in the second quarter of 1996, was the result of the items
mentioned above. For the first six months of 1997 there was a net profit of
$514,000 compared to a net loss of ($232,000) for the same period in 1996.
LIQUIDITY AND CASH FLOW
For the first six months of 1997 cash used by operations was
$1,177,000. For the same period in 1996 the cash used in operations was
$3,319,000 which was offset by $355,000 generated from financing activities. The
cash flow for the first half of 1997 was effected by a decrease in billings in
excess of costs and estimated earnings of uncompleted contracts of $1,874,000.
While no significant capital improvements are projected over the next
year, cash will be needed to fund the start-up costs for new projects. The
Company has a $3,000,000 credit facility with Fleet Bank, which the Company
believes should be sufficient to fund the Company's working capital needs.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no outstanding material lawsuits to which the Company or its
subsidiary is a party. Neither the Company nor its subsidiary is a party to any
regulatory investigation or inquiry with any governmental agency.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting, held on May 5, 1997, the stockholders
approved the following resolutions:
a. The stockholders re-elected Robert Brussel as a Class II director,
to serve for a term of three years;
b. The stockholders ratified the appointment of Marden, Harrison &
Kreuter as independent auditors for the Company for the year 1997.
ITEM 5. OTHER INFORMATION
a. On May 29, 1997, the Company established a three year unsecured
credit facility in the amount of $3,000,000.00 with Fleet Bank, consisting of a
$2,000,000 revolving credit agreement and a $1,000,000 line of credit. The
Company intends to use this credit facility to fund current operations and
believes this line of credit should be sufficient to fund the Company's working
capital needs.
b. KSW became a public corporation in December, 1995 as a result of a
stock distribution by Helionetics, Inc. to its shareholders. On April 29, 1997,
Susan Barnes, wife of Helionetics' chairman, Bernard Katz, sold her remaining
stock interest in KSW. At that time Ms. Barnes held a 25% interest in KSW.
During 1996 her interest was reduced to 11.6% through private transactions and
Rule 144 sales.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURE
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.
KSW, INC.
Date: August 13, 1997 /s/ Robert Brussel
Robert Brussel
Chief Financial Officer
(Principal Financial and
Accounting Officer and Duly
Authorized Officer)
<PAGE>
KSW, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
1 Statement Regarding Computation of Per Share Earnings 13
2 Fleet Bank Line of Credit 14 - 17
27 Financial Data Schedule
<PAGE>
EXHIBIT
KSW, INC.
<TABLE>
<CAPTION>
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS (LOSS) PER SHARE
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30,1997 JUNE 30,1996 JUNE 30,1997 JUNE 30,1996
<S> <C> <C> <C> <C>
Net earnings (loss) $514,000 ($232,000) $ 14,000 $ 2,000
========== =========== =========== =========
Weighted average shares
outstanding during the
period 5,542,978 5,429,015 5,542,978 5,429,015
Common and common stock
equivalent shares using the
treasury stock method 192,192 182,508 194,091 185,603
Total shares outstanding for
purposes of calculating
primary and fully diluted
earnings (loss) per share 5,735,170 5,611,523 5,737,069 5,614,618
Primary and fully diluted
earnings/(loss) per common
and common equivalent
share .09 .04) 0 0
========== ========== ========= ========
</TABLE>
Exhibit 2
REVOLVING CREDIT AGREEMENT dated as of May 29, 1997, between KSW, INC., a
Delaware corporation, with its principal place of business at 37-16 23rd Street,
Long Island City, New York 11101 (the "Borrower") and FLEET BANK, N.A., a
national banking association, with an office at 97-77 Queens Boulevard, Rego
Park, New York 11374-3317 (the "Bank").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. As used herein the following terms shall have the
following meanings:
"AFFILIATE" as applied to any Person, means any other Person directly
or indirectly through one or more intermediaries controlling, controlled by, or
under common control with, that Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise.
"AGREEMENT" shall mean this Revolving Credit Agreement, as the same
from time to time may be amended, supplemented or modified.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York are required or permitted by
law to remain closed.
"COMMITMENT" shall mean the obligation of the Bank to make Revolving
Credit Loans to the Borrower during the Commitment Period pursuant to the terms
hereof as such Commitment is described in Section 2.1 hereof and is subject to
reduction in accordance with the terms hereof.
"COMMITMENT LETTER" shall mean the letter agreement between the
Borrower and the Bank dated May 19, 1997.
"COMMITMENT PERIOD" shall mean the period from and including the date
hereof to and including the Termination Date or such earlier date as the
Commitment shall terminate as provided herein.
"CLEANUP LAWS" shall mean any Federal, state or local statute or
regulation relating to hazardous or toxic wastes or substances or the removal
thereof.
"CONTRACTUAL OBLIGATIONS" shall mean as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CONTROLLED " and "CONTROL" shall mean any partnership, corporation or
other entity of which the Borrower, alone, or the Borrower and/or one or more of
its Subsidiaries, either has the power to direct the management thereof or the
power to direct at least a majority of the voting interests.
"DEFAULT" shall mean any of the events specified in Section 8, whether
or not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"DOLLARS" or "$" shall mean dollars in lawful currency of the United
States of America.
"ENVIRONMENTAL LAWS" shall mean any Federal, state or local statute or
regulation relating to hazardous or toxic wastes or substances or the removal
thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"EVENT OF DEFAULT" shall mean any of the events specified in Section
8, provided that any requirement for the giving of notice, the lapse of time, or
both or any other condition, has been satisfied.
"GAAP" shall mean generally accepted accounting principles applied in
a manner consistent with that employed in the preparation of the financial
statements described in Section 3.1.
"GOVERNMENTAL AUTHORITY" shall mean 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, and any corporation or other entity owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing.
"GUARANTEE" or "GUARANTEES" shall mean the guarantees to be executed
by the Guarantors on the Bank's standard form.
"GUARANTOR" or "GUARANTORS" shall mean KSW Mechanical Services, Inc.
and each entity required to guarantee pursuant to Section 5.9 hereof.
"INDEBTEDNESS" shall mean, with respect to any Person, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person for the deferred purchase price of property or services, except current
accounts payable arising in the ordinary course of business and not overdue
beyond such period as is commercially reasonable for such Person's business, (d)
all obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (e) all payment
obligations of such Person with respect to interest rate or currency
protection agreements, (f) all obligations of such Person as an account party
under any letter of credit or in respect of bankers acceptances, (g) all
obligations of any third party secured by property or assets of such Person
(regardless of whether or not such Person is liable for repayment of such
obligations), (h) all guarantees of such Person and (i) the redemption price
of all redeemable preferred stock of such Person, but only to the extent that
such stock is redeemable at the option of the holder or requires sinking fund
or similar payments at any time prior to the Termination Date.
"LIEN" shall mean any mortgage, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, or preference,
priority or other security agreement or preferential arrangement 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).
"LOAN DOCUMENTS" shall mean this Agreement, the Note and the Guarantee
and each document, agreement and instrument executed in connection herewith or
pursuant hereto together with each document, agreement and instrument made by
the Borrower or any Guarantor with or in favor of or owing to the Bank.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization or any juridical entity, or a
government or state or any agency or political subdivision thereof.
"PLAN" shall mean any plan described in Section 4021(a) of ERISA in
respect of which the Borrower is an "employer" as defined in Section 3(5) of
ERISA.
"POST DEFAULT RATE" shall mean at any time a rate of interest equal
to four percent (4%) per annum in excess of the rate that would then be
applicable to Revolving Credit Loans.
"PRIME RATE" shall mean the variable per annum rate of interest so
designated from time to time by the Bank as its prime rate. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer.
"REAL PROPERTY" shall mean any real property owned or leased by the
Borrower or any of its Subsidiaries or any Corporate Guarantor or any of its
Subsidiaries.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"REQUIREMENTS OF LAW" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or determination of any
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"REVOLVING CREDIT LOAN" shall mean a Loan made pursuant to Section 2.1
hereof.
"REVOLVING CREDIT NOTE" shall mean the Note referred to in Section 2.2
hereof.
"SPECIFIED PERSON" shall mean either the Borrower or any of its
Subsidiaries or any Corporate Guarantor or any of its Subsidiaries or any
Individual Guarantor.
"SUBSIDIARY" or "SUBSIDIARIES" of any Person shall mean any
corporation or corporations of which the Person alone, or the Person and/or one
or more of its Subsidiaries, owns, directly or indirectly, at least a majority
of the securities having ordinary voting power for the election of directors.
"TERMINATION DATE" shall mean May 29, 2000 or, if such date is not a
Business Day, the Business Day next succeeding such date.
1.2 ACCOUNTING TERMS. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not specifically
defined herein shall have the respective meanings given to them under GAAP.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT
COMMITMENT AND TERM NOTE.
2.1 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions
hereof, the Bank agrees to make revolving credit loans to the Borrower (the
"Revolving Credit Loans") for the account of the Borrower from time to time
during the Commitment Period of which the aggregate principal amount of
Revolving Credit Loans at any one time outstanding shall not exceed
$2,000,000.00 (the "Commitment"). During the Commitment Period the Borrower may
use the Commitment for obtaining Revolving Credit Loans by borrowing, paying,
prepaying in whole or in part and reborrowing on a revolving basis, all in
accordance with the terms and conditions hereof.
2.2 REVOLVING CREDIT NOTE. The Revolving Credit Loans made by the Bank to
the Borrower pursuant to Section 2.1 hereof shall be evidenced by a promissory
note of the Borrower substantially in the form of Exhibit A hereto with
appropriate insertions (the "Revolving Credit Note"), payable to the order of
the Bank and representing the obligation of the Borrower to pay the lesser of
(a) the amount of the Commitment or, (b) the aggregate unpaid principal amount
of all Revolving Credit Loans made by the Bank to the Borrower, with interest
thereon as hereinafter prescribed. The Revolving Credit Note shall (i) be dated
the date hereof, (ii) be stated to mature on the Termination Date and (iii) bear
interest with respect to the unpaid principal balance thereof from time to time
outstanding at a rate per annum equal to one percent (1%) in excess of the Prime
Rate (which interest rate will change when and as the Prime Rate changes)
payable in arrears monthly on the first day of each month and on the Termination
Date. In all cases interest shall be computed on the basis of a 360-day year for
actual days elapsed. After any stated or accelerated maturity, the Revolving
Credit Note shall bear interest at the rate set forth in Section 2.8(b) hereof.
2.3 PROCEDURE FOR BORROWING. The Borrower may borrow under the Commitment
during the Commitment Period on any Business Day by giving the Bank irrevocable
notice of a request for a Revolving Credit Loan hereunder not less than one nor
more than five Business Days before a proposed borrowing or continuation or
conversion, setting forth (i) the amount of the Revolving Credit Loan request,
which shall not be less than $50,000.00 and (ii) the requested borrowing date.
Such notice shall be written (including, without limitation, via facsimile
transmission) and shall be sufficient if received by 1:00 p.m. on the date on
which such notice is to be given. If any such request is sent by facsimile it
shall be confirmed in writing sent by the Borrower to the Bank within two
Business Days thereafter. Unless notification is otherwise furnished by the
Borrower to the Bank (in a manner consistent with the requirements of this
Section 2.3), Revolving Credit Loans will be made by credits to the Borrower's
demand deposit account maintained with the Bank.
2.4 COMMITMENT FEE. As additional compensation for the Commitment on the
revolving basis provided for herein, the Borrower agrees to pay the Bank a
commitment fee for the Commitment Period at the rate of 1/2 of l% per annum on
the average daily unused portion of the Commitment hereunder. Such commitment
fee shall be payable quarterly, on the last day of each March, June, September,
and December during the Commitment Period, commencing June 30, 1997, and on the
Termination Date. If the Borrower so fails to pay any such amount to the Bank
the obligations to make such payment shall bear interest from such date not paid
when due at the Post Default Rate. The obligation to so pay interest shall not
be construed so as to waive the requirement to pay the commitment fees as
hereinabove set forth.
2.5 REGULATORY CHANGES IN CAPITAL REQUIREMENTS. If any existing or future
law, regulation or guideline or the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, or compliance by the Bank with any request or directive (whether or not
having the force of law) of any such authority, imposes, modifies, deems
applicable or results in the application of, any capital maintenance, capital
ratio or similar requirement against loan commitments made by the Bank (or
participations therein) or the Bank in anticipation of the effectiveness of any
capital maintenance, capital ratio or similar requirement takes reasonable
action to enable itself to comply therewith, and the result thereof is to impose
upon the Bank or increase any capital requirement applicable as a result of the
making or maintenance of the Commitment or participations therein (which
imposition of or increase in capital requirements may be determined by the
Bank's reasonable allocation of the aggregate of such capital impositions or
increases) then, upon demand by the Bank, the Borrower shall immediately pay to
the Bank from time to time as specified by the Bank additional commitment fees
which shall be sufficient to compensate the Bank for such impositions of or
increases in capital requirements, together with interest on each such amount
from the date demanded until payment in full thereof at the Post Default Rate. A
certificate setting forth in reasonable detail the amounts necessary to
compensate the Bank as a result of any imposition of or increase in capital
requirements submitted by the Bank to the Borrower shall be conclusive, absent
manifest error or bad faith, as to the amount thereof. For purposes of this
Section 2.5, (a) in calculating the amount necessary to compensate the Bank for
any imposition of or increase in capital requirements, the Bank shall be deemed
to be entitled to a rate of return on capital (after Federal, state and local
taxes) of fifteen percent (15%) per annum, and (b) all references to the "Bank"
shall be deemed to include any participant in the Commitment.
2.6 TERMINATION OR REDUCTION OF COMMITMENT. The Borrower shall have the
right, upon not less than three Business Days' irrevocable written notice, to
terminate the Commitment or, from time to time, to reduce the amount of the
Commitment, provided that (a) any such reduction (i) shall be in the minimum
amount of $50,000.00 or a multiple thereof, (ii) shall reduce permanently the
amount of the Commitment then in effect, and (iii) shall be accompanied by
prepayment of the Revolving Credit Loans outstanding to the extent, if any, that
the Revolving Credit Loans then outstanding exceed the amount of the Commitment
as then reduced, together with accrued interest on the amount so prepaid to and
including the dates of each such prepayment and the payment of any unpaid
commitment fee then accrued hereunder, and (b) any such termination of the
Commitment shall be accompanied by prepayment in full of the Revolving Credit
Loans together with accrued interest thereon to and including the date of
prepayment and the payment of any unpaid commitment fee then accrued hereunder.
2.7 PREPAYMENT. The Borrower may prepay any Revolving Credit Loan in
whole or in part without premium or penalty; provided, however, that each
partial prepayment on account of any Revolving Credit Loan shall be in an amount
not less than $50,000.00. Any amount repaid on account of a Revolving Credit
Loan may be reborrowed in accordance with the provisions of Section 2.1 hereof.
2.8 PAYMENTS.
(a) A11 payments (including prepayments) to be made by the
Borrower on account of principal or interest with respect to Revolving Credit
Loan or on account of fees or any other obligations of the Borrower to the Bank
hereunder shall be made to the Bank at the office of the Bank set forth in
Section 10.1 hereof or at such other place as the Bank may from time to time
designate in writing in lawful money of the United States of America in
immediately available funds. The Borrower hereby authorizes and directs the Bank
to charge any account of the Borrower maintained at any office of the Bank for
any such payments. If any payment to be so made hereunder, or under the
Revolving Credit Note, becomes due and payable on a day other than a Business
Day, such payment shall be extended to the next succeeding Business Day and, to
the extent permitted by applicable law, interest thereon shall be payable at the
then applicable rate during such extension.
(b) If all or a portion of the principal or interest of any
Revolving Credit Loan shall not be paid when due (whether at the stated or any
accelerated maturity of such Revolving Credit Loan) or if any fee or other
amount due hereunder shall not be paid when due, all Revolving Credit Loans, and
such interest, fee or amount due hereunder, to the extent permitted by
applicable law, shall bear interest (payable on demand, and in any event on the
last day of each month, and computed daily on the basis of a 360-day year for
actual days elapsed) at the Post Default Rate until paid. In no event, however,
shall interest payable hereunder be in excess of the maximum rate of interest
permitted under applicable law.
(c) The Borrower hereby expressly authorizes the Bank to record
on the schedule attached to the Revolving Credit Note the amount and date of
each Revolving Credit Loan, the rate of interest thereon, the date and amount of
each payment of principal and the unpaid principal balance; provided, however,
that the failure of the Bank to make any such notation shall not in any manner
affect the obligation of the Borrower to repay any Revolving Credit Loan in
accordance with the terms hereof. All such notations shall be presumed to be
correct.
2.9 USE OF PROCEEDS. The proceeds of Revolving Credit Loans and the
issuance of Letters of Credit hereunder shall be used to finance working capital
requirements of the Borrower and equipment purchases.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make the
financial accommodations herein provided for, the Borrower hereby covenants,
represents and warrants to the Bank that:
3.1 FINANCIAL CONDITION. The consolidated balance sheet of the Borrower
and of the Guarantor as at December 31, 1996, and the related consolidated
statements of income, retained earnings and cash flows for the fiscal year ended
on such date, certified by Marden, Harrison & Kreuter, CPAs, P.C., copies of
which certified statements have heretofore been furnished to the Bank, are
complete and correct and present fairly the financial condition of the Borrower
and the Guarantor as at such date, and the results of its operations and changes
in financial position for the fiscal year then ended. Such certified financial
statements, including schedules and notes thereto, have been prepared in
accordance with GAAP. Neither the Borrower nor the Guarantor has any material
contingent obligations, contingent liabilities or liabilities for taxes,
long-term leases or unusual forward or long-term commitments, which are not
reflected in the foregoing certified statements or in the notes thereto. Since
the date of the aforementioned financial statements, there has been no material
adverse change in the business, operations assets or financial or other
condition of the Borrower or the Guarantor.
3.2 CORPORATE EXISTENCE; COMPLIANCE WITH THE LAW. The Borrower, the
Guarantor and each of their Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
(b) has the corporate power and authority and the legal right to own and operate
its property, and to conduct the business in which it is currently engaged, (c)
is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership or operation of property or the
conduct of its business require such qualification, and (d) is in compliance
with all Requirements of Law.
3.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower
has the corporate power and authority and the legal right to make, execute,
deliver and perform its obligations under this Agreement and the Revolving
Credit Note, and to borrow hereunder and has taken all necessary corporate
action to authorize the borrowings on the terms and conditions of this Agreement
and the Revolving Credit Note and to authorize the execution, delivery and
performance of this Agreement and the Revolving Credit Note. No consent or
authorization of, filing with, or other act by or in respect of any other Person
(including stockholders and creditors of such Borrower) or any Governmental
Authority, is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or the Revolving Credit Note. This Agreement and the Revolving Credit Note will
be duly executed and delivered on behalf of the Borrower and this Agreement and
the Revolving Credit Note, when executed and delivered, will each constitute a
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally.
3.4 POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS OF GUARANTORS. The
Guarantor has the power and authority and the legal right to make, deliver and
perform the Guarantee and the transactions contemplated thereby and has taken
all necessary corporate action to authorize the execution, delivery and
performance of the Guarantee. No consent or authorization of, filing with, or
other act by or in respect of any other Person (including stockholders and
creditors of the Guarantor) or any Governmental Authority is required in
connection with the execution, delivery, performance, validity or enforceability
of the Guarantee. The Guarantee has been duly executed and delivered by the
respective parties thereto, and each such document constitutes a legal, valid
and binding obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditor's rights generally.
3.5 NO LEGAL BAR. The execution, delivery and performance of this
Agreement and the Revolving Credit Note and the borrowings hereunder and the
use of the proceeds thereof by the Borrower and the execution, delivery and
performance of the Guarantee by the Guarantor, will not violate any Requirement
of Law or any Contractual Obligation of the Borrower or the Guarantor, and will
not result in, or require, the creation or imposition of any Lien on any of its
properties or revenues pursuant to any Requirement of Law or Contractual
Obligation except those in favor of the Bank provided herein.
3.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending by or against any
Specified Person or against any of their properties or revenues (a) with respect
to this Agreement, the Revolving Credit Note, or the Guarantee or any of the
transactions contemplated hereby or thereby, or (b) which if adversely
determined, would have a material adverse effect on the business, operations,
property or financial or other condition of the Borrower, its Subsidiaries or
the Guarantor.
3.7 NO DEFAULT. No Specified Person is in default under or with respect
to any Contractual Obligation in any respect which could be materially adverse
to the business, operations, property or financial or other condition of the
Borrower or any of its Subsidiaries or of the Guarantor, or which could
materially and adversely affect the ability of (i) the Borrower to perform its
obligations under this Agreement or the Revolving Credit Note or (ii) the
Guarantor to perform its obligations under the Guarantee. No Default or Event of
Default has occurred and is continuing.
3.8 NO BURDENSOME RESTRICTIONS. No Contractual Obligation of any
Specified Person and no Requirement of Law materially adversely affects, or
insofar as the Borrower may reasonably foresee may so affect, the business,
operations, property or financial or other condition of any such Specified
Person.
3.9 TAXES. The Borrower and the Guarantor have filed or caused to be
filed all tax returns which to the knowledge of the Borrower are required to be
filed, and have paid all taxes shown to be due and payable on said returns or
on any assessments made against them or any of their property.
3.10 FEDERAL REGULATIONS. The Borrower is not engaged nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Revolving Credit Loans
hereunder will be used for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of such Board of Governors.
3.11 Environmental Matters.
(a) None of the Real Property contains, or to the best knowledge
of the Borrower has previously contained, any hazardous or toxic waste or
substances or underground storage tanks.
(b) The Real Property is in compliance with all applicable
Federal, state and local environmental standards and requirements affecting such
Real Property, and there are no environmental conditions which could interfere
with the continued use of the Real Property.
(c) Neither the Borrower nor any of its Subsidiaries nor the
Guarantor has received any notices of violations or advisory action by
regulatory agencies regarding environmental control matters or permit
compliance.
(d) Hazardous waste has not been transferred from any of the
Real Property to any other locations which is not in compliance with all
applicable environmental laws, regulations or permit requirements.
(e) With respect to the Real Property, there are no proceedings,
governmental administrative actions or judicial proceedings pending or, to the
best knowledge of the Borrower, contemplated under any Federal, state or local
law regulating the discharge of hazardous or toxic materials or substances into
the environment, to which the Borrower or any of its Subsidiaries is named as a
party.
SECTION 4. CONDITIONS PRECEDENT.
4.1 CONDITIONS OF INITIAL EXTENSIONS OF CREDIT. The obligation of the
Bank to make the initial extension of credit to the Borrower hereunder is
subject to the satisfaction of the following conditions precedent:
(a) NOTE. The Bank shall have received the Revolving Credit Note
conforming to the requirements hereof and duly executed by the Borrower.
(b) GUARANTEE. The Bank shall have received the Guarantee duly
executed by the Guarantor.
(c) LEGAL OPINION. The Bank shall have received a favorable
opinion of counsel to the Borrower and Guarantor covering such matters incident
to the transactions contemplated by this Agreement as the Bank shall
reasonably require.
(d) CERTIFIED COPIES AND OTHER DOCUMENTS. The Bank shall have
received such certificates and other documents relating to the Borrower and the
Guarantor with respect to the matters herein contemplated as the Bank may
request, including but not limited to:
(i) certificates of good standing from the Secretary of
State of New York if incorporated under the laws of the State of New York or
doing business in New York and, if incorporated in a jurisdiction other than New
York, from the Secretary of State or applicable Governmental Authority of such
jurisdiction of incorporation and from the Secretary of State or applicable
Governmental Authority of each jurisdiction in which the Borrower or the
Guarantor is doing business;
(ii) certificate of the Secretary of the Borrower dated the
date of this Agreement certifying, (x) true and correct copies of the
certificate of incorporation and by-laws of the Borrower as in effect on the
date of adoption of the resolutions referred to in (y) of this subsection (ii),
(y) true and correct copies of resolutions adopted by the board of directors of
the Borrower (1) authorizing the borrowings from the Bank hereunder, the
execution, delivery and performance by the Borrower of this Agreement and the
Revolving Credit Note and the performance by the Borrower of its obligations
under this Agreement and the Revolving Credit Note, (2) approving forms in
substantially execution form of this Agreement and the Revolving Credit Note and
(3) authorizing officers of the Borrower to execute and deliver this Agreement
and the Revolving Credit Note, and (z) the incumbency and specimen signatures of
the officers of the Borrower executing any documents delivered to the Bank by
the Borrower in connection herewith;
(iii) certificate of the Secretary of the Guarantor dated
the date of this Agreement certifying, (w) true and correct copies of the
certificate of incorporation and by-laws of the Guarantor as in effect on the
date of adoption of the resolutions referred to in (x) of this subsection (iii),
(x) true and correct copies of resolutions adopted by the board of directors of
the Guarantor authorizing (1) the execution, delivery and performance by the
Guarantor of the Guarantee and the performance by the Guarantor of its
obligations under the Guarantee, (2) approving forms in substantially execution
form of the Guarantee, and (3) authorizing officers of the Guarantor to execute
and deliver the Guarantee, (y) true and correct copies of resolutions adopted by
the shareholders of the Guarantor authorizing the execution and delivery of the
Guarantee and (z) the incumbency and specimen signatures of the officers of the
Guarantor executing any documents delivered to Bank by the Guarantor in
connection herewith.
(e) COMMITMENT LETTER. The Borrower shall have satisfied all
the terms and conditions of the Commitment Letter.
(f) ADDITIONAL MATTERS. All other documents and legal matters
in connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Bank and its counsel.
4.2 CONDITIONS TO ALL REVOLVING CREDIT LOANS. The obligation of the Bank
to make any Revolving Credit Loan (including the initial Revolving Credit Loan)
to be made by it hereunder is subject to the satisfaction of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Borrower herein or which are contained in any
certificate, document or financial or other statement furnished at any time
under or in connection herewith, shall be correct on and as of the borrowing
date for such extension of credit as if made on and as of such date.
(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of
Default shall have occurred and be continuing on the date an extension of credit
is to be made or after giving effect to the extension of credit to be made on
such date.
Each borrowing by the Borrower hereunder shall constitute a representation
and warranty by the Borrower as of the date of each such borrowing that the
conditions in clauses (a) and (b) of this Section have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrower hereby agrees that, so long as the Commitment remains in
effect, the Revolving Credit Note remains outstanding and unpaid, or any amount
is owing to the Bank hereunder, the Borrower will and will cause each Specified
Person as applicable to:
5.1 CORPORATE EXISTENCE AND QUALIFICATION. Take the necessary steps to
preserve its corporate existence and its right to conduct business in all states
in which the nature of its business requires qualification to do business. In
the event of dispute between the Borrower and the Bank as to when qualification
is necessary, the decision of the Bank shall control.
5.2 FINANCIAL INFORMATION AND COMPLIANCE CERTIFICATES.
(a) The Borrower shall deliver the following financial
statements and other reports to the Bank (or cause such items to be delivered):
(i) within 120 days after the close of each of the
Borrower's fiscal years, the consolidated balance sheet, consolidated statements
of income and retained earnings and cash flows of the Borrower and the Guarantor
as of the last day of and for such fiscal year, each such statement to be
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied and certified by Marden, Harrison & Kreuter, CPAs or other
firm of independent certified public accountants satisfactory to the Bank;
(ii) within 60 days after the close of the first 3 fiscal
quarters of each fiscal year of the Borrower, the consolidated balance sheet,
consolidated statements of income and retained earnings and cash flows of the
Borrower and the Guarantor as of the last day of and for such quarter and for
the portion of the fiscal year then elapsed each such statement to be certified
by the chief financial officer of the Borrower, prepared in accordance with GAAP
consistently applied consistently applied, subject to year end adjustments;
(iii) within 45 days after the close of each fiscal
quarter, a work in progress report, an accounts receivable aging schedule and
an accounts payable schedule, each in form and detail acceptable to the Bank,
as of the close of such fiscal quarter; and
(iv) such other statements and reports as shall be
reasonably requested by the Bank.
At the time it delivers each of the financial statements described in (i)
and (ii) above, the Borrower shall deliver a certificate of its president or
chief financial officer demonstrating compliance with the financial covenants
and stating that, except as disclosed in such certificate, the person making
such certificate has no knowledge of any default or event of default.
(b) Within five (5) days of the president or chief financial
officer of the Borrower obtaining knowledge of any Default, if such Default is
then continuing, the Borrower shall furnish to the Bank a certificate of such
officer of the Borrower setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto.
5.3 INSURANCE. Maintain insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower operates.
5.4 PRESERVATION OF PROPERTIES; COMPLIANCE WITH LAW. Maintain and
preserve all of its properties which are used or which are useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted and comply with all Requirements of Law.
5.5 TAXES. Duly pay and discharge all taxes or other claims which might
become a lien upon any of its property except to the extent that any thereof are
being in good faith appropriately contested with adequate reserves provided
therefor.
5.6 MAINTAIN OPERATING ACCOUNTS. Maintain all of its primary operating
accounts with the Bank.
5.7 NOTICE OF LITIGATION. Promptly notify the Bank in writing of any
material litigation, legal proceeding or dispute affecting the Borrower or any
Subsidiary whether or not fully covered by insurance, and regardless of the
subject matter thereof (excluding, however, any actions relating to workers'
compensation claims or negligence claims relating to use of motor vehicles, if
fully covered by insurance, subject to deductibles).
5.8 INDEMNITY (ENVIRONMENTAL MATTERS). Indemnify the Bank against any
liability, loss, cost, damage, or expense (including, without limitation,
reasonable attorneys' fees) arising from (i) the imposition or recording of a
lien by any local, state, or Federal government or governmental agency or
authority pursuant to any Cleanup Laws; (ii) claims of any private parties
regarding violations of Cleanup Laws; and (iii) costs and expenses (including,
without limitation, reasonable attorneys' fees and fees incidental to the
securing of repayment of such costs and expenses) incurred by any Specified
Person or the Bank with any statute, regulation or order issued pursuant to any
Cleanup Laws by any local, state or Federal government or governmental agency or
authority.
5.9 NEW SUBSIDIARIES: Cause any wholly owned Subsidiary formed after the
date of this Agreement to execute and deliver to the Bank a Guaranty and obtain
or cause to be obtained resolutions authorizing same and shareholder consents
thereto.
SECTION 6. FINANCIAL COVENANTS
The Borrower hereby agrees that, so long as the Commitment remains in
effect, the Revolving Credit Note remains outstanding and unpaid, or any other
amount is owing to the Bank hereunder, the Borrower and the Guarantor will
maintain the following at all times on a consolidated basis:
6.1 DEBT TO EQUITY RATIO. A ratio of debt to equity of no greater than
3.5 to 1.0. For purposes of calculating compliance with this covenant, goodwill
reported on the Borrower's balance sheet shall be excluded from equity.
6.2 CURRENT RATIO. A ratio of current assets to current liabilities of at
least 1.0 to 1.0.
6.3 TANGIBLE NET WORTH. Tangible net worth of at least $5,900,000.
6.4 WORKING CAPITAL. Working capital of at least $4,500,000.
SECTION 7. NEGATIVE COVENANTS .
The Borrower hereby agrees that, so long as the Commitment remains in
effect, the Revolving Credit Note remains outstanding and unpaid, or any other
amount is owing to the Bank hereunder it will not, nor will it permit any of its
Subsidiaries or the Guarantor or any of its Subsidiaries to:
7.1 INDEBTEDNESS FOR BORROWED MONEY. Incur, or permit to exist, any
Indebtedness for borrowed money except (i) indebtedness incurred pursuant to
borrowings hereunder and under any other loans made by the Bank in its
discretion to the Borrower or any Subsidiary, (ii) Indebtedness existing on the
date hereof and reflected in the financial statements referred to in Section 3.1
hereof and (iii) purchase money Indebtedness incurred in the acquisition of
fixed assets.
7.2 MERGERS, ACQUISITIONS AND SALES OF ASSETS. Enter into any merger or
consolidation or liquidate, windup or dissolve itself or sell, transfer or lease
or otherwise dispose of all or any substantial part of its assets (other than
sales of inventory and obsolescent equipment in the ordinary course of business)
or acquire by purchase or otherwise the business or assets of, or stock of,
another business entity; except that (i) any Subsidiary may merge into or
consolidate with any other Subsidiary which is wholly-owned by the Borrower and
any Subsidiary which is wholly-owned by the Borrower may merge with or
consolidate into the Borrower provided that the Borrower is the surviving
corporation and (ii) the Borrower may merge into or consolidate with any other
Person, or acquire by purchase or otherwise the business or assets of, or stock
of, another business entity, provided in each case that immediately after giving
effect thereto, no event shall occur and be continuing which constitutes a
Default or an Event of Default and the Borrower is a surviving corporation.
7.3 LOANS; INVESTMENTS. Lend or advance money, credit or property to or
invest in (by capital contribution, loan, purchase or otherwise) any firm,
corporation, or other Person except investments in (i) United States Government
obligations, certificates of deposit of any banking institution with combined
capital and surplus of at least $200,000,000; (ii) accounts receivable arising
out of sales of inventory in the ordinary course of business and (iii) any
investments offered by the Bank or its affiliates.
7.4 LIENS. Create, assume or permit to exist, any Lien on any of its
property or assets now owned or hereafter acquired except (i) Liens in favor of
the Bank; (ii) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credit and which do not
materially impair the use thereof in the operation of its business; (iii) Liens
for taxes or other governmental charges which are not delinquent or which are
being contested in good faith and for which a reserve shall have been
established in accordance with GAAP; and (iv) purchase money Liens granted to
secure the unpaid purchase price of any fixed assets.
7.5 CONTINGENT LIABILITIES. Assume, endorse, be or become liable for or
guarantee the obligations of any Person excluding, however, the endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
7.6 DIVIDENDS. Declare or pay any dividends on its capital stock (other
than dividends payable solely in shares of its own common stock), or purchase,
redeem, retire or otherwise acquire any of its capital stock at any time
outstanding, except (i) any Subsidiary wholly owned by the Borrower may declare
and pay dividends to the Borrower and (ii) the Borrower may declare and pay cash
dividends out of up to fifty (50%) percent of net income of the Borrower.
7.7 SALES OF RECEIVABLES; SALE - LEASEBACKS. Sell, discount or otherwise
dispose of notes, accounts receivable or other obligations owing to the
Borrower, with or without recourse, except for the purpose of collection in the
ordinary course of business; or sell any asset pursuant to an arrangement to
thereafter lease such asset from the purchaser thereof.
7.8 LEASE PAYMENTS. Expend in the aggregate for the Borrower and all
Subsidiaries in excess of $500,000.00 in any fiscal year for the lease, rental
or hire of real or personal property pursuant to any rental agreement therefor,
whether an operating lease, capitalized lease or otherwise.
7.9 NATURE OF BUSINESS. Materially alter the nature of its business.
7.10 STOCK OF SUBSIDIARIES. Sell or otherwise dispose of any Subsidiary
(except in connection with a merger or consolidation of a Subsidiary into the
Borrower or another Subsidiary) or permit a Subsidiary to issue any additional
shares of its capital stock except pro rata to its stockholders.
7.11 ERISA. (i) Terminate any Plan so as to result in any material
liability to the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (the "PBGC"), (ii) engage in or permit any
person to engage in any "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended)
involving any Plan which would subject a Borrower to any material tax, penalty
or other liability, (iii) incur or suffer to exist any material "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan, or (iv) allow or suffer to exist any event or condition,
which presents a material risk of incurring a material liability to the PBGC by
reason of termination of any Plan.
7.12 ACCOUNTING CHANGES. Make, or permit any Subsidiary to make any
change in their accounting treatment or financial reporting practices except as
required or permitted by GAAP in effect from time to time.
7.13 TRANSACTIONS WITH AFFILIATES. Except as otherwise specifically set
forth in this Agreement, directly or indirectly purchase, acquire or lease any
property from, or sell, transfer or lease any property to, or enter into any
other transaction, with any Affiliate except in the ordinary course of business
and at prices and on terms not less favorable to it than those which would have
been obtained in an arm's-length transaction with a non-affiliated third party.
SECTION 8. EVENTS OF DEFAULT.
Upon the occurrence and during the continuance of any of the following
events (each an Event of Default):
(a) The Borrower shall fail to pay any interest on or principal
of the Revolving Credit Note when due or shall fail to pay any other amount
payable hereunder; or the Borrower or the Guarantor shall default under any
other Loan Document; or
(b) Any representation or warranty made or deemed made by the
Borrower herein or which is contained in any certificate, document or financial
or other statement furnished at any time under or in connection with this
Agreement shall prove to have been false in any material respect on or as of the
date made or deemed made; or
(c) The Borrower shall default in the observance or performance
of any covenant or provision contained in Section 5, 6 or 7 hereof; or
(d) The Borrower shall default in the observance or performance
of any other provision contained in this Agreement and such default shall
continue unremedied for a period of 10 days after written notice thereof is
given to the Borrower by the Bank; or
(e) Any Specified Person shall (i) default in any payment of any
indebtedness for borrowed money (other than the Revolving Credit Note) beyond
the period of grace, if any, provided in the instrument or agreement under which
such indebtedness was created; or (ii) default in the observance or performance
of any other agreement or condition relating to any such indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto or any other event shall occur or condition exist, in each case the
effect of which default or other event or condition is to cause or permit the
holder or holders of such indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause such indebtedness to become due prior to its stated
maturity; or
(f) (i) Any Specified Person shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or any Specified Person shall
make a general assignment for the benefit of its creditors; or (ii) there shall
be commenced against any Specified Person any case, proceeding or other action
of a nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against any Specified Person any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of any order for any such relief which shall have not been vacated,
discharged, or stayed or bonded pending appeal within 20 days from the entry
thereof; or (iv) any Specified Person shall take any action in furtherance of,
or indicate its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii) or (iii) of this Section 8(f); or (v) any Specified
Person shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(g) (i) any Specified Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Plan, which Reportable Event or institution of
proceedings is, in the reasonable opinion of the Bank, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, and, in the case of
a Reportable Event, the continuance of such Reportable Event unremedied for 10
days after notice of such Reportable Event pursuant to Section 4043(a), (c) or
(d) of ERISA is given or the continuance of such proceedings for 10 days after
commencement thereof, as the case may be, (iv) any Plan shall terminate for
purposes of Title IV of ERISA, and in each case in clauses (i) through (iv)
above, such event or condition could subject the Borrower to any tax, penalty or
other liabilities in the aggregate material in relation to the business,
operations or property of the Borrower; or
(h) the rendition by any court of a final judgment against any
Specified Person which shall not be satisfactorily stayed, discharged, vacated
or set aside within 60 days of the making thereof; or the attachment of any
property of any Specified Person which has not been released or provided for to
the reasonable satisfaction of the Bank within 60 days after the making
therefor; or
(i) any Guarantee of any Guarantor shall cease to be in full
force and effect; or
(j) the Bank shall have determined in its sole discretion that
one or more conditions exist or events have occurred which have resulted or may
result in a material adverse change in the business, properties or financial
condition of the Borrower;
then, in any such event, any or all of the following actions may be taken: (i)
the Bank may, at its option, declare the Commitment to be terminated
forthwith, whereupon the Commitment and all obligations to the Bank to make
Revolving Credit Loans shall immediately terminate; (ii) the Bank may, at its
option, declare the Revolving Credit Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Revolving
Credit Note to be due and payable and the same, and all interest accrued
thereon, shall forthwith become due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby waived, anything
contained herein or in any instrument evidencing the Revolving Credit Loans
to the contrary notwithstanding.
SECTION 9. COLLATERAL SECURITY
GENERAL LOAN AND COLLATERAL AGREEMENT. The Borrower and any Guarantor
hereby grant to the Bank, a lien, security interest and right of setoff as
security for all liabilities and obligations to the Bank, whether now existing
or hereafter arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
the Bank or any entity under the control of Fleet Financial Group, Inc., or in
transit to any of them. At any time, without demand or notice, the Bank may set
off the same or any part thereof and apply the same to any liability or
obligation of the Borrower and any Guarantor even though unmatured and
regardless of the adequacy of any other collateral securing the Revolving Credit
Loan. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES
WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE REVOLVING CREDIT LOANS,
PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS
OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
SECTION 10. MISCELLANEOUS.
10.1 NOTICES. A11 notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing unless otherwise expressly
provided herein and shall be deemed to have been duly given or made when
delivered by hand, or by telegram or telecopy, or when deposited in the mail
addressed as follows, or to such address as may be hereafter notified in writing
by the respective parties hereto and any future holders of the Revolving Credit
Note:
The Borrower: KSW, Inc.
37-16 23rd Street
Long Island City, New York 11101
Attn: Mr. Floyd Warkol
Chief Executive Officer
The Bank: Fleet Bank, N.A.
97-77 Queens Boulevard
Rego Park, New York 11374-3317
Attn: Mr. Thomas A. Rogers
Vice President
10.2 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Bank, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right.
10.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Revolving Credit Note.
10.4 PAYMENT OF EXPENSES; EXAMINATION.
(a) The Borrower agrees to pay or reimburse the Bank for all its
costs and expenses incurred in connection with (a) the enforcement or
preservation of any rights under this Agreement or the Revolving Credit Note or
any other instrument or agreement entered into in connection herewith or
therewith including, without limitation, the reasonable fees and disbursements
of attorneys for the Bank, and (b) any claim or action threatened, made or
brought against the Bank arising out of or relating to any extent to this
Agreement, the Revolving Credit Note or Loan Documents or any instrument or
agreement entered into in connection with the transactions contemplated hereby
or thereby if the Bank prevails in any such action or proceeding or the Borrower
makes payment to the Bank on account of any sums demanded by it prior to the
disposition of any such action or proceeding or in settlement thereof.
(b) The Borrower agrees that at any time and from time to time
the Bank may conduct, at the Borrower's expense, an examination of the
Borrower's books and records. The obligations set forth in this Section 10.4
shall be in addition to any other obligations or liabilities of the Borrower to
the Bank hereunder or at common law or otherwise. The provisions of this Section
10.4 shall survive the payment of the Revolving Credit Note and the termination
of this Agreement.
10.5 PLEDGE TO A FEDERAL RESERVE BANK. The Bank may at any time pledge
all or any portion of its rights under the Loan Documents including any portion
of the Revolving Credit Note to any of the twelve (12) Federal Reserve Banks
organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No
such pledge or enforcement thereof shall release the Bank from its obligations
under any of the Loan Documents.
10.6 PARTICIPATIONS. The Bank shall have the unrestricted right at any
time and from time to time, and without the consent of or notice to the Borrower
or any Guarantor, to grant to one or more banks or other financial institutions
(each, a "Participant") participating interests in the Bank's obligation to lend
hereunder and/or any or all of the Revolving Credit Loans held by the Bank
hereunder. In the event of any such grant by the Bank of a participating
interest to a Participant, whether or not upon notice to the Borrower, the Bank
shall remain responsible for the performance of its obligations hereunder and
the Borrower shall continue to deal solely and directly with the Bank in
connection with the Bank's rights and obligations hereunder.
The Bank may furnish any information concerning the Borrower in its
possession from time to time to prospective Assignees and Participants, provided
that the Bank shall require any such prospective Assignee or Participant to
agree in writing to maintain the confidentiality of such information.
10.7 WAIVER OF JURY TRIAL, SET-OFF AND COUNTERCLAIM. THE BORROWER AND THE
BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO
A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS AGREEMENT AND MAKE
THE REVOLVING CREDIT LOANS. THE BORROWER WAIVES THE RIGHT TO INTERPOSE ANY
SET-OFF OR COUNTERCLAIM OF ANY KIND OR DESCRIPTION IN ANY SUCH LITIGATION.
10.8 WAIVER OF AUTOMATIC STAY. THE BORROWER AGREES THAT, IN THE EVENT
THAT THE BORROWER, ANY GUARANTOR OR ANY OF THE PERSONS OR PARTIES CONSTITUTING
THE BORROWER OR A GUARANTOR SHALL (i) FILE WITH ANY BANKRUPTCY COURT OF
COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER TITLE 11 OF THE
U.S. CODE, AS AMENDED ("BANKRUPTCY CODE"), (ii) BE THE SUBJECT OF ANY ORDER FOR
RELIEF ISSUED UNDER THE BANKRUPTCY CODE, (iii) FILE OR BE THE SUBJECT OF ANY
PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT,
LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL
OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR
DEBTORS, (iv) HAVE SOUGHT OR CONSENT TO OR ACQUIESCED IN THE APPOINTMENT OF ANY
TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR, OR (v) BE THE SUBJECT OF ANY
ORDER, JUDGMENT, OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION
APPROVING A PETITION FILED AGAINST SUCH PARTY FOR ANY REORGANIZATION,
ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR
RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO
BANKRUPTCY, INSOLVENCY, OR RELIEF TO DEBTORS, THE BANK SHALL THEREUPON BE
ENTITLED AND THE BORROWER IRREVOCABLY CONSENTS TO IMMEDIATE AND UNCONDITIONAL
RELIEF FROM ANY AUTOMATIC STAY IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE,
OR OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE
AVAILABLE TO THE BANK AS PROVIDED FOR HEREIN, IN ANY NOTE, OTHER LOAN DOCUMENTS
DELIVERED IN CONNECTION HEREWITH AND AS OTHERWISE PROVIDED BY LAW, AND THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO OBJECT TO SUCH RELIEF AND WILL
NOT CONTEST ANY MOTION BY THE BANK SEEKING RELIEF FROM THE AUTOMATIC STAY AND
THE BORROWER WILL COOPERATE WITH THE BANK, IN ANY MANNER REQUESTED BY THE BANK,
IN ITS EFFORTS TO OBTAIN RELIEF FROM ANY SUCH STAY OR OTHER PROHIBITION.
10.9 MODIFICATION AND WAIVER. No modification or waiver of, or with
respect to any provision of this Agreement or any document or instrument
delivered in connection therewith shall be effective unless and until it shall
be in writing and signed by the Bank, and then such modification or waiver shall
be effective only in the specific instance and for the purpose for which given.
No notice to or demand on the Borrower in any case shall, of itself, entitle it
to any other or further notice or demand in similar or other circumstances.
10.10 SUCCESSOR AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Bank, all future holders of the
Revolving Credit Note and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of the Bank. The term "Bank" as used herein
shall be deemed to include the Bank and its successors, endorsees and assigns.
10.11 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement, the
Revolving Credit Note and any documents and instruments delivered in
connection herewith and therewith and the rights and duties of the parties
hereunder and thereunder shall be governed by, and construed and interpreted in
accordance with, the law of the State of New York and the Borrower consents to
the jurisdiction of the courts of the State of New York in any action brought
to enforce any rights of the Bank under this Agreement and any document or
instrument related hereto.
10.12 ENTIRE AGREEMENT. This Agreement and any other agreements,
documents and instruments executed and delivered pursuant to or in connection
with the Obligations contain the entire agreement between the parties relating
to the subject matter hereof and thereof. The Borrower expressly acknowledges
that the Bank has not made and the Borrower is not relying on any oral
representations, agreements or commitments of the Bank or any officer, employee,
agent or representative thereof.
10.13 INTEREST ADJUSTMENT. All agreements between the Borrower and the
Bank are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the Revolving Credit Loans or
otherwise, shall the amount paid or agreed to be paid to the Bank for the use or
the forbearance of the Revolving Credit Loans exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however that in the event there is
a change in the law which results in a higher permissible rate of interest, then
the Revolving Credit Note shall be governed by such new law as of its effective
date. In this regard, it is expressly agreed that it is the intent of the
Borrower and the Bank in the execution, delivery and acceptance of the Revolving
Credit Note to contract in strict compliance with the laws of the State of New
York from time to time in effect. If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the Loan Documents
at the time of performance of such provision shall be due, shall involve
transcending the limit of such validity prescribed by applicable law, then the
obligation to be fulfilled shall automatically be reduced to the limits of such
validity, and if under or from circumstances whatsoever the Bank should ever
receive as interest and amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between the
Borrower and the Bank.
10.14 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and delivered by their proper and duly authorized officer as of
the day and year first above written.
KSW, INC.
By:/s/ Floyd Warkol
Floyd Warkol
Chief Executive Officer
FLEET BANK, N.A.
By:/s/ Thomas A. Rogers
Thomas A. Rogers
Vice President
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