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 quarterly period ended March 31, 1996
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: 0-9023
COMDIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2443673
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 7266
1180 Seminole Trail; Charlottesville, Virginia 22906-7266
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(804) 978-2200
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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of latest practicable date.
8,542,191 common shares as of March 31, 1996.
COMDIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three Months ended
March 31, 1996 and April 2, 1995 4
Consolidated Statements of Cash Flows
for the Three Months ended
March 31, 1996 and April 2, 1995 5
Notes to Consolidated Financial Statements 6-12
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-21
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by Security
Holders 22
ITEM 6: Exhibits and Reports on Form 8-K 23
COMDIAL CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - (Unaudited)
March 31, December 31,
In thousands except par value
1996 1995
Assets
Current assets
Cash and cash equivalents $469 $4,144
Accounts receivable - net 10,877 8,976
Inventories 18,580 17,925
Prepaid expenses and
other current assets 1,992 2,695
Total current assets 31,918 33,740
Property - net 14,272 13,943
Deferred tax asset - net 7,425 6,694
Goodwill 18,873 210
Other assets 2,094 2,105
Total assets $74,582 $56,692
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $6,195 $7,988
Accrued payroll and related expenses 1,565 1,518
Other accrued liabilities 3,084 4,060
Current maturities of debt 7,776 1,903
Total current liabilities 18,620 15,469
Long-term debt 13,344 2,844
Deferred tax liability 2,187 2,191
Long-term employee benefit
obligations 1,980 1,894
Commitments and contingent liabilities
Total liabilities 36,131 22,398
Stockholders' equity
Common stock ($0.01 par value) and
paid-in capital (Authorized
30,000 shares; issued shares:
1996 = 8,542; 1995 = 8,132) 114,601 111,625
Other (1,018) (1,014)
Accumulated deficit (75,132) (76,317)
Total stockholders' equity 38,451 34,294
Total liabilities and stockholders'
equity $74,582 $56,692
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
financial statements.
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - (Unaudited)
Three Months Ended
March 31, April 2,
In thousands except per share amounts 1996 1995
Net sales $22,048 $22,316
Cost of goods sold 14,531 15,192
Gross profit 7,517 7,124
Operating expenses
Selling, general & administrative 5,355 4,344
Engineering, research & development 1,191 1,043
Operating income 971 1,737
Other expense (income)
Interest expense 247 273
Miscellaneous expense 253 194
Income before income taxes 471 1,270
Income tax expense (benefit) (714) 40
Net income 1,185 1,230
Dividends on preferred stock - 143
Net income applicable to common stock $1,185 $1,087
Earnings per common share and common equivalent share:
Net income per common share $0.14 $0.15
Weighted average common shares outstanding 8,191 7,020
The accompanying notes are an integral part of these financial
statements.
COMDIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Unaudited)
March 31, April 2,
In thousands 1996 1995
Cash flows from operating activities:
Cash received from customers $22,961 $21,496
Other cash received 209 236
Interest received 47 15
Cash paid to suppliers and employees (24,281) (23,088)
Interest paid on debt (153) (223)
Interest paid under capital lease
obligations (30) (50)
Net cash used by operating activities (1,247) (1,614)
Cash flows from investing activities:
Purchase of Key Voice Technologies
(""KVT"") (8,528) -
Purchase of Aurora Systems (""Aurora"") (1,901) -
Acquisition costs for KVT and Aurora (14) -
Capital expenditures (992) (585)
Net cash used by investing activities (11,435) (585)
Cash flows from financing activities:
Proceeds from borrowings 5,619 -
Net borrowings under revolver agreement 3,932 1,445
Proceeds from issuance of common stock 10 51
Principal payments on debt (414) (608)
Principal payments under capital
lease obligations (140) (163)
Preferred dividends paid - (143)
Net cash provided in financing
activities 9,007 582
Net decrease in cash and cash equivalents (3,675) (1,617)
Cash and cash equivalents at beginning of year 4,144 1,679
Cash and cash equivalents at end of period $469 $62
Reconciliation of net income to net cash provided by operating
activities:
Net Income $1,185 $1,230
Depreciation and amortization 1,026 915
Change in assets and liabilities net of
effects from purchase of KVT and Aurora:
Increase in accounts receivable (1,091) (2,244)
Inventory provision 230 451
Increase in inventory (716) (948)
Decrease (increase) in other assets 1,153 (675)
Increase in deferred taxes (736) -
Increase (decrease) in accounts payable (2,596) 652
Decrease in other liabilities (999) (1,109)
KVT asset value at acquisition 1,468 -
Aurora asset value at acquisition (241) -
Increase in paid-in capital and other
equity 70 114
Total adjustments (2,432) (2,844)
Net cash used by operating activities $(1,247) $(1,614)
The accompanying notes are an integral par1t of these
financial statements.
COMDIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 - (Unaudited)
Note A: CONSOLIDATED FINANCIAL STATEMENTS_______________________
The financial information included as of March 31, 1996 and for
the three months ended March 31, 1996 and April 2, 1995 included
herein is unaudited. The financial information reflects all
normal recurring adjustments except for Statement of Financial
Accounting Standards ("SFAS") No. 109 adjustments which are, in
the opinion of management, necessary for a fair statement of
results for such periods. Accounting policies followed by
Comdial (the "Company") are described in Note 1 to the
consolidated financial statements in its Annual Report to the
Stockholders for the year ended December 31, 1995. The
consolidated financial statements for 1996 should be read in
conjunction with the 1995 financial statements, including notes
thereto, contained in the Company's Annual Report to the
Stockholders for the year ended December 31, 1995. Certain
amounts in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation. The results of
operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full
year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES______________
Under the Company's current cash management policy, borrowings
from the revolving credit facility are used for operating
purposes. The revolving credit facility is reduced by cash
receipts that are deposited daily. Bank overdrafts of $1,625,000
and $1,594,000 are included in accounts payable at March 31, 1996
and December 31, 1995, respectively. Bank overdrafts are
outstanding checks that have not (1) cleared the bank and (2)
been funded by the revolving credit facility (see Note D). The
Company considers the outstanding checks to be a bank overdraft.
The Company is reporting the revolving credit facility activity
on a net basis on the Consolidated Statements of Cash Flows.
Note C: ACQUISITIONS____________________________________________
On March 20, 1996, the Company completed the acquisitions of two
companies involved in Computer Telephone Integration ("CTI")
applications: Aurora Systems, Inc. ("Aurora") and Key Voice
Technologies, Inc. ("KVT"). Aurora, based in Acton,
Massachusetts, is a leading provider of off-the-shelf CTI
products. Aurora provides easy-to-use and affordable CTI
solutions that enable companies to significantly increase
productivity and enhance customer service. The Fastcall family
of CTI solutions has become one of the leading CTI products.
KVT, based in Sarasota, Florida, develops, assembles, markets,
and sells voice processing systems and related products for
business application. As a result of the acquisitions, Aurora
and KVT has become wholly-owned subsidiaries of the Company. The
acquisitions have been accounted for by using the purchase method
and, accordingly, the results of operations of Aurora and KVT
have been included with those of the Company since the date of
the acquisitions.
The consideration paid for the Aurora acquisition was
approximately $3.3 million. The acquisition cost consisted of
$1.9 million in cash, and $1.4 million of the Company's Common
Stock (147,791 shares).
The consideration paid for the acquisition of KVT totaled
approximately $19.7 million which included the net book value of
certain KVT assets as of the closing date. The acquisition cost
consisted of $8.5 million in cash, $7.0 million evidenced by a
promissory note, and approximately $2.2 million in the Company's
Common Stock (243,097 shares). The remaining $2.0 million of the
consideration is contingent upon KVT's performance after the
acquisition, and may be paid at the Company's option in either
cash or the Company's Common Stock.
In accordance with the purchase method of accounting, the
purchase price has been allocated to the underlying assets and
liabilities based on their respective fair values at the date of
the acquisitions. The purchase price for both acquisitions is in
excess of net assets acquired of approximately $18.7 million.
Such excess is being amortized on a straight-line basis over
eight years. Such allocation has been based on preliminary
estimates which may be revised at a later date. The Company is
currently going through an asset valuation for both acquisitions.
In order for the Company to acquire KVT and Aurora, the Company
needed to obtain additional funds from its credit facility. The
Company and Fleet Capital Corporation ("Fleet"), formerly known
as Shawmut Capital Corporation and prior to that as Barclays
Business Credit, Inc., have amended the Loan Agreement to permit
the Company to borrow additional funds and have modified some of
the existing terms and covenants. The amendment to the Loan
Agreement has provided an increased borrowing capacity of $13.5
million under acquisition and equipment loans, and a revolving
credit facility of $12.5 million (see Note E).
Note D: INVENTORIES_____________________________________________
Inventories consisted of the following:
_________________________________________________________________
March 31, December 31,
In thousands 1996 1995
Finished goods $5,107 $3,808
Work-in-process 4,120 4,202
Materials and supplies 9,353 9,915
Total $18,580 $17,925
_________________________________________________________________
Note E: BORROWINGS______________________________________________
Since February 1, 1994, Fleet held substantially all of the
Company's indebtedness.
Long-term Debt. Long-term debt consists of the following:
_________________________________________________________________
March 31, December 31,
In thousands 1996 1995
Notes payable to Fleet
Term notes I & II $ - $4,030
Acquisition note 8,529 -
Equipment note 706 -
Revolving credit 3,932 -
Promissory Note 7,000 -
Capitalized leases 638 717
Other debt 315 -
Total debt 21,120 4,747
Less current maturities on debt 7,776 1,903
Total long-term debt $13,344 $2,844
_________________________________________________________________
On February 1, 1994, the Company and Fleet entered into a loan
and security agreement ("Loan Agreement") pursuant to which
Fleet agreed to provide the Company with a $6,000,000 term note
("Term Note I") and a $9,000,000 revolving credit loan facility.
In April 1994, the Company borrowed an additional $1,300,000
under the term note ("Term Note II"). The Fleet Term Notes I and
II carried interest rates of 1.50% over Fleet's prime rate and
were payable in equal monthly principal installments of $110,334,
with the balance due on February 1, 1998. The original Fleet
revolving credit facility carried an interest rate of 1.00% over
Fleet's prime rate. Availability under the revolving credit
facility was based on eligible accounts receivable and inventory,
less funds already borrowed. The Company's total indebtedness to
Fleet (term notes plus revolving credit facility) could not
exceed $14,000,000. Fleet's prime rate was 8.25% and 8.50% at
March 31, 1996 and December 31, 1995, respectively.
On March 13, 1996, the Company and Fleet amended the Loan
Agreement to provide the Company with a $10,000,000 acquisition
loan ("Acquisition Loan"), $3,500,000 equipment loan ("Equipment
Loan"), and $12,500,000 revolving credit loan facility
("Revolver"). The remaining balance of $2,909,666 and $706,000
on Term Notes I and II, were paid by advances from the new
Revolver and Equipment Loan, respectively.
On March 20, 1996, the Company borrowed $8,528,536 from the
Acquisition Loan which was used to purchase Aurora and KVT.
The Fleet Acquisition Loan is payable in equal monthly principal
installments of $142,142 starting on 4/1/96, with the balance due
on February 1, 2001.
The Fleet Equipment Loan is payable in equal monthly principal
installments of $27,000 starting on 4/1/96, with the balance due
on June 1, 1998.
The Fleet Acquisition Loan, Equipment Loan, and Revolver can
carry interest rates at either Fleet's prime rate or London's
Interbank Offering Rate ("LIBOR"). The interest rates can be
adjusted annually based on a debt to earnings ratio which will
vary the rates from minus 0.50% to plus 0.50% of the Fleet Prime
Rate and from plus 1.50% to 2.50% of LIBOR. As of March 31,
1996, the prime interest rate was 8.25% and LIBOR rates were
5.40% and 5.44% with approximately 80% of the loans based on
LIBOR. As of March 31, 1996, the Company's borrowing rate for
prime was 8.25%, and the LIBOR borrowing rates were 7.40% and
7.44%.
The Fleet revolving credit facility availability is still based
on eligible accounts receivable and inventory, less funds already
borrowed.
The Company's Promissory Note of $7,000,000, which was part of
the purchase price for KVT, carry's an interest rate based on
prime with yearly payments of $1,400,000 over five years starting
on March 20, 1997.
Capital leases are with various financing facilities which are
payable based on the terms of each individual lease.
Other debt consists of a mortgage acquired as part of the KVT
acquisition and has a monthly mortgage payment of $2,817 which
includes interest at 8.75%. The final payment is due on August
01, 2005.
Scheduled maturities of Fleet Acquisition and Equipment Loans
(current and long-term debt) as defined in the Loan Agreement are
as follows:
_________________________________________________________________
Principal
In thousands Fiscal Years Installments_
Loans payable 1996 $1,522 *
1997 2,030
1998 1,845
1999 1,706
2000 2,132
__* The remaining aggregate for 1996.___________________________
Debt Covenants. The Company's indebtedness to Fleet is secured
by liens on the Company's accounts receivable, inventories,
intangibles, land, and other property. Among other restrictions,
the amended Loan Agreement with Fleet also contains certain
financial covenants that relate to specified levels of
consolidated tangible net worth, profitability, debt service
coverage ratio, and current ratio. The amended Loan Agreement
also contains certain limits on additional borrowings. The
Company is currently in compliance with all the covenants and
terms as defined in the Loan Agreement.
Note F: EARNINGS PER SHARE______________________________________
For the three months ended March 31, 1996, earnings per share
were computed by dividing net income by the weighted average
number of common shares outstanding. Stock options were
antidulitive for the three months of 1996. For the three months
ended April 2, 1995, primary earnings per share were computed by
dividing income attributable to common shareholders (net income
less preferred stock dividend requirements) by the weighted
average number of common and common equivalent shares outstanding
during the period plus (in periods in which they have a dilutive
effect) the effect of common shares contingently issuable,
primarily from stock options.
Note G: INCOME TAXES____________________________________________
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method as required by SFAS No. 109, "Accounting for
Income Taxes". As permitted under the rules of the statement,
prior years' financial statements have not been restated. The
components of the income tax expense (benefit) based on the
liability method for the three months are as follows:
_________________________________________________________________
March 31, April 2,
In thousands 1996 1995
Current - Federal $ 17 $32
State 5 8
Deferred - Federal (714) -
State ( 22) _-_
Total provision ($714) $40
_________________________________________________________________
The income tax provision reconciled to the tax computed at
statutory rates for the months are summarized as follows:
_________________________________________________________________
March 31, April 2,
In thousands 1996 1995
Federal tax (benefit) at statutory
rate (35% in 1996 and 1995) $165 $444
State income taxes (net of federal
tax benefit) 3 5
Nondeductible charges 33 14
Alternative minimum tax 16 32
Utilization of operating loss carryover (195) (455)
Adjustment of valuation allowance (736) -
Income tax provision ($714) $40
_________________________________________________________________
Net deferred tax assets of $5,238,000 and $4,503,000 have been
recognized in the accompanying Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995, respectively. The
components of the net deferred tax assets are as follows:
_________________________________________________________________
March 31, December 31,
In thousands 1996 1995
Total deferred tax assets $27,322 $28,091
Total valuation allowance (19,897) (21,397)
Total deferred tax asset - net 7,425 6,694
Total deferred tax liabilities (2,187) (2,191)
Total net deferred tax asset $5,238 $4,503
_________________________________________________________________
The valuation allowance decreased $1,500,000 during the three
month period ended March 31, 1996 and this decrease was primarily
related to (1) the re-evaluation of the future utilization of
deferred tax assets of $736,000, (2) the utilization of operating
loss carryforwards of $195,000, and (3) the change in temporary
differences of deferred tax assets and liabilities of $569,000.
The Company periodically reviews the requirements for a valuation
allowance and makes adjustments to such allowance when changes in
circumstances result in changes in judgment about the future
realization of deferred tax assets. Based on a re-evaluation of
the valuation allowance as well as the impact of the acquisitions
of Aurora and KVT, the valuation allowance was reduced and a net
tax benefit of $736,000 was recognized in the quarter ended March
31, 1996. Management believes that it is more likely than not
that the Company will realize this tax benefit.
The Company has net operating loss carryforwards and tax credit
carryovers of approximately $66,257,000 and $2,830,000,
respectively, which, if not utilized, will expire at various
years up until 2007.
Based on the Company's interpretation of Section 382 of the
Internal Revenue Code, the reduction of the valuation allowance
was calculated assuming a 50% ownership change, which could limit
the utilization of the tax net operating loss and tax credit
carryforwards in future periods starting at the time of the
change. An ownership change could occur if changes in the
Company's stock ownership exceeds 50% of the value of the
Company's stock during any three year period.
COMDIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist the reader in
understanding and evaluating the financial condition and results
of operations of the Company. This review should be read in
conjunction with the financial statements and accompanying notes.
This analysis attempts to identify trends and material changes
that occurred during the periods presented. Prior years have
been reclassified to conform to the 1996 reporting basis (see
Note A to the Consolidated Financial Statements).
General Development of the Business
Comdial Corporation (The Company) is a Delaware corporation
based in Charlottesville, Virginia. The Company is engaged in
the design, development, manufacture, distribution, and sale of
advanced telecommunications products and system solutions. The
Company was originally incorporated in Oregon in 1977. In 1982,
the Company was reincorporated in Delaware, and acquired
substantially all of the assets, and assumed substantially all of
the liabilities, of General Dynamics Telephone Systems Center,
Inc., formerly known as Stromberg-Carlson Telephone Systems, Inc.
(Stromberg-Carlson), a wholly owned subsidiary of General
Dynamics Corporation. Stromberg-Carlson's facilities, located in
Charlottesville, Virginia since 1955, had engaged in the
manufacture of telephones since 1894.
The Company's Common Stock is traded over-the-counter and is
quoted on the National Association of Security Dealers Automated
Quotation System (Nasdaq) under the symbol: CMDL.
The Company designs, manufactures, and markets small to medium
sized business telecommunications systems which support up to
approximately 500 telephones. The Company believes that it is a
leading supplier to this market, with an installed base estimated
to be approximately 250,000 telephone systems and 2,500,000
telephones. The Company's products include digital and analog
telephone switches and telephones, as well as a wide range of
product enhancements to the Company's telephone systems. The
Company's recent growth has occurred principally as a result of
digital telephone systems introduced by the Company since 1992.
These digital products provide end users with the ability to
utilize evolving telecommunications technologies, including those
arising from the convergence of telephone systems and computers,
or Computer-Telephony Integration ("CTI").
In recent years, advances in telecommunications have facilitated
the development of technologically advanced telephone systems and
applications. Spurred by the significant deregulation of the
telephone industry that began in the 1970's, electronic telephone
systems began displacing the traditional electromechanical key
sets that served as the basic office telephone system since the
1930's. New telephone applications are being introduced
continuously, permitting business users to improve communications
within their organizations and with customers by using conference
calls, speaker phones, voice mail, automated attendant, and voice
processing applications, such as speech recognition.
In the 1970's, solid state electronic telephone systems began
displacing electromechanical systems. These original electronic
telephone systems were "analog," transmitting voice information
in a continuous wave form that is "analogous" to the original
voice signal. By the late 1980's, digital telephone systems were
available for commercial use. Digital systems generally offer
customers more features, provide greater voice clarity, offer
potential cost savings through the use of low-cost, high-capacity
T-1 transmission lines from telecommunication service providers,
enable improved video and data transmission, and offer superior
platforms for future features.
While some manufacturers have ceased producing analog systems
altogether, the Company offers a broad line of systems utilizing
both analog and digital technologies. The Company believes that
current industry shipments are approximately half digital, with
the digital share growing rapidly. In addition, the installed
telephone system base remains predominantly analog, thereby
providing significant opportunities for manufacturers who
continue to produce analog systems. Such systems are purchased
by end users wishing to install new analog systems, upgrade
existing systems, or add to existing systems.
A recent major industry advancement is the development of CTI.
CTI applications merge the power of modern telephone systems with
that of computers to provide integrated solutions to broad
communications problems, such as proper queuing in call
communications centers, and specific vertical market applications
(such as the real estate, law firm, and food service markets).
Because of the technological advances that have arisen with
digitization and open systems, more flexible and useful telephone
applications are being developed to solve current communications
problems.
In order to integrate computers and telecommunications equipment,
several standards have been developed. The Company was among the
first telephone manufacturing companies to commit to the Novell
standard, called Telephony Services Application Programming
Interface ("TSAPI"). The TSAPI standard provides a stable
platform for a Novell NetWare network to integrate with the
features and functionality of a telephone switch.
The Company distributes its products through a network of
approximately 7,500 independent dealers, of which approximately
1,500 have written agreements with the Company. This enables the
Company to achieve broad geographic penetration, as well as
access to some of the fastest growing markets in the country.
The Company's distribution network centers around a key group of
wholesale supply houses, through which the Company's products are
made available to dealers. These dealers market the Company's
products to small and medium sized organizations and divisions of
larger organizations. The Company's strategy enables it to
virtually eliminate bad debt exposure and minimize
administration, credit checking, and sales expense, as well as
inventory levels. Wholesale supply houses in turn are able to
sell related products such as cable, connectors, and installation
tools. Dealers have the benefits of competitive sourcing and
reduced inventory carrying costs.
The Company is pursuing three fundamental business strategies:
(1) maintaining a leadership position in its core business of
delivering advanced telecommunications systems to the U.S.
domestic market through wholesale supply house distribution
channels, (2) achieving growth through expansion into
international markets, and (3) maintaining a leadership position
in the emerging market for systems solutions based on CTI. The
Company seeks to support these strategies through the following
approaches: (1) maintaining a broad and efficient distribution
network; (2) targeting small to medium sized organizations; (3)
offering a broad range of products; (4) developing strategic
alliances; (5) pursuing international opportunities; (6)
promoting computer telephony applications; (7) promoting industry
accepted interface standards; and (8) developing open application
interface ("OAI").
The market for the Company's products is highly competitive. The
Company competes with approximately 20 companies, many of which,
such as Lucent Technologies, Inc., Nortel Inc., and Toshiba
Corp., have significantly greater resources. Key competitive
factors in the sale of telephone systems and related applications
include performance, features, reliability, service and support,
name recognition, distribution capability, place of operation,
and price. The Company believes that it competes favorably in
its market with respect to the performance, features,
reliability, distribution capability, and price of its systems,
as well as the level of service and support that the Company
provides. In marketing its telephone systems, the Company also
emphasizes quality, as evidenced by its ISO 9001 certification,
and high technology features. In addition, the Company often
competes to attract and retain dealers for its products. The
Company expects that competition will continue to be intense in
the markets it serves, and there can be no assurance that the
Company will be able to continue to compete successfully in the
marketplace or that the Company will be able to maintain its
current dealer network.
During the first quarter of 1996, the Company introduced
wideopen.office, the first universal CTI server designed for
local area networks ("LANS") as well as standalone personal
computers ("PCs"). The new server provides linkages between
desktop computers and Comdial's DXP switch users and also permits
interface with PC's on a LAN. Also in the first quarter, the
Company announced that it has signed an agreement with Danvers,
MA-based Pro CD, Inc. to market Pro CD's Select Phone for
Networks. This CD-ROM data base contains over 100 million
residential and business names, addresses, and phones numbers, is
the only such data base available for use in a network
environment. Comdial will bundle Select Phone with FastCall, a
middleware product, which enables users to integrate Select Phone
easily with existing data bases.
On March 20, 1996, the Company completed the acquisitions of two
companies involved in CTI applications: Aurora Systems, Inc.
("Aurora") and Key Voice Technologies, Inc. ("KVT"). Aurora,
based in Acton, Massachusetts, is a leading provider of off-the-
shelf CTI products. KVT, based in Sarasota, Florida, develops,
assembles, markets, and sells voice processing systems and
related products for business applications. As a result of the
acquisitions, Aurora and KVT have become wholly-owned
subsidiaries of the Company (see Note C to the Consolidated
Financial Statements).
The consideration paid for the acquisition of Aurora was
approximately $3.3 million in cash and common stock. The
consideration paid for the acquisition of KVT totaled
approximately $19.7 million in cash, common stock, and a
promissory note. The total also included the net book value of
certain KVT assets as of the closing date.
In accordance with the purchase method of accounting, the
purchase price has been allocated to the underlying assets and
liabilities based on their respective fair values at the date of
the acquisitions. The purchase price for both acquisitions is in
excess of assets acquired of approximately $18.7 million. Such
excess is being amortized on a straight-line basis over eight
years. Such allocation has been based on preliminary estimates
which may be revised at a later date and both companies assets
are currently being evaluated.
Management anticipates that these two acquisitions will have a
positive effect on revenues and profitability for the remainder
of 1996 and enhance the Company's position for future development
relating to the CTI market.
Results of Operations
Revenue and Earnings
First Quarter 1996 vs 1995
The Company's performance for the first quarter of 1996 was
slightly lower when compared with 1995. Even though the Company
continued to show growth of its DXP and CTI products, other sales
were down, such as the analog products, primarily due to the
effects from bad weather and the budget related government
slowdown. Income before income taxes for 1996 decreased by 63%
to $471,000 as compared with $1,270,000 for the comparable period
in 1995. Due to the timing of the acquisitions, Aurora and KVT
had very little impact on the first quarter sales or results.
Net sales for the first quarter of 1996 decreased 1% to
$22,048,000, compared with $22,316,000 in the first quarter of
1995. The DXP and CTI product sales increased substantially but
was offset with a drop in analog and custom manufacturing sales.
The following table presents certain relevant net sales
information concerning Comdial's principle product lines for the
periods indicated: (Reference product information by sales
category in the Company's 1995 Form 10-K).
________________________________________________________________
March 31, April 2,
In thousands 1996 1995
Sales
Business Systems
Digital $12,886 $10,732
CTI 3,713 1,598
Analog 3,493 5,756
Enhancements 386 490
Sub-total 20,478 18,576
Proprietary and Specialty Terminals 867 1,491
Custom Manufacturing 529 2,019
Other 174 230
TOTAL $22,048 $22,316
_________________________________________________________________
Gross profit increased 6% to $7,517,000, compared with $7,124,000
in the first quarter of 1995. This increase was primarily
attributable to the higher sales of digital and CTI products
which have a higher product margin.
Selling, general and administrative expenses increased 23% to
$5,355,000, compared with $4,344,000 in the first quarter of
1995. This increase was primarily due to: (1) an increase in
personnel associated with domestic and international sales,
customer support, and the development and marketing of CTI
products; and (2) the increased marketing efforts which resulted
in increased costs for travel, telephone, and trade shows.
Engineering, research and development expenses increased 14% to
$1,191,000, compared with $1,043,000 in the first quarter of
1995. This increase was primarily due to the increase in
engineering personnel to support additional product development.
Miscellaneous expenses increased 30% to $253,000, compared with
$194,000 in the first quarter of 1995. This increase was
primarily due to the increase in goodwill amortization of $64,000
which relates directly to the acquisitions of Aurora and KVT.
Income tax expense (benefit) in the first quarter of 1996
decreased to ($714,000) compared with $40,000 for the same period
of 1995, primarily due to the recognition of a tax benefit of
$736,000. The tax benefit was a result of a reduction in the
valuation allowance relating to its federal net operating loss
carryforwards ("NOLS")(see Note G to the Consolidated Financial
Statements).
Dividends on preferred stock represent quarterly dividends
payable to the holder of Series A 7 1/2% Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock").
Dividends for the first quarter of 1996 were zero, compared with
$143,000 for the same period of 1995. On August 11, 1995,
Comdial paid PacifiCorp Credit, Inc. ("PCI") all dividends
associated with the Series A Preferred Stock and redeemed their
remaining 750,000 shares. Comdial will no longer have any
dividend payments associated with the Series A Preferred Stock.
Management anticipates that the factors which have led to a
sluggish first quarter in sales and net income for the first
three months of 1996, may continue to impact the overall
performance of the second quarter. These factors should be
partially offset by the continual sales growth of digital and CTI
products for the remainder of the year. The Company plans to
continue to improve sales by: (1) the planned introduction of a
fully-featured telephone system in the second quarter; and (2)
the realignment and increased staffing of its sales, marketing,
and software development organizations.
Liquidity
The Company is indebted to Fleet which holds substantially all of
the Company's indebtedness. Prior to February 1, 1994, PCI held
substantially all of the Company's indebtedness. The Company and
Fleet entered into a loan and security agreement (the "Loan
Agreement") on February 1, 1994. Under the Loan Agreement Fleet
provided the Company with a $6,000,000 term loan (the "Term Note
I") and a revolving credit loan facility in an amount up to
$9,000,000 (the "Revolver") (see note E to Financial Statements).
The Company and Fleet amended the original agreement in April
1994, to allow the Company to borrow an additional $1,300,000
(the "Term Note II").
The Fleet Term Notes and Revolver on the original Loan Agreement
carried interest rates of 1.50% and 1.00% over Fleet's prime
rate, respectively. Fleet's prime rate was 8.25% and 8.50% at
March 31, 1996 and December 31, 1995, respectively.
On March 13, 1996, the Company and Fleet amended the Loan
Agreement to provide the Company with a $10,000,000 acquisition
loan ("Acquisition Loan"), $3,500,000 equipment loan ("Equipment
Loan"), and $12,500,000 revolving credit loan facility
("Revolver"). The remaining balance on Term Note I and II were
paid by advances from the Revolver and Equipment Loan,
respectively (see Note E to Financial Statements).
On March 20, 1996, the Company borrowed $8,528,536 from the
Acquisition Loan which was used to purchase Aurora and KVT. The
Fleet Acquisition Loan is payable in equal monthly principal
installments of $142,142 starting on 4/1/96, with the balance due
on February 1, 2001. The Fleet Equipment Loan is payable in
equal monthly principal installments of $27,000 starting on
4/1/96, with the balance due on June 1, 1998.
The Fleet Acquisition Loan, Equipment Loan, and Revolver can
carry interest rates at either Fleet's prime rate or London's
Interbank Offering Rate ("LIBOR"). The interest rates can be
adjusted annually based on a debt to earnings ratio which will
vary the rates from minus 0.50% to plus 0.50% of the Fleet prime
rate and LIBOR from plus 1.50% to 2.50%.
The Fleet revolving credit facility availability is still based
on eligible accounts receivable and inventory, less funds already
borrowed.
The Company's indebtedness to Fleet is secured by liens on the
Company's assets and also contains certain financial covenants
(see Note E to the Financial Statements). The Company is
currently in compliance with all the covenants and terms as
defined in the amended Loan Agreement.
The Company's Promissory Note of $7,000,000, which was part of
the purchase price for KVT, carries an interest rate based on
prime with yearly payments of $1,400,000 over five years starting
on March 20, 1997.
Capital leases are with various financing facilities which are
payable based on the terms of each individual lease. Other debt
consists of a mortgage that was acquired as part of the KVT
acquisition and has a monthly mortgage payment of $2,817 which
includes interest at 8.75%. The final payment is due on August
01, 2005.
The following table sets forth the Company's cash and cash
equivalents, current maturities on debt and working capital at
the dates indicated.
_________________________________________________________________
In thousands October 1, 1995 December 31 ,1995
Cash and cash equivalents $469 $4,144
Current maturities on debt 7,776 1,903
Working capital 13,298 18,271
_________________________________________________________________
All operating cash requirements are currently being funded
through the Fleet Revolver. Cash decreased primarily due to the
acquisition of Aurora and KVT. Current maturities on debt
include the Revolver balance and the current portion of the
promissory note of $3,932,000 and $1,400,000, respectively, which
were zero at December 31, 1995. Working capital decreased by
$4,973,000 due primarily to the increase in current maturities on
debt which relates directly to the acquisitions of Aurora and KVT
which occurred at the end of the first quarter of 1996.
Accounts receivable increased by 21% or $1,901,000, compared to
December 31, 1995. This increase was primarily due to the
consolidation of Aurora and KVT receivables of $810,000, and the
timing of shipments by Comdial for the first quarter.
Prepaid expenses and other current assets decreased by 26% or
$703,000, primarily due to a miscellaneous receivable which was
paid regarding custom manufacturing inventory that had been
returned to the original vendor.
Goodwill relates primary to the excess of purchase price over the
net assets acquired of approximately $18.7 million. Such
allocation has been based on preliminary estimates and be revised
at a later date.
Other accrued liabilities decreased by $976,000, primarily due to
promotional costs paid during the first quarter of 1996 which
related to 1995.
During 1996 and 1995, all of the Company's sales, net income, and
identifiable net assets were attributable to the
telecommunications industry except sales relating to custom
manufacturing.
Capital Resources
Capital expenditures in the first three months of 1996 and for
the comparable period of 1995 were $430,000 and $519,000,
respectively. Capital additions for 1996 and 1995 were provided
by funds from operations, capital leasing, and borrowings from
Fleet. The Company anticipates spending approximately $4,000,000
on capital expenditures during 1996 which includes equipment for
manufacturing and technology.
The Company plans to fund all future capital expenditure
additions through working capital from Fleet and long-term lease
arrangements. Management expects these sources to provide the
capital assets necessary for near-term future operations and
future product development.
The Company has a commitment from Crestar Bank for the issuance
of letters of credit in amounts not to exceed $500,000 at any one
time. At March 31, 1996, the amount of available commitments
under the letter of credit facility with Crestar Bank was
$368,000.
COMDIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a vote by Security Holders
(a) On April 30, 1996, the Company held its annual meeting
of shareholders in Ednam Hall at the Boar's Head Inn, Route 250
West, Charlottesville, Virginia 22905. The following matters
were voted upon:
1. The following directors were elected to serve
additional terms: Michael C. Henderson and Dianne C. Walker.
Directors whose term of office continued after the meeting: A. M.
Gleason, William G. Mustain, William E. Porter and John W.
Rosenblum.
2. The amendment to the Company's 1992 Stock
Incentive Plan to increase the numbers of shares of Common Stock
authorized for issuance under the plan of 800,000 to 1,550,000
was approved.
3. The firm of Deloitte & Touche LLP was approved as
the independent public auditors of the Company.
Shares of Common Stock were voted as follows:
Item 1: (Election of Board of Directors)
Total Vote For Total Vote Withheld
Michael C. Henderson 5,856,554 42,120
Dianne C. Walker 5,856,554 42,120
Item 2: (Amendment to the 1992 Stock Incentive Plan)
For - 2,740,698
Against - 1,714,783
Abstain - 40,411
Item 3: (Selection of Independent Auditors)
For - 5,866,584
Against - 13,038
Abstain - 19,051
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
3. Exhibits Included herein:
(10) Material Contracts:
10.1 Amendment No. 1 to the Loan And Security Agreement dated
March 13, 1996 among the Registrant and Fleet Capital
Corporation.
(11) Statement re Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant has filed a Form 8-K on March 25, 1996
pertaining to the acquisitions of Key Voice technologies, Inc.
and Aurora Systems, Inc.
__________________
Items not listed if not applicable.
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.
Comdial Corporation
(Registrant)
Date: May 14, 1996 By: /s/ Wayne R. Wilver
Wayne R. Wilver
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $ 469
<SECURITIES> 0
<RECEIVABLES> 10,877
<ALLOWANCES> 46
<INVENTORY> 18,580
<CURRENT-ASSETS> 31,918
<PP&E> 40,762
<DEPRECIATION> 26,490
<TOTAL-ASSETS> 74,582
<CURRENT-LIABILITIES> 18,620
<BONDS> 21,120
<COMMON> 86
0
0
<OTHER-SE> 38,365
<TOTAL-LIABILITY-AND-EQUITY> 74,582
<SALES> 22,048
<TOTAL-REVENUES> 22,048
<CGS> 14,531
<TOTAL-COSTS> 14,531
<OTHER-EXPENSES> 6,802
<LOSS-PROVISION> (3)
<INTEREST-EXPENSE> 247
<INCOME-PRETAX> 471
<INCOME-TAX> (714)
<INCOME-CONTINUING> 1,185
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 1,185
<EPS-PRIMARY> .14
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CONSOLIDATED AMENDMENT NO. 1
Exhibit 10.1
TO
LOAN AND SECURITY AGREEMENT
THIS CONSOLIDATED AMENDMENT NO. 1 TO LOAN AND SECURITY
AGREEMENT ("Amendment"), dated this 13th day of March, 1996, made
by and between FLEET CAPITAL CORPORATION (formerly known as
Shawmut Capital Corporation and successor by assignment from
Barclays Business Credit, Inc.), a Connecticut corporation (the
"Lender"); and COMDIAL CORPORATION ("Parent") and its wholly-
owned subsidiaries AMERICAN TELECOMMUNICATIONS CORPORATION
("ATC"), AMERICAN PHONE CENTERS, INC. ("APC"), COMDIAL ENTERPRISE
SYSTEMS, INC. ("CES"), COMDIAL TELECOMMUNICATIONS INTERNATIONAL,
INC. ("CTII"), SCOTT TECHNOLOGIES CORPORATION ("STC"), COMDIAL
CUSTOM MANUFACTURING, INC. ("CCM"), COMDIAL VIDEO TELEPHONY, INC.
("CVT"), COMDIAL TECHNOLOGY CORPORATION ("CTC"), COMDIAL
TELECOMMUNICATIONS, INC. ("CTI"), and CTI's wholly-owned
subsidiaries, COMDIAL BUSINESS COMMUNICATIONS CORPORATION
("CBCC"), and COMDIAL CONSUMER COMMUNICATIONS CORPORATION
("CCCC"; Parent, ATC, APC, CES, CTII, STC, CCM, CVT, CTC, CTI,
CBCC and CCCC being hereinafter referred to collectively as the
"Borrowers" and, individually, as a "Borrower"), each a Delaware
corporation, to the Loan and Security Agreement, dated February
1, 1994 (as amended, modified, restated or supplemented from time
to time, the "Loan Agreement"). All capitalized terms used
herein without definition shall have the meanings ascribed to
such terms in the Loan Agreement.
RECITALS
A. Pursuant to the Loan Agreement, the Lender has agreed
to make loans and extend credit to the Borrowers secured by the
Collateral and the Realty.
B. The Loan Agreement was previously amended by a certain
First Amendment thereto, dated April 29, 1994, by a certain
Second Amendment thereto, dated January 23, 1995, and by Third
Amendment thereto, dated March 31, 1995 (such previous three
amendments being herein called the "Previous Amendments").
C. The Borrowers and the Lender now desire to further
amend the Loan Agreement.
D. The Borrowers and the Lender also desire to eliminate
certain amendments to the Loan Agreement that were set forth in
the Previous Amendments by omitting the same from this Amendment
and to restate and consolidate in this Amendment all amendments
to the Loan Agreement that are effective on and as of the date
hereof.
E. To accomplish the foregoing, the Borrowers and the
Lender have agreed to amend the Loan Agreement as set forth
herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the
Borrowers and the Lender hereby agree as follows:
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
The Loan Agreement is hereby amended as follows:
1.1. Previous Amendments. The amendments to the Loan
Agreement set forth in the Previous Amendments are eliminated and
terminated.
1.2. Definitions. Section 1.1, Defined Terms, is hereby
amended by making the following changes:
(a) The following definitions are added:
Acquisition Loan Borrowing Date - the date on which all
of the conditions set forth in this Agreement are satisfied and
Lender makes an Acquisition Loan to Borrowers.
Acquisition Loan Commitment - the sum of $10,000,000.
Acquisition Loans - the aggregate of the Loans made by
Lender as provided in Section 2.1(C) of this Agreement.
Acquisition Note - each Acquisition Note to be executed
by Borrowers on or about each Acquisition Loan Borrowing Date in
favor of Lender to evidence an Acquisition Loan, which shall be
in the form of Exhibit A-1 to this Agreement.
Adjusted LIBOR Rate - with respect to each Interest
Period for a LIBOR Rate Advance, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to
the quotient of (i) the LIBOR Rate in effect for such Interest
Period divided by (ii) a percentage (expressed as a decimal)
equal to 100% minus Statutory Reserves (to the extent such
Statutory Reserves are established by Lender or Bank or their
respective bank holding company).
Advance - any principal amount advanced and remaining
outstanding at any time with respect to the Loans, which advance
shall be made or outstanding as a Base Rate Advance or a LIBOR
Rate Advance.
Applicable Margin - shall mean (i) for the period from
the date of the effectiveness of the First Consolidated Amendment
to this Agreement to the first Reset Date, with respect to any
Base Rate Advance, zero percent (0%) per annum, and in the case
of any LIBOR Rate Advance, two percent (2%) per annum, and (ii)
for the period from the first Reset Date through the next Reset
Date, the number of percentage points as determined under the
following matrix applicable to a Base Rate Advance or LIBOR Rate
Advance with respect to the Total Debt/EBITDA Ratio calculated as
of the end of the immediately preceding fiscal year:
Applicable Margin Applicable
Margin
Total Debt/EBITDA Ratio for Base Rate Advances For LIBOR Rate
Advances
Less than 2.6 to 1.0 minus one-half percent 1.50%
(.5%)
2.6 to 1.0 or greater minus one-quarter percent 1.75%
less than 2.7 to 1.0 (.25%)
2.7 to 1.7 or greater but 0%
2.00%
less than 2.9 to 1.0
2.9 to 1.0 or greater but .25%
2.25%
less than 3.0 to 1.0
3.0 to 1.0 or greater .50%
2.50%
Base Rate Advance - an Advance made or continued as a
Loan or portion of a Loan bearing interest based on the Base Rate
as provided in Section 3.1 of this Agreement.
Board of Governors - the Board of Governors of the
Federal Reserve System of the United States.
Borrowers - all of the Borrowers defined in the
preamble to this Agreement and each New Borrower and Borrower
shall refer to one of them.
Commitments - at any date, Lender's Revolving Credit
Loan Commitment, Equipment Loan Commitment and Acquisition Loan
Commitment.
Dollar - and the sign $ shall refer to the currency of
the United States of America.
EBITDA - with respect to any fiscal period, the sum of
(i) Consolidated Adjusted Net Earnings From Operations for such
fiscal period, plus (ii) interest, income taxes, depreciation and
amortization expenses of Parent and its Subsidiaries for such
fiscal period which were subtracted from earnings in calculating
Consolidated Adjusted Net Earnings From Operations for such
fiscal period.
Eligible Equipment - new or used Equipment which (i)
has been purchased by a Borrower, (ii) has been delivered to and
accepted by such Borrower, and (iii) is subject to Lender's duly
perfected first priority Lien and no other Lien that is not a
Permitted Lien.
Equipment Loan Commitment - the sum of $3,500,000.
Equipment Loans - the aggregate of the Loans made by
Lender as provided in Section 2.1(B) of this Agreement.
Equipment Note - each Equipment Note to be executed by
Borrowers on or about each Equipment Loan Borrowing Date in favor
of Lender to evidence an Equipment Loan, which shall be in the
form of Exhibit A-2 to this Agreement.
Equipment Purchase Price - the invoice price, exclusive
of any applicable sales tax, inspection, installation,
transportation or freight costs, of Eligible Equipment purchased
by a Borrower after the effectiveness of the First Consolidated
Amendment to this Agreement for which Lender, upon Borrowers'
request, provides an Equipment Loan in accordance with this
Agreement.
Equipment Loan Borrowing Date - the date on which all
of the conditions set forth in this Agreement are satisfied and
Lender makes an Equipment Loan to Borrowers.
Eurocurrency Liabilities - shall have the meaning
ascribed thereto in Regulation D.
Expiration Date - the date on which this Agreement is
terminated by Lender or Borrower pursuant to 3.6 hereof.
First Consolidated Amendment - the Consolidated
Amendment No. 1 to this Agreement dated March 13, 1996.
First Equipment Loan - the equipment loan to be made by
Lender to Borrowers upon the effectiveness of the First
Consolidated Amendment to this Agreement to be used to pay and
satisfy in full Borrowers' $1,300,000 Term Note II, dated April
29, 1994, as amended by First Modification thereto, dated March
31, 1995, previously issued by Borrowers to Lender pursuant to
this Agreement.
First Equipment Note - the Equipment Note to be
executed by Borrowers upon the effectiveness of the First
Consolidated Amendment to this Agreement evidencing the First
Equipment Loan.
Interest Period - as defined in Section 3.1(C) of this
Agreement.
Letter of Credit - any letter of credit issued by
Lender or any of Lender's Affiliates for the account of a
Borrower.
Letter of Credit Amount - at any time, the aggregate
undrawn face amount of all Letters of Credit and Letter of Credit
Guaranties then outstanding.
Letter of Credit Guaranty - any guaranty issued by
Lender pursuant to which Lender shall guarantee the payment or
performance by a Borrower of its reimbursement obligations under
a Letter of Credit.
Letter of Credit Obligations - that portion of the
Obligations constituting Borrowers' joint and several obligation
to reimburse Lender for all amounts paid by Lender under or with
respect to a Letter of Credit or Letter of Credit Guaranty.
LIBOR Rate - the rate at which Dollar deposits
approximately equal in principal amount to the LIBOR Rate Advance
for which the LIBOR Rate is being determined and for a maturity
comparable to the Interest Period for which such LIBOR Rate will
apply are offered to Bank in immediately available funds in the
London Interbank Market at approximately 11:00 a.m., London time,
two (2) Business Days prior to the commencement of such Interest
Period.
LIBOR Rate Advance - an Advance made or continued as a
Loan or a portion of a Loan bearing interest based on the
Adjusted LIBOR Rate as provided in Section 3.1 of this Agreement.
New Borrower - a Subsidiary of Parent or any of its
Subsidiaries which, after the effectiveness of the First
Consolidated Amendment to this Agreement, is acquired or formed
as part of a Permitted Acquisition and shall become a party to
this Agreement and the other Loan Documents, and be permitted to
borrow hereunder, by the execution and delivery of a New Borrower
Assumption Agreement.
New Borrower Assumption Agreement - an Assumption
Agreement substantially in the form of Exhibit U to this
Agreement to be executed upon the consummation of a Permitted
Acquisition by all of the then Borrowers and the New Borrower
that is acquired or formed as a part of such Permitted
Acquisition.
New Borrower Pledge Agreement - a Pledge Agreement
substantially in the form of Exhibit V to this Agreement to be
executed upon the consummation of a Permitted Acquisition by the
Borrower that is the owner of all of the issued and outstanding
Voting Stock of the New Borrower that is acquired or formed as a
part of such Permitted Acquisition.
Notes - each Equipment Note and each Acquisition Note
or all or any of them as the context may require.
Notice of Borrowing - as defined in Section 3.2(A) of
this Agreement.
Notice of Conversion/Continuation - as defined in
Section 3.2(C) of this Agreement.
Overadvance Condition - at any date, a condition such
that the principal amount of the Revolving Credit Loans
outstanding to Borrowers on such date exceeds the Borrowing Base
at such date.
Permitted Acquisition - an acquisition by a Borrower of
substantially all of the Property or the Voting Stock of a Person
for which each of the conditions precedent set forth in Section
10.5 hereof are satisfied, regardless of whether an Acquisition
Loan is made by Lender in connection with such acquisition.
Reset Date - the first day of the month following
Lender's receipt of the audited financial statements of Parent
and its Subsidiaries for a fiscal year, commencing with the
fiscal year ending December 31, 1996, as required to be delivered
to Lender pursuant to Section 9.1(J) of this Agreement.
Revolving Credit Loan Commitment - the sum of
$12,500,000.
Statutory Reserves - on any date, the percentage
(expressed as a decimal) established by the Board of Governors
which is the then stated maximum rate for all reserves
(including, but not limited to, any emergency, supplemental or
other marginal reserve requirements) applicable to any member
bank of the Federal Reserve System in respect to Eurocurrency
Liabilities (or any successor category of liabilities under
Regulation D). Such reserve percentage shall include, without
limitation, those imposed pursuant to Regulation D. The
Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in such percentage. The
Statutory Reserves on the effective date to the First
Consolidated Amendment to this Agreement are zero (0).
Total Debt/EBITDA Ratio - with respect to any fiscal
period, the ratio of (i) Indebtedness of Parent and its
Subsidiaries at the end of such period calculated on a
Consolidated Basis, to (ii) EBITDA for such fiscal period.
(b) The definition of "Consolidated Adjusted Tangible
Net Worth" is amended in its entirety to read as follows:
"Consolidated Adjusted Tangible Net Worth - at any
date, a sum equal to:
(i) the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other
proper reserves) at which the Consolidated Adjusted Tangible
Assets of a Person would be shown on a balance sheet at such date
in accordance with GAAP,
MINUS
(ii) the amount at which such Person's liabilities
(other than capital stock and surplus) would be shown on such
balance sheet in accordance with GAAP, and including as
liabilities all reserves for contingencies and other potential
liabilities that would be accrued under GAAP.
PLUS
(iii) the amount of Subordinated Debt shown on
such balance sheet in accordance with GAAP at such date."
(c) The definition of "Bank" is amended in its
entirety to read as follows:
"Bank - Fleet Bank Connecticut, N.A., a national
banking association."
(d) The definition of "Borrowing Base" is amended in
its entirety to read as follows:
"Borrowing Base - at any date of the determination
thereof, an amount equal to the lesser of: (i) the Revolving
Credit Loan Commitment less the aggregate amount of Letter of
Credit Obligations outstanding at such date; or (ii) the sum of:
(a) eighty-five percent (85%) of the net amount of
Eligible Accounts outstanding at such date,
PLUS
(b) the lesser of (A) $8,500,000 or (B) the sum of
forty percent (40%) of the value of Eligible Inventory at such
date, calculated on the basis of lower of cost or market with
cost calculated on a first-in, first-out basis,
MINUS
(c) the amount of any fees, costs or other
charges due to Lender under any of the Loan Documents which
Lender has paid and which have not become a Revolving Credit
Loan.
For purposes hereof, the net amount of Eligible
Accounts at any time shall be the face amount of any such
Eligible Accounts less any and all returns, rebates, discounts
(which may, at Lender's option, be calculated on shortest terms),
credits, allowances, or excise taxes of any nature at any time
issued, owing, claimed by Account Debtors, granted, outstanding
or payable in connection with such Accounts at such time;
provided, however, for the purposes of making the foregoing
calculations, (i) with respect to the Major Account Debtor Volume
Discount, only such portion thereof as shall be earned and not
paid by Borrowers shall be deducted from the face amount of
Eligible Accounts owing by the Major Account Debtors and (ii) the
Major Account Debtor Prompt Pay Discount shall not be deducted
from the face amount of Eligible Accounts owing by the Major
Account Debtors."
(e) The definition of "Default Rate" is amended in its
entirety to read as follows:
"Default Rate - as defined in Section 3.1(E) of this
Agreement."
(f) The definition of "Eligible Inventory" is amended
by deleting clauses (i), (ii) and (iii) thereof in their entirety
and by substituting in lieu thereof the following:
"(i) consists of raw materials, work-in-process
(specifically including up to $1,000,000 of that subcategory of
work-in-process Inventory denominated on the records of Borrowers
as "defective products") and finished goods, (ii) is in good, new
and salable condition, (iii) has not been on hand for more than
twenty-four (24) months,"
(g) The definition of "Loans" is amended in its
entirety to read as follows:
"Loans - the Revolving Credit Loans, the Equipment
Loans and the Acquisition Loans, and Loan shall refer to one of
them."
(h) The definition of "Revolving Credit Loan" is
amended in its entirety to read as follows:
"Revolving Credit Loans - the aggregate of the Loans
made by Lender as provided in Section 2.1(A) of this Agreement."
(i) The following definitions are deleted in their
entirety:
Average Monthly Loan Balance
Environmental Reserve
Loan Year
Minimum Loan Balance
Note
Revolving Credit Facility
Revolving Loan Default Rate
Revolving Loan Rate
Term Loan
Term Loan Default Rate
Term Loan Rate
1.3. Credit Facility. Section 2, Credit Facility, is
amended in its entirety to read as follows:
"SECTION 2. CREDIT FACILITY
Subject to the terms and conditions of, and in
reliance upon the representations and warranties made in, this
Agreement and the other Loan Documents, Lender agrees to extend
the Commitments to Borrowers as follows:
2.1. Loans.
(A) Revolving Credit Loans. Lender agrees, for
so long as no Default or Event of Default exists which has not
been waived in writing by Lender, and subject to the provisions
of Section 10 below, to make Revolving Credit Loans to Borrowers
from time to time, as requested by Borrowers in the manner set
forth in Section 3.2 hereof, up to a maximum principal amount at
any time outstanding equal to the Borrowing Base at such time.
Each Revolving Credit Loan shall, at the option of Borrowers, be
made or continued as, or converted into, a Base Rate Advance or a
LIBOR Rate Advance, upon the terms set forth herein.
(B) Equipment Loans. Lender agrees, for so long
as no Default or Event of Default exists which has not been
waived by Lender in writing by Lender, and subject to the
provisions of Section 10 below, to make Equipment Loans to
Borrowers, as requested by Borrowers in the manner set forth in
Section 3.2 hereof, so long as the aggregate amount of all
Equipment Loans outstanding and the requested Equipment Loan does
not exceed the Equipment Loan Commitment. Each Equipment Loan
shall be evidenced by an Equipment Note, with blanks suitably
filled and dated the date of the Equipment Loan Borrowing Date.
Each Equipment Loan shall, at the option of Borrowers, be made or
continued as, or converted into, a Base Rate Advance or a LIBOR
Rate Advance, upon the terms set forth herein.
(C) Acquisition Loans. Lender agrees, for so
long as no Default or Event of Default exists which has not been
waived in writing by Lender, and subject to the provisions of
Section 10 below, to make Acquisition Loans to Borrowers, as
requested by Borrowers in the manner set forth in Section 3.2
hereof, so long as the aggregate amount of all Acquisition Loans
outstanding and the requested Acquisition Loan does not exceed
the Acquisition Loan Commitment. Each Acquisition Loan shall be
evidenced by an Acquisition Note, with blanks suitably filled and
dated the date of the Acquisition Loan Borrowing Date. Each
Acquisition Loan shall, at the option of Borrowers, be made or
continued as, or converted into, a Base Rate Advance or a LIBOR
Rate Advance, upon the terms set forth herein.
2.2. Letters of Credit; Letter of Credit Guaranties.
(A) Issuance of Letters of Credit and Letter of
Credit Guaranties. Lender agrees, for so long as no Default or
Event of Default exists and subject to the provisions of Section
10 below, to issue its, or cause to be issued its Affiliate's,
Letters of Credit and Letter of Credit Guaranties, as requested
by Borrowers, provided that the Letter of Credit Amount at any
time shall not exceed the sum of $500,000 and no Letter of Credit
or Letter of Credit Guaranty may have an expiration date that is
after the last day of the Original Term or the then applicable
Renewal Term.
(B) Reimbursement Obligations. All indebtedness,
liabilities or obligations whatsoever arising or incurred in
connection with any Letters of Credit or Letter of Credit
Guaranties shall be incurred solely as an accommodation to
Borrowers and for Borrowers' account. Each Borrower hereby
unconditionally, jointly and severally agrees to reimburse Lender
for the total amount of all sums paid by Lender on a Borrower's
behalf under the terms of any Letter of Credit or Letter of
Credit Guaranty, any drawing or demand under any Letter of Credit
or Letter of Credit Guaranty or any additional or further
liability which may accrue against Lender in connection with the
same, immediately upon the date of payment by Lender. Any such
sum paid by Lender in connection with any Letter of Credit or
Letter of Credit Guaranty shall, if not reimbursed by Borrowers
on the date paid by Lender, be treated for all purposes and shall
have the same force and effect as if such amount had been loaned
by Lender to Borrowers as a Revolving Credit Loan, shall be
secured by all of the Collateral and shall bear interest and be
payable at the same rate and in the same manner as Revolving
Credit Loans.
(C) Rights and Remedies. In the event that,
coincident with or subsequent to the occurrence of a Default or
an Event of Default, Lender becomes aware of the possibility of a
draw, or enforcement of Lender's obligations, under a Letter of
Credit or Letter of Credit Guaranty, Lender, at its option, may,
but shall not be required to, pay Borrowers' obligations to the
beneficiary or holder of such Letter of Credit or Letter of
Credit Guaranty directly to such beneficiary or holder, and, in
such event, the amount of any such payment made by Lender shall
be treated for all purposes and shall have the same force and
effect as if such amount had been loaned by Lender to Borrowers
as a Revolving Credit Loan, shall be secured by all of the
Collateral and shall bear interest and be payable at the same
rate and in the same manner as Revolving Credit Loans.
Additionally, in the event of Borrowers' failure to reimburse
Lender for the total amount of all sums paid by Lender on
Borrowers' behalf under the terms of any Letter of Credit or
Letter of Credit Guaranty, any drawing or demand under any Letter
of Credit or Letter of Credit Guaranty or any additional or
further liability which may accrue against Lender in connection
therewith, Lender, in addition to its rights under the Code and
under this Agreement, shall be fully subrogated to the rights and
remedies of the issuer of the Letter of Credit under any
agreement made with a Borrower relating to the issuance of such
Letter of Credit, each such agreement being incorporated herein
by reference, and Lender shall be entitled to exercise all such
rights and remedies thereunder and under law in such regard as
fully as if it were the issuer of the Letter of Credit. If any
Letter of Credit is drawn upon to discharge any obligation of a
Borrower to the beneficiary of such Letter of Credit, in whole or
in part, Lender shall be fully subrogated to the rights of such
beneficiary with respect to the obligations of such Borrower to
such beneficiary discharged with the proceeds of such Letter of
Credit.
(D) Indemnification. Each Borrower hereby
unconditionally, jointly and severally agrees to indemnify Lender
and hold Lender harmless from any and all losses, claims or
liabilities arising from any transactions or occurrences relating
to Letters of Credit or Letter of Credit Guaranties issued,
established, opened or accepted for a Borrower's account, and any
drafts or acceptances thereunder, and all Letter of Credit
Obligations incurred in connection therewith.
(E) Termination. In the event that this
Agreement is terminated for any reason by either party as herein
provided, in addition to Lender's other rights under this
Agreement, unless all outstanding Letters of Credit and Letter of
Credit Guaranties are terminated or cancelled and Lender and its
Affiliates released from all liability thereunder, Lender shall
be entitled to pay and discharge all Letter of Credit Obligations
with respect to all outstanding Letters of Credit and Letter of
Credit Guaranties which are not terminated or cancelled, whether
such Letter of Credit Obligations are obsolete or contingent, and
all sums paid by Lender in connection therewith shall be deemed
to have been loaned by Lender to Borrowers as a Revolving Credit
Loan, shall be secured by all of the Collateral and shall bear
interest and be payable at the same rate and in the same manner
as Revolving Credit Loans.
2.3. Use of Proceeds of Loans. Borrowers shall use the
proceeds of the Loans as follows:
(A) Upon the effectiveness of the First
Consolidated Amendment to this Agreement, proceeds of a Revolving
Credit Loan shall be used solely for the purposes of paying and
satisfying in full Borrowers' $6,000,000 Term Note, dated
February 1, 1994, as amended by First Modification thereto dated
March 31, 1995, previously issued by Borrowers to Lender under
this Agreement. All Revolving Credit Loans made thereafter shall
be used solely for Borrowers' general working capital needs in a
manner consistent with the provisions of this Agreement and
applicable law and for any other purposes not inconsistent with
the provisions of this Agreement;
(B) The proceeds of the First Equipment Loan made
to Borrowers shall be used to pay and satisfy in full Borrowers'
$1,300,000 Term Note II, dated April 29, 1994, as amended by
First Modification thereto, dated March 31, 1995, previously
issued by Borrowers to Lender under this Agreement, and the
proceeds of each subsequent Equipment Loan made to Borrowers
shall be used exclusively to finance up to one hundred percent
(100%) of the Equipment Purchase Price paid by a Borrower for
Eligible Equipment.
(C) The proceeds of each Acquisition Loan made to
Borrowers shall be used exclusively to pay the cash portion of
the purchase price for Property acquired in a Permitted
Acquisition.
2.4. Loan Account. Lender shall enter all Loans as
debits to the Loan Account and shall also record in the Loan
Account all payments made by Borrowers on Loans and all proceeds
of Collateral which are finally paid to Lender, and may record
therein, in accordance with customary accounting practice, all
charges and expenses properly chargeable to Borrowers hereunder.
2.5. Joint and Several Liabilities; All Loans to
Constitute One Obligation. All Loans shall constitute one joint
and several obligation of each Borrower, and shall be secured by
Lender's Lien upon all of the Collateral, and by all other
security interests and Liens heretofore, now or at any time or
times hereafter granted by any Borrower to Lender as security for
the Obligations. Notwithstanding anything to the contrary
contained herein, each Borrower shall be jointly and severally
liable to Lender for all Obligations hereunder, regardless of
whether such Obligations arise as a result of Loans or credit
extensions to such Borrower, it being stipulated and agreed that
Loans and credit extensions hereunder to any Borrower inure to
the benefit of all Borrowers and that Lender is relying on the
joint and several liability of Borrowers in making Loans and
extending credit hereunder.
2.6. Cross-Guaranty; Waiver of Suretyship Defenses.
(A) Each Borrower guarantees to Lender the
payment in full of all of the Obligations of each other Borrower
to Lender and further guarantees the due performance by each
other Borrower of its respective duties and covenants made in
favor of Lender hereunder and under the other Loan Documents.
Each Borrower agrees that neither this cross-corporate guaranty
nor the joint and several liability of Borrowers provided in
Section 2.5 hereof nor Lender's Lien in any of the Collateral
shall be impaired or affected by any modification, supplement,
extension or amendment of any contract or agreement to which the
other parties hereto may hereafter agree (other than an agreement
signed by Lender specifically modifying or releasing such
liability), nor by any modification, release or other alteration
of any of the rights of Lender with respect to any of the
Collateral, nor by any delay, extension of time, renewal,
compromise or other indulgence granted by Lender to another
Borrower with respect to any of the Obligations (other than an
agreement signed by Lender specifically releasing such
Collateral), nor by any other agreements or arrangements whatever
with any other Borrower, each Borrower hereby waiving all notice
of any such delay, extension, release, substitution, renewal,
compromise or other indulgence, and hereby consenting to be bound
thereby as fully and effectively as if it had expressly agreed
thereto in advance. The liability of each Borrower hereunder is
direct and unconditional as to all of the Obligations, and may be
enforced without requiring Lender first to resort to any other
right, remedy or security.
(B) No Borrower shall have any right of
subrogation, reimbursement or indemnity whatsoever, nor any right
of recourse to security for any of the Obligations, and nothing
shall discharge or satisfy the liability of any Borrower
hereunder, until the termination of this Agreement and the full
payment and performance of all of the Obligations. Any and all
present and future debts and obligations of any Borrower to any
other Borrower are hereby waived and postponed in favor of and
subordinated to the full payment and performance of all present
and future Obligations of Borrowers to Lender.
(C) Notwithstanding the provisions of Section
2.6(B) above, for so long as no Default or Event of Default shall
exist, each Borrower may pay to any other Borrower Accounts or
Indebtedness validly owed to such other Borrower which arise in
the ordinary course of such Borrower's business."
1.4. Section 3, Interest, Fees, Term and Repayment, is
amended in its entirety to read as follows:
"SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1. Interest.
(A) Rate of Interest - Loans. Subject to the
provisions of Section 3.1(E) of this Agreement, Borrowers agree
to pay interest on the unpaid amount of the Loans outstanding
from the respective dates such principal amounts are advanced
until paid at a variable rate per annum equal to the applicable
rate indicated below:
(i) For each Base Rate Advance, the Base
Rate in effect from time to time plus the Applicable Margin; or
(ii) For each LIBOR Rate Advance, the
relevant Adjusted LIBOR Rate for the then applicable Interest
Period selected by Borrowers in conformity with this Agreement
plus the Applicable Margin.
(B) Computation of Interest.
(i) Interest shall be calculated on a daily
basis (computed on the actual number of days elapsed over a year
of 360 days) on the principal balance of the Loans outstanding at
any time or from time to time. The calculation of interest on
the basis of a 360-day year, as opposed to a year of 365 days,
results in a higher effective rate of interest hereunder. Upon
determining the Adjusted LIBOR Rate for any Interest Period
requested by Borrowers, Lender shall promptly notify Borrowers
thereof by telephone or in writing. Such determination shall,
absent manifest error, be final, conclusive and binding on all
parties and for all purposes. The applicable rates of interest
with respect to all Base Rate Advances shall be increased or
decreased, as the case may be, by an amount equal to any increase
or decrease in the Base Rate, with such adjustments to be
effective as of the opening of business on the day that any such
change in the Base Rate becomes effective.
(ii) Interest on each Loan shall accrue from
and including the date of such Loan to but excluding the date of
any repayment thereof; provided, however, that if a Loan is
repaid on the same day made, one day's interest shall be paid on
such Loan. Accrued interest on all Loans shall be paid upon the
earliest of (1) the first day of each month (for the immediately
preceding month), computed through the last calendar day of the
preceding month, (2) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and
payment of the Obligations, or (3) the Expiration Date.
(C) Interest Periods. In connection with the
making or continuation of, or conversion into, a LIBOR Rate
Advance, Borrowers shall select an interest period (each an
"Interest Period") to be applicable to such LIBOR Rate Advance,
which interest period shall commence on the date such LIBOR Rate
Advance is made and shall end on a numerically corresponding day
in the 1st, 2nd, 3rd or 6th month thereafter; provided, however,
that:
(i) The initial Interest Period for a LIBOR
Rate Advance shall commence on the date of such borrowing
(including the date of any conversion from a Base Rate Advance);
(ii) If any Interest Period would
otherwise expire on a day which is not a Business Day, such
Interest Period shall expire on the next succeeding Business Day,
provided that if any Interest Period in respect of LIBOR Rate
Advances (other than a LIBOR Rate Advance referred to in Section
3.2(C) hereof) would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day;
(iii) Any Interest Period which begins on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall expire on
the last Business Day of such calendar month; and
(iv) No Interest Period shall extend
beyond the Expiration Date.
(D) Interest Rate Not Ascertainable. If Lender shall
determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) that on any date
for determining the Adjusted LIBOR Rate for any Interest Period,
by reason of any changes affecting the London interbank market or
Lender's or Bank's position in such market, adequate and fair
means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Adjusted LIBOR
Rate, then, and in any such event, Lender shall forthwith give
notice (by telephone confirmed in writing) to Borrowers of such
determination. Until the circumstances giving rise to the
suspension described herein no longer exist, the obligation of
Lender to make LIBOR Rate Advances shall be suspended, and such
affected Loans then outstanding shall, at the end of the then
applicable Interest Period or at such earlier time as may be
required by Applicable Law, bear the same interest as Base Rate
Advances.
(E) Default Rate of Interest. Upon the occurrence and
during the continuance of an Event of Default, the principal
amount of all Loans shall bear interest at a rate per annum equal
to two percent (2%) above the interest rate otherwise applicable
thereto (the "Default Rate").
(F) Maximum Interest. Regardless of any provision
contained in this Agreement or any of the other Loan Documents,
in no contingency or event whatsoever shall the aggregate of all
amounts that are contracted for, charged or collected pursuant to
the terms of this Agreement or any of the other Loan Documents
and that are deemed interest under applicable law exceed the
highest rate permissible under any applicable law. No
agreements, conditions, provisions or stipulations contained in
this Agreement or any of the other Loan Documents, or the
exercise by Lender of the right to accelerate the payment or the
maturity of all or any portion of the Obligations, or the
exercise of any option whatsoever contained in any of the Loan
Documents, or the prepayment by Borrowers of any of the
Obligations, or the occurrence of any contingency whatsoever,
shall entitle Lender to charge or receive in any event, interest
or any charges, amounts, premiums or fees deemed interest by
applicable law (such interest, charges, amounts, premiums and
fees referred to herein collectively as "Interest") in excess of
the Maximum Rate and in no event shall Borrowers be obligated to
pay Interest exceeding such Maximum Rate, and all agreements,
conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel
Borrowers to pay Interest exceeding the Maximum Rate shall be
without binding force or effect, at law or in equity, to the
extent only of the excess of Interest over such Maximum Rate. If
any Interest is charged or received in excess of the Maximum Rate
("Excess"), each Borrower acknowledges and stipulates that any
such charge or receipt shall be the result of an accident and
bona fide error, and such Excess, to the extent received, shall
be applied first to reduce the principal Obligations and the
balance, if any, returned to Borrowers, it being the intent of
the parties hereto not to enter into a usurious or otherwise
illegal relationship. The right to accelerate the maturity of
any of the Obligations does not include the right to accelerate
any interest that has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned
interest in the event of any such acceleration. Borrowers
recognize that, with fluctuations in the rates of interest set
forth in Section 3.1 of this Agreement, and in the Maximum Rate,
such an unintentional result could inadvertently occur. All
monies paid to Lender hereunder or under any of the other Loan
Documents, whether at maturity or by prepayment, shall be subject
to rebate of unearned interest as and to the extent required by
applicable law. By the execution of this Agreement, Borrowers
covenant that (i) the credit or return of any Excess shall
constitute the acceptance by Borrowers of such Excess, and (ii)
Borrowers shall not seek or pursue any other remedy, legal or
equitable, against Lender, based in whole or in part upon
contracting for, charging or receiving any Interest in excess of
the Maximum Rate. For the purpose of determining whether or not
any Excess has been contracted for, charged or received by
Lender, all interest at any time contracted for, charged or
received from Borrowers in connection with any of the Loan
Documents shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread in equal parts
throughout the full term of the Obligations. Borrowers and
Lender shall, to the maximum extent permitted under applicable
law, (i) characterize any non-principal payment as an expense,
fee or premium rather than as Interest and (ii) exclude voluntary
prepayments and the effects thereof. The provisions of this
Section shall be deemed to be incorporated into every Loan
Document (whether or not any provision of this Section is
referred to therein). All such Loan Documents and communications
relating to any Interest owed by Borrowers and all figures set
forth therein shall, for the sole purpose of computing the extent
of Obligations, be automatically recomputed by Borrowers, and by
any court considering the same, to give effect to the adjustments
or credits required by this subsection.
(G) Illegality. Notwithstanding anything to the
contrary contained elsewhere in this Agreement, if (i) any change
in any law or regulation or in the interpretation thereof by any
governmental authority charged with the administration thereof
shall make it unlawful for Lender to make or maintain a LIBOR
Rate Advance or to give effect to its obligations as contemplated
hereby with respect to a LIBOR Rate Advance or (ii) at any time
Lender determines that the making or continuance of any LIBOR
Rate Advance has become impracticable as a result of a
contingency occurring after the date hereof which adversely
effects the London interbank market or the position of Lender or
Bank in such market, then, by written notice to Borrowers, Lender
may (1) declare that LIBOR Rate Advances will not thereafter be
made by Lender, whereupon any request by Borrowers for a LIBOR
Rate Advance shall be deemed a request for a Base Rate Advance
unless Lender's declaration shall be subsequently withdrawn; and
(2) require that all outstanding LIBOR Rate Advances made by
Lender be converted to Base Rate Advances, in which event all
such LIBOR Rate Advances shall be automatically converted to Base
Rate Advances as of the date of Borrowers' receipt of the
aforesaid notice from Lender.
(H) Increased Costs. If, by reason of (i) after the
date hereof, the introduction of or any change (including,
without limitation, any change by way of imposition or increase
of Statutory Reserves or other reserve requirements) in or in the
interpretation of any law or regulation, or (ii) the compliance
with any guideline or request from any central bank or other
governmental authority or quasi-governmental authority exercising
control over banks or financial institutions generally (whether
or not having the force of law):
(1) Lender shall be subject to any tax,
duty or other charge with respect to any LIBOR Rate Advance or
its obligation to make LIBOR Rate Advances, or shall change the
basis of taxation of payment to Lender of the principal of or
interest on its LIBOR Rate Advances or its obligation to make
LIBOR Rate Advances (except for changes in the rate of tax on the
overall net income of Lender imposed by any taxing authority in
the United States); or
(2) any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposits or similar requirement against
assets of, deposits with or for the account of, or credit
extended by, Lender shall be imposed or deemed applicable or any
other condition affecting the LIBOR Rate Advances or the
obligation of Lender to make LIBOR Rate Advances shall be imposed
on Lender or the London interbank market;
and as a result thereof there shall be any increase in the
cost to Lender of agreeing to make or making, funding or
maintaining LIBOR Rate Advances (except to the extent already
included in the determination of the applicable Adjusted LIBOR
Rate for LIBOR Rate Advances), or there shall be a reduction in
the amount received or receivable by Lender, then Borrowers shall
from time to time, upon written notice from and demand by Lender,
pay to Lender, within five (5) Business Days after the date
specified in such notice and demand, an additional amount
sufficient to indemnify Lender against such increased cost. A
certificate as to the amount of such increased cost, submitted to
Borrowers by Lender, shall, except for manifest error, be final,
conclusive and binding for all purposes.
If Lender shall advise Borrowers at any time that,
because of the circumstances described in this Section 3.1(H) or
any other circumstances affecting Lender or the London interbank
market or Lender's or Bank's position in such market, the
Adjusted LIBOR Rate, as determined by Lender, will not adequately
and fairly reflect the cost to Lender of funding LIBOR Rate
Advances, then, and in any such event:
(1) Lender shall forthwith give notice (by
telephone confirmed in writing) to Borrowers of such advice;
(2) Borrowers' right to request and Lender's
obligation to make LIBOR Rate Advances shall be immediately
suspended and Borrowers' right to continue a LIBOR Rate Advance
as such beyond the then applicable Interest Period shall also be
suspended; and
(3) Lender shall make an Advance as part of
the requested borrowing of LIBOR Rate Advances as a Base Rate
Advance, which Base Rate Advance shall, for all purposes, be
considered part of such borrowing.
For purposes of this Section 3.1(H), all references to
Lender shall be deemed to include any bank holding company or
bank parent of Lender.
(I) Capital Adequacy. If after the date hereof
Lender determines that (a) the adoption of any applicable law,
rule or regulation regarding capital requirements for banks or
bank holding companies or the subsidiaries thereof, (b) any
change in the interpretation or administration of any such law,
rule or regulation by any governmental authority, central bank,
or comparable agency charged with the interpretation or
administration thereof, or (c) compliance by Lender or its
holding company with any request or directive of any such
governmental authority, central bank or comparable agency
regarding capital adequacy (whether or not having the force of
law), has the effect of reducing the return on Lender's capital
to a level below that which Lender could have achieved (taking
into consideration Lender's and its holding company's policies
with respect to capital adequacy immediately before such
adoption, change or compliance and assuming that Lender's capital
was fully utilized prior to such adoption, change or compliance)
but for such adoption, change or compliance as a consequence of
Lender's commitment to make the Loans pursuant hereto by any
amount deemed by Lender, in its reasonable determination, to be
material:
(i) Lender shall promptly, after
Lender's determination of such occurrence, give notice thereof to
Borrowers; and
(ii) Borrowers shall pay to Lender, as
an additional fee from time to time, on demand, such amount as
Lender certifies to be the amount that will compensate Lender for
such reduction.
A certificate of Lender claiming entitlement to
compensation as set forth above will be conclusive in the absence
of manifest error. Such certificate will set forth the nature of
the occurrence giving rise to such compensation, the additional
amount or amounts to be paid to Lender, and the method by which
such amounts were determined. In determining such amount, Lender
may use any reasonable averaging and attribution method. For
purposes of this Section 3.1(I), all references to Lender shall
be deemed to include any bank holding company or bank parent of
Lender.
(J) Funding Losses. Borrowers shall compensate
Lender, upon Lender's written request (which request shall set
forth the basis for requesting such amounts and which request
shall, absent manifest error, be final, conclusive and binding
upon all of the parties hereto), for all losses, expenses and
liabilities (including, without limitation, any interest paid by
Lender to lenders of funds borrowed by Lender to make or carry
its LIBOR Rate Advances to the extent not recovered by Lender in
connection with the re-employment of such funds), which Lender
may sustain: (i) if for any reason (other than by reason of any
acts or failure to act by Lender) a borrowing of, or conversion
to or continuation of, LIBOR Rate Advances does not occur on the
date specified therefor in a Notice of Borrowing or Notice of
Conversion/ Continuation (whether or not withdrawn), (ii) if any
repayment (including any conversions pursuant to Section 3.2(C)
hereof) of any LIBOR Rate Advances occurs on a date that is not
the last day of an Interest Period applicable thereto, or (iii)
if, for any reason, Borrowers default in their obligation to
repay LIBOR Rate Advances when required by the terms of this
Agreement. For purposes of this Section 3.1(J), all references
to Lender shall be deemed to include any bank holding company or
bank parent of Lender.
3.2. Manner of Borrowing Loans and Disbursements.
Borrowings of LIBOR Rate Advances and Base Rate Advances shall be
made and funded as follows:
(A) Whenever Borrowers desire to borrow
pursuant to this Agreement (other than a borrowing resulting from
a conversion or continuation pursuant to Section 3.2(C) below),
Borrowers shall give Lender prior written notice (or telephonic
notice promptly confirmed in writing) of such borrowing request
(a "Notice of Borrowing"). Such Notice of Borrowing shall be
given by Borrowers no later than 12:00 noon Charlotte, North
Carolina time at the office of Lender designated by Lender from
time to time (i) on the Business Day of the requested date of
such borrowing in the case of all Base Rate Advances, and (ii) at
least three (3) Business Days prior to the requested date of such
borrowing in the case of LIBOR Rate Advances. Notices received
after 12:00 noon shall be deemed received on the next Business
Day. Each Notice of Borrowing shall be irrevocable and shall
specify (i) the principal amount of the borrowing (which, in the
case of (x) a LIBOR Rate Advance shall be at least $2,000,000 (or
$500,000 increments thereof), (y) an Acquisition Loan shall be at
least $500,000, and (z) an Equipment Loan shall be at least
$50,000, (ii) the date of borrowing (which shall be a Business
Day), (iii) whether the borrowing is to consist of Base Rate
Advances or LIBOR Rate Advances and the amount of each such
Advance, and (iv) in the case of LIBOR Rate Advances, the
duration of the Interest Period to be applicable thereto.
Borrower may not request any LIBOR Rate Advances if a Default or
Event of Default has occurred and is continuing.
(B) Unless payment is otherwise timely made by
Borrowers, the becoming due of any amount required to be paid
under this Agreement or any of the other Loan Documents as
principal, accrued interest, fees or other charges shall be
deemed irrevocably to be a request by Borrowers for a Revolving
Credit Loan on the due date of, and in an aggregate amount
required to pay, such principal, accrued interest, fees or other
charges, and the proceeds of each such Revolving Credit Loan may
be disbursed by Lender by way of direct payment of the relevant
Obligation and shall bear interest as a Base Rate Advance.
(C) Whenever Borrowers desire to convert all or a
portion of an outstanding Base Rate Advance or LIBOR Rate Advance
into one or more Advances of another type, or to continue
outstanding a LIBOR Rate Advance for a new Interest Period,
Borrowers shall give Lender written notice (or telephonic notice
promptly confirmed in writing) at least one (1) Business Day
before the conversion into a Base Rate Advance and at least thee
(3) Business days before the conversion into or continuation of a
LIBOR Rate Advance. Such notice (a "Notice of
Conversion/Continuation") shall be given prior to 12:00 noon,
Charlotte, North Carolina time on the date specified. Each such
Notice of Conversion/Continuation shall be irrevocable and shall
specify the aggregate principal amount of the Advance to be
converted or continued, the date of such conversion or
continuation, whether the Advance is being converted into or
continued as a LIBOR Rate Advance (and, if so, the duration of
the Interest Period to be applicable thereto) or a Base Rate
Advance. If, upon the expiration of any Interest Period in
respect of any LIBOR Rate Advance, Borrowers shall have failed,
or pursuant to the following sentence be unable, to deliver the
Notice of Conversion/Continuation, Borrowers shall be deemed to
have elected to convert such LIBOR Rate Advance to a Base Rate
Advance. So long as any Default or Event of Default shall have
occurred and be continuing, no Advance may be converted into or
continued as (upon expiration of the current Interest Period) a
LIBOR Rate Advance. No conversion of any LIBOR Rate Advance
shall be permitted except on the last day of the Interest Period
in respect thereof.
(D) As an accommodation to Borrowers, Lender
may permit telephonic requests for borrowings and electronic
transmittal of instructions, authorizations, agreements or
reports to Lender by Borrowers. Unless Borrowers specifically
direct Lender in writing not to accept or act upon telephonic or
electronic communications from Borrowers, Lender shall have no
liability to Borrowers for any loss or damage suffered by
Borrowers as a result of Lender's honoring of any requests,
execution of any instructions, authorizations or agreements or
reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by
Borrowers and Lender shall have no duty to verify the origin of
any such communication or the authority of the person sending it.
(E) In no event shall the number of LIBOR Rate
Advances outstanding to Borrowers at any time exceed six (6).
(F) Borrowers hereby irrevocably authorize Lender
to disburse the proceeds of each Revolving Credit Loan requested
by Borrower, or deemed to be requested, pursuant to Section 3.2
as follows: (i) the proceeds of each Revolving Credit Loan
requested under subsection 3.2(A) shall be disbursed by Lender in
lawful money of the United States of America in immediately
available funds, by wire transfer to such bank account as may be
agreed upon by Borrowers and Lender from time to time or
elsewhere if pursuant to a written direction from Borrowers; and
(ii) the proceeds of each Revolving Credit Loan requested under
Section 3.2(B) shall be disbursed by Lender by way of direct
payment of the relevant interest or other Obligation.
3.3. Payments. Except where evidenced by notes or
other instruments issued or made by Borrowers to Lender
specifically containing payment provisions which are in conflict
with this Section 3.3 (in which event the conflicting provisions
of said notes or other instruments shall govern and control), the
Obligations shall be payable as follows:
(A) Repayment of Revolving Credit Loans.
Borrowers' obligation to pay the principal of, and interest on,
the Revolving Credit Loans shall be evidenced by the records of
Lender and all outstanding principal amounts and accrued interest
with respect to the Revolving Credit Loans shall be due and
payable as follows:
(i) Any portion of the Revolving Credit
Loans consisting of the principal amount of Base Rate Advances
shall be paid by Borrowers to Lender immediately upon the
earliest of (1) subject to the provisions of Section 5.4(B)
hereof, the receipt by Lender or Borrowers of any proceeds of any
of the Accounts or the Inventory, to the extent of such proceeds,
(2) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of such
Revolving Credit Loans, or (3) the Expiration Date. Interest
accrued on the principal amount of Base Rate Advances outstanding
from time to time shall be calculated and paid as provided in
Section 3.1 hereof.
(ii) Any portion of the Revolving Credit
Loans consisting of the principal amount of LIBOR Rate Advances
outstanding shall be paid by Borrowers to Lender, unless
converted to a Base Rate Advance or continued as a LIBOR Rate
Advance in accordance with the terms of this Agreement, upon the
earliest of (1) the last day of the Interest Period applicable
thereto, (2) the occurrence of an Event of Default in consequence
of which Lender elects to accelerate the maturity and payment of
the Revolving Credit Loans, or (3) the Expiration Date. In no
event shall Borrowers be authorized to pay any LIBOR Rate Advance
prior to the last day of the Interest Period applicable thereto
unless (1) otherwise agreed in writing by Lender, or (2)
Borrowers are otherwise expressly authorized or required by any
other provision of this Agreement to pay any LIBOR Rate Advance
outstanding on a date other than the last day of the Interest
Period applicable thereto. Interest accrued on the principal
amount of each LIBOR Rate Advance shall be calculated and paid as
provided in Section 3.1 hereof.
(iii) Notwithstanding anything to the
contrary contained elsewhere in this Agreement, if an Overadvance
Condition shall exist, Borrowers shall, without the necessity of
a demand, repay the outstanding Revolving Credit Loans bearing
interest as Base Rate Advances in an amount sufficient to reduce
the aggregate unpaid principal amount of all such Revolving
Credit Loans by an amount equal to such excess; and, if such
payment of Base Rate Advances is not sufficient to cure the
Overadvance Condition, then Borrowers, at their option, shall
immediately either (1) deposit with Lender, for application to
any outstanding Revolving Credit Loans bearing interest as LIBOR
Rate Advances as the same become due and payable at the end of
the applicable Interest Periods, cash in an amount sufficient to
cure such Overadvance Condition and any such cash shall be held
by Lender, pending disbursement of same to Lender, in such
interest bearing account or accounts as Lender may select, or (2)
pay the Revolving Credit Loans that bear interest as LIBOR Rate
Advances to the extent necessary to cure such Overadvance
Condition and also pay to Lender any and all amounts required by
Section 3.1(J) hereof to be paid by reason of the prepayment of a
LIBOR Rate Advance prior to the last day of the Interest Period
applicable thereto.
(B) Repayment of Equipment Loans. Borrowers'
obligation to pay the principal of, and interest on, each
Equipment Loan shall be evidenced by an Equipment Note dated as
of the Equipment Loan Borrowing Date for such Equipment Loan,
except for the First Equipment Note which shall be dated as of
the date of the First Consolidated Amendment to this Agreement.
Each Equipment Loan shall be payable in consecutive monthly
installments of principal, commencing on the first day of the
month following the making of such Equipment Loan, each in the
amount of 1/60th of the amount of such Equipment Loan with a
final maturity on the last day of the Original Term, except that
the First Equipment Loan shall be payable in consecutive monthly
installments of principal, commencing on the first day of the
month following the date of the First Consolidated Amendment to
this Agreement, each in the amount of $27,000 until such First
Equipment Loan is paid in full. Interest on each Equipment Loan
shall be payable at the rate specified in Section 3.1 hereof on
the first day of each month, commencing on the first day of the
month following the making of such Equipment Loan.
(C) Repayment of Acquisition Loans. Borrowers'
obligation to pay the principal of, and interest on, each
Acquisition Loan shall be evidenced by an Acquisition Note dated
as of the Acquisition Loan Borrowing Date for such Acquisition
Loan. Each Acquisition Loan shall be payable in consecutive
monthly installments of principal, commencing on the first day of
the month following the making of such Acquisition Loan, each in
the amount of 1/60th of the amount of such Acquisition Loan with
a final maturity on the last day of the Original Term. Interest
on each Acquisition Loan shall be payable at the rate specified
in Section 3.1 hereof on the first day of each month, commencing
on the first day of the month following the making of such
Acquisition Loan.
3.3.4 Costs, Fees and Charges. Costs, fees
and charges payable pursuant to this Agreement shall be payable
by Borrowers as and when provided in this Agreement to Lender or
to any other Person designated by Lender in writing.
3.3.5 Other Obligations. The balance of the
Obligations requiring the payment of money, if any, shall be
payable by Borrowers to Lender as and when provided in this
Agreement and the other Loan Documents.
3.4 Fees.
(A) Unused Line Fee. During the Original Term
and each Renewal Term of this Agreement, Borrowers shall pay
Lender an unused line fee equal to the per annum rate of one-
quarter of one percent (0.25%) multiplied by the difference
between $9,000,000 and the average daily principal amount of the
Revolving Credit Loans outstanding. Such unused line fee shall
begin to accrue on the Closing Date, shall be calculated on the
basis of a 360-day year for the actual number of days elapsed and
shall be payable monthly in arrears on the first day of each
month during the Original Term and each Renewal Term, or, if this
Agreement is earlier terminated, any shorter period for which
this Agreement shall be effective.
(B) Letter of Credit Fees. As additional
consideration for Lender's causing to be issued its Affiliate's
Letters of Credit for a Borrower's account or for issuing its
Letter of Credit Guaranties at a Borrower's request pursuant to
Section 2.2 hereof, Borrowers agree to pay for each Letter of
Credit and Letter of Credit Guaranty the then prevailing fees and
commissions of Bank and Lender for the issuance thereof. All
such fees shall be deemed fully earned upon the issuance of each
Letter of Credit or a Letter of Credit Guaranty, shall be due and
payable in advance upon the issuance of each Letter of Credit or
Letter of Credit Guaranty and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason.
3.5 Term of Agreement. Subject to Lender's right to
cease making Loans to Borrowers at any time upon the occurrence
and during the continuance of a Default or an Event of Default,
this Agreement shall be in effect until February 1, 2001
("Original Term"), and this Agreement shall automatically renew
itself for one (1) year periods thereafter ("Renewal Terms"),
unless terminated as provided in Section 3.6 hereof.
3.6 Termination.
(A) Upon at least one hundred twenty (120) days
prior written notice to Lender, Borrowers may, at their option,
terminate this Agreement; provided, however, no such termination
shall be effective until Borrowers have paid all of the
Obligations in immediately available funds and all Letters of
Credit and Letter of Credit Guaranties have expired or have been
cash collateralized to Lender's satisfaction. Any notice of
termination given by Borrowers shall be irrevocable unless Lender
otherwise agrees in writing, and Lender shall have no obligation
to make any Loans or issue any Letters of Credit or Letter of
Credit Guaranties on or after the termination date stated in such
notice. Borrowers may elect to terminate this Agreement in its
entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly.
(B) Lender may terminate this Agreement at the
end of the Original Term or any Renewal Term upon ninety (90)
days prior written notice to Borrowers, or at any time without
demand, notice or legal process of any kind, upon the occurrence
of an Event of Default.
(C) All of the Obligations, including, without
limitation, the Loans, shall be forthwith due and payable upon
any termination of this Agreement. No termination (regardless of
cause or procedure) of this Agreement or any of the other Loan
Documents shall in any way affect or impair the rights, powers or
privileges of Lender or the obligations, duties or liabilities of
Borrowers in any way relating to (i) any transaction or event
occurring prior to the effective date of such termination or (ii)
any of the undertakings, agreements, covenants, warranties or
representations of Borrowers contained in this Agreement or any
of the other Loan Documents. All such undertakings,
agreements, covenants, warranties and representations of
Borrowers shall survive such termination and Lender shall retain
its Liens in the Collateral and all of its rights and remedies
under this Agreement and the other Loan Documents notwithstanding
such termination until all of the Obligations have been paid in
full, in immediately available funds.
3.7 Application of Payments and Collections.
Borrowers irrevocably waive the right to direct the application
of any and all payments and collections at any time or times
hereafter received by Lender from or on behalf of any Borrower,
and Borrowers do hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all
such payments and collections received at any time or times
hereafter by Lender or its agent against the Obligations, in such
manner as Lender may deem advisable, notwithstanding any entry by
Lender upon any of its books and records. If as the result of
collections of Accounts as authorized by Section 5.4 hereof a
credit balance exists in the Loan Account, such credit balance
shall not accrue interest in favor of Borrowers, but shall be
available to Borrowers at any time or times for so long as no
Default or Event of Default exists and has not been waived in
writing by Lender.
3.8. Statements of Account. Lender will account to
Borrowers monthly with a statement of Loans, charges and payments
made pursuant to this Agreement, and such account rendered by
Lender shall be deemed final, binding and conclusive upon
Borrowers unless Lender is notified by Borrowers in writing to
the contrary within sixty (60) days after the date each
account is mailed to Borrowers. Such notice shall only be
deemed an objection to those items specifically objected to
therein.
3.9. Prepayments on Loans.
(A) Mandatory Prepayments. In the event any
Borrower, with the prior written consent of Lender or as
otherwise authorized by the terms of this Agreement, sells any of
its Property other than its Inventory, such Borrower shall pay to
Lender a sum equal to the net proceeds received by Borrower from
such sale, except as otherwise set forth in Section 7.4 hereof.
All such proceeds received by any Borrower from the sale of
Equipment or the Realty shall, in the case of a sale of Equipment
be applied first, to the Equipment Loans, second, to the
Acquisition Loans, and third, to such other Obligations as
Lender, in its sole discretion, may determine, and, in the case
of proceeds from the sale of the Realty, first, to the
Acquisition Loans, second, to the Equipment Loans, and third, to
such other Obligations as Lender, in its sole discretion, may
determine. All such proceeds received by any Borrower from the
sale of any other Property shall be applied to such Obligations
as Lender, in its sole discretion, may determine.
(B) Voluntary Prepayments. Subject to the
provisions of Section 3.1(J), Borrowers shall have the right
during the Original Term of this Agreement to prepay in whole at
any time or in part from time to time the outstanding principal
balances of the Equipment Loans and the Acquisition Loans.
(C) Application of Prepayments. All prepayments,
whether mandatory or voluntary, which are applied to the
Equipment Loans or the Acquisition Loans shall be applied against
the last maturing installments of principal as provided under the
terms of the Notes evidencing such Loans."
1.5 Collection of Accounts. Section 5.4 is amended by
adding the following sentence at the end thereof:
"If as a result of payments received in the Dominion
Account for application on account of the Obligations, a credit
balances exists in the Loan Account, such credit balance shall
not accrue interest in favor of Borrowers, but shall be available
to Borrowers at any time or times for so long as no Default of
Event of Default exists and has not been waived in writing by
Lender."
1.6 Mergers; Consolidations; Acquisitions. Section 9.2(A)
is amended in its entirety to read as follows:
"(A) Mergers, Consolidations, Acquisitions. Merge or
consolidate, or permit any Subsidiary to merge or consolidate,
with any Person, except a consolidation or merger involving one
Borrower with another Borrower; nor acquire all or any
substantial part of the Property of any Person other than a
Borrower; provided, however, that the foregoing restrictions
shall not apply to a Permitted Acquisition."
1.7 Subordinated Debt. Section 9.2(I) is amended to
provide that the restrictions set forth therein shall not
prohibit Parent from issuing its capital stock on behalf of any
Borrower or any Subsidiary as a prepayment repurchase, redemption
or retirement of Subordinated Debt prior to maturity.
1.8 Subsidiaries. Section 9.2(K) is amended in its
entirety to read as follows:
"(K) Subsidiaries. Hereafter create any Subsidiary
without Lender's prior written consent, which consent Lender
shall not unreasonably withhold; or divest itself of any material
assets by transferring them to any Subsidiary other than to a
Borrower; provided, however, the foregoing restriction shall not
apply to the creation of a Subsidiary in connection with the
consummation of a Permitted Acquisition, provided that upon the
closing of such Permitted Acquisition, such Subsidiary becomes a
Borrower hereunder and each of the other conditions precedent set
forth in Section 10.4 below are satisfied regardless of whether
Lender makes an Acquisition Loan in connection with such
Permitted Acquisition."
1.9 Business Locations. Section 9.2(M) is amended by
deleting in line 5 thereof the phrase "as set forth on Exhibit B
hereto" and by substituting in lieu thereof the phrase "as set
forth on Exhibit B hereto as amended from time to time by each
New Borrower Assumption Agreement".
1.10 Capital Expenditures. Section 9.2(L) is amended in its
entirety to read as follows:
"(L) Capital Expenditures. Make Capital Expenditures
(including, without limitation, by way of capitalized leases)
which, in the aggregate, as to all Borrowers and their
Subsidiaries, exceed $4,000,000 during any fiscal year."
1.11 Stock of Subsidiary, Etc. Section 9.2(V) is amended in
its entirety to read as follows:
"(V) Stock of Subsidiary, Etc. Sell or otherwise
dispose of any shares of capital stock of any Subsidiary, except
in connection with the transaction permitted under Sections
9.2(A) and 9.2(O), or permit any Subsidiary to issue any
additional shares of its capital stock except if issued to Parent
or another Borrower and, if the shares of capital stock of such
Subsidiary had been originally pledged to Lender under a New
Borrower Pledge Agreement as required by Section 10.5(A)(x)
hereof as part of the Permitted Acquisition involving such
Subsidiary, delivered to Lender pursuant to such New Borrower
Pledge Agreement with duly executed blank stock powers to be held
as additional security for the Obligations."
1.12 Leases. Section 9.2(W) is amended in its entirety to
read as follows:
"(W) Leases. Become a lessee under any operating lease
(other than the lease under which such Borrower is lessor) of
Property if the aggregate Rentals payable during any current or
future period of twelve (12) consecutive months under the lease
in question and all other operating leases under which Borrowers
are lessees would exceed $2,250,000. The term "Rentals" means,
as of the date of determination, all payments the lessee is
required to make by the terms of any lease."
1.13 Minimum Consolidated Adjusted Tangible Net Worth.
Section 9.3(A) is amended in its entirety to read as follows:
"(A) Minimum Consolidated Adjusted Tangible Net Worth.
Maintain a Consolidated Adjusted Tangible Net Worth of not less
than the amount shown below at all times during the period
corresponding thereto:
Consolidated Adjusted
Period Tangible Net Worth
First fiscal quarter of fiscal year $21,500,000
ending December 31, 1996
Second fiscal quarter of fiscal year $22,700,000
ending December 31, 1996
Third fiscal quarter of fiscal year $24,200,000
ending December 31, 1996
Fourth fiscal quarter of fiscal year $24,700,000
ending December 31, 1996
First fiscal quarter of fiscal year $24,950,000
ending December 31, 1997
Second fiscal quarter of fiscal year $26,500,000
ending December 31, 1997
Third fiscal quarter of fiscal year $28,300,000
ending December 31, 1997
Fourth fiscal quarter of fiscal year $28,750,000
ending December 31, 1997
First fiscal quarter of fiscal year $29,000,000
ending December 31, 1998
Consolidated Adjusted
Period Tangible Net Worth
Second fiscal quarter of fiscal year $30,500,000
ending December 31, 1998
Third fiscal quarter of fiscal year $32,350,000
ending December 31, 1998
Fourth fiscal quarter of fiscal year $32,750,000
ending December 31, 1998 and at all
times thereafter"
1.14 Profitability. Section 9.3(B) is amended in its
entirety to read as follows:
"(B) Profitability. Achieve a Consolidated Adjusted
Earnings From Operations of not less than the amount shown below
for the period corresponding thereto:
Consolidated Adjusted
Period Earnings From Operations
First fiscal quarter of fiscal year ($1,000,000)
ending December 31, 1996
First and second fiscal quarters of $1,275,000
fiscal year ending December 31, 1996
First, second and third fiscal quarters $3,425,000
of fiscal year ending December 31, 1996
Fiscal year ending December 31, 1996 $4,025,000
First fiscal quarter of fiscal year ending $ 350,000
December 31, 1997 and first quarter of
each fiscal year thereafter
First and second fiscal quarters of fiscal $2,250,000
year ending December 31, 1997 and the
first and second fiscal quarters of each
fiscal year thereafter
Consolidated Adjusted
Period Earnings From Operations
First, second and third fiscal quarters of $4,500,000
fiscal year ending December 31, 1997 and
the first, second and third fiscal quarters
of each fiscal year thereafter
Fiscal year ending December 31, 1997 and $5,000,000
each fiscal year thereafter
1.15 Consolidated Debt Service Coverage Ratio. Section
9.2(C) is amended in its entirety to read as follows:
"(C) Consolidated Debt Service Coverage Ratio.
Maintain a Consolidated Debt Service Coverage Ratio of not less
than the ratio shown below for the period corresponding thereto:
Consolidated Debt
Period Service Coverage Ratio
First fiscal quarter of fiscal year ending .75 to 1.0
December 31, 1997 and first fiscal
quarter of each fiscal year thereafter
First and second fiscal quarters of fiscal 1.25 to
1.0
year ending December 31, 1996 and the
first and second fiscal quarters of each
fiscal year thereafter
First, second and third fiscal quarters of 1.7 to 1.0
fiscal year ending December 31, 1996 and
the first, second and third fiscal quarters
of each fiscal year thereafter
Fiscal year ending December 31, 1996 and 1.6 to 1.0
each fiscal year thereafter
1.16 Debt/EBITDA. A new Section 9.3(E) is added as follows:
"(E) Debt/EBITDA. Maintain for each period of four (4)
consecutive fiscal quarters, commencing with the fiscal quarter
ending September 30, 1996, a ratio of (a) Indebtedness for Money
Borrowed of Parent and its Subsidiaries at the end of such period
calculated on a Consolidated basis to (b) the sum of (i) EBITDA
for such period less (ii) the greater of the amount of Capital
Expenditures made by Parent and its Subsidiaries during such
period or $1,500,000, of not greater than the ratio shown below
for the period corresponding thereto:
Four (4) Consecutive
Fiscal Quarters Ending With Debt/EBITDA Ratio
Third fiscal quarter of fiscal year ending 3.5 to 1.0
December 31, 1996
Fourth fiscal quarter of fiscal year ending 3.5 to 1.0
December 31, 1996
First fiscal quarter of fiscal year ending 3.45 to
1.0
December 31, 1997
Second fiscal quarter of fiscal year ending 3.2 to 1.0
December 31, 1997
Third fiscal quarter of fiscal year ending 3.0 to 1.0
December 31, 1997
Fourth fiscal quarter of fiscal year ending 3.0 to 1.0
December 31, 1997
First fiscal quarter of fiscal year ending 2.9 to 1.0
December 31, 1998 and each fiscal year
thereafter
Second fiscal quarter of fiscal year ending 2.75 to 1.0
December 31, 1998 and each fiscal year
thereafter
Third fiscal quarter of fiscal year ending 2.5 to 1.0
December 31, 1998 and each fiscal year
thereafter
Fourth fiscal quarter of fiscal year ending 2.5 to 1.0
December 31, 1998 and each fiscal year
thereafter
1.17 Conditions Precedent to All Loans. The first nine
lines of Section 10.2 immediately preceding Section 10.2(A) are
amended in their entirety to read as follows:
"Notwithstanding any of the provisions of this
Agreement or the other Loan Documents, and without affecting in
any manner the rights of Lender under the other Sections of this
Agreement, it is understood and agreed that Lender will have no
obligation to make any Loan (including the initial Loan) or issue
any Letter of Credit or Letter of Credit Guaranty unless and
until, in addition to the conditions set forth in Sections 10.1,
10.2, 10.4 and 10.5 hereof, each of the following conditions has
been and continues to be satisfied, all in form and substance
satisfactory to Lender and its counsel:"
1.18 Waiver of Conditions Precedent. Section 10.3 is
amended by deleting in the third line thereof the references to
"Sections 10.1 and 10.2 hereof" and by substituting in lieu
thereof references to "Sections 10.1, 10.2, 10.4 and 10.5
hereof".
1.19 Conditions Precedent to Equipment Loans. An additional
Section 10.4 is added as follows:
"10.4 Conditions Precedent to Equipment Loans.
Notwithstanding any of the provisions of this Agreement or the
other Loan Documents, and without affecting in any manner the
rights of Lender under the other Sections of this Agreement, it
is understood and agreed that Lender will have no obligation to
make any Equipment Loan on any Equipment Loan Borrowing Date,
unless and until, in addition to the conditions set forth in
Sections 10.1 and 10.2 hereof, each of the following conditions
has been and continues to be satisfied:
(a) Documentation. Lender shall have received
the following documents, each to be in form and substance
satisfactory to Lender and its counsel:
(i) An Equipment Note executed by
Borrowers;
(ii) A copy of all purchase orders
issued by Borrowers pertaining, in whole or in part, to the
Eligible Equipment financed by the proceeds of the requested
Equipment Loan, together with a copy of the invoice from the
vendor(s) thereof indicating that the amount set forth on such
invoice is the full amount owing to such vendor(s) with respect
to such Eligible Equipment;
(iii) A certificate signed by an officer
of Borrowers, dated as of the Equipment Loan Borrowing Date,
stating that (a) the representations and warranties set forth in
Section 8 hereof are true and correct in all material respects on
and as of such date except for any changes in the nature of any
Borrower's business or operations which have occurred in the
ordinary course of business that would render the information
contained in any exhibit attached to this Agreement either
inaccurate or incomplete in any material respect so long as (1)
Lender has consented to such changes, (2) such changes are not
expressly prohibited by this Agreement, or (3) with respect to
matters Borrowers are required to notify Lender of pursuant to
Sections 4.9(E) or 9.1(K) of this Agreement, Borrowers have given
notice as required by such sections, (b) Borrowers are on such
date in compliance in all material respects with all the terms
and provisions set forth in this Agreement and the other Loan
Documents and (c) on such date, no Default or Event of Default
has occurred and is continuing; and
(iv) Such other documents, certificates,
opinions or assurances as Lender or its counsel may reasonably
request in connection with the making of such Equipment Loan or
to evidence or confirm compliance by Borrowers with the
conditions of this Agreement.
(b) Title to Eligible Equipment. A Borrower shall
have or acquire upon the payment of the Equipment Purchase Price,
good, indefeasible and merchantable title to the Eligible
Equipment being acquired with the proceeds of such Equipment
Loan, free and clear of all Liens, except those held by Lender
and Permitted Liens other than a Purchase Money Lien, and the
Liens of Lender therein shall be and remain a first Lien therein
as security for all Obligations of Borrowers to Lender.
(c) Location of Eligible Equipment. Upon the
disbursement of the requested Equipment Loan, the Eligible
Equipment being acquired with the proceeds of such Equipment Loan
shall be located at one of the permitted locations of Collateral
as set forth in Exhibit B attached hereto.
(d) Appraisal. Lender's internal appraisal department
shall have appraised the Eligible Equipment to be acquired with
the requested Equipment Loan and such appraisal shall reflect a
value acceptable to Lender.
(e) Amount of Equipment Loan. The amount of the
requested Equipment Loan shall not exceed one hundred percent
(100%) of the Equipment Purchase Price of the Eligible Equipment
being financed with the proceeds of such Equipment Loan.
1.20 Conditions Precedent to Acquisition Loans. An
additional Section 10.5 is added as follows:
"10.5 Conditions Precedent to Acquisition Loans.
Notwithstanding any of the provisions of this Agreement or the
other Loan Documents, and without affecting in any manner the
rights of Lender under the other Sections of this Agreement, it
is understood and agreed that Lender will have no obligation to
make any Acquisition Loan on any Acquisition Loan Borrowing Date,
unless and until, in addition to the conditions set forth in
Sections 10.1 and 10.2 hereof, each of the following conditions
has been and continues to be satisfied:
(A) Documentation. Lender shall have received
the following documents, each to be in form and substance
satisfactory to Lender and its counsel:
(i) An Acquisition Note executed by the existing
Borrowers and the New Borrower;
(ii) A copy of the agreement by which the
Permitted Acquisition that is being financed by such Acquisition
Loan is being consummated;
(iii) A Certificate signed by an officer of
Borrowers, dated as of the Acquisition Loan Borrowing Date,
stating that (a) the representations and warranties set forth in
Section 8 hereof are true and correct in all material respects on
and as of such date except for any changes in the nature of any
Borrower's business or operations which have occurred in the
ordinary course of business that would render the information
contained in any exhibit attached to the Loan Agreement either
inaccurate or incomplete in any material respect so long as (1)
Lender has consented to such changes, (2) such changes are not
expressly prohibited by this Agreement, or (3) with respect to
matters Borrowers are required to notify Lender of pursuant to
Sections 4.9(E) or 9.1(K) of this Agreement, Borrowers have given
notice as required by such sections, (b) Borrowers are on such
date in compliance in all material respects with the terms and
provisions set forth in this Agreement and the other Loan
Documents and (c) on such date, no Default or Event of Default
has occurred and is continuing;
(iv) Evidence of insurance (including all
endorsements thereto) required to be maintained by the New
Borrower pursuant to Section 4.7 of this Agreement;
(v) Copies of all filing receipts or
acknowledgments issued by any governmental authority to evidence
any filing or recordation necessary to perfect the Liens of
Lender in the Collateral of such New Borrower and evidence in a
form acceptable to Lender that such Liens constitute valid and
perfected first priority Liens, subject only to those permitted
Liens which are expressly stated to have priority over the Liens
of Lender;
(vi) Copies of the Articles of Incorporation of
such New Borrower, and all amendments thereto, certified by the
Secretary of State or other appropriate official of its
jurisdiction of incorporations;
(vii) Good standing certificates for such New
Borrower issued by the Secretary of State or other appropriate
official of Borrower's jurisdiction of incorporation of such New
Borrower's jurisdiction of incorporation and each jurisdiction
where the conduct of such New Borrower's business activities or
the ownership of its Property necessitates qualification;
(viii) The favorable, written opinion of counsel
to such New Borrower as to its good standing, authority to enter
into and become a party to this Agreement and the other Loan
Documents and to grant the Liens in all of its Collateral as
security for the Obligations, and such other matters with respect
thereto as Lender or its counsel may reasonably require;
(ix) The New Borrower Assumption Agreement duly
executed by such New Borrower and each of the other Borrowers;
(x) The New Borrower Pledge Agreement, duly
executed by the Borrower that is the owner of all of the issued
and outstanding Voting Stock of such New Borrower, together with
delivery to Lender of all of the stock certificates for the
shares of stock of the New Borrower pledged thereunder and stock
powers executed in blank; and
(xi) Such other documents, certificates, opinions
or assurances as Lender or its counsel may reasonably request in
connection with the making of such Acquisition Loan or to
evidence or confirm compliance by Borrowers with the conditions
of this Agreement.
(B) Availability. At the close of business on the
date immediately preceding the Acquisition Loan Borrowing Date,
Borrowers shall have Availability of not less than $1,000,000.
(C) Liens. Lender shall be satisfied that upon the
consummation of the Permitted Acquisition, the New Borrower
Assumption Agreement will create, as security for the
Obligations, a valid and enforceable perfected first priority
Lien upon all of the Collateral of the New Borrower in favor of
Lender, subject to no other Lien other than Permitted Liens.
(D) Permitted Acquisition. Prior to or simultaneously
with the making of the Acquisition Loan, the Permitted
Acquisition shall be consummated."
1.21 Exhibits. The exhibits to the Loan Agreement are
amended as follows:
(a) Exhibit A is deleted and in lieu thereof is
substituted Exhibits A-1 and A-2 attached to this Amendment;
(b) Exhibits B, C, D, E, F, K, L, N, O, S and T are
each amended to include the information with respect to a New
Borrower set forth on a New Borrower Assumption Agreement upon
the execution and delivery thereof by the parties thereto;
(c) Exhibit U (New Borrower Assumption Agreement)
attached hereto is made Exhibit U to the Loan Agreement; and
(d) Exhibit V (New Borrower Pledge Agreement) attached
hereto is made Exhibit V to the Loan Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Lender
that:
2.1. Compliance with the Loan Agreement and Other Loan
Documents. As of the execution of this Amendment, each Borrower
is in compliance with all of the terms and provisions set forth
in the Loan Agreement and in the other Loan Documents to be
observed or performed by such Borrower, except where the failure
of the Borrower to comply has been waived in writing by the
Lender.
2.2. Representations in Loan Agreement and other Loan
Documents. The representations and warranties of each Borrower
set forth in the Loan Agreement and the other Loan Documents are
true and correct in all material respects except for any changes
in the nature of any Borrower's business or operations which have
occurred in the ordinary course of business that would render the
information contained in any exhibit attached to the Loan
Agreement either inaccurate or incomplete in any material
respect, so long as (a) Lender has consented to such changes, (b)
such changes are not expressly prohibited by the Loan Agreement,
or (c) with respect to matters Borrowers are required to notify
Lender of pursuant to Sections 4.9(E) or 9.1(A), Borrowers have
given notice as required by such sections.
2.3. No Event of Default. No Default or Event of Default
exists.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS
3.1. Loan Documents. The Loan Agreement and each of the
other Loan Documents are amended to provide that any reference to
the Loan Agreement in the Loan Agreement or any of the other Loan
Documents shall mean the Loan Agreement as amended by this
Amendment, and as it is further amended, restated, supplemented
or modified from time to time.
3.2 Conditions Precedent. This Amendment shall become
effective and be deemed effective as of the date hereof upon the
satisfaction or waiver by the Lender of the following conditions
precedent:
(a) Receipt by Lender of this Amendment, duly executed
by Borrowers;
(b) Receipt by Lender of a Third Amendment to the Deed
of Trust, duly executed by CBCC, in form and substance
satisfactory to Lender and its counsel, duly recorded, with all
fees and taxes, if any, thereon paid;
(c) Receipt by Lender of an endorsement to the
mortgagee policy of title insurance number MM 1441705 issued by
Old Republic National Title Insurance Company, updating the
effective date of such policy to the recordation date of the
Third Amendment to the Deed of Trust, with all premiums thereon
paid, and insuring that such Deed of Trust, as amended, continues
to constitute a valid, enforceable first priority Lien upon the
Realty encumbered thereby, free and clear of all title defects
and encumbrances whatsoever other than the Permitted Liens
applicable thereto;
(d) Receipt by Lender of a favorable, written opinion
of counsel to Borrowers, in form and substance satisfactory to
Lender and its counsel;
(e) Certificate of the secretary or an assistant
secretary of each Borrower certifying (i) that attached thereto
is true and complete copy of the resolutions adopted by the Board
of Directors of such Borrower, authorizing the execution,
delivery and performance of this Amendment and the other
documents contemplated hereby, and (ii) as to the incumbency and
genuineness of the signature of each officer of such Borrower
executing this Amendment or any of the other documents executed
in connection herewith; and
(f) Receipt by Lender of such other documents,
instruments and agreements as Lender and its counsel may
reasonably request.
ARTICLE IV
GENERAL
4.1. Full Force and Effect. As expressly amended hereby,
the Loan Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used in the Loan
Agreement, "hereinafter", "hereto", "hereof" or words of similar
import, shall, unless the context otherwise requires, mean the
Loan Agreement as amended by this Amendment.
4.2 Applicable Law. This Amendment shall be governed by
and construed in accordance with the internal laws and judicial
decisions of the State of North Carolina.
4.3 Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall constitute an original,
but all of which when taken together shall constitute but one and
the same instrument.
4.4 Expenses. Borrowers shall reimburse the Lender for all
reasonable fees and expenses (legal or otherwise) incurred by the
Lender in connection with the preparation, negotiation, execution
and delivery of this Amendment and all other agreements and
documents or contemplated hereby.
4.5. Headings. The headings in this Amendment are for the
purpose of reference only and shall not affect the construction
of this Amendment.
4.6 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, EACH BORROWER AND THE LENDER EACH WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS
AMENDMENT, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered on the date first above
written.
BORROWERS:
ATTEST: COMDIAL CORPORATION
_/s/ Linda P. Falconer_ By: __/s/ Wayne R. Wilver__________
Linda P. Falconer,
Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
[Signatures continued on next page]
ATTEST: AMERICAN TELECOMMUNICATIONS
CORPORATION
_/s/ Linda P. Falconer__________ By: __/s/ Wayne R.
Wilver_
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: AMERICAN PHONE CENTERS, INC.
_/s/ Linda P. Falconer_____ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL ENTERPRISE SYSTEMS, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL TELECOMMUNICATIONS
INTERNATIONAL, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: SCOTT TECHNOLOGIES CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL CUSTOM MANUFACTURING, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL VIDEO TELEPHONY, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL TECHNOLOGY CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL TELECOMMUNICATIONS, INC.
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver_
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
ATTEST: COMDIAL BUSINESS COMMUNICATIONS
CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
(Signatures continued on next page)
ATTEST: COMDIAL CONSUMER COMMUNICATIONS
CORPORATION
_/s/ Linda P. Falconer____________ By: __/s/ Wayne R. Wilver
Linda P. Falconer, Assistant Secretary Wayne R. Wilver,
Senior Vice President
[CORPORATE SEAL]
LENDER:
FLEET CAPITAL CORPORATION
By: /s/ Jimmy G. Ramsey_____
Title:_Vice President____
??
72
COMDIAL CORPORATION AND SUBSIDIARIES
Exhibit 11
Statement re Computation of Per Share Earnings
Three Months Ended
March 31, April 2,
1996 1995 (1)
PRIMARY
Net income applicable to
common shares: $1,185,000 $1,087,000
Weighted average number of common
shares outstanding during the
period 8,191,299 7,018,022
Add - common equivalent shares
(determined using the "treasury
stock" method) representing
shares issuable upon exercise of:
Stock options 137,951 201,522
Weighted average number of shares used
in calculation of primary earnings
per common share 8,329,250 7,219,544
Earnings per common share:
Net income $0.14 $0.15
FULLY DILUTED
Net income applicable to common shares $1,185,000 $1,087,000
Adjustments for convertible securities:
Dividends paid on convertible preferred
stock - 143,000
Net income applicable to common shares,
assuming conversion of above
securities $1,185,000 $1,230,000
Weighted average number of shares used in
calculation of primary earnings per
common share 8,329,250 7,219,544
Add (deduct) incremental shares representing:
Shares issuable upon exercise of stock options
included in primary calculation (137,951) (201,522)
Shares issuable based on period-end
market price or weighted average price:
Convertible preferred stocks - 856,927
Stock options 124,342 203,504
Weighted average number of shares used
in calculation of fully diluted earnings
per common share 8,315,641 8,078,453
Fully diluted earnings per common share $0.14 $0.15
(1) 1995 has been restated to reflect the one-for-three stock split.
