SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OR THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File No.: 000-21557
ACI TELECENTRICS, INC.
(Name of Small Business Issuer as specified in its charter)
MINNESOTA 41-1572571
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3100 WEST LAKE STREET, SUITE 300, MINNEAPOLIS, MINNESOTA, 55416
(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (612) 928-4700
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 Company had 5,714,778 shares of common stock, no par value per
share, outstanding as of April 30, 1998.
Transitional Small Business Disclosure Format (Check One):
YES [ ] NO [X]
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
<PAGE>
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
Item 6 Exhibits and Reports on Form 8-K
Signature Page
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
----------- -----------
TELEMARKETING REVENUES $ 3,528,911 $ 3,172,691
COST OF SERVICES 2,000,723 1,551,303
<PAGE>
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,922,154 1,335,423
----------- -----------
OPERATING (LOSS) INCOME (393,966) 285,965
OTHER INCOME (EXPENSE)
Interest income 14,583 59,301
Interest expense (8,520) (4,355)
Other, net (195) 6,884
----------- -----------
Total other income (expense) 5,868 61,830
----------- -----------
(LOSS) INCOME BEFORE TAXES (388,098) 347,795
INCOME TAX (BENEFIT) EXPENSE (144,000) 143,600
----------- -----------
NET (LOSS) INCOME $ (244,098) $ 204,195
=========== ===========
Basic and diluted net (loss) income per share $ (.04) $ .04
=========== ===========
Basic shares used in computing net (loss) income
per share 5,714,778 5,706,528
=========== ===========
Diluted shares used in computing net (loss) income
per share 5,714,778 5,751,289
=========== ===========
See notes to financial statements
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 659,042
Restricted investment 500,000 493,345
Trade receivables, less allowance for
doubtful accounts of $211,000 and $195,000,
respectively 3,281,507 2,369,323
Income tax receivable 367,019 586,498
Other current assets 113,915 89,152
----------- -----------
Total Current Assets 4,262,441 4,197,360
PROPERTY AND EQUIPMENT, NET 3,082,319 3,243,205
<PAGE>
OTHER ASSETS:
Goodwill, less accumulated amortization of
$46,000 and $29,000, respectively 999,297 1,016,726
Other assets 87,954 38,993
----------- -----------
$ 8,432,011 $ 8,496,284
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 100,000 $ --
Checks written in excess of bank balance 168,281 --
Trade accounts payable 542,636 811,568
Accrued expenses 707,658 764,463
Current portion of long-term debt and
capital lease obligations 211,117 138,481
----------- -----------
Total current liabilities 1,729,692 1,714,512
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations,
less current portion 239,026 64,650
Deferred capital lease liabilities 194,251 214,600
Deferred income taxes 65,324 73,210
----------- -----------
Total long-term liabilities 498,601 352,460
SHAREHOLDERS' EQUITY:
Common stock, no par value 6,611,350 6,592,846
Accumulated deficit (407,632) (163,534)
----------- -----------
Total shareholders' equity 6,203,718 6,429,312
----------- -----------
$ 8,432,011 $ 8,496,284
=========== ===========
See notes to financial statements
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (244,098) $ 204,195
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization 220,576 110,332
Amortization of deferred capital leases (20,349) (11,849)
Deferred income taxes (7,886) 7,651
Changes in operating assets and liabilities:
Trade receivables (912,184) (488,204)
Other current assets (24,763) 35,871
Checks written in excess of bank balance 168,281 --
<PAGE>
Accounts payable and accrued expenses (117,793) 109,106
Income Taxes 219,479 (21,051)
----------- -----------
Net cash used in operating activities (718,737) (53,949)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (65,616) (252,913)
Increase in other assets (48,961) --
Increase in restricted investments (6,655) --
----------- -----------
Net cash used in investing activities (121,232) (252,913)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 100,000 --
Net proceeds from issuance of common stock 18,504 4,595
Proceeds from sale and leaseback of equipment 93,922 --
Repayments of long term debt and capital leases (31,499) (15,598)
----------- -----------
Net cash provided by (used in) financing activities 180,927 (11,003)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (659,042) (317,865)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 659,042 5,005,813
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 4,687,948
=========== ===========
NON CASH TRANSACTIONS:
Property acquired through capital leases $ 184,589 --
</TABLE>
See notes to financial statements
ACI TELECENTRICS, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1. The consolidated balance sheet of ACI Telecentrics, Incorporated and
subsidiary ("Company") as of March 31, 1998 and the related consolidated
statements of operations and cash flows for the three months ended March
31, 1998 and 1997, have been prepared by the Company without being
audited. In the opinion of management, these statements reflect all
adjustments consisting of all normal recurring entries necessary to
present fairly the financial position of ACI Telecentrics, Incorporated as
of March 31, 1998 and the results of operations and cash flows for all
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Therefore,
these financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1997 Form
10-KSB.
<PAGE>
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
2. Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). Earnings
per share amounts for the first quarter of fiscal 1997 have been restated
to conform with the requirements of SFAS 128, but there were no changes in
previously reported amounts.
3. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130),
which establishes standards for the reporting of comprehensive income and
its components. Comprehensive income is defined as the change in equity
during the period from transactions and other events and circumstances
from non-owner sources. Implementation of SFAS 130 did not have a material
effect on the Company's financial statements.
4. On August 1, 1997 the Company acquired all of the outstanding common stock
of EBCC. The acquisition was accounted for using the purchase method of
accounting. The purchase price consists of (i) $1,250,000 cash paid at
closing; and (ii) four quarterly payments (each an "Earn-Out Payment,"
cumulatively the "Total Earn-Out Payment"). The amount of the Total
Earn-Out Payment will depend on the amount of revenues generated by
certain EBCC clients and prospective clients during the period from
January 1, 1998 through December 31, 1998 (the "Earn-Out Revenues"). Based
on revenues generated from January 1, 1998 through March 31, 1998 no
quarterly payment was due EBCC. The excess of Purchase Price over Net
Assets Acquired is being amortized over 15 years using the straightline
method. The Company has provided the seller with a $500,000 security
interest in a Treasury Bill owned by the Company as a guaranty of payment
of the remaining installments of purchase price, if any.
The following unaudited pro forma financial information for the Company gives
effect to the EBCC acquisition as if it had occurred at the beginning of periods
reported:
Three Months Ended
March 31, 1997
------------------
Net Revenues $4,612,087
==========
Net Income $ 147,259
==========
Basic and diluted net income per share $ .03
==========
Basic shares used in computing pro forma
net income per share 5,706,528
==========
Diluted shares used in computing net income per share 5,751,289
==========
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ACI provides telephone-based sales and marketing services primarily to the
telecommunications, insurance, publishing and financial services industries. The
Company operates nine call centers in six Midwest states, which, as of March 31,
1998 had 409 outbound and 27 inbound stations. In March 1988, the Company opened
its ninth call center in Valentine Nebraska. The Company had 818 full and
part-time employees as of March 31, 1998.
On August 1, 1997 the Company acquired all of the outstanding common stock
of Encyclopaedia Britannica Communications Corporation (EBCC), which had call
centers in Lombard, Ill. and Merrillville, Ind. Operations of EBCC are included
from August 1, 1997 and therefore not included in any reported amounts for the
first quarter of 1997.
Revenue from telemarketing services is recognized as these services are
performed and are generally based on an hourly rate. Certain telemarketing
service revenues are performance-based. Cost of services includes compensation
and commissions for telephone sales representatives, payroll taxes and other
benefits associated with such personnel, telephone expenses and other direct
costs associated with providing services to customers. Selling, general and
administrative expenses include administrative, sales, marketing, occupancy,
depreciation and other indirect costs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenue for the three months ended March 31, 1998 was $3,528,911 an
increase of $356,220 or 11.2% over 1997 revenues of $3,172,691.
Telecommunications clients provided 53% of revenues in 1998 with the largest
client representing 35% of the total revenues. In 1997 telecommunications
represented 71% of revenues with one client representing 66% of first quarter
revenues. The largest client in 1998 was not the same client as 1997. Other
industry segments in 1998 included publishing (23%), insurance (13%) and
financial services (10%). Billable hours in 1998 increased 3.7% over 1997.
Cost of services in 1998 was $2,000,723 or 56.7% of revenues compared to
$1,551,303 or 48.9% in 1997. The increase in cost of services as a percentage of
revenues is the result of increased labor and benefit costs and 11% of 1998
revenues being derived from outsourcing compared to 4% in 1997. Outsourcing is
the process whereby the Company provides contract work to other telemarketing
companies, when it does not have the resources to do in a Company operated
facility. Cost of services on outsourced work is approximately 79% and
therefore, increases the overall cost of services percentage of revenues.
Selling, general and administrative expenses were $1,922,154 compared to
$1,335,423 in 1997, a 44% increase. As a percentage of revenue, selling general
and administrative expenses increased to 54% in 1998 compared to 42% in 1997.
Approximately $371,000 of the increase related to facility expenses, the
majority of which was related to facilities opened or acquired since first
quarter 1997. The balance relates primarily to the effect of personnel costs
added to the administrative, IS, and sales departments in 1997 which have a full
quarter effect in 1998.
<PAGE>
As a result, the operating loss for the first quarter 1998 was $393,966
compared to an operating profit of $285,965 in 1997. Other income was a net of
$5,868 in 1998 compared to $61,830 in 1997. The decrease was the direct result
of lower interest income as cash investments declined from last year's balances.
The pre tax loss in 1998 was $388,098 compared to pretax income of
$347,795 in 1997. The net loss in 1998 was $244,098 or $.04 per share compared
to net income of $204,195 or $.04 per share in 1997. In 1998 the Company
recorded a $144,000 income tax benefit which it expects to utilize in future
quarters in 1998.
LIQUIDITY AND CAPITAL RESOURCES
In 1997, the Company financed much of its activities with the proceeds
from the October 1996 IPO, of which $5,005,813 in cash and cash equivalents
remained at December 31, 1996. The Company had historically used operating
activities, bank borrowings, capital leases and public and private sector
financing in connection with the opening of call centers as its primary sources
of liquidity. The public and private sector (grants/financings) included low
interest rate loans, forgivable loan arrangements and reimbursement for certain
expenses and leasehold improvements. In November 1997, the Company's Board of
Directors authorized a $2 million revolving line of credit which became
effective in January 1998. At March 31, 1998 the Company had outstanding
borrowings of $100,000.
Cash utilized in operating activities was $797,771 in 1998. The net loss
accounted for $244,098 of this amount while changes in working capital
components was $746,013. This was offset by depreciation, amortization and non
cash items of $192,340. Cash utilized in operating activities was $53,949 in
1997. Net income of $204,195 was offset by changes in working capital components
of $364,278. This was offset by depreciation, amortization and non cash items of
$106,134.
Cash utilized in investing activities was $121,232 in 1998 of which
$65,616 was net amount of purchases of property and equipment. Other increases
accounted for $55,616. Cash utilized in investing activities in 1997 was
$252,913 and related to the purchase of property and equipment.
Cash flows from financing activities in 1998 was $180,927. The Company
borrowed $100,000 against its new line of credit. Approximately $94,000 of the
capital leases related to equipment purchased in 1997 and sold back to a
financing company in 1998. No gain or loss was recognized in this transaction.
In addition, the Company issued stock from its Employee Stock Purchase Plan for
$18,504 and repaid long term debt and capital leases of $31,499. Cash flows
utilized from financing activities in 1997 were $11,003 which was the repayment
of long term debt and capital leases of $15,598 offset by the issuance of stock
in the Employee Stock Purchase Plan of $4,595.
As a result, the Company had a decrease in cash in 1998 of $659,042
compared to $317,865 in 1997. The Company believes that funds available at March
31, 1998 together with funds which should be generated from future operations,
equipment and financing leases and revolving line of credit arrangements will be
sufficient to finance its current operations and planned capital expenditures at
least for twelve months.
QUARTERLY RESULTS
The telemarketing industry tends to be slower in the first and third
quarters of the year because client marketing and customer service programs are
typically slower in the post-holiday and summer
<PAGE>
months. The Company has experienced and expects to continue to experience
quarterly variations in revenue and operating income principally as a result of
the timing of clients' telemarketing campaigns, the commencement of new
contracts, changes in the Company's revenue mix, start-up of new call center and
the additional selling, general and administrative expensed to acquire and
support such new business.
OUTLOOK
Certain of the statements in this section are "forward-looking statements"
within the meaning of the federal securities laws. The following forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by such statements.
Management believes that businesses will continue to increase outsourcing
the telemarketing component of their business, which should result in increases
in the Company's calling revenue in 1998. However, it should be noted that the
Company experienced a weakening in demand for its services in the third and
fourth quarter of 1997 and as a result of attrition, experienced a decline in
the telephone sales representatives' work force. This decline continued through
January and February, 1998 and began to reverse in March, 1998. Demand for the
Company's services seems strong in the second quarter. In order to meet this
increased demand, the Company opened two new outbound call centers (one in March
and April 1998) and to endeavor to maintain annual revenue in the range of
$40,000 to $50,000 per telemarketing seat. The Company will continue to invest
in technology to serve its clients' needs and to be a standard setter in
providing exceptional service. In 1998, the Company expects to spend
approximately $1,300,000 on capital expenditures to achieve these goals.
While the Company anticipates this increase in demand for its services to
continue in 1998, there is no assurance that the Company will be able to hire
sufficient personnel to meet client demands. There is no assurance that the
Company's marketing efforts will generate sufficient new business to fully
utilize the additional call center capacity to be created in 1998 or that
businesses will continue to outsource their telemarketing needs.
Management expects that its major clients in the telecommunications
industry, will continue to account for a significant portion of the Company's
revenues in 1998. There is no assurance that these customers will in fact
generate sufficient new business to meet expectations or to fully utilize the
additional call center capacity being created in 1998.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company has assessed this risk with respect to its
financial and operational systems and has determined that most systems are Year
2000 compliant. The Company is reviewing its systems as it relates to
interfacing with clients and vendors, but does not anticipate any material costs
associated with systems conversions due to Year 2000 issues.
INFLATION
Inflation has not had a material impact on operating results and the
Company does not expect it to have a significant impact in the future. However,
there can be no assurance that the Company's business will not be affected by
inflation in the future.
<PAGE>
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.38. $2 million revolving line of credit loan between
National City Bank and ACI Telecentrics, Incorporated.
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACI TELECENTRICS, INCORPORATED
Registrant
Dated May 8, 1998 By: /S/STEVEN A. KAHN
---------------------------------
Steven A. Kahn
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated May 8, 1998 By: /S/RICK N. DIAMOND
---------------------------------
Rick N. Diamond
Chief Executive Officer and
Director
EXHIBIT 10.38
REVOLVING CREDIT LOAN AGREEMENT
This Agreement is dated as of the 30th day of January, 1998, by and
between ACI TELECENTRICS, INCORPORATED, a Minnesota corporation (the "Borrower")
and NATIONAL CITY BANK OF MINNEAPOLIS, a national banking association (the
"Lender").
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles. All determinations of the book value of inventory contemplated
hereby shall be at the lower of cost or market.
"Accounts" means the aggregate unpaid obligations of customers and other
account debtors to the Borrower arising out of the sale or lease of goods or
rendition of services by the Borrower on an open account or deferred payment
basis.
"ACI Illinois" shall mean Borrower's wholly-owned Subsidiary, ACI
Telecentrics of Illinois, Inc.
"ACI Illinois Guaranty" shall mean the guaranty of ACI Illinois in
substantially the form of Exhibit D attached hereto.
"ACI Security Agreement" shall mean security agreement of ACI Illinois in
substantially the form of Exhibit E attached hereto.
"Advance" means an advance to the Borrower by the Lender under Section
2.01 of this Agreement.
"Affiliate" or "Affiliates" means any Person controlled by, controlling or
under common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Revolving Credit Loan Agreement, as the same may be
amended and restated from time to time.
<PAGE>
"Base Rate" means the rate of interest established by and publicly
announced from time to time by National City Bank of Minneapolis' as it's "Base
Rate" with the understanding that the Lender may lend to its customers at rates
that are above or below the Base Rate or, if Lender ceases to announce a rate so
designated, any similar successor rate designated by Lender.
"Borrowing Base" means, at any time, the lesser of
(a) the Commitment, or
(b) 75% of Eligible Accounts and 50% of Eligible Property and
Equipment.
"Borrowing Base Certificate" means a certificate of the chief financial
officer of the Borrower, in the form of Exhibit C attached hereto, correctly
setting forth the Accounts and the Eligible Accounts and the Borrowing Base of
the Borrower as of a particular date.
"Business Day" means any day other than a Saturday or Sunday or other day
on which Lenders in Minneapolis are authorized or required to be closed.
"Closing Date" shall mean the date specified by the Borrower in which the
initial advance is to be made after all the conditions preceded and specified in
Section 3.01 of this Agreement have been satisfied.
"Collateral" has the meaning specified in the Security Agreement.
"Commitment" means $2,000,000.
"Current Assets" of any person means the aggregate amount of assets of
such person which in accordance with generally accepted accounting principals
may be properly classified as current assets, after deducting adequate reserves
where proper, but in no event including any real estate or equipment.
"Current Liabilities" of any person means (i) all debt of such person due
on demand or within one (1) year from the date of determination thereof; and
(ii) all other items, including taxes accrued as estimated, which, in accordance
with generally excepted accounting principles, may be properly classified as
currently liabilities.
"Debt" of any Person means (i) all items of indebtedness or liability
which in accordance with generally accepted accounting principles would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be determined
and (ii) indebtedness secured by any mortgage, pledge, lien or security interest
existing on property owned by such Person, whether or not the indebtedness
secured thereby shall have been assumed, (iii) guaranties and endorsements
(other than for purposes of collection in the ordinary course of business) by
such Person and other contingent obligations of such Person in respect of, or to
purchase or otherwise acquire, indebtedness of others and (iv) all obligations
of such Person to reimburse any Lender or other Person in respect of amounts
paid under letters of credit. Debt shall not include debt
<PAGE>
arising from non-interest bearing assistance grants provided by governmental
agencies and development corporations, which is forgiven on a scheduled basis so
long as the Borrower meets certain defined criteria.
"Debt Service Coverage Ratio" means, for any given period of
determination, the ratio of (i) Operating Income, depreciation and amortization
to (ii) the sum of (a) the amount of all payments of interest and (b) the amount
of all scheduled principal payments of long term Debt and capital lease
obligations that the Borrower was required to pay during such period on the
Advances made by the Lender to the Borrower.
"Default" means an event that, with giving of notice or passage of time or
both, would constitute an Event of Default.
"Eligible Accounts" means all unpaid Accounts, net of any credits, except
the following shall not in any event be deemed Eligible Accounts:
(1) That portion of Accounts over 60 days past invoice date (120
days in the event of amounts owed under economic development grants)
provided, however, if more than 25% of any such Account is more than 60
days (120 days in the event of amounts owed under economic development
grants) past invoice date, the entire Account shall be ineligible;
(2) That portion of Accounts that are disputed or subject to a claim
of offset or a contra account;
(3) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government
including sums due under economic development grants with respect to which
the Borrower has provided evidence reasonably satisfactory to the Lender
that (A) the Lender has a first priority security interest and (B) such
Account may be enforced by the Lender directly against such unit of
government under all applicable laws);
(4) Accounts owed by an account debtor located outside the United
States or Canada which are not backed by a commercial letter of credit
assigned to the Lender, in the possession of the Lender and reasonably
acceptable to the Lender in all respects, in its sole discretion;
(5) Accounts owed by an account debtor that is the subject of
bankruptcy proceedings or has gone out of business;
(6) Accounts owed by a shareholder, subsidiary, Affiliate, officer
or employee of the Borrower ; and
(7) Accounts not subject to a duly perfected security interest in
favor of the Lender or which are subject to any lien, security interest or
claim in favor of any Person other than the Lender.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 7.01.
"Eligible Property and Equipment" means the net book value of all
property, equipment and furniture owned by the Borrower, free and clear of all
security interests and liens (except those in favor of the Lender), except the
following shall not in any event be deemed Eligible Property and Equipment:
(1) Software and capitalized software development costs;
(2) Leasehold improvements; and
(3) Any other intangible assets included in property and equipment.
"GAAP" means generally accepted accounting principals consistently applied
and maintained throughout the period indicated and consistent with the
Borrower's audited financial statements delivered to the Bank pursuant to
Section 5.01 of this Agreement. Whenever any accounting term is used herein
which is not otherwise defined, it shall be interpreted in accordance with GAAP
except as required to be modified in accordance with the terms of this
Agreement.
"LIBOR Rate" means the rate of interest (rounded upward, if necessary, to the
nearest one-eighth (1/8) of one percent (1%)) as determined by the British
Bankers' Association average of interbank offered rates for dollar deposits in
the London Market, for one month maturities, on the date quoted in the Wall
Street Journal and applicable on any Business Day that the Borrower elects to
convert the interest rate on the Advances to the LIBOR Rate plus the applicable
margin.
"Loan Documents" means this Agreement, the Note, and the Security
Agreement and documents to be executed and delivered in connection therewith.
"Operating Income" means, during any given period of determination, the
sum of: (a) the net after-tax income of the Borrower during such period, (b) the
sum of any taxes recorded by the Borrower with respect to such period and (c)
any interest expense recorded by the Borrower during such period; reduced by the
sum of any extraordinary, non-operating or non-cash income recorded by the
Borrower during such period and increased by any extraordinary, non-cash or
non-operating expense or loss recorded by the Borrower during such period and
the expenses booked in the month of December, 1997, relating to the closing of
the Borrower's Lombard, IL facility.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business and
has any rights of possession, including, without limitation, the premises where
the Borrower has its chief executive office, which is legally described in
Exhibit F hereto.
<PAGE>
"Reportable Event" shall have the meaning assigned to that term in Title
IV of ERISA.
"Revolving Note" means the Revolving Note of the Borrower payable to the
order of the Lender in substantially the form of Exhibit A attached hereto.
"Security Agreement" means the security agreement of the Borrower in
substantially the form of Exhibit B attached hereto.
"Security Interest" has the meaning specified in the Security Agreement.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Tangible Net Worth" of any Person means the excess of:
(a) the tangible assets of such Person, which, in accordance with
generally accepted accounting principles, are tangible assets, after
deducting adequate reserves in each case where, in accordance with
generally accepted accounting principles, a reserve is proper over
(b) all Debt of such Person;
provided, however, that (i) inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets patents, trademarks, trade names,
copyrights, licenses, good will, deferred charges or treasury stock or any
securities of Debt of such Person or any other securities unless the same are
readily marketable in the United States of America or entitled to be used as a
credit against Federal income tax liabilities, (iii) securities included as such
tangible assets shall be taken into account at their current market price or
cost, whichever is lower, and (iv) any write-up in the book value of any assets
shall not be taken into account.
"Termination Date" means January 31, 2000.
"Working Capital" means the amount by which Current Assets exceeds Current
Liabilities.
ARTICLE II
Amount and Terms of the Revolving Advances
Section 2.01 Advances. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make Advances to the Borrower from time to time
during the period from the date hereof to and including the Termination Date, or
the earlier termination of the Commitment by the
<PAGE>
Lender pursuant to Section 7.02 hereof, in an aggregate amount at any time
outstanding not to exceed the Borrowing Base, which Advances made by the Lender
shall be secured by the Collateral. The Advances made by the Lender to the
Borrower under this Section 2.01 are made on a revolving basis and it is
contemplated that the Borrower will request Advances, repay Advances and request
additional Advances. The Borrower agrees to comply with the following procedures
in requesting Advances under this Section 2.01:
(a) The Borrower will not request any Advance under this Section
2.01 if, after giving effect to such requested Advance, the sum of the
outstanding and unpaid Advances under this Section 2.01 or otherwise would
exceed the Borrowing Base.
(b) Each request for an Advance under this Section 2.01 shall be
made to the Lender prior to 3:00 p.m. (Minneapolis time) of the day of the
requested Advance by the Borrower. Each request for an Advance may be made
in writing or by telephone, specifying the date of the requested Advance
and the amount thereof, and shall be by any person reasonably believed by
the Lender to be an officer or employee of the Borrower which the Borrower
has notified the Lender in writing is authorized to request Advances under
this Agreement. Each requested Advance shall be in the amount of $10,000
or a multiple thereof.
(c) Upon fulfillment of the applicable conditions set forth in
Article III hereof, the Lender shall disburse loan proceeds by crediting
the same to the Borrower's demand deposit account maintained with the
Lender unless the Lender and the Borrower shall agree in writing to
another manner of disbursement. Upon request of the Lender, the Borrower
shall promptly confirm each telephonic request for an Advance by executing
and delivering an appropriate confirmation certificate to the Lender. The
Borrower shall be obligated to repay all Advances under this Section 2.01
notwithstanding the failure of the Lender to receive such confirmation and
notwithstanding the fact that the person requesting the same was not in
fact the authorized officer of employee which said person identified
himself or herself to be unless the Lender commits willful misconduct or
gross negligence in determining the authorization or identity of such
person and the Borrower does not receive the proceeds or the benefit of
such Advance. Any request for an Advance under this Section 2.01, whether
written or telephonic, shall be deemed to be a representation by the
Borrower that (i) the condition set forth in Section 2.01(a) hereof has
been met, and (ii) the conditions set forth in Section 3.02 hereof have
been met as of the time of the request.
Section 2.02 Revolving Note. All Advances made by the Lender under Section
2.01 shall be evidenced by and repayable with interest in accordance with the
Revolving Note. The principal of the Revolving Note shall be payable as provided
elsewhere in this Agreement and on the earlier of the Termination Date or
acceleration by the Lender pursuant to Section 7.02 hereof, and shall bear
interest as provided herein.
Section 2.03 Interest under the Revolving Note. The principal balance of
the Advances outstanding from time to time during any month shall bear interest
(computed on the basis of actual days elapsed in a 360-day year) at the Base
Rate. Notwithstanding the foregoing, so long as no Event of Default exists under
this Agreement, the Borrower shall have the option of fixing the interest rate
on the principal balance of the Advances outstanding from time to time, for
periods commencing on the
<PAGE>
date elected by the Borrower and ending on the numerically corresponding day in
the first calendar month thereafter (except that each monthly period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month), at the then existing LIBOR Rate plus two and three-quarters percent
(2-3/4%). At the expiration of said monthly period, interest accruing on the
principal balance of the Advances shall be reestablished at the then existing
LIBOR Rate plus two and three-quarters percent (2-3/4%) per annum unless prior
to that time, the Borrower has notified the Lender of its intention to convert
the interest rate accruing on the outstanding principal balance of the Advances
to the Base Rate. Interest accruing on the principal balance of the Advances
outstanding from time to time shall be payable on the first day after the end of
each month and on the Termination Date or earlier demand or prepayment in full.
Notwithstanding anything to the contrary herein, if the Lender determines
(which determination shall be conclusive) that (i) quotation of interest rates
for the relevant deposits referred to in the definition of LIBOR Rate is not
being provided in the relevant amounts or for the relative maturities for the
purpose of determining the LIBOR Rate; or (ii) the relevant rate of interest
referred to in the definition of LIBOR Rate does not accurately cover the cost
to the Lender of making or maintaining such type of loan;
then the Lender shall forthwith give notice thereof to the Borrower, whereupon
(a) the obligation of the Lender to make Advances subject to the LIBOR Rate as
the case may be, shall be suspended until the Lender notifies the Borrower that
the circumstances giving rise to such suspension no longer exist; and (b) the
interest rate accruing on the outstanding principle balance of the Advances
shall immediately convert to the Base Rate.
Section 2.04 Voluntary Prepayment; Termination of Agreement by Borrower.
The Borrower may, in its discretion, prepay the Advances in whole at any time or
from time to time in part, without penalty or premium. If the Borrower desires
to terminate this Agreement as of any date other than the Termination Date, the
Borrower shall give at least 30 days' prior written notice to the Lender of the
Borrower's intention to do so. Upon compliance with the foregoing requirement
and subject to payment and performance of all the Borrower's obligations to the
Lender, the Borrower may obtain any release or termination of the Security
Interest in the Collateral to which the Borrower is otherwise entitled by law.
The Borrower acknowledges and agrees that it has no right or ability to reduce
in part the Commitment without the prior written consent of the Lender.
Section 2.05 Mandatory Prepayment. Without notice or demand, if the sum of
the outstanding principal balance of the Advances shall at any time exceed the
Borrowing Base, the Borrower shall repay the Advances to the extent necessary to
reduce the sum of the outstanding principal balance of the Advances to the
Borrowing Base within ten (10) Business Days.
Section 2.06 Payment. All payments of principal of and interest on the
Advances shall be made to the Lender in immediately available funds no later
than 3:00 p.m. (Minneapolis time) on the date due. The Borrower agrees that the
amount shown on the books and records of the Lender as being the aggregate
amount of the Advances outstanding shall be prima facie evidence of the
principal amounts of the Revolving Note. The Borrower hereby authorizes the
Lender to charge against the Borrower's account with the Lender an amount equal
to the principal and interest from time to time due
<PAGE>
and payable to the Lender under this Agreement and the Revolving Note, and
further authorizes the Lender, in its discretion at any time or from time to
time and without request by the Borrower, to make an Advance to the extent
necessary to pay any such amounts of principal and interest. In addition, the
Borrower further authorizes the Lender, in its discretion at any time or from
time to time and without request by the Borrower, but only after the Lender has
given written notice thereof to the Borrower, to make an Advance to the extent
necessary to pay any fees, costs or expenses hereunder or under the Security
Agreement.
Section 2.07. Payment on Non-Business Days. Whenever any payment to be
made hereunder or under the Revolving Note shall be stated to be due on a day
which is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest hereunder or fees hereunder, as the case may
be.
Section 2.08. Use of Proceeds. The proceeds of all Advances subsequent to
the initial Advance shall be used by the Borrower for ordinary working capital
purposes, equipment purchases, and for general corporate purposes.
Section 2.09 Default Rate of Interest. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Lender, the Lender may, in addition to the rights
and remedies provided in Section 7.02, increase the rate of interest payable
pursuant to the Revolving Note to the Base Rent plus two percent (2.0%)
("Default Rate"), which Default Rate shall change when and as often as the Base
Rate changes.
Section 2.10 Over Advance Fee. Without affecting the Borrower's obligation
to immediately repay the Lender the amount of each overadvance in accordance
with Section 2.05 of this Agreement, Borrower agrees to pay Lender a fee (the
"Overadvance Fee") in an amount equal to two percent (2%) per annum for the
amount overadvanced for each day any overadvance exists. All such fees shall be
computed on the basis of a three hundred and sixty (360) day year for the actual
number of days elapsed.
Section 2.11 Unused Line Fee. If the average outstanding daily principal
balance of all advances made by the Lender to the Borrower under Section 2.1 of
this Agreement shall be less than the Commitment in any calendar month, Borrower
shall pay to Lender on the first (1st) day of the next succeeding calendar month
a fee (the "Unused Line Fee") equal to one quarter of one percent (.25%) per
annum of the amount by which the Commitment exceeds the average outstanding
daily principal balance of advances in respect of such month.
ARTICLE III
Conditions of Lending
Section 3.01 Conditions Precedent to the Initial Advance. The obligation
of the Lender to make the initial Advance is subject to the condition precedent
that the Lender shall have received on or before the day of this Agreement all
of the following, each dated the date of this Agreement, in form and substance
reasonably satisfactory to the Lender:
<PAGE>
(a) The Revolving Note, properly executed on behalf of the Borrower.
(b) The Security Agreement, properly executed on behalf of the Borrower.
(c) Financing statements and fixture financing statements sufficient when
filed to perfect the Security Interest granted to the Lender under the Security
Agreement to the extent such Security Interest is capable of being perfected by
filing.
(d) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, or ACI Illinois and (ii) no financing statements or fixture financing
statements have been filed and remain in effect against the Collateral except
financing statements and fixture financing statements perfecting only security
interests permitted under Section 6.01.
(e) A certified copy of the resolutions of the Board of Directors of the
Borrower evidencing approval of the Loan Documents and other matters
contemplated hereby.
(f) Copies of the Articles of Incorporation and Bylaws of the Borrower,
certified by the Secretary or Assistant Secretary of the Borrower as being true
and correct copies thereof.
(g) A certificate of good standing of the Borrower from the Secretary of
State of Minnesota, North Dakota, South Dakota and Nebraska, dated not more than
ten days before such date.
(h) A signed copy of an opinion of counsel for the Borrower and ACI
Illinois, addressed to the Lender and reasonably acceptable to the Lender's
counsel.
(i) A signed copy of certificate of the Secretary or an Assistant
Secretary of the Borrower which shall certify the names of the officers of the
Borrower authorized to sign the Loan Documents and the other documents or
certificates to be delivered pursuant to this Agreement by the Borrower and to
request Advances under Section 2.01. The Lender may conclusively rely on such
certificate until it shall receive a further certificate of the Secretary or
Assistant Secretary of the Borrower canceling or amending the prior certificate
and submitting the signatures of the officers named in such further certificate.
(j) A certificate of the insurance required under the Security Agreement
and ACI Illinois Security Agreement in form and substance satisfactory to the
Lender in its sole discretion, naming the Lender as loss payee.
(k) The ACI Illinois Guaranty properly executed on behalf of ACI Illinois.
(l) The ACI Illinois Security Agreement properly executed on behalf of ACI
Illinois.
(m) Financing Statements and Fixture Financing Statements sufficient when
filed to perfect a security interest granted to the Lender under the ACI
Illinois Security Agreement to the extent such security interest is capable of
being perfected by filing.
<PAGE>
(n) A certified copy of the Resolutions of the Board of Directors and the
sole Shareholder of ACI Illinois evidencing approval of the ACI Illinois
Guaranty and ACI Illinois Security Agreement and other matters contemplated
hereby.
(o) Copies of the Articles of Incorporation and By-Laws of ACI Illinois,
certified by the Secretary or Assistant Secretary of ACI Illinois as being true
and correct copies thereof.
(p) A Certificate of Good Standing of ACI Illinois from the Secretary of
State of Illinois and Indiana dated not more than ten (10) days before such
date.
(q) Such other documents and information as the Lender may reasonably
request.
Section 3.02 Conditions Precedent to All Advances. The obligation of the
Lender to make each Advance shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article IV
hereof are correct on and as of the date of such Advance as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of Default.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 4.01 Corporate Existence and Power. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a material adverse effect on the business, properties or
condition (financial or otherwise) of the Borrower. The Borrower has all
requisite power and authority, corporate or otherwise, to conduct its business,
to own its properties and to execute and deliver, and to perform all of its
obligations under the Loan Documents.
Section 4.02 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do and will not (i) require any
consent or approval of the stockholders of the Borrower, or any authorization,
consent or approval by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (ii) to the best of the
Borrower's knowledge, violate any provision of any law, rule or regulation
(including, without limitation, Regulation X of the Board of Governors of the
Federal Reserve System) of or any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the Articles of Incorporation
or Bylaws of the Borrower, (iii) result in a breach of
<PAGE>
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Borrower is a party or by
which it or its properties may be bound or affected, or (iv) result in, or
require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature upon or
with respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 4.03 Legal Agreements. The Loan Documents constitute the legal,
valid and binding obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms, except to the extent that enforcement
thereof may be limited by any applicable bankruptcy, insolvency or similar laws
now or hereafter in effect affecting creditors' rights generally and by general
principles of equity.
Section 4.04 Subsidiaries. The Borrower has one Subsidiary, ACI
Telecentrics of Illinois, Inc..
Section 4.05 Financial Condition. The Borrower has heretofore furnished
the following financial statements to the Lender: (i) the annual audited
financial statements of the Borrower for the Borrower's fiscal year ended on
December 31, 1996 and (ii) the monthly and year to date unaudited financial
statements in comparative form for the period ended October 31, 1997. Those
financial statements fairly present the financial condition of the Borrower on
the dates thereof and the results of its operations for the periods then ended,
and were prepared in accordance with generally accepted accounting principles.
Section 4.06. Adverse Change. There has been no material adverse change in
the business, properties or condition (financial or otherwise) of the Borrower
since the date of the latest financial statement referred to in Section 4.05,
other than those changed contained in revised projections for fiscal year ended
on December 31, 1997, and closing costs that the Borrower will incur in 1998
associated with the Lombard, Illinois facility which have been disclosed to the
Lender.
Section 4.07 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or the properties of the Borrower before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to the Borrower, would have a material
adverse effect on the financial condition, properties, or operations of the
Borrower.
Section 4.08. Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 4.09 Taxes. The Borrower has paid or caused to be paid to the
proper authorities when due all federal, state and local taxes required to be
withheld by it. The Borrower has filed all federal, state and local tax returns
which to the knowledge of the officers of the Borrower are required to be filed,
and the Borrower has paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
it to the extent such taxes have become due.
<PAGE>
Section 4.10 Titles and Liens. The Borrower has good title to each of the
properties and assets reflected in the latest balance sheet referred to in
Section 4.05 (other than any sold, as permitted by Section 6.06), free and clear
of all mortgages, security interests, liens and encumbrances, except for
mortgages, security interest and liens permitted by Section 6.01 and covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the business or operations of the Borrower as
presently conducted. No financing statement naming the Borrower as debtor is on
file in any office except to perfect only security interests permitted by
Section 6.01. Borrower has pledged an account maintained at Dain Bosworth
Incorporated, in the amount of $500,000.00 to Encyclopedia Brittanica, Inc.
Section 4.11 Plans. Except as disclosed to the Lender in writing prior to
the date hereof, the Borrower does not and has not maintained any Plan. The
Borrower has not received any notice and does not have any knowledge to the
effect that it is not in full compliance with any of the requirements of ERISA.
No Reportable Event or other fact or circumstance which may have an adverse
effect on the Plan's tax qualified status exists in connection with any Plan.
The Borrower does not have:
(a) Any accumulated funding deficiency within the meaning of ERISA;
or
(b) Any liability nor knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 4.12 Environmental Protection. The Borrower has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws and regulations relating to emissions, discharges, releases
of pollutants, contaminants, hazardous or toxic materials, or wastes into
ambient air, surface water, ground water of land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport of handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. Except as previously disclosed
to the Lender in writing, the Borrower and all activities of the Borrower at its
facilities comply with all applicable Environmental Laws and with all terms and
conditions of any required permits, licenses and authorizations applicable to
the Borrower with respect thereto. Except as previously disclosed to the Lender
in writing, the Borrower is also in compliance with all applicable limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
scheduled and timetables contained in Environmental Laws or contained in any
plan, order, decree, judgment or notice of which the Borrower is aware. Except
as previously disclosed to the Lender in writing, the Borrower is not aware of,
nor has the Borrower received notice of, any events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere with or
prevent continued compliance with, or which may give rise to any liability
under, any Environmental Laws. The representations contained in this Section
4.12 shall not be deemed to be incorrect to the extent that there would be no
material adverse effect on the Borrower as a result thereof.
Section 4.13. Year 2000 Planning. The Borrower has undertaken a formal
review of its recordkeeping systems and its operations to determine that
Borrower's vulnerability to recordkeeping
<PAGE>
and operational difficulties attributable to the need to change computer coding
after 1999. Except as has been disclosed to the Lender in writing
contemporaneously with the execution of this Agreement, that Borrower does not
anticipate that it will face any substantial recordkeeping or operational
difficulties attributable to the need to change such computer coding.
ARTICLE V
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid or the Commitment shall be
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section 5.01 Financial Statements. The Borrower will deliver to the
Lender:
(a) as soon as available, and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Borrower, a copy of
the annual audit report of the Borrower prepared by an independent
certified public accountant selected by the Borrower and reasonably
acceptable to the Lender, which annual report shall include the balance
sheet of the Borrower as at the end of such fiscal year and the related
statements of income, retained earnings, stockholder's equity and cash
flows of the Borrower for the fiscal year then ended, all in reasonable
detail and all prepared in accordance with GAAP and certified without
qualification or exceptions together with a certificate of the chief
financial officer of the Borrower stating that such financial statements
have been prepared in accordance with GAAP and whether or not he or she
has knowledge of the occurrence of any Event of Default hereunder and, if
so, stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within twenty (20) days
after the end of each month of each fiscal year of the Borrower, an
unaudited balance sheet of the Borrower as at the end of such month and
related statements of income and retained earnings of the Borrower for
such monthly period and for the year to date, in reasonable detail and
stating in comparative form the figures for the corresponding date and
period in the previous year, all prepared in accordance with GAAP
certified by the chief financial officer of the Borrower, subject to
year-end adjustments; and accompanied by a certificate of that officer, in
substantially the form of Exhibit E attached hereto, stating (i) for each
monthly period, (A) that such financial statements have been prepared in
accordance with GAAP and (B) whether or not he or she has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto and (ii) for
each monthly period which is also the end of a fiscal quarter, all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Section 5.08, 5.09 5.10 and 5.11;
(c) immediately upon the Borrower's receipt of notice thereof,
notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 4.07 or which seek a monetary recovery against the
Borrower in excess of $100,000;
<PAGE>
(d) as promptly as practicable (but in any event not later than
twenty (20) Business Days after an officer of the Borrower obtains
knowledge of the occurrence of any event which constitutes a Default or
Event of Default, notice of such occurrence, together with a detailed
statement by a responsible officer of the Borrower of the steps being
taken by the Borrower to cure the effect of such event;
(e) as soon as possible and in any event within thirty (30) days
after the Borrower knows or has reason to know that any Reportable Event
with respect to any Plan has occurred, the statement of the chief
financial officer of the Borrower setting forth details as to such
Reportable Event and the action which the Borrower proposes to take with
respect thereto, together with a copy of the notice of such Reportable
Event to the Pension Benefit Guaranty Corporation;
(f) as soon as possible, and in any event within ten (10) days after
the Borrower fails to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code of
1986, as amended, the statement of the chief financial officer of the
Borrower setting forth details as to such failure and the action which the
Borrower proposes to take with respect thereto, together with a copy of
any notice of such failure required to be provided to the Pension Benefit
Guaranty Corporation;
(g) on the date that the monthly financial statements required under
Section 5.01(b) are delivered to the Lender, a Borrowing Base Certificate
as of the end of such calendar month, properly executed by the chief
financial officer of the Borrower, together with such aging of Accounts
and other supporting documentation as the Lender may reasonably require;
(h) such other information respecting the financial condition and
results of the operations of the Borrower as the Lender may from time to
time reasonably request.
Section 5.02 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself in which true and
complete entries will be made in accordance with generally accepted accounting
principles consistently applied and, upon not less than five (5) Business Days'
prior notice from the Lender, will give any representative of the Lender access
to, and permit such representative to examine, copy or make extracts from, any
and all books, records and documents in its possession, to inspect any of its
properties and to discuss its affairs, finances and accounts with any of its
principal officers, all at such times during normal business hours and as often
as the Lender may reasonably request. Without limiting the foregoing, Borrower
shall permit the Lender or a representative designated by the Lender to conduct
semi-annual audits of the assets of the Borrower. So long as no Event of Default
exists, the Borrower shall reimburse the Lender the sum of $700.00 for such
visits, inspections and examinations. Notwithstanding the foregoing, any such
visits, inspections and examinations made while any Event of Default is
continuing shall be at the full expense of the Borrower without regard to the
limitations set forth in the preceding sentence. The Borrower will take all
steps necessary to avoid recordkeeping and operational difficulties attributable
to the need to change computer coding after 1999.
Section 5.03 Compliance with Laws, Environmental Indemnity. The Borrower
will (a) comply with the requirements of applicable laws and regulations, the
non-compliance with which would
<PAGE>
materially and adversely affect its business or its financial condition and (b)
comply with all applicable Environmental Laws and obtain any permits, licenses,
or similar approvals required by any such Environmental Laws. The Borrower will
indemnify, defend and hold the Lender harmless from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past, present
or future existence, use, handling, storage, transportation or disposal of any
hazardous waste or substance of toxic substance by the Borrower on property
owned, leased or controlled by the Borrower. This indemnification agreement
shall survive the termination of this Agreement and payment of the indebtedness
hereunder.
Section 5.04 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach hereto, (b) all
federal, state or local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon any properties of the Borrower; provided, that the Borrower
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
Section 5.05 Maintenance of Properties. The Borrower will keep and
maintain all of its properties necessary or useful in its business in good
condition, repair and working order; provided, however, that nothing in this
Section shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in the judgment
of the Borrower, desirable in the conduct of its business and not
disadvantageous in any material respect to the Lender.
Section 5.06 Insurance. The Borrower will at all times obtain and maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
reasonably required by the Lender, but in all events in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will at
all times maintain the insurance required by the Security Agreement with respect
to the Collateral.
Section 5.07 Preservation of Corporate Existence. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business.
Section 5.08 Ratio of Debt to Tangible Net Worth. The Borrower will
maintain at all times the ratio of its Debt to Tangible Net Worth, determined as
of the end of each fiscal quarter of the Borrower, at not more than 1.5 to 1 for
each month during the term of this Agreement.
Section 5.09 Tangible Net Worth. The Borrower will maintain at all times
its Tangible Net Worth, determined as of the end of each month of the Borrower,
at an amount not less than the greater of Four Million and no/100ths Dollars
($4,000,000.00) and the actual Tangible Net Worth as of March 31, 1998, plus
eighty percent (80%) of Operating Income earned after March 31, 1998 for each
month during the term of this Agreement.
<PAGE>
Section 5.10. Debt Service Coverage Ratio. The Borrower will maintain at
all times a Debt Service Ratio as of the end of each month of the Borrower on a
rolling twelve month basis, of at least 1.25 to 1.
Section 5.11 Working Capital. The Borrower will maintain at all times an
excess of Current Assets over Current Liabilities of not less than of 1.5 to 1.
ARTICLE VI
Negative Covenants
So long as the Revolving Note shall remain unpaid or the Commitment shall
remain outstanding, the Borrower agrees that, without the prior written consent
of the Lender:
Section 6.01 Liens. The Borrower will not create, incur, assume or suffer
to exist any mortgage, deed or trust, pledge, lien, security interest, or other
charge or encumbrance of any nature on any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the operation of
the foregoing:
(a) Mortgages, deeds of trust, liens, pledges and security interests
in existence on the date hereof and listed in Exhibit F hereto, securing
indebtedness for borrowed money permitted under Section 6.02.
(b) The Security Interest in the Collateral granted to the Lender
under the Security Agreement;
(c) Purchase money liens or security interests (which term for
purposes of this subsection shall include conditional sale agreements or
other title retention agreements and leases in the nature of title
retention agreements) upon or in property acquired after the date hereof,
or liens of security interests existing in such property at the time of
acquisition thereof; provided, that, (i) no such lien or security interest
extends or shall extend to cover any property of the Borrower other than
the property being acquired and (ii) the aggregate principal amount of
indebtedness of the Borrower secured by all liens or security interests
described in this subsection shall not exceed $100,000 at any one time
outstanding; and
(d) A mortgage lien on the Premises legally described on Exhibit G
attached hereto; provided, however, that (i) the aggregate principal
amount of the indebtedness secured by such mortgage lien shall not exceed
eighty percent (80%) of the fair market value of such Premises and (ii)
after giving effect to the Borrower's incurring of any such indebtedness
secured by such mortgage lien, the Borrower shall be in compliance with
all provisions of this Agreement, including, without limitation, the
provisions of Sections 5.08, 5.09, 5.10 and 5.11 of this Agreement.
(e) The lien, security interest or claim of lessors pursuant to
lease obligations.
<PAGE>
(f) Mechanic's or materialmens' liens arising under applicable law
for amounts not constituting an Event of Default.
Section 6.02 Indebtedness. The Borrower will not incur, create, assume or
permit to exist any indebtedness or liability on account of advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness of the Borrower in existence on the date hereof and
listed in Exhibit F hereto;
(b) indebtedness evidenced by the Revolving Note;
(c) purchase money indebtedness of the Borrower secured by liens
permitted by subsection (c) of Section 6.01; and
(d) indebtedness secured by the mortgage lien permitted by
subsection (d) of Section 6.01, subject to the conditions set forth in
said subsection (d).
(e) indebtedness or obligations classified as lease obligations.
Section 6.03 Guaranties. The Borrower will not assume, guarantee, endorse
or otherwise become directly or continently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of wholly-owned
subsidiaries in existence from time to time and of other Persons in
existence on the date hereof and listed in Exhibit F hereto.
Section 6.04 Investments and Subsidiaries. (a) The Borrower will not
purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper
issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
<PAGE>
(ii) travel advances or loans to officers and employees of the
Borrower not exceeding at any one time an aggregate of $10,000;
(iii) advances in the form of progress payments, prepaid rent
or security deposits.
(b) Except as set forth in Section 4.04 herein, the Borrower will
not create or permit to exist any Subsidiary without the prior written
consent of the Lender, which consent shall not be unreasonably withheld.
Section 6.05 Dividends. The Borrower will not declare or pay any dividends
(other than dividends payable solely in stock of the Borrower) on any class of
its stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly, if at such time a Default or an Event of
Default has occurred and is continuing or if, after giving to any such dividend,
payment or distribution of the aggregate amount of such dividends, payments and
distributions during such fiscal year would exceed $50,000. Any cash bonus paid
to any employee of the Borrower pursuant to the Borrower's "phantom stock plan"
shall not be deemed a dividend, payment or distribution on account of stock for
purposes of this Section 6.05.
Section 6.06 Sale of Assets, Suspension of Business. The Borrower will not
sell, lease, assign, transfer or otherwise dispose of (i) all or a substantial
part of its assets or (ii) any Collateral or any interest therein (whether in
one transaction or in a series of transactions) to any other Person other than
the sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 6.07 Consolidation and Merger. The Borrower will not consolidate
with or merge into any Person, or permit any other Person to merge into it, or
acquire (in a transaction analogous in purpose or effect to a consolidation or
merger) all or substantially all the assets of any other Person without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld, provided that this covenant shall not apply to any transaction that is
effected pursuant to a contract that is not a material contract within the
meaning of Item 601(b)(10) of Regulation S-K promulgated pursuant to the
Security Act of 1933.
Section 6.08 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether nor owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 6.09 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business without the prior written consent of the Lender, which
consent shall not be unreasonably withheld.
<PAGE>
Section 6.10 Capital Expenditures. The Borrower shall not incur any
Capital Expenditures in any twelve (12) month period in excess of $1,500,000.00.
For purposes of this Agreement, "Capital Expenditures" means all of the
Borrower's expenditures for any assets, or for improvements, replacements,
substitutions or additions therefor or thereto, which are or will be capitalized
on the Borrower's balance sheet and which, in accordance with GAAP, are required
to be included in or reflected by the property, plant, equipment or similar
fixed asset account or reflected in such balance sheet, and shall include,
without limitation, capitalized lease obligations.
Section 6.11 Defined Benefit Pension Plans. The Borrower will not adopt,
create, assume or become a party to any defined benefit pension plan, unless
disclosed to the Lender pursuant to Section 4.11.
Section 6.12 Change of Control. The Borrower will not issue or sell any
stock of the Borrower nor will the Borrower permit to occur the sale, transfer,
assignment, pledge or other disposition of any of the issued and outstanding
shares of stock of the Borrower, to any Persons or group of Persons where
subsequent to such issuance or transfer, the Persons or group of Persons would
beneficially own more than 50% of the outstanding shares of Borrower.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.01 Events of Default. "Event of Default" wherever used herein,
means any one of the following events:
(a) A default in the payment of any amount due under the Revolving
Note when it becomes due and payable; or
(b) A default in the payment of any fees, costs or expenses required
to be paid by the Borrower under this Agreement or any of the other Loan
Documents for a period of five (5) Business Days after notice from the
Lender; or
(c) A default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Article VI of this
Agreement and the continuance of such default or breach for a period of
five (5) Business Days; or
(d) A default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Section 5.01 of this
Agreement and the continuance of such default or breach for a period of
five (5) Business Days; or
(e) A default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Sections 5.08, 5.09,
5.10 or 5.11 of this Agreement and the continuance of such default or
breach for a period of thirty (30) Business Days; or
(f) Default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in this Agreement or the
Loan Documents (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this
<PAGE>
Section specifically dealt with) and the continuance of such default or
breach for a period of thirty (30) days after written notice thereof from
the Lender to the Borrower; or
(g) The Borrower shall be or become insolvent, or admit in writing
its inability to pay its debts as they mature, or make an assignment for
the benefit of creditors; or the Borrower shall apply for or consent to
the appointment of any receiver, trustee, or similar officer for it or for
all or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower; or the Borrower shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower; or
(h) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor; or
(i) Any representation or warranty made by the Borrower in any Loan
Document or by the Borrower (or any of its officers) in any certificate,
instrument, or statement contemplated by or made or delivered pursuant to
or in connection with the Loan Documents, shall prove to have been
incorrect in any material respect when made; or
(j) The rendering against the Borrower of a final judgment, decree
or order for the payment of money in excess of $50,000 and the continuance
of such judgment, decree or order unsatisfied and in effect for any period
of thirty (30) consecutive days without a stay of execution; or
(k) A default under any bond, debenture, note or other similar
evidence of indebtedness of less than $50,000 of the Borrower owed to any
Person other than the Lender, or under any indenture or other instrument
under which any such evidence of indebtedness has been issued or by which
it is governed and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture or other
instrument, which default is not being contested in good faith by the
Borrower by appropriate proceedings (with adequate reserves being provided
by the Borrower), and the Borrower has received thirty (30) days' written
notice thereof from the Lender; or
(l) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee
to administer any Plan, shall have occurred and be continuing thirty (30)
days after written notice to such effect shall have been given to the
Borrower by the Lender; or a trustee shall have been appointed by an
appropriate United States District Court to administer any Plan; or the
Pension Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Plan or to appoint a trustee to administer any Plan; or the
Borrower shall have filed for a distress termination of any Plan under
Title IV of ERISA; or the Borrower shall have failed to make any quarterly
contribution required with respect to any Plan under Section 412(m) of the
Internal Revenue Code of 1986, as amended, which the Lender determines in
good faith may by itself, or in combination with any such failures that
the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the assets of the Borrower in favor of the Plan;
or
<PAGE>
(m) An event of default shall occur under the Security Agreement or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under the Note; or
(n) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the prior written consent of the Lender; or
(o) A default in the payment of any amount owed by the Borrower to
the Lender other than any indebtedness arising hereunder or under the
Revolving Note and the expiration of the applicable period of grace if
any; or
(p) The Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for
which it shall have set aside on its books adequate reserves therefor) or
notice of any state or federal tax liens shall be filed or issued.
(q) The Lender shall determine that the due and punctual payment of
the Revolving Note is materially impaired.
Section 7.02 Rights and Remedies. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Lender, the Lender may exercise any or all of the
following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the entire
unpaid principal amount the Note, all interest accrued and unpaid thereon,
and all other amounts payable under the Loan Documents to be forthwith due
and payable, whereupon the Revolving Note, all such accrued interest and
all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower;
(b) The Lender may, without prior notice to the Borrower and without
further action, apply or offset against any and all money of the Borrower
maintained in any account with the Lender to the payment of the Revolving
Note, including interest accrued thereon, and of all other sums then owing
by the Borrower hereunder; provided, however, after the completion of any
such application by the Lender, the Lender will promptly provide written
notice of such application to the Borrower;
(c) The Lender may exercise and enforce its rights and remedies
under the Security Agreement and under any other Loan Documents;
(d) The Borrower hereby grants the Lender the right to possess and
hold the Premises, subject to the following terms and conditions:
(i) The Lender may take possession of the Premises only upon
the occurrence of an Event of Default;
(ii) The Lender may use the Premises only to hold, process,
manufacture and sell or otherwise dispose of goods which are
inventory, or to provide services under contracts for receivable, or
to use, operate, store, liquidate or realize upon goods which
<PAGE>
are equipment or any other Collateral and for other purposes which
the Lender may in good faith deem to be related or incidental
purposes;
(iii) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (A) payment in full and discharge
of all indebtedness under this Agreement; (B) final sale or
disposition of all goods constituting Collateral (including both
inventory and equipment) and delivery of all such goods to
purchasers;
(iv) The Lender shall not be obligated to pay or account for
any rent or other compensation for this grant or for the possession,
occupancy or use of any of the Premises; and
(v) The Borrower acknowledges and agrees that the breach of
this grant is not fully compensable by money damages, and that,
accordingly, this grant may be enforced by an action for specific
performance.
(e) The Lender may exercise any other rights and remedies available
to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.01(h) hereof, the entire unpaid principal amount of the
Revolving Note, all interest accrued and unpaid thereon, and all other amounts
payable under the Loan Documents shall be immediately due and payable without
presentment, demand, protest or notice of any kind.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 No Waiver; Cumulative Remedies. No failure or delay on the
part of the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 8.02 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom shall be effective unless the same shall be in writing and
signed by the Lender and by an authorized officer of the Borrower, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 8.03 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at its address as
set forth below and, if telecopied, transmitted to that party at its telecopier
number set forth below:
If to the Borrower:
<PAGE>
ACI Telecentrics, Inc.
3100 West Lake Street
Minneapolis, Minnesota 55416-4510
Telecopier: (612) 928-4776
ATTN: Steven Kahn, Chief Financial Officer
With copy to:
Fredrikson & Byron, P.A.
900 - 2nd Ave. S.
Minneapolis, Minnesota 55402
Telecopier: (612) 347-7077
ATTN: John Satorius, Esq.
If to Lender:
National City Bank of Minneapolis
651 Nicollet Avenue
Minneapolis, Minnesota 55402
Telecopier: (612) 904-8015
Attention: Gregg Chaplin, Vice President
With copy to:
Messerli & Kramer P.A.
1800 Fifth Street Towers
150 South Fifth Street
Minneapolis, Minnesota 55402
Telecopier: (612) 672-3777
ATTN: Ronald B. Peterson, Esq.
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) two (2) Business Days after
deposit in the mail if delivered by mail, (c) one Business Day after sending if
sent by overnight courier, or (d) the date of transmission if delivered by
telecopy.
Section 8.04 Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses incurred by the Lender in connection with the negotiation,
preparation, execution, administration, amendment, auditing or enforcement of
the Loan Documents and the other instruments and documents to be delivered
thereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Lender with respect thereto.
Section 8.05 Execution in Counterparts. This Agreement and the Security
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement or the Security Agreement, as the case may be,
taken together, shall constitute but one and the same instrument.
<PAGE>
Section 8.06 Binding Effect, Assignment. The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights thereunder or any interest therein without the prior
written consent of the Lender.
Section 8.07 Governing Law. The Loan Documents shall be governed by, and
construed in accordance with, the laws of the State of Minnesota.
Section 8.08 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Lender's Security Interest in the Collateral or the
rights of the Lender under the Loan Documents (but any failure to request or
assure that the Borrower executes, delivers or endorses any such item shall not
affect or impair the validity, sufficiency or enforceability of this Agreement
and the security interest in the Collateral, regardless of whether any such item
was or was not executed, delivered or endorsed in a similar context or on a
prior occasion).
Section 8.09 Indemnity. In addition to the payment of costs and expenses
pursuant to Section 8.04 hereof and the environmental indemnity pursuant to
Section 5.03 hereof, the Borrower agrees to indemnify, defend and hold harmless
the Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees and agents of the foregoing (the
"Indemnitees"), from and against (i) any and all transfer taxes, documentary
taxes, assessments or charges made by any governmental authority by reason of
the execution and delivery of this Agreement and the other Loan Documents or the
making of the borrowings hereunder, and (ii) any and all liabilities, losses,
damages, penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with any investigative, administrative
or judicial proceedings, whether or not such Indemnitee shall be designated a
party thereto, which may be imposed on, incurred by or asserted against such
Indemnitee, in any manner relating to or arising out of or in connection with
the making of the borrowings hereunder, this Agreement and all other Loan
Documents or the use or intended use of the proceeds of the borrowings hereunder
(the "Indemnified Liabilities"); provided, however, the Borrower shall not be
required to indemnify the Indemnitees for any liabilities, losses, damages,
penalties, judgments, suits, claims, costs or expenses to the extent caused by
such Indemnitees' gross negligence or willful misconduct or by such Indemnitees'
violation of banking laws. If any investigative, judicial or administrative
proceeding arising from any of the foregoing is brought against any Indemnitee,
upon request of such Indemnitee, the Borrower, or counsel designated by the
Borrower and reasonably satisfactory to the Indemnitee, will resist and defend
such action, suit or proceeding to the extent and in the manner agreed upon by
the Indemnitee and the Borrower, at the Borrower's sole cost and expense. Each
Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit or proceeding. If the foregoing undertaking to indemnify, defend
and hold harmless may be held to be unenforceable because it violates any law or
public policy, the Borrower shall nevertheless make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The obligation of the Borrower under this
Section 8.09 shall survive the termination of this Agreement.
Section 8.10 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
<PAGE>
Section 8.11 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 8.12 Confidentiality. The Lender agrees to keep confidential (and
to cause its respective officers, directors, employees, agents and
representatives to keep confidential) all information, materials and documents
furnished to the Lender (the "Disclosed Information"). Notwithstanding the
foregoing, the Lender shall be permitted to disclose Disclosed Information (i)
to such of its officers, directors, employees, agents and representatives as
need to know such Disclosed Information in connection with its participation in
the transaction contemplated by this Agreement (which officers, directors,
employees, agents and representatives the Lender shall cause to keep
confidential the Disclosed Information); (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any governmental agency or authority; (iii) to the extent such
Disclosed Information (A) becomes publicly available other than as a result of a
breach of this Section, (B) becomes available to the Lender on a
non-confidential basis from a source other than the Borrower or (C) was
available to the Lender on a non-confidential basis prior to its disclosure to
the Lender by the Borrower; (iv) to the extent the Borrower shall have consented
to such disclosure in writing; (v) in connection with the enforcement of any
rights or remedies or the sale of any collateral pursuant to the provisions of
any of the Loan Documents; or (vi) in connection with any potential assignment
or participation, provided that the prospective assignee or participant shall
have agreed in writing prior to receipt of any Disclosed Information to be bound
by the confidentiality provisions of this Section.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
ACI TELECENTRICS, INCORPORATED,
a Minnesota corporation
By: /s/ Steven A. Kahn
-------------------------------------------
Its: Vice President
----------------------------------
LENDER:
NATIONAL CITY BANK OF MINNEAPOLIS,
a national banking association
By: /s/ Gregg Chaplin
-------------------------------------------
Gregg Chaplin
Its: Vice President
----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001020998
<NAME> ACI TELECENTRICS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
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