<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from to
Commission file number 0-3035
COGNITRONICS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-1953544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Corporate Drive, Danbury, Connecticut 06810-4130
(Address of principal executive offices) (Zip Code)
(203) 830-3400
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements
for at least the past 90 days. Yes x No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of September 30, 1997.
Common Stock, par value $0.20 per share -- 3,576,301 shares<PAGE>
Part I, Item 1.
<PAGE> 2
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
1997 1996
(Unaudited)
-------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,336 $ 4,169
Accounts receivable, net 3,699 3,624
Inventories 4,128 3,877
Deferred income taxes 622 625
Other current assets 896 587
------- -------
TOTAL CURRENT ASSETS 16,681 12,882
PROPERTY, PLANT AND EQUIPMENT, NET 1,302 1,701
GOODWILL, NET 1,732 1,981
DEFERRED INCOME TAXES 822 822
OTHER ASSETS 113 125
------- -------
$20,650 $17,511
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,812 $ 1,700
Accrued compensation and benefits 1,338 748
Income taxes payable 144 772
Other accrued expenses 696 830
Current maturities of debt 342 87
------- -------
TOTAL CURRENT LIABILITIES 4,332 4,137
LONG-TERM DEBT 159 379
OTHER NON-CURRENT LIABILITIES 2,345 2,383
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 10,000,000
shares; issued 3,576,301
and 3,475,573 shares 711 695
Additional paid-in capital 12,509 12,250
Retained earnings (deficit) 705 (2,354)
Currency translation adjustment 24 177
Unearned compensation (135) (156)
------- -------
TOTAL STOCKHOLDERS' EQUITY 13,814 10,612
------- -------
$20,650 $17,511
======= =======
See Note to Condensed Consolidated Financial Statements.
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
NET SALES $7,245 $3,720 $22,438 $12,536
COST AND EXPENSES:
Cost of products sold 3,427 1,731 10,319 6,072
Research and development 376 413 1,222 1,164
Selling, general and
administrative 1,892 1,275 5,508 3,947
Amortization of goodwill 83 83 249 249
Other income, net (43) (8) (29) (35)
------ ------ ------- -------
5,735 3,494 17,269 11,397
------ ------ ------- -------
Income before income
taxes 1,510 226 5,169 1,139
PROVISION FOR INCOME TAXES 569 98 2,110 473
------ ------ ------- -------
NET INCOME $ 941 $ 128 $ 3,059 $ 666
====== ====== ======= =======
NET INCOME PER SHARE:
Primary $.24 $.04 $.80 $.19
==== ==== ==== ====
Fully diluted $.24 $.04 $.78 $.19
==== ==== ==== ====
Weighted average number
of common and common
equivalent shares
outstanding:
Primary 3,959,970 3,564,578 3,806,721 3,586,331
========= ========= ========= =========
Fully diluted 3,981,354 3,586,331 3,943,724 3,597,164
========= ========= ========= =========
See Note to Condensed Consolidated Financial Statements.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Nine Months Ended
September 30
-----------------
1997 1996
---- ----
NET CASH PROVIDED BY OPERATIONS $3,238 $1,043
------ ------
INVESTING ACTIVITIES
Additions to property, plant and
equipment, net (332) (658)
------ ------
NET CASH USED BY INVESTING
ACTIVITIES (332) (658)
------ ------
FINANCING ACTIVITIES
Payment of debt (168) (133)
Issuance of debt 212 114
Shares issued pursuant to
employee stock plans 275 90
------ ------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 319 71
------ ------
EFFECT OF EXCHANGE RATE DIFFERENCES (58) 0
------ ------
INCREASE IN CASH
AND CASH EQUIVALENTS 3,167 456
CASH AND CASH EQUIVALENTS- BEGINNING
OF PERIOD 4,169 3,668
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $7,336 $4,124
====== ======
INCOME TAXES PAID $2,207 $ 960
====== ======
INTEREST EXPENSE PAID $ 40 $ 33
====== ======
See Note to Condensed Consolidated Financial Statements.
<PAGE> 5
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
nine-month periods ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997. The
balance sheet at December 31, 1996 has been derived from the audited financial
statements at that date. For further information, refer to the consolidated
financial statements and footnotes thereto and the quarterly financial data
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Inventories September 30, December 31,
(in thousands): 1997 1996
------------- ------------
Finished and in process $3,079 $2,682
Materials and purchased parts 1,049 1,195
------ ------
$4,128 $3,877
====== ======
Other Non-Current Liabilities (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Accrued supplemental pension plan $ 683 $ 702
Accrued deferred compensation 329 332
Accrued pension expense 681 713
Accrued other post-retirement
benefit liability 831 813
------ -----
2,524 2,560
Less current portion 179 177
------ ------
$2,345 $2,383
====== ======
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted as of December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements, primary and fully diluted earnings per
share will be replaced with basic and diluted earnings per share,
respectively. In computing basic earnings per share, the dilutive effect of
stock options will be excluded. The impact of the application of
<PAGE> 6
Statement No. 128 on the computation of earnings per share is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Net income per share,
as reported:
Primary $.24 $.04 $.80 $.19
==== ==== ==== ====
Fully diluted $.24 $.04 $.78 $.19
==== ==== ==== ====
Pro forma net income
per share:
Basic $.27 $.04 $.88 $.20
==== ==== ==== ====
Diluted $.24 $.04 $.80 $.19
==== ==== ==== ====
CONTINGENCIES
Pending Litigation. In 1993, a purported consolidated class action lawsuit
was filed against the Company and certain of its officers alleging securities
law violations in connection with the purchase of the Company's common stock
by members of the purported classes during the period from October 29, 1992
through March 12, 1993. The plaintiffs seek unspecified damages and related
costs. The Company denies any wrongdoing and intends to defend this lawsuit
vigorously. Due to the uncertainties involved in litigation, the ultimate
outcome cannot be determined at this time, and no provision for any liability
that may result from this litigation, if any, has been made in the financial
statements. If adversely determined, the resolution of this matter could have
a material negative affect on the Company's financial condition, results of
operations and cash flows.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income increased $813,000 (635%) to $941,000 ($.24 per share) and
$2,393,000 (359%) to $3,059,000 ($.80 per share) for the three-month and
nine-month periods ended September 30, 1997, respectively, from the comparable
periods of the prior year due to higher sales volumes.
Consolidated sales for the quarter and the nine months ended September 30,
1997 increased $3.5 million (95%) to $7.2 million and $9.9 million (79%) to
$22.4 million, respectively, due to sales increases by domestic operations of
$2.8 million (133%) and $9.5 million (41%), respectively. The domestic sales
increases in both periods were due to higher volume of sales of the McIAS 16xx
family of products. These increases are primarily attributable to higher sales
<PAGE> 7
to switch manufacturers, competitive access providers and competitive local
exchange carriers. The UK distributorship operation's sales increased $.7
million (44%) and $.4 million (7%), respectively, from the prior year's
periods due to higher volume.
The gross margin percentage for the nine-month period ended September 30, 1997
improved to 54% from the comparable prior year period due to the higher
proportion of sales by the domestic operations. For the three-month period
ended September 30, 1997, the gross margin percentage is the same as in the
prior year period in spite of increased volume due to a change in channel mix
of sales by the domestic operations.
Research and development expenses increased $58,000 (5%) in the nine-month
period ended September 30, 1997, primarily due to certification testing of the
McIAS 950 and McIAS 16xx series products and higher personnel expenses. For
the three-month period ended September 30, 1997, research and development
expense decreased $37,000 (9%) from the prior period due to increased
engineering expenses being included in cost of goods sold.
Selling, general and administrative expenses increased $617,000 (48%) and
$1,561,000 (40%), respectively, for the three-month and nine-month periods
when compared to the comparable periods of the prior year. The domestic
operations accounted for $374,000 (49%) and $966,000 (39%), respectively, of
the increases primarily due to higher personnel costs (commissions and
bonuses). The UK distributorship operations accounted for $243,000 (48%) and
$595,000 (41%), respectively, of the increases due to higher occupancy costs
and increased staff.
Included in other (income) expense in the current nine-month period is a
charge of $76,000 to write down the Company's building in the UK, which is for
sale, to net realizable value. At September 30, 1997, the net book value of
the building of $294,000 and the associated mortgage note of $225,000 are
included in other current assets and current maturities of debt, respectively.
Under Financial Accounting Standards Board ("FASB") Statement No. 109, the
Company has recognized future tax benefits that management believes will be
realized. In order to realize these benefits, the Company, exclusive of the
results of Dacon Electronics Plc, will have to generate domestic pretax income
of $3.9 million during the carryforward period. The current deferred income
tax asset of $.6 million is primarily attributable to inventory provisions and
valuation reserves, and the recognition of such losses, for tax purposes, are,
in large measure, within the control of the Company. The non-current deferred
income tax asset, $.8 million, primarily relates to deferred compensation and
benefit plans and, as such, would be recognized over a long period of time.
The Company's U.S. pretax income (loss) was $4.6 million for the nine months
ended September 30, 1997 and $.8 million, $1.0 million and $(.3) million in
years ended December 31, 1996, 1995 and 1994, respectively. Management
anticipates that the Company will generate sufficient taxable income in the
future to realize these benefits.
Liquidity and Sources of Capital
Working capital and the ratio of current assets to current liabilities were
$12.3 million and 3.9:1 at September 30, 1997 compared to $8.7 million and
3.1:1 at December 31, 1996, respectively. The improvement in working capital
during 1997 is mainly due to the Company's results of operations for the nine
months ended September 30, 1997.
<PAGE> 8
The Company anticipates expenditures of $.7 million for equipment and software
licensing fees and incurring increased research and development expenditures
during the remainder of the year. Management believes that its cash balances
and the cash flow from operations will be sufficient to meet these needs.
During the quarter ended September 30, 1997, the Company entered into a new $2
million line of credit agreement with a bank, replacing an existing
agreement. Borrowings under this agreement are subject to various financial
covenants,due on demand, based on the amount of eligible accounts receivable,
as defined, and secured by substantially all the Company's assets.
In 1993, a purported consolidated class action lawsuit was filed against the
company and certain of its officers (see Note to Condensed Consolidated
Financial Statements). Due to the uncertainties involved in litigation, the
ultimate outcome cannot be determined at this time. If adversely determined,
the resolution of this matter could have a material negative affect on the
Company's financial condition, results of operations and cash flows.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) may contain statements which
are not historical facts, so-called "forward-looking statements". These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company's actual
future results may differ significantly from those stated in any
forward-looking statements. Forward-looking statements involve a number of
risks and uncertainties, including, but not limited to , product demand,
pricing, market acceptance, litigation, risk of dependence on significant
customers, third party suppliers and intellectual property rights, risks in
product and technology development and other risk factors detailed in this
Quarterly Report on Form 10-Q and in the Company's other Securities and
Exchange Commission filings. Further, the Company's sales volume may vary
from quarter to quarter as a result of a variety of factors. Because, in the
short term, a significant portion of the Company's expenses are fixed, sales
variances may have a significant effect on the results of operations.
PART II
Item 1. Legal Proceedings
In 1993, purported class action lawsuits were filed against the Company and
certain of its officers as follows:
1. Michael Germano v. Cognitronics Corporation and Matthew J.
Flanigan in the United States District Court, District of Connecticut,
dated March 15, 1993;
2. Barry L. Bragger and Eve Gerber vs. Matthew J. Flanigan
and Cognitronics, Inc. in the United States District Court, District
of Connecticut dated March 16, 1993; and
<PAGE> 9
3. John M. Mitnick, on behalf of himself and all other similarly
situated v. Cognitronics Corp., Matthew J. Flanigan and G. Sullivan
in the United States District Court for the Northern District of
Georgia, Atlanta Division, dated March 15, 1993.
These actions were consolidated in the United States District Court in
Connecticut and a consolidated amended complaint was filed on July 8, 1993.
The consolidated lawsuit alleges securities law violations in connection with
the purchase of the Company's common stock by members of the purported classes
during the period from October 29, 1992 through March 12, 1993. The
plaintiffs seek unspecified damages and related costs. On July 28, 1993, the
Company and the other defendants filed a motion to dismiss the consolidated
amended complaint. After briefing by the parties, the motion was submitted to
the Court in October 1993 and denied in March 1997. The parties are engaged
in discovery. The Company denies any wrongdoing and intends to defend this
lawsuit vigorously. Management has not made provision for liability, if any,
in the financial statements of the Company which may result from this
litigation.
Item 6. Exhibits and reports on Form 8-K
(a) Index to Exhibits
Exhibit
10.1 Commercial Revolving Loan and Security Agreement
between Cognitronics Corporation and Fleet National
Bank dated July 31, 1997 (attached as Exhibit 10.1
To this Quarterly Report on Form 10Q)
27 Financial Data Schedule (attached as Exhibit 27
To this Quarterly Report on Form 10Q)
(b) No reports on Form 8-K were filed during the current quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGNITRONICS CORPORATION
Registrant
Date: November 12, 1997 By /s/ Garrett Sullivan
------------------------
Garrett Sullivan, Treasurer
and Chief Financial Officer
<PAGE> 1
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
THIS COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT is dated July 31,
1997, by and among COGNITRONICS CORPORATION, a New York corporation with an
office at 3 Corporate Drive, Danbury, Connecticut 06810-4130 (the "Borrower")
and FLEET NATIONAL BANK, a national banking association with an office located
at 1 Landmark Square, Stamford, CT 06901 ("Fleet").
RECITALS
A. Borrower has requested that Fleet extend to Borrower a
$2,000,000.00 revolving loan facility.
B. The proceeds of the revolving loan facility shall be used to
replace an existing line of credit and to support additional working capital
requirements.
C. Fleet is willing to extend the revolving loan facility to Borrower
subject to the terms and conditions contained herein.
AGREEMENT
In consideration of the Recitals, the terms and conditions contained in
this Agreement, and other good and valuable consideration, Borrower and Fleet
agree as follows:
I. DEFINITIONS
1.01 DEFINED TERMS. The following terms shall have the following
meanings when used in the Agreement:
(a) "Account" shall have the same meaning as defined in Section
9-106 of the Uniform Commercial Code.
(b) "Affiliate", as applied to any Person, means any other
Person directly or indirectly through one or more intermediaries controlling,
controlled by, or under common control with, that Person. For the purposes of
this definition, "control" (including with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of the Person,
whether through the ownership of voting securities or by contract or
otherwise.
(c) "Agreement" shall mean this Commercial Revolving Loan and
Security Agreement as the same from time to time may be amended, supplemented
or modified.
(d) "Borrowing Base" shall mean an amount which shall not exceed
the lesser of the following: (i) $2,000,000.00; or (ii) 75% of Eligible
Accounts Receivable.
(e) "Borrowing Date" shall mean the date on which the Revolving
Loan is disbursed to Borrower.
(f) "Capital Assets" shall mean assets that in accordance with
GAAP are required or permitted to be depreciated or amortized on Borrower's
balance sheet.
(g) "Capital Leases" shall mean capital leases, conditional
sales contracts and other title retention agreements relating to the purchase
or acquisition of Capital Assets.
(h) "Change of Control" shall mean the transfer, sale,
assignment, or pledge, in any manner whatsoever, which has the effect of
transferring more than fifty percent (50%) of the voting stock of Borrower to
any Person who is not a shareholder of Borrower as of the date of this
Agreement.
(i) "Collateral" shall mean the property of Borrower described
in Section VII below.
<PAGE> 2
(j) "Default(s)" shall mean any of the events specified in
Section 8.01 below, whether or not any requirement for the giving of notice,
the lapse of time, or both, has been satisfied.
(k) "Dollars" and "$" shall mean lawful currency of the United
States of America.
(l) "Earnings Before Interest and Taxes ("EBIT")" shall mean,
for the applicable period, income from continuing operations before interest
and tax expense, determined in accordance with GAAP.
(m) "Eligible Accounts Receivables" shall mean an Account or
Accounts in which Fleet has a perfected first priority security interest and
is not past due more than eighty-nine (89) days from the date set forth on the
original invoice evidencing such Account, arising from the sale of goods or
the performance of services by Borrower in the ordinary course of its
business, which conforms to the warranties set forth in Section V(t) and
which:
(i) reflects all credits for the particular Account debtor as
shown on the schedule setting forth the aging submitted by Borrower as
required in Section 6.01(c);
(ii) is an Account upon which Borrower's right to receive
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever;
(iii) does not arise from a sale or sales to an Affiliate,
parent, or subsidiary of Borrower;
(iv) does not arise from the exchange or barter of any goods or
services;
(v) does not arise from a contract containing a prohibition
against assigning or granting a security interest;
(vi) is not an Account arising from a sale to an Account debtor
which is an inventory or trade supplier of Borrower;
(vii) is not an Account of an Account debtor which has suspended
business, made a general assignment for the benefit of creditors, committed
any act of insolvency, filed or have had filed against it any petition under
any bankruptcy law or any other laws for the relief of debtors;
(viii) is not an Account to which an Account debtor has
objected, in any material respect, to the quality or quantity of goods or
services of Borrower sold, or shall have rejected, returned, or refused to
accept such goods or services;
(ix) is not an Account which is, in Fleet's judgment, an Account
of an Account debtor which is an undue credit risk or otherwise unacceptable
to Fleet in its sole discretion; and
(x) is not an Account subject to any dispute, offset, defense or
counterclaim and cannot be offset by any amounts payable by Borrower;
(n) "Environmental Laws" shall mean all present and future laws,
statutes, ordinances, rules, regulations, orders, codes, licenses, permits,
decrees, judgments, directives or the equivalent of or by any Governmental
Authority relating to or addressing the protection of the environment or human
health.
(o) "Equipment" shall have the same meaning as defined in
Section 9-109(2) of the Uniform Commercial Code.
(p) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974 and all rules and regulations promulgated pursuant to said Act, as
amended from time to time.
(q) "Event(s) of Default" shall mean any of the events specified in
Section 8.01 below, provided that any requirement for the giving of notice,
the lapse of time, or both, or any other condition, has been satisfied.
(r) "GAAP" shall mean generally accepted accounting principals
applied in a manner consistent with that employed in the preparation of the
financial statements described in Section 6.01 below.
(s) "Governmental Authority" shall mean any nation or
government, any state or other political subdivision, any entity exercising
executive, legislative, judicial, regulatory, or administrative functions of
or pertaining to government, and any corporation or other entity owned or
controlled (through stock or capital ownership or otherwise) by any of the
foregoing.
<PAGE> 3
(t) "Hazardous Materials" shall mean any material or substance
that, whether by its nature or use, is now or hereafter defined as hazardous
waste, hazardous substance, pollutant or contaminant under any Environmental
Laws which is toxic, explosive, corrosive, inflammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now
or hereafter regulated under any Environmental Laws, or which is or contains
petroleum, gasoline, diesel fuel or another petroleum hydrocarbon product.
(u) "Indebtedness" shall mean all obligations that in accordance
with GAAP should be classified as liabilities upon Borrower's balance sheet as
liabilities or to which reference should be made by footnotes to the balance
sheet.
(v) "Intangible Assets" shall mean assets that in accordance
with GAAP are properly classifiable as intangible assets, including, but not
limited to, goodwill, franchises, licenses, patents, trademarks, trade names
and copyrights.
(w) "Interest" shall mean, for the applicable period, all
interest paid or payable, including, but not limited to, interest paid or
payable on Indebtedness and on Capital Leases, determined in accordance with
GAAP.
(x) "Interest Coverage Ratio" shall mean the ratio of (i) EBIT
to (ii) Interest.
(y) "Inventory" shall have the same meaning as defined in
Section 9-109(4) of the Uniform Commercial Code.
(z) "Lien" shall mean any mortgage, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
(aa) "Loan" shall mean the Revolving Loan made by Fleet to
Borrower pursuant to the Agreement.
(ab) "Loan Documents" shall mean this Agreement, the Note, and
all other documents or agreements executed in connection with this Agreement,
together with any amendments, supplements or modifications hereto or thereto.
(ac) "Maturity Date" shall mean the Revolving Loan Maturity
Date.
(ad) "Note" shall mean the Revolving Loan Note.
(ae) "Obligations" shall mean and include all loans, advances,
interest, indebtedness, liabilities, obligations, guaranties, covenants and
duties at any time owing by Borrower to Fleet of every kind and description,
whether or not evidenced by any note or other instrument, whether or not for
the payment of money, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, including but not limited
to the indebtedness, liabilities and obligations arising under this Agreement,
the Note, and the other Loan Documents, and all costs, expenses, fees,
charges, expenses and attorneys', paralegals', and professionals' fees
incurred in connection with any of the foregoing, or in any way connected
with, involving or related to the preservation, enforcement, protection, and
defense of this Agreement, the Note, the other Loan Documents, any related
agreement, document or instrument, any Lien, the Collateral, and the resulting
rights and remedies.
(af) "Person" shall mean any individual, corporation, limited
liability company, partnership, joint venture, trust, unincorporated
organization or any other juridical entity, or a government or state or any
agency or political subdivision thereof.
<PAGE> 4
(ag) "Plan" shall mean any plan of a type described in Section
4021(a) of ERISA in respect of which Borrower is an "employer" as defined in
Section 3(5) of ERISA.
(ah) "Post Default Rate" shall mean at any time a rate of
interest equal to 4.0% per annum in excess of the rate that would be in effect
on the date of default.
(ai) "Prime Rate" shall mean the rate of interest established
from time to time by Fleet as its "prime rate."
(aj) "Reportable Event" shall mean any of the events set forth
in Section 4043(b) of ERISA or the regulations thereunder.
(ak) "Revolving Loan" shall mean the Loan made pursuant to
Section 2.01 below.
(al) "Revolving Loan Maturity Date" shall mean June 30, 1998.
(am) "Revolving Loan Note" shall mean the Note referred to in
Section 2.01 below.
(an) "Revolving Loan Commitment" shall mean the obligation of
Fleet to make Revolving Loans to Borrower during the Revolving Loan Commitment
Period pursuant to the terms of this Agreement as such Commitment is described
in Section 2.01 below.
(ao) "Revolving Loan Commitment Period" shall mean the period
from the date of this Agreement until the Revolving Loan Maturity Date.
(ap) "Subsidiary or Subsidiaries" of any Person shall mean any
corporation or corporations of which the Person or one or more of its
Subsidiaries, owns, directly or indirectly, at least a majority of the
securities having ordinary voting power for the election of directors.
(aq) "Tangible Net Worth" shall mean Total Net Worth minus
Intangible Assets.
(ar) "Total Assets" shall mean total assets determined in
accordance with GAAP.
(as) "Total Current Assets" shall mean total current assets
determined in accordance with GAAP.
(at) "Total Current Liabilities" shall mean total current
Indebtedness determined in accordance with GAAP.
(au) "Total Liabilities" shall mean total Indebtedness
determined in accordance with GAAP.
(av) "Total Net Worth" shall mean, for the applicable period,
the excess of Total Assets minus Total Liabilities.
1.02 ACCOUNTING TERMS. Except as otherwise specifically set forth in
this Agreement, each accounting term used in this Agreement shall have the
meaning given to it under GAAP. Any dispute or disagreement between Borrower
and Fleet relating to the determination of GAAP shall, in the absence of
manifest error, be conclusively resolved for all purposes by the written
opinion delivered to Fleet, of independent accountants selected by Borrower
and approved by Fleet for the purposes of auditing the periodic financial
statements of Borrower.
II. LOAN FACILITY.
2.01 REVOLVING LOAN. Subject to the terms and conditions, and relying
upon the representations and warranties set forth in this Agreement, Fleet
agrees to make revolving loans (a "Revolving Loan") to Borrower at any time
until terminated as provided in Section 3.02 below, in the principal amount
which shall not exceed the Borrowing Base in the aggregate at any time. In
addition to this Agreement, the Revolving Loan shall be evidenced by the
Commercial Revolving Promissory Note of this date, a copy of which is attached
as Exhibit "A" (the "Revolving Loan Note")
<PAGE> 5
(a) Procedure For Revolving Loan Borrowing. Provided that the
Revolving Loan Commitment has not been terminated as provided in Section 3.02
below, during the Revolving Loan Commitment Period Borrower may borrow under
the Revolving Loan Commitment by giving Fleet irrevocable notice of a request
for a Revolving Loan on or before the date such borrowing is to be made, such
irrevocable notice setting forth (A) the amount of the Loan requested, which
shall not be less than $5,000, and (B) the requested Borrowing Date. Such
notice must be written (including, without limitation, via facsimile
transmission) and shall be sufficient if received by 11:00 a.m. (Eastern
Standard Time) on the date on which such notice is to be given. Unless
notification is otherwise furnished by Borrower to Fleet (in a manner
consistent with the requirements of this Section 2.01(a)), Revolving Loans
will be made by credits to Borrower's deposit account maintained with Fleet.
2.02 OTHER EVENTS.
(a) In the event that, after the date hereof, any enactment of
or change in applicable law, regulation, condition, directive or
interpretation thereof (including any request, guideline or policy whether or
not having the force of law and including, without limitation, Regulation D
promulgated by the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect) by any authority charged with the
administration or interpretation thereof:
(i) subjects Fleet to a tax with respect to any Loan (other than
any tax measured by or based upon the overall net income of Fleet or any
branch or office thereof, imposed by the United States of America or by any
other jurisdiction in which Fleet is qualified to do business or any political
subdivision or taxing authority); or
(ii) changes the basis of taxation or payment to Fleet of
principal of or interest on any Loan or any Revolving Loan Commitment under
this Agreement or any other amounts payable (other than any tax measured by or
based upon the overall net income of Fleet or any branch or office, imposed by
the United States of America or by any other jurisdiction in which Fleet is
qualified to do business or any political subdivision or taxing authority
therein); or
(iii) imposes, modifies or deems applicable any reserve or
deposit requirements against any assets held by, deposits with or for the
account of, or loans or commitments by, an office of Fleet in connection with
payments by Fleet under this Agreement; or
(iv) imposes upon Fleet any other condition with respect to any
amount paid or payable to or by Fleet pursuant to this Agreement;
and the result of any of the foregoing is to increase the cost to Fleet of
making the payment or maintaining its commitment or to reduce the amount of
the payment receivable by Fleet or to require Fleet to make the payment on or
calculated by reference to the gross amount of the sum received by it pursuant
to this Agreement, in each case by an amount which Fleet in its reasonable
judgment deems material, then:
(A) Fleet shall promptly notify Borrower in writing of the happening
of such event;
(B) Fleet shall promptly deliver to Borrower a certificate stating
the change which has occurred or the reserve requirements or other conditions
which have been imposed on Fleet or the request, direction or requirement with
which it has complied, together with the date thereof, the amount of such
increased cost, reduction or payment and the way in which such amount has been
calculated; and
(C) Borrower shall pay to Fleet within thirty (30) days after
delivery of the certificate referred to in clause (B) above such an amount or
amounts as will reasonably compensate Fleet for such additional cost,
reduction or payment.
<PAGE> 6
(b) No failure on the part of Fleet to demand compensation under
subsection (a) above on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of Fleet to deliver any certificate in a timely manner shall in any way
reduce any obligations of Borrower to Fleet under this Section 2.02.
III. INTEREST, TERM AND FEES.
3.01 INTEREST RATE.
(a) The Note shall bear, and Borrower promises to pay, interest
on the indebtedness on the terms and conditions set forth in the Note. The
LIBOR borrowing option will be made available at 30, 60, and 90-day intervals,
as determined to be available and appropriate by Fleet.
(b) Lawful Interest. It is the intent of the parties that the
rate of interest and all other charges to Borrower be lawful. If for any
reason the payment of a portion of interest, fees or charges as required by
this Agreement would exceed the limit established by applicable law which a
commercial lender such as Fleet may charge to a commercial borrower such as
Borrower, then the obligation to pay interest or charges shall automatically
be reduced to such limit and, if any amounts in excess of such limits shall be
paid, then such amounts shall be applied to the unpaid principal amount of the
Obligations of Borrower to Fleet or refunded so that under no circumstances
shall the interest or charges required hereunder exceed the maximum rate
allowed by law.
3.02 TERM AND TERMINATION. Unless sooner terminated as a result of
the occurrence of an Event of Default, the Revolving Loan Commitment shall
terminate and be due and payable in full on the Revolving Loan Maturity Date.
Upon termination of the Revolving Loan Commitment, Borrower shall have no
ability to receive, and Fleet shall have no obligation to make any further
advances under the Revolving Loan Commitment. All of the rights, interest, and
remedies of Fleet and Obligations of Borrower under this Agreement and the
other Loan Documents shall survive termination of the Revolving Loan
Commitment until all of the Obligations of Borrower are fully satisfied.
3.03 REPAYMENTS. Any payments made by Borrower to Fleet shall be
credited first to late charges, then to costs and expenses, then to accrued
and unpaid interest and then to the outstanding principal balance due in the
inverse order of maturity.
3.04 PREPAYMENTS.
(a) Prime Rate Loans. If the interest rate selected by the
Borrower is Fleet's Prime Rate, Borrower may prepay the Revolving Loan without
any penalty or premium.
(b) Fixed Rate Loans. If the interest rate selected by the
Borrower is LIBOR, Borrower may prepay a LIBOR Advance, as such term is
defined in the Note, without any penalty or premium upon the maturity of such
LIBOR Advance. At any time that (i) there is a LIBOR Advance outstanding, and
(ii) Fleet in its sole discretion should determine that current market
conditions can accommodate a prepayment request, the Borrower shall have the
right at any time and from time to time to prepay the LIBOR Advance in whole
(but not in part), and the Borrower shall pay to Fleet a yield maintenance fee
in an amount computed as follows: The current rate for United States Treasury
securities (bills on a discounted basis shall be converted to a bond
equivalent) with a maturity date closest to the maturity date of the term
chosen for the LIBOR Advance as to which the prepayment is made, shall be
subtracted from the "cost of funds" component of the of the fixed rate in
effect at the time of prepayment. If the result is zero or a negative number,
there shall be no yield maintenance fee. If the result is a positive number,
then the resulting percentage shall be multiplied by the amount of the
principal balance being prepaid. The resulting amount shall be divided by 360
and multiplied by the number of days remaining in the term chosen for the
LIBOR Advance as to which the prepayment is made. Said amount shall be
<PAGE> 7
reduced to present value calculated by using the number of days remaining in
the designated term using the above referenced United States Treasury security
rate and the number of days remaining in the term chosen for the LIBOR Advance
as to which the prepayment is made. The resulting amount shall be the yield
maintenance fee due to Fleet upon prepayment of the LIBOR Advance. If by
reason of an Event of Default Fleet elects to declare the Loan to be
immediately due and payable, then any yield maintenance fee with respect to
the Loan shall become due and payable in the same manner as though the
Borrower had exercised such right of prepayment.
IV. CONDITIONS OF LENDING.
Without limiting Fleet's discretion not to make the Revolving Loan,
Borrower agrees that the Loans are subject to fulfillment by Borrower of the
following conditions precedent, all in form, scope and substance satisfactory
to Fleet and its counsel in their sole discretion:
(a) Evidence of Corporate and Company Action. Fleet shall have
received certified copies of all corporate and company action taken by
Borrower to authorize the execution, delivery and performance of this
Agreement, the Note, the other Loan Documents, and the borrowings to be made
hereunder, together with copies of Borrower's Certificate of Incorporation and
Bylaws, all amendments thereto, and such other papers and documents as Fleet
or its counsel may require.
(b) Note. Fleet shall have received the duly executed Note drawn
to its order.
(c) UCC-1 Financing Statements. Fleet shall have received from
Borrower duly executed UCC-1 Financing Statements and such other documents as
Fleet deems necessary or proper to perfect its security interest in the
Collateral.
(d) Insurance. Fleet shall have received evidence of hazard and
liability insurance in such amounts and with such companies satisfactory to
Fleet, and Fleet shall be named as a loss payee on all such insurance.
(e) Opinion of Counsel. Borrower shall provide Fleet with an
opinion from counsel in form and content satisfactory to Fleet opining to,
among other things, the valid, binding and enforceable nature of the Loan
Documents and the authority of Borrower to enter into the Loan Documents.
(f) Other. Fleet shall have received such other documents as it
deems necessary.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Fleet that:
(a) Good Standing and Qualification. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
state or province, as the case may be, of its incorporation. Borrower has all
requisite corporate power and authority to own and operate its properties and
to carry on its business as presently conducted and is qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
wherein the character of the properties owned or leased by it therein or in
which the transaction of its business therein makes such qualification
necessary.
(b) Corporate Authority. Borrower has full power and authority
to enter into and perform the obligations under this Agreement and to make the
borrowings contemplated, to execute and deliver the Note and the other Loan
Documents and to incur the obligations provided for, all of which have been
duly authorized by all necessary and proper corporate action. No other consent
or approval or the taking of any other action in respect of shareholders or of
any public authority is required as a condition to the validity or
enforceability of this Agreement, the Note, or any of the other Loan
Documents. The execution and delivery of this Agreement is for valid purposes
<PAGE> 8
and will not violate its Certificate of Incorporation, By-Laws, or any other
agreement to which it is a party or by which it is bound.
(c) Binding Agreements. This Agreement constitutes, and the Note
and the other Loan Documents delivered in connection herewith shall
constitute, valid and legally binding obligations of Borrower, enforceable in
accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
(d) Litigation. Except as set forth on the attached Schedule
"5(d)", there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the officers of Borrower, threatened against Borrower
before any court or administrative agency, which either in any case or in the
aggregate, if adversely determined, would materially and adversely affect the
financial condition, assets or operations of Borrower or which question the
validity of this Agreement, the Note, or any of the other Loan Document, or
any action to be taken in connection with the transaction contemplated hereby.
(e) No Conflicting Law or Agreements. The execution, delivery,
and performance by Borrower of this Agreement, the Note, and the other Loan
Documents (i) do not violate any provision of the Certificate of Incorporation
or By-Laws of Borrower, (ii) do not violate any order, decree or judgment, or
any provision of any statute, rule or regulation, (iii) do not violate or
conflict with, result in a breach of or constitute (with notice or lapse of
time, or both) a default under any shareholder agreement, stock preference
agreement, mortgage, indenture, or contract to which Borrower is a party, or
by which any of its properties are bound, and (iv) do not result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any property or assets of Borrower except as contemplated in
this Agreement.
(f) Taxes. With respect to all taxable periods of Borrower,
Borrower has filed all tax returns required to be filed by it and has paid all
Federal, state, municipal, franchise, and other taxes shown on such filed
returns and has reserved against the same, as required by GAAP, and Borrower
knows of no unpaid assessments against it.
(g) Financial Statements. Borrower has delivered to Fleet its
company-prepared financial statements as of December 31, 1996. Such
statements fairly present the consolidated financial condition of Borrower as
of the dates and for the periods referred to therein and have been prepared in
accordance with GAAP applied on a consistent basis by Borrower throughout the
periods involved. There are no liabilities, direct or indirect, fixed or
contingent, of Borrower as of the date of the balance sheet which are not
reflected therein or in the notes thereto, other than liabilities or
obligations not material in amount which are not required to be reflected in
corporate balance sheets prepared in accordance with GAAP. There has been no
material adverse change in the financial condition, business, operations,
affairs or prospects of Borrower since the date of such financial statements.
(h) Existence of Assets and Title Thereto. Borrower has good and
marketable title to its properties and assets, including the properties and
assets reflected in the financial statements referred to above. These
properties and assets are not subject to any mortgage, pledge, lien, lease,
security interest, encumbrance, restriction or charge except those permitted
under the terms of this Agreement or as set forth in Schedule "5(h)", and none
of the foregoing prohibit or interfere with ownership of any of Borrower's
assets or the operation of its business presently conducted.
(i) Regulations G. T, U and X. The proceeds of the Loan will
not be used, directly or indirectly, for the purpose of purchasing or carrying
any margin stock in contravention of Regulations G, T, U or X promulgated by
the Board of Governors of the Federal Reserve System.
<PAGE> 9
(j) Compliance. To the best of Borrower's knowledge and
belief, Borrower is not in default with respect to or in violation of any
order, writ, injunction or decree of any court or of any Federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency, authority or official, or in violation of any law, statute,
rule or regulation to which it or its properties is or are subject, where such
default or violation would materially and adversely affect the financial
condition of Borrower. Borrower represents that it has not received notice of
any such default from any party. Borrower is not in default in the payment or
performance of any of its obligations to any third parties or in the
performance of any mortgage, indenture, lease, contract or other agreement to
which it is a party or by which any of its assets or properties are bound.
(k) Leases. Borrower enjoys quiet and undisturbed possession
under all leases under which it is operating, and all such leases are valid
and subsisting and Borrower is not in default under any of its leases.
(l) Pension Plans. To the best of Borrower's knowledge, no fact,
including but not limited to any "Reportable Event", as that term is defined
in Section 4043 of ERISA, as the same may be amended from time to time exists
in connection with any Plan of each of Borrower which might constitute grounds
for termination of any such Plan by the Pension Benefit Guaranty Corporation
or for the appointment by the appropriate United States District Court of a
Trustee to administer any such Plan. No "Prohibited Transaction" as defined by
ERISA exists or will exist upon the execution and delivery of this Agreement
or the performance by the parties hereto of their respective duties and
obligations hereunder. Borrower agrees to do all acts including, but not
limited to, making all contributions necessary to maintain compliance with
ERISA and agrees not to terminate any such Plan in a manner or do or fail to
do any act which could result in the imposition of a lien on any property of
any of Borrower pursuant to Section 4068 of ERISA. Borrower has not incurred
any withdrawal liability under the Multiemployer Pension Plan Amendment Act of
1980. Borrower has no unfunded liability in contravention of ERISA.
(m) Office. The chief executive office and principal place of
business of Borrower, and the office where its records concerning Collateral
are kept are as set forth in the first paragraph of this Agreement.
(n) Places of Business. Borrower has no other places of
business and locates no Collateral, specifically including books and records,
at any location other than those set forth in the attached Schedule "5(n)".
(o) Contingent Liabilities. Except as set forth on the attached
Schedule "5(o)", Borrower is not a party to any suretyship, guarantyship, or
other similar type agreement; and it has not offered its endorsement to any
individual, concern, corporation or other entity or acted or failed to act in
any manner which would in any way create a contingent liability that does not
appear in the financial statements referred to above.
(p) Contracts. No contract, governmental or otherwise, to which
Borrower is a party, is subject to renegotiation, nor is Borrower in default
of any material contract.
(q) Union Contracts and Pension Plans. Borrower is not a party
to any collective bargaining, union or pension plan agreement, except as set
forth on the attached Schedule "5(q)". The union contracts set forth on
Schedule "5(q)" are in full force and effect and are not currently subject to
renegotiation. Borrower is in full compliance with the terms and conditions of
all such union contracts and knows of no threatened work stoppage by any union
members.
(r) Stock Matters. There are no options or rights outstanding to
purchase any of Borrower's capital stock, except as set forth on the attached
Schedule "5(r)".
<PAGE> 10
(s) Licenses. To the best of Borrower's knowledge and belief,
Borrower has all licenses, permits, approvals and other authorizations
required by any government, agency or subdivision thereof, or from any
licensing entity necessary for the conduct of its business, all of which
Borrower represents to be current, valid and in full force and effect.
(t) Collateral. Borrower is and shall continue to be the sole
owner of the Collateral free and clear of all liens, encumbrances, security
interests and claims except the liens and the security interests granted to
Fleet hereunder. Borrower is fully authorized to sell, transfer, pledge or
grant to Fleet a security interest in each and every item of the Collateral;
all documents and agreements related to the Collateral shall be true and
correct and in all respects what they purport to be; all signatures and
endorsements that appear thereon shall be genuine and all signatories and
endorsers shall have full capacity to contract; none of the transactions
underlying or giving rise to the Collateral shall violate any applicable state
or Federal laws or regulations; all documents relating to the Collateral shall
be legally sufficient under such laws or regulations and shall be legally
enforceable in accordance with their terms; and Borrower agrees to defend the
Collateral against the claims of all persons other than Fleet.
(u) Financial Information. All financial information including,
but not limited to, information relating to the Accounts, Equipment, and
Inventory, submitted by Borrower to Fleet, whether previously or in the
future, is and will be true and correct in all material respects, and is and
will be complete insofar as may be necessary to give Fleet a true and accurate
knowledge of the subject matter.
(v) Environmental Health and Safety Laws. Borrower has not
received any notice, order, petition, or similar document in connection with
or arising out of any violation or possible violation of any environmental
health or safety law, regulation or order, and Borrower knows of no basis for
any such violation or threat thereof for which it may become liable.
(w) Parent, Affiliate or Subsidiary Corporations. Borrower has
no parent corporation and, except as set forth on the attached Schedule
"5(w)", has no domestic or foreign Affiliate or Subsidiary corporations.
VI. COVENANTS.
6.01 FINANCING REPORTING. Borrower covenants and agrees that from
the date hereof until payment in full of all Obligations and the termination
of this Agreement, Borrower shall furnish to Fleet the following, all to be
prepared on a consolidating basis and in conformity with GAAP, applied on a
basis consistent with the preceding period:
(a) within ninety (90) days after the end of each fiscal year,
Borrower shall provide audited annual financial statements of Borrower
prepared by independent certified public accountants of recognized standing
selected by Borrower and acceptable to Fleet (the form of such statements to
be satisfactory to Fleet), showing the operations and financial condition of
Borrower on a consolidated basis at the close of such year;
(b) within forty-five (45) days after the end of each quarter of
each year, quarterly financial statements prepared by the management of
Borrower (the form of such statements to be satisfactory to Fleet), showing
the operations and financial condition of Borrower at the close of such fiscal
quarters;
(c) within fifteen (15) days after the end of each month,
Borrower shall provide an accounts receivable aging;
(d) within fifteen (15) days after the end of each month
Borrower shall provide monthly Borrowing Base Certificates in the form of the
attached Exhibit "C";
(e) within sixty (60) days of the end of each quarter and within
one hundred twenty (120) days of the end of Borrower's fiscal year, a
Certificate of Compliance of Borrower in the form of the attached Exhibit "B"
and signed by the President of Borrower;
<PAGE> 11
(f) within one hundred twenty (120) days after the end of each
fiscal year, Borrower shall provide projected financial statements;
(g) as is required by the Securities and Exchange Commission,
but in any event not later than 90 days of the end of Borrower's fiscal year,
Borrower shall provide Form 8K and Form 10K.
(h) promptly upon Fleet's written request from time to time,
such other information about the financial condition and operations of
Borrower as Fleet may reasonably request.
6.02 AFFIRMATIVE COVENANTS. Borrower covenants and agrees from the
date hereof until payment in full of all obligations and termination of this
Agreement, Borrower shall:
(a) Insurance and Endorsement. Keep its properties and
business insured against fire and other hazards (so-called "All Risk"
coverage) in amounts and with companies reasonably satisfactory to Fleet
covering such risks as are herein set forth; maintain public liability
coverage, against claims for personal injuries or death; and maintain all
worker's compensation, employment or similar insurance as may be required by
applicable law. All insurance shall be in amounts reasonably satisfactory to
Fleet and shall contain such terms, be in such form, be for such periods, and
be written by carriers duly licensed by the state of Connecticut and
reasonably satisfactory to Fleet. Without limiting the generality of the
foregoing, such insurance must provide that it may not be canceled without
thirty (30) days prior written notice to Fleet. With respect to the
Collateral, Borrower shall cause Fleet to be endorsed as a loss payee. In the
event of failure to provide and maintain insurance as so provided, Fleet may,
at its option, provide such insurance and charge the amount to the Revolving
Loan. Borrower shall furnish to Fleet certificates or other satisfactory
evidence of compliance with the foregoing insurance provisions. Borrower
irrevocably appoints Fleet as its attorney-in-fact, coupled with an interest,
to make proofs of loss and claims for insurance, and to receive payments of
the insurance and execute all documents, checks and drafts in connection with
payments of the insurance.
(b) Taxes and Other Liens. Comply with all statutes and
government regulations and pay all taxes, assessments, governmental charges or
levies, or claims for labor, supplies, rent and other obligations made against
it or its property which, if unpaid, might become a lien or charge against
Borrower or its properties, except liabilities being contested in good faith
and against which, if requested by Fleet, Borrower shall set up reserves in
amounts and in form reasonably satisfactory to Fleet.
(c) Place of Business. Maintain its chief place of business and
chief executive offices at the address set forth in the beginning of this
Agreement.
(d) Inspections. After reasonable notice and during normal
business hours, allow Fleet by or through any of its officers, attorneys,
accountants, or other agents designated by Fleet, for the purpose of
ascertaining whether or not each and every provision hereof and of the other
Loan Documents, is being performed, to enter the offices and plants of
Borrower or its subsidiaries to examine or inspect any of the properties,
books and records or extracts therefrom, to make copies of such books and
records or extracts therefrom, and to discuss the affairs, finances, and
accounts with Borrower all at such times and as often as Fleet or any
representatives of Fleet may reasonably request.
(e) Litigation. Advise Fleet of the commencement or threat of
litigation, including arbitration proceedings and any proceedings before any
governmental agency, which is instituted against Borrower and is reasonably
likely to have a material adverse effect upon the condition, financial,
operating, or otherwise, of Borrower.
(f) Maintain Existence. Maintain its corporate existence and
comply with all applicable statutes, rules, and regulations.
<PAGE> 12
(g) Maintain Assets. Maintain its properties in good repair,
working order, and operating condition. Borrower shall immediately notify
Fleet of any event causing material loss in the value of its assets.
(h) ERISA. Comply in all material respects with ERISA.
(i) Notice of Certain Events. Give prompt written notice to
Fleet of:
(i) any dispute that arises between Borrower and any
governmental regulatory body or law enforcement agency;
(ii) any labor controversy resulting or likely to result in a
strike or work stoppage against Borrower;
(iii) any proposal by any public authority to acquire the assets
or business of any of Borrower;
(iv) the location of any Collateral other than at any of
Borrower's places of business disclosed in this Agreement other than (1)
Collateral in transit in the ordinary course of Borrower's business, and (2)
Collateral valued at less than $100,000.00 in the aggregate;
(v) any proposed or actual change of the name, identity, or
corporate structure of Borrower;
(vi) any other matter which has resulted or is likely to
result in a material adverse change in the financial condition or operations
of Borrower; and
(vii) any information received by Borrower with respect to
Accounts that may materially affect the value of the Accounts or the rights
and remedies of Fleet with respect to the Accounts.
(j) Defaults. Give prompt written notice to Fleet upon the
occurrence of any Default or of any event which, but for giving of notice or
passage of time or both, would constitute an Event of Default, signed by the
president or chief financial officer of Borrower describing such occurrence
and the steps, if any, being taken to cure the Default.
(k) Account Duties. Comply with any and all Federal, state, and
local laws affecting its business, including, but not limited to, payment of
all Federal, state and provincial taxes. Borrower agrees to indemnify and
hold Fleet harmless from all claims, actions and losses, including reasonable
attorneys' fees and costs actually incurred by Fleet arising from any
contention, that there has been a failure to comply with such laws.
(l) Collateral Duties. Do whatever Fleet may reasonably request
from time to time by way of obtaining, executing, delivering, and filing
financing statements, assignments, landlord's or mortgagee's waivers, and
other notices and amendments and renewals thereof, and Borrower will take such
actions as Fleet shall reasonably request in order to create and maintain a
valid and enforceable first lien upon, pledge of, and first priority security
interest in, any and all of the Collateral. If Borrower fails to timely
provide financing statements, Fleet is authorized to file financing statements
without the signature of Borrower and to execute and file such financing
statements on behalf of Borrower as specified by the Uniform Commercial Code
to perfect or maintain its security interest in all of the Collateral. All
charges, expenses and fees which Fleet incurs in filing any of the foregoing,
together with costs and expenses of any lien search required by Fleet, and any
taxes relating thereto, shall be charged to the balance of the Revolving Loan
and added to the Obligations.
(m) Audit by Bank; Fees. Permit Fleet to audit the books and
records of Borrower at such times and in such manner and detail as Fleet
deems, in its reasonable discretion, are necessary. Borrower shall promptly
pay Fleet all audit fees and any reasonable out-of-pocket expenses incurred in
connection with any such audit. Fleet may charge any such audit fees and
out-of-pocket expenses to Borrower's deposit account.
<PAGE> 13
(n) Officers and Directors. Promptly notify Fleet in writing
upon any changes or additions to any of Borrower's officers or directors or
the occurrence of a Change of Control.
6.03 NEGATIVE COVENANTS. Borrower covenants and agrees that from the
date hereof until payment in full of all Obligations and termination of this
Agreement, Borrower shall not without the prior written consent of Fleet:
(a) Encumbrances. Incur or permit to exist any lien, mortgage,
charge, or other encumbrance against any of its properties or assets, whether
now owned or hereafter acquired, including the Collateral, except: (i) liens
required or expressly permitted by this Agreement; (ii) pledges or deposits in
connection with or to secure worker's compensation, unemployment, or liability
insurance; and (iii) tax liens which are being contested in good faith and in
compliance with this Agreement.
(b) Limitation on Indebtedness. Except as set forth on the
attached Schedule "6.03(b)", create, incur or guaranty any indebtedness or
obligation, borrow money from, or issue or sell any obligations of Borrower to
any lender or Person other than Fleet, except in the ordinary course of
business.
(c) Contingent Liabilities. Assume, guaranty, endorse or
otherwise become liable upon the obligations of any person, firm or
corporation, or enter into any purchase or option agreement or other
arrangement having substantially the same effect as such a guarantee, except
by the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.
(d) Consolidation or Merger. Merge into or consolidate with or
into any corporation or entity.
(e) Loans, Advances, Investments. Use the proceeds of the Loan,
either directly or indirectly, to make or permit to exist any loans or
advances to (other than in the ordinary course of business), or purchase any
stock, other than securities or evidences of indebtedness, or make or permit
to exist any investment, including without limitation the acquisition of stock
of a corporation, or acquire any interest whatsoever in, any other person or
entity.
(f) Acquisition of Stock of Borrower. Purchase, acquire, redeem
or retire, or make any commitment to purchase, acquire, redeem or retire any
of the common stock of any Borrower, whether now or hereafter outstanding.
(g) Sale and Lease of Assets. Sell, lease or otherwise dispose
of any of its assets, except in the ordinary course of business.
(h) Name Changes. Change its corporate or company name or
conduct its business under any trade name other than as set forth in this
Agreement.
(i) Change of Control. Suffer any Change of Control of Borrower.
(j) Prohibited Transfers. Transfer, in any manner, either
directly or indirectly, any cash, property, or other assets to any parent or
any Affiliate or Subsidiary, and except for any sales made in the ordinary
course of business and for fair consideration on terms no less favorable than
if such sale had been an arms-length transaction between Borrower and an
unaffiliated entity.
(k) Use of Proceeds. Apply any of the proceeds from the Loans
to any Affiliate or Subsidiary.
(l) No Management/Ownership Change. Suffer any change in the
management or ownership of Borrower which Fleet deems, in its reasonable
discretion, to be a material adverse change.
(m) Leasebacks. Lease any real estate or other capital asset
from any lessor who shall have acquired such property from Borrower.
(n) Business Operations. Engage in any business other than the
business in which it is currently engaged or a business reasonably related
thereto.
<PAGE> 14
(o) Assignment of Claims Act. Take any action or fail to take
any action, either directly or indirectly, or cooperate in any way, so as to
allow any party, other than Fleet, to comply with the Federal Assignment of
Claims Act.
(p) Distributions. Make any distributions (the
"Distributions") of cash or other assets of Borrower other than salaries,
bonuses and other ordinary and necessary business expenses of employees of
Borrower.
(q) Dividend. Declare or pay any cash dividend on Borrower's
capital stock or make any other Distribution with respect to Borrower's
capital stock or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for value or set apart any sum for the redemption, retirement,
purchase or other acquisition of, directly or indirectly, any share of
Borrower' capital stock, unless after giving effect hereto, Borrower is in
compliance with the Financial Covenants as set forth in Section 6.04.
(r) Contingent Liabilities. Assume, guaranty, endorse or
otherwise become liable upon the obligations of any Person, except as required
by this Agreement and by the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business.
(s) Investment, Loans. Guarantees, Revolving Loans. Lend or
advance money, credit or property to any Person, or invest in (by capital
contribution, creation of subsidiaries or otherwise), or purchase or
repurchase the stock or indebtedness, or all or a substantial part of the
assets of properties, of any Person, or enter into any exchange of securities
with any Person, or guaranty, assume, endorse, or otherwise become responsible
for (directly or indirectly or by any instrument having the effect of assuring
any Person's payment or performance or capability) the indebtedness,
performance, obligations, stock, or dividends of any Person, or agree to do
any of the foregoing, or permit or suffer any Subsidiary to do so, except:
(i) endorsement of negotiable instruments for deposit or collection
in the ordinary course of business;
(ii) investments representing the indebtedness of any Person owing as
a result of the sale of goods by Borrower or Borrower' Subsidiaries in the
ordinary course of business;
(iii) the extension of credit to customers in the ordinary course of
business.
(t) Immigration. Hire any employee in violation of any law or
regulating immigration and naturalization.
6.04 FINANCIAL COVENANTS. Borrower agrees and covenants that from
the date hereof until payment in full and performance of all Obligations it
shall not, on a consolidated basis:
(a) Minimum Tangible Net Worth. Permit its Tangible Net Worth
to be less than $8,500,000.00 at any time. This covenant shall be tested
quarterly.
(b) Interest Coverage Ratio. Permit its Interest Coverage Ratio
to be less than 2.5 to 1.0 at any time. This covenant shall be tested
quarterly.
(c) No Two Consecutive Quarterly Loses: Permit its Net income,
as defined by generally accepted accounting principles, to be less than one
dollar ($1.00) for two consecutive quarters. This covenant shall be tested
quarterly.
(d) 30-Day Annual Cleanup: The Borrower shall maintain a zero
outstanding level under the Revolving Loan Note for at least 30 consecutive
days during the term of the facility.
VII. GRANT OF COLLATERAL.
To secure the prompt payment and performance of the Obligations, Borrower
pledges, assigns, transfers, and grants to Fleet a continuing, first priority
lien and security interest in the following property of Borrower (the
"Collateral"):
<PAGE> 15
(a) All domestic accounts (the "Accounts"), as that term is
defined in Section 9-106 of the Uniform Commercial Code as in effect from
time-to-time in the State of Connecticut (the "UCC"), including, without
limitation, all accounts receivable, book debts and other forms of
obligations, other than forms of obligations evidenced by Chattel Paper or
Instruments, as those terms are defined below, now owned or hereafter received
or acquired by or belonging or owing to Borrower, including, without
limitation, under any trade name, style, or division thereof, whether arising
out of goods sold or services rendered by Borrower or from any other
transaction, whether or not the same involves the sale of goods or services by
Borrower, including, without limitation, any such obligation which may be
characterized as an account or contract right under the UCC, and all of
Borrower's rights in to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, and all of Borrower's rights
to any goods represented by any of the foregoing, including, without
limitation, unpaid seller's rights of rescission, replevin, reclamation or
repossessed goods, and all monies due or to become due to Borrower under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower, whether or not yet earned by performance on the
part of Borrower or in connection with any other transaction, now in existence
or hereafter occurring, including, without limitation, the right to receive
the proceeds of such purchase orders and contracts, and all collateral
security and guaranties of any kind given by any person with respect to any of
the foregoing;
(b) All equipment (the "Equipment"), as that term is defined in
Section 9-109(2) of the UCC, now or hereafter owned or acquired by Borrower
and, in any event, shall include, without limitation, all machinery, tools,
dyes, equipment, furnishings, vehicles, and computers and other electronic
data processing and other office equipment, any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto;
(c) All inventory (the "Inventory"), as that term is defined in
Section 9-109(4) of the UCC, wherever located, now or hereafter owned or
acquired by Borrower and, in any event, shall include all inventory,
merchandise, goods and other personal property which are held by or on behalf
of Borrower for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Borrower's business,
or the processing, packaging, promotion, delivery or shipping of the same, and
all finished goods, whether or not such inventory is listed on any schedules,
assignments or reports furnished to Fleet from time-to-time and whether or not
the same is in transit or in the constructive, actual, or exclusive occupancy
or possession of Borrower or is held by Borrower or by others for Borrower's
account, including, without limitation, all goods covered by purchase orders
and contracts with suppliers and all goods billed and held by suppliers and
all inventory which may be located on premises of Borrower or of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents or other
persons;
(d) All proceeds (the "Proceeds"), as that term is defined in
Section 9-306(1) of the UCC, and in any event shall include, without
limitation, (i) any and all Accounts, Chattel Paper, Instruments, cash and
other proceeds payable to Borrower from time-to-time in respect of any of the
foregoing collateral security, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Borrower from time-to-time with
respect to any of the collateral security, (iii) any and all payments (in any
form whatsoever) made or due and payable to Borrower from time-to-time in
connection with any requisition, confiscation, condemnation, seizure, or
forfeiture of all or any part of the collateral security by any governmental
<PAGE> 16
body, authority, bureau, or agency (or any person acting under color of
governmental authority) and (iv) any and all other amounts from time-to-time
paid or payable under or in connection with any of the collateral security.
VIII. DEFAULT.
8.01 EVENTS OF DEFAULT. The Obligations shall, at the option of
Fleet, become immediately due and payable in full without notice or demand
unless otherwise provided in this Agreement upon the occurrence of any of the
following events (collectively, "Events of Default" and individually, an
"Event of Default"):
(a) failure of Borrower to pay any installment of principal or
interest or any other Obligation arising under this Agreement, the Note, or
the other Loan Documents within 10 days from the date such installment or
Obligation becomes due;
(b) breach of any of the Obligations by Borrower including,
without limitation, any covenant, representation, or warranty contained in
this Agreement, or of Borrower's failure to perform any act, duty or
obligation as required by this Agreement or any of the other Loan Documents
which breach or failure is not cured within 15 days after written notice from
Fleet to Borrower;
(c) the making by Borrower of any material misrepresentation of
a material fact to Fleet;
(d) insolvency (failure of any of Borrower to pay its debts as
they mature or when the fair value of Borrower's assets is less than its
liabilities) of Borrower, or business failure, appointment of a receiver or
custodian, or assignment for the benefit of creditors or the commencement of
any proceedings under any bankruptcy or insolvency law by or against Borrower
for the Obligations; appointment of a committee of creditors or liquidating
banks, or offering of a composition or extension to creditors by, for or of
Borrower; however, if an involuntary bankruptcy petition is filed, an Event of
Default shall occur if the petition is not dismissed within thirty (30) days
of filing;
(e) the loss, revocation or failure to renew any license or
permit now held or hereafter acquired by Borrower which materially affects the
ability of the Borrower to continue its operations as presently conducted;
(f) a default, after any applicable cure period, in any other
Loan Document or other agreements between Fleet and Borrower;
(g) the filing of any lien or security interest, voluntary or
involuntary, against the Collateral, which in the case of an involuntary lien
is not discharged of record within thirty (30) days of filing;
(h) dissolution or termination of existence of Borrower;
(i) failure by Borrower to pay or perform any other Indebtedness
in excess of $5,000 (other than trade debt), or if any such other Indebtedness
shall be accelerated, or if there shall exist any default under any
instrument, document or agreement governing, evidencing or securing such other
Indebtedness;
(j) a material adverse change in the condition, financial or
otherwise, of Borrower as determined by Fleet in its reasonable discretion;
(k) any judgment entered against the Borrower, net of insurance
coverage, that is in excess of $1,000,000.00;
(l) any judgment that is not fully satisfied within thirty (30)
days from the date of judgment.
Upon the happening of any one or more Events of Default, any requirements upon
Fleet to make further Revolving Loans shall terminate. Borrower expressly
waives any presentment, demand, protest, notice of protest or other notice of
any kind. Fleet may proceed to enforce the rights of Fleet whether by suit in
equity or by action at law, whether for specific performance of any covenant
or agreement contained in this Agreement, the Note, or any other Loan
<PAGE> 17
Documents, or in aid of the exercise of any power granted in either this
Agreement, the Note, or the other Loan Documents, or it may proceed to obtain
judgment or any other relief whatsoever appropriate to the enforcement of such
rights, or proceed to enforce any legal or equitable right which it may have
by reason of the occurrence of any Event of Default.
8.02 DECLARED DEFAULT. Upon the occurrence of an Event of Default,
Fleet shall have in any jurisdiction where enforcement is sought, in addition
to all other rights and remedies which Fleet may have under law and equity,
the following rights and remedies, all of which may be exercised with or
without further notice to Borrower and without a prior judicial or
administrative hearing or notice, which notice and hearing are expressly
waived: (a) to enforce or foreclose the liens and security interests created
under the Loan Documents, this Agreement or under any other agreement relating
to the Collateral by any available judicial procedure or without judicial
process, (b) to enter any premises where any Collateral may be located for the
purpose of taking possession or removing the same, (c) to sell, assign, lease,
or otherwise dispose of Collateral or any part thereof, either at public or
private sale, in lots or in bulk, for cash, on credit or otherwise, with or
without representations or warranties, and upon such terms as shall be
acceptable to Fleet, all at Fleet's sole option and as it in its sole
discretion may deem advisable, (d) to bid or become purchaser at any such sale
if public, free from any right of Borrower of redemption, after sale, which is
expressly waived by Borrower, and (e) at the option of Fleet, to apply or be
credited with the amount of all or any part of the Obligations owing to Fleet
against the purchase price bid by Fleet at any such sale.
8.03 SPECIFIC POWERS. (a) Fleet may at any time, after the
occurrence of an Event of Default, at its sole discretion: (i) give notice of
assignment to any Account debtor of Borrower; (ii) collect Accounts directly
and charge the collection costs and expenses to Borrower's demand deposit
account; (iii) settle or adjust disputes and claims directly with Account
debtors of Borrower for amounts and upon terms which Fleet considers advisable,
and credit the demand deposit account with the net amounts received in payment
of Accounts; (iv) exercise all other rights granted in this Agreement and the
other Loan Documents; (v) receive, open and dispose of all mail addressed to
Borrower and notify the Post Office authorities to change the address for
delivery of Borrower's mail to an address designated by Fleet; (vi) endorse
the name of Borrower on any checks or other evidence of payment that may come
into possession of Fleet and on any invoice, freight or express bill, bill of
lading or other documents; (vii) in the name of Borrower or otherwise, demand,
sue for, collect, and give acquittance for any and all monies due or to become
due on Accounts; (viii) compromise, prosecute, or defend any action, claim or
proceeding concerning Accounts; and (ix) do any and all things necessary and
proper to carry out the purposes contemplated in this Agreement, to carry out
the purposes contemplated in this Agreement, the other Loan Documents, and any
other agreement between the parties.
(b) Fleet and any person acting as its attorney hereunder shall
not be liable for any acts or omissions or for any error of judgment or
mistake of fact or law, except for bad faith and willful misconduct. Borrower
agrees that the powers granted hereunder, being coupled with an interest,
shall be irrevocable so long as any Obligation remains unsatisfied.
Notwithstanding the foregoing, it is understood that Fleet is under no duty to
take the foregoing actions and that after having made demand upon the account
debtors of Borrower for payment, Fleet shall have no further duty as to the
collection or protection of Accounts or any income therefrom and no further
duty to preserve any rights pertaining thereto, other than the safe custody
thereof.
<PAGE> 18
8.04 DUTIES AFTER DEFAULT. (a) Borrower will, at Fleet's request,
assemble all Collateral and make it available to Fleet at places which Fleet
may reasonably select and will make available to Fleet all premises and
facilities of Borrower for the purpose of Fleet taking possession of
Collateral or of removing or putting the Collateral in salable form. In the
event any goods called for in any sales order, contract, invoice, or other
instrument or agreement evidencing or purporting to give rise to any Account
shall not have been delivered or shall be claimed to be defective by any
customer, Fleet shall have the right in its discretion to use and deliver to
such customer any goods of Borrower to fulfill such order, contract or the
like so as to make good any such Account. If any Collateral shall require
repairing, maintenance, preparation, or the like, or is in process or other
unfinished state, Fleet shall have the right, but shall not be obligated, to
do such repairing, maintenance, preparation, processing, or completion of
manufacturing for the purpose of putting the same in such salable form as
Fleet shall deem appropriate, but Fleet shall have the right to sell or
dispose of such Collateral without such processing.
(b) The net cash proceeds resulting from the collection,
liquidation, sale, lease, or other disposition of Collateral shall be applied
first to the expenses, including all reasonable attorneys' and professional
fees, of retaking, holding, storing, processing, and preparing for sale,
selling, collecting, liquidating, and the like and then to the satisfaction of
all Obligations, application as to particular Obligations or against principal
or interest to be at Fleet's sole discretion and the balance of the proceeds,
if any, shall be paid to Borrower. Borrower shall be liable to Fleet and shall
pay to Fleet on demand any deficiency which may remain after such sale,
disposition, collection or liquidation of Collateral.
8.05 BORROWER'S INDEMNIFICATION. Fleet shall not, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the liquidation of any of the
Collateral, including the settlement, collection or payment of any of the
Collateral accounts or any instrument received in payment thereof, or any
damage resulting therefrom. Borrower shall indemnify and hold harmless Fleet
against and from any claim, loss or damage arising out of the liquidation of
any of the Collateral, including the settlement, collection or payment of any
of the Collateral accounts or any instrument received in payment thereof,
provided that Fleet acted in a commercially reasonable manner in its
liquidation of any of the Collateral.
8.06 CUMULATIVE REMEDIES. The enumeration of Fleet's rights and
remedies set forth in this Section is not intended to be exhaustive, and the
exercise by Fleet of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative and shall be in
addition to any other right or remedy given hereunder or under any other
agreement between the parties or which may now or hereafter exist in law or at
equity or by suit or otherwise. No delay or failure to take action on the part
of Bank in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
event of default. No course of dealing between Borrower and Fleet or their
employees shall be effective to change, modify, or discharge any provision of
this Agreement or to constitute a waiver of any default.
IX. MISCELLANEOUS.
9.01 EXPENSES. Borrower agrees to pay all expenses (including
reasonable fees and expenses of Fleet or its counsel) incidental to the
collection of monies due hereunder or under the Notes or the other Loan
Documents or the enforcement of the rights (including the protection thereof)
of Fleet under any provisions of this Agreement, and the Note and the other
Loan Documents.
<PAGE> 19
9.02 SET-OFF. Borrower gives Fleet a lien and right of set off for
all the Obligations upon and against all its deposits, credits, collateral,
and property now or hereafter in the possession or control of Fleet or in
transit to it. Fleet may, upon demand or the occurrence of any Event of
Default, apply or set off the same, or any part thereof, to any Obligations of
Borrower to Fleet.
9.03 COVENANTS TO SURVIVE. BINDING AGREEMENT. All covenants,
agreements, warranties, and representations made herein, in the Note, in the
other Loan Documents, and in all certificates or other documents of Borrower
shall survive the advances of money made by Fleet to Borrower and the delivery
of the Note, and the other Loan Documents. All such covenants, agreements,
warranties, and representations shall be binding upon Borrower and its
successors and assigns, and inure to the benefit of Fleet and its successors
and assigns, whether or not so expressed.
9.04 CROSS-COLLATERALIZATION. All Collateral which Fleet may at any
time acquire from Borrower or from any other source in connection with
Obligations arising under this Agreement and the other Loan Documents shall
constitute collateral for each and every Obligation, without apportionment or
designation as to particular Obligations. All Obligations, however and
whenever incurred, shall be secured by all Collateral however and wherever
acquired. Fleet shall have the right, in its sole discretion, to determine the
order in which its rights in or remedies against any Collateral are to be
exercised and which type of Collateral or which portions of Collateral are to
be proceeded against and the order of application of proceeds of Collateral as
against particular Obligations.
9.05 CROSS-DEFAULT. The Loan shall be cross-defaulted with current
and future financing accommodations extended or to be extended by Fleet to
Borrower so that a default under any loan to Borrower shall be an Event of
Default hereunder and under all of the other loans extended by Fleet.
9.06 AMENDMENTS AND WAIVERS. This Agreement, the Note, the other Loan
Documents, and any term, covenant, or condition hereof or thereof may not be
changed, waived, discharged, modified or terminated except by a writing
executed by the parties. The failure on the part of Fleet to exercise, or
Fleet's delay in exercising, any right, remedy or power hereunder or under the
Note or the other Loan Documents shall not preclude any other or future
exercise thereof, or the exercise of any other right, remedy or power.
9.07 NOTICES. All notices, requests, consents, demands and other
communications shall be in writing and shall be mailed by registered or
certified first class mail or delivered by an overnight courier to the
respective parties to this Agreement as follows:
If to Borrower: Cognitronics Corporation
3 Corporate Drive
Danbury, Connecticut 06810
Attention: Brian J. Kelley
with a copy to: Diserio Martin O'Connor & Castiglioni
One Atlantic Street
Stamford, Connecticut 06901
Attention: Brian T. O'Connor
If to the Bank: Fleet National Bank
One Landmark Square
Stamford, Connecticut 06901
Attention: John V. Raleigh
with a copy to: Brody and Ober, P.C.
135 Rennell Drive
Southport, Connecticut 06490
Attention: Seth L. Cooper
<PAGE> 20
9.08 TRANSFER OF INTEREST. Borrower agrees that Fleet, in its sole
discretion and upon prior written notice to Borrower, may freely sell, assign
or otherwise transfer participations, portions, co-lender interests, or other
interests in all or any portion of the indebtedness, liabilities or
obligations arising in connection with or in any way related to the financing
transactions of which this Agreement is a part. In the event of any such
transfer, the transferee may, in Fleet's sole discretion, have and enforce all
the rights, remedies and privileges of Fleet. Borrower consents to the release
by Fleet to any potential transferee of any and all information including,
without limitation, financial information pertaining to Borrower as Fleet, in
its sole discretion, may deem appropriate. If such transferee so participates
with Fleet in making loans or advances hereunder or under any other agreement
between Fleet and Borrower, Borrower grants to such transferee and such
transferee shall have and is hereby given a continuing lien and security
interest in any money, securities, or other property of Borrower in the
custody or possession of such transferee, including the right of set off, to
the extent of such transferee's participation in the Obligations.
9.09 SECTION HEADINGS, SEVERABILITY, ENTIRE AGREEMENT. Section and
subsection headings have been inserted herein for the convenience of Fleet
only and shall not be construed as part of this Agreement. Every provision of
this Agreement, the Note, and the other Loan Documents is intended to be
severable; if any term or provision of this Agreement, the Note, the other
Loan Documents, or any other document delivered in connection herewith shall
be invalid, illegal, or unenforceable for any reason whatsoever, the validity,
legality, and enforceability of the remaining provisions hereof or thereof
shall not in any way be affected or impaired thereby. All Exhibits and
Schedules to this Agreement shall be deemed to be part of this Agreement. This
Agreement, the other Loan Documents, and the Exhibits and Schedules attached
hereto and thereto embody the entire agreement and understanding between
Borrower and Fleet and supersede all prior agreements and understandings
relating to the subject matter hereof unless otherwise specifically reaffirmed
or restated herein.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered shall be an
original, and it shall not be necessary when making proof of this Agreement to
produce or account for more than one counterpart.
9.11 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement and the
other Loan Documents, and all transactions, assignments and transfers
hereunder and thereunder, and all the rights of the parties, shall be governed
as to validity, construction, enforcement and in all other respects by the
laws of the State of Connecticut. Borrower agrees that any Superior Court or
United States District Court for the District of Connecticut located in
Fairfield County shall have jurisdiction to hear and determine any claims or
disputes pertaining to the financing transactions of which this Agreement is a
part and to any matter arising or in any way related to this Agreement or any
other agreement between Fleet and Borrower. Borrower expressly submits and
consents in advance to such jurisdiction in any action or proceeding.
9.12 UNIFORM COMMERCIAL CODE. Borrower shall comply with, and Fleet
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code, as enacted in Connecticut, as amended.
9.13 FURTHER ASSURANCES. At the request of Fleet, Borrower agrees
that at its expense, it shall promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary
or desirable, or that Fleet may request, in order to perfect and protect any
security granted or purported to be granted hereby including, but not limited
to UCC-l financing statements, or to enable Fleet to exercise and enforce its
rights and remedies hereunder.
<PAGE> 21
9.14 PREJUDGMENT REMEDY WAIVER; WAIVERS. BORROWER ACKNOWLEDGES THAT
THE LOAN AND SECURITY INTERESTS EVIDENCED HEREBY ARE COMMERCIAL TRANSACTIONS
AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL
LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH FLEET MAY DESIRE TO USE, AND
FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
NONPAYMENT, PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS. BORROWER ALSO
WAIVES IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT BY FLEET THE RIGHT TO ASSERT
WITH REGARD TO THIS AGREEMENT, ANY OFFSETS OR COUNTERCLAIMS IT MIGHT HAVE.
BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND
VOLUNTARILY, AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
9.15 JURY TRIAL WAIVER. BORROWER WAIVES TRIAL BY JURY IN ANY COURT
IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR
IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A
PART OR THE ENFORCEMENT OF ANY OF FLEET'S RIGHTS. BORROWER ACKNOWLEDGES THAT
IT MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY, AND WITHOUT DURESS,
AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER
WITH ITS ATTORNEYS.
The parties have executed this Agreement on July 31, 1997.
Signed in the presence of: COGNITRONICS CORPORATION
______________________________
By_________________________________
______________________________ Brian J. Kelley
Its President, duly authorized
FLEET NATIONAL BANK
_____________________________
_____________________________ By__________________________________
John V. Raleigh
Its Vice President
STATE OF CONNECTICUT )
) ss: Stamford
COUNTY OF FAIRFIELD )
On this the 31st day of July, 1997, before me, the undersigned officer,
personally appeared Brian J. Kelley who acknowledged himself to be the
President of COGNITRONICS CORPORATION, a New York corporation, and that he, as
such officer, being authorized so to do, executed the foregoing instrument for
the purposes therein contained and acknowledged the same to be his free act
and deed individually and as such officer, and the free act and deed of the
corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
_________________________________
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss: Stamford
COUNTY OF FAIRFIELD )
On this the 31st day of July, 1997, before me, the undersigned officer,
personally appeared John V. Raleigh, who acknowledged himself to be the Vice
<PAGE> 22
President of FLEET NATIONAL BANK, a national banking association, and that he,
as such officer, being authorized so to do, executed the foregoing instrument
for the purposes therein contained and acknowledged the same to be his free
act and deed individually and as such officer, and the free act and deed of
the national banking association.
IN WITNESS WHEREOF, I hereunto set my hand.
_________________________________
Commissioner of the Superior Court
<TABLE> <S> <C>
<ARTICLE> 5
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