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 June 30, 1999
___ 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 5,756,267 shares of common stock, no par value per share,
outstanding as of August 5, 1999.
Transitional Small Business Disclosure Format (Check One): YES [ ] NO [X]
<PAGE>
ACI TELECENTRICS, INCORPORATED
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (unaudited)
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to 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
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 405,459 $ 1,300,681
Trade receivables, less allowance for doubtful
accounts of $127,697 and $140,000, respectively 4,608,264 1,456,431
Deferred income taxes 131,300 365,000
Prepaid expenses 37,979 111,117
Other current assets 27,566 131,667
------------ ------------
Total Current Assets 5,210,568 3,364,896
Property and equipment, net of accumulated depreciation 2,482,457 2,824,381
OTHER ASSETS:
Goodwill, less accumulated amortization of
$133,955 and $99,000, respectively 916,820 951,858
Deferred income taxes 137,000 137,000
Other assets 34,235 63,676
------------ ------------
Total other assets 1,088,055 1,152,534
------------ ------------
TOTAL ASSETS $ 8,781,080 $ 7,341,811
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 350,000 $ --
Trade accounts payable 975,325 482,628
Accrued expenses 689,592 204,728
Income taxes payable 5,713 15,713
Current portion of long-term debt and capital lease obligations 303,068 356,980
------------ ------------
Total current liabilities 2,323,698 1,060,049
LONG TERM LIABILITIES:
Long-term debt and capital lease obligations, less current portion 168,742 257,711
Deferred capital lease liabilities 350,000 473,201
------------ ------------
Total long-term liabilities 518,742 730,912
SHAREHOLDERS' EQUITY:
Common stock, no par value;
Authorized - 15,000,000
Issued and outstanding shares - 5,743,812
and 5,731,471, respectively 6,624,261 6,620,145
Accumulated deficit (685,621) (1,069,295)
------------ ------------
Total shareholders' equity 5,938,640 5,550,850
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,781,080 $ 7,341,811
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TELEMARKETING REVENUES $ 5,498,648 $ 4,329,991 $ 10,187,415 $ 7,858,902
COST OF SERVICES 3,136,027 2,492,710 5,814,040 4,493,433
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,923,383 2,330,344 3,732,697 4,252,498
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 439,238 (493,063) 640,678 (887,029)
OTHER INCOME (EXPENSE)
Interest income 2,892 9,148 9,489 23,731
Interest expense (15,953) (17,494) (27,072) (26,014)
Other, net (5,721) 10,328 (5,721) 10,133
------------ ------------ ------------ ------------
Total other income (expense) (18,782) 1,982 (23,304) 7,850
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 420,456 (491,081) 617,374 (879,179)
INCOME TAX EXPENSE (BENEFIT) 158,900 (191,000) 233,700 (335,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 261,556 $ (300,081) $ 383,674 $ (544,179)
============ ============ ============ ============
Basic and diluted net income (loss)
per share .05 (.05) .07 (.09)
============ ============ ============ ============
Basic shares used in computing net
income (loss) per share 5,743,263 5,714,800 5,742,851 5,714,800
============ ============ ============ ============
Diluted shares used in computing net
income (loss) per share 5,761,970 5,714,800 5,760,994 5,714,800
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ACI TELECENTRICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 383,674 $ (544,179)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 506,312 455,279
Provision for losses on accounts receivable (12,303) --
Amortization of deferred capital lease liabilities (153,201) (40,700)
Loss on sale of equipment 5,721 --
Deferred income taxes 233,700 (7,886)
Changes in operating assets and liabilities:
Trade receivables (3,139,530) (346,613)
Prepaid expenses 73,138 --
Other current assets 104,101 (22,278)
Accounts payable and accrued expenses 977,558 16,591
Income taxes (10,000) 28,417
----------- -----------
Net cash used in operating activities (1,030,830) (461,369)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (175,070) (257,605)
Proceeds from sale of assets 40,000 --
Decrease (increase) in other assets 29,441 (6,360)
Decrease in restricted investments -- 115,744
----------- -----------
Net cash used in investing activities (105,629) (148,221)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 350,000 350,000
Net proceeds from issuance of common stock 4,116 18,430
Proceeds from sale and leaseback of equipment -- 93,922
Repayments of long-term debt and capital leases (112,879) (77,444)
----------- -----------
Net cash provided by financing activities 241,237 384,908
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (895,222) (224,682)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,300,681 659,042
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 405,459 $ 434,630
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON CASH TRANSACTIONS:
Accelerated forgiveness of deferred grant $ 60,000 $ --
Equipment acquired through capital leases $ -- $ 372,773
Deferred grant $ -- $ 100,000
CASH PAID FOR INTEREST AND TAXES:
Income taxes paid (refunds received) $ 10,000 $ (355,531)
Cash paid for interest $ 17,101 $ 26,014
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ACI TELECENTRICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The balance sheet of ACI Telecentrics, Incorporated and subsidiary (the
"Company") as of June 30, 1999 and the related statements of operations
and cash flows for the three and six months ended June 30, 1999 and
1998, 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 the Company as of June 30, 1999 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 1998 Form 10-KSB. The
results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
Effective January 1999, the Company dissolved its only subsidiary ACI
Telecentrics of Illinois, Inc., and merged its operations into ACI
Telecentrics, Inc. These financial statements include the consolidated
balance sheet as of December 31, 1998 and the related consolidated
statements of operations for the three and six months ended June 30,
1998 and cash flows for the six months ended June 30, 1998. The balance
sheet at June 30, 1999, the related statements of operations for the
three and six months ended June 30, 1999 and cash flows for the six
months ended June 30, 1999 are for the merged entity.
(2) EARNINGS (LOSS) PER SHARE (SFAS 128)
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" was issued in February 1997 and requires the presentation of
earnings per share on a basic and diluted basis. Basic earnings per
share are computed by dividing earnings available to common
shareholders by the weighted average number of common shares
outstanding during each period. Diluted earnings per share are computed
after giving effect to the exercise of all dilutive outstanding options
and warrants. The Company adopted SFAS No. 128 in 1997. Both basic and
diluted earnings per share for the three and six months ending June 30,
1999 were the same. Basic and diluted earnings per share for the three
and six months ended June 30, 1998 were the same due to net losses; the
impact of the potential common shares outstanding would have been
anti-dilutive. The following table reconciles the denominators used in
computing basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 5,743,263 5,714,800 5,742,851 5,714,800
Effect of dilutive stock options 18,707 -- 18,143 --
----------------------------------------------------
5,761,970 5,714,800 5,760,994 5,714,800
====================================================
</TABLE>
(3) DISCONTINUED OPERATIONS
During May 1998, the Company closed its inbound call center operations
in Lombard, IL. As a result, the Company exited the inbound call center
business. The net loss, on an after tax basis, accounted for $142,000
($.02 per share) and $221,000 ($.04 per share) of the losses for the
three and six months ending June 30, 1998, respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Furniture 940,152
Equipment 4,264,251
Leasehold Improvements 93,816
-------------
5,298,219
Less accumulated depreciation and amortization 2,815,762
-------------
Net property and equipment $ 2,482,457
=============
</TABLE>
The Company has equipment under capitalized leases totaling $513,615.
<PAGE>
(5) LINE OF CREDIT
At June 30, 1999, the Company had outstanding borrowings of $350,000
under its $2 million revolving line of credit. The loan agreement
contains provisions requiring compliance with certain financial
covenants. As of June 30, 1999, the Company was in compliance with all
covenants and has obtained a waiver from the lender for the Company's
violation of certain loan covenants as of March 31, 1999 and December
31, 1998. Additionally, effective April 30, 1999, the Company and its
lending institution executed an "Amended and Restated Revolving Credit
Loan Agreement" that amended certain covenants and other loan
provisions. Management believes that it will be able to maintain
compliance with all debt covenants during 1999.
(6) FACILITY CLOSING
On May 28, 1999, the Company closed its Devils Lake, North Dakota call
center. A number of factors led to this decision, including the recent
decision by the City of Devils Lake to facilitate the opening of a call
center by a competing teleservices firm. To meet and maintain increased
capacity demands, a temporary call center has been re-established in
Devils Lake, North Dakota until such time as the work being done at the
Devils Lake facility can be moved to the Company's other call centers.
During the quarter ending June 30, 1999, the Company recognized as
income $60,000 associated with the City of Devils Lake waiving the
remaining balance on an unamortized forgivable grant.
PART 1 FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ACI Telecentrics, Incorporated (ACI) provides telephone-based sales and
marketing services primarily to the telecommunications, insurance, publishing
and financial services industries. ACI was established in 1987 in Minneapolis,
Minnesota. The Company operates nine outbound call centers in five Midwest
states, which, as of June 30, 1999, had 446 calling stations. The Company had
770 full and part-time employees as of June 30, 1999.
Revenue from telemarketing services is recognized as these services are
performed and is 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 JUNE 30, 1999, COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUE. Revenues for the three months ended June 30, 1999 increased
$1,168,657, or 27.0% to a record $5,498,648, compared to second quarter 1998
revenues of $4,329,991. Billable hours increased by 30.7% when compared to the
prior year period, however, revenue per billable hour decreased by approximately
2.8% when compared to the second quarter of 1998. During the period the Company
also utilized other telemarketing companies to perform some of its services,
although to a lesser extent than during the same period in 1998. The Company
derived 7.6% of its second quarter 1999 revenues from outsourcing compared to
12.7% during the same period in 1998. The Company operated an average of 451
call stations during the second quarter of 1999 compared to an average of 450
for the same period in 1998.
Historically, the telecommunications industry segment has provided the
largest percentage of the Company's revenues. In a shift away from this
historical trend, financial services clients provided approximately
<PAGE>
57% of second quarter 1999 revenues compared to approximately 28% of revenues
during the second quarter of 1998. During the 1999 period the Company's largest
client represented approximately 28% of total revenue. During the prior year
period the Company's largest client represented approximately 19% of total
revenue. Other industry segments and their percentages of revenue in 1999
include publishing (22%), insurance (9%) and telecommunications (8%).
COST OF SERVICES. Cost of services in the second quarter of 1999
increased $643,317, or 25.8% to $3,136,027, compared to $2,492,710 in the second
quarter of 1998. Second quarter 1999 labor and benefit costs increased by
$646,655, or 42.3% when compared to the second quarter of 1998. Long distance
telephone costs for telemarketing operations increased by $135,130, or 29.1% in
the second quarter of 1999 when compared to the 1998 period. These expense
increases were partially offset by a decrease in outsourced telemarketing
service costs of $148,327, or 31.6% when compared to the second quarter of 1998.
As a percentage of revenue, cost of services for the 1999 second
quarter decreased slightly to 57.0% compared to 57.6% in the second quarter of
1998. The 0.6% decrease in cost of services, as a percent of revenue, was the
result of a 5% decrease in outsourced services expenses which was partially
offset by the 4.3% increase in labor and benefit costs. Outsourcing services are
costs associated with the Company's utilization of other telemarketing companies
for telemarketing some of its clients' programs. During the second quarter of
1999 the outsourced services had a cost of 76.9% compared to 85.1% during the
1998 period. Second quarter cost of services for internally generated
telemarketing was 55.4% in 1999 and 53.6% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general
and administrative expenses for the second quarter of 1999 decreased $406,961,
or 17.5% to $1,923,383, from $2,330,344 during the second quarter of 1998. As a
percentage of revenue, second quarter 1999 selling general and administrative
expenses decreased by 18.8% to 35.0% compared to 53.8% during the second quarter
of 1998. Selling, general and administrative expenses for call center operations
decreased $149,353 during the second quarter of 1999 when compared to the same
period in 1998. The entire decrease can be attributed to the closing of the
Lombard, Illinois inbound call center in May of 1998. Corporate selling, general
and administrative expenses decreased $257,610 during the same period. The
decrease in corporate expenses was primarily the result of a decrease in salary
and related benefits and a one-time gain of $60,000 associated with the City of
Devils Lake waiving the remaining balance on an unamortized forgivable grant.
Salary and related benefits, for call center and corporate operations, accounted
for $256,539, or 63% of the second quarter 1999 expense decrease.
OPERATING INCOME (LOSS). As a result of the factors discussed above,
the Company experienced second quarter operating income of $439,238, a $932,301
increase compared to the second quarter 1998 operating loss of $493,063. As a
percentage of revenue, operating income during the quarter was 8.0% compared to
a loss of 11.4% during the second quarter of 1998. The Company's closed inbound
call center in Lombard, Illinois accounted for approximately $230,000 ($142,000
on an after tax basis) of the second quarter 1998 operating loss.
OTHER INCOME AND EXPENSES, NET. Other expenses were $18,782 in 1999
compared to an income of $1,982 in 1998. Interest was a net expense amount of
$13,061 and $8,346 in 1999 and 1998, respectively. The increase in net interest
expense was the result of lower cash investment balances producing lower
interest income and an increase in interest expense resulting from the full
quarter effect of $513,615 of leased equipment.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE. Pretax income for
the second quarter of 1999 was $420,456, a $911,537 increase compared to a
pretax loss of $491,081 in the second quarter of 1998. The Company recorded
income tax expense of $158,900, an effective tax rate of 38%, for the second
quarter of 1999 compared to an income tax benefit of $191,000, an effective tax
rate of 39%, in the second quarter of 1998. Net income for the second quarter
1999 was $261,556, or $.05 per share on a basic and fully diluted basis compared
to a net loss of $300,081, or $.05 per share in the second quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
<PAGE>
REVENUE. Revenues for the six months ended June 30, 1999 increased
$2,328,513 or 29.6% to $10,187,415, compared to 1998 revenues of $7,858,902.
Billable hours increased by 35.6% when compared to the prior year period,
however, revenue per billable hour decreased by approximately 4.4% when compared
to the same period of 1998. During the 1999 period the Company also utilized
other telemarketing companies to perform some of its services, although to a
lesser extent than during the same period in 1998. The Company derived 6.7% of
its 1999 revenues from outsourcing compared to 11.9% during the same period in
1998. The Company operated an average of 453 call stations during the six months
ended June 30, 1999 compared to 419 during the same period in 1998.
Historically, the telecommunications industry segment has provided the
largest percentage of the Company's revenues. In a shift away from this
historical trend, financial services clients provided approximately 41% of 1999
six month revenues compared to approximately 20% of 1998 revenues. During the
1999 period the Company's largest client represented approximately 19% of total
revenue. During the prior year period the Company's largest client represented
approximately 23% of total revenue. Other industry segments and their
percentages of revenue in 1999 include publishing (22%), insurance (8%) and
telecommunications (27%).
COST OF SERVICES. Cost of services for the six months ended June 30,
1999 increased $1,320,607, or 29.4% to $5,814,040, compared to $4,493,433 during
the 1998 period. Labor and benefit costs during the six months ended June 30,
1999, increased by $1,260,079, or 45.1% when compared to the same period of
1998. Long distance telephone costs for telemarketing operations increased by
$258,378, or 29.8% in the six months of 1999 when compared to the 1998 period.
These expense increases were partially offset by a decrease in outsourced
telemarketing service costs of $251,589, or 32.6% when compared to the first six
months of 1998.
As a percentage of revenue, cost of services for the six month period
ended June 30, 1999, decreased slightly to 57.1% compared to 57.2% in the same
period of 1998. The 0.1% decrease in cost of services was the result of a 4.7%
decrease in outsourced services expenses which was partially offset by a 4.2%
increase in labor and benefit costs. Outsourcing services are costs associated
with the Company's utilization of other telemarketing companies for
telemarketing some of its client's programs. During the six months of 1999 the
outsourced services had a cost of 76.5% compared to 82.7% during the 1998
period. Cost of services for internally generated telemarketing was 55.7% in
1999 period and 53.7% in 1998 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3,732,697 for the six months ended June 30, 1999
compared to $4,252,498 in 1998, a decrease of $519,801 or 12.2%. As a percentage
of revenue, selling general and administrative expenses decreased to 36.6% in
1999 compared to 54.1% during 1998. Selling, general and administrative expenses
for call center operations decreased $225,435 during the first six months of
1999 when compared to the same period in 1998. The entire decrease can be
attributed to the closing of the Lombard, Illinois inbound call center in May of
1998. Corporate selling, general and administrative expenses decreased $294,366
during the same period. The decrease in corporate expenses was primarily the
result of a decrease in salary and related benefits and a one-time gain of
$60,000 associated with the City of Devils Lake waiving the remaining balance on
an unamortized forgivable grant. Salary and related benefits, for call center
and corporate operations, accounted for $374,505, or 72.1% of the second quarter
1999 expense decrease.
OPERATING INCOME (LOSS). As a result of the factors discussed above,
the operating income for the first six months of 1999 was $640,678, a $1,527,707
increase compared to an operating loss of $887,029 in 1998. As a percentage of
revenue, operating income during the 1999 period was 6.3% compared to a loss of
11.3% during 1998. The Company's closed inbound call center in Lombard, Illinois
accounted for approximately $356,000 ($221,000 on an after tax basis) of the
1998 operating loss.
OTHER INCOME AND EXPENSES, NET. Other expenses were $23,304 in 1999
compared to an income of $7,850 in 1998. Interest was a net expense amount of
$17,583 and $2,283 in 1999 and 1998, respectively. The increase in net interest
expense was the result of lower cash investment balances producing lower
interest income and an increase in interest expense resulting from the full
quarter effect of $513,615 of leased equipment.
<PAGE>
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE. Pretax income for
the six months ended June 30, 1999, was $617,374, a $1,496,553 increase compared
to a pretax loss of $879,179 in the same period of 1998. The Company recorded
income tax expense of $233,700, an effective tax rate of 38%, for 1999 compared
to an income tax benefit of $335,000, an effective tax rate of 38%, in 1998. Net
income for 1999 was $383,674, or $.07 per share on a basic and fully diluted
basis compared to a net loss of $544,179, or $.09 per share in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used cash from operating activities, bank
borrowings, capital leases and public and private sector financing received 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 June 30, 1999, the Company had outstanding borrowings of
$350,000 under the line of credit.
At June 30, 1999, the Company had cash and cash equivalents of $405,459
compared to $1,300,681 at December 31, 1998. For the six months ended June 30,
1999 cash used by operating activities was $1,030,830 compared to cash used by
operating activities of $461,369 in the 1998 period. Cash used in 1999 operating
activities was primarily the result of an increase of $3,139,530 in Accounts
Receivable balances which resulted from the 29.6% increase in revenue. This
increase was partially offset by cash provided by net income of $383,674,
depreciation and amortization of $506,312, changes in working capital components
of $1,144,797 and non-cash items of $73,917. Cash flows used by operating
activities in the 1998 period included the net loss of $544,179, changes in
working capital components of $323,883 and non-cash items of $48,586. These uses
were partially offset by cash provided by depreciation and amortization of
$455,279.
Net cash used by investing activities in the six months ended June 30,
1999 was $105,629 compared to net cash used by investing activities of $148,221
in 1998. The purchase of $175,070 of property and equipment was partially offset
by proceeds of $40,000 received from the sale of assets combined with a decrease
of $29,441 in other assets. During the 1998 period the Company had net purchases
of property and equipment of $257,605. The release of restricted investments in
the amount of $125,000 partially offset the property and equipment purchases.
Net cash provided by financing activities during the six months of 1999
was $241,237 compared to $384,908 during 1998. The primary source of this cash
was $350,000 borrowed under the Company's revolving line of credit. In addition,
the Company issued stock from its Employee Stock Purchase Plan for $3,616 and
for the exercise of stock options for $500. Proceeds for 1999 were partially
offset by repayments of long-term debt and capital leases in the amount of
$112,879. Cash flows from financing activities during the first six months of
1998 included $350,000 borrowed under the Company's revolving line of credit,
$93,922 received from the sale and leaseback of capital equipment leases for
equipment purchased in 1997 and proceeds of $18,430 from the issuance of common
stock under the Company's Employee Stock Purchase Plan. These cash proceeds were
partially offset by repayment of long-term debt and capital leases in the amount
of $77,444.
During the six months ending June 30, 1999 the Company did not acquire
any assets through capital leases. During the comparable 1998 period the Company
financed $372,773 of asset purchases through capital leases.
As a result, net cash and cash equivalents decreased by $895,222 during
the first six months of 1999 compared to a decrease of $224,682 in 1998. The
Company believes that funds available at June 30, 1999, together with funds
which should be generated from future operations and amounts available under its
revolving line of credit arrangement, will be sufficient to finance its current
and future business operations including working capital requirements. The
Company has no material commitments for capital expenditures for 1999.
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 months. The
<PAGE>
Company has experienced, and expects to continue to experience, quarterly
fluctuations in revenues 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, opening of new call centers, and the
additional selling, general and administrative expenses 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 total marketing expenditures by US companies
directed towards telemarketing will continue to grow and that the trend for
these companies will be towards outsourcing their telemarketing programs to
companies like ACI, which should result in an increase in the Company's calling
revenue in 1999. There is no assurance that the Company's marketing efforts will
generate new business or that businesses will continue to outsource their
telemarketing needs. Client demand is extremely volatile in the Company's
business and may decrease notwithstanding the Company's efforts to diversify and
stabilize its client base. There is no assurance that client demand will fulfill
expectations based on current and anticipated customer orders and that business
will be generated from new customers at anticipated levels. As is common in the
telemarketing industry, the Company's projects are often not subject to formal
contracts, the agreements with its clients do not assure that ACI will generate
a specific level of revenue, do not designate ACI as the client's exclusive
service provider, and are terminable by the client on relatively short notice
and without penalty. In addition, the amount of revenues ACI generates from a
particular client generally is dependent upon their customers' interest in, and
use of, the client's products or services.
The Company believes that it currently has enough capacity in its
existing call centers to handle current demand from existing and new clients.
Should demand from existing and/or new clients continue to increase as it has
the Company may need to add one (1) or more new call centers in 1999.
While the Company anticipates an increase in demand for its services
during the remainder of 1999, there is no assurance that the Company, due to the
current low unemployment levels, will be able to hire and train all of the
necessary personnel in the most cost-efficient manner to fully utilize the
currently existing capacity to meet this increased demand.
During the second quarter of 1999 and for the six months ending June
30, 1999, the Company reduced its selling, general and administrative expenses
by over $400,000 and $500,000, respectively. These reductions are a result of
the Company's effort to improve its processes to reduce costs and increase the
efficiency of the organization. However, if the Company's growth continues, the
Company may not be able to maintain its lower level of SG&A expenses if client
demand continues to grow. There is no assurance that further cost reductions
will continue to be realized or that these costs can be contained.
With the quarter ending June 30, 1999, the Company posted profits for
the second consecutive quarter. During the first quarter of 1999 the Company
returned to profitability for the first time since the second quarter of 1997; a
time span of seven quarters. There is no assurance that the Company will be able
to maintain profitability in 1999.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. When year 2000
begins, these computers may interpret "00" as the year 1900 and could either
stop processing date related computations or could process them incorrectly.
Beginning in the year 2000, these date code fields may need to accept four-digit
entries to distinguish 21st century dates from 20th century dates to be year
compliant.
<PAGE>
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company has completed an
assessment of its internal information systems and has determined that its
financial and operational systems (1) are year 2000 compliant; (2) can be
upgraded to be year 2000 compliant without significant cost or effort; or (3) do
not pose a significant issue to the Company if left uncorrected. The Company is
currently making necessary software conversion and programming modifications to
comply with the Year 2000 issues and believes that all other appropriate actions
are being taken. Total costs to upgrade the Company's internal information
systems are not material to the operations of the Company and are not expected
to materially impact earnings. During the fourth quarter of 1998 and the first
quarter of 1999 the Company, as part of equipment and software enhancements to
its call processing technology and capabilities, also upgraded its call
processing software to be year 2000 compliant in all nine (9) of its call
centers. Total costs for the equipment and software enhancements, including year
2000 compliance, was approximately $147,500. These costs were capitalized.
Additional costs to upgrade the Company's internal information systems are
expected to cost approximately $125,000. These additional costs will not be
capitalized and will be treated as expenses as they are incurred.
The Year 2000 issue may also affect the systems and applications of the
Company's customers and/or suppliers. The Company is reviewing its systems as it
relates to interfacing with customers and suppliers to determine if the
Company's interface systems may be vulnerable to a third parties failure to
correct their own Year 2000 issues. Although the Company does not currently
anticipate any material adverse impact or costs associated with client or
supplier failure to correct their Year 2000 issues in a timely manner, no
assurance can be given that the failure by one or more of the Company's major
clients to become Year 2000 compliant, will not have a material adverse impact
on the Company's operations.
The Company expects to complete its overall Year 2000 conversions prior
to any impact on its operations. However, should the Company not be able to
complete its Year 2000 conversions prior to an impact on its operations, the
Company has not developed a contingency plan to deal with any issues that may
arise as a result of systems that stop processing date related computations or
processes them incorrectly. In addition, the Company has not yet developed a
contingency plan for any failure of the Company's customers and/or suppliers
systems and applications to be Year 2000 compliant.
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.
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held May 13, 1999, in addition to
the election of the directors, the stockholders voted upon the board proposal
contained in the Registrant's Proxy Statement dated April 8, 1999.
The board nominees were elected as directors with the following vote:
<PAGE>
Shares Voted
------------
For Withheld
--- --------
Rick N. Diamond 5,554,130 2,145
Gary B. Cohen 5,554,130 2,145
Seymour Levy 5,554,130 2,145
Douglas W. Franchot 5,554,130 2,145
Phillip T. Levin 5,554,130 2,145
Thomas F. Madison 5,554,130 2,145
The board proposal was approved with the following vote:
For Against Abstain
--- ------- -------
Setting the corporate number of
directorships at six 5,545,201 10,074 1,000
No other matters were submitted to a vote of the security holders.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.39 Amendment to Terminate Sublease between ACI
Telecentrics, Inc. and Forward Devils Lake
Corporation dated April 1, 1999.
10.40 Amended and Restated Revolving Credit Loan Agreement
between ACI Telecentrics, Inc. and National City Bank
dated as of April 30, 1999
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACI TELECENTRICS, INCORPORATED
Registrant
Dated: /s/ August 12, 1999 By: /s/ GARY B. COHEN
---------------------- --------------------------------
Gary B. Cohen
President and Chief
Financial Officer
(Principal Accounting Officer)
Dated: /s/ August 12, 1999 By: /s/ RICK N. DIAMOND
---------------------- --------------------------------
Rick N. Diamond
Chief Executive Officer and
Director
EXHIBIT 10.39
AGREEMENT TO TERMINATE SUBLEASE
THIS AGREEMENT is made this 1st day of April, 1999, by and between
FORWARD DEVILS LAKE CORPORATION, a North Dakota nonprofit corporation, which has
an address of P.O. Box 879, Devils Lake, ND 58301, party of the first part,
referred to herein as "Forward," and ACI TELECENTRICS, INC., a Minnesota
corporation, as successor to Devils Lake Communications, Inc., a North Dakota
corporation, which has an address of 3100 W. Lake St., Minneapolis, MN 55416,
party of the second part, referred to herein as "ACI."
RECITALS
A. The parties entered into a sublease on January 2, 1996, in which
Forward did sublet to ACI certain real property in the City of Devils Lake,
Ramsey County, North Dakota, which property is described as follows, to-wit:
LOTS 13, 14, 15, 16, 17, 18, AND 19, EXCEPT THE NORTH 15 FEET,
ALL IN BLOCK 22 OF THE ORIGINAL TOWNSITE TO THE CITY OF DEVILS
LAKE, RAMSEY COUNTY, NORTH DAKOTA.
B. The sublease did provide, in part, that ACI was to lease from
Forward the above described property for a period of five years, commencing May
1, 1996, and terminating April 30, 2001.
C. An agreement has been made between the parties to terminate the
lease prior to its expiration date. The parties do wish to set out in writing
their understanding of the terms and provisions of this termination.
NOW, THEREFORE, based upon the consideration set forth herein, which
each party does acknowledge is sufficient, it is hereby agreed by and between
the parties as follows:
1. The sublease entered into between the parties on January 2, 1996, is
hereby terminated and canceled effective June 1, 1999.
2. ACI agrees to continue the monthly rental payments to Forward
through and including the month of May, 1999.
3. ACI agrees to vacate the premises by June 3, 1999. ACI further
agrees to allow Forward access to the premises so that Forward can get the
premises ready for occupancy. Forward agrees that it will provide prior
notification to ACI when it will be
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accessing the building, and further, Forward agrees that its access to the
building will not interrupt or interfere with the normal business operations of
ACI. The access to the building by Forward will be from anytime after May 15,
1999,
4. Forward agrees to purchase from ACI the work stations (panels and
desktops) and blinds located on the premises for the sum of $40,000. ACI does
agree to pay the remaining balance of the loan which it has from the Lake Region
Growth Fund, which amount is $21,810.20, provided the scheduled payments for
April and May are paid. This amount, $21,810.20, shall be deducted from the
$40,000 which Forward agrees to pay to ACI for the work stations and blinds,
provided the April and May payments are made as scheduled. ACI covenants that
the work stations and blinds are transferred to Forward free and clear of any
liens, claims or rights of any third parties.
5. ACI agrees that it is not interested in purchasing the property as
set out in paragraph 11 of the sublease, and ACI does hereby relinquish any and
all rights it may have to purchase the property as set out in the sublease.
6. In the sublease, ACI has the right to renew the lease for an
additional five year period of time commencing May 1, 2001, and ACI does agree
to relinquish the right to renew the lease, and further agrees that the sublease
is to be terminated effective with this agreement.
7. In addition to the sublease, the parties had entered into an
agreement in which Forward did assist in the financing of certain equipment
purchased by ACI. As a part of the financing package, Forward did provide a
grant which was to be paid by ACI during its term of occupancy of the premises
under the lease. It is agreed by the parties that ACI may retain the equipment,
and after the payment made for the month of May, 1999, that ACI will owe no
further amounts to Forward for the repayment of the grant to Forward by ACI.
8. ACI understands that it is not released from any liability or claims
under the sublease until Forward has had an opportunity to inspect the premises,
which inspection will be on or before June 1, 1999. If the walk through
discloses any objections which Forward does have, Forward will notify ACI, in
writing, on or before June 1, 1999, of those objections. If no written
objections are made by Forward on or before June 1, 1999, those objections are
deemed waived.
9. Each party does hereby release and indemnify the other from any
claims they would have against the other, whether those claims be known or
unknown, except for what is set out in this agreement. The release of Forward
does extend to any guarantees which ACI has given to Forward in the sublease,
including those guarantees
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given by the officers, agents or employees or ACI in the sublease. Further, the
release is intended to include any other agreements which have been made between
the parties, except by any limitation set forth in this agreement made April, 1,
1999.
Dated the day and year first above written.
FORWARD DEVILS LAKE
CORPORATION
By:
-------------------------------------
Its: President
By:
-------------------------------------
Its: Secretary
ACI TELECENTRICS, INC., a
Minnesota corporation, as successor to
Devils Lake Communications, Inc., a North
Dakota corporation
By:
-------------------------------------
Its: CEO
3
EXHIBIT 10.40
AMENDED AND RESTATED
REVOLVING CREDIT LOAN AGREEMENT
This Amended and Restated Agreement is dated as of the 30th day of
April, 1999, by and between ACI TELECENTRICS, INCORPORATED, a Minnesota
corporation (the "Borrower") and NATIONAL CITY BANK OF MINNEAPOLIS, a national
banking association (the "Lender").
WHEREAS, the Borrower and the Lender entered into a certain Revolving
Credit Loan Agreement dated January 30, 1998 ("Original Agreement") providing
for Advances to Borrower up to the amount of $2,000,000.00 upon the terms and
subject to the conditions contained in the Original Agreement; and
WHEREAS, the Borrower has requested that the Lender amend and restate
the terms and conditions of the Original Agreement, all as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for $1.00 and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby agree
as follows:
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.
"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.
<PAGE>
"Agreement" means this Amended and Restated Revolving Credit Loan
Agreement, as the same may be further amended and restated from time to time.
"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) 80% of Eligible Accounts and 50% of Eligible Property and
Equipment; provided, however, no more than $750,000 shall be included in the
Borrowing Base as an advance against Eligible Property and Equipment.
"Borrowing Base Certificate" means a certificate of the chief financial
officer or controller of the Borrower, in the form of Exhibit B 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
current 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
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<PAGE>
such Person to reimburse any Lender or other Person in respect of amounts paid
under letters of credit. Debt shall not include debt 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 plus depreciation and
amortization to (ii) the sum of (a) the amount of all payments of interest
including, without limitation, payments of interest on the Advances to Lender
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.
"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 due date or 90
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 90 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.
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<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) Computer equipment;
(3) Equipment located at call centers operated by the Borrower
where Borrower has been unable to obtain a landlord's waiver
from the applicable landlord;
(4) Leasehold improvements; and
(5) 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.
"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.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Note" or "Note" means the Renewal Revolving Note of the
Borrower payable to the order of the Lender in substantially the form of Exhibit
A attached hereto.
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<PAGE>
"Security Agreement" means the security agreement of the Borrower
heretofore delivered to the Lender.
"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:
(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;
less
(b) all Debt of such Person (as previously defined);
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 April 30, 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 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:
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<PAGE>
(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 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
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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.
The interest rate payable pursuant to this Section 2.03 shall increase
from the Base Rate to the Base Rate plus one-half percent (.5%) or, as
applicable, from the LIBOR Rate plus two and three-quarters percent (2 3/4%) to
the LIBOR Rate plus three and one-quarter percent (3.25%) per annum in the event
that the Borrower's cumulative pre-tax income, as measured from January 1, 1999
through the end of each calendar quarter of the Borrower first measured on June
30, 1999, is less than $400,000.00. Any increase in the rate will become
effective on the first day of the month immediately following the last day of
the calendar quarter notwithstanding the actual date of reporting hereunder. Any
such rate increase will be effective until the Termination Date irrespective of
whether such cumulative pre-tax income subsequently increases above $400,000.00.
Notwithstanding anything contained herein to the contrary, nothing contained
herein shall serve to reduce or limit Lender's right to increase the rate of
interest to the Default Rate pursuant to Section 2.09 upon the occurrence of an
Event of Default.
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
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charge against the Borrower's account with the Lender an amount equal to the
principal and interest from time to time due 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, or upon the occurrence of an overadvance,
and until such time as the overadvance is repaid, 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 Rate plus two percent (2.0%)
("Default Rate"), which Default Rate shall change when and as often as the Base
Rate changes.
Section 2.10 Intentionally Deleted.
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, in form and substance reasonably satisfactory to
the Lender:
(a) The Revolving Note, properly executed on behalf of the Borrower and
given in renewal and replacement of, and not in substitution or satisfaction of,
that certain revolving note executed by the Borrower in favor of the Lender
dated January 30, 1998.
(b) The Security Agreement, properly executed on behalf of the
Borrower.
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(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 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 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 to be
delivered pursuant to this Agreement by the Borrower and the names of the
officers or other employees authorized to request Advances under Section 2.01
and to sign certificates on behalf of the Borrower. 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 in form and substance satisfactory to the Lender in its sole
discretion, naming the Lender as loss payee.
(k) Intentionally deleted.
(l) Intentionally deleted.
(m) Intentionally deleted.
(n) Intentionally deleted.
(o) Intentionally deleted.
(p) Intentionally deleted.
(q) Such other documents and information as the Lender may reasonably
request.
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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 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 no subsidiaries.
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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, 1998 and (ii) the monthly and year to date unaudited financial
statements in comparative form for the period ended April 30, 1999. 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.
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.
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.
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
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(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 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
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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 or controller 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 or controller of the Borrower,
subject to year-end adjustments; and accompanied by a certificate of
that officer or controller, in substantially the form of Exhibit C
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;
(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 or controller 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
or controller 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
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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 or controller 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 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.
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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 month 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 calendar quarter
of the Borrower, at an amount not less than Four Million Six Hundred Thousand
and no/100ths Dollars ($4,600,000.00) at June 30, 1999, Four Million Seven
Hundred Thousand and no/100 Dollars ($4,700,000.00) at September 30, 1999, and
Four Million Eight Hundred Thousand and no/100ths Dollars ($4,800,000.00) at
December 31, 1999 and for each calendar quarter thereafter.
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 basis, calculated based upon a term equal to the shorter of the previous
12 months or the period from August 31, 1998, through the applicable computation
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:
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(a) Intentionally deleted.
(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) The lien, security interest or claim of lessors pursuant
to lease obligations.
(e) 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) Intentionally deleted.;
(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) Intentionally deleted.
(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.
(b) Intentionally deleted.
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
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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);
(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
-17-
<PAGE>
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 now 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.
Section 6.10 Capital Expenditures. The Borrower shall not incur any
Capital Expenditures in any twelve (12) month period in excess of $1,000,000.00.
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. Notwithstanding the
foregoing, the Lender may, in its sole discretion, consider and approve Capital
Expenditures in excess of $1,000,000.00 to the extent that the Borrower can
demonstrate economic justification for Capital Expenditures exceeding
$1,000,000.00 and, further, such excess is financed with economic or development
grant monies.
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, without
the prior written consent of the Lender.
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<PAGE>
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 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
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<PAGE>
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 more 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
(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.
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<PAGE>
(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 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.
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<PAGE>
(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:
ACI Telecentrics, Inc.
3100 West Lake Street
Minneapolis, Minnesota 55416-4510
Telecopier: (612) 928-4776
ATTN: Russ Jackson, Controller
If to Lender:
National City Bank of Minneapolis
651 Nicollet Avenue
Minneapolis, Minnesota 55402
Telecopier: (612) 904-8015
ATTN: Peter H. Archibald, Vice President
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<PAGE>
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.
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
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<PAGE>
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.
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.
-24-
<PAGE>
ARTICLE IX
Reaffirmation
The Borrower hereby reaffirms and ratifies all of the terms and
conditions of the Original Agreement, the Loan Documents, and all certificates,
schedules, and all other documents heretofore submitted, executed and/or
delivered to the Lender and agrees that the same shall remain in full force and
effect. The execution of this Agreement by the Lender shall not constitute a
waiver of any of the Lender's rights pursuant to the Original Agreement, or any
certificate, schedule or document delivered in connection therewith or
thereunder, unless the Lender specifically waives the Event of Default, in
writing, in this Agreement or in any letter signed by the Lender and delivered
herewith.
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:
------------------------------------
Its:
------------------------------
LENDER:
NATIONAL CITY BANK OF MINNEAPOLIS,
a national banking association
-----------------------------------------
By: Peter H. Archibald
Its: Vice President
-25-
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<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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0
0
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