<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_________ TO___________
COMMISSION FILE NUMBER 1-12571
INTELLICELL CORP.
Delaware 95-4467726
(State of incorporation or organization) (IRS Employer Identification No.)
9314 Eton Ave., Chatsworth, California 91311
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 709-2300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
As of August 13, 1999 there were 7,014,893 shares of the registrant's Common
Stock outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICELL CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,593,000 $ 362,000
Accounts receivable, net of allowance for doubtful
accounts of $174,000 and $251,000 3,194,000 2,155,000
Inventories, net of reserves of $371,000 and $592,000 1,124,000 837,000
Notes receivable, net of allowance for doubtful
notes of $662,000 and $1,521,000 -- --
Deposits for purchase of inventory 84,000 254,000
Prepaid expenses and other current assets 391,000 211,000
------------ ------------
Total current assets 6,386,000 3,819,000
Property and equipment, net of accumulated
depreciation of $325,000 and $242,000 395,000 359,000
Other assets 166,000 --
------------ ------------
Total assets $ 6,947,000 $ 4,178,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 2,810,000 1,150,000
Revolving credit facility 1,376,000 --
Accrued expenses 467,000 179,000
------------ ------------
Total current liabilities 4,653,000 1,329,000
------------ ------------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock -$.01 par value, 1,000,000 shares
authorized and none issued
Common stock -$.01 par value, 15,000,000 shares
authorized 7,014,893 and 5,915,902 shares
issued and outstanding 69,000 59,000
Additional paid-in capital 12,987,000 11,379,000
Accumulated deficit (10,762,000) (8,589,000)
------------ ------------
Total stockholders' equity 2,294,000 2,849,000
------------ ------------
Total liabilities and stockholders' equity $ 6,947,000 $ 4,178,000
------------ ------------
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</TABLE>
See accompanying notes to financial statements
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INTELLICELL CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 14,219,000 $ 18,616,000
Cost of sales 13,397,000 17,593,000
------------ ------------
Gross profit 822,000 1,023,000
Selling, general and administrative expenses 1,760,000 2,564,000
Severance expenses 668,000 --
Non-cash severance expenses 551,000 --
------------ ------------
2,979,000 2,564,000
Loss from operations (2,157,000) (1,541,000)
Other income (expense):
Interest expense (23,000) (163,000)
Other Income (expense) 6,000 (33,000)
------------ ------------
Loss before income tax benefits (2,174,000) (1,737,000)
Income tax benefits -- --
------------ ------------
Net loss $ (2,174,000) $ (1,737,000)
------------ ------------
------------ ------------
Basic loss per share $ (0.33) $ (0.39)
------------ ------------
------------ ------------
Diluted loss per share $ (0.33) $ (0.39)
------------ ------------
------------ ------------
Weighted average number of common shares outstanding 6,543,636 4,415,902
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
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INTELLICELL CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 7,553,000 $ 8,685,000
Cost of sales 7,196,000 8,036,000
----------- -----------
Gross profit 357,000 649,000
Selling, general and administrative expenses 807,000 1,087,000
Severance expenses 668,000
Non-cash severance expenses 551,000 --
----------- -----------
2,026,000 1,087,000
Loss from operations (1,669,000) (438,000)
Other income (expense):
Interest expense (23,000) (79,000)
Other Income (expense) 11,000 (45,000)
----------- -----------
Loss before income tax benefits (1,681,000) (562,000)
Income tax benefits -- --
----------- -----------
Net loss $(1,681,000) $ (562,000)
----------- -----------
----------- -----------
Basic loss per share $ (0.24) $ (0.13)
----------- -----------
----------- -----------
Diluted loss per share $ (0.24) $ (0.13)
----------- -----------
----------- -----------
Weighted average number of common shares outstanding 6,948,782 4,415,902
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
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INTELLICELL CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,173,000) $(1,737,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 83,000 71,000
Non Cash Compensation Expense 551,000 198,000
Provision for (recovery of) doubtful accounts receivable (77,000) 703,000
Provision for (recovery of) inventory reserves (221,000) 323,000
Provision for doubtful notes receivable -- 864,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (962,000) 2,949,000
(Increase) decrease in inventories (66,000) 1,573,000
(Increase) decrease in deposits for purchases of inventory 170,000 (462,000)
(Increase) decrease in other receivables -- (710,000)
(Increase) decrease in prepaid expenses and other current assets (180,000) 134,000
(Increase) decrease in other assets (166,000) --
Increase (decrease) in accounts payable and accrued expenses 1,948,000 (1,515,000)
------------ ------------
Net cash provided by (used in) operating activities (1,093,000) 2,391,000
------------ ------------
Cash flows from investing activities:
Acquisition of fixed assets (119,000) (200,000)
------------ ------------
Net cash provided by investing activities (119,000) (200,000)
------------ ------------
Cash flows from financing activities:
Bank overdraft (payments) -- (250,000)
Deferred financing costs -- (8,000)
Advances under credit facility 3,941,000 (1,863,000)
Repayments under credit facility (2,565,000) --
Proceeds from the sale of common stock 1,067,000 --
------------ ------------
Net cash provided by (used in) financing activities 2,443,000 (2,121,000)
------------ ------------
Net increase in cash 1,231,000 70,000
Cash - beginning of period 362,000 --
------------ ------------
Cash - end of period $ 1,593,000 $ 70,000
------------ ------------
------------ ------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ -- $ 163,000
Income taxes $ -- $ --
</TABLE>
See accompanying notes to financial statements
Page 5
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INTELLICELL CORP.
Notes to Financial Statements
(Unaudited)
1. COMPANY'S QUARTERLY REPORT UNDER FORM 10-Q
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions set forth in the Securities and Exchange Commission's
("SEC") regulations. In the opinion of Management, the accompanying financial
statements include all adjustments consisting of normal recurring accruals
necessary to present fairly the financial statements of Intellicell Corp. for
the periods presented. The accompanying financial information should be read in
conjunction with the audited financial statements contained in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1998.
Footnote disclosures that substantially duplicate those in the Company's Form
10-K, as amended, including significant accounting policies, have been omitted.
The results of operations for the three months and six months ended June 30,
1999, are not necessarily indicative of the results to be expected for the full
fiscal year.
2. AGREEMENT TO MERGE WITH CELLULAR WHOLESALERS, INC.
In July 1999, the Company entered into a definitive agreement to merge with
Cellular Wholesalers, Inc. ("CWI"), with CWI being merged into a new, wholly
owned subsidiary of the Company. Cellular Wholesalers Inc., commonly known as
CWI, is a metropolitan Chicago distributor of wireless electronics products,
founded in 1987. Under the terms of the merger, CWI's shareholders will
receive up to $5,000,000 in cash and 2,250,000 shares of Intellicell common
stock (with the amount of cash subject to reduction and the number of shares
subject to increase, based on CWI's total stockholders' equity on the closing
of the merger). The merger, which is subject to the Company's shareholder
approval, certain customary closing conditions and receipt by the Company of
certain financing commitments, is expected to be completed in the fourth
quarter of this year.
In conjunction with the merger with CWI, the Company engaged Sands Brothers as
its financial advisor. In exchange for advisory services on the merger, the
Company agreed to pay Sands Brothers approximately $300,000 at the closing. As
of June 30, 1999, the Company has paid $50,000 for said services. In addition,
the Company engaged Sands Brothers to use its best efforts to raise the
$5,500,000 required as a condition to closing the CWI the merger. The Company
agreed to pay Sands between 8% (for institutional investors) to 12% (for
non-institutional investors) of equity raised. There can be no guarantee that
Sands will be successful in its efforts to raise these funds.
3. CREDIT FACILITY
In May 1999, the Company entered into a revolving line of credit agreement with
NationsCredit Commercial Corporation, a subsidiary of BankAmerica.
("NationsCredit") which expires in May 2002, and provides for borrowings of up
to a maximum of $5,000,000 based on a maximum of 82% of eligible receivables and
the lesser of $1,000,000 or 50% of eligible inventory, as defined. Borrowing
under the agreement accrues interest at the prime rate plus 1% per annum. The
credit facility is collateralized by substantially all of the assets of the
Company. The agreement
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prohibits the Company from paying dividends or incurring additional indebtedness
except for trade indebtedness and, initially, required the Company to maintain a
tangible net worth of no less than $2,000,000 during the term of the loan or the
accrued interest increases to prime plus 2% per annum. NationsCredit also
received warrants to purchase 20,000 shares of the Company's common stock with
an exercise price of $4.14 per share.
4. SEVERANCE AGREEMENTS
In April 1999, the Company and Ben Neman entered into an agreement whereby Mr.
Neman agreed to resign as President and Chairman of the Board and to the
cancellation of his existing employment agreement. The Company agreed to pay Mr.
Neman $250,000 upon signing of the termination agreement and make 24 monthly
payments of $14,583 each, with the first payment commencing on May 1, 1999. The
agreement also called for the Company to arrange for a private sale of 146,764
of Mr. Neman's shares of the Company's common stock and for certain limitations
on Mr. Neman's other sales of the Company's common stock. In May 1999, the
Company in connection with Mr. Neman's private sale of the foregoing shares
issued to the purchasers of the these shares a warrant to purchase an additional
share of common stock for $1.50 for each share purchased from Mr. Neman. The
payments made to date and the present value of future payments to Mr. Neman have
been recorded as severance expense in the accompanying financial statements. The
difference between the market value of the Company's common stock in May 1999
and the exercise price of the warrants issued to the purchasers of Mr. Neman's
shares have been recorded as non-cash compensation expense in the accompanying
financial statements.
On April 30, 1999, Stephen Jarrett resigned as an Executive Vice President and
from the Board of Directors. The parties terminated Mr. Jarrett's employment
agreement, and the Company paid Mr. Jarrett $68,750 upon signing of the
termination agreement, which is recorded in the accompanying financial
statements as severance expense. The Company also agreed to accelerate vesting
of Mr. Jarrett's options to purchase 100,000 shares of the Company's common
stock, which Mr. Jarrett immediately exercised for $68,750. The Company was
required under the termination agreement to lend $30,000 to Mr. Jarrett, with
the loan secured by his common stock. This loan will not bear interest and will
be payable in May 2000. The parties further agreed to certain limitations on Mr.
Jarrett's sales of his shares of the Company's common stock.
5. MANAGEMENT
On April 27, 1999, the Company's Board of Directors appointed Michael Hedge
to be the Company's Chief Executive Officer and President and a member of the
Board of Directors and appointed John Swinehart to be the Company's Chairman
of the Board and Chief Operating Officer.
6. COMMITMENT AND CONTINGENCIES
In May 1999, the Company entered into a three-year employment agreement with
Mark Fruehan, who will serve as its Executive Vice President of New Business
Development. Mr. Fruehan's agreement calls for a one-time signing bonus of
$25,000 and an annual salary of $135,000. In addition, Mr. Fruehan was
granted incentive stock options to purchase 110,000 shares of the Company's
common stock. Of these options, 10,000 will vest after 90 days following Mr.
Fruehan's employment. The remaining options vest over three years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THE STATEMENTS CONTAINED IN THIS REPORT WHICH ARE NOT HISTORICAL FACTS ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT
NOT LIMITED TO, POSSIBLE DELAYS IN THE COMPANY'S EXPANSION EFFORTS, CHANGES IN
WIRELESS COMMUNICATIONS MARKETS AND TECHNOLOGIES, THE NATURE OF POSSIBLE
SUPPLIER OR CUSTOMER ARRANGEMENTS WHICH MAY BECOME AVAILABLE TO THE COMPANY IN
THE FUTURE, POSSIBLE PRODUCT OBSOLESCENCE, UNCOLLECTIBLE ACCOUNTS RECEIVABLE,
SLOW MOVING INVENTORY, LACK OF ADEQUATE FINANCING, INCREASED COMPETITION AND
UNFAVORABLE GENERAL ECONOMIC CONDITIONS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN ANY FORWARD LOOKING STATEMENT.
CHANGES IN FINANCIAL CONDITION
For the six months and three months ending June 30, 1999, the Company
incurred significant losses, and the Company anticipates that it may incur
further (although reduced) losses for the balance of 1999. The Company
believes that these losses are attributable to its efforts to hire new
management, the costs of severance for former management and operating losses
from decreased sales while it re-establishes a customer base that purchases
wireless phones based on digital technology, as opposed to the former analog
technology. New management is seeking to position the Company to develop
business opportunities with major manufacturers and network operators while
supporting and growing its current business foundation of distribution of
wireless handsets to dealers and agents. In late 1997 and 1998, the cellular
phone industry shifted from technology based on analog signals to technology
based on digital signals. The manufacturers who first produced the digital
cellular telephones sold directly to phone carriers, eliminating most
distributors, including the Company. In that light, the Company has had to
procure product from carriers with excess inventory or other distributors.
In an effort to procure the current state-of-the-art digital product, the
Company has purchased its inventory of digital product mostly on a prepaid
basis. See "Liquidity and Capital Resources." The Company is in negotiations
with new suppliers of digital cellular product to provide purchasing terms.
There can be no assurance that the Company will be able to obtain sufficient
credit amounts to effect large purchases that will allow the Company to
subsequently sell such product at high enough volumes to create a positive
sustained impact for the Company.
Total assets at June 30, 1999 increased by $2,769,000 (or 66.3%) from
December 31, 1998, primarily as a result of a $1,231,000 (or 340.2%) increase
in cash and a $1,039,000 (or 48.2%) increase in accounts receivables. The
increase in cash is the result of obtaining a line of credit in May 1999. The
increase in accounts receivables is a result of increased sales within 30
days of June 30, 1999 versus December 31, 1998.
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Net assets (assets less liabilities) of the Company as of June 30, 1999
decreased by $555,000 (or 19%) from December 31, 1998, reflecting the net loss
for the six months ended June 30, 1999, net of proceeds from the sale of common
stock and charges to earnings not affecting net equity, such as non cash
severance expenses.
The Company's inventory reserve was $371,000 at June 30, 1999, or 24.8% of
inventories at that date. The Company believes this reserve is currently
adequate for obsolescence and net realizable value, given the size and nature
of its inventories. Management has made a concerted effort during the period
to reduce its inventory of analog accessories. Management believes the
Company will not realize any further amounts from, and has fully reserved for
its remaining analog accessories.
At June 30, 1999 the Company has a deferred tax asset of $4,063,000,
representing the future benefit of net operating losses and timing differences
and has established a valuation allowance of an equal amount reflecting current
assessment of realizability.
Total liabilities increased by $3,324,000 (or 250.1%) from December 31, 1998 to
June 30, 1999. This increase is primarily composed of a $1,660,000 (or 144.4%)
increase in accounts payable and a $1,376,000 increase in borrowings under a new
revolving credit facility. This increase in liabilities is associated with
increased levels of business activity, including purchases and inventory levels
during the six months ending June 30, 1999.
COMPARISON OF OPERATIONS
Net sales for the six months and three months ended June 30, 1999 decreased
$4,397,000 (or 23.6%), and $1,132,000 (or 13.0%) from the comparable periods
of the prior year. The Company believes that this decrease in sales is
primarily attributable to a reduced sales force, a result of the May 1998
layoffs, and the Company's recent inability to procure digital products
before it was funded with its recently established line of credit.
Gross profit decreased by $201,000 (or 19.6%) for six months and $292,000 (or
45.0%) for the three months ended June 30, 1999, from the prior comparable
periods. As a percentage of sales, gross profit for the six months and three
months ended June 30, 1999 was 5.8% and 4.7%, compared to 5.5% and 7.5% for
the six months and three months ended June 30, 1998, respectively. The
increase in gross profit as a percentage of sales for the six months was
primarily the result of a lower gross profits realized in the six months
ending June 30, 1998, a result of the deterioration of analog product demand.
The decrease in the gross profits as a percentage of sales for the three
months was primarily the result of a one-time purchase of product inventory
on a close-out sale from a manufacturer.
Selling, general and administrative expenses decreased by $1,760,000 (or 31.4%)
from the six months ended June 30, 1998 to the six months ended June 30, 1999.
Selling, general and administrative expenses decreased by $280,000 (or 25.8%)
from the three months ended June 30, 1998 to the three months ended June 30,
1999. The above mentioned decreases in expenses over those of the comparable
period of the prior fiscal year is due primarily to the prior period's non-cash
expenses for stock options to non-employees, 1998's moving costs for the
Company's
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facilities in Chatsworth, loan fees in 1998 for the Company's then
outstanding credit agreement, reserves for doubtful accounts receivables and
increased reserves for inventory obsolescence.
In 1999, the Company incurred severance costs of $1,219,000. These costs were
the result of the direct and accrued severance costs to Ben Neman and Stephen
Jarrett and the non-cash costs associated with warrants issued to participants
in a private sale of 146,764 shares of common stock of the Company owned by Mr.
Neman. Completion of this private sale was a obligation of the Company under Mr.
Neman's termination agreement.
For the six months ending June 30, 1999, the Company incurred a loss from
operations of $2,157,000 and a net loss of $2,174,000 compared to a loss from
operations and net loss of $1,541,000 and $1,737,000, respectively, for the
comparable periods in 1998. The loss from operations for the six months
ending June 30, 1999 included a non-recurring charge of $1,219,000 for
severance costs of former management. Excluding this non-recurring charge,
the operating results for the six months ending June 30, 1999 would have been
a loss of $462,000. For the three months ended June 30, 1999, the Company
incurred a loss from operations of $1,669,000 and a net loss of $1,681,000
compared to a loss from operations and net loss of $438,000 and $562,000,
respectively for the comparable periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary cash requirements have been to fund
increased levels of inventories and accounts receivable. The Company has
satisfied its working capital requirements principally through cash flow from
operations, the issuance of equity securities and borrowings. Working capital at
June 30, 1999 was $1,733,000 compared to working capital of $2,490,000 at
December 31, 1998. This decrease in working capital reflects the losses
sustained by the Company during 1999.
Net cash used by operating activities was $1,093,000 for the six months ended
June 30, 1999 as compared to net cash provided by operating activities of
$2,391,000 for the six months ended June 30, 1998. The cash used by operating
activities for the six months ended June 30, 1999 was primarily the result of an
increase in accounts payable, net of an increase in accounts receivables. Net
cash used by investing activities for the six months ended June 30, 1999 was
$119,000 as compared to $200,000 for the six months ended June 30, 1998. For the
six months ended June 30, 1998, net cash provided by financing activities was
$2,443,000, which was the result of increased borrowings under the Company's
credit facility and proceeds from the exercise of warrants from the Company's
private placement of convertible notes in November 1998.
The Company has incurred significant losses, the continuation of which would
have a materially adverse impact on its cash flow and liquidity. The Company
currently does not have significant borrowing availability under its existing
credit facility or through many of its vendors, which adversely impacts the
Company's ability to maintain or expand the current level of its operations.
Under the Company's line of credit, the Company is prohibited from incurring
additional indebtedness, except for trade indebtedness. The Company is
pursuing certain business opportunities, including the acquisition of CWI,
that would require significant amounts of borrowing capacity under a credit
facility or other working capital. If the Company is not successful in
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obtaining additional financing, it will be unable to consummate these
business opportunities and its ability to maintain or expand its current
level of operations will be adversely impacted.
The terms of the Company's acquisition of CWI require the combined entity
have a line of credit for not less than $15,000,000. As of August 11, 1999,
one lender, NationsCredit, has submitted a letter of intent based on
completion of the merger. However, the letter of intent for a $15,000,000
line of credit is subject to certain conditions, and there can be no
assurance that additional financing will be available to the Company on
commercially reasonable terms, or at all, from either NationsCredit or any
other lender.
YEAR 2000 UPDATE
Overview and Background
The Company has completed a project (the Project) that addressed the Year 2000
readiness of its information technology as well as its non-information
technology systems (e.g., alarm systems, office machines, etc.) which have
embedded technology (collectively referred to as Systems). Additionally, the
Project included assessment of the Year 2000 readiness of the Company's
significant suppliers and customers.
Status of the Project
The Project was divided into four separate phases - Planning and Awareness,
Inventory, Assessment and Renovation. The Planning and Awareness phase began in
November 1998 and was completed in March 1999. This phase included: (I)
development and approval of the Project charter, (ii) formation of a Project
management team to carry out the Project charter, (iii) identification and
assessment of overall Project risks and (iv) development of a Project budget.
In February 1999, the Company implemented the Inventory phase of the Project,
which involved: (i) identification of significant Systems to be assessed and
(ii) identification of all significant suppliers and customers. Because the
Company does not believe that its customers' Year 2000 compliance issues will
have a significant impact on the Company, the Company conducted informal
conversations about Year 2000 issues with its customers. This phase was
completed in June 1999.
The Assessment phase began in March 1999 and was completed in June 1999. This
phase involved (i) contacting vendors of significant Systems to assess the Year
2000 readiness of those Systems, (ii) testing of the assertions made by
significant Systems vendors, (iii) contacting significant suppliers, customers
and wireless network operators in order to ascertain their state of Year 2000
readiness, (iv) assessment of assertions made by significant suppliers and
customers, (v) determination of the extent to which renovation would have been
required to insure Year 2000 readiness and (vi) development of contingency plans
to the extent considered necessary.
Once the Assessment phase was completed for each System, the Renovation phase
commenced for those Systems identified as not Year 2000 compliant. The
Renovation phase was completed in June 1999. The activities that have been
performed during Renovation included (i) repairing, replacing or reprogramming
all significant Systems that do not comply with Year 2000 readiness, (ii)
testing and validation of renovated Systems and (iii) establishment and
completion of action plans to address any Year 2000 issues with significant
customers and suppliers.
Costs
The Company relied entirely on internal resources to implement and fund the
Project. Costs incurred to insure the Company's systems are Year 2000
compliant were not material to the Company's results of operations, financial
position or cash flows since the Company had already been in the process of
upgrading certain Systems to keep pace with new computer and software
technologies. Project costs (which totaled less than $25,000) were expensed
as incurred.
<PAGE>
Risks and Contingencies
The Company believes that the Project will meets its Year 2000 objectives. The
ability of suppliers and customers with which the Company transacts to timely
convert their systems to be Year 2000 compliant is uncertain. Lastly,
disruptions in the economy generally resulting from Year 2000 issues could also
have an adverse affect on the Company's operations. Such failures could
materially and adversely affect the Company's results of operations, liquidity
and financial position.
The Company is dependent on wireless equipment manufacturers for supply of
wireless handsets and accessories. Additionally, demand for the Company's
products (wireless handsets and accessories) by the Company's customers is
dependent on the ability of network operators to provide wireless network
services to the end-users of those products. Failure in the products and/or
systems of the wireless equipment manufacturers or network operators, including
those resulting from a lack of Year 2000 compliance, could have a material
adverse effect on the Company.
There can be no assurance that third parties which the Company significantly
relies upon will succeed in their Year 2000 compliance efforts or that failure
by third parties would not have a material adverse effect on the Company's
results of operations or financial condition.
RISK FACTORS
WE HAVE RECENT LOSSES
We have incurred operating losses for 1997 and 1998 and the first half of
1999, and we anticipate that we may incur further (although reduced) losses
for the balance of 1999. Our operating expenses have increased and can be
expected to increase significantly in connection with our contemplated
expansion of operations. This planned expansion will require us to make
substantial up-front expenditures to purchase inventory and increase
marketing efforts. We expect to continue to incur significant operating and
capital expenditures and, as a result, we will need to generate significant
revenues to achieve and maintain profitability. We cannot assure you that we
will generate sufficient revenues to achieve profitability. Even if we do
achieve profitability, we cannot assure you that we can sustain or increase
profitability in the future. If revenues grow slower than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted
accordingly, our business, results of operations and financial condition will
be materially and adversely affected.
WE OPERATE ON LOW MARGINS
We have historically operated on a high volume and low margin basis. A recent
trend by original equipment manufacturers to reduce prices of wireless products
has and will likely continue to put additional downward pressure on our margins.
WE PLAN TO EXPAND OUR OPERATIONS
We plan to achieve and maintain operating profitability by expanding our
operations. The success of this plan will be largely dependent on our ability to
-- maintain operating and gross margins
-- secure an adequate supply of competitive products
-- hire and retain skilled marketing and other personnel
-- successfully manage growth by monitoring operations, controlling costs
and maintaining effective management, inventory and credit controls
-- develop and maintain relationships with leading manufacturers,
dealers, agents, carriers and sub-agents of wireless products
-- acquire and successfully integrate businesses that are complimentary
with our operations
We have limited experience in expansion efforts and we cannot assure you our
planned expansion will be successful.
WE PLAN TO ACQUIRE CELLULAR WHOLESALERS, INC.
We have entered into an agreement to acquire CWI, a privately owned wholesale
distributor of wireless communications products. Because this acquisition is
subject to our obtaining financing commitments and other customary closing
conditions, we may not be able to complete this acquisition. If we do acquire
Cellular Wholesalers:
-- we may be unable to successfully integrate its operations with our
current operations
-- we will incur substantial additional debt under a line of credit that
could limit our future financing activities and which we could have
difficulty servicing if we suffer a downturn in our operations
-- we will need to raise at least $5,500,000 in additional equity or debt
financing, which may require us to issue a substantial number of
shares of our common stock or securities convertible into shares of
our common stock
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-- affiliates of Cellular Wholesalers will continue to have significant
transactions with it after our acquisition
-- the management information systems of Cellular Wholesalers are not yet
year 2000 compliant, and we cannot assure you that the current project
to make these systems year 2000 compliant will be completed in a
timely manner or within the budget that we have agreed to for this
project
-- we will generate significant goodwill for accounting purposes that we
will be required to charge against our future reported earnings
WE ARE PURSUING A STRATEGY TO PROVIDE NEW DISTRIBUTION SERVICES
We are pursuing a new strategy to become a value added distributor for original
equipment manufacturers and network operators. As part of this effort, we may
need to expand our warehousing facilities, inventory of products, computer
systems and equipment for repair and refurbishing. We plan to outsource various
services until we have adequate capital to provide the services ourselves. If we
are unable to secure vendors to provide these services on a cost-effective basis
and do not have adequate capital, we may be forced to abandon this approach.
Furthermore, we cannot assure you that manufacturers and network operators will
pay for our services as a value added distributor.
WE PLAN TO INTRODUCE AN INTERNET ORDER SYSTEM
We also plan to introduce a new internet-based method for processing orders from
dealers. We may:
-- encounter delays in developing this system
-- incur unanticipated costs in establishing or maintaining this system
-- encounter customer resistance to using this new system
WE WILL LIKELY NEED TO RAISE ADDITIONAL CAPITAL
We will need additional working capital to significantly expand our operations
as part of our strategy to generate operating profits. We are seeking to obtain
an increase in our existing line of credit in connection with the Cellular
Wholesalers acquisition. Although we are in discussions with several financial
institutions to provide this financing, we cannot assure you that we will be
successful in obtaining this financing. Furthermore, our existing line of credit
contains various customary covenants that limit our activities. In addition to
an increased line of credit, we are also seeking additional debt or equity
financing in connection with the Cellular Wholesalers acquisition. We do not
have any commitment from any third party to provide this financing. We cannot
assure you that we will be able to obtain additional financing on reasonable
terms or at all. Furthermore, if we raise additional capital through equity, our
existing stockholders will experience dilution. If we are unable to raise
additional financing when needed, we may be unable to grow and maintain our
current level of business operations.
WE ARE DEPENDENT ON OUR PRINCIPAL SUPPLIERS
We are dependent on third-party equipment manufacturers and distributors for all
of our supply of cellular telephones and accessories. We rely on our suppliers
to provide adequate inventories of popular brand name products on a timely basis
and on favorable pricing terms. We generally do not maintain supply agreements.
Instead, we purchase products under purchase orders on an on-going basis. Our
suppliers may not continue to offer competitive products to us on favorable
terms when we need them. We have failed in the past to sustain significant
relationships with leading manufacturers of analog and digital cellular
products. Our supplier relationships have been primarily other wholesale
distributors. As a result, our supply of products is inconsistent. Purchases
from wholesale distributors tend to be more expensive and do not include price
protection or promotional allowances.
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WE FACE INTENSE COMPETITION FROM OTHER DISTRIBUTORS OF WIRELESS PRODUCTS
The markets for wireless communications products are characterized by intense
price competition and significant price erosion over the life of a product. We
compete with numerous well-established wholesale distributors and manufacturers
of wireless equipment, including our customers and suppliers, as well as
providers of wireless services. Many of our competitors possess greater
financial, marketing, personnel and other resources than us. Brightpoint and
CellStar, historically two of our principal suppliers, are also two of our
primary competitors. Some of our competitors have the financial resources that
allow them to withstand substantial price competition and implement extensive
advertising and promotional programs. The wireless distribution industry is also
characterized by low barriers to entry and frequent introduction of new
products. Our ability to compete successfully will be largely dependent on our
ability to maintain our current vendor relationships and anticipate and respond
to various competitive factors affecting the industry, including:
-- new products
-- changes in consumer preferences
-- demographic trends
-- economic conditions, including recessions that decrease consumer
spending
-- discount pricing and promotional strategies by carriers
-- consolidating trends in the industry
We cannot assure you that we will be able to compete effectively, particularly
as domestic wireless markets mature and we seek to enter into new markets and
market new products.
WE MAY HAVE LOSSES DUE TO BAD CREDIT
We make most of our sales by extending credit to customers, and we may be
unable to collect payment from some of them. We have been required to write
off significant accounts receivable balances in the past. Our accounts
receivable, minus an allowance for doubtful accounts of $174,000, were
approximately $3,194,000 on June 30, 1999. Delays in collection or
uncollectibility of accounts receivable could harm our liquidity and working
capital position.
WE MAY BE UNABLE TO ADJUST TO EVOLVING INDUSTRY STANDARDS AND RAPID
TECHNOLOGICAL CHANGE.
The markets for wireless communications products are characterized by rapidly
changing technology and evolving industry standards, often resulting in product
obsolescence or short product life cycles. Accordingly, our marketing strategy
and ultimate success is dependent upon our ability to anticipate technological
changes in the industry. A recently introduced digital technology called the
digital personal communications services format, or "PCS," has decreased demand
for the analog and digital products we sell. Manufacturers in this new market
have selected distribution channels which do not currently include us. We may be
unable to secure strategic relationships giving us access to digital PCS
products directly, and our business will be harmed if we fail to secure a
consistent supply of digital PCS products on reasonable terms. The use of other
alternative wireless communications technologies, including satellite
communications systems, may also reduce demand for existing wireless products.
These technologies, upon widespread commercial acceptance, could materially
change the types of products we sell and result in significant price
competition. Our existing customers may be unwilling to purchase the new
equipment necessary to utilize these new technologies.
WE MAY HAVE EXCESS OR OBSOLETE INVENTORY
We acquire inventory in advance of product shipments. Because forecasting the
desirable level of inventory is difficult, we may forecast incorrectly and stock
excess inventory of particular products.
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Furthermore, the value of our inventory may decrease due to price reductions by
competitors, obsolescence due to technological change and product quality
problems. We have in the past incurred significant declines in our inventory
value and any future declines could have a material adverse effect on our
business.
WE SELL TO FOREIGN CUSTOMERS
Sales of wireless products to customers in foreign markets, primarily in Latin
America, have accounted for a portion of our revenues. In 1998, sales to
customers outside of the United States accounted for 8% of our total revenues.
We are trying to increase product sales in foreign markets, because we believe
that they present significant growth opportunities. To the extent that we
increase foreign sales, our business will increasingly become subject to foreign
trade risks, including:
-- credit risk
-- trade restrictions, including customs duties and import quotas
-- shipping delays
-- political, regulatory and economic instability
-- fluctuations in currency rates
Although our foreign sales are currently made in United States dollars, an
increase in the value of the dollar in relation to foreign currencies may
decrease demand for our wireless products in foreign countries. For competitive
reasons, we may make future foreign sales in local currencies, which would
expose us to additional currency fluctuation risks. We do not intend to engage
in foreign currency hedging transactions.
WE RELY ON ASIAN MANUFACTURERS
We currently obtain products from several manufacturers who are based or
affiliated with companies in Asia. These manufacturers have been affected by the
recent and well publicized Asian financial crisis. Our business would be harmed
if these manufacturers were unable to supply us with sufficient quantities of
wireless products.
THERE ARE POSSIBLE MEDICAL RISKS ASSOCIATED WITH WIRELESS TELEPHONES
Lawsuits have been filed against manufacturers of wireless telephones alleging
possible medical risks, including brain cancer, associated with electromagnetic
fields emitted by cellular telephones. Scientific research has not been
conclusive on the effect of cellular telephones on humans. Future studies
confirming health risks associated with cellular telephones could harm our
business. Furthermore, the perception of health risks could harm our ability to
sell wireless telephone products. As a distributor of wireless telephones, we
could be subject to lawsuits filed by plaintiffs alleging health risks. We do
not carry product liability insurance.
OUR BUSINESS IS DEPENDENT ON OUR NEW MANAGEMENT TEAM
Our future success depends to a significant extent on the continued services of
our senior management, who have only recently joined us. In April 1999, Ben
Neman, our chairman of the board and president, and Stephen Jarrett, an
executive vice president and director, resigned their positions. Michael Hedge,
who joined us as an executive vice president in February 1999, became our
president and chief executive officer as well as a director in April 1999. John
Swinehart, who had served as our chief executive officer and a director since
November 1998, became chairman of the board and chief operating officer in April
1999. Other key officers and employees include David Kane, our chief financial
officer since August 1998; Mark Fruehan, our executive vice president since May
1999; and Michael King, our vice president
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of marketing and business development since January 1999. The loss or
interruption of the services of one or more of these individuals could have a
material adverse effect on our business and prospects.
WE MAY EXPERIENCE YEAR 2000 INTERRUPTIONS
We use a number of computer software programs in our internal operations,
including our order, inventory management and distribution systems. If our
computer systems do not correctly recognize the date information for the year
2000, our operations may be interrupted. The wireless products we distribute
could also experience year 2000 problems, and our customers may alter their
usual purchasing patterns due to year 2000 problems. If any of our computer
systems or products are not year 2000 compliant, our business, financial
condition and results of operations could be materially adversely affected.
In addition, failure by our key suppliers or customers to make their computer
software programs year 2000 compliant could have a material adverse effect on
us. We have completed a project to address various year 2000 issues, but will
continue to monitor our year 2000 risks.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports On Form 8-K.
(a) Exhibits
4.1 Form of Warrant issued by Company to investors in Neman sale
of common stock
10.24 Agreement with NationsCredit
10.25 Employment Agreement between Mark Fruehan and the Company
27 Financial Data Schedule
(b) A Form 8-K (Item 5) was filed by the Company on April 20, 1999 and a Form
8-K (Items 5 and 7) was filed by the Company on April 28, 1999.
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Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, Intellicell Corp. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Intellicell Corp.
BY: /s/ DAVID M. KANE Dated: August 13, 1999
- -----------------------------------
David M. Kane
Chief Financial Officer
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EXHIBIT 4.1
THESE WARRANTS AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS
EXEMPT FROM SUCH REGISTRATION.
INTELLICELL CORP.
REDEEMABLE WARRANT TO PURCHASE COMMON STOCK
This certifies that _________________________ is the holder of
_____________ warrants, each warrant entitling the holder at any time up to and
including 5:00 p.m. California Time on April 30, 2002 (the "Expiration Date") to
purchase from Intellicell Corp., a Delaware corporation (hereinafter called the
"Company"), one share of Common Stock of the Company at a price ("Exercise
Price") of One Dollar and Fifty Cents ($1.50) per share upon the surrender of
this warrant to the Company at its office at 9314 Eton Avenue, Chatsworth,
California 91311, during its usual business hours of any business day, with
simultaneous payment in lawful money of the United States of the purchase price
set forth above.
THIS ISSUANCE OF WARRANTS (THE "WARRANTS") IN A PRIVATE PLACEMENT (THE
"OFFERING") IS BEING MADE TO SELECTED ACCREDITED INVESTORS WHO ARE PURCHASING
SHARES OF COMMON STOCK FROM BEN NEMAN AT $2.50 PER SHARE (THE "NEMAN SHARES").
1. EXERCISE OF WARRANT. Subject to the terms and conditions hereof,
this Warrant may be exercised in whole or in part, at any time during normal
business hours prior to the Expiration Date, by (i) delivery of a written
notice, in the form of the Notice of Exercise attached hereto, of such holder's
election to exercise this Warrant, which notice shall specify the number of
shares to be purchased upon exercise hereof, (ii) payment to the Company of an
amount equal to the Exercise Price multiplied by the number of shares as to
which this Warrant is being exercised (plus any applicable issue or transfer
taxes) in cash or by bank check, and (iii) the surrender of this Warrant at the
principal office of the Company. If this Warrant is being exercised only in
part, the Company shall issue a new Warrant identical in all respects to this
Warrant except that it shall represent the right to purchase the number of
shares as to which this Warrant is not then being exercised. The Company has the
right at its sole discretion to extend the Expiration Date by notice given to
all Warrant holders. No fractional share shall be issued upon the exercise of
rights to purchase hereunder.
2. REGISTRATION OF COMMON STOCK. The Company and the investors in the
Offering will enter into a Registration Rights Agreement pursuant to which the
Company will file one or more registration statements with the SEC with respect
to the Warrant Shares and Neman Shares, as well as other shares held by, or
underlying other securities held by, other securityholders and the Company's
directors, officers and consultants (collectively, the "Registrable Shares"),
within 90 days following the closing and will use its reasonable best efforts to
have such registration statements are declared effective as soon as possible
thereafter. If such registration statements are declared effective, the Company
shall use its reasonable best efforts following the effective date to keep the
registration statements continuously effective, supplemented and amended through
December 31, 2002.
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3. REDEMPTION OF WARRANTS. At any time after May 1, 2000 and provided
that the Warrant Shares have been registered under the Securities Act for
resale, the Company has the right to redeem the Warrants in whole or in part at
a price of $0.01 per Warrant, by written notice mailed at least 30 days before
the specified redemption date, to each Warrant holder at his address as it
appears on the books of the Company; provided, however, that such notice may
only be given following a period of 20 consecutive trading days that ends on or
after May 1, 2000 during which the closing price for the Common Stock has
exceeded $3.00 per share on each such day. If the Warrants are called for
redemption, they must be exercised prior to the close of business on the
redemption date, or else the right to exercise such Warrants and to purchase the
Warrant Shares will be forfeited.
4. ADJUSTMENTS.
(a) The warrant price at which Common Stock shall be purchasable upon
the exercise of the Warrants shall be $1.50 per share or after adjustment, as
provided in this Section, shall be such price as so adjusted (the "Warrant
Price").
(b) The Warrant Price shall be subject to adjustment from time to time
as follows:
(i) In case the Company shall at any time after the date
hereof pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock, then upon such dividend or distribution the Warrant Price in
effect immediately prior to such dividend or distribution shall forthwith be
reduced to a price determined by dividing:
(A) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Warrant Price in effect immediately prior to such dividend or
distribution, by (B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this Section 4(b)(i), the following provisions shall be
applicable: Common Stock issuable by way of dividend or other distribution on
any stock of the Company shall be deemed to have been issued immediately after
the opening of business on the date following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution.
(ii) In case the Company shall at any time subdivide or
combine the outstanding Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination to the nearest one cent. Any such adjustment shall become effective
at the time such subdivision or combination shall become effective.
(iii) Within a reasonable time after the close of each
quarterly fiscal period of the Company during which the Warrant Price has been
adjusted as herein provided, the Company shall:
(A) file with the transfer agent of the Warrants (the
"Warrant Agent") a certificate signed by the President or Vice President of the
Company and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Company, showing in detail the facts requiring all
such adjustments occurring during such period and the Warrant Price after each
such adjustment; and
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(B) the Warrant Agent shall have no duty with respect to any
such certificate filed with it except to keep the same on file and available for
inspection by holders of Warrants during reasonable business hours, and the
Warrant Agent may conclusively rely upon the latest certificate furnished to it
hereunder. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making any such adjustment, or with respect to
the nature or extent of the property or securities deliverable hereunder. In the
absence of a certificate having been furnished, the Warrant Agent may
conclusively rely upon the provisions of the Warrants with respect to the Common
Stock deliverable upon the exercise of the Warrants and the applicable Warrant
Price thereof.
(iv) Notwithstanding anything contained herein to the
contrary, no adjustment of the Warrant Price shall be made if the amount of such
adjustment shall be less than $0.05, but in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to not less than $0.05.
(v) In the event that the number of outstanding shares of
Common Stock is increased by a stock dividend payable in subdivision of the
outstanding Common Stock, then, from and after the time at which the adjusted
Warrant Price becomes effective pursuant this Section by reason of such dividend
or subdivision, the Common Stock issuable upon the exercise of each Warrant
shall be increased in proportion to such increase in outstanding shares. In the
event that the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to this Section by
reason of such combination, the number of shares of Common Stock issuable upon
the exercise of each Warrant shall be decreased in proportion to such decrease
in the outstanding shares of Common Stock.
(vi) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of each Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common Stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which the holder of such Warrant shall then be entitled to
purchase; such adjustments shall apply with respect to all such changes
occurring after the date of exercise of such Warrant.
(vii) Subject to the provisions of this Section 4, in case the
Company shall, at any time prior to the exercise of the Warrants, make any
distribution of its assets to holders of its Common Stock as a liquidating or a
partial liquidating dividend, then the holder of Warrants who exercises its
Warrants after the record date for the determination of those holders of Common
Stock entitled to such distribution of assets as a liquidating or partial
liquidating dividend shall be entitled to receive for the Warrant Price per
Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
such assets at the time of such distribution as determined by the Board of
Directors of the Company in
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good faith), which would have been payable to such holder had he been the holder
of record of the Common Stock receivable upon exercise of its Warrant on the
record date for the determination of those entitled to such distribution.
(viii) In case of the dissolution, liquidation or winding up
of the Company, all rights under the Warrants shall terminate on a date fixed by
the Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(ix) In case the Company shall, at any time prior to the
expiration of the Warrants and prior to the exercise thereof, offer to the
holders of its Common Stock any rights to subscribe for additional shares of any
class of the Company, then the Company shall give written notice thereof to the
last registered holder thereof not less than thirty (30) days prior to the date
on which the books of the Company are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date fixed with respect to such offer of subscription and the right of the
holder thereof to participate in such offer of subscription shall terminate if
the Warrant shall not be exercised on or before the date of such closing of the
books or such record date.
(x) Any adjustment pursuant to the aforesaid provisions of
this section 4 shall be made on the basis of the number of shares of Common
Stock which the holder thereof would have been entitled to acquire by the
exercise of the Warrant immediately prior to the event giving rise to such
adjustment.
(xi) Irrespective of any adjustments in the Warrant Price or
the number or kind of shares purchasable upon exercise of the Warrants, Warrants
previously or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant Agreement.
(xii) The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section 4, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 4.
(xiii) If at any time, as a result of an adjustment made
pursuant to Section 4(b)(vi) above, the holders of a Warrant or Warrants shall
become entitled to purchase any securities other than shares of Common Stock,
thereafter the number of such securities so purchasable upon exercise of each
Warrant and the Warrant Price for such shares shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained in Section 4(b)(ii)
through (v).
(xiv) No adjustment shall be made to the Warrant Price as the
result of the repricing of the currently outstanding warrants.
5. NOTICES TO WARRANT HOLDERS.
(a) Upon any adjustment of the Warrant Price and the number of shares
of Common Stock issuable upon exercise of a Warrant, then and in each such case
the Company shall give
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written notice thereof to the Warrant Agent, which notice shall state the
Warrant Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company shall also mail such
notice to the holders of the Warrants at their addresses appearing in the
Warrant register. Failure to give or mail such notice, or any defect therein,
shall not affect the validity of the adjustments.
(b) In case at any time:
(i) the Company shall pay dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock; or
(ii) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to, another
corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then in any one or more of such cases,
the Company shall give written notice in the manner set forth in Section 5(a) of
the date on which (A) a record shall be taken for such dividend, distribution or
subscription rights, or (B) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
(30) days prior to the record date in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth in this Section 5(b).
(c) The Company shall cause copies of all financial statement and
reports, proxy statements and other documents that are sent to its stockholders
to be sent by first-class mail, postage prepaid, on the date of mailing to such
stockholders, to each registered holder of Warrants at his address appearing in
the warrant register as of the record date for the determination of the
stockholders entitled to such documents.
6. WARRANT HOLDER. Prior to the due presentment for registration of
transfer hereof, the Company and the Warrant Agent may deem and treat the
registered holder as the absolute owner hereof and of each Warrant represented
hereby (notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the Company or the transfer
agent) for all purposes and shall not be affected by any notice to the contrary.
7. NO RIGHTS AS STOCKHOLDER. Prior to the exercise of this Warrant the
holder of this Warrant shall not be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to vote, to receive
dividends or other distributions, or to receive notice of meetings of
stockholders.
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8. LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall, on such terms as to
indemnity or otherwise as it may in its discretion impose (which in the case of
a mutilated Warrant shall include the surrender thereof), issue a new Warrant of
like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Company, whether or not the allegedly lost, stolen, mutilated
or destroyed Warrant shall be at any time enforceable by anyone.
9. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
Person or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this Warrant are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the day
and year first above written.
Dated: May 13, 1999 INTELLICELL CORP.
By
---------------------------------------
Michael Hedge, Chief Executive Officer
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NOTICE OF EXERCISE
TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO EXERCISE THIS WARRANT
INTELLICELL CORP.
The undersigned hereby exercises the right to purchase
_____________________________ shares of Common Stock covered by this Warrant
according to the conditions thereof and herewith makes payment of
$______________________________, the aggregate Exercise Price of such shares of
Common Stock.
--------------------------------------
[Print or type name(s) of Holder. If Holder
is a trust, patnership, corporation or other
entity, print name and title of authorized
signatory.]
--------------------------------------
--------------------------------------
Signature(s) of Holder or authorized signatory
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EXHIBIT 10.24
NATIONSCREDIT COMMERCIAL FUNDING
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this
"AGREEMENT") is entered into on May 19 1999 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("LENDER"),
having an address at 222 North La Salle Street, Suite 500, Chicago, Illinois
60601 and INTELLICELL CORP. ("BORROWER"), whose chief executive office is
located at 9314 Eton Avenue, Chatsworth, California 91311 ("BORROWER'S
ADDRESS"). The Schedules to this Agreement are an integral part of this
Agreement and are incorporated herein by reference. Terms used, but not defined
elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this Agreement
Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time during the
Term at Borrower's request, make revolving loans to Borrower ("REVOLVING
LOANS"), and make letters of credit, bankers acceptances and other credit
accommodations ("CREDIT ACCOMMODATIONS") available to Borrower, in each case to
the extent that there is sufficient Availability at the time of such request to
cover, dollar for dollar, the requested Revolving Loan or Credit Accommodation;
PROVIDED, that after giving effect to such Revolving Loan or Credit
Accommodation, (x) the outstanding balance of all monetary Obligations
(INCLUDING the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Facility Amount set forth in Section 1(a) of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "AVAILABILITY" means:
(i) the aggregate amount of Eligible Accounts (less maximum existing or
asserted taxes, discounts, credits and allowances) multiplied by the Accounts
Advance Rate set forth in Section 1(b)(i) of Schedule A but not to exceed the
Accounts Sublimit set forth in Section 1(c) of Schedule A;
PLUS
(ii) the lower of cost or market value of Eligible Inventory multiplied by
the Inventory Advance Rate(s) set forth in Section 1(b)(ii) of Schedule A, but
not to exceed the Inventory Sublimit(s) set forth in Section 1(d) of Schedule A;
MINUS
(iii) all Reserves which Lender has established pursuant to Section 1.2
(including those to be established in connection with the requested Revolving
Loan or Credit Accommodation);
MINUS
(iv) the outstanding balance of all of the monetary Obligations (EXCLUDING
the Credit Accommodation Balance and the principal balance of the Term Loan);
and
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PLUS
(v) the Overadvance Amount, if any, set forth in Section 1(g) of
Schedule A.
(b) TERM LOAN. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("EQUIPMENT ADVANCE") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the "REAL PROPERTY ADVANCE") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "TERM LOAN."
1.2 RESERVES. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its reasonable discretion ("RESERVES")
to reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of the definition of
Eligible Inventory, (b) which is or will be in transit to one of the locations
set forth in Section 9(d) of Schedule A, (c) which is fully insured in a manner
satisfactory to Lender and (d) with respect to which Lender is in possession of
all bills of lading and all other documentation which Lender has requested, all
in form and substance satisfactory to Lender in its sole discretion, establish a
Reserve equal to the cost of such Inventory (plus all duties, freight, taxes,
insurance, costs and other charges and expenses relating to such Credit
Accommodation or such Eligible Inventory) multiplied by a percentage equal to
100% minus the Inventory Advance Rate applicable to Eligible Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose, establish
a Reserve equal to the full amount of such Credit Accommodation plus all costs
and other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding principal balance of
the Term Loan advance with respect to Eligible Equipment exceeds the percentage
set forth in Section 2(a)(i) of Schedule A of the appraised value of such
Eligible Equipment, Lender may establish an additional Reserve in the amount of
such excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion, establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible Inventory as ineligible. In no event shall the establishment of a
Reserve in respect of a particular actual or contingent liability obligate
Lender to make advances hereunder to pay such liability or otherwise obligate
Lender with respect thereto.
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1.3 OTHER PROVISIONS APPLICABLE TO CREDIT ACCOMMODATIONS. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; PROVIDED, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 REPAYMENT. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
(or provide cash collateral to Lender with respect to the Credit Accommodation
Balance in the manner set forth in Section 7.3), as shall cause Borrower to be
in full compliance with all of the Loan Limits. Notwithstanding the foregoing,
Lender may, in its sole discretion, make or permit Revolving Loans, the Term
Loan, any Credit Accommodations or any other monetary Obligations to be in
excess of any of the Loan Limits; PROVIDED, that Borrower shall, upon Lender's
demand, pay to Lender such amounts as shall cause Borrower to be in full
compliance with all of the Loan Limits. All unpaid monetary Obligations shall be
payable in full on the Maturity Date (as defined in Section 7.1) or, if earlier,
the date of any early termination pursuant to Section 7.2.
1.5 MINIMUM BORROWING. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
2. INTEREST AND FEES.
2.1 INTEREST. All Loans and other monetary Obligations shall bear interest
or incur fees at the Interest Rate(s) and fee rates set forth respectively in
Sections 3 and 6 (i) of Schedule A, except where expressly set forth to the
contrary in this Agreement or another Loan Document; PROVIDED, that after the
occurrence of an Event of Default, all Loans and other monetary Obligations
shall, at Lender's option, bear interest at a rate per annum equal to two
percent (2%) in excess of the rate otherwise applicable thereto (the "DEFAULT
RATE") until paid in full (notwithstanding the entry of any judgment against
Borrower or the exercise of any other right or remedy by Lender), and all such
interest shall be payable on demand. Changes in the Interest Rate shall be
effective as of the date of any change in the Prime Rate. Notwithstanding
anything to the contrary contained in this Agreement, the aggregate of all
amounts deemed to be interest hereunder and charged or collected by Lender is
not intended to exceed the highest rate permissible under any applicable law,
but if it should, such interest shall automatically be reduced to the extent
necessary to comply with applicable law and Lender will refund to Borrower any
such excess interest received by Lender.
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2.2 FEES AND WARRANTS. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) CLOSING FEE. A closing fee in the amount set forth in Section 6(a) of
Schedule A, which shall be deemed to be fully earned as of, and payable on, the
date hereof.
(b) FACILITY FEES. (i) A facility fee for the Initial Term, which shall be
fully earned as of the date of this Agreement, and shall be payable in equal
installments in the amount set forth in Section 6(b)(i) of Schedule A on each
anniversary of this Agreement during the Initial Term, and (ii) a facility fee
for each Renewal Term, which shall be fully earned as of the first day of such
Renewal Term, and shall be payable in equal installments in the amount set forth
in Section 6(b)(ii) of Schedule A on the first day of such Renewal Term and on
each anniversary thereof during such Renewal Term.
(c) SERVICING FEE. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) UNUSED LINE FEE. An unused line fee at a rate equal to the percentage
per annum set forth in Section 6(d) of Schedule A of the amount by which the
Maximum Facility Amount exceeds the average daily outstanding principal balance
of the Loans and the Credit Accommodation Balance during the immediately
preceding month (or part thereof), which fee shall be payable, in arrears, on
the first day of each month so long as any of the Obligations are outstanding
and on the Maturity Date.
(e) MINIMUM BORROWING FEE. A minimum borrowing fee equal to the excess, if
any, of (i) interest which would have been payable in respect of each period set
forth in Section 6(e)(i) of Schedule A if, at all times during such period, the
principal balance of the Loans was equal to the Minimum Loan Amount over (ii)
the actual interest payable in respect of such period, which fee shall be fully
earned as of the last day of such period and payable on the date set forth in
Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing with the
immediately following period.
(f) SUCCESS FEE. A success fee in the amount set forth in Section 6(f) of
Schedule A, which shall be fully earned as of the date of this Agreement and
payable as set forth in Section 6(f) of Schedule A.
(g) WARRANTS. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) CREDIT ACCOMMODATION FEES. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
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2.3 COMPUTATION OF INTEREST AND FEES. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 LOAN ACCOUNT; MONTHLY ACCOUNTINGS. Lender shall maintain a loan account
for Borrower reflecting all advances, charges, expenses and payments made
pursuant to this Agreement (the "LOAN ACCOUNT"), and shall provide Borrower with
a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations,
Borrower hereby grants to Lender a continuing security interest in all of
Borrower's property and interests in property, whether tangible or intangible,
now owned or in existence or hereafter acquired or arising, wherever located,
including Borrower's interest in all of the following, whether or not eligible
for lending purposes: (i) all Accounts, Chattel Paper, Instruments, Documents,
Goods (including Inventory, Equipment, farm products and consumer goods),
Investment Property, General Intangibles, Deposit Accounts and money, (ii) all
proceeds and products of all of the foregoing (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties for
loss or any destruction of any of the foregoing) and (iii) all books and records
relating to any of the foregoing.
4. ADMINISTRATION.
4.1 LOCK BOXES AND BLOCKED ACCOUNTS. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("ACCOUNT PROCEEDS"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "LOCK BOX") or (ii) depositing all Account Proceeds
received by Borrower into one or more bank accounts maintained in Lender's name
(each, a "BLOCKED ACCOUNT"), under an arrangement acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account
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agreements and other documentation as Lender shall require from time to time in
connection with the foregoing.
4.2 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral shall be delivered,
in kind, by Borrower to Lender in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 APPLICATION OF PAYMENTS. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender three Business Days after Lender's receipt of advice of deposit thereof
at Lender's Bank.
4.4 NOTIFICATION; VERIFICATION. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) demand, collect or enforce payment of any Accounts and Chattel Paper (but
without any duty to do so).
4.5 POWER OF ATTORNEY. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor, any proof of claim in
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bankruptcy, any notice of Lien or claim, and any assignment or satisfaction of
mechanic's, materialman's or other Lien; (iv) execute on behalf of Borrower any
notice to any Account Debtor; (v) receive and otherwise take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral; (vi)
endorse Borrower's name on all checks and other forms of remittances received by
Lender; (vii) pay, contest or settle any Lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (viii)
after the occurrence of a Default or Event of Default, grant extensions of time
to pay, compromise claims relating to, and settle Accounts, Chattel Paper and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (ix) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (x) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.12; (xi) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xii) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xiii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail and receive and
open all mail addressed to Borrower. Any and all sums paid, and any and all
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred, by Lender with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
Borrower agrees that Lender's rights under the foregoing power of attorney or
any of Lender's other rights under this Agreement or the other Loan Documents
shall not be construed to indicate that Lender is in control of the business,
management or properties of Borrower.
4.6 DISPUTES. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to the occurrence of an Event of Default, Borrower may take any of
such actions in the ordinary course of its business, PROVIDED that Borrower
promptly reports the same to Lender, in writing and on a weekly basis.
4.7 INVOICES. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 INVENTORY.
(a) RETURNS. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without
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Lender's prior written consent. Regardless of whether an Event of Default has
occurred, Borrower will (i) hold the returned Inventory in trust for Lender;
(ii) segregate all returned Inventory from all of Borrower's other property;
(iii) conspicuously label the returned Inventory as Lender's property; and (iv)
immediately notify Lender of the return of such Inventory, specifying the reason
for such return, the location and condition of the returned Inventory and, at
Lender's request, deliver such returned Inventory to Lender at an address
specified by Lender.
(b) OTHER COVENANTS. Borrower will not, without Lender's prior written
consent, (i) store any Inventory with any warehouseman or other third party
other than as set forth in Section 9(d) of Schedule A or (ii) sell any Inventory
on a sale-or-return, guaranteed sale, consignment, or other contingent basis.
All of the Inventory has been produced only in accordance with the Fair Labor
Standards Act of 1938 and all rules, regulations and orders promulgated
thereunder.
4.9 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process. Borrower
agrees to give Lender access to any or all of Borrower's premises to enable
Lender to conduct such inspections and examinations. Such inspections and
examinations shall be at Borrower's expense and the charge therefor shall be
$750 per person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's expense, use Borrower's personnel, computer and other equipment,
programs, printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its sole discretion, deems appropriate. Borrower hereby irrevocably authorizes
all accountants and third parties to disclose and deliver to Lender, at
Borrower's expense, all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
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5.1 EXISTENCE AND AUTHORITY. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership
of Borrower and the names and ownership of Borrower's Subsidiaries as of the
date of this Agreement.
5.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least thirty days' prior written notice before changing its name
or doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
5.3 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Except for leases or
subleases as to which Borrower has delivered to Lender a landlord's waiver in
form and substance satisfactory to Lender, Borrower is not a lessee or sublessee
under any real property lease or sublease pursuant to which the lessor or
sublessor may obtain any rights in any of the Collateral, and no such lease or
sublease now prohibits, restrains, impairs or conditions, or will prohibit,
restrain, impair or condition, Borrower's right to remove any Collateral from
the premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form and
substance acceptable to Lender, such waivers and subordinations as Lender shall
specify, so as to ensure that Lender's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party. Borrower will
keep in full force and
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effect, and will comply with all the terms of, any lease of real property where
any of the Collateral now or in the future may be located.
5.4 ACCOUNTS AND CHATTEL PAPER. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 INVESTMENT PROPERTY. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property and take such other actions as
Lender may request to perfect Lender's security interest in such Investment
Property. For purposes of this Section 5.5, Lender shall have exclusive control
of Investment Property if (A) such Investment Property consists of certificated
securities and Borrower delivers such certificated securities to Lender (with
appropriate endorsements if such certificated securities are in registered
form); (B) such Investment Property consists of uncertificated securities and
either (x) Borrower delivers such uncertificated securities to Lender or (y) the
issuer thereof agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with instructions originated by
Lender without further consent by Borrower, and (C) such Investment Property
consists of security entitlements and either (x) Lender becomes the entitlement
holder thereof or (y) the appropriate securities intermediary agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with entitlement orders originated by Lender without further consent by
Borrower.
5.6 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least thirty
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender
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and the date hereof (or, with respect to the remaking of this representation in
connection with the making of any Loan or the providing of any Credit
Accommodation, the date such Loan is made or such Credit Accommodation is
provided), there has been no material adverse change in the financial condition
or business of Borrower. Borrower is solvent and able to pay its debts as they
come due, and has sufficient capital to carry on its business as now conducted
and as proposed to be conducted. All schedules, reports and other information
and documentation delivered by Borrower to Lender with respect to the Collateral
are, or will be, when delivered, true, correct and complete as of the date
delivered or the date specified therein.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; PROVIDED, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
5.9 COMPLIANCE WITH LAWS. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
5.10 LITIGATION. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11 USE OF PROCEEDS. All proceeds of all Loans will be used solely for
lawful business purposes.
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5.12 INSURANCE. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations as Lender shall determine in its sole discretion.
Borrower will promptly deliver to Lender copies of all reports made to insurance
companies.
5.13 FINANCIAL AND COLLATERAL REPORTS. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
(a) COLLATERAL REPORTS. On or before the fifteenth day of each month, an
aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; PROVIDED, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts where the amount of each such sale is in excess of
$15,000, and Borrower warrants the genuineness of all of the foregoing. In
addition, Borrower shall deliver to Lender the originals of all Instruments,
Chattel Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts, immediately upon receipt thereof and in the
same form as received, with all necessary endorsements. Lender may destroy or
otherwise dispose of all documents, schedules and other papers delivered to
Lender pursuant to this Agreement (other than originals of Instruments, Chattel
Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts) six months after Lender receives them,
unless Borrower requests their return in writing in advance and arranges for
their return to Borrower at Borrower's expense.
(b) ANNUAL STATEMENTS. Not later than ninety days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Borrower and its Subsidiaries as of
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the end of such year, on a consolidated and consolidating basis, certified by a
firm of independent certified public accountants of recognized standing selected
by Borrower but acceptable to Lender, together with a copy of any management
letter issued in connection therewith and a letter from such accountants
acknowledging that Lender is relying on such financial statements;
(c) INTERIM STATEMENTS. Not later than fifteen days after the end of each
month hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) PROJECTIONS, ETC. Such business projections, Availability projections,
business plans, budgets and cash flow statements for Borrower and its
Subsidiaries as Lender shall request from time to time;
(e) SHAREHOLDER REPORTS, ETC. Promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental authority
which may be substituted therefor, or any national securities exchange;
(f) ERISA REPORTS. Upon request by Lender, copies of any annual report to
be filed pursuant to the requirements of ERISA in connection with each plan
subject thereto;
(g) POTENTIAL OFFSETS. Not later than the second Business Day of each week,
a report setting forth the amount owing by Borrower to any Person who is an
Account Debtor.
(h) OTHER INFORMATION. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 MAINTENANCE OF COLLATERAL, ETC. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
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5.16 NOTIFICATION OF CHANGES. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 FURTHER ASSURANCES. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 NEGATIVE COVENANTS. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory in the ordinary course of its business; (v) make any loans to,
or investments in, any Affiliate or other Person in the form of money or other
assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate, (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing.
5.19 FINANCIAL COVENANTS.
(a) CAPITAL EXPENDITURES. Borrower will not expend or commit to expend,
directly or indirectly, for capital expenditures (including capital lease
obligations) in excess of the amount set forth in Section 8(a) of Schedule A as
the Capital Expenditure Limitation in any fiscal year.
(b) NET WORTH. Borrower will at all times maintain a net worth of at least
the amount set forth in Section 8(b) of Schedule A.
(c) TANGIBLE NET WORTH. Borrower will at all times maintain a minimum
tangible net worth of at least the amount set forth in Section 8(c) of Schedule
A. If Borrower breaches this financial covenant, Lender may at its option, (i)
declare a Default under this Agreement or (ii) upon ten (10) days written notice
to Borrower, increase the interest rate by one percent (1%).
(d) WORKING CAPITAL. Borrower will at all times maintain working capital of
at least the amount set forth in Section 8(d) of Schedule A.
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(e) NET LOSSES. Borrower will not permit its cumulative net loss to exceed
the amount set forth in Section 8(e) of Schedule A.
(f) NET INCOME. Borrower will not permit its cumulative net income to be
less than the amount set forth in Section 8(f) of Schedule A.
(g) LEVERAGE. Borrower will not permit the ratio of its total liabilities
to its net worth to exceed, at any time, the ratio set forth in Section 8(g) of
Schedule A. (h) LIMITATION ON PURCHASE MONEY SECURITY INTERESTS. Borrower will
not permit its Purchase Money Security Interests to exceed the amount, in the
aggregate at any time, set forth in Section 8(h) of Schedule A.
(h) OTHER FINANCIAL COVENANTS. Borrower will comply with any additional
financial covenants set forth in Section 8(j) of Schedule A.
5.20 YEAR 2000 COMPLIANCE REPRESENTATION. Borrower has (i) initiated a
review and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers and vendors) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer application used by the Borrower or any of its Subsidiaries (or its
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dated prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) to date, reasonably believes that all
computer applications (including those of its suppliers and vendors) that are
material to its or any of its Subsidiaries' business and operations will on a
timely basis be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to
the extent that a failure to do so could not reasonably be expected to have a
material adverse effect on Borrower's business or on the condition or value of
the Collateral ("Material Adverse Effect"). Borrower will promptly notify Lender
in the event the Borrower discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to its or any of
its Affiliates' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a material adverse effect.
6. RELEASE AND INDEMNITY.
6.1 RELEASE. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "RELEASED PARTIES") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from gross negligence or willful misconduct. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
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(a) Lender shall not be liable for (i) any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gave rise to an Account; (ii) any error, act, omission, or delay of any
kind occurring in the settlement, failure to settle, collection or failure to
collect any Account; (iii) settling any Account in good faith for less than the
full amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying transaction,
Lender shall not be responsible for the conformity of any goods to the documents
presented, the validity or genuineness of any documents, delay, default or fraud
by Borrower, shippers and/or any other Person. Borrower agrees that any action
taken by Lender, if taken in good faith, or any action taken by an issuer of any
Credit Accommodation, under or in connection with any Credit Accommodation,
shall be binding on Borrower and shall not create any resulting liability to
Lender. In furtherance thereof, Lender shall have the full right and authority
to clear and resolve any questions of non-compliance of documents, to give any
instructions as to acceptance or rejection of any documents or goods, to execute
for Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 INDEMNITY. Borrower hereby agrees to indemnify the Released Parties and
hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which the Released Parties may sustain or incur based upon or
arising out of any of the transactions contemplated by this Agreement or the
other Loan Documents or any of the Obligations, including any transactions or
occurrences relating to the issuance of any Credit Accommodation, the Collateral
relating thereto, any drafts thereunder and any errors or omissions relating
thereto (including any loss or claim due to any action or inaction taken by the
issuer of any Credit Accommodation) (and for this purpose any charges to Lender
by any issuer of Credit Accommodations shall be conclusive as to their
appropriateness and may be charged to the Loan Account), or any other matter,
cause or thing whatsoever occurred, done, omitted or suffered to be done by
Lender relating to Borrower or the Obligations (except any such amounts
sustained or incurred as the result of the gross negligence or willful
misconduct of the Released Parties). Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this Section
shall survive any termination of this Agreement.
7. TERM.
7.1 MATURITY DATE. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "INITIAL TERM");
PROVIDED, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "MATURITY DATE") for
successive additional terms of one year each (each a "RENEWAL TERM"), unless one
party gives written notice to the other, not less than sixty days prior to the
Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the
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other Loan Documents and Lender's security interests in and Liens upon the
Collateral, and all representations, warranties and covenants of Borrower
contained herein and therein, shall remain in full force and effect after the
Maturity Date until all of the monetary Obligations are indefeasibly paid in
full.
7.2 EARLY TERMINATION. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; PROVIDED, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination shall be effective
unless such Affiliate simultaneously terminates its financing arrangement with
Lender. If so terminated under this Section 7.2, Borrower shall pay to Lender
(i) an early termination fee (the "EARLY TERMINATION FEE") in the amount set
forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility
Fee. Such fee shall be due and payable on the effective date of termination and
thereafter shall bear interest at a rate equal to the highest rate applicable to
any of the Obligations. In addition, if Borrower so terminates and repays the
Obligations without having provided Lender with at least thirty days' prior
written notice thereof, an additional amount equal to thirty days of interest at
the applicable Interest Rate(s), based on the average outstanding amount of the
Obligations for the six month period immediately preceding the date of
termination.
7.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the Maturity
Date or on any earlier effective date of termination, there are any outstanding
Credit Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
7.4 EFFECT OF TERMINATION. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of the Obligations until all of
the monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "EVENT OF DEFAULT" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or
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misleading in any material respect; (ii) if Borrower fails to pay when due any
principal or interest on any Loan or any other monetary Obligation; (iii) if
Borrower breaches any covenant or obligation contained in this Agreement or any
other Loan Document or fails to perform any other non-monetary Obligation
(provided that any breach of any covenant or other obligation contained in
Section 5.1 (the first two sentences thereof), Section 5.2 (second, third and
fourth sentences thereof), Section 5.5, Section 5.8, Section 5.9, Section 5.10
(the last sentence thereof), Sections 5.13 (b), 5.13(c), 5.13(d), 5.13(e),
5.13(f), 5.13(g), Section 5.14 or Section 5.16 of this Agreement shall not
constitute an Event of Default until twenty days after the earlier of (a) the
existence of such breach and (b) notice by Lender to Borrower of such breach;
provided, further that any breach of Sections 5.13(a), 5.13(b) and 5.13(c) of
this Agreement shall not constitute an Event of Default until the later of (x)
the applicable due date therefor under such sections and (y) five (5) days after
notice by Lender to Borrower of such breach; (iv) if any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
or permitted to exist on all or any part of the Collateral; (v) if one or more
judgments aggregating in excess of $50,000, or any injunction or attachment, is
obtained against Borrower or any Obligor which remains unstayed for more than
ten days or is enforced; (vi) the occurrence of any default under any financing
agreement, security agreement or other agreement, instrument or document
executed and delivered by (A) Borrower with, or in favor of, any Person other
than Lender or (B) Borrower or any Affiliate of Borrower with, or in favor of,
Lender or any Affiliate of Lender; (vii) the dissolution, death, termination of
existence in good standing, insolvency or business failure or suspension or
cessation of business as usual of Borrower or any Obligor (or of any general
partner of Borrower or any Obligor if it is a partnership) or the appointment of
a receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, provided Borrower
shall have a period of 90 days from the date of such filing to have such
proceeding dismissed ("Gap Period"), provided further, notwithstanding anything
contained in Section 303 of the Bankruptcy Code or similar statute, Lender shall
have no obligation to make advances or loans to Borrower during the Gap Period
and may take any actions it deems desirable to preserve and protect its interest
in the Collateral; (ix) the actual or attempted revocation or termination of, or
limitation or denial of liability upon, any guaranty of the Obligations, or any
security document securing the Obligations, by any Obligor; (x) if Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations attempts to limit or terminate its subordination agreement; (xi)
if there is any actual indictment of Borrower or any Obligor under any criminal
statute or commencement or threatened commencement of criminal or civil
proceedings against Borrower or any Obligor, pursuant to which the potential
penalties or remedies sought or available include forfeiture of any property of
Borrower or such Obligor; (xii) if there is any change in the chief executive
officer, chief operating officer or chief financial officer of Borrower;(xiii)
if an Event of Default occurs under any Loan and Security Agreement between
Lender and an Affiliate of Borrower; or (xiv)
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
if Lender determines in good faith that the Collateral is insufficient to fully
secure the Obligations or that the prospect or payment of performance of the
Obligations is impaired.
8.2 REMEDIES. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof, without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; PROVIDED,
that if Lender seeks to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession, (B)
any demand for possession prior to the commencement of any suit or action to
recover possession thereof and (C) any requirement that Lender retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make it
available to Lender at one or more places designated by Lender which are
reasonably convenient to Lender and Borrower, and to remove the Collateral to
such locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Lender shall have the right to
use Borrower's premises, vehicles and other Equipment and all other property
without charge; (vi) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Lender obtains possession of it or after further
manufacturing, processing or repair, at one or more public or private sales, in
lots or in bulk, for cash, exchange or other property, or on credit (a "SALE"),
and to adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any of
the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value;
-20-
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
and (viii) demand and receive possession of any of Borrower's federal and state
income tax returns and the books and records utilized in the preparation thereof
or relating thereto. In addition to the foregoing remedies, upon the occurrence
of any Event of Default resulting from a breach of any of the financial
covenants set forth in Section 5.19, Lender may, at its option, upon not less
than ten days' prior notice to Borrower, reduce any or all of the Advance Rates
set forth in Section 1(b) of Schedule A to the extent Lender, in its sole
discretion, deems appropriate. In addition to the rights and remedies set forth
above, Lender shall have all the other rights and remedies accorded a secured
party after default under the UCC and under all other applicable laws, and under
any other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a public sale or the time after which any private sale or other disposition
is to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment is collected by Lender.
8.3 APPLICATION OF PROCEEDS. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
but Borrower shall remain liable to Lender for any deficiency. If Lender, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any Sale, Lender shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Lender of the cash
therefor.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, certified mail or by facsimile to the facsimile number shown in Section
9(i) of Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 INTEGRATION. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
contemporaneous negotiations, oral representations and agreements, all of which
are merged and integrated into this Agreement. THERE ARE NO ORAL UNDERSTANDINGS,
REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 WAIVERS. The failure of Lender at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
Loan Documents shall not waive or diminish any right of Lender later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 AMENDMENT. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
9.7 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
9.8 BENEFIT OF AGREEMENT; ASSIGNABILITY. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9 HEADINGS; CONSTRUCTION. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
CHICAGO, ILLINOIS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN CHICAGO, ILLINOIS OR THE STATE IN WHICH ANY OF THE COLLATERAL
IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT
ANY CLAIM OR DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF ILLINOIS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
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NATIONSCREDIT COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SET-OFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as
of the date set forth in the heading.
BORROWER: LENDER:
INTELLICELL CORPORATION NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By By
------------------------ ------------------------------
Its Its Authorized Signatory
---------------------
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<PAGE>
SCHEDULE A
DESCRIPTION OF CERTAIN TERMS
This Schedule is an integral part of the Loan and Security Agreement
between INTELLICELL CORP. and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
<TABLE>
<S> <C> <C> <C>
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $5,000,000
(b) Advance Rates:
(i) Accounts Advance Rate: 82%; PROVIDED, that if the Dilution
Percentage exceeds 8%, Lender, at its
option may (i) reduce the advance rate or
(ii) implement a reserve for the amount
of such excess percentage.
(ii) Inventory Advance Rate(s):
(A) Finished goods: The lesser of (i) 50% of Borrower's
Eligible Finished Goods Inventory, valued
at the lower of cost or market and (ii)
80% of the appraised orderly liquidation
value of Borrower's Eligible Finished
Goods Inventory,.
(B) Raw materials: N/A
(C) Work in process: N/A
(c) Accounts Sublimit: $5,000,000 less the aggregate advances
against Inventory outstanding at such
time.
(d) Inventory Sublimit(s):
(i) Overall sublimit on Eligible the lesser of (i) $1,000,000 and (ii) the
Inventory aggregate advances against Accounts at
any time of determination.
(ii) Sublimit on advances The lesser of 50% of Borrower's
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
against finished goods Eligible Finished Goods Inventory,
valued at the lower of cost or market and
80% of the appraised orderly liquidation
value of such Inventory.
(iii) Sublimit on advances against raw N/A
materials
(iv) Sublimit on advances against work N/A
in process
(e) Credit Accommodation Limit: $1,000,000
(f) Permanent Reserve Amount: N/A
(g) Overadvance Amount: N/A
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance: N/A
(ii) Real Property Advance: N/A
(b) Repayment Schedule:
(i) Equipment Advance: N/A
(ii) Real Property Advance: N/A
3. Interest Rates:
(a) Revolving Loans: 1% per annum in excess of the Prime
Rate
(b) Term Loan: N/A
4. Minimum Loan Amount: $1,500,000 per month
5. Maximum Days:
(a) Maximum days after original INVOICE DATE for 90
Eligible Accounts:
(b) Maximum days after original INVOICE DUE DATE 60 for
Eligible Accounts:
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
6. Fees:
(a) Closing Fee: $25,000
(b) Facility Fee:
(i) Initial Term: $25,000
(ii) Renewal Term(s): $25,000
(c) Servicing Fee: N/A
(d) Unused Line Fee: N/A
(e) Minimum Borrowing Fee:
(i) Applicable period: Each month
(ii) Date payable: The first day of each month
(f) Success Fee: N/A
(g) Warrants: 20,000 shares of Borrower's common
capital stock priced at 105% of its value
on the Closing Date, subject to puts and
calls upon terms to be agreed, anti
dilution provisions, piggy back and other
registration rights and such other terms
and provisions as shall be acceptable to
Lender.
(h) Early Termination Fee: 2% of the Maximum Facility Amount if
terminated during the first year of the
Term, 1% of the Maximum Facility Amount
if terminated during the second year of
the Term, and 0.5% of the Maximum
Facility Amount if terminated thereafter,
PROVIDED after eighteen months from the
Closing Date, Borrower may refinance this
facility with Bank of America or any of
its wholly owned entities without the
payment of an Early Termination Fee.
Further, if
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Borrower elects to acquire CWI and Lender
does not consent to such acquisition,
Borrower at its option may refinance the
Obligations owing hereunder with any Lender
who consents to such acquisition by Borrower
without the payment of an Early Termination
Fee.
(i) Fees for letters of credit and other 1% per annum of the face amount of each
Credit Accommodations (or open Credit Accommodation for the first
Guaranties by Lender): sixty (60) days from the issuance date and
thereafter, 0.50% per annum plus, in each
case, all costs and fees charged by the
issuer thereof, payable monthly on the first
day of each month. 7 Initial Maturity Date:
8. Financial Covenants: May 19, 2002
(a) Capital Expenditure Limitation: N/A
(b) Minimum Net Worth Requirement: N/A
(c) Minimum Tangible Net Worth: $2,000,000
(d) Minimum Working Capital: N/A
(e) Maximum Cumulative Net Loss: N/A
(f) Net Loss: N/A
(g) Minimum Cumulative Net Income: N/A
(h) Maximum Leverage Ratio: N/A
(i) Limitations on Purchase Money Security N/A
Interests:
(j) Limitation on Equipment Leases: N/A
(k) Additional Financial Covenants: N/A
9. Borrower Information:
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
(a) Prior Names of Borrower: None
(b) Prior Trade Names of Borrower: None
(c) Existing Trade Names of Borrower: None
(d) Inventory Locations: 9314 Elton Avenue
Chatsworth, California 91311
(e) Other Locations: 1701 West Northwest Highway
Grapevine, Texas 76051
1364 Romero De Terreros
Col. Narvarte, Mexico 03020
(f) Litigation [TO BE INSERTED]
(g) Ownership of Borrower: Ben Neman 30.4%
Paul Skojdt 18.6
Public Investors 51.0
(h) Subsidiaries (and ownership thereof): Intellicell De Mexico 100% owned by
Borrower
(i) Facsimile Numbers:
Borrower: (818) 882-1707
Lender: (312) 759-4340
10 Description of Real Property: N/A
11. Lender's Bank: The First National Bank of Chicago/NBD
12. Other Covenants: None
13. Exceptions to Negative Covenants: None
</TABLE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as
of the date set forth in the heading to the Agreement.
A-5
<PAGE>
BORROWER: LENDER:
INTELLICELL CORP. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION
By By
-------------------- ------------------------------------
Its Its Authorized Signatory
-------------------
A-6
<PAGE>
SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement
between INTELLICELL CORP. and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
As used in the Agreement, the following terms have the following
meanings:
"ACCOUNT" means any right to payment for Goods sold or leased
or for services rendered which is not evidenced by an Instrument or Chattel
Paper, whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the obligor on an Account or Chattel
Paper.
"ACCOUNT PROCEEDS" has the meaning set forth in Section 4.1.
"AFFILIATE" means, with respect to any Person, a relative,
partner, shareholder, member, manager, director, officer, or employee of such
Person, any parent or subsidiary of such Person, or any Person controlling,
controlled by or under common control with such Person or any other Person
affiliated, directly or indirectly, by virtue of family membership, ownership,
management or otherwise.
"AGREEMENT" and "THIS AGREEMENT" mean the Loan and Security
Agreement of which this Schedule B is a part and the Schedules thereto.
"AVAILABILITY" has the meaning set forth in Section 1.1(a)
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.).
"BLOCKED ACCOUNT" has the meaning set forth in Section 4.1.
"BORROWER" has the meaning set forth in the heading to the
Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the heading
to the Agreement.
"BUSINESS DAY" means a day other than a Saturday or Sunday or
any other day on which Lender or banks in Illinois are authorized to close.
"CHATTEL PAPER" has the meaning set forth in the UCC.
"CLOSING DATE" means the date on which the first advance is
made hereunder.
"COLLATERAL" means all property and interests in property in
or upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
B-1
<PAGE>
"CREDIT ACCOMMODATION" has the meaning set forth in Section
1.1(a).
"CREDIT ACCOMMODATION BALANCE" means the sum of (i) the
aggregate undrawn face amount of all outstanding Credit Accommodations and (ii)
all interest, fees and costs due or, in Lender's estimation, likely to become
due in connection therewith.
"DEFAULT" means any event which with notice or passage of
time, or both, would constitute an Event of Default.
"DEFAULT RATE" has the meaning set forth in Section 2.1.
"DEPOSIT ACCOUNT" has the meaning set forth in the UCC.
"DILUTION PERCENTAGE" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"DOCUMENT" has the meaning set forth in the UCC.
"EARLY TERMINATION FEE" has the meaning set forth in Section
7.2.
"ELIGIBLE ACCOUNT" means, at any time of determination, an
Account which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its reasonable
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen days' prior notice to Borrower). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of Borrower;
(ii) it does not remain unpaid more than the earlier to occur of (A) the number
of days after the original invoice date set forth in Section 5(a) of Schedule A
or (B) the number of days after the original invoice due date set forth in
Section 5(b) of Schedule A; (iii) the Account Debtor or its Affiliates are not
past due on other Accounts owing to Borrower comprising more than 25% of all of
the Accounts owing to Borrower by such Account Debtor or its Affiliates; (iv)
all Accounts owing by the Account Debtor or its Affiliates do not represent more
than 20% of all otherwise Eligible Accounts (provided, that Accounts which are
deemed to be ineligible solely by reason of this clause (iv) shall be considered
Eligible Accounts to the extent of the amount thereof which does not exceed 20%
of all otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of
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such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to Borrower and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless Borrower has complied with the Assignment of
Claims Act of 1940 (31 U.S.C. Section 203 et seq.) or other applicable similar
state or local law in a manner satisfactory to Lender; (xi) it is at all times
subject to Lender's duly perfected, first priority security interest and to no
other Lien that is not a Permitted Lien, and the goods giving rise to such
Account (A) were not, at the time of sale, subject to any Lien except Permitted
Liens and (B) have been delivered to and accepted by the Account Debtor, or the
services giving rise to such Account have been performed by Borrower and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiii)
the Account Debtor's total indebtedness to Borrower does not exceed the amount
of any credit limit established by Borrower or Lender and the Account Debtor is
otherwise deemed to be creditworthy by Lender (provided, that Accounts which are
deemed to be ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such Accounts does not
exceed the lower of such credit limits); (xiv) there are no facts or
circumstances existing, or which could reasonably be anticipated to occur, which
might result in any adverse change in the Account Debtor's financial condition
or impair or delay the collectibility of all or any portion of such Account;
(xv) Lender has been furnished with all documents and other information
pertaining to such Account which Lender has requested, or which Borrower is
obligated to deliver to Lender, pursuant to this Agreement; (xvi) Borrower has
not made an agreement with the Account Debtor to extend the time of payment
thereof beyond the time periods set forth in clause (ii) above; and (xvii)
Borrower has not posted a surety or other bond in respect of the contract under
which such Account arose. Notwithstanding anything contained herein to the
contrary, there shall be excluded from Eligible Accounts all foreign accounts
unless insured by credit insurance, in form and substance satisfactory to Lender
or secured by a letter of credit, in form and substance satisfactory to Lender,
issued or confirmed by a domestic bank acceptable to Lender. Lender's advances
respecting any eligible Account Debtor in excess of ten percent (10%) of all
other Eligible Accounts may not exceed the amount of credit insurance coverage
in place for that Account Debtor and such credit insurance shall have been
assigned to Lender.
"ELIGIBLE EQUIPMENT" means, at any time of determination,
Equipment owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"ELIGIBLE INVENTORY" means, at any time of determination,
Inventory (other than packaging materials and supplies) which satisfies the
general criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its reasonable discretion, change the general
criteria for acceptability of Eligible Inventory upon at least fifteen days'
prior written notice to Borrower). Inventory shall be deemed to meet the current
general criteria if (i) it consists of finished goods that is readily marketable
in its current form; (ii) it is in good, new and saleable condition; (iii) it is
not slow moving, obsolete, unmerchantable, returned or repossessed; (iv) it is
not in the possession of a processor, consignee or bailee, or located on
premises leased or subleased to Borrower, or on premises subject to a mortgage
in favor of a
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Person other than Lender, unless such processor, consignee, bailee or mortgagee
or the lessor or sublessor of such premises, as the case may be, has executed
and delivered all documentation which Lender shall require to evidence the
subordination or other limitation or extinguishment of such Person's rights with
respect to such Inventory and Lender's right to gain access thereto; (v) it
meets all standards imposed by any governmental agency or authority; (vi) it
conforms in all respects to any covenants, warranties and representations set
forth in the Agreement; (vii) it is at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except a Permitted
Lien; and (viii) it is situated at an Inventory Location listed in Section 9(d)
of Schedule A or other location of which Lender has been notified as required by
Section 5.6.
"ELIGIBLE REAL PROPERTY" means, at any time of determination,
Real Property owned by Borrower which Lender, in its sole discretion, deems to
be eligible for borrowing purposes.
"EQUIPMENT" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person who is
a non-profit organization or governmental subdivision or agency and which are
not Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"EQUIPMENT ADVANCE" has the meaning set forth in Section
1.1(b).
"ERISA" means the Employee Retirement Income Security Act of
1974 and all rules, regulations and orders promulgated thereunder.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in
effect from time to time, consistently applied.
"GENERAL INTANGIBLES" has the meaning set forth in the UCC,
and includes all books and records pertaining to the Collateral and other
business and financial records in the possession of Borrower or any other
Person, inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other
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<PAGE>
security held by or granted to Borrower, all rights to indemnification and all
other intangible property of every kind and nature.
"GOODS" means all things which are movable at the time the
security interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"INITIAL TERM" has the meaning set forth in Section 7.1.
"INSTRUMENT" has the meaning set forth in the UCC.
"INVENTORY" means all Goods held for sale or lease or
furnished or to be furnished under contracts of service, including all raw
materials, work in process, finished goods, goods in transit and materials and
supplies which are or might be used or consumed in a business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such Goods, and all products of the foregoing, and shall include
interests in goods represented by Accounts, returned, reclaimed or repossessed
goods and rights as an unpaid vendor.
"INVESTMENT PROPERTY" shall mean all of Borrower's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
"LENDER" has the meaning set forth in the heading to the
Agreement.
"LIEN" means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"LOAN ACCOUNT" has the meaning set forth in Section 2.4.
"LOAN DOCUMENTS" means the Agreement and all notes,
guaranties, security agreements, certificates, landlord's agreements, Lock Box
and Blocked Account agreements and all other agreements, documents and
instruments now or hereafter executed or delivered by Borrower or any Obligor in
connection with, or to evidence the transactions contemplated by, this
Agreement.
"LOAN LIMITS" means, collectively, the Availability limits and
all other limits on the amount of Loans and Credit Accommodations set forth in
this Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term
Loan.
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"LOCK BOX" has the meaning set forth in Section 4.1.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section
5.20.
"MATURITY DATE" has the meaning set forth in Section 7.1.
"OBLIGATIONS" means all present and future Loans, advances,
debts, liabilities, obligations, guaranties, covenants, duties and indebtedness
at any time owing by Borrower to Lender, whether evidenced by this Agreement or
any other Loan Document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, Closing Fees, Facility Fees, Servicing Fees, Unused Line Fees,
Minimum Borrowing Fees, Success Fees, amounts owing under Warrants, Credit
Accommodation Fees and any other sums chargeable to Borrower under this
Agreement or under any other Loan Document.
"OBLIGOR" means any guarantor, endorser, acceptor, surety or
other person liable on, or with respect to, the Obligations or who is the owner
of any property which is security for the Obligations, other than Borrower.
"PERMITTED LIENS" means: (i) purchase money security interests
in specific items of Equipment in an aggregate amount not to exceed the limit
set forth in Section 8(h) of Schedule A; (ii) leases of specific items of
Equipment in an aggregate amount not to exceed the limit set forth in Section
8(i) of Schedule A; (iii) Liens for taxes not yet due and payable; (iv)
additional Liens which are fully subordinate to the security interests of Lender
and are consented to in writing by Lender; (v) security interests being
terminated concurrently with the execution of this Agreement; (vi) Liens of
materialmen, mechanics, warehousemen or carriers arising in the ordinary course
of business and securing obligations which are not delinquent; (vii) Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clause (i) or (ii) above;
PROVIDED, that any extension, renewal or replacement Lien is limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; and (ix) security
deposits posted in connection with real property leases or subleases. Lender
will have the right to require, as a condition to its consent under clause (iv)
above, that the holder of the additional Lien sign an intercreditor agreement in
form and substance satisfactory to Lender, in its sole discretion, acknowledging
that the Lien is subordinate to the security interests of Lender, and agreeing
not to take any action to enforce its subordinate Lien so long as any
Obligations remain outstanding, and that
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<PAGE>
Borrower agree that any uncured default in any obligation secured by the
subordinate Lien shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship,
partnership, joint venture, limited liability company, trust, unincorporated
organization, association, corporation, government or any agency or political
division thereof, or any other entity.
"PRIME RATE" means, at any given time, the prime rate as
quoted in The Wall Street Journal as the base rate on corporate loans posted as
of such time by at least 75% of the nation's 30 largest banks (which rate is not
necessarily the lowest rate offered by such banks).
"REAL PROPERTY" means the real property described in Section
10 of Schedule A.
"REAL PROPERTY ADVANCE" has the meaning set forth in Section 1.1(b).
"RELEASED PARTIES" has the meaning set forth in Section 6.1.
"RENEWAL TERM" has the meaning set forth in Section 7.1.
"RESERVES" has the meaning set forth in Section 1.2.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(a).
"SALE" has the meaning set forth in Section 8.2.
"SUBSIDIARY" means any corporation or other entity of which a
Person owns, directly or indirectly, through one or more intermediaries, more
than 50% of the capital stock or other equity interest at the time of
determination.
"TERM" means the period commencing on the date of this
Agreement and ending on the Maturity
Date.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of Illinois.
All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP.
All other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the UCC, to the extent such terms are defined
therein. The term "including," whenever used in this Agreement, shall mean
"including but not limited to." The singular form of any term shall include the
plural form, and vice versa, when the context so requires. References to
Sections, subsections and Schedules are to Sections and subsections of, and
Schedules to, this Agreement. All references to agreements and statutes shall
include all amendments thereto and successor statutes in the case of statutes.
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<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
BORROWER: LENDER:
INTELLICELL CORP. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION
By By
------------------------ ------------------------------
Its Its Authorized Signatory
-----------------------
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EXHIBIT 10.26
EMPLOYMENT AGREEMENT
This Agreement is made effective as of May 1, 1999, by and between Mark Fruehan
("Employee") and INTELLICELL, CORP., a Delaware corporation ("Employer" or the
"Company")
RECITALS
A. Employer desires to employ Employee as its Executive Vice President Strategic
Planning and Business Development and to be assured of his services as such on
the terms and conditions hereinafter set forth.
C. Employee is willing to accept employment in the above-described capacity
on such terms and conditions.
For all the reasons set forth above, and in consideration of the mutual
covenants and promises of the parties, and intending to be legally bound hereby,
Employer and Employee agree as follows:
Section I
Employment
Employee shall perform the duties and responsibilities of Executive
Vice President - New Business Development & Strategic Planning reporting
directly to the CEO. Such duties and responsibilities shall be reasonably
related to Employee's position. Employee shall devote all of his business time,
attention, knowledge and skills faithfully, diligently and to the best of his
ability, in furtherance of the business and activities of the Company and may
not, directly or indirectly, in any capacity, do any work for or on behalf of
himself exclusively, or any other company, person or entity, irrespective of
whether or not same is in a competing business. Employee is considered employed
under the applicable law in which the Employee is employed. The principal place
of performance by Employee of his duties hereunder shall be in or near Dallas,
Texas or such other place as the Company's Board of Directors (the "Board")
shall determine, although Employee may be required to travel outside of the
metro Dallas area where his office is located in connection with the business of
the Company.
Section II
Term of Employment
The term of employment shall be three years commencing as May 1, 1999
(the "Effective Date") (such period being referred to as the "Initial Term" and
any year commencing on the Effective Date or any anniversary of the Effective
Date being hereinafter referred to as an "Employment Year").
Section III
Compensation
Employer shall pay employee a monthly salary ("Salary") of Eleven
Thousand two hundred fifty Dollars ($11,250.00), payable twice monthly, on the
15th and last days of each month (pro-rated, as applicable)(the "paydate") or at
such other times as may mutually be agreed upon between Employer and Employee.
In addition, Employer shall pay employee a one-time signing bonus of $25,000
payable on the first Paydate after commencement of employment.
Subject to formal Board approval, Employer shall grant Incentive
Options to purchase 110,000 shares of common stock of the Company, under the
Employer's 1998 or 1996 Stock Option Plans. The five year options are granted
with an exercise price equal to the fair market value of the Company's common
stock on the date of grant. Of these options, 10,000 will vest on the 91st day
of employment. The remaining 100,000
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options will vest as to $100,000 of
exercisable value (number of shares x cash exercise price) December 31, 1999,
December 31, 2000 and December 31, 2001 with any remaining options vesting on
February 8, 2002.
Subject to formal Board approval and at the sole discretion of the
Board, Employee may, from time to time receive bonuses based on performance of
the Employee and the earnings of the Employer. Said bonuses will be paid in
either cash or stock options.
As further incentive for the Employee, Employer agrees to provide the
financial arrangements for the Employee to exercise vested options to purchase
shares of Cellstar Corp. shares not to exceed $50,000. Said arrangements to
include, but not be limited to finding a willing stock broker to provide a
margin loan to the Employee. The difference between the margin loan and the
exercise price would be either funded by the Employer as a loan to the Employee
or the Employer would make other arrangements on terms no less favorable.
Employee hereby agrees to provide Employer a security interest in the shares of
Cellstar Corp. and to repay any loans made from the first sales of these shares
or by April 30, 2000; whichever occurs earlier. If any loans made by Employer to
Employee have not been repaid by April 30, 2000. Employer may offset in full,
all amounts so owed from any salary, bonuses reimbursements or other amounts
owed by Employer to Employee.
Section IV
Benefits
(a) During the term of this Agreement, Employee shall have the right to
receive or participate in all benefits and plans which the Company may from time
to time institute during such period for its employees and for which Employee is
eligible. Nothing paid to Employee under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of salary
or any other obligation payable to Employee pursuant to this Agreement.
(b) During the term of this Agreement Employee shall be entitled to the
number of paid holidays, personal days off and sick leave days in each calendar
year as are determined by the Company from time to time. Employee shall be
entitled to two weeks of vacation during his first year of employment and two
weeks per year for each year thereafter. Such vacation shall be taken in
Employee's discretion with the prior approval of Employer, and at such times as
are not inconsistent with the reasonable business needs of the Company.
Section V
Travel and Other Expenses
All travel and other expenses incidental to the rendering of services
reasonably incurred on behalf of the Company by Employee during the term of this
Agreement shall be paid by Employer. If any such expenses are paid in the first
instance by Employee, Employer shall reimburse him therefor within a reasonable
time of presentation of appropriate receipts for such expenses.
If the Employer requests the Employee to relocate, the Employer agrees
to pay reasonable costs. Employer and Employee agree to a maximum limit of said
costs before the move is consummated. Furthermore, Employer agrees that a
dispute over the amount of reasonable costs shall not constitute cause as
defined in Section VI of this Agreement.
Section VI
Termination
(a) Notwithstanding anything in this Agreement to the contrary,
Employer shall have the right to discharge Employee, for cause in the event: (i)
Employee shall be unable to perform his full duties pursuant
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to this Agreement
to the satisfaction of Employer as a result of illness, disability, or other
incapacity for an aggregate period of 90 days or more during the term hereof; or
(ii) Employer shows Employee fails to competently perform his reasonable duties
assigned to him by Employer; or (iii) Employee shall commit a willful or
intentional breach of his duties and obligations to Employer or engage in any
materially dishonest conduct in connection with the performance of his duties
under this Agreement; or (iv) Employee shall otherwise violate any material
provision of this Agreement; or (v) Employee shall be adjudicated an
incompetent; or (vi) Employee shall engage in criminal misconduct (including,
without limitation, embezzlement and criminal fraud); or (vii) Employee shall be
convicted of any felony; or (viii) Employee shall have breached any warranty
given under this Agreement. Upon discharge pursuant to this Section, Employer
shall have no further obligation or duties to Employee other than payment of
salary and reimbursement of expenses through the effective date of termination
of Employee.
(b) In the event that Employee's employment is terminated with cause,
then Employer shall have no further obligation or duties to Employee, other than
for payment of amounts as provided under Section V and VI and shall be entitled
to recover from Employee any costs or damages resulting from Employee's breach
of this Agreement. In the event of such termination without cause, after six
months from date of employment, Employer shall continue to pay Employee, at the
current Salary rate either, (i) for the remainder of the Initial Term or (ii)
for a further period of twelve months following termination, whichever is less.
In the event of such termination without cause, within six months from the date
of employment, Employer shall continue to pay Employee, at the current Salary
rate either (i) for the remainder of the Initial Term, or (ii) for a further
period of six months following termination, whichever is less.
c Notwithstanding the discharge of Employee pursuant to Sections 6(a)
and 6(b) above, Employee shall continue to be bound by the provisions of
Sections VII and VIII of this Agreement.
(d) In the event that there is a Change in Control (as hereinafter
defined), at the option of the Employee, which must be executed in writing ten
days following the Change in Control, this Agreement will be terminated and the
Employer and Employee shall have no further obligation or duties to each other,
except as provided in SECTION VII (A).
(e) For purposes of this Agreement a "CHANGE IN CONTROL" shall mean and be
determined to have occurred if (A) any person ("PERSON") (as such term is used
in Sections 13(b) and 14(b) of the Securities and Exchange Act of 1934, as
amended) (the "EXCHANGE ACT") is or becomes the beneficial owner ("BENEFICIAL
OWNER") (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing thirty five percent (35
%) or more of the combined voting power of the then outstanding securities of
the Company; (B) during any period of two (2) years, a majority of the members
of the Board is replaced by directors who were not nominated and approved by the
Board; or (C) the Company is combined with or acquired by another company and
the Board shall have determined, either before such event or thereafter, by
resolution, that a Change in Control will occur or has occurred.
Section VII
Non-Disclosure and Non-Competition
(a) Employer and Employee acknowledge that the services to be performed
by Employee under this Agreement are unique and extraordinary and, as a result
of such employment, Employee will come unto possession of confidential
information relating to the business and practices of the Company. The term
"Confidential Information" shall mean any and all information (verbal and
written) relating to the Company or any of its affiliates, or any of their
respective activities, other than such information which can be shown by
Employer to not be in the public domain (such information not being deemed to be
in the public domain merely because it is embraced by more general information
which is in the public domain) other than as a result of a breach of the
provisions of this Section, including, but limited to: trade secrets, research
projects, personnel lists, financial information, services used, pricing,
customers, customer lists and prospects, product sourcing, marketing and selling
and servicing. Employee will not at any time, either during or after the term of
this Agreement, divulge any Confidential Information to any other person, firm,
or entity, nor use or permit the
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<PAGE>
use of any said Confidential Information, other
than pursuant to employment on behalf of Employer hereunder. Without limiting
the generality of the foregoing, upon the termination of employment hereunder
for any reason, Employee shall forthwith deliver to Employer all documents and
other material in his possession or under his control containing any
Confidential Information and/or relating to the business of Employer.
(b) It is understood and agreed by Employee that all business
relationships and goodwill now existing with respect to customers and suppliers
of Employer, whether or not created or served by Employee hereunder, and all
such relationships and goodwill which may hereafter become known to or be
created or enhanced by Employee in the course of employment hereunder,
constitute valuable proprietary rights and interests of Employer, and are, and
shall at all times remain, the sole property of, and shall inure to the sole
benefit of Employer. Accordingly, Employee agrees that during the term of
employment and for a further period including the period for which the Employee
is paid pursuant to Section VI(b) up to a period of one year beginning on the
date of termination of Employment for any reason, Employee will not, as
proprietor, partner, joint venturer, stockholder, director, officer, trustee,
principal, agent, servant, employee consultant or in any other capacity
whatever, directly or indirectly, solicit orders from, sell, or render services
to any customer within the United States, its territories and possessions, with
respect to any product or service competitive with any product or service sold
or developed by Employer or any subsidiary or affiliated corporation at any time
during employment, nor shall Employee directly or indirectly aid or assist any
other person, firm, or corporation to do any of the aforesaid acts. In addition,
for a period for which the Employee is paid pursuant to Section VI(b) up to a
period of one year after termination of employment for any reason, Employee
shall not, in any of the aforesaid capacities, directly or indirectly do or
participate in business with any suppliers of Employer concerning any of the
products which have been, or are being, or are planned to be manufactured for or
supplied to Employer by such supplier at the time of Employee's termination.
During employment and for a further period for which the Employee is paid
pursuant to Section VI(b) up to a period of one year beginning on the
termination of such Employment under any circumstances; hereunder Employee shall
not, as a proprietor, partner, joint venturer, stockholder, director, officer,
trustee, principal, agent, servant, employee, consultant or any other capacity
whatever, directly or indirectly, (i) engage in, or be financially interested in
any business operating within the United States, and any other country in which
Employer conducts substantial business, which is competitive with business
either, engaged-in or contemplated, by Employer as of the date Employee's
termination from employment except for ownership in less than one percent of any
publicly traded stock, or (ii) solicit or induce any officer, salesman, or other
employee of Employer or any subsidiary or affiliated corporation, for any
employment in a line of business to any conducted by Employer, nor shall
Employee directly or indirectly aid or assist any other person, firm, or
corporation to do any of the aforesaid acts.
(d) The provision of Section VII (b) and Section VII (c) above will be
limited to a period of six months if the Employee's employment with Employer is
less than one year.
(e) Employee acknowledges that, as an executive of Employee, he will
become familiar with the affairs, customers and other Confidential Information
of Employer. Employee acknowledges that his compliance with the provisions of
this Agreement and, in particular, this Section is necessary to protect the
goodwill and other proprietary interests of Employer, that their enforcement
will not significantly impair the ability of Employee to earn a livelihood and
that, but for the covenants entered into hereunder, Employer would not enter
into this Agreement with Employee. Employee acknowledges that his breach of any
of the provisions of this Section will result in irreparable and continuing
damage to the business of Employer for which there will be no adequate remedy at
law and agrees that in the event of any such breach, Employer and its successors
and assigns shall be entitled to injunctive relief and to such other and further
relief as may be proper.
(f) The parties hereto hereby acknowledge that, in addition to any
other remedies the Company may have under paragraph (d) of this Section, the
Company shall have the right and remedy to require Employee to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively, "Benefits") derived or received by Employee as
the result of any transactions constituting a breach of this Section VII or
Section VIII below, and Employee hereby agrees to account for and pay over such
Benefits to the Company.
Page 4
<PAGE>
(g) Each of the rights and remedies enumerated above shall be
independent of the other and shall be severally enforceable. All such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity.
(h) If any provision contained in this Section VII, or Section VIII
below, is hereafter construed to be invalid or unenforceable, the same shall not
affect the remainder of the covenants with shall be give full effect, without
regard to the invalid portions.
(i) If any provision contained in this Section VII, or Section VIII
below, is found to be unenforceable by reason of the extent, duration or scope
thereof, or otherwise, then the court making such determination shall have the
right to reduce or scope, or other provision, and in its reduced form any such
restriction shall thereafter be enforceable as contemplated hereby.
(j) It is the intent of the parties hereto that the covenants contained
in this Section VII, or Section VIII below shall be enforced to the fullest
extent under the laws and public policies of each jurisdiction in which
enforcement is sought (Employee acknowledges that said restrictions are
reasonably necessary for the protection of the Company). Accordingly, it is
hereby agreed that if any of the provisions of this Section VII, or Section VIII
below, shall be adjudicated to be invalid or unenforceable for any reason
whatsoever, said provision shall be (only with respect to the operation thereof
in the particular jurisdiction in which such adjudication is made) construed by
limiting and reducing it so as to be enforceable to the extent permissible,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of said provision in any other jurisdiction.
Section VIII
Discoveries and Inventions
(a) Any discovery, invention, formula, process, improvement or idea
("Discovery" or "Discoveries"), whether or not patentable, relating to or useful
in the business of Employer and wholly or partially conceived, made or learned
by Employee during the period of Employment shall be the sole and exclusive
property of Employer. Employee shall disclose any Discovery to Employer promptly
and shall upon request, assist Employer in obtaining and assigning to it all
rights, title and interest in any United States or foreign patent on any
Discovery.
(b) If any Discovery is described in a patent application or is
disclosed to third parties, directly or indirectly, by Employee within two years
following termination of his employment with the Company, it is to be presumed
that the Discovery was conceived or made during the period of Employee's
employment by the Company.
(c) Employee will not assert rights to any Discovery as having been made or
acquired by him prior to the date of this Agreement, except for Discoveries, if
any, disclosed to the Company in writing prior to the date hereof.
Section IX
Indemnification
Employee agrees to indemnify and hold harmless Employer and its
successors and assigns against any loss, cost, liability or expense incurred by
any of them (including, without limitation, reasonable attorney's fees and costs
of suit) by reason of breach or nonfulfillment by Employee of any provision of
this Agreement
Page 5
<PAGE>
Section X
Arbitration
Any differences, claims, or matters in dispute arising between the
parties out of this Agreement or connected with this Agreement shall be
submitted by them to arbitration the city of employment when the dispute arises
by the American Arbitration Association or its successor, and the determination
of the American Arbitration Association or its successor, and the determination
of the American Arbitration Association or its successor shall be final and
absolute. The arbitrator shall be governed by the rules and regulations of the
American Arbitration Association or its successor, and the pertinent provisions
of the laws of the applicable State relating to arbitration. The decision of the
arbitrator may be entered as a judgement in any court of the State of California
or elsewhere.
Section XI
Provisions of General Application
(a) Employee warrants and represents that (i) he is in good health and
not suffering from any impairment to his general well being, (ii) the execution
of this Agreement and discharge of Employee's obligations hereunder does not and
will not constitute a breach of or default under (A) any employment agreement or
non-competition agreement which would affect the Employee's employment
hereunder, or (B) any other contract, agreement, or understanding between
Employee and any other party or parties, and (iii) Employee has ideas,
information and know-how relating to the type of business conducted by Employer,
and Employee's disclosure of such ideas, information and know-how to Employer
will not conflict with or violate the rights of any third party or parties.
Employee, however, does not agree to disclose nor will Employer disclose any
confidential information, if any, of Employee's former employer(s).
(b) This Agreement contains the entire agreement of the parties
relating to the subject matter hereof. This Agreement supersedes and is in lieu
of any and all other employment arrangements or understandings between Employee
and Employer.
(c) Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been effectively given for all
purposes (i) if delivered personally, upon delivery, or (ii) if mailed, upon
deposit in the United States mail, registered or certified mail, postage
prepaid, addressed to Employee's residence (as last known to Employer), in the
case of Employee, or to the principal office of Employer, in the case of
Employer. Either party may change the address at which such party is to receive
notice by notice to the other party.
(d) Any waiver, change, modification, extension or discharge in
connection with this Agreement must be in writing and signed by the party to be
bound thereby. The waiver by Employer of a breach by Employee of, or failure of
Employee to comply with, any provision of this Agreement shall not be construed
as, or constitute, a continuing waiver of, or a waiver of any breach of, or
failure to comply with any provision of this Agreement.
(e) Employer may sell, assign and transfer all or part of its rights
under this Agreement to any Affiliates of Employer or any purchaser of Employer
or successor to the business or assets of Employer, provided, however, that such
purchaser or successor assumes the obligations of Employer hereunder. This
Agreement is personal to Employee, and Employee may not sell, assign, pledge or
otherwise transfer any of these rights under this Agreement.
(f) All provisions of this Agreement are intended to be interpreted and
construed in a manner making such provisions valid, legal and enforceable. In
the event any provision of this Agreement or portion thereof is found to be
wholly or partially invalid, illegal or unenforceable in any judicial
proceeding, such provision shall be deemed to be modified or restricted to the
extent necessary to make such provision valid, legal and enforceable. In the
event such provision or portion thereof cannot be so modified or restricted,
such provision or portion thereof shall be deemed to be excised from this
Agreement, and the validity, legality and
Page 6
<PAGE>
enforceability of the remainder of
this Agreement shall not be affected or impaired in any manner.
(g) Confidential Information shall constitute a "Trade Secret" as
defined and subject to protection by Employer, under the Uniform Trade Secrets
Act. This Agreement is entered into in the State of California and shall be
governed by and construed in accordance with the internal laws and decisions of
the State of California.
IN WITNESS WHEREOF, Employer and Employee have executed this Agreement
as of the date first above written.
INTELLICELL CORP.
"Employer"
By
----------------------------- ----------------------------
John F. Swinehart, CEO Mark Fruehan
"Employee"
By
-----------------------------
David M. Kane, CFO
Page 7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENT INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q,
AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,593,000
<SECURITIES> 0
<RECEIVABLES> 3,368,000
<ALLOWANCES> 174,000
<INVENTORY> 1,124,000
<CURRENT-ASSETS> 6,386,000
<PP&E> 720,000
<DEPRECIATION> (325,000)
<TOTAL-ASSETS> 6,947,000
<CURRENT-LIABILITIES> 4,653,000
<BONDS> 0
0
0
<COMMON> 69,000
<OTHER-SE> 2,225,000
<TOTAL-LIABILITY-AND-EQUITY> 6,947,000
<SALES> 14,219,000
<TOTAL-REVENUES> 14,219,000
<CGS> 13,397,000
<TOTAL-COSTS> 13,397,000
<OTHER-EXPENSES> 551,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,000
<INCOME-PRETAX> (2,174,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,174,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,174,000)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
