<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM________________ TO __________________
COMMISSION FILE NO. 0-21107
---------------------------
TELESPECTRUM WORLDWIDE INC.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2845501
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
443 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
----------------------------- -----
(Address of principal executive offices) (ZIP Code)
610-878-7400
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 of 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
----- -----
The number of outstanding shares of the Registrant's Common Stock, par value
$.01 per share, on May 12, 1997 was 25,210,984.
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<PAGE>
TELESPECTRUM WORLDWIDE INC.
Table of Contents
-----------------
Item No. Page
- -------- ----
PART I -- FINANCIAL INFORMATION
1. Financial Statements:
Condensed Consolidated Results of Operations
For the three months ended March 31, 1997 3
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Condensed Consolidated Statement of Cash Flows -
For the three months ended March 31, 1997 5
Notes to Condensed Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION 15
2
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands -- Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
------------------
<S> <C>
Revenues $49,154
Operating Expenses:
Cost of services 34,082
Selling, general and administrative 8,871
Amortization of goodwill 2,048
-------
Total operating expenses 45,001
-------
Operating income 4,153
Interest Income, net 217
-------
Income before taxes 4,370
Income Taxes 1,672
-------
Net Income $ 2,698
=======
Earnings Per Share $ 0.11
=======
Weighted average number of common
shares and equivalent shares
outstanding 25,308
=======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands -- Except Per Share Amounts)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 786 $ 30,715
Accounts receivable 40,255 33,064
Prepaid expenses and other 3,482 2,942
-------- --------
Total current assets 44,523 66,721
Property and Equipment, net 38,475 30,171
Goodwill, net 203,327 200,187
Other Assets 1,402 1,976
-------- --------
Total Assets $287,727 $299,055
======== ========
LIABILITIES AND SHAREOWNERS' INVESTMENT
Current Liabilities:
Current maturities of long-term debt $ 1,595 $ 1,768
Accounts payable 4,773 6,185
Accrued compensation 3,447 3,980
Other accrued expenses 5,086 5,042
Income taxes payable 1,152 --
Notes payable to sellers of businesses 912 27,005
Deferred revenue 3,109 2,300
Other current liabilities
3,081 2,165
-------- --------
Total current liabilities 23,155 48,445
-------- --------
Deferred Income Taxes 814 655
-------- --------
Long-term Debt 16,903 4,199
-------- --------
Acquisition Related Liabilities 3,218 4,810
-------- --------
Other Noncurrent Liabilities 482 435
-------- --------
Shareowners' Investment:
Preferred Stock, $.01 par value,
5,000,000 shares authorized,
no shares issued or outstanding -- --
Common Stock, $.01 par value,
200,000,000 shares authorized,
25,210,984 shares issued and
outstanding 252 252
Additional paid-in capital 236,678 236,678
Retained earnings 6,348 3,650
Cumulative translation adjustment (123) (69)
-------- --------
243,155 240,511
-------- --------
Total Liabilities and Shareowners' Investment $287,727 $299,055
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
-------------------
<S> <C>
Cash Flows From Operating Activities:
Net income $ 2,698
Adjustments to reconcile net income to
net cash used in operating activities-
Depreciation and amortization 1,698
Amortization of goodwill 2,048
Provision for bad debts (73)
Provision for deferred taxes 159
Imputed interest expense 221
Changes in operating assets and liabilities-
Accounts receivable (6,791)
Prepaid expenses and other (319)
Accounts payable (1,776)
Accrued compensation (328)
Other accrued expenses (17)
Income taxes payable 1,512
Deferred revenue 809
Other liabilities (104)
--------
Net cash used in operating activities (263)
--------
Cash Flows From Investing Activities:
Purchases of property and equipment (9,826)
Payments related to acquisition of
Initial Operating Businesses (27,076)
Acquisition of TeleSpectrum FX (5,295)
--------
Net cash used in investing activities (42,197)
--------
Cash Flows From Financing Activities:
Borrowings on credit facility 13,000
Repayments of long-debt (116)
Payments on capital lease obligations (353)
--------
Net cash provided by financing activities 12,531
--------
Decrease in cash and cash equivalents (29,929)
Cash and cash equivalents, beginning of period 30,715
--------
Cash and cash equivalents, end of period $ 786
========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND
TeleSpectrum Worldwide Inc. and Subsidiaries ("TeleSpectrum" or "the Company")
was incorporated in Delaware on April 26, 1996. On August 12, 1996, the Company
completed its initial public offering. Simultaneous with the offering, the
Company began material operations with the acquisition of the businesses
(through the acquisition of substantially all of the assets and the assumption
of certain liabilities) of six companies engaged in telemarketing, market
research, and direct mail and fulfillment businesses (collectively, the "Initial
Operating Businesses"). Subsequent to the acquisition of the Initial Operating
Businesses, the Company completed the acquisitions of the TARP and PR Response
businesses (collectively, the "Fourth Quarter 1996 Acquisitions"), which were
acquired on October 1, 1996 and November 1, 1996, respectively.
During the three months ended March 31, 1997, the Company completed its
acquisition of the interactive voice response division of Voice FX Corporation.
The division, renamed (and referred to hereafter) TeleSpectrum FX, provides
interactive voice response solutions within the interactive promotion and direct
response marketplace. The effective date of the TeleSpectrum FX acquisition was
March 1, 1997.
The Company provides inbound and outbound telemarketing, inbound customer
services, direct mail and fulfillment, market research, interactive promotion
and direct response and other services including strategic and database
marketing, consulting and training. The Company currently operates 26 call
centers with approximately 2,900 workstations throughout the United States and
the provinces of Ontario and Manitoba, Canada.
2. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The December 31, 1996 balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. In the opinion of management, these financial
statements include all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the results of operations, financial
position and cash flows. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. The Company believes that the financial statements include all
adjustments of a normal and recurring nature necessary to present fairly the
results of operations, financial position and cash flows for the periods
presented. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the period from April 26, 1996 (Inception) to December 31, 1996.
The consolidated condensed financial statements include the accounts of
TeleSpectrum Worldwide Inc. and its subsidiaries. All material intercompany
balances and transactions have been eliminated. There have been no material
changes in accounting policies from those stated in the Company's Form 10-K for
the period from April 26, 1996 (Inception) to December 31, 1996.
As noted above, TeleSpectrum Worldwide Inc. was incorporated on April 26, 1996
and began material operations with the acquisition of the Initial Operating
Businesses. Accordingly, there are no comparable historical actual financial
results prior to April 26, 1996.
6
<PAGE>
3. EARNINGS PER SHARE
Earnings per share (EPS) is based on the weighted average number of shares of
common stock and common stock equivalent shares (dilutive incremental shares
caused by stock options and warrants using the treasury stock method)
outstanding during the three months ended March 31, 1997.
The Company currently calculates EPS under the provisions of APB Opinion No. 15,
"Earnings Per Share" ("APB 15"). In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 requires a dual presentation of
"basic" and "diluted" EPS on the face of the income statement. Basic EPS is
computed by dividing net income by the weighted average number of shares of
common stock outstanding for the period. Diluted EPS includes the effect, if
any, from the potential exercise or conversion of securities, such as stock
options, which would result in the issuance of shares of common stock. SFAS 128
is required to be adopted for December 31, 1997 year-end financial statements
(earlier application is not permitted). Based upon current facts and
circumstances, the Company does not expect the basic and diluted EPS computed
under SFAS 128 to be materially different than the EPS that would have been
computed under APB 15.
4. DEBT
In January 1997, the Company entered into a $50.0 million secured credit
facility. In May 1997, the credit facility was increased to $70.0 million. The
credit facility can be used for certain acquisitions, the satisfaction of
indebtedness, working capital, and certain other purposes. The credit facility
is secured by accounts receivable, equipment, and other assets of the Company
and contains financial covenants including the maintenance of certain financial
ratios, specified minimum levels of working capital and net worth, and
restrictions on the payment of distributions, among others. Advances under the
credit facility bear interest at optional borrowing rates of either the then
current prime rate plus 0.25% or the LIBOR rate plus a margin that ranges from
1.00% to 1.75%, depending upon certain conditions specified in the credit
facility agreement. The credit facility terminates in January 2001. As of March
31, 1997, the Company has borrowed $13.0 million under the credit facility,
which amount has been recorded as long-term debt in the March 31, 1997 balance
sheet.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid $71,000 of interest expense during the three months ended March
31, 1997. The Company did not pay any income taxes during the three months ended
March 31, 1997.
In March 1997, the Company settled the earn-out agreement with the seller of one
of the Initial Operating Businesses under which the Company paid $25.0 million
in March 1997 and agreed to pay $600,000 in twenty four equal installments
commencing in April 1997.
In connection with the TeleSpectrum FX acquisition, the financial statements
reflect acquired net assets of approximately $85,000, consisting primarily of
$327,000 of accounts receivable, $176,000 of property and equipment and $6,000
of other assets and the assumption of $424,000 of accounts payable and accrued
expenses. The $5,210,000 of purchase price in excess of the estimated fair value
of net assets acquired has been recorded as goodwill and is being amortized on a
straight-line basis over a twenty five year period.
7
<PAGE>
7. PRO FORMA COMBINED SUMMARY RESULTS OF OPERATION
The following table summarizes the unaudited pro forma combined results of
operations for the three months ended March 31, 1996, assuming the Initial
Operating Business and TARP had been acquired on January 1, 1995 (for purposes
of this disclosure, PR Response and TeleSpectrum FX are not deemed material):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
(unaudited)
-----------
<S> <C>
Revenues $ 29,241
Operating income $ 2,093
Net Income $ 1,174
Earnings Per Share $ 0.05
</TABLE>
8. PREDECESSOR COMPANY FINANCIAL INFORMATION
As noted above, simultaneous with the completion of the initial public offering
in August 1996, the Company acquired the Initial Operating Businesses,
including:
Somar, Inc. ("SOMAR"), provided outsourced telephone-based sales, marketing and
- ----------
customer management services, to clients principally in the insurance, financial
service, telecommunications and consumer products industries.
NBG Services, Inc.. ("NBG"), was a provider of outbound telemarketing data
- ------------------
processing and fulfillment services in the financial services,
telecommunications and high-technology industries.
The Reich Group Companies. ("Reich"), provided telemarketing services to clients
- -------------------------
in the financial services, insurance, telecommunications and publishing
industries.
Telespectrum Inc. and Telespectrum Training Services Inc. ( together "TS: MD"),
- ---------------------------------------------------------
provided inbound and outbound telemarketing services and fulfillment to the
high-technology, pharmaceutical and healthcare and consumer industries.
The Response Center, Inc. and The Tab House, Inc. (collectively "TRC") provide
- -------------------------------------------------
custom market research and analysis, principally to clients in the
telecommunications, financial services, pharmaceutical and healthcare
industries.
Harris Direct Marketing, Inc. and Harris Fulfillment Inc. (together, "Harris"),
- ---------------------------------------------------------
a regional vertically integrated direct mail and fulfillment organization
provided service to companies in the pharmaceutical, financial services and
insurance industries.
The Initial Operating Businesses' results of operations and statement of cash
flows for the three months ended March 31, 1996 are presented below. These
results are unaudited. However, in the opinion of management, they reflect all
normal and recurring adjustments necessary for a fair presentation of the
interim financial results. These results reflect the elimination of all
intercompany transactions. These results are not necessarily indicative of the
results to be expected for any other interim period.
These results should be read in conjunction with the more complete financial
statements of the Initial Operating Businesses contained in the Company's Form
10-K for the period from April 26, 1996 (Inception) to December 31, 1996.
8
<PAGE>
8. PREDECESSOR COMPANY FINANCIAL INFORMATION (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(THOUSANDS) SOMAR NBG REICH TS: MD TRC HARRIS
----- --- ----- ------ --- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $9,274 $3,960 $5,465 $3,725 $1,429 $2,617
Operating Expenses:
Cost of services 7,931 2,752 3,165 2,483 786 1,324
Selling, general and administrative 1,554 631 570 951 875 768
------ ------ ------ ------ ------ ------
Total operating expenses 9,485 3,383 3,735 3,434 1,661 2,092
------ ------ ------ ------ ------ ------
Operating income (loss) (211) 577 1,730 291 (232) 525
Interest Income 4 20 8 -- -- 29
Interest Expense (217) (35) (19) (43) -- (41)
------ ------ ------ ------ ------ ------
Income (Loss) $ (424) $ 562 $1,719 $ 248 $ (232) $ 513
====== ====== ====== ====== ====== ======
Pro Forma Information
(unaudited)
Historical Income (loss) $ (424) $ 562 $1,719 $ 248 $ (232) $ 513
Pro Forma Income Taxes 158 (230) (701) (98) 92 (231)
------ ------ ------ ------ ------ ------
Pro Forma Net Income $ (266) $ 332 $1,018 $ 150 $ (140) $ 282
====== ====== ====== ====== ====== ======
</TABLE>
9
<PAGE>
8. PREDECESSOR COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(THOUSANDS) SOMAR NBG REICH TS: MD TRC HARRIS
-------- ------- ------- ------- ------- -------
Operating Activities
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ (424) $ 562 $1,719 $ 248 $ (232) $ 513
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 268 114 76 83 18 154
Provision for bad debts -- 15 -- -- -- 16
Changes in operating assets
and liabilities, net (157) 1,222 (375) 160 (232) (893)
------- ------ ------ ----- ------ ------
Net cash provided by (used in)
operating activities (313) 1,913 1,420 491 (446) (210)
------- ------ ------ ----- ------ ------
Investing Activities
Purchases of property and equipment (187) (71) (559) (162) (91) (77)
Proceeds from short-term investments -- 40 -- -- -- --
Advances to stockholder (119) -- -- -- -- --
Advances to affiliates (155) -- -- -- -- --
------- ------ ------ ----- ------ ------
Net cash used in investing activities (461) (31) (559) (162) (91) (77)
------- ------ ------ ----- ------ ------
Financing Activities
Proceeds from borrowings -- -- -- 50 -- --
Repayments of borrowings (1,475) (500) (405) (67) -- (73)
Payments of capital lease obligations (212) (94) -- -- --
Net borrowings on line of credit 2,404 -- -- 75 -- --
Borrowings from affiliates 36 -- -- -- -- --
Distributions to stockholder -- -- -- -- -- (248)
------- ------ ------ ----- ------ ------
Net cash provided by (used in)
financing activities 753 (594) (405) 58 -- (321)
------- ------ ------ ----- ------ ------
Increase (decrease) in cash
and cash equivalents (21) 1,288 456 387 (537) (608)
Cash at beginning of period 25 700 220 15 1,178 2,919
------- ------ ------ ----- ------ ------
Cash at end of period $ 4 $1,988 $ 676 $ 402 $ 641 $2,311
======= ====== ====== ===== ====== ======
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY BACKGROUND
TeleSpectrum Worldwide Inc. ("TeleSpectrum" or "the Company") was founded in
April 1996 to create a premier provider of teleservice services. To attain this
goal, the Company provides a single source for complete, integrated solutions to
clients' teleservices needs, including but not limited to, business acquisition,
customer activation/service/retention, consumer affairs, catalogue sales, help
desk services and reservations services. The Company believes that its ability
to bundle teleservices enables its clients to more efficiently manage their
teleservice marketing efforts at a lower cost while delivering a unified and
consistent message.
On August 12, 1996, the Company completed its initial public offering,
generating net cash proceeds to the Company of approximately $162 million.
Simultaneous with the offering, the Company began material operations with the
acquisition of the businesses conducted by six companies engaged in
telemarketing, market research, and direct mail and fulfillment businesses
(collectively, the "Initial Operating Businesses").
Subsequent to the acquisition of the Initial Operating Businesses, the Company
completed the acquisitions of TARP and PR Response (collectively, the "Fourth
Quarter 1996 Acquisitions"), which were acquired as of October 1, 1996 and
November 1, 1996, respectively. The aggregate purchase price of these
acquisitions was $22.0 million in cash and stock. The TARP acquisition expanded
the Company's customer care consulting capabilities. The acquisition of PR
Response added two Canadian call centers, and represented the Company's initial
penetration into the Canadian teleservices market.
The Company currently operates 26 call centers with approximately 2,900
workstations throughout the United States and Canada; representing increases of
approximately 8% and 16%, respectively, from December 31, 1996. The Company
expects to continue to expand its capacity and capabilities by investing in
additional call centers to support internal growth and to meet anticipated
demand for its services. There can be no assurance, however, that such
anticipated demand will actually materialize, or if such demand does
materialize, that it can be sustained.
During the first quarter of 1997, the Company acquired the business and
substantially all of the assets and assumed certain liabilities of the
interactive voice response division of Voice FX Corporation (renamed and
referred to hereafter as "TeleSpectrum FX") for $5.3 million in cash. The
Company believes that this acquisition enhances its ability to provide fully
integrated and bundled teleservice solutions. The Company expects to continue
to pursue strategic acquisitions throughout 1997. See "Liquidity and Capital
Resources".
11
<PAGE>
Results of Operations
As discussed above, the Company was incorporated in April 1996, and did not
commence full-scale operations within the teleservices industry until August
1996, when it acquired the Initial Operating Businesses. Accordingly, no
comparison of the historical actual results of operations for the three months
ended March 31, 1997 to the three months ended March 31, 1996 is available.
Based upon the Company's unique means of entry into the teleservices industry,
for purposes of comparing the results of the Initial Operating Businesses,
management has presented the actual unaudited results of operations for the
three months ended March 31, 1997 to the Supplemental Pro Forma/1/ unaudited
results of operations for the three months ended March 31, 1996.
<TABLE>
<CAPTION>
Supplemental Pro Forma
Results of Operations Results of Operations
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
--------------------- ----------------------
% of % of
<S> <C> <C> <C> <C>
Revenues $ Millions Revenue $ Millions Revenue
----------- -------- ------------ --------
Direct marketing $36.5 74 18.7 71
Customer care 7.8 16 3.8 14
Market research, direct mail
and fulfillment 4.9 10 4.0 15
----- --- -----
Total Revenue 49.2 100 26.5 100
Cost of services 34.1 69 18.4 69
Selling, general and administrative 8.9 18 5.3 20
Amortization of Goodwill 2.0 4 1.6 6
----- --- ----- ---
45.0 91 25.3 95
----- --- ----- ---
Operating Income 4.2 9 1.2 5
Interest income (expense), net 0.2 - (0.1) 1
----- --- ----- ---
Income before taxes 4.4 9 1.1 4
Income taxes 1.7 3 0.5 2
----- --- ----- ---
Net income $ 2.7 6 $ 0.6 2
===== === ===== ===
</TABLE>
Revenues-Overall, revenues increased 86% during the three months ended March 31,
1997 when compared to the three months ended March 31, 1996. Direct marketing,
customer care and market research, direct mail and fulfillment revenues
increased 95%, 105% and 23%, respectively, when compared to the same prior year
period.
The significant increase in Direct Marketing revenues is directly attributable
to increased capacity and more effective capacity utilization. When viewed on a
combined basis at March 31, 1996, the Initial Operating Businesses operated 16
call centers with 1,300 workstations. At March 31, 1997, the Company operated
26 call centers with 2,900 workstations.
The 105% increase in customer care revenues is attributable to revenues from
TARP (which was acquired as of October 1, 1996) combined with increased
capacity.
The increase in market research and direct mail and fulfillment revenue is
attributable to increased and expanded demand for these services.
12
/1/ The Supplemental Pro Forma results of operations include only the results of
the Initial Operating Businesses for the three months ended March 31, 1996
and exclude the first quarter results of operations of the Fourth Quarter
1996 Acquisitions as well as those of TeleSpectrum FX.
<PAGE>
Cost of Services-Cost of Services increased by 85% during the three months ended
March 31, 1997 when compared to the same prior year period. As a percentage of
total revenues, these costs were consistent during the three months ended 1997
and 1996. Included within the 1996 results are certain start-up costs
associated with additional capacity. The Company believes that as it continues
to expand both the number of its teleservice call centers and the number of
workstations within existing call centers, the cost of services as a percentage
of revenue will decrease, although there can be no assurance that the Company
will be able to achieve these anticipated cost savings.
Selling, General and Administrative Expenses-Selling, general and administrative
expenses increased 68% during the three months ended March 31, 1997 when
compared with the three months ended March 31, 1996. As a percentage of
revenue, these costs decreased from 20% of revenues to 18%, primarily the result
of the spreading of expenses over increasing revenues, partially offset by
increased administrative expenses associated with operating as a public company.
The Company anticipates that selling, general, and administrative expenses will
continue to increase in the aggregate as a result of the growth and integration
of its businesses. However, the Company believes that, as it achieves
anticipated economies of scale, and as it spreads these costs over an increasing
base of revenues, selling, general, and administrative expenses as a percentage
of revenues will decrease. However, there can be no assurance that the Company
will actually be able to achieve the desired economies of scale. Such a failure
could have a negative impact on the future performance of the Company.
Amortization of goodwill - The Company has recorded the purchase price in excess
of estimated fair value of the net assets of the acquired businesses (i.e. the
Initial Operating Businesses, TARP, PR Response and TeleSpectrum FX) as
goodwill. These amounts are being amortized on a straight-line basis over a
twenty five year period.
Amortization expense for the three months ended March 31, 1997 represents three
months of amortization of goodwill related to the acquisitions of the Initial
Operating Businesses, TARP, and PR Response plus one month of amortization of
goodwill related to the TeleSpectrum FX acquisition. Amortization expense for
the three months ended March 31, 1996 represents three months of amortization of
goodwill related to the Initial Operating Businesses only.
As a percentage of revenue, amortization expense decreased from 6% to 4% during
the three months ended March 31, 1997 when compared with the three months ended
March 31, 1996. This decrease was principally the result of the substantial
revenue growth period over period, while amortization expense (excluding the
amortization of goodwill related to TARP, PR Response and TeleSpectrum FX)
remained constant.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and cash equivalents of $0.8 million. At
December 31, 1996, the Company had cash and cash equivalents of $30.7 million.
In January 1997, the Company entered into a $50.0 million secured credit
facility agreement ("credit facility"). The credit facility can be used for
certain acquisitions, the satisfaction of indebtedness, working capital, and
certain other purposes. The credit facility is secured by accounts receivable,
equipment, and other assets of the company and contains certain financial
covenants including restrictions on the payment of distributions, the sale of
assets, engaging in mergers and consolidations, among others. Advances under
the credit facility bear interest at optional borrowing rates of either the then
current prime rate plus 0.25%, or the LIBOR rate plus a margin which ranges from
1.00% to 1.75%, depending upon certain conditions specified in the credit
facility agreement. The credit facility terminates in January, 2001. As of
March 31, 1997, the Company had borrowed $13.0 million under the credit
facility. In May 1997, the credit facility was increased to $70.0 million.
The credit facility requires the Company to maintain certain financial ratios
and meet specified minimum levels of working capital and net worth. The credit
facility also contains certain positive and negative covenants. The Company
believes it is currently in compliance with all such material requirements.
Should the Company be declared in default however, and if such default is not
cured within the time permitted in the credit facility agreement, the Company
would be required to repay all amounts then currently outstanding.
13
<PAGE>
During the three months ended March 31, 1997, the Company used $0.3 million to
fund operations, principally related to the funding of working capital.
During the three months ended March 31, 1997, the Company used $42.2 million for
investing activities. Of this amount, $9.8 million was used to purchase
property and equipment related to the Company's call center expansion program
and $5.3 million was used to purchase the net assets of TeleSpectrum FX as
previously discussed above. Additionally, the Company paid $25.0 million in
settlement of an earn-out obligation under the terms of the purchase agreement
of one of the Initial Operating Businesses, $1.2 million related to purchase
price adjustments under the terms of the Initial Operating Businesses' purchase
agreements, and $0.9 million related to accrued separation costs for certain
former owners of the Initial Operating Businesses. As discussed above, the
Company is currently pursuing an internal growth strategy and is planning to
open a significant number of call centers in the United States and Canada.
These additional call centers will expand the Company's telemarketing capacity.
The Company believes that this additional capacity can be utilized in the
generation of additional revenues and expects to continue to invest heavily in
property and equipment, as well as to continue to pursue strategic acquisitions.
During the three months ended March 31, 1997, the Company obtained net cash from
financing activities of $12.5 million, which resulted from the $13.0 million of
proceeds related to borrowings under the credit facility discussed above and
paid $0.5 million of principal related to debt and capital lease obligations.
Management believes that the credit facility, anticipated cash flows from
operations, and shares of Common Stock available will provide sufficient
liquidity to execute the Company's internal growth and acquisitions plans
through the expiration of the credit facility. Should the Company accelerate
its internal expansion and/or acquisition programs, the Company may need to seek
additional financing through the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on the terms the Company deems acceptable.
Management plans to periodically reassess the adequacy of the Company's
liquidity position, taking into consideration current and anticipated operating
cash flow, anticipated capital expenditures and acquisition plans, in order to
ensure the Company's negotiated credit facilities are adequate to meet the
Company's needs on a short-term and long-term basis.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.17 Loan and Security Agreement by and among TeleSpectrum
Worldwide Inc., TLSP Trademarks, Inc. and TLSP
Investments, Inc. with Mellon Bank, N.A., as agent, dated
January 24, 1997.
10.18 First Amendment to Loan and Security Agreement dated as of
May 7, 1997.
10.19 Consulting Agreement dated as of February 20, 1997 between
TeleSpectrum Worldwide Inc. and Mr. William F. Rhatigan.
27 FINANCIAL DATA SCHEDULE
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELESPECTRUM WORLDWIDE INC.
--------------------------------------
(Registrant)
Date: May 14, 1997 \s\ Richard C. Schwenk, Jr.
------------ --------------------------------------
Richard C. Schwenk, Jr.
TeleSpectrum Worldwide, Inc.
Executive Vice President and
Chief Financial Officer
16
<PAGE>
Exhibit 10.17
-------------
LOAN AND SECURITY AGREEMENT
TeleSpectrum Worldwide Inc.,
TLSP Trademarks, Inc., and
TLSP Investments, Inc.
with
Mellon Bank, N.A., as Agent
and
Mellon Bank, N.A. and each of the Financial Institutions
Now or Hereafter a Party Hereto
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. DEFINITIONS AND INTERPRETATION......................... 1
1.1 Terms Defined................................................ 1
-------------
1.2 Accounting Principles........................................ 13
---------------------
SECTION 2. THE LOANS.............................................. 14
2.1 Revolving Credit - Description............................... 14
------------------------------
2.2 Letters of Credit............................................ 15
-----------------
2.3 Advances, Conversions, Renewals and Payments................. 16
--------------------------------------------
2.4 Revolving Credit Interest.................................... 20
-------------------------
2.5 Additional Interest Provisions............................... 22
------------------------------
2.6 Fees......................................................... 23
----
2.7 Prepayments.................................................. 24
-----------
2.8 Use of Proceeds.............................................. 24
---------------
2.9 Indemnity/Loss of Margin..................................... 25
------------------------
2.10 Capital Adequacy............................................. 25
----------------
SECTION 3. COLLATERAL............................................. 26
3.1 Description.................................................. 26
-----------
3.2 Lien Documents............................................... 27
--------------
3.3 Other Actions................................................ 28
-------------
3.4 Searches..................................................... 28
--------
3.5 Landlords' Waivers........................................... 28
------------------
3.6 Stock Pledge Agreement....................................... 29
----------------------
3.7 Filing Security Agreement.................................... 29
-------------------------
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES........... 29
4.1 Resolutions, Opinions, and Other Documents................... 29
------------------------------------------
4.2 Absence of Certain Events.................................... 30
-------------------------
4.3 Warranties and Representations at Closing.................... 30
-----------------------------------------
4.4 Compliance with this Agreement............................... 31
------------------------------
4.5 Officer's Certificate........................................ 31
---------------------
4.6 Additional Conditions to Availability of Revolving Credit.... 31
---------------------------------------------------------
4.7 Certain Events............................................... 31
--------------
4.8 Non-Waiver of Rights......................................... 31
--------------------
SECTION 5. REPRESENTATIONS AND WARRANTIES......................... 32
5.1 Corporate Organization and Validity.......................... 32
-----------------------------------
5.2 Places of Business........................................... 33
------------------
5.3 Pending Litigation........................................... 33
------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
5.4 Title to Properties.......................................... 33
-------------------
5.5 Governmental Consent......................................... 33
--------------------
5.6 Taxes........................................................ 34
-----
5.7 Financial Statements......................................... 34
--------------------
5.8 Full Disclosure.............................................. 34
---------------
5.9 Subsidiaries................................................. 34
------------
5.10 Guarantees, Contracts, etc................................... 35
--------------------------
5.11 Government Regulations, etc.................................. 35
---------------------------
5.12 Business Interruptions....................................... 36
----------------------
5.13 Names........................................................ 36
-----
5.14 Other Associations........................................... 37
------------------
5.15 Environmental Matters........................................ 37
---------------------
5.16 Regulation O................................................. 38
------------
5.17 Capital Stock................................................ 38
-------------
5.18 Solvency..................................................... 38
--------
5.19 Investment Company........................................... 38
------------------
5.20 IPO.......................................................... 39
---
5.21 Seller Debt.................................................. 39
-----------
SECTION 6. AFFIRMATIVE COVENANTS.................................. 39
6.1 Payment of Taxes and Claims.................................. 39
---------------------------
6.2 Maintenance of Properties and Corporate Existence............ 39
-------------------------------------------------
6.3 Business Conducted........................................... 41
------------------
6.4 Litigation................................................... 41
----------
6.5 Taxes........................................................ 42
-----
6.6 Bank Accounts................................................ 44
-------------
6.7 Employee Benefit Plans....................................... 44
----------------------
6.8 Warranties for Future Advances............................... 45
------------------------------
6.9 Financial Covenants.......................................... 46
-------------------
6.10 Financial and Business Information........................... 47
----------------------------------
6.11 Officers' and Accountant's Certificates...................... 49
---------------------------------------
6.12 Inspection................................................... 49
----------
6.13 Tax Returns and Reports...................................... 50
-----------------------
6.14 Information to Participant................................... 50
--------------------------
6.15 Material Adverse Developments................................ 50
-----------------------------
6.16 Name Changes, Places of Business............................. 50
--------------------------------
6.17 Interest Rate Caps........................................... 50
------------------
6.18 Surety Agreement............................................. 51
----------------
SECTION 7. NEGATIVE COVENANTS:.................................... 51
7.1 Merger, Consolidation, Dissolution or Liquidation............ 51
-------------------------------------------------
7.2 Acquisitions................................................. 51
------------
7.3 Liens and Encumbrances....................................... 52
----------------------
7.4 Transactions With Affiliates or Subsidiaries................. 53
--------------------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
7.5 Guarantees................................................... 53
----------
7.6 Distributions, Redemptions and Other Indebtedness............ 53
-------------------------------------------------
7.7 Loans and Investments........................................ 54
---------------------
7.8 Use of Lenders' Name......................................... 54
--------------------
7.9 Miscellaneous Covenants...................................... 54
-----------------------
7.10 Change of Majority Control................................... 55
---------------------------
7.11 Change in Executive Management............................... 55
-------------------------------
SECTION 8. DEFAULT................................................ 55
8.1 Events of Default............................................ 55
-----------------
8.2 Cure......................................................... 58
----
8.3 Rights and Remedies on Default............................... 58
------------------------------
8.4 Nature of Remedies........................................... 60
------------------
8.5 Set-Off...................................................... 60
-------
8.6 Confession of Judgment....................................... 60
----------------------
SECTION 9. AGENT.................................................. 61
9.1 Appointment and Authorization................................ 61
-----------------------------
9.2 General Immunity............................................. 61
----------------
9.3 Consultation with Counsel.................................... 61
-------------------------
9.4 Documents.................................................... 62
---------
9.5 Rights as a Lender........................................... 62
------------------
9.6 Responsibility of Agent...................................... 62
-----------------------
9.7 Collections and Disbursements................................ 63
-----------------------------
9.8 Indemnification.............................................. 64
---------------
9.9 Expenses..................................................... 64
--------
9.10 No Reliance.................................................. 65
-----------
9.11 Reporting.................................................... 65
---------
9.12 Removal of Agent............................................. 65
----------------
9.13 Action on Instructions of Lenders............................ 65
---------------------------------
9.14 Several Obligations.......................................... 66
-------------------
9.15 Consent of Lenders to Agent's Rights......................... 66
-------------------------------------
9.16 Participations and Assignments............................... 67
-------------------------------
SECTION 10. MISCELLANEOUS......................................... 68
10.1 GOVERNING LAW................................................ 68
--------------
10.2 Integrated Agreement......................................... 68
--------------------
10.3 Waivers, Release and Indemnification......................... 68
------------------------------------
10.4 Time......................................................... 70
----
10.5 Expenses of Agent and Lenders................................ 70
-----------------------------
10.6 Brokerage.................................................... 70
---------
10.7 Notices...................................................... 70
-------
10.8 Headings..................................................... 71
--------
10.9 Survival..................................................... 71
--------
10.10 Successors and Assigns....................................... 72
----------------------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
10.11 Duplicate Originals.......................................... 72
-------------------
10.12 Modification................................................. 72
------------
10.13 Signatories.................................................. 72
-----------
10.14 Third Parties................................................ 72
-------------
10.15 Discharge of Taxes, Borrowers' Obligations, Etc.............. 72
-----------------------------------------------
10.16 Withholding and Other Tax Liabilities........................ 73
-------------------------------------
10.17 CONSENT TO JURISDICTION...................................... 73
-----------------------
10.18 Waiver of Jury Trial......................................... 73
--------------------
</TABLE>
-iv-
<PAGE>
EXHIBIT LIST
------------
<TABLE>
<S> <C> <C>
Exhibit 1 -- Form of Borrowing Authorization
Exhibit 2.1 -- Excluded Capital Advances
Exhibit 2.2 -- Existing Letters of Credit
Exhibit 2.3 -- Letter of Credit Agreement and Related Forms
Exhibit 3.8 -- Form of Subordination Agreement
Exhibit 5.1 -- Borrower's States of Qualifications
Exhibit 5.2 -- Places of Business
Exhibit 5.3 -- Judgments, Proceedings, Litigation and
Orders
Exhibit 5.4 -- Existing Liens and Claims
Exhibit 5.7 -- Federal Tax Identification Numbers
Exhibit 5.9 -- Subsidiary and Affiliates
Exhibit 5.10 -- Existing Guaranties, Investments and Borrowings,
Leases and Employment Agreements
Exhibit 5.11 -- Employee Benefit Plans
Exhibit 5.12 -- Business Interruptions
Exhibit 5.13(a) -- Schedule of Names
Exhibit 5.13(b) -- Trademarks, Patents and Copyrights
Exhibit 5.14 -- Other Associations
Exhibit 5.15 -- Environmental Disclosure
Exhibit 5.17 -- Capital Stock
Exhibit 5.21 -- Seller Debt
Exhibit 6.11 -- Form of Compliance Certificate
Exhibit 9.16 -- Form of Assignment
</TABLE>
-v-
<PAGE>
SCHEDULES
---------
<TABLE>
<S> <C> <C>
Schedule A -- Schedule of Lenders
Schedule B -- Address of Lenders
</TABLE>
-vi-
<PAGE>
EXHIBIT 10.17
-------------
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement ("Agreement") is dated as of the 24th day
of January, 1997, by and among TeleSpectrum Worldwide Inc., a Delaware
corporation ("TWI"), TLSP Trademarks, Inc., a Delaware corporation, and TLSP
Investments, Inc., a Delaware corporation (collectively referred to as
"Borrowers" and severally referred to as "Borrower"), Mellon Bank, N.A., a
national banking association, in its capacity as agent, ("Agent") and Mellon
Bank, N.A. ("Mellon") and the financial institutions shown on the signature
pages hereof and listed on Schedule "A" attached hereto and made a part of this
Agreement (as such Schedule may be amended, supplemented, modified or replaced
from time to time), in their capacity as lenders (Mellon and each such other
financial institution, individually each being a "Lender" and collectively all
being "Lenders").
BACKGROUND
----------
A. Borrowers desire to establish financing arrangements with Lenders to
permit its uninterrupted and continuous business operations. Lenders are
willing to make loans and grant extensions of credit to Borrowers, under the
terms and provisions hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship and reduce them to writing.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1 Terms Defined: As used in this Agreement, the following terms have
-------------
the following respective meanings:
-1-
<PAGE>
Account - Any right to payment for goods sold or leased or for
-------
services rendered which is not evidenced by an instrument or chattel paper,
whether or not it has been earned by performance.
Account Debtor - Any Person obligated on any Account owing to
--------------
Borrower.
Advance(s) - Any monies advanced or credit extended to Borrowers by
----------
any Lender under the Revolving Credit, including without limitation, cash
advances and the issuance of Letters of Credit.
Affiliate - Section 7.4.
---------
Agreement - This Loan and Security Agreement, as it may hereafter be
---------
amended, supplemented or replaced from time to time.
Applicable LIBOR Rate Margin - One percent (1.00%) as of the Closing
----------------------------
Date (subject to decrease as provided in Section 2.5(f) below), provided,
however, that, upon receipt of Borrowers' quarterly financial statements,
commencing with the calendar quarter ending March 31, 1997, and provided that no
Event of Default has occurred and is continuing, the Applicable LIBOR Rate
Margin shall be determined in accordance with the ratio of Borrowers' Funded
Debt to EBITDA as set forth in the following matrix (subject to decrease as
provided in Section 2.5(f) below):
<TABLE>
<CAPTION>
Ratio of Funded Debt
to EBITDA Margin
- --------- ------
<S> <C>
Greater than or equal to 2.00:1 1.75%
Less than 2.00:1, but greater than or
equal to 1.50:1 1.50%
Less than 1.50:1, but greater than or
equal to 1.00:1 1.25%
Less than 1.00:1 1.00%
</TABLE>
-2-
<PAGE>
Any change resulting from the above pricing matrix shall be effective upon the
first day of the first full month following Agent's receipt of Borrowers'
quarterly financial statements delivered to Agent under Section 6.10(a)(iii)
hereof, beginning with the quarterly financial statements for the quarter ending
March 31, 1997. Upon an Event of Default, the highest applicable LIBOR Rate
Margin shall be utilized in the calculation of the Default Rate.
Acquired Operating Companies - Harris Direct Marketing, Inc., Harris
----------------------------
Fulfillment, Inc., The Response Center, Inc., NGB Services, Inc., The Reich
Group, Inc., SOMAR, Inc., Telespectrum, Inc. and TeleSpectrum Training Services,
Inc.
Authorized Officer - Any officer or employee of any Borrower
------------------
authorized by such Borrower to request Advances as set forth in a Borrowing
Authorization.
Base Rate - The Prime Rate plus one quarter of one percent per annum,
---------
subject to decrease as provided in Section 2.5(f) below.
Base Rate Loan - That portion of the Loans on which interest accrues
--------------
at the Base Rate.
Base Rate Option - Section 2.4(a).
----------------
Borrowers' Business - The inbound and outbound teleservice business
-------------------
and direct mail business, including, without limitation, telemarketing, phone-
based customer service, marketing research and customer survey, database
management telesales, dealer locator assistance, telemarketing and call center
consulting and training services, and the operation of call centers, electronic
order processing and the direct mail fulfillment.
Borrowing Authorization - A document, in the form of Exhibit 1
-----------------------
attached hereto and made part hereof, signed and delivered to Agent by an
Authorized Officer of a Borrower.
-3-
<PAGE>
Business Day - Any day that is not a Saturday or Sunday or day on
------------
which Agent or any Lender is required or permitted to close, and solely with
respect to LIBOR Rate Loans requested by Borrowers, shall mean any day on which
the Agent is able to determine the LIBOR Rate for such requested LIBOR Rate
Loan.
Capital Advances - Any Borrower's loans, advances and capital or
----------------
equity contributions to a Subsidiary.
Capital Expenditures - Any expenditure that would be classified as a
--------------------
capital expenditure on a statement of cash flow of Borrowers prepared in
accordance with GAAP, consistently applied.
Capitalized Lease Obligations - All debts, liabilities and obligations
-----------------------------
of a lessee under leases which under GAAP are capitalized and treated as debt of
the lessee and are treated as a liability on the lessee's balance sheet.
Closing - The execution of this Agreement and the satisfaction of all
-------
of the conditions contained in Sections 4.1 through 4.5 hereof.
Closing Date - The date on which the Closing occurs.
------------
Closing Net Worth - Borrowers' Net Worth as of August 30, 1996.
-----------------
Collateral - Section 3.1.
----------
Commitment Fee - The product of (A) the average daily balance of the
--------------
Unused Revolver and (B) the percentage corresponding to the ratio of Borrowers'
Funded Debt to EBITDA, as set forth in the following matrix:
<TABLE>
<CAPTION>
Ratio of Funded Debt to EBITDA Commitment Fee Percentage
(%)
- ------------------------------- -------------------------
<S> <C>
Greater than or equal to 2.00:1 3/8%
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
Less than 2.00:1, but greater 1/4%
than or equal to 1.00:1
Less than 1.00:1 1/8%
</TABLE>
On the Closing Date the percentage utilized in calculating the Commitment Fee
shall be 1/8%; such percentage shall change based on the information contained
in Borrowers' quarterly financial statements, commencing with the quarter ending
March 31, 1997. Any change resulting from the above pricing matrix shall be
effective upon the first day of the first full month following Agent's receipt
of Borrowers' quarterly financial statements under Section 6.10(a)(iii) hereof,
beginning with the quarterly financial statements for the quarter ending March
31, 1997.
Current Assets - All assets that should be classified as current
--------------
assets on a balance sheet of Borrowers prepared in accordance with GAAP.
Current Liabilities - All liabilities that should be classified as
-------------------
current liabilities on a balance sheet of Borrowers prepared in accordance with
GAAP, including without limitation, in any event for covenant purposes only, the
Loans.
Default Rate - Section 2.5(c).
------------
Distribution -
------------
(1) Dividends or other distributions of any kind on capital stock of
Borrower;
(2) The redemption, repurchase or acquisition of such stock or
interests or of warrants, rights or other options to purchase such stock or
interests.
Domestic Subsidiary - A Subsidiary incorporated or otherwise organized
-------------------
under the laws of one of the States of the United States of America.
EBIDA - The sum of Borrowers' Net Income plus cash interest expense
-----
plus depreciation and amortization expense.
-5-
<PAGE>
EBITA to Interest Expense - For the fiscal quarter for which such
-------------------------
calculation is made, the ratio of (A) the sum of Net Income before interest,
taxes and amortization, to (B) the sum of cash interest expense, all of the
foregoing as would be shown on a statement of earnings and cash flow of
Borrowers prepared in accordance with GAAP.
Environmental Law(s) - Any federal or state statute, ordinance, law,
--------------------
rule or regulation at any time enacted or adopted by any federal, state or local
government, governmental agency or other governmental or quasi-governmental
entity pertaining to environmental matters, including, without limitation, the
federal Comprehensive Environmental Response Compensation and Liability Act
("CERCLA"), Environmental Cleanup Responsibility Act ("ECRA") and the federal
Resource Conservation and Recovery Act ("RCRA"), or the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, dumping or otherwise disposing of
Hazardous Waste (as defined in 12 U.S.C. (S) 6903(5)) or Hazardous Substances
(as defined in 42 U.S.C. (S) 9609(14)).
ERISA - The Employee Retirement Income Security Act of 1974, as the
-----
same may be amended, from time to time.
Equity Offerings - Any issuance of additional capital stock, warrants
----------------
or options by any Borrower other than in connection with (i) a Distribution or
(ii) the IPO as described in the Prospectus.
Event of Default - Section 8.1.
----------------
Executive Management - The chief executive officer, chief operating
--------------------
officer and chief financial officer of TWI.
Excluded Capital Advances - The Capital Advances to Foreign
-------------------------
Subsidiaries listed on Exhibit 2.1 hereto.
Existing Letter of Credit - That certain outstanding Letter of Credit
-------------------------
No. 84553 in the face amount of $1,513,268 issued by Mellon for the benefit of
Rockwell International at the request and on behalf of TWI and the other Letters
of Credit listed on Exhibit 2.2 hereto.
-6-
<PAGE>
Expenses - Section 10.5.
--------
Facility Fee - Section 2.6(a).
------------
Federal Funds Rate - The daily rate of interest announced from time to
------------------
time by the Board of Governors of the Federal Reserve System in publication H.15
as the "Federal Funds Rate."
Financed Acquisition Debt - That portion of the consideration for a
-------------------------
Qualified Acquisition represented by Seller Debt together with that portion of
the Loans directly used to finance such acquisition.
Fixed Charges - The sum of (A) Borrowers' cash interest expense and
-------------
(B) the aggregate amount of Borrowers' payments of principal on Funded Debt
(other than principal payments under the Revolving Credit and other than
regularly scheduled principal payments on the Reich Earn-Out to the extent that
at the time of such payment there is availability under the Revolving Credit).
Fixed Charges Coverage Ratio - The ratio of (A) Borrowers' EBIDA to
----------------------------
(B) Fixed Charges.
Foreign Stock Pledge Agreement(s) - Each and every Stock Pledge
---------------------------------
Agreement, in form and substance acceptable to Agent, pursuant to which TWI or
any of its Subsidiaries pledges to Agent, for the benefit of the Lenders as
collateral for the Obligations, 65% of the stock of one or more of TWI's Foreign
Subsidiaries, now existing or hereafter acquired or arising.
Foreign Subsidiary Sublimit - $2,500,000.
---------------------------
Foreign Subsidiaries - Telespectrum Worldwide (Canada), Inc., a
--------------------
Canadian corporation ("TWCI"), PR Response Inc., an Ontario corporation ("PRI"),
PR Response West Inc., a Manitoba corporation ("PRWI") and Tarp (Europe)
Limited, an England and Wales corporation ("TARP"), and any future Subsidiaries
of TWI which are organized or incorporated outside of the United States.
-7-
<PAGE>
Funded Debt - All obligations of any Borrower or Borrowers from time
-----------
to time for borrowed indebtedness, including without limitation all Advances,
Capitalized Lease Obligations, Seller Debt and Permitted Assumed Debt.
Funded Debt to EBITDA - The ratio of (A) Funded Debt to (B) the sum of
---------------------
Net Income before interest, taxes, depreciation and amortization, all of the
foregoing as would be shown on a statement of earnings and cash flow of Borrower
prepared in accordance with GAAP.
Future Acquired Companies - Corporations or businesses hereafter
-------------------------
acquired by any Borrower as permitted under Section 7.2 hereof.
GAAP - Generally accepted accounting principles applied in a manner
----
consistent with the most recent audited financial statements of Borrowers (or
Person in case of a Qualified Acquisition) referred to in Section 5.7 herein.
Good Business Day - Any Business Day when banks in Philadelphia,
-----------------
Pennsylvania, New York, New York and London, England are open for business.
Intellectual Property Security Agreement - That certain Intellectual
----------------------------------------
Property Security Agreement, dated the date hereof, pursuant to which Borrowers
grant to Agent, for the benefit of Lenders and as collateral security for the
Obligations, a Lien on the Borrowers' intellectual property.
Inventory - As defined in the UCC.
---------
Investment Property - As defined by the UCC.
-------------------
IPO - An initial public offering of the capital stock of TWI made
---
substantially in accordance with the terms and conditions of the Prospectus and
in compliance with all laws and regulations, including, without limitation, the
Securities Act of 1933, as amended from time to time, and the Securities
Exchange Act of 1934, as amended from time to time, pursuant to which (i) TWI
receives a minimum of $144,000,000 of gross proceeds and
-8-
<PAGE>
$22,000,000 of cash after completion of the acquisition of the Acquired
Operating Companies and the other transactions contemplated by the Prospectus
and accounting for all expenses and fees relating to such public offering, and
(ii) TWI's capital stock is listed for trading on a national securities exchange
(including, without limitation, the NASDAQ exchange).
IRS - Section 6.7.
---
Letters of Credit - Section 2.3(a).
-----------------
Liabilities - All liabilities of every kind as would be shown on a
-----------
balance sheet of Borrower prepared in accordance with GAAP.
L/C Fees - Section 2.6(c).
--------
L/C Sublimit - $3,000,000.
------------
LIBOR Based Rate - The LIBOR Rate plus the Applicable LIBOR Rate
----------------
Margin.
LIBOR Based Rate Loan - That portion of the Loans on which interest
---------------------
accrues at the LIBOR Based Rate.
LIBOR Interest Period - Section 2.4(b)(ii).
---------------------
LIBOR Rate - An annual rate of interest determined by Agent as being
----------
the rate available to Agent at approximately 11:00 a.m. London time in the
London Interbank Market, as referenced by Reuters Screen "LIBO", in accordance
with the usual practice in such market, for the LIBOR Interest Period elected by
Borrower, in effect two Good Business Days prior to the funding date for a
requested LIBOR Based Rate Loan (including those requested in connection with
the conversion of a Base Rate Loan to a LIBOR Based Rate Loan in accordance with
Section 2.4 hereof), or for a LIBOR Based Rate Loan which Borrower has elected
to continue as a LIBOR Based Rate Loan beyond the expiration of the then current
LIBOR Interest Period with respect thereto, for deposits of dollars in amounts
equal (as nearly as may be estimated) to the amount of the LIBOR Based Rate Loan
-9-
<PAGE>
which shall then be loaned by the Lenders to Borrowers as of the time of such
determination, as such rate may be adjusted by the reserve percentage applicable
during the LIBOR Interest Period in effect (or if more than one such percentage
shall be applicable, the daily average of such percentages for those days in
such LIBOR Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation, any emergency, supplemental
or other marginal reserve requirement) for the Agent with respect to liabilities
or assets consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time, having a term equal to such LIBOR Interest
Period ("Eurocurrency Reserve Requirement"), as reasonably applied to loans of
this type generally by the capital markets department of Agent. Such adjustment
shall be effectuated by calculating, and the LIBOR Rate shall be equal to, the
quotient of (i) the offered rate divided by (ii) one minus the Eurocurrency
Reserve Requirement.
Lien - Any interest of any kind or nature in property securing an
----
obligation owed to, or a claim of any kind or nature in property by, a Person
other than the owner of the Property, whether such interest is based on the
common law, statute, regulation or contract, and including, but not limited to,
a security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt, a capitalized lease, consignment or bailment
for security purposes, a trust, or an assignment, or as a result of the issuance
of any execution or distraint process against Borrowers. The term "Lien" shall
include without limitation, reservations, exceptions, encroach ments,
easements, rights-of-way, covenants, conditions, re strictions, leases and
other title exceptions and encumbrances affecting Property other than those
which would not materially interfere with Borrower's use of the Property and
would not materially detract from the value of the Property. For the purposes
of this Agreement, Borrowers shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which
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title to the Property has been retained by or vested in some other Person for
security purposes.
Loans - The unpaid balance of Advances under the Revolving Credit
-----
(including, without limitation, all issued and outstanding Letters of Credit and
all unreimbursed draws on Letters of Credit, unless expressly stated otherwise).
Loan Documents - This Agreement, the Revolving Credit Notes, the
--------------
Stock Pledge Agreement, the Foreign Stock Pledge Agreement(s), the Intellectual
Property Security Agreement, and all agreements, instruments and documents
executed and/or delivered from time to time pursuant to this Agreement or in
connection herewith (including, but not limited to, all agreements, instruments
and documents required to be delivered to Agent under Sections 3 and 4 hereof),
as amended or replaced from time to time.
Majority Lenders - At any time, Lenders holding Revolving Credit Pro
----------------
Rata Percentages aggregating at least Sixty-Six and Two Thirds (66-2/3%) percent
of the total Revolving Credit Pro Rata Shares at such time.
Material Adverse Effect - Any material adverse effect on any
-----------------------
Borrower's financial condition, assets, operating status or financial prospects
or any fact or circumstance that, singly or in the aggregate with any fact or
circumstance, has a reasonable likelihood of resulting in or leading to the
inability of any Borrower or Subsidiary to perform in any material respect its
obligations under this Agreement or under any Loan Document or the inability of
Agent and/or Lenders to enforce in any material respect the rights purported to
be granted to them under this Agreement or any Loan Document or which might have
a material adverse effect on the ability of any Borrower or Subsidiary to
effectuate (including hindering or unduly delaying) the transactions
contemplated by this Agreement and the other Loan Documents.
Net Income - Net income after taxes as such would appear on a
----------
consolidated statement of income of Borrowers, prepared in accordance with GAAP.
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Net Worth - The amount by which the assets of Borrowers exceed all
---------
Liabilities as would be shown on a balance sheet of Borrowers, prepared in
accordance with GAAP.
Obligations - All existing and future liabilities and obligations of
-----------
every kind or nature at any time owing by any Borrower or Borrowers and any
Subsidiaries to Lenders, and/or to Agent in connection with the Loan Documents
(including, without limitation, this Agreement and the Revolving Credit Notes)
and the transactions contemplated hereby and thereby, whether joint or several,
related or unrelated, primary or secondary, matured or contingent, direct or
indirect, due or to become due, and whether principal, interest, fees or
Expenses, including, without limitation, Obligations in respect of the Revolving
Credit whether related to cash Advances or Letters of Credit (whether drawn or
undrawn) and any extensions, modifications, substitutions, increases and
renewals thereof, and the payment of all reasonable amounts advanced by Agent,
on behalf of Lenders, to preserve, protect and enforce rights hereunder and in
the Collateral and all Expenses incurred in connection therewith and herewith.
Overadvances - Any amounts by which the outstanding Loans (including,
------------
without limitation, drawn and undrawn amounts under Letters of Credit) at any
time exceed the Revolving Credit Limit.
PBGC - Section 6.7.
----
Permitted Assumed Debt - Indebtedness for borrowed money, including
----------------------
Capitalized Lease Obligations, incurred by Future Acquired Companies prior to
their acquisition by any Borrower in, and assumed by any Borrower as part of, a
Permitted Qualified Acquisition.
Permitted Investments - (a) Investments in direct or indirect
---------------------
obligations of, or obligations unconditionally guaranteed by, the United States
of America and maturing within twelve (12) months from the date of acquisition;
(b) investments in commercial paper of Agent or commercial paper rated "Prime-1"
by Moody's Investors Services or "A-1" by Standard & Poor's
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Corporation, or with an equivalent rating by another rating agency of nationally
recognized standing, maturing within twelve (12) months from the date of
acquisition; and (c) certificates of deposit maturing within twelve (12) months
from the date of acquisition and issued by Agent.
Permitted Liens - Section 7.3.
---------------
Permitted Purchase Money Financing - Borrowed indebtedness other than
----------------------------------
from Lenders hereunder financing Capital Expenditures (other than a Permitted
Qualified Acquisition) permitted under this Agreement.
Permitted Qualified Acquisition - A Qualified Acquisition which any
-------------------------------
Borrower is permitted to make under the provisions of Section 7.2 hereof.
Person - An individual, partnership, corporation, trust,
------
unincorporated association or organization, joint venture or any other entity.
Potential Default - An event or condition shall have occurred or exist
-----------------
and be continuing which, with the giving of notice, the passage of time, or
both, would constitute an Event of Default hereunder.
Prime Rate - That per annum rate designated or announced by Agent at
----------
its principal office from time to time as its prime rate of interest, which may
be greater or less than other interest rates charged by Agent to other borrowers
and is not solely based or dependent upon the interest rate which Agent may
charge any particular borrower or class of borrowers.
Pro Forma Funded Debt to EBITDA Ratio - The ratio of Funded Debt to
-------------------------------------
EBITDA of Borrowers and a Seller or the Person acquired from Seller as reflected
in the pro forma consolidated and annualized financial statements of Borrowers
and such Seller or Person acquired from Seller, based on the most recent
quarterly financial statements of Borrowers and such Seller or Person acquired
from Seller, delivered to Agent, as prepared in accordance with GAAP,
consistently applied. The construction of
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such pro forma financial statements shall be in a manner consistent with the
construction of the pro forma financial statements set forth in the Prospectus.
Property - Any interest in any kind of property or asset, whether
--------
real, personal or mixed, or tangible or intangible.
Prospectus - That certain Prospectus, dated August 8, 1996 describing
----------
certain matters relating to an initial public offering of the stock of TWI.
Qualified Acquisition - The acquisition by any Borrower or Subsidiary
---------------------
of all or a material portion of the stock, securities or assets of a Person in
any transaction or series of related transactions, excluding the Acquired
Operating Companies, so long as: (i) no Event of Default exists hereunder or
would exist after giving effect to such acquisition after the consolidation of
the most recent quarterly financial statements of the Borrowers and such Seller
(or the Person acquired from Seller), annualized for the purpose of measuring
financial covenant compliance under Sections 6.9(b),(d) and (e); (ii) the stock,
securities or assets of such Person being acquired are related to the Borrowers'
Business as reasonably determined by Agent; (iii) all Property of the Person is
acquired free and clear of any Liens other than the Lien of Agent for the
benefit of Lenders and any Permitted Liens, and (iv) any and all Seller Debt
incurred in such Acquisition is Subordinated Indebtedness.
Quick Ratio - the ratio of cash (representing cleared funds) and
-----------
accounts receivable to Current Liabilities.
Regulation D - Regulation D of the Board of Governors of the Federal
------------
Reserve System, comprising Part 204 of Title 12, Code of Federal Regulations, as
amended, and any successor thereto.
Reich Earn-Out - Section 2.5(f).
--------------
Revolving Credit - Section 2.1(a).
----------------
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Revolving Credit Limit - $50,000,000.
----------------------
Revolving Credit Maturity Date - Four (4) years from the date hereof.
------------------------------
Revolving Credit Notes - Those notes described in Section 2.1(b), as
----------------------
they may be amended, supplemented, replaced or restated from time to time.
Revolving Credit Pro Rata Percentage - Section 2.1(a)(ii).
------------------------------------
Revolving Credit Pro Rata Share - Section 2.1(a)(ii).
-------------------------------
Revolving Credit Term - Section 2.1(c).
---------------------
Searches - Section 4.1(h).
--------
Secured Real Estate Debt - Funded Debt secured by Permitted Liens on
------------------------
real property.
Seller - (i) A Person who sells all or a material portion of its
------
assets to any Borrower or (ii) a Person who sells all or a material portion of
the capital stock of another Person to any Borrower.
Seller Debt - The indebtedness (including all earn-outs and other
-----------
contingent indebtedness) of a Borrower to a Seller arising out of an acquisition
of such Seller's Property.
Settlement Date - Section 2.3(c)(iii).
---------------
Stock Pledge Agreement - That certain Stock Pledge Agreement, dated of
----------------------
even date herewith, pursuant to which TWI pledges the stock of its Domestic
Subsidiaries, now existing or hereafter acquired or arising, to Agent, for the
benefit of Lenders, as collateral for the Obligations.
Surety - A Subsidiary which executes a Surety Agreement and delivers
------
it to Agent for the benefit of Lenders.
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Surety Agreements - Section 6.18.
-----------------
Subordinated Indebtedness - Indebtedness which is subordinated to the
-------------------------
Obligations pursuant to the terms of a subordination agreement in form and
substance acceptable to the Agent ("Subordination Agreement").
Subsidiary - Any corporation more than fifty percent (50%) of whose
----------
voting stock is legally and beneficially owned directly or indirectly by any
Borrower or owned by a corporation more than fifty percent (50%) of whose voting
stock is legally and beneficially owned directly or indirectly by any Borrower.
UCC - The Uniform Commercial Code as adopted in the Commonwealth of
---
Pennsylvania at 13 Pa.C.S.A. (S)1101 et seq.
-- ---
Unused Revolver - The Revolving Credit Limit minus the Loans.
---------------
U.S. Government Securities - Direct obligations of, or obligations
--------------------------
guaranteed by, the United States of America having a time to maturity not
exceeding sixty (60) days.
1.2 Accounting Principles: Where the character or amount of any asset or
---------------------
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except as otherwise expressly provided in this Agreement.
SECTION 2. THE LOANS
2.1 Revolving Credit - Description:
------------------------------
(a) (i) Subject to the terms and conditions of this Agreement,
Lenders hereby establish for the benefit of Borrowers a revolving credit
facility (collectively, the "Revolving Credit") which shall include Advances
extended by Lenders to or for the benefit of Borrowers from time to time
hereunder. The
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aggregate principal amount of all Loans shall not at any time exceed the
Revolving Credit Limit. Subject to such limitation, the outstanding balance of
Loans under the Revolving Credit may fluctuate from time to time, to be reduced
by repayments made by Borrower, to be increased by future Advances which may be
made by Lenders and, subject to the provisions of Section 8 below, shall be due
and payable on the Revolving Credit Maturity Date. Borrowers shall immediately
repay any Overadvance to Agent in immediately available funds. Any Advance
requested by and made to any Borrower shall automatically be deemed requested by
and made to and for the benefit of all Borrowers regardless of which Borrower
may request a particular Advance.
(ii) Subject to Section 8.3(a) below and the terms of this
Agreement, each Lender agrees to lend to Borrowers an amount equal to such
Lender's respective percentage (as to each Lender, the percentage of the
Revolving Credit set forth opposite its name on Schedule "A" attached hereto and
made a part hereof and referred to as its "Revolving Credit Pro Rata
Percentage") of the Advance requested by Borrowers. The outstanding Loans of
each Lender shall not exceed the respective maximum amount ("Revolving Credit
Pro Rata Share") set forth opposite its name on Schedule "A".
(b) At Closing, Borrowers shall jointly and severally execute and
deliver a promissory note to each Lender for the total principal amount of such
Lender's Revolving Credit Pro Rata Share (collectively, as amended, modified or
replaced from time to time, the "Revolving Credit Notes"). Each Revolving
Credit Note shall evidence Borrowers' unconditional obligation to repay such
Lender for all outstanding Loans owed to such Lender under the Revolving Credit,
with interest as herein and therein provided. Each and every Advance under the
Revolving Credit shall be deemed evidenced by the Revolving Credit Notes, which
are deemed incorporated herein by reference and made a part hereof. Each
obligation, covenant and undertaking under this Agreement are made by Borrowers
on a joint and several basis.
(c) The term ("Revolving Credit Term") of the Revolv ing Credit shall
expire on the Revolving Credit Maturity Date. On such date, unless having been
sooner accelerated by Agent or
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sooner terminated by Borrowers pursuant to Section 2.1(d) hereof, all
Obligations shall be due and payable in full, and after such date no further
Advances shall be available from Lenders.
(d) Reduction or Termination. In the event Borrowers desire to reduce
------------------------
the Revolving Credit Limit or terminate the Revolving Credit prior to the
Revolving Credit Maturity Date, Borrowers may only effect such reduction or
termination (i) on at least 60 days prior written notice to Agent and (ii) with
full and unconditional payment of (1) in the case of a reduction, the amount of
all outstanding Obligations which exceed the amount of the Revolving Credit
Limit as reduced (in which case any and all commitments of Lenders shall be
proportionately reduced) and (2) in the case of a termination, the amount of all
outstanding Obligations, in which case any and all commitments of Lenders and
Agent hereunder shall cease.
2.2 Letters of Credit:
-----------------
(a) As a part of the Revolving Credit and subject to its terms and
conditions Mellon in its capacity as a Lender (in such capacity, the "Issuing
Bank"), shall, on behalf of and for the benefit of all Lenders, make available
to Borrowers standby and/or merchandise letters of credit ("Letters of Credit"),
the outstanding undrawn amount of which shall not exceed, in the aggregate at
any one time, the L/C Sublimit. Notwithstanding the foregoing, all Letters of
Credit shall be in form and substance satisfactory to Issuing Bank and Agent.
Except for Existing Letters of Credit, no Letter of Credit shall be issued with
an expiry date later than twelve (12) months from the date of issuance, but in
no event shall any Letter of Credit carry an expiry date later than the
Revolving Credit Maturity Date. Borrowers shall execute and deliver to Issuing
Bank all letter of credit agreements, including an agreement in the form
attached hereto as Exhibit 2.3, and other documents required by Issuing Bank for
such purposes, all such documents to be in form and substance satisfactory to
Issuing Bank in its sole discretion.
(b) Immediately upon the issuance of any Letter of Credit, Issuing
Bank is deemed to have granted to each other Lender, and each other Lender is
hereby deemed to have acquired,
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an undivided participating interest (without recourse or warranty), in
accordance with each such other Lender's respective Revolving Credit Pro Rata
Percentage, in all of Issuing Bank's rights and liabilities with respect to such
Letter of Credit. Each Lender shall be directly and unconditionally obligated,
without deduction or setoff of any kind, to Issuing Bank, according to its
Revolving Credit Pro Rata Percentage, to reimburse Issuing Bank on demand for
any draws made at any time (including, without limitation, following the
commencement of any bankruptcy, reorganization, receivership, liquidation or
dissolution proceeding with respect to any Borrower) under any Letter of Credit.
(c) Issuing Bank shall be immediately, absolutely and unconditionally
reimbursed, without offset or deduction of any kind, by Borrowers for draws made
under a Letter of Credit. Such reimbursement shall be made, at the option of
Agent, by either a cash payment by Borrowers or by Lenders automatically making
or having deemed made (without further request or approval of Borrowers or
Lenders), a cash Advance under the Revolving Credit (regardless of whether or
not Agent has ceased making Loans to Borrowers under the Revolving Credit
following the occurrence of an Event of Default or otherwise under the terms
hereof). All cash Advances made by Agent which constitute a reimbursement to
Issuing Bank for a draw under a Letter of Credit shall be repaid to Agent by
Lenders, without deduction or setoff of any kind, in accordance with their
respective Revolving Credit Pro Rata Percentages in accordance with Section 2.3.
(d) Borrowers agree that all Existing Letters of Credit shall be
deemed to be Letters of Credit issued under this Agreement, shall be subject to
all of the terms and provisions of this Agreement applicable to Letters of
Credit except as otherwise expressly set forth herein to the contrary, and shall
be deemed have been issued under the L/C Sublimit and shall constitute an
Advance under Revolving Credit.
(e) Issuing Bank shall have the right, in its absolute discretion and
whether or not an Event of Default has occurred or is continuing hereunder, to
provide the beneficiary of any of the
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Letters of Credit with notice of non-renewal in accordance with the provisions
of the Letters of Credit relating thereto.
(f) In the event that any Letter of Credit remains outstanding on the
Revolving Loan Termination Date, Borrowers shall on said Revolving Loan
Termination Date provide Issuing Bank with cash or cash equivalents acceptable
to Issuing Bank in an amount equal to the aggregate face amount of all Letters
of Credit so outstanding, to be held by Issuing Bank as security for the
Obligations under such Letters of Credit. This right to require cash collateral
is in addition to the right of Issuing Bank to require cash collateral upon the
occurrence of an Event of Default as set forth in Section 7 hereof.
2.3 Advances, Conversions, Renewals and Payments:
--------------------------------------------
(a) Except to the extent otherwise set forth in this Agreement, all
payments of principal and of interest on the Revolving Credit, the Facility Fee,
the L/C Fees, the Expenses, the Commitment Fee, and all other charges and any
other Obligations hereunder, shall be made to Agent at its main Philadelphia
banking office, Mellon Bank Center, 1735 Market Street, Philadelphia,
Pennsylvania, in United States dollars, in immediately available funds. Agent,
on behalf of all Lenders, shall have the unconditional right and discretion to
make a cash Advance under the Revolving Credit to pay, and/or to charge any
Borrower's operating account with Agent or any Lender for, all of the
Obligations as they become due from time to time under this Agreement including
without limitation, interest, principal, fees and reimbursement of Expenses.
(b) (i) Cash Advances which may be made by Lenders from time to time
under the Revolving Credit shall be made available for the use and benefit of
Borrower by crediting such proceeds to any Borrower's operating account with
Agent.
(ii) All cash Advances subject to the Base Rate Option requested
by Borrowers under the Revolving Credit must be requested by 11:00 A.M.,
Philadelphia, Pennsylvania time, on the date such Advance is to be made, which
must be a Business Day. All cash Advances subject to the LIBOR Rate Option or
conversions
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from cash Advances subject to the Base Rate Option to the LIBOR Rate Option,
requested by Borrowers must be requested by 11:00 A.M. Philadelphia,
Pennsylvania time, three (3) Good Business Days prior to the date of such
requested cash Advance. If Borrowers do not have the required availability for
such requested Advance under the Revolving Facility on the date any such
requested Advance, then Lenders shall not be required to make such Advance. All
remittances at any time among Lenders and Agent under this Agreement shall be
made in immediately available funds by federal funds wire transfer. All requests
for a cash Advance may be made either by telephone or in writing, provided that
all telephonic requests are, upon Agent's request, to be confirmed by Borrowers
in writing on the same day, and further provided that such written confirmation
may be sent by telecopy or facsimile transmission. All written requests and
confirmations shall provide all of the information requested in the form of
Borrowing Authorization. Such requests and confirmations shall be irrevocable
and shall in each case specify: (i) whether the Loan(s) being requested are
LIBOR Based Rate Loans or Base Rate Loans; (ii) the date such Advance is to be
made; and (iii) if the Advance is a LIBOR Based Rate Loan, what Interest Period
shall apply. If no election of the LIBOR Based Option or the Base Rate Option is
made, the Advance shall be a Base Rate Loan. If no Interest Period is selected
for a LIBOR Based Rate Loan, then Borrowers shall be deemed to have selected a
one month LIBOR Interest Period. No Lender shall be obligated, for any reason
whatsoever, to advance or reimburse Agent for the share of any other Lender.
(iii) A. Between each Settlement Date, Agent, in its capacity as
a Lender, shall have the discretion (without any duty or obligation regardless
of any prior practice or procedures) to make all cash Advances for the account
and on behalf of the Lenders in accordance with each Lender's Revolving Credit
Pro Rata Percentage. Periodically but not less frequently than once every week
on the same day of each week, unless such day is not a Business Day, in which
event such determination shall be made the next Business Day ("Settlement
Date"), Agent shall make a determination of the appropriate dollar amount of
each Lender's Loans based upon each such Lender's Revolving Credit Pro Rata
Percentage of all then outstanding Loans, which
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amounts shall be calculated as of the close of the Business Day immediately
preceding each respective Settlement Date. Amounts of principal paid to Agent by
Borrowers from time to time, between Settlement Dates, shall be applied to the
outstanding balance of Loans made by Agent, as a Lender pursuant hereto, with
the outstanding balance of Loans made by each other Lender to be adjusted on the
next Settlement Date. Interest shall accrue and each Lender shall be entitled to
receive interest at the applicable rate only on the actual outstanding dollar
amount of its respective outstanding Loans without regard to a prospective
settlement. On each Settlement Date, Agent shall then issue to each Lender a
settlement schedule containing information with respect to the status of the
Loans and the relevant net positions of the Lenders and the outstanding balances
of their respective Loans as of the close of the Business Day preceding such
Settlement Date. Each settlement schedule shall show the net amount then owing
by each Lender to Agent or by Agent to each such Lender based upon the aggregate
cash Advances made and collections received since the most recent Settlement
Date and settlement among the Lenders and the Agent shall be made in accordance
with the direction of Agent no later than 11:00 A.M. Philadelphia, Pennsylvania
time, on each Settlement Date. To the extent Agent is not reimbursed by any
Lender on a Settlement Date in accordance with Agent's direction, Borrowers
shall immediately repay Agent on demand the amount of any reimbursement not so
made by any Lender.
B. Each Lender is absolutely and unconditionally obligated
without setoff or deduction of any kind, to remit to Agent on the Settlement
Date any amount shown owing to Agent by such Lender on the settlement schedule
for such date. Agent shall also be entitled to recover any and all actual losses
and damages (including, without limitation, reasonable attorneys' fees) from any
party failing to remit payment on the Settlement Date in accordance with this
Agreement. Agent may set off the obligations of such party under this subsection
against any distributions or payments of the Obligations which such party would
otherwise make available at any time.
(iv) A. In lieu of the procedure set forth in the preceding
subparagraph (iii), Agent may provide the Lenders with
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notice that Borrowers have requested a cash Advance, on the same Business Day as
such request, and request each Lender to provide Agent with such Lender's
Revolving Credit Pro Rata Percentage of such requested cash Advance prior to
Agent's making such cash Advance. Upon receipt of such notice from Agent prior
to 12:00 p.m., Philadelphia, Pennsylvania time, each Lender shall remit to Agent
its respective Revolving Credit Pro Rata Percentage of such requested cash
Advance, prior to 1:00 P.M. Philadelphia, Pennsylvania time, on the Business Day
that Agent is scheduled to make such cash Advance in accordance with Section
2.3(c)(ii) hereof. Neither Agent, Mellon nor any other Lender shall be
obligated, for any reason whatsoever, to remit or advance the share of any other
Lender. Agent shall not be required to make the full amount of the requested
cash Advance unless and until it receives funds representing each Lender's
Revolving Credit Pro Rata Percentage of such requested cash Advance, but Agent
shall advance to Borrowers that portion of the requested cash Advance equal to
the Revolving Credit Pro Rata Percentages of such requested cash Advance which
it has received from the Lenders unless such portion is not in excess of the
minimum increment for the Loan type.
B. If Agent does not receive each Lender's Revolving
Credit Pro Rata Percentage of such requested cash Advance, and Agent elects,
which election may be made by Agent in its sole discretion, to make the
requested cash Advance on behalf of Lenders or any of them, Agent shall be
entitled to recover each Lender's Revolving Credit Pro Rata Percentage of each
cash Advance together with interest at a per annum rate equal to the Federal
Funds Rate during the period commencing on the date such cash Advance is made
and ending on (but excluding) the date Agent recovers such amount. Each Lender
is absolutely and unconditionally obligated, without deduction or setoff of any
kind, to forward to Agent its Revolving Credit Pro Rata Percentage of each cash
Advance made pursuant to the terms of this Agreement. To the extent Agent is not
reimbursed by such Lender, Borrowers shall repay Agent such amount immediately
on demand. Agent shall also be entitled to recover any and all actual losses and
damages (including, without limitation, reasonable attorneys' fees) from any
Lender failing to so advance upon demand of Agent. Agent may set off the
obligations of a
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Lender under this paragraph against any distributions or payments of the
Obligations which Agent would otherwise make available to such Lender at any
time.
(v) To the extent and during the time period in which any Lender fails
to provide or delays providing its respective payment to Agent pursuant to
clause (iii) or (iv) above, such Lender's percentage of all payments of the
Obligations (but not its Revolving Credit Pro Rata Percentage of future Advances
required to be funded by such Lender) shall decrease to reflect the actual
percentage which its actual outstanding Loans bears to the total outstanding
Loans of all Lenders.
2.4 Revolving Credit Interest:
-------------------------
(a) Base Rate Option - The unpaid principal balance of Loans under the
----------------
Revolving Credit, unless subject to the LIBOR Rate Option, shall bear interest,
subject to the terms hereof, at the per annum rate equal to the Base Rate ("Base
Rate Option"). Changes in the Base Rate shall become effective on the same day
as Agent announces a change in its Prime Rate. Interest on Base Rate Loans
shall be due and payable in arrears on the first day of each calendar month
commencing the first day of the first full month following the Closing Date.
Base Rate Loans shall be in a minimum amount of Five Hundred Thousand Dollars
($500,000.00) and in $100,000 increments thereafter.
(b) LIBOR Rate Option:
-----------------
(i) Borrowers shall have the option to have the unpaid principal
balance of Loans under the Revolving Credit bear interest at the LIBOR Based
Rate ("LIBOR Rate Option"), provided that (A) LIBOR Based Rate Loans shall be in
a minimum amount of Five Hundred Thousand Dollars ($500,000.00) and in $100,000
increments thereafter and (B) there shall be no more than ten (10) LIBOR Based
Rate Loans outstanding at any time.
(ii) LIBOR Based Rate Loans shall be selected for a period of
either one (1), two (2), three (3) or six (6) month(s) duration, as Borrowers
may elect, during which the LIBOR
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Based Rate is applicable ("LIBOR Interest Period"); provided, however, that (a)
if the LIBOR Interest Period would otherwise end on a day which shall not be a
Good Business Day, such LIBOR Interest Period shall be extended to the next
succeeding Good Business Day, unless such Good Business Day falls in another
calendar month, in which case such LIBOR Interest Period shall end on the next
preceding Good Business Day subject to clause (c) below; (b) interest shall
accrue from and including the first day of each LIBOR Interest Period to, but
excluding the day on which any LIBOR Interest Period expires; and (c) with
respect to any LIBOR Interest Period which begins on the last Good Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such LIBOR Interest Period), the LIBOR
Interest Period shall end on the last Good Business Day of a calendar month.
Interest on a LIBOR Based Rate Loan shall be due and payable on the last day of
each LIBOR Interest Period (and also at the end of three (3) months with respect
to a LIBOR Interest Period of longer than three (3) months). No LIBOR Interest
Period may end after the Revolving Credit Maturity Date. Subject to all of the
terms and conditions applicable to a request that a new cash Advance be a LIBOR
Based Rate Loan, Borrowers may extend a LIBOR Based Rate Loan as of the last day
of the LIBOR Interest Period to a new LIBOR Based Rate Loan or may convert all
or a portion of the Loans subject to the Base Rate Option to a LIBOR Based Rate
Loan. If Borrowers fails to notify the Agent of the LIBOR Interest Period for a
subsequent LIBOR Based Rate Loan at least three (3) Good Business Days prior to
the last day of the then current LIBOR Interest Period of an outstanding LIBOR
Based Rate Loan, then such outstanding LIBOR Based Rate Loan shall become a loan
subject to the Base Rate Option at the end of the current LIBOR Interest Period
for such outstanding LIBOR Based Rate Loan.
(iii) The LIBOR Rate may be automatically adjusted by Agent on a
prospective basis to take into account the additional or increased cost of
maintaining any necessary reserves for Eurodollar deposits or increased costs
due to changes in applicable law or regulation or the interpretation thereof
occurring subsequent to the commencement of the then applicable LIBOR Interest
Period, including but not limited to changes in tax laws (except changes of
general applicability in
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corporate income tax laws as they affect financial institutions) and changes in
the reserve requirements imposed by the Board of Governors of the Federal
Reserve System (or any successor), excluding any such changes that have resulted
in a payment pursuant to Section 2.9 hereof, that increase the cost to Lenders
of funding the LIBOR Based Rate Loan. Agent shall promptly give Borrowers and
each Lender notice of such a determination and adjustment, which determination
shall be conclusive as to the correctness of the fact and the amount of such
adjustment, absent manifest error. Borrowers may, by written notice to Agent,
(A) request Agent to furnish to Borrowers a statement setting forth the basis
for adjusting such LIBOR Based Rate Loans and the method for determining the
amount of such adjustment; and/or (B) prepay the LIBOR Based Rate Loans with
respect to which such adjustment is made, subject to the requirements of Section
2.9 below.
(iv) In the event that Borrowers shall have requested the LIBOR
Rate Option in accordance with Section 2.4(b) and Agent shall have reasonably
determined that Eurodollar deposits equal to the amount of the principal of the
requested LIBOR Based Rate Loan and for the LIBOR Interest Period specified are
unavailable, impractical or unlawful, or that the rate based on the LIBOR Rate
will not adequately and fairly reflect the cost of funds of the LIBOR Based Rate
applicable to the specified LIBOR Interest Period, of making or maintaining the
principal amount of the requested LIBOR Based Rate Loan specified by Borrowers
during the LIBOR Interest Period specified, or that by reason of circumstances
affecting Eurodollar markets, adequate and reasonable means do not exist for
ascertaining the rate based on the LIBOR Rate applicable to the specified LIBOR
Interest Period, Agent shall promptly give notice of such determination to
Borrowers that the rate based on the LIBOR Rate is not available. A
determination by Agent hereunder shall be prima facie evidence of the
correctness of the fact and amount of such additional costs or unavailability.
Upon such a determination, (A) the right of Borrowers to select, convert to, or
maintain a LIBOR Based Rate Loan at the rate based on the LIBOR Rate shall be
suspended until Agent shall have notified Borrowers that such conditions shall
have ceased to exist, and (B) the Loans subject
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<PAGE>
to the requested LIBOR Rate Option shall accrue interest in accordance with
Section 2.4(a) above.
(v) In the event that, as a result of any changes in applicable
law or regulation or the interpretation thereof, it becomes unlawful for a
Lender to make or to continue to fund or maintain LIBOR Based Rate Loans or to
maintain Eurodollar liabilities sufficient to fund any LIBOR Based Rate Loan
subject to the LIBOR Based Rate, then such Lender shall immediately notify Agent
who shall immediately notify the other Lenders and Borrowers thereof and such
Lender's obligations to make, convert to, or maintain a LIBOR Based Rate Loan at
the LIBOR Based Rate shall be suspended until such time as such Lender may again
cause the LIBOR Based Rate to be applicable to its share of any LIBOR Based Rate
Loans and such Lender's share of the Loans subject to the LIBOR Based Rate shall
accrue interest in accordance with Section 2.4(a) above. Immediately after
becoming aware that it is no longer unlawful for such Lender to maintain such
Eurodollar liabilities, such Lender shall notify Agent who will notify Borrower
thereof and such suspension shall cease to exist.
2.5 Additional Interest Provisions.
------------------------------
(a) Calculation of Interest: Interest on the Loans, regardless of the
-----------------------
rate option, shall be based on a three hundred sixty (360) day year and charged
for the actual number of days elapsed.
(b) Limitation on LIBOR Based Rate Loans: Upon the occurrence and
------------------------------------
during the continuance of an Event of Default, Agent may in its sole discretion
eliminate the availability of new LIBOR Based Rate Loans. Following the
occurrence of an Event of Default and written notice from Agent that the
Obligations have been accelerated, all existing LIBOR Based Rate Loans shall, at
Agent's option, convert to a Base Rate Loan, which conversion is independent of
Agent's rights under Section 2.5(c).
(c) Default Rate: After the occurrence and during the continuance of
------------
an Event of Default hereunder, Agent may, and shall at the direction of the
Majority Lenders, increase the per annum effective rate of interest on all Loans
outstanding under
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<PAGE>
the Revolving Credit, including amounts drawn and not yet reimbursed by
Borrowers under Letters of Credit, regardless of the rate option, to a rate
equal to two (2%) percentage points in excess of the highest applicable interest
rate (the "Default Rate").
(d) Continuation of Interest Charges: All contractual rates of
--------------------------------
interest chargeable on outstanding Loans, regardless of the rate option, shall
continue to accrue and be paid even after default, maturity, acceleration,
judgment, bankruptcy, insolvency proceedings of any kind or the happening of any
event or occurrence similar or dissimilar.
(e) Applicable Interest Limitations: In no contingency or event
-------------------------------
whatsoever shall the aggregate of all amounts deemed interest hereunder and
charged or collected pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent jurisdiction shall, in
a final determination, deem applicable hereto. In the event that such court
determines Lenders have charged or received interest hereunder in excess of the
highest applicable rate, Agent, on behalf of Lenders, shall in its sole
discretion, apply and set off such excess interest received by Lenders against
other Obligations due or to become due and such rate shall automatically be
reduced to the maximum rate permitted by such law.
(f) Decrease in Interest Rates: When the entire required earn-out
--------------------------
payment (approximately $31 million) to Morton Reich ("Reich Earn-Out") is either
(i) converted into or exchanged for shares of capital stock of TWI or (ii) paid
in full, in accordance with it terms, then at such time, provided no Event of
Default or Potential Default is continuing, the Base Rate and the Applicable
LIBOR Rate Margin shall each be decreased by one quarter of one percent per
annum (.25%).
2.6 Fees:
----
(a) Commitment Fee: So long as the Revolving Credit is outstanding
--------------
and has not been terminated pursuant to the terms hereof, Borrowers shall
unconditionally pay the Commitment Fee to
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<PAGE>
Agent, for the benefit of Lenders in accordance with their Revolving Credit Pro
Rata Percentage. The Commitment Fee shall be computed and paid on a monthly
basis, in arrears, on the first day of each calendar month, beginning on the
first day of the first full month after the Closing Date.
(b) Calculation of Fees: All fees to be paid by Borrowers in
-------------------
connection with the Revolving Credit shall be based on a three hundred sixty
(360) day year and charged for the actual number of days elapsed.
(c) Letter of Credit Fees: Borrowers shall pay to Agent, for the
---------------------
benefit of Lenders in accordance with their Revolving Credit Pro Rata
Percentage, letter of credit fees, payable quarterly in advance, equal to one
percent (1%) per annum of the face amount of each Letter of Credit as a
condition of the issuance thereof. Borrowers shall also pay to Issuing Bank all
of Issuing Bank's standard charges (including without limitation all cable and
wire transfer charges) for the account of Issuing Bank for the issuance,
amendment, negotiation/payment, extension and cancellation of each such Letter
of Credit. All such fees are collectively, the "L/C Fees".
2.7 Prepayments:
-----------
(a) LIBOR Based Rate Loans: No portion of any LIBOR Based Rate Loan
----------------------
may be prepaid at any time unless Borrowers first satisfies in full its
obligations under Section 2.9 below arising from such prepayment.
(b) Base Rate Loans: Base Rate Loans may be prepaid at any time and
---------------
from time to time in whole or in part without premium or penalty.
(c) Proceeds of Collateral: At Agent's request, Borrowers shall, upon
----------------------
the receipt of proceeds of any Collateral following the occurrence of an Event
of Default, hold such proceeds in trust for Lenders and immediately remit in
--
specie, all such proceeds to Agent, which funds shall, in Agent's discretion, be
- ------
applied against the Obligations.
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<PAGE>
2.8 Use of Proceeds: The extensions of credit under and proceeds of the
---------------
Revolving Credit shall be used for (a) Qualified Acquisitions; (ii) satisfaction
of all existing indebtedness of the Acquired Operating Companies to Mellon; and
(iii) working capital and any other lawful purpose not otherwise prohibited
under this Agreement.
2.9 Indemnity/Loss of Margin:
------------------------
(a) Borrowers shall indemnify, defend and hold harmless Agent and
Lenders against any and all loss, liability, cost or expense which Agent and any
Lender or Lenders may sustain or incur as a consequence of (i) any failure of
Borrowers to obtain, convert or extend any LIBOR Based Rate Loan after notice
thereof has been given to Agent; or (ii) any payment, prepayment, termination or
conversion of a LIBOR Based Rate Loan made for any reason on a date other than
the last day of the applicable LIBOR Interest Period, including, without
limitation, acceleration of the Obligations except if Agent exercises its option
to convert under Section 2.5(b) above. Borrowers shall pay the full amount
thereof to Agent, for the ratable benefit of Lenders, on demand by Agent.
(b) In the event that any modification to or change in interpretation
of any existing, or the enactment or passage of any future, law, rule,
regulation, treaty or official directive or the interpretation or application
thereof by any central bank, monetary authority or governmental authority, or
the compliance with any guideline or request of any central bank, monetary
authority or governmental authority (whether or not having the force of law)
imposes, modifies or deems applicable any deposit insurance, reserve, special
deposit, or other similar requirement with respect to deposits in or for the
account of, or loans or advances or commitment to make loans or advances by a
Lender or Letters of Credit issued or commitment to issue Letters of Credit by a
Lender and the result of any of the foregoing is to increase the costs of a
Lender, reduce the income receivable by or return on equity of Lender or impose
any expense upon Lender with respect to any advances or extensions of credit or
commitments to make advances or extensions of credit under this Agreement, such
Lender shall so notify Agent in writing. Upon notice from Agent,
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<PAGE>
Borrowers agree to pay such Lender the amount of such increase in cost,
reduction in income, reduced return on equity or capital, or additional expense
after presentation by such Lender of a statement concerning such increase in
cost, reduction in income, reduced return on equity or capital, or additional
expense. Such statement shall set forth a brief explanation of the amount and
such Lender's calculation of the amount (in determining such amount such Lender
may use any reasonable averaging and attribution methods), which statement shall
be conclusively deemed correct absent manifest error.
2.10 Capital Adequacy: If any modification to or change in
----------------
interpretation of any existing, or the enactment or passage of any future, law,
governmental rule, regulation, policy, guideline, directive or similar
requirement (whether or not having the force of law) imposes, modifies, or deems
applicable any capital adequacy, capital maintenance or similar requirement
which affects the manner in which any Lender allocates capital resources to its
commitments (including any commitments hereunder), and as a result thereof, in
the opinion of such Lender, the rate of return on such Lender's capital with
regard to the Loans and/or its obligations hereunder is reduced to a level below
that which such Lender could have achieved but for such circumstances taking
into account such Lender's policies regarding capital adequacy, then in such
case and upon notice from Agent to Borrowers, from time to time, Borrowers shall
pay such Lender such additional amount or amounts as shall compensate such
Lender for such reduction in its rate of return. Such notice shall contain the
statement of such Lender with regard to any such amount or amounts which shall,
in the absence of manifest error, be binding upon Borrowers. In determining
such amount, such Lender may use any reasonable method of averaging and
attribution that it deems applicable.
SECTION 3. COLLATERAL
3.1 Description: As security for the payment of the Obligations, and
-----------
satisfaction by Borrowers of all covenants and undertakings contained in this
Agreement and the other Loan
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<PAGE>
Documents (all of the Property described in this Section 3.1 collectively being
called the "Collateral"):
(a) Each Borrower hereby assigns and grants to Agent, on behalf of
Lenders, a continuing first lien on and security interest in, upon and to all of
its following described Property:
(i) Accounts, Contract Rights, Etc. - All now owned and
-------------------------------
hereafter acquired, created, or arising Accounts, accounts receivable, notes
receivable, contract rights, chattel paper, documents (including documents of
title), instruments and letters of credit;
(ii) Inventory - All now owned or hereafter acquired Inventory
---------
of every nature and kind, wherever located;
(iii) Equipment - All now owned or hereafter acquired equipment,
---------
including without limitation machinery, vehicles, furniture and fixtures,
wherever located, and all replacements, parts, accessories, substitutions and
additions thereto;
(iv) General Intangibles - All now owned and hereafter acquired,
-------------------
created or arising general intangibles of every kind and description, including,
but not limited, to all existing and future customer lists, choses in action,
loans, claims, books, records, patents and patent applications, copyrights,
trademarks, tradenames, tradestyles, trademark applications, blueprints,
drawings, designs and plans, trade secrets, contracts, contract rights,
distributorship agreements, licenses, license agreements, formulae, tax and any
other types of refunds, rights to or in employee or other pension, retirement or
similar plans and any assets thereof, or any portion thereof, including without
limitation refunds for overpayments, distributions upon termination, reversion
of any surplus assets or otherwise, returned and unearned insurance premiums,
rights and claims under insurance policies relating to the Collateral, and
computer information, software, records and data;
(v) Deposit Accounts and Investment Property - All now existing
----------------------------------------
and hereafter acquired or arising deposit and
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<PAGE>
investment accounts, commercial paper, Investment Property and certificates of
deposit, of every nature, wherever located, and all documents and records
associated therewith;
(vi) Property in Lender's Possession - All Property, now or
-------------------------------
hereafter in Agent's or any Lender's possession;
(vii) Dividends - Dividends at any time paid or payable or owing
---------
from any Borrower to any other Borrower or any Subsidiary to any Borrower; and
(viii) Proceeds - The proceeds (including, without limitation,
--------
insurance proceeds), whether cash or non-cash, of all of the foregoing.
(b) Each Borrower shall pledge to Agent on behalf of Lenders all of
the capital stock in each Subsidiary (other than Foreign Subsidiaries) owned by
it and each Borrower and Subsidiary shall pledge to Agent for the benefit of
Lenders 65% of the capital stock of each Foreign Subsidiary owned by it.
3.2 Lien Documents: At Closing and thereafter as Agent deems necessary,
--------------
Borrowers shall execute and deliver to Agent, or have executed and delivered
(all in form and substance reasonably satisfactory to Agent):
(a) Financing Statements - Financing statements pursuant to the UCC,
--------------------
which Agent, on behalf of Lenders, may file in any jurisdiction where any
Collateral is or may be located and in any other jurisdiction that Agent deems
appropriate; and
(b) Other Agreements - Any other agreements, documents, instruments
----------------
and writings, including, without limitation, Stock Pledge Agreements, Foreign
Stock Pledge Agreements, patent and trademark security agreements, reasonably
required by Agent to evidence, perfect or protect Lenders' Liens and security
interest in the Collateral or as Agent may reasonably request from time to time.
3.3 Other Actions: In addition to the foregoing, Borrowers shall do
-------------
anything further that may be lawfully and reasonably
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<PAGE>
required by Agent to secure Lenders and effectuate the intentions and objects of
this Agreement, including, but not limited to, the execution and delivery of
lockbox agreements, continuation statements, amendments to financing statements,
security agreements, contracts and any other documents required hereunder, as
well as termination statements terminating any Liens on the Collateral which are
not Permitted Liens. At Agent's request, Borrowers shall also immediately
deliver (with execution by Borrowers of all necessary documents or forms to
reflect Agent's Lien thereon) to Agent as bailee for Lenders, all items for
which Lenders must receive possession to obtain a perfected security interest,
including without limitation, all notes, letters of credit, documents of title,
chattel paper, warehouse receipts, instruments, and any other similar
instruments constituting Collateral.
3.4 Searches: Agent shall, prior to or at Closing, and thereafter as
--------
Agent or Majority Lenders acting through Agent may reasonably determine from
time to time, at Borrowers' expense, obtain the following searches (the results
of which are to be consistent with the warranties made by Borrowers in this
Agreement):
(a) UCC Searches: UCC searches with the Secretary of State and local
------------
filing office of each state where any Borrowers maintains its executive office,
a place of business, or assets;
(b) Judgments, Etc.: Judgment, federal tax lien and corporate tax
---------------
lien searches, in all applicable filing offices of each state searched under
subparagraph (a) above.
(c) Good Standing Certificates: Borrowers shall, prior to or at
--------------------------
Closing and at its expense, obtain and deliver to Agent good standing
certificates showing Borrowers and each of any Borrower's Subsidiaries, if any,
to be in good standing in their respective states of incorporation and in each
other state or foreign country in which they are doing and presently intend to
do business except any such jurisdiction for which such failure to be so
qualified will not have a Material Adverse Effect or adversely effect Agent's
and/or Lenders' rights hereunder.
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<PAGE>
3.5 Landlords' Waivers: Borrowers will cause each landlord, mortgagee
------------------
and/or warehouseman of all premises occupied by any Borrower and each of
Borrowers' Subsidiaries or to be occupied by any Borrower and each of Borrower's
Subsidiaries, or where Collateral at any time is held, to execute and deliver to
Agent an instrument, in form and substance reasonably satisfactory to Agent,
under which such landlord, mortgagee or warehouseman waives its/his/their right
to distrain on or foreclose against the Collateral and agrees to allow Agent to
remain on such premises to dispose of or deal with any Collateral located
thereon.
3.6 Stock Pledge Agreement: On or before the Closing Date, the Stock
----------------------
Pledge Agreement shall have been executed by TWI and delivered to Agent, on
behalf of Lenders, together with all capital stock pledged therein together with
stock powers executed in blank or assignments separate from certificate, if
applicable. To the extent any Borrower may hereafter acquire or create any
Subsidiary, such Stock Pledge Agreement shall be amended and expanded, in form
and substance acceptable to Agent, to include such Borrower if it is not already
a party thereto and to include a pledge of all of the stock of such Subsidiary,
except that if such new Subsidiary is a Foreign Subsidiary, a Foreign Stock
Pledge Agreement shall be executed and delivered to Agent, on behalf of Lenders,
with only 65% of the stock of such Subsidiary shall be pledged thereunder, and
all steps necessary to provide Agent with a first perfected Lien therein shall
be taken.
3.7 Filing Security Agreement: A carbon, photographic or other
-------------------------
reproduction or other copy of this Agreement or of a financing statement is
sufficient as and may be filed in lieu of a financing statement.
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES
Closing under this Agreement and the availability of the Revolving Credit
are subject to the following conditions precedent (all documents to be in form
and substance satisfactory to Agent and Agent's counsel):
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<PAGE>
4.1 Resolutions, Opinions, and Other Documents: Borrowers shall have
------------------------------------------
delivered to Agent the following:
(a) this Agreement and the Revolving Credit Notes all properly
executed;
(b) each Loan Document;
(c) certified copies of (i) resolutions of the board of directors of
each Borrower authorizing the execution of this Agreement, and the Revolving
Credit Note(s) to be issued hereunder and each document required to be delivered
by any Section hereof and (ii) each Borrower's Articles or Certificate of
Incorporation and By-laws;
(d) an incumbency certificate for each Borrower identifying all
Authorized Officers, with specimen signatures;
(e) a written opinion of Borrowers' independent counsel addressed to
Agent for the benefit of all Lenders and opinions of such other counsel as Agent
deems necessary;
(f) certification by the chief financial officer of each Borrower that
there has not occurred any material adverse change in the operations and
condition (financial or otherwise) of any Borrower or, to the best of its
knowledge, the Acquired Operating Companies since December 31, 1995.
(g) payment by Borrowers of all fees including, without limitation,
fees owing to Agent, and Expenses associated with the Revolving Credit incurred
to the Closing Date;
(h) Uniform Commercial Code, judgment, federal and state tax lien
searches against each Borrower (the "Searches"), at Borrowers' expense, showing
that the Property of Borrowers (including Property acquired from the Acquired
Operating Companies) and Borrower's Subsidiaries are not subject to any Liens
except for Permitted Liens, together with Good Standing and Corporate Tax Lien
Search Certificates showing no Liens on any Borrower's or any of any Borrower's
Subsidiaries' Property and
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<PAGE>
showing each Borrower to be in good standing in each jurisdiction as required by
Section 3.4 above;
(i) Assignment of bank accounts; and
(j) a true and correct copy of all material documents, instruments and
agreements relating to the acquisition of the Acquired Operating Companies.
4.2 Absence of Certain Events: At the Closing Date, no Event of Default
-------------------------
or Potential Default hereunder shall have occurred and be continuing.
4.3 Warranties and Representations at Closing: The warranties and
-----------------------------------------
representations contained in Section 5 as well as any other Section of this
Agreement shall be true and correct in all material respects on the Closing Date
with the same effect as though made on and as of that date. Borrowers shall not
have taken any action or permitted any condition to exist which would have been
prohibited by any Section hereof.
4.4 Compliance with this Agreement: Borrowers shall have performed and
------------------------------
complied in all material respects, with all agreements, covenants and conditions
contained herein including, without limitation, the provisions of Sections 6 and
7 hereof, which are required to be performed or complied with by Borrowers
before or at the Closing Date.
4.5 Officer's Certificate: Agent shall have received a certificate dated
---------------------
the Closing Date and signed by the chief financial officer or a senior financial
executive of TWI certifying on behalf of all Borrowers that all of the
conditions specified in this Section have been fulfilled.
4.6 Additional Conditions to Availability of Revolving Credit: Subject to
---------------------------------------------------------
the conditions of this Section 4, the Revolving Credit shall be made available
to Borrowers and Borrowers may request Advances and issuances of Letters of
Credit thereunder after the Closing and after the following additional
conditions have been satisfied:
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<PAGE>
(a) Borrowers shall have delivered to Agent the following:
(i) Updated Searches, at Borrowers' expense, showing that the
Collateral is not subject to any Liens except for Permitted Liens;
(ii) Loan Documents relating to the Foreign Subsidiaries
(including, but not limited to, Foreign Stock Pledge Agreements); and
(iii) Opinions of counsel for the Borrowers and for each Foreign
Subsidiary as Agent deemed necessary.
4.7 Certain Events: At the time of each request for a cash advance or the
--------------
issuance of a Letter of Credit under the Revolving Credit, (1) there shall be
amounts available under the Revolving Credit Limit (as well as the L/C Sublimit
or applicable Foreign Borrower Sublimit) as applicable, as evidenced by a
Borrowing Authorization in the form of Exhibit 1 hereto, (2) no Event of Default
shall have occurred and be continuing, (3) no Potential Default shall have
occurred and be continuing, and (4) all representations and warranties of
Borrowers set forth in this Agreement are true and correct as in effect on the
date thereof, except changes not constituting an Event of Default hereunder.
4.8 Non-Waiver of Rights: By completing the Closing here under, or by
--------------------
making advances hereunder, Agent and Lenders do not thereby waive a breach of
any warranty or representation made by Borrowers hereunder or any agreement,
document, or instrument delivered to Agent or any Lender, or otherwise referred
to herein, and any claims and rights of Agent or any Lender resulting from any
breach or misrepresentation by Borrowers are specifically reserved by Agent and
Lenders.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce Lenders to complete the Closing and make the initial Advances
under the Revolving Credit to Borrowers, each
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<PAGE>
Borrower warrants and represents to Agent and Lenders that the following
statements are true and correct as to Borrowers:
5.1 Corporate Organization and Validity:
-----------------------------------
(a) Each Borrower is a corporation duly organized and validly existing
under the laws of its state of incorporation, is duly qualified, is validly
existing and in good standing and has lawful power and authority to engage in
the business it conducts in each state where the nature and extent of its
business requires qualification, except where the failure to so qualify will not
have a Material Adverse Effect. A list of all states and other jurisdictions
where each Borrower is qualified to do business is attached hereto as Exhibit
"5.1" and made a part hereof.
(b) The making and performance of this Agreement and the other Loan
Documents will not violate or result in a default (immediately or with the
passage of time) under any law, government rule or regulation, or the charter,
minutes or bylaw provisions of any Borrower, or any material contract, agreement
or instrument to which any Borrower is or any Acquired Operating Company was a
party, or by which any Borrower is or any Acquired Operating Company was bound.
No Borrower is in violation of and has not knowingly caused any Person to
violate any term of any material agreement or instrument to which it or such
Person is a party or by which it may be bound or of its charter, minutes or its
bylaws.
(c) Each Borrower has all requisite corporate power and authority to
enter into and perform this Agreement and to incur the obligations herein
provided for, and has taken all proper and necessary corporate action to
authorize the execution, delivery and performance of this Agreement, and the
documents and related agreements required hereby.
(d) This Agreement, the Revolving Credit Notes to be issued hereunder,
and all related agreements and documents required to be executed and delivered
by Borrowers hereunder, when delivered, will be valid and binding upon
Borrowers, and enforceable in accordance with their respective terms subject to
-39-
<PAGE>
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
5.2 Places of Business: The only places of business of each Borrower, and
------------------
the places where such Borrower keeps and intends to keep its Property and
records concerning its Property, are at the addresses listed in Exhibit "5.2"
attached hereto and made a part hereof. Each Borrower's chief executive office
(the place from which it manages the main part of its business operations and
where its primary business records are located) is listed in Exhibit "5.2"
hereto.
5.3 Pending Litigation: There are, to the best of each Borrower's
------------------
knowledge, no judgments or judicial or administrative orders, proceedings,
litigation or investigations (civil or criminal) pending, or threatened, against
any Borrower or any Acquired Operating Company in any court or before any
governmental authority or arbitration board or tribunal except as shown in
Exhibit "5.3", none of which are reasonably likely to have a Material Adverse
Effect. No Borrower is in default with respect to any order of any court,
governmental authority, regulatory agency or arbitration board or tribunal. No
Borrower nor any Acquired Operating Company nor any member of Executive
Management of any Borrower or executive officer of any Acquired Operating
Company has been indicted or convicted in connection with or is engaging in any
criminal conduct, or is currently subject to any lawsuit or proceeding or, to
any Borrower's knowledge, under investigation in connection with any anti-
racketeering or criminal conduct or activity.
5.4 Title to Properties: Each Borrower has good and marketable title to
-------------------
all the Property constituting Collateral (and has acquired all right, title and
interest to all Property of each Acquired Operating Company) free from Liens,
except those of Agent and/or Lenders, and free from the claims of any other
Person, except for Permitted Liens and those Liens set forth on Exhibit "5.4",
attached hereto and made a part hereof.
5.5 Governmental Consent: Neither the nature of any Borrower or of any
--------------------
Borrower's Business or Property, nor any relationship between any Borrower and
any other Person, nor any
-40-
<PAGE>
circumstance affecting any Borrower in connection with the issuance or delivery
of this Agreement or the other Loan Documents, or the acquisition of the
Acquired Operating Companies is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority on the part of any Borrower in connection with the
execution and delivery of this Agreement or the issuance or delivery of the
other Loan Documents.
5.6 Taxes: All tax returns required to be filed by Borrower and any
-----
Acquired Operating Company in any jurisdiction have in fact been filed, and all
taxes, assessments, fees and other governmental charges upon any Borrower, or
upon any of its Property, income or franchises, which are shown to be due and
payable on such returns have been paid, except for those taxes being contested
in good faith with due diligence by appropriate proceedings for which
appropriate reserves have been maintained under GAAP. No Borrower is aware of
any proposed additional tax assessment or tax to be assessed against or
applicable to any Borrower that would be reasonably likely to have a Material
Adverse Effect.
5.7 Financial Statements: Borrowers' annual consolidated audited balance
--------------------
sheet as of December 30, 1995 and the related income statement and statement of
cash flow as of such date, accompanied, by the unqualified report thereon, by
Borrowers' independent certified public accountants, (complete copies of which
have been delivered to Agent), and the pro forma financial statements in the
Prospectus have been prepared in accordance with GAAP and present fairly, the
financial position of Borrowers and the Acquired Operating Companies on a
consolidated and consolidating basis as of such date and the results of
Borrowers' and each Acquired Operating Company's consolidated operations for
such period. Each Borrower's fiscal year ends on December 31 of each calendar
year and each Borrower's federal tax identification number is as set forth on
Exhibit "5.7" attached hereto and made apart hereof.
5.8 Full Disclosure: Neither the financial statements referred to in
---------------
Section 5.7, nor this Agreement nor any other Loan Document or any financial
projections, written reports or other
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<PAGE>
financial statements or reports furnished by any Borrower to Agent or any Lender
in connection with the negotiation of the Revolving Credit or contained in any
financial statements or documents relating to any Borrower or any Acquired
Operating Company, as of the time they were furnished, contained any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading. There is no fact known to
any Borrower which has not been disclosed in writing to Agent which has or could
have a Material Adverse Effect.
5.9 Subsidiaries: No Borrower has any Subsidiaries or Affiliates, except
------------
as listed on Exhibit "5.9" attached hereto and made a part hereof.
5.10 Guarantees, Contracts, etc.:
---------------------------
(a) Borrowers do not own or hold equity or long term debt investments
in, have any outstanding advances to, or serve as guarantor, surety or
accommodation maker for the obligations of, or have any outstanding borrowings
from, any Person, or have entered into any leases for real or personal property
(whether as landlord or tenant), except as described in Exhibit "5.10" attached
hereto and made a part hereof.
(b) No Borrower is a party to any contract or agreement, or subject to
any charter or other corporate restriction, which has or could have a Material
Adverse Effect.
(c) Except as otherwise specifically provided in this Agreement, no
Borrower has agreed or consented to cause or permit any of its Property whether
now owned or hereafter acquired to be subject in the future (upon the happening
of a contingency or otherwise) to a Lien not permitted by this Agreement.
5.11 Government Regulations, etc.:
----------------------------
(a) The use of the proceeds of and Borrowers' issuance of the
Revolving Credit Notes will not directly or indirectly violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended,
Regulations U, T, G and X of
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the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. No
Borrower either owns nor intends to carry or purchase any "margin stock" within
the meaning of said Regulation U.
(b) Borrowers have obtained all licenses, permits, franchises and
other governmental authorizations necessary for the ownership of their Property
and for the conduct of their business, except those which, if not obtained,
would not have or could not have a Material Adverse Effect.
(c) As of the date hereof, no employee pension benefit plan ("Pension
Plan") (as defined in Section 3(2) of ERISA) maintained or contributed to by any
Borrower or under which any Borrower could have any liability under ERISA (i)
has failed to meet the minimum funding standards established in Section 302 of
ERISA, except for any such failure corrected in full prior to the date hereof;
(ii) has failed to comply in any material respect with all applicable
requirements of ERISA and of the Internal Revenue Code, including all applicable
rulings and regulations thereunder, (iii) has engaged in or been involved in a
prohibited transaction under Section 406 of ERISA or Section 4975 of the
Internal Revenue Code which would subject any Borrower to any material
liability, or (iv) has been terminated if such termination would subject any
Borrower to any material liability. No Borrower has assumed, or received notice
of a claim asserted against any Borrower for, withdrawal liability (as described
in Section 4207 of ERISA) with respect to any multiemployer pension plan and no
Borrower is a member of any Controlled Group (as defined in ERISA) except with
respect to the other Borrowers only. Each Borrower has timely made all
contributions when due with respect to any multiemployer pension plan to which
it contributes and no event has occurred which would trigger a claim against any
Borrower for withdrawal liability with respect to any multiemployer pension plan
to which such Borrower contributes. All such Pension Plans and multiemployer
pension plans are listed on Exhibit "5.11" attached hereto and made a part
hereof.
(d) Neither Borrowers nor any of the Acquired Operating Companies is
in violation of, and have not received written notice that any of them is in
violation of, or has knowingly caused any Person to violate any applicable
statute,
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regulation or ordinance of the United States of America, or of any state, city,
town, municipality, county or of any other jurisdiction, or of any agency, or
department thereof, (including without limitation, the Telemarketing and
Consumer Fraud and Abuse Prevention Act of 1994 or any regulations promulgated
by the Federal Trade Commission in connection therewith, where such violation or
violations would, individually or in the aggregate, have a Material Adverse
Effect.
5.12 Business Interruptions: Except as set forth in Exhibit "5.12"
----------------------
hereof, within one (1) year prior to the date hereof, none of the business,
Property or operations of any Borrower or any Acquired Operating Company have
been materially and adversely affected in any way by any casualty, strike,
lockout, combination of workers, order of the United States of America, or any
state or local government, or any political subdivision or agency thereof,
directed against any Borrower. There are no pending or threatened labor
disputes, strikes, lockouts or similar occurrences or grievances affecting the
business being operated by any Borrower or any of the Acquired Operating
Companies.
5.13 Names:
-----
(a) Within five (5) years prior to the Closing Date, no Borrower nor
any Acquired Operating Company has conducted business under or used any other
name (whether corporate or assumed) except for the names shown on Exhibit
"5.13(a)", attached hereto and made a part hereof. TWI is the sole owner of all
names listed on such Exhibit "5.13(a)" and any and all business done and all
invoices issued in such trade names are TWI's sales, business and invoices.
Each trade name of TWI represents a division or trading style of TWI and not a
separate corporate subsidiary or affiliate or independent entity.
(b) All registered trademarks, patents or copyrights, or such as to
which applications for registration have been submitted, which any Borrower
uses, plans to use or has a right to use are listed on Exhibit "5.13(b)"
attached hereto and made a part hereof. Each Borrower is the sole owner of such
Property except to the extent any other Person has claims or rights in such
Property, as such claims and rights are described on such
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Exhibit "5.13(b)". To the best of Borrowers' knowledge, no Borrower is in
violation of any rights of any other Person with respect to such Property.
5.14 Other Associations: Borrowers are not engaged and do not have an
------------------
interest in any joint venture or partnership with any other Person except as
described on Exhibit "5.14" hereto and made a part hereof.
5.15 Environmental Matters: Borrowers have no knowledge except as
---------------------
disclosed on Exhibit 5.15 attached hereto and made part hereof:
(a) of the presence of, or use in violation of any applicable
Environmental Law, any Hazardous Substances on any of the real property on which
the Collateral (including any Property of any Acquired Operating Company) is
located, or
(b) of any on-site spills, releases, discharges, disposal or storage
of Hazardous Substances that have occurred or are presently occurring on any of
such real property in violation of any applicable Environmental Law, or
(c) of any spills, releases, discharges or disposal of Hazardous
Substances that have occurred or are presently occurring at other real
properties in violation of any applicable Environmental Law as a result of the
activities or omissions of any Borrower or any Acquired Operating Company or for
which any Borrower or any Acquired Operating Company is reasonably likely to be
held responsible, or
(d) of any notice, summons, citation or other communication sent to
any Borrower or any Acquired Operating Company from any state or federal agency
concerning any intentional or unintentional action or conduct, inaction or
omission, past or present which is or may be in violation of any applicable
Environmental Law.
As used herein, the term "Hazardous Substances" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or
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similar term, as defined or designated under any Environmental Law applicable to
such real property.
5.16 Regulation O: No director, executive officer or principal shareholder
------------
of any Borrower or any Acquired Operating Company is a director, executive
officer or principal shareholder of any Lender. For the purposes hereof the
terms "director" (when used with reference to a Lender), "executive officer" and
"principal shareholder" have the respective meanings assigned thereto in
Regulation O issued by the Board of Governors of the Federal Reserve System.
5.17 Capital Stock: The authorized and outstanding capital stock of each
-------------
Borrower is as set forth on Exhibit "5.17" attached hereto and made a part
hereof. All of the outstanding capital stock of each Borrower has been duly and
validly authorized and issued and is fully paid and non-assessable and has been
sold and delivered to the holders thereof in compliance with, or under valid
exemption from, all Federal and state laws and the rules and regulations of all
regulatory bodies thereof governing the sale and delivery of securities. Except
for the rights and obligations set forth in Exhibit "5.17" or as set forth in
the Prospectus, there are no subscriptions, warrants, options, calls,
commitments, rights or agreements by which each Borrower or any of its
shareholders is bound relating to the issuance, transfer, voting or redemption
of shares of its capital stock or any preemptive rights held by any Person with
respect to the shares of a Borrower's capital stock. Except as set forth in
Exhibit "5.17" or as set forth in the Prospectus, no Borrower has issued any
securities convertible into or exchangeable for shares of its capital stock or
any options, warrants or other rights to acquire such shares or securities
convertible into or exchangeable for such shares.
5.18 Solvency: Each Borrower is solvent, able to pay its debts as they
--------
become due, and has capital sufficient to carry on its business and all
businesses in which it is about to engage, and now owns Property having a value
both at fair valuation and at present fair salable value greater than the amount
required to pay its debts. Each Borrower will not be rendered insolvent by the
execution and delivery of this Agreement, the consummation
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the transactions contemplated by the Prospectus or any of the other documents
executed in connection with this Agreement or by the transactions contemplated
hereunder or thereunder.
5.19 Investment Company: No Borrower is an "investment company"
------------------
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is any Borrower controlled by such a company.
5.20 IPO: The IPO has been completed and represents a valid and binding
---
transaction enforceable in accordance with applicable law.
5.21 Seller Debt: A current, correct and complete list of Borrowers'
-----------
outstanding Seller Debt is set forth on Exhibit 5.21 hereto.
SECTION 6. AFFIRMATIVE COVENANTS
Each Borrower covenants that until all of the Obligations to Lenders are
paid and satisfied in full and the Revolving Credit has been terminated:
6.1 Payment of Taxes and Claims: Each Borrower shall pay, before they
---------------------------
become delinquent,
(a) all material taxes, assessments and governmental charges or
levies imposed upon it or its Property, and
(b) all material claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons entitled to the benefit of
statutory or common law Liens, which, if unpaid, would result in the imposition
of a Lien upon its Property; provided, however, that Borrowers shall not be
required to pay any such tax, assessment, charge, levy, claim or demand if the
amount, applicability or validity thereof shall at the time be contested in good
faith and by appropriate proceedings by Borrowers, and if Borrowers shall have
set aside on their books adequate reserves in respect thereof, in accordance
with GAAP; which deferment of payment is permissible so long as no Lien
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other than a Permitted Lien has been entered and such Borrower's title to, and
its right to use, its Property are not materially adversely affected thereby.
6.2 Maintenance of Properties and Corporate Existence:
-------------------------------------------------
(a) Property - Each Borrower shall (and each Borrower shall cause
--------
each of its Subsidiaries to) maintain its Property in good condition and make
all renewals, replacements, additions, betterments and improvements thereto in
the ordinary course of business, as Borrowers deem reasonably necessary in good
faith in the exercise of its business judgment, and will pay and discharge when
due the cost of repairs and maintenance to its Property.
(b) Property Insurance - Each Borrower shall maintain insurance on
------------------
all insurable tangible Property against fire, flood, casualty and such other
hazards (including, without limitation, extended coverage, workmen's
compensation, boiler and machinery) in such amounts, with such deductibles and
with such insurers as are customarily used by companies operating in the same
industry as Borrowers and reasonably acceptable to Agent. At or prior to
Closing, Borrowers shall furnish Agent with a schedule of all such insurance
prepared by its insurance broker, and certificates of insurance with respect
thereto (including the text of the Lender's Loss Payable Clause in favor of
Agent required below), or such other evidence of insurance as Agent may require.
Borrowers shall furnish Agent with a copy of such policy within thirty (30) days
after Closing. In the event Borrowers fail to procure or cause to be procured
any such insurance or to timely pay or cause to be paid the premium(s) on any
such insurance, Agent (on behalf of Lenders) may do so for Borrowers, but
Borrowers shall continue to be liable for the same. The policies of all casualty
insurance with respect to the Inventory and Equipment shall contain standard
Lender's Loss Payable Clauses issued in favor of Agent (on behalf of Lenders)
indicating that Agent is sole Lender Loss Payee, under which all losses
thereunder with respect to the Inventory and Equipment shall be paid to Agent
(on behalf of Lenders) as Agent's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered or canceled
without thirty (30) days prior written notice to Agent and shall insure Lenders
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notwithstanding the act or neglect of any Borrower. Each Borrower hereby
appoints Agent as its attorney-in-fact, exercisable at Agent's option (without
any obligation to do so), to endorse any check which may be payable to such
Borrower, and to file proofs of loss with respect to any insurance claims, and,
after an Event of Default, to negotiate a settlement of any insurance claims, in
order to collect the proceeds of such insurance and any amount or amounts
collected by Agent pursuant to the provisions of this paragraph may be applied
by Agent to the Obligations. Each Borrower further covenants that all insurance
premiums due and owing under their current casualty policies have been paid.
Each Borrower also agrees to notify Agent, promptly, upon any receipt of a
notice of termination, cancellation, or non-renewal from its insurance company
of any such policy.
(c) Public and Products Liability Insurance - Borrowers shall
---------------------------------------
maintain, and shall deliver to Agent upon Agent's request evidence of, public
liability, products liability and business interruption insurance in such
amounts as are reasonably acceptable to Agent, but in any event not more than
are customary for companies in the same or similar businesses located in the
same or similar area.
(d) Financial Records - Consistent with the existing practice of TWI,
-----------------
each Borrower shall keep current and accurate books of records and accounts in
which full and correct entries will be made of all of its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP. No Borrower shall
change its fiscal year end date without providing Agent thirty (30) days prior
written notice thereof, provided that Borrowers may make such change only once
prior to the Revolving Credit Maturity Date.
(e) Corporate Existence and Rights - Each Borrower shall do (or cause
------------------------------
to be done) all things necessary to preserve and keep in full force and effect
its (and each of its Subsidiaries') existence, good standing in all
jurisdictions where its failure to be in good standing might result in a
Material Adverse Effect, and all of its rights, licenses and
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franchises, the absence of which might result in a Material Adverse Effect.
(f) Compliance with Laws - Each Borrower shall (and shall cause each
--------------------
of its Subsidiaries to) (i) be in compliance in all material respects with any
and all laws, ordinances, governmental rules and regulations, and court or
administrative orders or decrees to which it is subject, whether federal, state
or local, (including, without limitation, Environmental Laws); and (ii) obtain
and maintain any and all licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its Property or to the conduct of
its business, which violation or failure to obtain or maintain causes or might
cause a Material Adverse Effect. Each Borrower shall (and shall cause each of
its Subsidiaries to) timely satisfy all assessments, fines, costs and penalties
imposed by any governmental body against such Borrower or Subsidiary or any
Property of such Borrower or Subsidiary subject to the provisions of Section 6.1
above.
6.3 Business Conducted: Each Borrower shall (and shall cause each of its
------------------
Subsidiaries) continue in the Borrowers' (or Subsidiary's) Business using its
best efforts to maintain its customers and goodwill. No Borrower or Subsidiary
shall engage, directly or indirectly, in any material respect, in any line of
business substantially different from the Borrowers' Business.
6.4 Litigation: Each Borrower, upon having knowledge thereof, shall give
----------
prompt notice to Agent of (a) the commencement against any Borrower or
Subsidiary of any litigation claiming from any Borrower or Subsidiary more than
$500,000 in excess of any available insurance coverage such Borrower or
Subsidiary may have for such claim for which coverage has been acknowledged by
such insurer, and (b) any other claims made against such Borrower or Subsidiary,
or investigations or proceedings commenced against such Borrower or Subsidiary
the existence of which or adverse disposition of which might have a Material
Adverse Effect.
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6.5 Taxes:
-----
(a) Notwithstanding any other provision of this Agreement other than
6.5(f) and (g), any and all payments by Borrowers hereunder shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imposts or withholding taxes, and all liabilities with respect thereto,
excluding taxes imposed on Agent's or any Lender's net income and franchise
- ---------
taxes imposed on Agent or any Lender by the United States or any jurisdiction
under the laws of which it is organized or in which an office is located or any
political subdivision thereof (all such non-excluded taxes, levies, imports,
withholding taxes and liabilities being hereinafter referred to as "Taxes"). If
Borrowers shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder to any Lender or Agent (i) the sum payable shall be
increased by the amount necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
6.5) such Lender or Agent shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrowers shall make such
deductions and (iii) Borrowers shall pay the full amount deducted to the
relevant taxing authority or other governmental authority in accordance with
applicable law.
(b) In addition, Borrowers agree to pay any present or future stamp
or documentary taxes or any other general intangible, excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document including, without limitation, taxes
associated with the financing statement filings in the State of Maryland
(hereinafter referred to as "Other Taxes").
(c) Borrowers will indemnify each Lender and Agent for the full
amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 6.5) paid by such Lender
or Agent in respect of any and all payments made by Borrowers hereunder, as the
case may be, and any liability (including penalties, interest and expenses
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other than those resulting from the failure of a Lender or Agent to pay any
Taxes or Other Taxes for which it shall have received an indemnity payment
hereunder) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. Such indemnification shall be
made promptly after the date any Lender or Agent, as the case may be, makes
written demand therefor. If a Lender or Agent shall become aware that it is
entitled to receive a refund it shall notify Borrowers and shall, promptly after
receipt of a request by Borrowers, apply for and pursue such a refund at
Borrowers' expense. If any Lender or Agent receives a refund in respect of any
Taxes or Other Taxes for which such Lender or Agent has received payment from
Borrowers hereunder it shall promptly upon receipt repay such refund to Borrower
without interest, except to the extent interest shall have accompanied such
refund, provided that Borrowers, upon the request of such Lender or Agent,
agrees to return such refund (plus penalties, interest or other charges) to such
Lender or Agent in the event such Lender or Agent is required to repay such
refund.
(d) Within 45 days after the date of any payment of Taxes or Other
Taxes withheld by any Borrower in respect of any payment to any Lender or Agent,
Borrowers will furnish to the Agent, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 6.5
shall survive the payment in full of principal and interest hereunder.
(f) On or prior to the date it becomes a party to this Agreement,
each Lender that is organized outside of the United States shall deliver to
Borrowers such certificates, documents or other evidence, as required by the
Code or Treasury Regulations issued pursuant thereto, including Internal Revenue
Service Form 4224 or 1001 and any other certificate or statement or exemption
required by Treasury Regulation Section 1.1441-4(a) or Section 1.1441-6(c) or
any subsequent version thereof, properly completed and duly executed by such
Lender establishing that such payment is (i) not subject to withholding under
the Code because such
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payment is effectively connected with the conduct by such Lender of a trade or
business in the United States or (ii) totally exempt from United States Federal
withholding tax under a provision of an applicable tax treaty. In addition, each
such Lender shall, if legally able to do so, thereafter deliver such
certificates, documents or other evidence from time to time, including, without
limitation, Internal Revenue Service Form W-8, establishing that payments
received hereunder are not subject to such withholding upon receipt of a written
request therefor from Borrowers or Agent. Unless Borrowers and Agent have
received forms or other documents satisfactory to them indicating that payments
hereunder or under the Revolving Credit Notes are not subject to United States
Federal withholding tax under an applicable tax treaty, Borrowers or Agent shall
withhold taxes from such payments at the applicable statutory rate.
(g) Borrowers shall not be required to pay any additional amounts to
any Lender in respect of United States Federal withholding tax pursuant to this
Section 6.5 if the obligation to pay such additional amounts would not have
arisen but for a failure by such Lender to deliver the certificate, documents or
other evidence specified in this Section 6.5 unless such failure is attributable
to (i) a change in applicable law, regulation or official interpretation thereof
or (ii) an amendment or modification to or a revocation of any applicable tax
treaty or a change in official position regarding the application or
interpretation thereof, in each case on or after the date such Lender becomes a
party to this Agreement, provided, however, that such Lender shall promptly
notify Borrowers of any such matter described in clause (i) or (ii) above upon
its learning of the same and shall thereafter take all reasonable actions
resulting from such matter including delivering certificates, documents or other
evidence as may be necessary to eliminate or reduce the amount of tax required
to be withheld.
(h) Any Lender claiming any additional amounts payable pursuant to
this Section 6.5 shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document requested by
Borrowers or to change the jurisdiction of its applicable lending office if the
making of such filing or change would avoid the need for or reduce the
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amount of any such additional amounts which may thereafter accrue and would not
result in the incurrence by such Lender of any cost for which Borrowers do not
provide such security or indemnity as may be reasonably required by the Lender
to indemnify it in full for such cost and would not in the judgment of such
Lender be otherwise disadvantageous to it. Each Lender agrees with reasonable
promptness to notify Borrower of any determination which it shall make to make
any claim for additional amounts payable pursuant to this Section 6.5.
6.6 Bank Accounts: Each Borrower shall maintain its principal depository
-------------
and disbursement account(s) with Agent.
6.7 Employee Benefit Plans: Each Borrower will (a) fund all of its
----------------------
Pension Plans in a manner that will satisfy the minimum funding standards of
Section 302 of ERISA, or will promptly satisfy any accumulated funding
deficiency that arises under Section 302 of ERISA, (b) furnish Agent, promptly
upon Agent's request of the same, with copies of all reports or other statements
filed with the United States Department of Labor, the Pension Benefit Guaranty
Corporation ("PBGC") or the Internal Revenue Service ("IRS") with respect to all
Pension Plans, or which such Borrower, or any member of a Controlled Group (as
defined in Title IV of ERISA or the Internal Revenue Code) of which any Borrower
is also a member, may receive from the United States Department of Labor, the
IRS or the PBGC, with respect to all such Pension Plans, and (c) promptly upon
discovery advise Agent of the occurrence of any reportable event (as defined in
Section 4043 of ERISA, other than a reportable event for which the thirty (30)
day notice requirement has been waived by the PBGC) or prohibited transaction
(under Section 406 of ERISA or Section 4975 of the Internal Revenue Code) with
respect to any such Pension Plans and the action which such Borrower proposes to
take with respect thereto. Each Borrower will make all contributions when due
with respect to any multiemployer pension plan to which it contributes and will
promptly advise Agent (i) upon its receipt of notice of the assertion against it
of a claim for withdrawal liability, (ii) upon discovery of the occurrence of
any event which, to the best of such Borrower's knowledge, would trigger the
assertion of a claim for withdrawal liability against any Borrower, and (iii)
upon the occurrence of any event
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which, to the best of such Borrower's knowledge upon its learning of the same,
would place Borrower in a Controlled Group, any member of which (including any
Borrower) may be subject to a claim for withdrawal liability, whether liquidated
or contingent, which could have a Material Adverse Effect.
6.8 Warranties for Future Advances: Each request by any Borrower for an
------------------------------
Advance under the Revolving Credit in any form following the Closing Date shall
constitute an automatic representation and warranty, the truth and accuracy of
such representation and warranty of which shall be a further condition to the
funding of each Advance, by Borrowers to the effect that (without waiving,
impairing or limiting the rights of Agent and the Lenders under Section 8
below):
(a) There has not occurred any event or occurrence since the date of
delivery of Borrower's most recent financial statements which has resulted in,
or has had, a Material Adverse Effect.
(b) No Event of Default or Potential Default then exists;
(c) Each Advance is within and complies with the terms and conditions
of this Agreement including without limitation the notice provisions contained
in Section 2.3 hereof; and
(d) Each representation and warranty set forth in Section 5 of this
Agreement is then true and correct in all material respects; provided that
Borrowers may update all Exhibits and prepare additional Exhibits so that all
such Exhibits and the representations and warranties, taken together, accurately
reflect the state of any Borrower's affairs as of the date of a request for an
Advance by giving written notice thereof to Agent, and further provided that
such updated and additional Exhibits do not reflect events or conditions which
constitute violations of Section 6 or 7 hereof or otherwise reflect a Material
Adverse Effect.
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6.9 Financial Covenants: Borrowers shall maintain and comply with the
-------------------
following financial covenants (calculated on the basis of GAAP):
(a) Net Worth: Borrowers shall have and maintain a Net Worth, on a
---------
consolidated basis, measured as of the last day of each fiscal quarter of
Borrowers of not less than the sum of: (i) ninety (90%) percent of Closing Net
Worth; (ii) ninety (90%) percent of Borrowers' net income arising after the
Closing Date (without deduction for any losses reported (without deduction for
any losses reported by Borrowers); and (iii) additional Stockholders' Equity (as
determined by GAAP) arising out of or related to Equity Offerings after the
Closing Date.
(b) Quick Ratio: Borrowers shall have and maintain a Quick Ratio on
-----------
a consolidated basis measured as of the last day of each fiscal quarter of
Borrowers of not less than the ratio set forth below for the corresponding time
period:
Ratio Time Period
- ----- -------------------------------------
0.3:1 As of and from the Closing Date and through the day before the
first anniversary of the Closing Date;
0.4:1 As of and from the first anniversary of the Closing Date through
the day before the second anniversary of the Closing Date;
0.5:1 As of and from the second anniversary of the Closing Date through
the day before the third anniversary of the Closing Date;
0.6:1 As of and from the third anniversary of the Closing Date and at
all times thereafter.
(c) Capital Expenditures: Borrowers shall not expend, on an
--------------------
aggregate basis, for Capital Expenditures in excess of (i) $16,000,000 during
their 1997 fiscal year, (ii) $17,000,000 during their 1998 fiscal year, (iii)
$18,000,000 during their
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1999 fiscal year, or (iv) $19,000,000 during their 2000 fiscal year; provided,
however, that any portion of such maximum permitted amount up to $5,000,000 not
utilized in a fiscal year may be utilized by Borrowers in (and only in) the next
fiscal year. Capital Expenditures of Subsidiaries that are not Borrowers shall
be included hereunder, except that Capital Expenditures of Foreign Subsidiaries
that are not Borrowers shall only be included to the extent such Expenditures
are funded with Capital Advances from any Borrower or other Subsidiary (other
than a Foreign Subsidiary).
(d) Ratio of Funded Debt to EBITDA: Borrowers shall have and
------------------------------
maintain a ratio of Funded Debt to EBITDA of no greater than 2.50 to 1.00 as of
the end of each fiscal quarter by annualization of the calculations for the
fiscal quarter then ending.
(e) Ratio of EBITA to Interest Expense: Borrowers shall have and
----------------------------------
maintain a ratio of EBITA to Interest Expense of not less than 4.00 to 1.00 as
of the end of each fiscal quarter for the current fiscal quarter then ending.
(f) Fixed Charges Coverage Ratio: Borrowers shall have and maintain
----------------------------
a Fixed Charges Coverage Ratio of not less than 1.25 to 1.00 as of the end of
each fiscal quarter.
The calculation of financial covenant compliance under Sections 6.9(a),
(b), (d) and (e) hereof shall be tested on a quarterly basis, based on the
quarterly financial statements delivered by Borrowers to Agent, with EBITDA,
EBITA, EBIDA and cash interest expense during the most recent quarter annualized
for the purpose of such calculation. The calculation of financial covenant
compliance under Section 6.9(f) hereof shall be tested on a quarterly basis,
based on the quarterly financial statements delivered by Borrowers to Agent,
with cash interest expense and payments on Funded Debt included in Fixed Charges
and EBIDA (i) for the quarter ending March 31, 1997 annualized for the purpose
of such calculation, (ii) for the six months ending June 30, 1997 annualized for
the purpose of such calculation, (iii) for the nine months ending September 30,
1997 annualized for the purpose of such calculation and (iv) on and after the
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quarter ending December 31, 1997, the actual cash interest expense and payments
on Funded Debt and EBIDA during the four fiscal quarters ended on the last day
of such quarter. All financial covenant calculations shall be made, and all
financial statements provided for below shall be prepared, on a consolidated
basis in accordance with GAAP consistently applied.
6.10 Financial and Business Information: Borrowers shall deliver to Agent
----------------------------------
and to each Lender the following:
(a) Financial Statements and Collateral Reports: such data, reports,
-------------------------------------------
statements and information, financial or otherwise, as Agent may reasonably
request, including, without limitation:
(i) within ninety (90) days after the end of each fiscal year
of Borrowers, financial statements of Borrowers and their Subsidiaries for such
year on a consolidated and consolidating basis, eliminating inter-company
transactions, including the balance sheet as at the end of such fiscal year and
a statement of cash flows and income statement for such fiscal year, setting
forth in the consolidated statements in comparative form, the corresponding
figures as at the end of and for the previous fiscal year, all in reasonable
detail, including all supporting schedules, and audited and certified on an
unqualified basis by a Big Six independent public accountants of recognized
standing, selected by Borrowers and reasonably satisfactory to the Agent (Arthur
Andersen being acceptable to Agent), to have been prepared in accordance with
GAAP, and, if applicable, along with Borrowers' Form 10K Report filed with the
Securities and Exchange Commission.
(ii) within thirty (30) days of the end of each calendar month,
Borrowers' accounts receivable aging report, accounts payable aging report, and
such other reports as Agent deems reasonably necessary.
(iii) within forty-five (45) days after the end of each calendar
quarter, internally prepared financial statements for Borrowers, including
balance sheet, income statement and statements of cash flows, prepared in
accordance
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with GAAP, and, if applicable, Borrowers' Form 10Q Report filed with the
Securities and Exchange Commission, all in form and substance reasonably
satisfactory to Agent.
(iv) within thirty (30) days after the end of each calendar
month which is not the end of a fiscal quarter, internally prepared financial
statements for Borrowers, including balance sheet, income statement and
statements of cash flows, prepared in accordance with GAAP, without footnotes
and subject to normal year end adjustments, all in form and substance reasonably
satisfactory to Agent.
(v) within forty-five 45 days after the commencement of each
fiscal year, annual projections of profit and loss, cash flows and balance
sheets prepared on a monthly basis for such year in a manner consistent with the
prior year's financial statements, all in form and substance reasonably
satisfactory to Agent.
(b) Notice of Event of Default - promptly upon becoming aware of the
--------------------------
existence of any condition or event which constitutes an Event of Default under
this Agreement, or which with the passage of time or the giving of notice, or
both, could become an Event of Default hereunder, a written notice specifying
the nature and period of existence thereof and what action Borrowers are taking
(and proposes to take) with respect thereto;
(c) Notice of Claimed Default - promptly upon receipt by any
-------------------------
Borrower, notice of default, oral or written, given to any Borrower by any
creditor for borrowed money in excess of $250,000;
(d) Securities and Other Reports - if any Borrower shall be required
----------------------------
to file reports with the Securities and Exchange Commission pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, promptly upon
its becoming available, a true and correct copy of each financial statement,
report, notice and proxy statement sent by such Borrower to stockholders
generally, and, a copy of each regular or periodic report, and any registration
statement, or prospectus in respect thereof, filed by such Borrower with any
securities
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exchange or with federal or state securities and exchange commissions or any
successor agency.
6.11 Officers' and Accountant's Certificates: Along with the set of
---------------------------------------
financial statements and other reports delivered to Agent and each Lender at the
end of each quarter and fiscal year, as applicable, pursuant to Section 6.10(a)
hereof, Borrowers shall deliver to Agent (a) a certificate (in the form of
Exhibit "6.11" attached hereto and made a part hereof) from the chief financial
officer of Borrowers; and (b) with respect to the annual statements of
Borrowers, a certificate from Borrowers' independent certified public
accountant, addressed to Agent, (i) stating that Borrowers are authorized to
deliver such financial statements and its certifications thereof to Agent
pursuant to this Agreement, and (ii) having attached the calculations required
to establish whether or not Borrowers were in compliance with Section 6.9.
6.12 Inspection: So long as Borrowers are indebted to Lenders, Borrowers
----------
will permit any of Agent's officers or other representatives to visit and
inspect any of the locations of any Borrower at any time during normal business
hours, provided that prior to the occurrence of any Event of Default or an event
which with the passage of time, the giving of notice or both would become an
Event of Default, Agent shall give Borrowers at least 48 hours prior notice of
each visit, to examine and audit all of Borrower's books of account, records,
reports and other papers, to make copies and extracts therefrom and to discuss
its affairs, finances and accounts with its officers, employees and independent
certified public accountants. Borrowers hereby irrevocably authorize and direct
all such accountants and auditors to exhibit and deliver to Agent and any Lender
copies of any and all of Borrowers' financial statements or other accounting
records of any sort in the accountant's or auditor's possession. Following an
Event of Default, all such inspections and audits shall be at Borrowers' expense
at the standard rates charged by Agent or its agents for such activities (plus
Agent's or its Agent's reasonable out-of-pocket expenses).
6.13 Tax Returns and Reports: At Agent's request from time to time,
-----------------------
Borrowers shall promptly furnish Agent with copies of
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their annual federal and state income tax returns. Each Borrower further agrees
that, if requested by Agent, it shall promptly furnish Agent with copies of all
reports filed by it with any federal, state or local governmental authority or
agency, board or commission.
6.14 Information to Participant: Each Lender may divulge to any
--------------------------
participant, co-lender or assignee or prospective participant, co-lender or
assignee it is permitted to obtain in the Revolving Credit, or any portion
thereof, all information, and furnish to such Permitted Person copies of any
reports, financial statements, certificates, and documents obtained under any
provision of this Agreement, or related agreements and documents, provided such
Permitted Person agrees to keep all such information and copies confidential.
6.15 Material Adverse Developments: Borrowers agree that immediately upon
-----------------------------
becoming aware of any development or other information which would reasonably be
expected to have or cause a Material Adverse Effect, it shall give to Agent
telephonic or telegraphic notice specifying the nature of such development or
information and such anticipated effect. In addition, such verbal communication
shall be confirmed by written notice thereof to Agent on the next Business Day
after such verbal notice is given.
6.16 Name Changes, Places of Business: Each Borrower shall give not less
--------------------------------
than thirty (30) days prior written notice to Agent of any name change or change
in the location of any of its respective places of business, of the places where
records concerning the Collateral are kept, or the establishment of any new, or
the discontinuance of any existing place of business.
6.17 Interest Rate Caps. Within ninety (90) days of the Closing Date,
------------------
Borrowers shall enter into interest swap agreements with any Lender (unless
Borrowers are able to obtain a better rate from a financial institution which is
not a Lender) pursuant to which Borrowers cap the interest rate on LIBOR Based
Rate Loans at 8.5% on not less than Twenty Million Dollars ($20,000,000) of
Loans outstanding at any time under the Revolving Credit Facility for two years
from the date such
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agreements are entered into by Borrowers, such agreements to be acceptable to
Lenders.
6.18 Surety Agreement. Each Borrower shall cause all of its Domestic
----------------
Subsidiaries (other than another Borrower), whether now existing or hereafter
established or acquired, to execute a surety agreement in favor of Agent, for
the benefit of Lenders, guaranteeing all of the Obligations hereunder, and a
security agreement providing for the granting of a Lien by such Subsidiary, in
favor of Agent for the benefit of the Lenders, in all of its existing and future
Property as security for such surety agreement, such agreements to be in form
and substance acceptable to Agent (the "Surety Agreements").
SECTION 7. NEGATIVE COVENANTS:
Borrowers covenant that until all of the Obligations to Lenders are paid
and satisfied in full and the Revolving Credit has been terminated, that:
7.1 Merger, Consolidation, Dissolution or Liquidation:
-------------------------------------------------
(a) No Borrower shall (or cause or permit any Subsidiary to) sell,
lease, license, transfer or otherwise dispose of its Property, other than
Inventory, equipment or real estate sold in the ordinary course of business.
(b) No Borrower shall (or cause or permit any Subsidiary to) merge
or consolidate with any other Person except in connection with a Qualified
Acquisition or commence a dissolution or liquidation.
7.2 Acquisitions: No Borrower shall (or cause or permit any Subsidiary to)
------------
acquire all or a material portion of the stock, securities or assets of any
Person in any transaction or in any series of related transactions or enter into
any sale and leaseback transaction, other than a Qualified Acquisition, provided
however that (a) the aggregate value (determined by the aggregate of all
consideration in such transactions, including without limitation the purchase
price paid or to be paid, any
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assumed obligations and future (including contingent) monetary obligations) of
all Qualified Acquisitions shall not exceed $175,000,000, (b)(i) if the Pro
Forma Funded Debt to EBITDA Ratio is not less than 1.5 to 1 Borrowers may incur,
as part of such Qualified Acquisition, Financed Acquisition Debt up to
$5,000,000 and (ii) if the Pro Forma Funded Debt to EBITDA Ratio is less than
1.5 to 1 Borrowers may incur, as part of such acquisition, Financed Acquisition
Debt up to $7,500,000, and (c) each company or business being acquired as part
of a Qualified Acquisition must have positive EBITDA (excluding for the purpose
of such calculations distributions and payments to shareholders other than
salary) for the immediately preceding twelve (12) full calendar months.
7.3 Liens and Encumbrances: No Borrower shall (or cause or permit any
----------------------
Domestic Subsidiary to): (i) execute a negative pledge agreement with any Person
other than Agent and/or Lenders covering any of its Property or (ii) cause or
permit or agree or consent to cause or permit in the future (upon the happening
of a contingency or otherwise), its Property (including, without limitation, the
Collateral), whether now owned or hereafter acquired, to be subject to a Lien or
be subject to any claim except for Permitted Liens. As used herein, "Permitted
Liens" means:
(a) Liens securing taxes, assessments or governmental charges or
levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, and other like persons, provided the payment thereof is
not at the time required by Section 6.1;
(b) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment, insurance,
social security and other like laws;
(c) Liens described in Exhibit 5.4;
(d) Liens constituting purchase money security interests, Capitalized
Lease Obligations or finance leases hereafter created by any Borrower or
Domestic Subsidiary to Persons providing Permitted Purchase Money Financing so
long as
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(i) each obligation secured by a Lien permitted by this subparagraph (d) does
not exceed 100% of the total cost (including interest) to acquire and install
such Property, (2) such Lien extends only to the Property actually acquired with
such financing, and (3) such obligation is permitted by Section 7.6(c) below;
(e) Liens on equipment of Future Acquired Companies securing
Permitted Assumed Debt, subject to the limitations of Section 7.6(d) below; and
(f) Security deposits provided to landlords of real property leased
and occupied by any Borrower.
7.4 Transactions With Affiliates or Subsidiaries:
--------------------------------------------
(a) No Borrower shall (or cause or permit any Subsidiary to) enter
into any transaction with any Affiliate or Subsidiary including, without
limitation, the purchase, sale, or exchange of Property, or the loaning or
giving of funds to any Affiliate or any Subsidiary, unless (i) such Subsidiary
or Affiliate is engaged in a business substantially related to the business
conducted by such Borrower or Subsidiary, and the transaction is in the ordinary
course of and pursuant to the reasonable requirements of such Borrower or
Subsidiary and such other entity's business and upon terms substantially the
same and no less favorable to such Borrower or Subsidiary as it would obtain in
a comparable arm's-length transactions with any Person not an Affiliate or a
Subsidiary, and (ii) such transaction is not otherwise prohibited hereunder. (An
"Affiliate" means any entity which directly or indirectly through one or more
intermediaries controls or is controlled by or is under common control with any
Borrower. Control may be by ownership, contract, or otherwise.)
(b) No Borrower shall create or acquire any Subsidiary except in
connection with a Permitted Qualified Acquisition.
(c) No Borrower shall (or cause or permit any Subsidiary to) make a
Capital Advance to any Foreign Subsidiary unless (i) a Borrower or Subsidiary
has executed and delivered to
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Agent and otherwise performed a Foreign Stock Pledge Agreement with respect to
the stock of such Foreign Subsidiary and Agent has, for the benefit of Lenders,
a first perfected Lien on such stock and (ii) the aggregate amount of Capital
Advances (other than Excluded Capital Advances) by Borrowers and Subsidiaries to
all Foreign Subsidiaries (including the subject Capital Advance) then
outstanding does not exceed the Foreign Subsidiary Limit.
7.5 Guarantees: Excepting the endorsement in the ordinary course of
----------
business of negotiable instruments for deposit or collection, no Borrower or
Subsidiary shall become or be liable, directly or indirectly, primary or
secondary, matured or contingent, in any manner, whether as guarantor, surety,
accommodation maker, or otherwise, for the existing or future indebtedness of
any kind of any Person (other than a Borrower or Domestic Subsidiary).
7.6 Distributions, Redemptions and Other Indebtedness: No Borrower or
-------------------------------------------------
Subsidiary shall: (a) declare or pay or make any forms of Distribution to its
shareholders (other than a Borrower or Subsidiary), their successors or assigns;
(b) make any prepayments on (i) any existing or future indebtedness for borrowed
money to any Person or (ii) the earn-out payable to Morton Reich; (c) make any
payment on Seller Debt if an Event of Default or Potential Default has occurred
and is continuing or such payment would result in the occurrence of an Event of
Default or Potential Default or (d) hereafter borrow money or otherwise incur or
assume or become liable for indebtedness for borrowed money other than from
Lenders hereunder except in connection with Permitted Purchase Money Financing
and Permitted Assumed Debt provided, however, that (i) the aggregate amount of
all Permitted Purchase Money Financing and Permitted Assumed Debt of Borrowers
shall not, in any event, exceed $10,000,000 outstanding at any one time, and
(ii) the aggregate amount of Permitted Purchase Money Financing and Permitted
Assumed Debt of Borrowers that is Secured Real Estate Debt shall not exceed
$2,000,000 outstanding at any one time.
7.7 Loans and Investments: No Borrower or Subsidiary shall make or have
---------------------
outstanding loans, advances, extensions of credit or capital contributions to,
or investments in, any Person other
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than (a) advances made to employees for travel, expenses and other business
related activities, in the ordinary course of such Borrower's business, in an
aggregate amount at any one time not to exceed $100,000 as to all Borrowers or
Subsidiaries and (b) Capital Advances by any Borrower to a Subsidiary subject to
the conditions of Section 7.4(a) and 7.4(c) above.
7.8 Use of Lenders' Name: No Borrower or Subsidiary shall use any
--------------------
Lender's name (or the name of any of any Lender's affiliates) or Agent's name in
connection with any of its business operations except to identify the existence
of the Revolving Credit and the names of the Lenders and Agent in the ordinary
course of Borrower's business. Nothing herein contained is intended to permit or
authorize any Borrower to make any commitment or contract on behalf of any
Lender or Agent.
7.9 Miscellaneous Covenants:
-----------------------
(a) No Borrower or Subsidiary shall become or be a party to any
contract or agreement which at the time of becoming a party to such contract or
agreement (1) materially impairs such Borrower's ability to perform under this
Agreement or any Loan Document or (2) impairs such Borrower's or Subsidiary's
ability to perform under any other instrument, agreement or document to which
such Borrower or Subsidiary is a party or by which it is or may be bound as
would be reasonably likely to have a Material Adverse Effect.
(b) No Borrower or Domestic Subsidiary shall carry or purchase any
"margin stock" within the meaning of Regulations U, G, T or X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II.
7.10 Change of Majority Control: No Person shall control, directly or
--------------------------
indirectly (which may include ownership by one or more trusts controlled by such
Person), at least 51% of the capital stock of TWI and TWI shall own and control
100% of the capital stock of each other Borrower.
7.11 Change in Executive Management: Borrowers shall not remove or replace
------------------------------
any Person who is a member of Executive
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Management without the prior written consent of the Majority Lenders, such
consent not to be unreasonably withheld. In the event of the death or any member
of Executive Management, Borrowers shall have ninety (90) days to replace such
Person, and any such replacement shall be acceptable to the Majority Lenders in
their reasonable discretion.
SECTION 8. DEFAULT
8.1 Events of Default: Each of the following events shall constitute an
-----------------
event of default ("Event of Default") and Agent shall thereupon have the option,
and the Majority Lenders shall have the option to cause Agent, to declare the
Obligations immediately due and payable, all without demand, notice, presentment
or protest or further action of any kind (it also being understood that the
occurrence of any of the events or conditions set forth in subparagraphs (j),
(k) or (l) shall automatically cause an acceleration of the Obligations):
(a) Payments - if Borrowers fail to make any payment of principal or
--------
interest, including any Overadvance, or any fees, under the Revolving Credit on
the due date of such payment; or
(b) Other Charges - if Borrowers fail to pay any other fees,
-------------
charges, Expenses or other monetary obligations owing to any Lender or Agent
arising out of or incurred in connection with this Agreement within five (5)
days after notice that such payment was not made when due or demanded, as
applicable; or
(c) Covenant Defaults - if Borrowers, or any of them, fail to
-----------------
perform, comply with or observe any affirmative or negative covenant or
undertaking contained in this Agreement; provided however that with respect to
Borrowers' failure to perform or comply with the covenants contained in Section
6.1 above, Borrowers shall have five (5) Business Days from the occurrence
thereof to perform and/or comply with such covenant; or
(d) Financial Information - if any statement, report, financial
---------------------
statement, or certificate made or delivered at any time
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by any Borrower or any of its officers, employees or agents, to Agent or any
Lender is not true and correct, in all material respects, when made; or
(e) Uninsured Loss - if there shall occur any uninsured damage to or
--------------
loss, theft, or destruction with respect to any portion of any Property of any
Borrower which (a) is in excess of $250,000 with respect to any portion of any
Property of any Borrower, or (b) is reasonably likely to result in a Material
Adverse Effect; or
(f) Warranties or Representations - if any warranty,
-----------------------------
representation or other statement by or on behalf of any Borrower or Borrowers
contained in or pursuant to this Agreement, or in any document, agreement or
instrument furnished in compliance with, relating to, or in reference to this
Agreement, is false, erroneous, or misleading in any material respect when made
or deemed made; or
(g) Agreements with Others - if there shall be any default by any
----------------------
Borrower beyond any grace period under any agreement with any other creditor for
borrowed money in excess of $100,000, and (i) such default consists of the
failure to pay any principal, premium or interest with respect to such
indebtedness, or (ii) such default consists of the failure to perform any
covenant or agreement with respect to such indebtedness, if the effect of such
default is to cause or to permit the relevant creditor to cause any Borrower's
obligations which are the subject thereof to become due prior to their maturity
date or prior to their regularly scheduled date of payment;
(h) Other Agreements with Lenders - if any Borrower breaches or
-----------------------------
violates the terms of, or if a default or an Event of Default, occurs under, any
other existing or future agreement (related or unrelated) between such Borrower,
any Borrowers or among any Borrower or Borrowers with Agent or any Lender or all
Lenders relating to the lending of money, issuance of a letter of credit, or
other creation of a monetary obligation or extension of credit (subject to any
applicable grace or cure period which may be contained in such other agreement);
or
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(i) Judgments - if any final judgment is entered against any
---------
Borrower for the payment of money in excess of $100,000 which shall not be
satisfied, dismissed or bonded pending appeal within 30 days after the entry
thereof; or
(j) Assignment for Benefit of Creditors, etc. - if any Borrower
-----------------------------------------
makes or proposes an assignment for the benefit of creditors generally, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or conducted by any
Borrower; or
(k) Bankruptcy, Dissolution, etc. - upon the commencement of any
-----------------------------
action for the dissolution or liquidation of any Borrower, or the commencement
of any case or proceeding for reorganization or liquidation of any Borrower's
debts under the Bankruptcy Code or any other state or federal law, now or
hereafter enacted for the relief of debtors, whether instituted by or against
any Borrower; provided, however, that Borrowers shall have forty-five (45) days
to obtain the dismissal or discharge of any such involuntary proceeding, it
being understood that during such forty-five (45) day period, no Lender shall be
obligated to make Advances hereunder and Agent may seek adequate protection in
any bankruptcy proceeding; or
(l) Receiver - upon the appointment of a receiver, liquidator,
--------
custodian, trustee or similar official or fiduciary for any Borrower or for a
material portion of such Borrower's Property; or
(m) Execution Process, Seizure, etc. - if any Property of any
--------------------------------
Borrower, with a cost in excess of $50,000 is seized by any governmental entity
(federal, state or local), landlord or other Person without Borrowers' consent;
or
(n) Termination of Business - if any Borrower ceases any material
-----------------------
portion of its business operations as presently conducted; or
(o) Pension Benefits, etc. - if any Borrower fails to comply with
----------------------
ERISA, so that grounds exist to permit the Pension Benefit Guaranty Corporation
or any other Person to institute proceedings to appoint a trustee to administer
any Pension Plan, to assess any material liability on any Borrower, or to permit
the entry of a Lien to secure any deficiency or claim; or
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(p) Criminal Conduct and Investigations - if any Borrower commits or
-----------------------------------
is indicted for committing any crime or if any proceeding or investigation by
any governmental body is pending an adverse disposition of which would be
reasonably likely to result in the forfeiture of any material Property of any
Borrower to any governmental entity, federal, state or local; or
(q) Tax Liens - if a notice of a Lien, levy, or assessment in excess
---------
of $50,000 is filed of record with respect to any or all of any Borrower's
Property by the United States government, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other government
agency, or if any taxes or debts owing at any time hereafter to any one or more
of such entities becomes a Lien, whether choate or otherwise, upon any or all of
any Borrower's Property.
8.2 Cure - Nothing contained in this Agreement or the Loan Documents
----
shall be deemed to compel Agent and/or Lenders to accept a cure of any Event of
Default hereunder.
8.3 Rights and Remedies on Default:
------------------------------
(a) In addition to all other rights, options and remedies granted
or available to Agent or Lenders under this Agreement or the Loan Documents, or
otherwise available at law or in equity, upon or at any time after the
occurrence and during the continuance of an Event of Default, or any event which
with the giving of notice or the passage of time, or both, would become an Event
of Default, Agent may, in its discretion, direct Lenders, and the Majority
Lenders shall have the option to instruct Agent to direct Lenders, to, withhold
or cease making Advances under the Revolving Credit.
(b) In addition to all other rights, options and remedies granted or
available to Agent under this Agreement or the Loan Documents (each of which is
also then exercisable by Agent), Agent may, in its discretion, upon or at any
time after the occurrence and during the continuance of an Event of Default,
terminate the Revolving Credit.
(c) In addition to all other rights, options and remedies granted or
available to Agent, under this Agreement or the Loan Documents (each of which is
also then exercisable by Agent), upon or at any time after the occurrence and
during the
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continuance of an Event of Default Borrowers shall be obligated to deliver to
Agent, on behalf of all Lenders, the proceeds of Collateral.
(d) In addition to all other rights, options and remedies granted or
available to Agent, under this Agreement or the Loan Documents (each of which is
also then exercisable by Agent), upon or at any time after the occurrence and
during the continuance of an Event of Default, Borrowers shall, at Agent's
request (in its discretion), deliver and pledge to Agent, on behalf of all
Lenders, collateral (consisting of cash or U.S. Government Securities) in an
aggregate fair market value equal to the aggregate face amount of all
outstanding Letters of Credit.
(e) In addition to all other rights, options and remedies granted or
available to Agent under this Agreement or the Loan Documents (each of which is
also then exercisable by Agent), Agent may, upon or at any time following the
occurrence and during the continuance of an Event of Default exercise all rights
under the UCC and any other applicable law or in equity, and under all Loan
Documents permitted to be exercised after the occurrence of an Event of Default,
including the following rights and remedies (which list is given by way of
example and is not intended to be an exhaustive list of all such rights and
remedies):
(i) The right to take possession of, send notices regarding
and collect directly the Collateral, with or without judicial process (including
without limitation the right to notify the United States postal authorities to
redirect mail addressed to any Borrower to an address designated by Agent); or
(ii) By its own means or with judicial assistance, enter any
Borrower's premises and take possession of the Collateral, or render it
unusable, or dispose of the Collateral on such premises in compliance with
subsection (f) below, without any liability for rent, storage, utilities or
other sums, and no Borrower shall resist or interfere with such action; or
(iii) Require Borrowers at Borrowers' expense to assemble all or
any part of the Collateral and make it available to Agent at any place
designated by Agent;
(iv) The right to reduce the Revolving Credit Limit or to
modify the terms and conditions upon which Agent, on
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behalf of Lenders, or Lenders may be willing to consider making Advances under
the Revolving Credit.
(f) Borrowers hereby agree that a notice received by it at least ten
(10) days before the time of any intended public sale or of the time after which
any private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable inventory or Collateral which threatens to
speedily decline in value or which is sold on a recognized market may be sold
immediately by Agent without prior notice to Borrowers. Borrowers covenant and
agree not to interfere with or impose any obstacle to Agent's exercise of its
rights and remedies with respect to the Collateral, after the occurrence of an
Event of Default hereunder.
(g) In addition to all other rights, options and remedies granted to
Agent and Lenders under this Agreement, Agent may, with the consent of the
Majority Lenders, at any time, in its sole discretion, with or without cause,
relinquish or abandon any Collateral or security therein.
(h) Each of the officers of Agent is hereby irrevocably made,
constituted and appointed the true and lawful attorney for each Borrower
(without requiring any of them to act as such) with full power of substitution
to do the following, in Agent's discretion, following the occurrence and during
the continuance of an Event of Default: (a) endorse the name of such Borrower
upon any and all checks, drafts, money orders and other instruments for the
payment of monies that are payable to such Borrower and constitute collections
on Borrower's Accounts or proceeds of other Collateral; (b) execute in the name
of such Borrower any financing statements, schedules, assignments, instruments,
documents and statements that such Borrower is obligated to give Agent hereunder
or is necessary to perfect Agent's security interest or lien in the Collateral;
(c) to verify validity, amount or any other matter relating to the Collateral by
mail, telephone, telecopy or otherwise in accordance with the customary
procedures of Agent's asset based lending department; and (d) do such other and
further acts and deeds in the name of any such entity that Agent may reasonably
deem necessary or desirable to enforce any Account or realize upon any other
Collateral. This power of attorney is coupled with an interest, and is
irrevocable until the Obligations are indefeasibly paid in full.
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(i) Following the occurrence and during the continuance of an Event
of Default, Agent, on behalf of Lenders, shall be entitled to verify validity,
amount, or any other matter relating to the Collateral by mail, telephone,
telecopy or otherwise in accordance with the customary procedures of Agent.
8.4 Nature of Remedies: All rights and remedies granted Agent or
------------------
Lenders hereunder and under the Loan Documents, or otherwise available at law or
in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Agent may proceed with any number of remedies at the same time
until all Obligations are satisfied in full. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy, and
Agent, upon or at any time after the occurrence of an Event of Default, may
proceed against Borrowers, or any of them, or any of the Collateral, at any
time, under any agreement, with any available remedy and in any order.
8.5 Set-Off: If any bank account of any Borrower with Agent, any Lender
-------
or any participant is attached or otherwise liened or levied upon by any third
party, such Lender (and such participant) as agent for Lenders shall have and be
deemed to have, without notice to Borrowers, the immediate right of set-off and
may apply the funds or amount thus set-off against any of the Obligations
hereunder.
8.6 CONFESSION OF JUDGMENT:
----------------------
(A) EACH BORROWER HEREBY IRREVOCABLY AND INDEPENDENTLY AUTHORIZES
AND EMPOWERS ANY ATTORNEY(S) OR THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD
IN THE COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE, FOLLOWING THE OCCURRENCE AND
DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, TO APPEAR AT THE DIRECTION OF
AGENT, ON BEHALF OF LENDERS, FOR ANY ONE OR MORE BORROWERS IN ANY SUCH COURT,
WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM OR TIME, AND CONFESS OR ENTER
JUDGMENT AGAINST ANY ONE OR MORE BORROWERS IN LENDER'S FAVOR, OR AGENT'S FAVOR
ON BEHALF OF LENDERS, FOR ALL OR ANY PART OF THE OBLIGATIONS DUE OR TO BECOME
DUE BY BORROWERS HEREUNDER, WITH COSTS OF SUIT, RELEASE OF ERRORS AND TEN
PERCENT (10%) OF SUCH SUMS ADDED AS A REASONABLE ATTORNEYS' FEE; AND FOR THE
PURPOSE HEREOF A COPY OF THIS AGREEMENT SHALL BE SUFFICIENT WARRANT. SUCH
AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF AND JUDGMENT
MAY BE CONFESSED FROM TIME TO TIME HEREUNDER AS AGENT MAY DETERMINE.
NOTWITHSTANDING THE USE OF A STATED PERCENTAGE AS SET FORTH ABOVE FOR THE
PURPOSE OF ASSESSING ATTORNEYS' FEES WITH RESPECT TO THE ENTRY OF A CONFESSED
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JUDGMENT, BORROWERS SHALL BE LIABLE ONLY FOR ATTORNEYS' FEES AND EXPENSES
ACTUALLY INCURRED.
(B) EACH BORROWER, BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A
HEARING CONCERNING THE VALIDITY OF ANY AND ALL CLAIMS THAT MAY BE ASSERTED
AGAINST BORROWERS BY LENDERS OR AGENT ON LENDERS' BEHALF BEFORE A JUDGMENT CAN
BE ENTERED HEREUNDER OR BEFORE EXECUTION MAY BE LEVIED ON SUCH JUDGMENT AGAINST
ANY AND ALL PROPERTY OF BORROWERS HEREBY UNCONDITIONALLY WAIVES THESE RIGHTS AND
AGREES AND CONSENTS TO JUDGMENT BEING ENTERED BY CONFESSION IN ACCORDANCE WITH
THE TERMS HEREOF AND EXECUTION BEING LEVIED ON SUCH JUDGMENT AGAINST ANY AND ALL
PROPERTY OF BORROWERS, IN EACH CASE WITHOUT FIRST GIVING NOTICE AND THE
OPPORTUNITY TO BE HEARD ON THE VALIDITY OF THE CLAIM OR CLAIMS UPON WHICH SUCH
JUDGMENT IS ENTERED.
SECTION 9. AGENT
9.1 Appointment and Authorization. Each Lender, and each subsequent
-----------------------------
holder of any of the Revolving Credit Notes by its acceptance thereof, hereby
irrevocably appoints and authorizes the Agent to take such action on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. Except as may be otherwise expressly provided herein, Borrowers are
hereby authorized by the Lenders to deal solely with the Agent in all
transactions which affect the Lenders under this Agreement and the Loan
Documents. The rights, privileges and remedies accorded to the Agent hereunder
shall be exercised by the Agent on behalf of all of the Lenders.
9.2 General Immunity. Subject to the provisions of this Agreement, the
----------------
Agent will handle all transactions relating to the Loans and all other
Obligations, including, without limitation, all transactions with respect to the
Letters of Credit, this Agreement, the Loan Documents and all related documents
in accordance with its usual banking practices. In performing its duties as
Agent hereunder, the Agent will take the same care as it takes in connection
with loans in which it alone is interested. However, neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them hereunder or in connection herewith
except for its or their own gross negligence or willful misconduct.
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9.3 Consultation with Counsel. The Agent may consult with legal counsel
-------------------------
and any other professional advisors or consultants deemed necessary or
appropriate and selected by Agent and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.
9.4 Documents. The Agent shall not be under a duty to examine into or
---------
pass upon the effectiveness, genuineness or validity of this Agreement or any of
the Revolving Credit Notes or any other instrument or document furnished
pursuant hereto or in connection herewith, and the Agent shall be entitled to
assume that the same are valid, effective and genuine and what they purport to
be. In addition the Agent shall not be liable for failing to make any inquiry
concerning the accuracy, performance or observance of any of the terms,
provisions or conditions of such instrument or document.
9.5 Rights as a Lender. With respect to its applicable Revolving Credit
------------------
Pro Rata Percentage of the Revolving Credit, the Agent shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not the Agent, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include the Agent in its individual capacity.
Subject to the provisions of this Agreement, the Agent may accept deposits from,
lend money to and generally engage in any kind of banking or trust business with
Borrower and its Affiliates as if it were not the Agent.
9.6 Responsibility of Agent. It is expressly understood and agreed that
-----------------------
the obligations of the Agent hereunder are only those expressly set forth in
this Agreement and that the Agent shall be entitled to assume that no Event of
Default, and no event which with the passage of time, or the giving of notice,
would constitute an Event of Default, has occurred and is continuing, unless the
Agent has actual knowledge of such fact. Except to the extent Agent is required
by the Lenders pursuant to the express terms hereof to take a specific action,
the Agent shall be entitled to use its discretion with respect to exercising or
refraining from exercising any rights which may be vested in it by, or with
respect to taking or refraining from taking any action or actions that it may be
able to take under or in respect of, this Agreement and the Loan Documents. The
Agent shall incur no liability under or in respect of this Agreement and the
Loan Documents by acting upon any notice, consent, certificate, warranty or
other paper or instrument believed by it
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to be genuine or authentic or to be signed by the proper party or parties, or
with respect to anything that it may do or refrain from doing in the reasonable
exercise of its judgment, or that may seem to it to be necessary or desirable
under the circumstances. The relationship between the Agent and each Lender is
and shall be that of agent and principal only and nothing herein shall be
construed to constitute the Agent a joint venturer with any Lender, a trustee or
fiduciary for any of the Lenders or for the holder of a participation therein
nor impose on the Agent duties and obligations other than those set forth
herein.
9.7 Collections and Disbursements.
-----------------------------
(a) The Agent will have the right to collect and receive all
payments of the Obligations and to collect and receive all reimbursements for
draws made under the Letters of Credit, together with all fees, charges or other
amounts due under this Agreement and the Loan Documents. On each Settlement
Date, Agent shall make a determination of the actual outstanding dollar amount
of each Lender's Loans based upon its Revolving Credit Pro Rata Percentage (or
such lesser percentage if such Lender has failed to remit a required payment to
Agent hereunder) of the outstanding principal amount of all Loans.
(b) Agent shall pay to each Lender, on each Settlement Date, from
the interest actually received by Agent from Borrowers, a sum equal to the
interest calculated for the actual number of days elapsed on the basis of a year
of 360 days, on each Lender's outstanding balance of its Loans at the rate equal
to the applicable rate of interest chosen by Borrowers with respect to such
Lender's Revolving Credit Pro Rata Percentage of the Advances outstanding. If
Agent should for any reason receive less than the full amount of the interest or
other compensation due under the Loan Documents, each Lender's share of such
interest or compensation shall decrease in proportion to each Lender's Revolving
Credit Pro Rata Percentage.
(c) If any such payment received by the Agent is rescinded,
determined to be unenforceable or invalid or is otherwise required to be
returned for any reason at any time, whether before or after termination of this
Agreement and the Loan Documents, each Lender will, upon written notice from the
Agent, promptly pay over to the Agent its Revolving Credit Pro Rata Percentage
of the amount so rescinded, held unenforceable or
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invalid or required to be returned, together with interest and other fees
thereon if also required to be rescinded or returned.
(d) All payments by the Agent and the Lenders to each other
hereunder shall be in immediately available funds. The Agent will at all times
maintain proper books of account and records reflecting the interest of each
Lender in the Revolving Credit, including the Letters of Credit, in a manner
customary to the Agent's keeping of such records, which books and records shall
be available for inspection by each Lender at reasonable times during normal
business hours, at such Lender's sole expense. In the event that any Lender
shall receive any payments in reduction of the Obligations in an amount greater
than its applicable Revolving Credit Pro Rata Percentage in respect of
indebtedness to the Lenders evidenced hereby (including, without limitation
amounts obtained by reason of setoffs), such Lender shall hold such excess in
--
trust (to the extent such Lender is lawfully able to do so) for Agent (on behalf
- -----
of all other Lenders) and shall promptly remit to the Agent such excess amount
so that the amounts received by each Lender hereunder shall at all times be in
accordance with its applicable Revolving Credit Pro Rata Percentage. To the
extent necessary for each Lender's actual percentage of all outstanding Loans to
equal its applicable Revolving Credit Pro Rata Percentage, the Lender having a
greater share of any payment(s) than its applicable Revolving Credit Pro Rata
Percentage shall acquire a participation in the applicable outstanding balances
of the Revolving Credit Pro Rata Shares of the other Lenders as determined by
Agent.
(e) The proceeds from the sale or disposition of any Collateral
shall be applied first to Expenses incurred by Agent, then to accrued but unpaid
interest, then to unpaid fees owing to Lenders and/or Agent, then on the next
Settlement Date to the principal balance of Loans in accordance with percentage
which each Lender's respective outstanding Loans bears to the aggregate
outstanding Loans.
9.8 Indemnification. To the extent not promptly paid by Borrowers, the
---------------
Lenders hereby each indemnify the Agent ratably according to their respective
Revolving Credit Pro Rata Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this
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Agreement or any other Loan Document or any action taken or omitted by the Agent
under or related to this Agreement or the other Loan Documents or the Loans,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the Agent's gross negligence or
wilful misconduct. Agent shall have the right to deduct, from any amounts to be
paid by Agent to any Lender hereunder, any amounts owing to Agent by such Lender
by virtue of this paragraph.
9.9 Expenses.
--------
(a) All reasonable out-of-pocket costs and out-of-pocket expenses
incurred by Agent in connection with the creation, amendment, administration,
termination and enforcement of the Loans (including, without limitation, audit
expenses, counsel fees and expenditures to protect, preserve and defend Agent's
and each Lender's rights and interest under the Loan Documents) shall be shared
and paid on demand by Lenders pro rata based on their applicable Revolving
Credit Pro Rata Percentage.
(b) Agent may deduct from payments or distributions to be made to
Lenders such funds as may be necessary to pay or reimburse Agent for such costs
or expenses.
(c) In connection with reimbursement of expenses set forth in this
Section 9.9 and indemnification obligations set forth in Section 9.8, Agent
shall provide a written statement to Lenders describing such expenses or
indemnification obligations.
9.10 No Reliance. By execution of or joining in this Agreement, each
-----------
Lender acknowledges that it has entered into this Agreement and the Loan
Documents solely upon its own independent investigation and is not relying upon
any information supplied by or any representations made by Agent. Each Lender
shall continue to make its own analysis and evaluation of Borrowers. Agent
makes no representation or warranty and assumes no responsibility with respect
to the financial condition or Property of Borrowers, any obligor or any Account
Debtor; the accuracy, sufficiency or currency of any information concerning the
financial condition, prospects or results of operations of Borrowers; or for
sufficiency, authenticity, legal effect, validity or enforceability of the Loan
Documents. Agent assumes no responsibility or liability with respect to the
collectibility of
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the Obligations or the performance by Borrowers of any obligation under the Loan
Documents.
9.11 Reporting. During the term of this Agreement, Agent will promptly
---------
furnish each Lender or make available to each Lender at Agent's office in
Philadelphia, Pennsylvania, such financial statements, reports and other
materials actually received by Agent, as any Lender may reasonably request.
Agent will notify Lenders within a reasonable period of time (not to exceed ten
(10) Business Days) after it receives actual knowledge of any Event of Default
under the Loan Documents.
9.12 Removal of Agent. The Agent may resign at any time upon thirty
----------------
(30) days prior written notice thereof to Lenders and Borrowers and upon receipt
from Borrowers of written consent to such resignation, which consent shall not
be unreasonably withheld. The Agent may be removed as Agent hereunder by the
written direction of all Lenders (exclusive of Mellon) upon the following: (i)
willful misconduct in the performance of Agent's duties or responsibilities
under this Agreement; or (ii) if a receiver, trustee or conservator is appointed
for Agent or any state or federal regulatory authority assumes management or
control of Agent or, if under applicable law, the administrative discretionary
duties and responsibilities of Agent hereunder become controlled by or subject
to the approval of any state or federal regulatory authority. Upon any such
removal, the Majority Lenders shall have the right to appoint a successor Agent
subject to the written consent of Borrowers (not to be unreasonably withheld)
only if the successor Agent is not a Lender immediately preceding the removal of
the Agent. Upon the acceptance of the appointment as a successor Agent
hereunder by such successor Agent, such successor Agent shall thereupon succeed
to and become vested with all rights, powers, obligations and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties and
obligations hereunder.
9.13 Action on Instructions of Lenders. With respect to any provision
---------------------------------
of this Agreement, or any issue arising thereunder, concerning which the Agent
is authorized to act or withhold action by direction of Lenders (or as the case
may be under this Agreement, the Majority Lenders), the Agent shall in all cases
be fully protected in so acting, or in so refraining from acting, hereunder in
accordance with written instructions signed by Lenders. Such instructions and
any action taken or failure to
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act pursuant thereto shall be binding on all Lenders and on all holders of the
Revolving Credit Notes.
9.14 Several Obligations. The obligation of each Lender is several,
-------------------
and neither the Agent nor any other Lender shall be responsible for any
obligation or commitment hereunder of any other Lender.
9.15 Consent of Lenders to Agent's Rights.
------------------------------------
(a) Agent shall have the sole and exclusive right to service,
administer and monitor the Loans and the Loan Documents, including without
limitation, the right to exercise all rights, remedies, privileges and options
under the Loan Documents, including without limitation the credit judgment with
respect to the making of Advances and the determination as to the basis on which
and extent to which Advances may be made and the determination as to whether
Letters of Credit should be issued, amended or extended or whether payments
should be made to the Issuing Bank for draws honored on Letters of Credit.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
all Lenders: (i) extend the Revolving Credit Term or the Revolving Credit
Maturity Date, (ii) decrease any interest rate on the Revolving Credit or any
fee owing to Lenders, (iii) compromise or settle all or any material portion of
the Obligations, (iv) release any obligor from the Obligations except in
connection with termination of the Revolving Credit and full payment and
satisfaction of all Obligations, (v) modify this Section 9.15(b) or the
definition of Majority Lenders, (vi) release any material portion of the
Collateral except in connection with a sale in the ordinary course or other
permitted disposition or upon full payment of the Obligations; or (vii) increase
the Revolving Credit Limit or the Revolving Credit Pro Rata Share of any Lender;
and, except as expressly provided in this Section 9.15(b) Agent shall not,
without the prior written consent of the Majority Lenders, modify, amend or
waive any provision of this Agreement or the other Loan Documents unless
expressly permitted herein.
(c) Notwithstanding anything to the contrary contained in
subparagraph (b) above, Agent may in its discretion waive a violation of any
provision of Section 6.9 above or withhold enforcement of action as a result of
a violation thereof, for an
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indefinite period without the consent of any Lenders if the then most recent
financial statements indicate that the deviation from the financial covenant
required to be maintained as of that date is less than five percent (5%) from
the required level.
(d) After an acceleration of the Obligations, Agent shall have the
sole and exclusive right, with communication (to the extent reasonably
practicable under the circumstances) with all Lenders, to exercise or refrain
from exercising any and all right, remedies, privileges and options under the
Loan Documents and available at law or in equity to protect and enforce the
rights of the Lenders and collect the Obligations, including, without
limitation, instituting and pursuing all legal actions against Borrowers or to
collect the Obligations, or defending any and all actions brought by Borrowers
or other Person; or incurring Expenses or otherwise making expenditures to
protect the Loans, the Collateral or Lenders' rights or remedies.
(e) To the extent Agent is required to obtain or otherwise elects to
seek the consent of Lenders to an action Agent desires to take, if any Lender
fails to notify Agent, in writing, of its consent or dissent to any request of
Agent hereunder within five (5) Business Days of such Lender's receipt of such
request, such Lender shall be deemed to have given its consent thereto.
(f) Any amendment to Section 9 of this Agreement shall not require
Borrowers' consent.
9.16 Participations and Assignments: Each Lender may at any time:
------------------------------
(a) grant participations of its Revolving Credit Pro Rata Percentage
of Loans or in and to its interests under this Agreement (collectively,
"Participations") to any other lending office of such Lender or to any other
bank, lending institution or other entity which such Lender determines has the
requisite sophistication to evaluate the merits and risks of investments in
Participations ("Participants"); provided however that: (i) all amounts payable
by Borrowers to such Lender hereunder and voting rights of such Lender hereunder
shall be determined as if such Lender had not granted such Participation; and
(ii) any agreement pursuant to which such Lender may grant a Participation (A)
shall provide that such Lender is not delegating and therefor shall retain the
sole right and responsibility to exercise its rights and privileges including,
without limitation, the right to
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approve any amendment, modification or waiver of any provisions of this
Agreement, provided, however that as between such Lender and its Participant
such Lender may agree to consult with and obtain the approval of its Participant
regarding any amendment, modification or waiver of any provision set forth in
Section 9.15(b); and (B) shall not release or discharge such Lender from its
duties and obligations, which shall remain absolute, to make Advances hereunder;
and
(b) assign all or any portion of its Revolving Credit Pro Rata
Percentage of Loans and its right, title and interest therein or in and to this
Agreement (accompanied by an equivalent delegation of its duties and obligations
hereunder) to another Lender or any affiliate of a Lender, or to any other bank
or financial institution having capital of at least $500,000,000, in each case
with the prior written consent of the Agent, so long as (i) such assigning
Lender pays Agent a transfer and processing fee of $3,500, (ii) the assignor and
assignee execute an assignment in the form of Exhibit 9.16 attached hereto, and
(iii) following such assignment, each Lender hereto has a minimum Revolving
Credit Pro Rata Share of $5,000,000 (other than any assigning Lender which has
assigned its entire Revolving Credit Pro Rata Share). Upon request of Agent,
Borrowers shall execute a replacement Revolving Credit Note (identical in form
to the notes being delivered to the Lenders on the Closing Date) to the assignee
Lender and the assignor Lender in the amount of their respective Revolving
Credit Pro Rata Shares. Notwithstanding anything to the contrary contained
herein, each Lender may at any time collaterally assign all or any portion of
its rights under this Agreement and its Revolving Credit Note to any Federal
Reserve Bank to secure overnight deposits, provided that no such assignment
shall release the assignor Lender from its obligations hereunder.
SECTION 10. MISCELLANEOUS
10.1 GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND
-------------
DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN
ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY
PROVISION SHALL NOT AFFECT OR IMPAIR THE
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REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT.
10.2 Integrated Agreement: The Revolving Credit Notes, the other Loan
--------------------
Documents, all related agreements, and this Agreement shall be construed as
integrated and complementary of each other, and as augmenting and not
restricting Lenders' and Agent's rights and remedies. If, after applying the
foregoing, an inconsistency still exists, the provisions of this Agreement shall
constitute an amendment thereto and shall control.
10.3 Waivers, Release and Indemnification:
------------------------------------
(a) No omission or delay by Agent or Lenders in exercising any
right or power under this Agreement or any related agreements and documents will
impair such right or power or be construed to be a waiver of any default, or
Event of Default or an acquiescence therein, and any single or partial exercise
of any such right or power will not preclude other or further exercise thereof
or the exercise of any other right, and as to Borrowers no waiver will be valid
unless in writing and signed by Agent and then only to the extent specified.
(b) Each Borrower releases and shall indemnify, defend and hold
harmless Agent and Lenders, and their respective officers, employees and agents,
of and from any claims, demands, liabilities, obligations, judgments, injuries,
losses, damages and costs and expenses (including, without limitation,
reasonable legal fees) resulting from (i) acts or conduct of Borrower under,
pursuant or related to this Agreement and the other Loan Documents, (ii) any
Borrower's breach or violation of any representation, warranty, covenant or
undertaking contained in this Agreement or the other Loan Documents, and (iii)
any Borrower's failure to comply with any or all laws, statutes, ordinances,
governmental rules, regulations or standards, whether federal, state or local,
or court or administrative orders or decrees, (including without limitation
environmental laws, etc.) and all costs, expenses, fines, penalties or other
damages resulting therefrom, unless resulting from acts or conduct of Lenders
constituting wilful misconduct or gross negligence. The obligations of
Borrowers under this Section 10.3(b) shall survive the occurrence of any and all
events whatsoever, including without limitation, payment of the Obligations or
investigation by or knowledge of Lenders.
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(c) Each Borrower expressly waives presentment for payment, demand,
notice of dishonor, protest, notice of protest, diligence of collection, and any
other notice of any kind, and hereby consents to any number of renewals and
extensions of time of payment hereof, which renewals and extensions shall not
affect the liability of any party hereto. Borrowers further agree that Agent
may accept, by way of compromise or settlement, from any one or more of the
parties liable hereunder a sum or sums less than the amount of the Obligations,
and may give releases to such parties without affecting the liability of any
other party for the unpaid balance. Any such renewals or extensions may be made
and any such partial payments accepted or releases given without notice to any
such party.
(d) Each Borrower hereby waives and releases all errors, defects and
imperfections in any proceedings instituted by Agent under the terms of this
Agreement, or of any of the other Loan Documents, as well as all benefit that
might accrue to Borrower by virtue of any present or future laws exempting the
Property, or any other property, real, personal or mixed, or any part of the
proceeds arising from any sale of such property, from attachment, levy or sale
under execution, or providing for any stay of execution, exemption from civil
process, or extension of time for payment. Borrowers agree that any real estate
that may be levied upon pursuant to a judgment obtained by virtue hereof, or
upon any writ of execution issued thereon, may be sold upon any such writ in
whole or in part in any order desired by Lender.
10.4 Time: Whenever Borrowers shall be required to make any payment,
----
or perform any act, on a day which is not a Business Day, such payment may be
made, or such act may be performed, on the next succeeding Business Day except
with respect to the repayment of LIBOR Based Rate Loans as set forth in Section
2.4(b)(ii). Time is of the essence in the performance under all provisions of
this Agreement and all related agreements and documents.
10.5 Expenses of Agent and Lenders: At Closing and from time to time
-----------------------------
thereafter, Borrower will pay all reasonable expenses of Agent on demand
(including, without limitation, search costs, audit fees, and the reasonable
fees and expenses of legal counsel for Agent) relating to this Agreement, and
all related agreements and documents, including, without limitation, expenses
incurred in the analysis, negotiation, preparation, closing, administration,
enforcement of this Agreement and the
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other Loan Documents, the enforcement, protection and defense of the rights of
Agent and Lenders in and to the Loans and Collateral or otherwise hereunder, and
any expenses relating to extensions, amendments, waivers or consents pursuant to
the provisions hereof, or any related agreements and documents or relating to
agreements with other creditors, or termination of this Agreement. Borrowers
further agree to pay, or reimburse Lenders for, all reasonable out-of-pocket
costs and expenses, including without limitation attorneys' fees, incurred in
connection with the enforcement, protection and defense of their rights in and
to the Loans and the Collateral or otherwise hereunder, following acceleration
of the Obligations after the occurrence of an Event of Default hereunder.
Collectively all of the foregoing are referred to as the "Expenses."
10.6 Brokerage: This transaction was brought about and entered into
---------
by Agent, Lenders and Borrowers acting as principals and without any brokers,
agents or finders being the effective procuring cause hereof. Borrowers
represent that they have not committed Agent or any Lender to the payment of any
brokerage fee, commission or charge in connection with this transaction. If any
such claim is made on Agent or any Lender by any broker, finder or agent or
other person, each Borrower hereby indemnifies, defends and saves such party
harmless against such claim and further will defend, with counsel satisfactory
to Agent, any action or actions to recover on such claim, at Borrowers' own cost
and expense, including such party's reasonable counsel fees. Borrowers further
agree that until any such claim or demand is adjudicated in such party's favor,
the amount demanded shall be deemed a liability of Borrowers under this
Agreement.
10.7 Notices:
-------
(a) Any notices or consents required or permitted by this Agreement
shall be in writing and shall be deemed given if delivered in person or if sent
by telecopy or by nationally recognized overnight courier, or via first class,
Certified or Registered mail, postage prepaid, as follows, unless such address
is changed by written notice hereunder:
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If to Agent to: Mellon Bank, N.A.
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Attn: Jacob E. Reiter,
First Vice President
Telecopy No.: 610/941-4136
With copies to: Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
Attn: Lawrence Finkelstein, Esquire
Telecopy No.: 215/569-5555
If to Borrowers to: TeleSpectrum Worldwide Inc.
443 South Gulph Road
King of Prussia, PA 19406
Attn: Richard C. Schwenk, Jr.
Telecopy No.: 610/878-7480
With a copy to: Morgan Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
Attn: Michael Pedrick, Esquire
Facsimile No. 215-963-5299
If to Lenders: to the addresses set forth on Schedule "B" hereto
(b) Any notice sent by Agent, any Lender or Borrowers by any of the
above methods shall be deemed to be given when so received.
(c) Agent shall be fully entitled to rely upon any facsimile
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.
10.8 Headings: The headings of any paragraph or Section of this
--------
Agreement are for convenience only and shall not be used to interpret any
provision of this Agreement.
10.9 Survival: All warranties, representations, and covenants made by
--------
any Borrower herein, or in any agreement referred to herein or on any
certificate, document or other
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<PAGE>
instrument delivered by it or on its behalf under this Agreement, shall be
considered to have been relied upon by Agent and Lenders, and shall survive the
delivery to Lenders of the Revolving Credit Notes, regardless of any
investigation made by Lenders or on their behalf. All statements in any such
certificate or other instrument prepared and/or delivered for the benefit of
Agent and any and all Lenders shall constitute warranties and representations by
Borrowers hereunder. Except as otherwise expressly provided herein, all
covenants made by Borrowers hereunder or under any other agreement or instrument
shall be deemed continuing until all Obligations are satisfied in full.
10.10 Successors and Assigns: This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties. No
Borrower may transfer, assign or delegate any of its duties or obligations
hereunder.
10.11 Duplicate Originals: Two or more duplicate originals of this
-------------------
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed document.
10.12 Modification: No modification hereof or any agreement referred to
------------
herein shall be binding or enforceable unless in writing and signed by Borrower,
Agent and the Lenders except as provided in Section 9 hereof. Any modification
in accordance with the terms hereof shall be binding on all parties hereto,
whether or not each is a signatory thereto.
10.13 Signatories: Each individual signatory hereto represents and
-----------
warrants that he is duly authorized to execute this Agreement on behalf of his
principal and that he executes the Agreement in such capacity and not as a
party.
10.14 Third Parties: No rights are intended to be created hereunder, or
-------------
under any related agreements or documents for the benefit of any third party
donee, creditor or incidental beneficiary of any Borrower. Nothing contained in
this Agreement shall be construed as a delegation to Agent or any Lender of
Borrower's duty of performance, including, without limitation, Borrower's duties
under any account or contract with any other Person.
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<PAGE>
10.15 Discharge of Taxes, Borrowers' Obligations, Etc.: Agent, in its
------------------------------------------------
sole discretion, shall have the right at any time, and from time to time, if
Borrowers fail to timely perform, to: (a) pay for the performance of any of the
Obligations hereunder, and (b) discharge taxes or Liens, at any time levied or
placed on any of any Borrower's Property in violation of this Agreement unless
such entity is in good faith with due diligence by appropriate proceedings
contesting such taxes or Liens and maintaining proper reserves therefor in
accordance with GAAP. Expenses and advances shall be added to the Revolving
Credit, bear interest at the same rate applied to the Revolving Credit, until
reimbursed to Agent. Such payments and advances made by Agent shall not be
construed as a waiver by Agent or Lenders of an Event of Default under this
Agreement.
10.16 Withholding and Other Tax Liabilities: Each Lender shall have the
-------------------------------------
right to refuse to make any Advances from time to time unless Borrowers shall,
at Agent's request, have given to Agent evidence, reasonably satisfactory to
Agent, that they have properly deposited or paid, as required by law, all
withholding taxes and all federal, state, city, county or other taxes due up to
and including the date of the requested Advance. Copies of deposit slips showing
payment shall likewise constitute satisfactory evidence for such purpose. In the
event that any lien, assessment or tax liability against Borrowers shall arise
in favor of any taxing authority, whether or not notice thereof shall be filed
or recorded as may be required by law, Agent shall have the right (but shall not
be obligated, nor shall Agent or any Lender hereby assume the duty) to pay any
such lien, assess assessment or tax liability by virtue of which such charge
shall have arisen; provided, however, that Agent shall not pay any such tax,
assessment or lien if the amount, applicability or validity thereof is being
contested in good faith and by appropriate proceedings by such entity. In order
to pay any such lien, assessment or tax liability, Agent shall not be obliged to
wait until said lien, assessment or tax liability is filed before taking such
action as hereinabove set forth. Any sum or sums which Agent (shared ratably by
Lenders) shall have paid for the discharge of any such lien shall be added to
the Revolving Credit and shall be paid by Borrower to Agent with interest
thereon, upon demand, and Agent shall be subrogated to all rights of such taxing
authority against Borrower.
10.17 CONSENT TO JURISDICTION: AGENT, EACH BORROWER AND EACH LENDER
-----------------------
HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF
-88-
<PAGE>
THE COURTS OF COMMON PLEAS OF PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA OR THE
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA IN ANY AND
ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER
AGREEMENT OR UNDERTAKING AND IRREVOCABLY AGREES TO SERVICE OF PROCESS BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE APPROPRIATE PARTY
SET FORTH HEREIN.
10.18 Waiver of Jury Trial: AS AN INDEPENDENT COVENANT, EACH OF AGENT,
--------------------
EACH LENDER AND EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A
JURY TRIAL IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST ANY OF THEM
WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN
DOCUMENTS WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
the day and year first above written.
BORROWERS: TELESPECTRUM WORLDWIDE INC.
By:________________________________
Title:_____________________________
Attest:____________________________
TLSP TRADEMARKS, INC.
By:________________________________
Title:_____________________________
Attest:____________________________
TLSP INVESTMENTS, INC.
By:________________________________
Title:_____________________________
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<PAGE>
Attest:____________________________
AGENT: MELLON BANK, N.A., as Agent
By:________________________________
Title:_____________________________
LENDERS: MELLON BANK, N.A., as Lender
By:________________________________
Title:_____________________________
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<PAGE>
SCHEDULE A
----------
Revolving Credit Revolving Credit
Lenders Pro Rata Share Pro Rata Percentage
------- ---------------- -------------------
Mellon Bank, N.A. $ 50,000,000.00 100%
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<PAGE>
TOTAL COMMITMENT $ 50,000,000.00 100.00
=============== ========
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<PAGE>
SCHEDULE B
----------
Lender Address
- ------ -------
Mellon Bank, N.A., as Agent 610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Attn: Jacob E. Reiter,
First Vice President
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<PAGE>
EXHIBIT 10.18
-------------
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This First Amendment to Loan and Security Agreement ("Amendment") is dated
as of the 7th day of May, 1997, by and among TeleSpectrum Worldwide Inc., a
Delaware corporation, TLSP Trademarks, Inc., a Delaware corporation, TLSP
Investments, Inc., a Delaware corporation (collectively referred to as
"Borrowers" and severally referred to as "Borrower"), Mellon Bank, N.A., a
national banking association, in its capacity as agent, ("Agent") and Mellon
Bank, N.A. ("Mellon") and the financial institutions shown on the signature
pages hereof and listed on Schedule "A" attached hereto and made a part of this
Amendment (as such Schedule may be amended, supplemented, modified or replaced
from time to time), in their capacity as lenders (Mellon and each such other
financial institution, individually each being a "Lender" and collectively all
being "Lenders").
BACKGROUND
----------
A. On January 24, 1997, Borrowers, Agent and Mellon entered into a
certain Loan and Security Agreement dated that
<PAGE>
date pursuant to which financing arrangements were established by Mellon for the
benefit of Borrowers (which Loan and Security Agreement, as it may hereafter,
from time to time, be modified, supplemented or replaced is hereinafter referred
to as the "Loan Agreement").
B. In accordance with Section 9.16 of the Loan Agreement and pursuant to
assignments in the form of Exhibit 9.16 to the Loan Agreement, on the date
hereof Mellon is assigning portions of its Revolving Credit Pro Rata Percentage
of Loans and its right, title and interest therein and in and to the Agreement
(accompanied by an equivalent delegation and assumption of its duties and
obligations under the Loan Agreement) to the other Lenders listed on Schedule A
in the amounts set forth on such Schedule.
C. The parties have agreed to modify certain terms and conditions of the
Loan Agreement and desire to set forth their understanding in this Amendment.
D. Capitalized terms used but not otherwise defined in this Amendment
shall have the respective meanings ascribed thereto in the Loan Agreement.
2
<PAGE>
NOW, THEREFORE, with the foregoing background incorporated herein by
reference and made part hereof, the parties hereto, intending to be legally
bound, hereby promise and agree as follows:
1. (a) The definition of "Closing Net Worth" in Section 1.1 of the
-----------------
Loan Agreement is amended to change the date of Borrowers' Net Worth to as of
September 30, 1996 rather than August 31, 1996.
(b) The definition of "Letters of Credit" in Section 1.1 of
-----------------
the Loan Agreement is amended to change the reference to "Section 2.3(a)" to
"Section 2.2(a)".
(c) The definition of "Revolving Credit Limit" in Section 1.1
----------------------
of the Loan Agreement is hereby deleted and is replaced by the following:
"Revolving Credit Limit - $70,000,000".
----------------------
(d) The definition of "Reich Earn-Out" in Section 1.1 of the
Loan Agreement is hereby deleted.
(e) The definition of "Foreign Subsidiary Sublimit" in Section
---------------------------
1.1 of the Loan Agreement is hereby deleted and is replaced by the following:
"Foreign Subsidiary Sublimit" - $3,000,000".
---------------------------
2. Section 2.3(b)(ii) is hereby amended to (i) in the third sentence
change the words "Revolving Facility" to
3
<PAGE>
"Revolving Credit" and insert the word "of" before the words "any such requested
Advance" and (ii) in the third to last sentence change the words "LIBOR Base
Option" to "LIBOR Rate Option".
3. Sections 2.3(b)(iii)A. and (b)(iv)A. of the Loan Agreement are
hereby amended to read in full as follows:
"(iii) A. Between each Settlement Date, Agent, in its capacity as
a Lender, shall have the discretion (without any duty or obligation
regardless of any prior practice or procedures), subject to the provisions
of Section 8.3(a) herein, to make all cash Advances subject to the Base
Rate Option ("Base Rate Advances") for the account and on behalf of the
Lenders in accordance with each Lender's Revolving Credit Pro Rata
Percentage. Periodically but not less frequently than once every week on
the same day of each week, unless such day is not a Business Day, in which
event such determination shall be made the next Business Day ("Settlement
Date"), Agent shall make a determination of the appropriate dollar amount
of each Lender's Base Rate Advances based upon each such Lender's Revolving
Credit Pro Rata Percentage of all then outstanding Base Rate Advances,
which amounts shall be calculated as of the close of the Business Day
immediately preceding each respective Settlement Date. Amounts of
principal paid to Agent by Borrowers from time to time as repayment of Base
Rate Advances made solely by Agent in its capacity as a Lender, between
Settlement Dates, shall be applied to the outstanding balance of Base Rate
Advances made by Agent, as a Lender pursuant hereto, with the outstanding
balance of Base Rate Advances made by each other Lender to be adjusted on
the next Settlement Date. Interest shall accrue and each Lender shall be
entitled to receive interest at the applicable rate only on the actual
outstanding dollar amount of its respective outstanding Base Rate Advances
without regard to a prospective settlement. On each Settlement Date, Agent
shall then issue to each Lender a settlement schedule containing
information with respect to the status of the Base Rate Advances and the
relevant net positions of the Lenders and the outstanding balances of their
respective Base Rate Advances as of the close of the Business Day preceding
such Settlement Date. Each settlement schedule shall show the net amount
then owing by each Lender to Agent or by Agent to each such Lender based
upon the aggregate
4
<PAGE>
Base Rate Advances made and collections received since the most recent
Settlement Date and settlement among the Lenders and the Agent shall be
made in accordance with the direction of Agent no later than 11:00 A.M.
Philadelphia, Pennsylvania time, on each Settlement Date. To the extent
Agent is not reimbursed by any Lender on a Settlement Date in accordance
with Agent's direction, Borrowers shall immediately repay Agent on demand
the amount of any reimbursement not so made by any Lender.
(iv) A. In lieu of the procedure set forth in subparagraph
(iii), Agent may provide Lenders with notice that Borrowers have requested
a cash Advance, such notice to be given on the same Business Day that such
request is received by Agent, and request each Lender to provide Agent with
such Lender's Revolving Credit Pro Rata Percentage of such requested cash
Advance prior to Agent's making such cash Advance. Upon receipt of such
notice from Agent prior to 12:00 p.m., Philadelphia, Pennsylvania time,
each Lender shall remit to Agent its respective Revolving Credit Pro Rata
Percentage of such requested cash Advance, prior to 2:00 P.M. Philadelphia,
Pennsylvania time, on the Business Day that Agent is scheduled to make such
cash Advance in accordance with Section 2.3(b)(ii) hereof. Neither Agent,
Mellon nor any other Lender shall be obligated, for any reason whatsoever,
to remit or advance the share of any other Lender. Agent shall not be
required to make the full amount of the requested cash Advance unless and
until it receives funds representing each Lender's Revolving Credit Pro
Rata Percentage of such requested cash Advance, but Agent shall
5
<PAGE>
advance to Borrowers that portion of the requested cash Advance equal to
the Revolving Credit Pro Rata Percentages of such requested cash Advance
which it has received from the Lenders unless such portion is not in excess
of the minimum increment for the Loan type."
4. Section 2.5(f) of the Loan Agreement is hereby deleted, as are
the references to Section 2.5(f) in the definitions of "Applicable LIBOR Rate
---------------------
Margin" and "Base Rate" in Section 1.1 of the Loan Agreement. The first
- ------ ---------
sentence of Section 2.5(b) is hereby amended to read in full as follows:
"(b) Limitation on LIBOR Based Rate Loans: Upon the occurrence
------------------------------------
and during the continuance of an Event of Default, Agent may, and the
Majority Lenders shall have the option to instruct the Agent to, eliminate
the availability of new LIBOR Based Rate Loans."
5. Section 6.9(b) of the Loan Agreement is hereby amended to read in
full as follows:
"(b) Quick Ratio: Borrowers shall have and maintain a Quick
-----------
Ratio on a consolidated basis measured as of the last day of each fiscal
quarter of Borrowers of not less than the ratio set forth below for the
corresponding time period:
<TABLE>
<CAPTION>
Ratio Time Period
----- ---------------------------------------
<S> <C>
0.3:1 During the Fiscal Year ending December 31, 1997;
0.4:1 During the Fiscal Year ending December 31, 1998;
0.5:1 During the Fiscal Year ending December 31, 1999;
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
0.6:1 During the Fiscal Year ending on December 31, 2000 and at
all times thereafter."
</TABLE>
6. Section 7.10 of the Loan Agreement is hereby deleted and Section
7.11 of the Loan Agreement is hereby renumbered as new Section 7.10.
7. Section 8.1 of the Loan Agreement is hereby amended to add a new
Section 8.1(r) which reads in full as follows:
"(r) Majority Control: If any Person shall control, directly or
----------------
indirectly (which may include ownership by one or more trusts controlled by
such Person), more than 50% of the capital stock of TWI, or if TWI shall
fail or cease to own and control 100% of the capital stock of each other
Borrower."
8. Paragraphs (a) through (e) and paragraph (g) of Section 8.3 of
the Loan Agreement are hereby amended to read in full as follows:
"8.3 Rights and Remedies on Default:
------------------------------
(a) In addition to all other rights, options and remedies
granted or available to Agent or Lenders under this Agreement or the Loan
Documents, or otherwise available at law or in equity, upon or at any time
after the occurrence and during the continuance of an Event of Default or
Potential Default, Agent may, in its discretion, direct Lenders, and the
Majority Lenders shall have the option to instruct Agent to direct Lenders
to, withhold or cease making Advances or issuing Letters of Credit under
the Revolving Credit.
7
<PAGE>
(b) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the Loan Documents
(each of which is also then exercisable by Agent), upon or at any time
after the occurrence and during the continuance of an Event of Default,
Agent may, in its discretion, and shall upon the instruction of the
Majority Lenders, terminate the Revolving Credit and thereupon all
obligations of the Lenders to make Advances under the Revolving Credit
shall immediately terminate.
(c) In addition to all other rights, options and remedies
granted or available to Agent, under this Agreement or the Loan Documents
(each of which is also then exercisable by Agent), upon or at any time
after the occurrence and during the continuance of an Event of Default,
Borrowers shall be obligated to deliver to Agent, on behalf of all Lenders,
the proceeds of Collateral.
(d) In addition to all other rights, options and remedies
granted or available to Agent, under this Agreement or the Loan Documents
(each of which is also then exercisable by Agent), upon or at any time
after the occurrence and during the continuance of an Event of Default,
Borrowers shall, at Agent's request (in its discretion or at the
instruction of the Majority Lenders) deliver and pledge to Agent, on behalf
of all Lenders, collateral (consisting of cash or U.S. Government
Securities) in an aggregate fair market value equal to the aggregate face
amount of all outstanding Letters of Credit.
(e) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the Loan Documents
(each of which is also then exercisable by Agent), upon or at any time
following the occurrence and during the continuance of an Event of Default,
Agent may, and shall upon the instruction of the Majority Lenders, exercise
all rights under the UCC and any other applicable law or in equity, and
under all Loan Documents permitted to be exercised after the occurrence of
an Event of Default, including the following rights and remedies (which
list is given by way of example and is not
8
<PAGE>
intended to be an exhaustive list of all such rights and remedies):
(i) The right to take possession of, send notices regarding and
collect directly the Collateral, with or without judicial process
(including without limitation the right to notify the United States postal
authorities to redirect mail addressed to any Borrower to an address
designated by Agent); or
(ii) By its own means or with judicial assistance, enter any
Borrower's premises and take possession of the Collateral, or render it
unusable, or dispose of the Collateral on such premises in compliance with
subsection (f) below, without any liability for rent, storage, utilities or
other sums, and no Borrower shall resist or interfere with such action; or
(iii) Require Borrowers at Borrowers' expense to assemble all or
any part of the Collateral and make it available to Agent at any place
designated by Agent.
(g) In addition to all other rights, options and remedies granted
to Agent and Lenders under this Agreement, Agent may, with the consent of
all of the Lenders, at any time, with or without cause, relinquish or
abandon any Collateral or security therein."
9. The last sentence of paragraph (d) of Section 9.7 of the Loan
Agreement is hereby amended to read as follows:
"To the extent necessary for each Lender's actual percentage of
all outstanding Loans to equal its applicable Revolving Credit Pro Rata
Percentage, the Lender having a greater share of any payment(s) than its
applicable Revolving Credit Pro Rata Percentage shall purchase for cash a
participation in the applicable outstanding balances of the Revolving
Credit Pro Rata Shares of the other Lenders as determined by Agent;
provided, that if all or any portion of such greater payment is thereafter
--------
recovered from the Lender making such purchase, such purchase (or portion
thereof) shall be rescinded and the purchase price (or portion thereof)
9
<PAGE>
shall be returned by the other Lenders to properly reflect such recovery
and rescission."
10. Section 9.8 of the Loan Agreement is hereby amended to delete the
word "solely" in the next to last sentence of such Section.
11. Paragraph (a) of Section 9.9 of the Loan Agreement is hereby
amended to read as follows:
"(a) All reasonable out-of-pocket costs and out-of-pocket
expenses incurred by Agent in connection with the creation, amendment,
administration, termination and enforcement of the Loans (including,
without limitation, audit expenses, counsel fees and expenditures to
protect, preserve and defend Agent's and each Lender's rights and interest
under the Loan Documents), to the extent not reimbursed by the Borrowers,
shall be shared and paid to the Agent on demand by Lenders pro rata based
on their applicable Revolving Credit Pro Rata Percentage."
12. The third sentence of Section 9.12 of the Loan Agreement is
hereby amended to read in full as follows:
"Upon any such removal or resignation, the Majority Lenders shall
have the right to appoint a successor Agent, subject to the written consent
of Borrowers (not to be unreasonably withheld) only if the successor Agent
is not a Lender immediately preceding the removal of the Agent."
13. Section 9.15 is hereby amended to read in full as follows:
"9.15 Consent of Lenders to Agent's Rights.
------------------------------------
10
<PAGE>
(a) Subject to the direction of the Majority Lenders, Agent
shall have the sole and exclusive right to service, administer and monitor
the Loans and the Loan Documents, including without limitation, the right
to exercise all rights, remedies, privileges and options under the Loan
Documents, the making of Advances and the determination as to the basis on
which and extent to which Advances may be made and the determination as to
whether Letters of Credit should be issued, amended or extended or whether
payments should be made to the Issuing Bank for draws honored on Letters of
Credit.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent
of all Lenders: (i) extend the Revolving Credit Term or the Revolving
Credit Maturity Date, (ii) decrease any interest rate on the Revolving
Credit or any fee owing to Lenders, (iii) compromise or settle any
Obligations, (iv) release any obligor from the Obligations except in
connection with termination of the Revolving Credit and full payment and
satisfaction of all Obligations, (v) modify this Section 9.15(b) or the
definition of Majority Lenders, (vi) release any Collateral except in
connection with a sale in the ordinary course or other permitted
disposition or upon full payment of the Obligations; or (vii) increase the
Revolving Credit Limit or the Revolving Credit Pro Rata Share of any
Lender.
(c) Except as expressly provided in Section 9.15(b), Agent may,
with the prior written consent of the Majority Lenders, modify, amend or
waive any term, provision or condition (including, but not limited to, any
condition to the making of an Advance) of this Agreement or the other Loan
Documents; any such modification, amendment or waiver by Agent which is
consented to by the Majority Lenders shall be binding upon all Lenders.
(d) After an acceleration of the Obligations, except as
expressly provided in Section 8.3 and this Section 9.15, Agent shall have
the sole and exclusive right, with communication (to the extent reasonably
practicable under the circumstances) with all Lenders, to
11
<PAGE>
exercise or refrain from exercising any and all right, remedies, privileges
and options under the Loan Documents and available at law or in equity to
protect and enforce the rights of the Lenders and collect the Obligations,
including, without limitation, instituting and pursuing all legal actions
against Borrowers or to collect the Obligations, or defending any and all
actions brought by Borrowers or other Person; or incurring Expenses or
otherwise making expenditures to protect the Loans, the Collateral or
Lenders' rights or remedies.
(e) To the extent Agent is required to obtain or otherwise
elects to seek the consent of Lenders to an action Agent desires to take,
if any Lender fails to notify Agent, in writing, of its consent or dissent
to any request of Agent hereunder within ten (10) Business Days of such
Lender's receipt of such request, such Lender shall be deemed to have given
its consent thereto.
(f) Any amendment to Section 9 of this Agreement shall not
require Borrowers' consent."
14. Paragraph (b) of Section 9.16 of the Loan Agreement is hereby
amended to read in full as follows:
"(b) assign all or any portion of its Revolving Credit Pro Rata
Percentage of Loans and its right, title and interest therein or in and to
this Agreement (accompanied by an equivalent delegation of its duties and
obligations hereunder) to another Lender or any affiliate of a Lender, or
to any other bank or financial institution having capital of at least
$500,000,000, and, in the case of an assignment to an assignee that is
neither another Lender nor an affiliate of a Lender, with the prior written
consent of the Agent (which consent will not be unreasonably withheld or
delayed), so long as (i) such assigning Lender pays Agent a transfer and
processing fee of $3,500, (ii) the assignor and assignee execute an
assignment in the form of Exhibit 9.16 attached hereto, and (iii) following
such assignment, each Lender hereto has a minimum Revolving Credit Pro Rata
Share of $5,000,000 (other than any assigning Lender which has
12
<PAGE>
assigned its entire Revolving Credit Pro Rata Share). Upon request of
Agent, Borrowers shall execute a replacement Revolving Credit Note
(identical in form to the Note then held by the assigning Lender) to the
assignee Lender and the assigning Lender in the amount of their respective
Revolving Credit Pro Rata Shares. Notwithstanding anything to the contrary
contained herein, each Lender may at any time collaterally assign all or
any portion of its rights under this Agreement and its Revolving Credit
Note to any Federal Reserve Bank to secure overnight deposits, provided
that no such assignment shall release the assigning Lender from its
obligations hereunder."
15. A new Section 9.17 is hereby added to the Loan Agreement which
reads in full as follows:
"9.17 Co-Agent: The parties hereto covenant and agree that
--------
NationsBank, N.A. shall be a co-agent ("Co-Agent") hereunder; it shall have
no rights, duties or responsibilities, except for those received,
undertaken or incurred by it in its capacity as a Lender. No duty,
responsibility, right or option granted to the Agent herein is delegated or
transferred, in whole or in part, to the Co-Agent and no compensation
payable to the Agent shall be shared with, or paid to, the Co-Agent.
Co-Agent shall not be entitled to any fees or reimbursement of Expenses
except as it shall otherwise be entitled in its capacity as a Lender. Each
disclaimer, exculpation provision and indemnity contained in Section 9 of
this Agreement provided for the benefit of the Agent shall likewise be
deemed given to and provided for the Co-Agent. Notwithstanding anything to
the contrary contained in this Agreement, no amendment to this Section 9.17
shall be effective without the written consent of Co-Agent."
16. As a condition to the effectiveness of this Amendment and to
induce Lenders to increase the Revolving Credit Limit and make the amendments
described above, Borrowers must
13
<PAGE>
deliver (a) to Mellon, an additional facility fee of $60,000 and (b) to the
Agent, the following, each in form and substance satisfactory to Agent and its
counsel:
(1) Replacement Revolving Credit Notes in the aggregate face
amount of $70,000,000 and in the amounts for each
14
<PAGE>
Lender as set forth on Schedule "A" hereto (the "Replacement Notes"), duly
executed by Borrowers, reflecting the increase in the Revolving Credit Limit and
the assignments to the Lenders.
(2) A certified copy of the resolutions of the Board of
Directors of each of the Borrowers approving this Amendment and the other
matters contemplated hereby and certified copies of all documents evidencing
other necessary corporate or other action and governmental approvals, if any,
with respect to this Amendment;
(3) A certificate of the Secretary or an Assistant Secretary of
each of the Borrowers stating the names of the officers of each of the Borrowers
authorized to sign this Amendment, and the other documents or certificates to be
delivered pursuant to this Amendment by each of the Borrowers or any of its
officers, together with the true signatures of such officers; and
(4) An opinion of Borrowers' counsel in form and substance
satisfactory to Agent and its counsel.
17. Borrowers jointly and severally represent and warrant to Agent
and the Lenders as follows:
15
<PAGE>
(a) The execution and delivery by Borrowers of this Amendment,
the Replacement Notes and the other documents required hereby, and performance
by them of the transactions herein contemplated (i) are and will be within each
Borrower's corporate powers, (ii) have been authorized by all necessary
corporate action, and (iii) are not and will not be in contravention of any
order of any court or other agency or government, of law or any other indenture,
agreement or undertaking to which any Borrower is a party or by which the
property of any Borrower is bound, or be in conflict with, or result in a breach
of or constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or undertaking or result in the imposition of any lien,
charge or incumbrance of any nature on any Property of any Borrower.
(b) This Amendment, the Replacement Notes and any other
agreements, instruments and documents executed and/or delivered in connection
herewith are valid, binding and enforceable in accordance with their respective
terms.
(c) Each Borrower hereby ratifies and restates as of the date
hereof each of the representations, warranties and covenants contained in the
Loan Agreement and thereby represents
16
<PAGE>
that all such representations, warranties and covenants are true and correct in
all material respects as of the date hereof as if made on the date hereof.
(d) There has not occurred as of the date hereof any material
adverse change in the business, operations, condition (financial or otherwise)
or business prospects of any Borrower since December 31, 1996 (as the financial
condition is reflected on financial statements of Borrowers as of such date
delivered to Agent).
(e) As of the date hereof, there is $14,500,000 of outstanding
cash Advances owing by Borrowers to Lenders under the Revolving Credit without
defense, setoff or counterclaim, as well as three issued Letters of Credit under
the Revolving Credit with face amounts aggregating $1,648,268.00 and for which
Borrowers are unconditionally obligated to reimburse the Issuing Bank without
defense, setoff or counterclaim.
(f) As of the date hereof, there are no defaults or Events of
Default existing or continuing under the Loan Agreement.
18. Borrowers reconfirm their obligation to reimburse Agent on demand
for all of Agent's reasonable expenses (including without limitation reasonable
attorneys' fees and costs) incurred
17
<PAGE>
in connection with this Amendment and the transactions contemplated hereby.
19. This Amendment shall amend and is incorporated into the Loan
Agreement. To the extent of any express inconsistency between the terms hereof
and the terms of the Loan Agreement, the terms hereof shall control. Except as
expressly amended by this Amendment, all of the terms and conditions of the Loan
Agreement are hereby ratified and confirmed and remain in full force and effect,
and the provisions of Section 10 of the Loan Agreement are hereby incorporated
into this Amendment. Without limiting the generality of the foregoing, Borrowers
reconfirm that all Collateral secures and shall continue to secure all of the
Obligations. This Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Amendment by their
respective duly authorized officers as of the day and year first above written.
TELESPECTRUM WORLDWIDE INC. MELLON BANK, N.A.
By:______________________________ By:__________________________________
Attest:__________________________
18
<PAGE>
TLSP TRADEMARKS, INC. NATIONSBANK, N.A.
By:______________________________ By:__________________________________
Attest:__________________________
TLSP INVESTMENTS, INC. THE SUMITOMO BANK, LIMITED
By:______________________________ By:__________________________________
Attest:__________________________ Attest:______________________________
COMERICA BANK
By:__________________________________
19
<PAGE>
SCHEDULE A
----------
SCHEDULE OF LENDERS
-------------------
NAME OF LENDER PORTION OF MAXIMUM REVOLVING CREDIT
- -------------- REVOLVING LIMIT PRO RATA PERCENTAGE
------------------ --------------------
Mellon Bank, N.A. $35,000,000 50.00000000
NationsBank, N.A. 15,000,000 21.428571428
The Sumitomo Bank, 10,000,000 14.285714286
Limited
Comerica Bank 10,000,000 14.285714286
----------- ============
$70,000,000 100.000%
=========== ========
20
<PAGE>
SCHEDULE B
----------
ADDRESSES OF LENDERS
--------------------
NationsBank, N.A.
100 North Tryon Street
NC1-007-08-04
Charlotte, NC 28255
(704) 388-3591
Attn: Ms. Patricia Noneman
The Sumitomo Bank, Limited
One Liberty Place, Suite 2860
1650 Market Street
Philadelphia, PA 19103
(215) 636-4440
Attn: Mr. J. Wade Bell
Comerica Bank
Comerica Tower at Detroit Center
500 Woodward Avenue
Detroit, MI 48226
(313) 222-3951
Attn: Mr. John M. Costa
Mellon Bank, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
(610) 941-8423
Attn: Ms. Liz Mellace
21
<PAGE>
EXHIBIT 10.19
-------------
CONSULTING AGREEMENT
--------------------
This Agreement is made as of the 20th day of February, 1997 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and William
F. Rhatigan (the "Senior Consultant").
RECITALS
--------
The Senior Consultant and the Company are currently parties to that certain
employment agreement dated as of August 13, 1996 (the "Employment Agreement").
The parties hereto desire to terminate all of their respective rights and
obligations under the Employment Agreement and enter into this Agreement with
such termination to be effective as of the date of this Agreement.
The Company desires to retain the Senior Consultant, and the Senior
Consultant desires to provide services to the Company, upon the terms and
conditions hereinafter set forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Consultancy.
-----------
(a) The Company hereby retains the Senior Consultant and the Senior
Consultant hereby accepts such retention as a senior business consultant to the
Company, reporting directly to the Chairman of the Board on such special
projects as may be mutually agreed, including but not limited to major account
relationships, acquisitions, and hiring and education of senior management
personnel.
(b) The Senior Consultant represents to the Company that he is not subject
or a party to any employment agreement, non-competition covenant, non-disclosure
agreement or any other agreement, covenant, understanding or restriction of any
nature which would prohibit the Senior Consultant from executing this Agreement
and performing fully his duties and responsibilities hereunder, or which would
in any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to the Senior
Consultant by the Company.
2. Performance.
-----------
The Senior Consultant's consulting duties as requested by the Company shall
not average more than 7 days per month during the term of the Agreement.
<PAGE>
3. Term.
----
The term of this Agreement shall begin on the date hereof and shall
continue until December 31, 1999, unless terminated prior thereto in accordance
with Sections 5 or 6.
4. Compensation for Consultancy.
----------------------------
(a) The Senior Consultant shall be compensated at an annual rate of
$150,000 (such amount is referred to herein as the "Fees") for his services to
the Company during the Term, which the Company shall pay to the Senior
Consultant on a monthly basis, and reimbursement, in accordance with the
Company's policies, upon proper accounting, of reasonable expenses and
disbursements incurred by the Senior Consultant in the course of his duties
("Reimbursements"). During the term of this Agreement, the Senior Consultant
shall not be entitled to receive any directors' fees from the Company on account
of his service as a director of the Company other than reimbursement of
expenses.
(b) The Company shall provide the Senior Consultant with insurance coverage
as provided in Exhibit A attached hereto.
(c) Through December 31, 1997, the Company shall provide the Senior
Consultant the office space currently used by the Senior Consultant in
Cambridge, MA and allow the Senior Consultant to utilize the services of the
support staff of the Company located at such office as needed.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Senior Consultant becomes totally disabled
----------------
(as defined below), the Company may terminate the Term by notice to the Senior
Consultant, and as of the termination date, the Company shall have no further
liability or obligation to the Senior Consultant hereunder, except that the
Senior Consultant shall receive any unpaid Fees and Reimbursements that have
accrued through the date of termination. For the purposes hereof, the Senior
Consultant shall be deemed to be "totally disabled" if the Senior Consultant is
considered totally disabled under any group disability plan maintained by the
Company and in effect at that time, or in the absence of any such plan, under
applicable Social Security regulations. In the event of any dispute under this
Section 5(a), the Senior Consultant shall submit to a physical examination by a
licensed physician mutually satisfactory to the Company and the Senior
Consultant, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
(b) Death. If the Senior Consultant dies, this Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation to the Senior Consultant, his executors, administrators,
heirs, assigns or any other person claiming under or
-2-
<PAGE>
through his estate, except that the Senior Consultant's estate shall receive any
unpaid Fees and Reimbursements that have accrued through the date of
termination.
(d) Cause. The Company may terminate the Term for "cause" by giving the
-----
Senior Consultant 30 days notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Senior Consultant, except that the Senior Consultant shall receive any
unpaid Fees and Reimbursements that have accrued through the date of
termination, net of any liabilities that the Senior Consultant may have to the
Company. For purposes of this Agreement, "cause" shall mean the failure of the
Senior Consultant to observe or perform (other than by reason of illness, injury
or incapacity) any of the material terms or provisions of this Agreement,
conviction of a felony or other crime involving moral turpitude, or habitual
insobriety.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Term without cause at any time by giving the Senior Consultant 30
days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Senior Consultant the Fees and provide the Fringe
Benefits listed in paragraph (a) on Exhibit A through December 31, 1999, and as
of the termination date, the Company shall not have any further liability or
obligation to the Senior Consultant. The Fees to be paid and Fringe Benefits to
be provided under this Section 6 are referred to herein as the "Termination
Compensation." The Senior Consultant shall not be entitled to any Termination
Compensation unless the Senior Consultant executes and delivers to the Company
after a notice of termination a release in a form satisfactory to the Company in
its sole discretion by which the Senior Consultant releases the Company from any
obligations and liabilities of any type whatsoever, except for the Company's
obligations with respect to the Termination Compensation. The parties hereto
acknowledge that the Termination Compensation to be provided under this Section
6 is to be provided in consideration for the above-specified release.
7. Agreement Not to Compete.
------------------------
(a) The Senior Consultant covenants that for the period beginning on
the termination of Senior Consultant's engagement hereunder and ending on the
second anniversary of the date of such termination of the consultancy hereunder
(the "Restricted Period"), he will not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a partner, principal,
agent, representative, consultant or otherwise with or use or permit his name to
be used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company prior to
the time the Senior Consultant assumed his consulting capacity hereunder with
any portion of the United States in the direct marketing business which includes
inbound and outbound telemarketing, fulfillment, direct mail, customer retention
and market research (the "Business"). Notwithstanding the foregoing, the Senior
Consultant may be involved in a business which performs such services internally
and which services are merely ancillary to the sale and marketing of the
products produced or services provided by such business. It is recognized by
the
-3-
<PAGE>
Senior Consultant and the Company that the Business is and is expected to
continue to be conducted throughout the United States and that more narrow
geographical limitations of any nature on this non-competition covenant (and the
non-solicitation covenant set forth in Section 7(b)) are therefore not
appropriate. The foregoing restriction shall not be construed to prohibit the
ownership by Senior Consultant as a passive investment of not more than five
percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant
to the Securities Exchange Act of 1934.
(b) The Senior Consultant further covenants that during the Restricted
Period, he will not, either directly or indirectly, (i) call on or solicit any
person who or which has been a customer of the Company with respect to the
activities prohibited by Section 7(a) or (ii) solicit the employment of any
person who is employed by the Company during such period on a full or part-time
basis.
(c) The Senior Consultant recognizes and acknowledges that by reason
of his ownership of and engagement by the Company he has had access to
Confidential Information relating to the Business. The Senior Consultant
acknowledges that such Confidential Information is a valuable and unique asset
and covenants that he will not disclose any such Confidential Information after
the date hereof to any person for any reason whatsoever, unless such information
(i) is in the public domain through no wrongful act of Senior Consultant, (ii)
has been rightfully received from a third party without restriction and without
breach of this Agreement or (iii) except as may be required by law.
(d) The Senior Consultant acknowledges that the restrictions contained
in this Section 7 are reasonable and necessary to protect the legitimate
interests of the Company, and that any violation will result in irreparable
injury to the Company.
(e) The Senior Consultant agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) Except for the second sentence of Section 7(a) above, the
covenants set forth in this Section 7 shall be in addition to and not in
limitation of any similar covenants set forth in the Asset Purchase Agreement by
and among the Company, CRW Financial, Inc., NBG Services, Inc., Michael J.
Gallant and the Senior Consultant dated as of May 3, 1996 and amended and
restated on
-4-
<PAGE>
May 21, 1996. The second sentence of Section 7(a) above shall be deemed to
modify the covenant set forth in Section 8.7(a) of the Purchase Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Senior Consultant, solely or jointly with others,
whether or not patentable or copyrightable, at any time during the Term or
during his employment by NBG Services, Inc. and RG Associates, Inc. prior to the
commencement of the Term and that relate to the actual or planned business
activities of the Company (collectively, the "Developments") and all of the
Senior Consultant's right, title and interest therein, shall be the exclusive
property of the Company. The Senior Consultant hereby assigns, transfers and
conveys to the Company all of his right, title and interest in and to any and
all such Developments. The Senior Consultant shall disclose fully, as soon as
practicable and in writing, all Developments to the Board. At any time and from
time to time, upon the request of the Company, the Senior Consultant shall
execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Senior
Consultant for all reasonable expenses incurred by his in compliance with the
provisions of this Section 8.
9. Confidential Information.
------------------------
(a) The Senior Consultant has had and will have possession of or
access to confidential information relating to the business of the Company,
including writings, equipment, processes, drawings, reports, manuals, invention
records, financial information, business plans, customer lists, the identity of
or other facts relating to prospective customers, inventory lists, arrangements
with suppliers and customers, computer programs, or other material embodying
trade secrets, customer or product information or technical or business
information of the Company. All such information, other than any information
that is in the public domain through no act or omission of the Senior Consultant
or which he is authorized to disclose, is referred to collectively as the
"Company Information." During and after the Term, the Senior Consultant shall
not (i) use or exploit in any manner the Company Information for himself or any
person, partnership, association, corporation or other entity other than the
Company, (ii) remove any Company Information, or any reproduction thereof, from
the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
-5-
<PAGE>
(b) All Company Information developed, created or maintained by the
Senior Consultant, alone or with others while employed by the Company, and all
Company Information maintained by the Senior Consultant thereafter, shall remain
at all times the exclusive property of the Company. The Senior Consultant shall
return to the Company all Company Information, and reproductions thereof,
whether prepared by his or others, that are in his possession immediately upon
request and in any event upon the completion of his engagement by the Company.
10. Remedies.
--------
The Senior Consultant expressly acknowledges that the remedy at law for any
breach of Sections 7, 8 and 9 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Senior Consultant's
obligations under these provisions without the necessity of proving the actual
damage to the Company or the inadequacy of a legal remedy. Subject to the
remainder of this Section 10, the rights conferred upon the Company by the
preceding sentence shall not be exclusive of, but shall be in addition to, any
other rights or remedies which the Company may have at law, in equity or
otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by
-------------
the laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term
-------
"Company" shall be deemed to include any incorporated or unincorporated entities
that are controlled, directly or indirectly, by the Company through ownership,
agreement or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Senior Consultant hereunder
are of a personal nature and shall not be assignable in whole or in part by the
Senior Consultant.
(d) Notices. All notices required to be given under this Agreement
-------
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
-6-
<PAGE>
TO SENIOR CONSULTANT:
Mr. William F. Rhatigan
19 Knowlton Drive
Acton, MA 01720
with a copy to:
Abrams, Roberts, Klickstein & Levy LLP
Counsellors at Law
265 Franklin Street
Boston, MA 02110
Attn: Barry C. Klickstein, Esq.
TO THE COMPANY:
TeleSpectrum Worldwide Inc.
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-878-7480
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification; Termination of Employment
---------------------------------------------------------
Agreement This Agreement constitutes the entire agreement of the parties hereto
- ---------
with respect to the subject matter hereof and may not be modified or amended in
any way except in writing by the parties hereto. The Employment Agreement is
hereby terminated as of the date of this Agreement without the necessity of any
further action by any party thereto.
(f) Status of Stock Options. Notwithstanding the Senior Consultant
-----------------------
retirement from employment with the Company and the termination of the
Employment Agreement, the Company hereby confirms that the term Employee, as
used in that certain Grant Letter dated as February 1997, also includes
consultants and directors of the Company. Accordingly, Section 2(e)
-7-
<PAGE>
of such Grant Letter has not been triggered by the Senior Consultant's
retirement from employment with the Company.
(g) Duration. Notwithstanding the termination of the Term and of the
--------
Senior Consultant's engagement by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(h) Waiver. No waiver of any breach of this Agreement shall be
------
construed to be a waiver as to succeeding breaches.
(i) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
TELESPECTRUM WORLDWIDE INC.
By:__________________________
President
_____________________________
WILLIAM F. RHATIGAN
-8-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
At the Company's expense health insurance for the Senior Consultant and the
Senior Consultant's spouse, with the same benefits generally provided to the
Company's most senior executive employees from time to time during the Term.
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 786 30,715
<SECURITIES> 0 0
<RECEIVABLES> 40,255 33,064
<ALLOWANCES> 0 0
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<CURRENT-ASSETS> 44,523 66,721
<PP&E> 38,475 30,171
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<TOTAL-ASSETS> 287,727 299,055
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<COMMON> 252 252
<OTHER-SE> 242,903 240,259
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